U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2019.2021.
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 0‑222080-22208
QCR HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
3551 7th Street, Moline, Illinois 61265
(Address of principal executive offices)
(309) 736‑3580736-3580
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Exchange Act:
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Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, $1.00 Par Value | QCRH | The Nasdaq Global Market |
Securities registered pursuant to Section 12(g) of the Exchange Act:
Preferred Share Purchase Rights
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes [ ] No [ X ]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.
Yes [ ] No [ X ]
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for past 90 days. Yes [ X ] No [ ]
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes [ X ] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b‑212b-2 of the Exchange Act.
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Large accelerated filer | Accelerated filer | Non-accelerated filer [ ] | Smaller reporting company [ ] | Emerging growth company [ ] |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. [X]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑212b-2 of the Act). Yes [ ] No [ X ]
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant, based on the last sales price quoted on The Nasdaq Global Market on June 30, 2019,2021, the last business day of the registrant’s most recently completed second fiscal quarter, was approximately $522,033,613.$730,269,379.
As of February 28, 202018, 2022 the Registrant had outstanding 15,867,83815,641,927 shares of common stock, $1.00 par value per share.
Documents incorporated by reference:
Part III of Form 10‑K10-K incorporates by reference portions of the proxy statement for annual meeting of stockholders to be held in May 2020.2022.
QCR HOLDINGS, INC. AND SUBSIDIARIES
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Throughout the Notes to the Consolidated Financial Statements, Management's Discussion and Analysis of Financial Condition and Results of Operations, and remaining sections of this Form 10-K (including appendices), we use certain acronyms and abbreviations, as defined in Note 1 to the Consolidated Financial Statements. 3 Part I General. QCR Holdings, Inc. is a multi-bank holding company headquartered in Moline, Illinois, that was formed in February 1993 under the laws of the state of Delaware. In 2016, the Company elected to operate as a financial holding company under the BHCA. The Company serves the Quad Cities, Cedar Rapids, Waterloo/Cedar Falls, Des Moines/Ankeny and Springfield communities through the following four wholly-owned banking subsidiaries (collectively, the “Banks”), which provide full-service commercial and consumer banking and trust and asset management services:
On November 9, 2021, the Company announced the signing of a definitive agreement whereby the Company will acquire Guaranty Federal Bancshares, Inc. (GFED) and merge Guaranty Bank, the banking subsidiary of GFED into SFCB. The combined bank will operate under the Guaranty Bank name in all Springfield and southwest Missouri markets. As of December 31, 2021, GFED had $1.2 billion in assets, $815 million in loans and $1.0 billion in deposits. Under the terms of the merger agreement, stockholders of GFED will have the right to receive for each share of GFED common stock owned, at the election of each stockholder, and subject to proration and adjustment, (1) $30.50 in cash, (2) 0.58775 shares of the Company’s common stock, or (3) mixed consideration of $6.10 in cash and 0.4702 shares of the Company’s common stock, with total consideration to consist of approximately 80% stock and 20% cash. Based upon the $59.99 closing price of the Company’s common stock as of November 5, 2021, the transaction is valued at approximately $151.6 million. The transaction is subject to regulatory approvals, approval by GFED’s stockholders and certain customary closing conditions. The transaction is expected to close late in the first quarter or early in the second quarter of 2022. On August 12, 2020, the Company sold the Bates Companies, headquartered in Rockford, Illinois. From October 1, 2018, through the date of the disposition, the Company provided wealth management services to the Rockford community through the Bates Companies. On November 30, 2019, the Company sold substantially all of the assets and transferred substantially all of the deposits and certain other liabilities of the Company’s
See Note 2 to the Consolidated Financial Statements for further discussion on mergers, acquisitions and sales. The Company engages in direct financing lease contracts and equipment financing agreements through m2, a Subsidiary Banks. Segments of the Company have been established by management as defined by the structure of the Company’s internal organization, focusing on the financial information that the Company’s operating decision-makers routinely use to make decisions about operating matters. The Company’s QCBT was capitalized on October 13, 1993, and commenced operations on January 7, 1994. QCBT is an Iowa-chartered commercial bank that is a member of the Federal Reserve System. QCBT provides full service commercial, correspondent, and consumer banking and trust and asset management services in the Quad Cities and adjacent communities through its five offices CRBT is an Iowa-chartered commercial bank that is a member of the Federal Reserve System. The Company commenced operations in Cedar Rapids in June 2001, operating as a branch of QCBT. The Cedar Rapids branch operation then began functioning under the CRBT charter in September of 2001. Acquired branches of CNB operate as a division of CRBT under the name “Community Bank & Trust.” CRBT provides full-service commercial and consumer banking and trust 4 and asset management services to Cedar Rapids, Marion and Waterloo/Cedar Falls, Iowa and adjacent communities through its eight facilities. The headquarters for CRBT is located in downtown Cedar Rapids with three other branches located in Cedar Rapids, one branch in Marion, two branches located in Waterloo and one branch located in Cedar Falls. CRBT had total segment assets of CSB is an Iowa-chartered commercial bank that is a member of the Federal Reserve System. CSB was acquired by the Company in 2016. CSB provides full-service commercial and consumer banking to Des Moines, Iowa and adjacent communities through its headquarters located in Ankeny, Iowa and its
Other Operating Subsidiaries. m2, which is based in Brookfield, Wisconsin, is engaged in the business of lending and leasing machinery and equipment to C&I businesses under direct financing lease Trust Preferred Subsidiaries. Following is a listing of the Company’s non-consolidated subsidiaries formed for the issuance of trust preferred securities, including pertinent information as of December 31,
Securities issued by all of the trusts listed above mature 30 years from the date of issuance, but are all currently callable at par at any time. Interest rate reset dates vary by trust. Business. The Company’s principal business consists of attracting deposits and investing those deposits in loans/leases and securities. The deposits of the subsidiary banks are insured to the maximum amount allowable by the FDIC. The Company’s results of operations are dependent primarily on net interest income, which is the difference between the interest earned on its loans/leases and securities and the interest paid on deposits and borrowings. The Company’s operating results are affected by economic and competitive conditions, particularly changes in interest rates, government policies and the actions of regulatory authorities, as described more fully in this Form The Company and its subsidiaries collectively employed The Federal Reserve is the primary federal regulator of the Company, QCBT, CRBT, CSB and 5 “Supervision and Regulation” for more information on the federal and state statutes and regulations that are applicable to the Company and its subsidiaries. Lending/Leasing. The Company and its subsidiaries provide a broad range of commercial and retail lending/leasing and investment services to corporations, partnerships, individuals, and government agencies. The subsidiary banks actively market their services to qualified lending and deposit clients. Officers actively solicit the business of new clients entering their market areas as well as long-standing members of the local business community. The Company has an established lending/leasing policy which includes a number of underwriting factors to be considered in making a loan/lease, including, but not limited to, location, loan-to-value ratio, cash flow, collateral and the credit history of the borrower. In accordance with Iowa regulation, the legal lending limit to one borrower for QCBT, CRBT and CSB, calculated as 15% of aggregate capital, was
2021. The Company recognizes the need to prevent excessive concentrations of credit exposure to any one borrower or group of related borrowers. As such, the Company has established an in-house lending limit, which is lower than each subsidiary bank’s legal lending limit, in an effort to manage individual borrower exposure levels. The in-house lending limit is the maximum amount of credit each subsidiary bank will extend to a single borrowing entity or group of related entities. The Company implements a tiered approach, based on the risk rating of the borrower. Under the most recent in-house limit, total credit exposure to a single borrowing entity or group of related entities will not exceed the following, subject to certain exceptions:
The QCRH Consolidated amount represents the maximum amount of credit that all affiliated banks, when combined, will extend to a single borrowing entity or group of related entities, subject to certain exceptions. In addition, m2’s in-house lending limit is As part of the loan monitoring activity at the four subsidiary banks, credit administration personnel interact closely with senior bank management. For example, the internal loan committee of each subsidiary bank meets weekly. The Company has a separate in-house loan review function to analyze credits of the subsidiary banks. To complement the in-house loan review, an independent third-party performs external loan reviews. Historically, management has attempted to identify problem loans at an early stage and to aggressively seek a resolution of those situations. The Company recognizes that a diversified loan/lease portfolio contributes to reducing risk in the overall loan/lease portfolio. The specific loan/lease portfolio mix is subject to change based on loan/lease demand, the business environment and various economic factors. The Company actively monitors concentrations within the loan/lease portfolio to ensure appropriate diversification and concentration risk is maintained. 6 Specifically, each subsidiary bank’s total loans as a percentage of average assets may not exceed 85%. In addition, following are established policy limits and the actual allocations for the subsidiary banks as of December 31,
* The loan types above are as defined and reported in the subsidiary banks’ quarterly Reports of Condition and Income (also known as Call Reports). ** QCBT’s maximum percentage for bank stock loans is 150% of risk-based capital (bank stock loan commitments are limited to 200% of risk-based capital). At December 31,
*** Policy limits are compared to average loan balances rather than the current balance for monitoring purposes. The following table presents total loans/leases by major loan/lease type and subsidiary as of December 31,
Proper pricing of loans is necessary to provide adequate return to the Company’s stockholders. Loan pricing, as established In an effort to manage interest rate risk, the subsidiary banks will consider entering into back-to-back interest rate swaps with select commercial borrowers. The interest rate swaps allow the commercial borrowers to pay a fixed interest rate while the banks receive a variable interest rate as well as an upfront nonrefundable fee dependent on the pricing. The banks enter an interest rate swap with the commercial borrower and an equal and offsetting interest rate swap with a larger financial institution counterparty. The Company has increased its focus on this business which has led to significantly increased noninterest income, stronger overall loan growth, and improved management of its interest rate risk. The Company will continue to review opportunities to execute these swaps at all of its subsidiary banks, as the circumstances are appropriate for the borrower and the Company. An optimal interest rate swap candidate must be of a certain size and sophistication which can lead to volatility in activity from year to year. Future levels of swap fee income can be somewhat dependent upon prevailing interest rates and other market activity. 7 C&I Lending As noted above, the subsidiary banks are active C&I lenders. The current areas of emphasis include loans to small and mid-sized businesses with a wide range of operations such as wholesalers, manufacturers, building contractors, business services companies, other banks, and retailers. The subsidiary banks provide a wide range of business loans, including lines of credit for working capital and operational purposes, and term loans for the acquisition of facilities, equipment and other purposes. Since 2010, the subsidiary banks have been active in participating in lending programs offered by the SBA and USDA. Under these programs, the government entities will generally provide a guarantee of repayment ranging from 50% to 85% of the principal amount of the qualifying loan. Loan approval is generally based on the following factors:
For C&I loans, the Company assigns internal risk ratings which are largely dependent upon the aforementioned approval factors. The risk rating is reviewed annually or on an as needed basis depending on the specific circumstances of the loan. See Note 1 to the Consolidated Financial Statements for additional information, including the internal risk rating scale. As part of the underwriting process, management reviews current borrower financial statements. When appropriate, certain C&I loans may contain covenants requiring maintenance of financial performance ratios such as, but not limited to:
Establishment of these financial performance ratios depends on a number of factors, including risk rating and the specific industry in which the borrower is engaged. Collateral for these loans generally includes accounts receivable, inventory 8
Generally, if the above collateral is part of a cross-collateralization with other approved assets, then the maximum advance percentage may be higher. The Company’s lending policy specifies maximum term limits for C&I loans. For term loans, the maximum term is generally seven years. Generally, term loans range from three to five years. For lines of credit, the maximum term is typically 365 days. In addition, the subsidiary banks often take personal guarantees or cosigners to help assure repayment. Loans may be made on an unsecured basis if warranted by the overall financial condition of the borrower. Following is a summary of the five largest industry concentrations within the C&I portfolio as of December 31,
These loan categories are defined by industry-standard NAICS codes – refer to NAICS.com for a description of each category.
CRE Lending The subsidiary banks also make CRE loans. CRE loans are subject to underwriting standards and processes similar to C&I loans, in addition to those standards and processes specific to real estate loans. Collateral for these loans generally includes the underlying real estate and improvements, and may include additional assets of the borrower. The Company’s lending policy specifies maximum loan-to-value limits based on the category of CRE (commercial real estate loans on improved property, raw land, land development, and commercial construction). These limits are the same limits as, or in some 9 situations, more conservative than, those established by regulatory authorities. Following is a listing of these limits as well as some of the other guidelines included in the Company’s lending policy for the major categories of CRE loans:
* Generally, the debt service coverage ratio must be a minimum of 1.25x for non-owner occupied loans and 1.15x for owner-occupied ** These maximum rates are consistent with, or in some situations, more conservative than those established by regulatory authorities. *** Some real estate transactions may offer a swap option whereby the maximum term is 20 years. **** Generally, the maximum term The Company’s lending policy also includes guidelines for real estate appraisals and evaluations, including minimum appraisal and evaluation standards based on certain transactions. In addition, the subsidiary banks often take personal guarantees to help assure repayment. In addition, management tracks the level of owner-occupied CRE loans versus non-owner occupied CRE loans. Owner-occupied CRE loans are generally considered to have less risk. As of December 31, In accordance with regulatory guidelines, the Company exercises heightened risk management practices when non-owner occupied CRE lending exceeds 300% of total risk-based capital and outstanding balances have increased 50% or more during the prior 36 months or construction, land development and other land loans exceed 100% of total risk-based capital. In addition, the banks have established policy limits around non-owner occupied CRE and total construction, land development and other land loans.
Although CSB’s loan portfolio has historically been real estate dominated and its 10 Following is a listing of the significant industries within the Company’s CRE loan portfolio as of December 31,
* “Other” consists of all other industries. None of these had concentrations greater than
2021. Following is a breakdown of non owner-occupied income-producing CRE by property type as of December 31,
Included in Multi-family is $445.6 million of LIHTC permanent loans which are permanent financing for low-income housing tax credit real estate projects. These loans have a maximum term of 20 years. Considering the longer duration, the subsidiary banks often enter into a back-to-back interest rate swap to provide the borrower a long-term fixed interest rate while the subsidiary banks receive a variable interest rate and an upfront nonrefundable fee dependent on market pricing. In addition, the financing structure of the LIHTC permanent loans includes tax credit equity investment that strengthens the overall credit profile. Including the value of the real estate and the LIHTCs, the loan-to-values of the LIHTC permanent loans are typically in the range of 25% to 65%. Lastly, the Company has policy limits on maximum exposure amounts to single developers.
11 A portion of the Company’s construction portfolio is considered non-residential construction. Following is a summary of industry concentrations within that category as of December 31,
Included in Multi-family is $587.2 million of LIHTC construction loans which provide financing for the construction of both new LIHTC real estate projects and the rehabilitation of existing LIHTC real estate projects. Many of these will convert to LIHTC permanent loans upon completion of construction. Additionally, the Company had approximately Direct Financing Leasing m2 leases machinery and equipment to C&I customers under direct financing leases. All lease requests are subject to the credit requirements and criteria as set forth in the lending/leasing policy. In all cases, a formal independent credit analysis of the lessee is performed. The following private and public sector business assets are generally acceptable to consider for lease funding:
m2 will generally refrain from funding leases of the following type:
Residential Real Estate Lending Generally, the subsidiary 12 and then retain these loans in their portfolios. Servicing rights are generally not retained on the loans sold in the secondary market. The Company’s lending policy establishes minimum appraisal and other credit guidelines. The following table presents the originations and sales of residential real estate loans for the Company. Included in originations is activity related to the refinancing of previously held in-house mortgages.
Installment and Other Consumer Lending The consumer lending department of each subsidiary bank provides many types of consumer loans, including home improvement, home equity, motor vehicle, signature loans and small personal credit lines. The Company’s lending policy addresses specific credit guidelines by consumer loan type. In particular, for home equity loans and home equity lines of credit, the minimum credit bureau score is 650. For both home equity loans and lines of credit, the maximum advance rate is 90% of value In some instances for all loans/leases, it may be appropriate to originate or purchase loans/leases that are exceptions to the guidelines and limits established within the Company’s lending policy described above. In general, exceptions to the lending policy do not significantly deviate from the guidelines and limits established within the lending policy and, if there are exceptions, they are generally noted as such and specifically identified in loan/lease approval documents. Human Capital Resources.As of December 31, 2021, the Company employed 693 full-time employees and 63 part-time employees across all locations. The employees are not represented by a collective bargaining unit. The Company is a relationship driven company and its ability to attract and retain exceptional employees is key to its success. The Company encourages and supports the growth and development of its employees and, wherever possible, seeks to fill positions by promotion and transfer from within the organization. Continual learning and career development is advanced through ongoing performance and development conversations with employees, internally developed training programs and external training opportunities. Educational reimbursement is available to employees enrolled in degree or certification programs and for seminars, conferences, and other training events employees attend in connection with their job duties. As part of its compensation philosophy, the Company believes that it must offer and maintain market competitive total rewards programs for its employees in order to attract and retain exceptional talent. In addition to competitive base wages, additional programs include annual bonus opportunities, an employee stock purchase plan, Company matched 401(k) Plan, healthcare and insurance benefits, health savings and flexible spending accounts, paid time off, family leave, sabbaticals, flexible work schedules, an employee assistance program, and various wellness programs. The Company is committed to fostering and preserving a culture of diversity, equity, and inclusion, and believes its differences, of every kind, make the company and its communities better. During recent years, the Company focused on several initiatives to promote diversity, equity, and inclusion across its organization. A few specific actions included hiring a Diversity Officer, rolling out a diversity survey for the second year to gather feedback from all employees, and several diversity and inclusion sessions and workshops across our different entities. The safety, health and wellness of the Company’s employees is a top priority. The COVID-19 pandemic continues to present a unique challenge with regard to maintaining employee safety while continuing successful operations. The Company offers remote working alternatives and enforces safety measures for all employees working in locations across the Company. All employees are encouraged to get vaccinated and are asked not to come in to the office to work when they are experiencing symptoms of COVID-19 or other communicable illnesses. The Company provided frequent communication using a variety of methods to ensure that all employees were kept informed regarding the ongoing pandemic. 13 The Company strives to maintain a culture in which employees feel valued and, to that end, regularly solicits feedback from employees to understand their views about their work environment and the Company’s culture. The results from employee engagement surveys are used to implement programs and processes designed to enhance engagement and improve the employee experience. In 2021, 88% of employees participated in the annual employee engagement survey, exceeding the Company goal of 80%, and the Company received a strong employee engagement score of 81%, above the national benchmark of 74%. The regions in which the subsidiary banks operate primarily – the Quad Cities, Cedar Rapids, Marion, Waterloo/Cedar Falls, Des Moines, Iowa and Springfield, Missouri – generally have strong labor markets, with unemployment rates of 3.7% and 3.3% in Iowa and Missouri, respectively. ESG Commitment. The Company is built on relationships and integrity. We adhere to those principles in all areas of our business and in our communities and believe that meaningful environmental, social and governance programs will drive shareholder value and make us a better company. With numerous programs and activities aligned with the ESG framework, we continue to develop and enhance our long-term plan for the future. We are advancing standard reporting processes and gathering benchmarking data to generate meaningful ESG goals for our company. Competition. The Company currently operates in the highly competitive Quad Cities, Cedar Rapids, Marion, Waterloo/Cedar Falls, Des Moines, Iowa and Springfield, Missouri markets. Competitors include not only other commercial banks, credit unions, thrift institutions, and mutual funds, but also insurance companies, FinTech companies, finance companies, brokerage firms, investment banking companies, and a variety of other financial services and advisory companies. Many of these competitors are not subject to the same regulatory restrictions as the Company. Many of these competitors compete across geographic boundaries and provide customers increasing access to meaningful alternatives to traditional banking services. The Company also competes in markets with a number of much larger financial institutions with substantially greater resources and larger lending limits. Appendices. The commercial banking business is a highly regulated business. See Appendix A “Supervision and Regulation” for a discussion of the federal and state statutes and regulations that are applicable to the Company and its subsidiaries.
Internet Site, Securities Filings and Governance Documents. The Company maintains an Internet site at www.qcrh.com. The Company makes available free of charge through this site its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and other reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as soon as reasonably practicable after it electronically files such material with, or furnishes it to, the SEC. These filings are available at http://www.snl.com/IRW/Docs/1024092. Also available are many of In addition to the other information in this Annual Report on Form Economic and Market Risks Conditions in the financial market and economic conditions, including conditions in the markets in which we operate, generally may adversely affect our business. We operate primarily in the Quad Cities, Cedar Rapids, Waterloo/Cedar Falls, Des Moines/Ankeny, Iowa and Springfield, Missouri markets. Our general financial performance is highly dependent upon the business environment in the markets where we operate and in particular, the ability of borrowers to pay interest on and repay principal of outstanding loans and the value of collateral securing those loans, as well as demand for loans and other products and services it offers. A favorable business environment is generally characterized by, among other factors, economic growth, efficient capital markets, low inflation, low unemployment, high business and investor confidence, and strong business earnings. Unfavorable or uncertain economic and market conditions can be caused by declines in economic growth, business activity or investor or business confidence; limitations on the availability or increases in the cost of credit and capital; increases in inflation or interest rates; high unemployment, natural disasters, pandemics or a combination of these or other factors.
14 Uncertainty regarding
Interest rates and other conditions impact our results of operations. Our profitability is in large part a function of the spread between the interest rates earned on investments and loans/leases and the interest rates paid on deposits and other interest bearing liabilities. Like most banking institutions, our net interest spread and margin will be affected by general economic conditions and other factors, including fiscal and monetary policies of the federal government that influence market interest rates and our ability to respond to changes in such rates. At any given time, our assets and liabilities will be such that they are affected differently by a given change in interest rates. As a result, an increase or decrease in rates, the length of loan/lease terms, and the mix of adjustable and fixed rate loans/leases in our portfolio, the length of time deposits and borrowings and the rate sensitivity of our deposit customers could have a positive or negative effect on our net income, capital and liquidity. In addition, the size of nonrefundable swap fees earned in connection with our LIHTC permanent loans may fluctuate depending on the interest rate environment. We measure interest rate risk under various rate scenarios using specific criteria and assumptions. A summary of this process, along with the results of our net interest income simulations is presented at Monetary policies and regulations of the Federal Reserve could adversely affect our business, financial condition and results of operations. In addition to being affected by general economic conditions, our earnings and growth are affected by the policies of the Federal Reserve. An important function of the Federal Reserve is to regulate the money supply and credit conditions. Among the instruments used by the Federal Reserve to implement these objectives are open market operations in U.S. government securities, adjustments of the discount rate and changes in reserve requirements against bank deposits. These instruments are used in varying combinations to influence overall economic growth and the distribution of credit, bank loans, investments and deposits. Their use also affects interest rates charged on loans or paid on deposits. In March 2020, the Federal Reserve reduced the target federal funds rate and announced a $700 billion quantitative easing program in response to the expected economic downturn caused by the COVID-19 pandemic and reduced the interest it pays on excess reserves. The prolong reduction in interest rates is likely to continue to have an adverse effect our net interest income and margins and our profitability. There is potential that reduced rates could pose additional risks to the economy primarily through higher inflation and financial-stability concerns driven by low borrowing costs. There is also a possibility that labor markets could tighten causing inflationary pressures to build faster than the expected gradual pace. Persistently low interest rates could lead consumers and firms to take on riskier financial investments in search of better returns, increasing asset prices to unsustainable levels. The potential rise in asset prices to unsustainable levels could pose potential financial-stability risks in the commercial real estate and corporate borrowing sectors. Sustained low interest rate periods were something that preceded the 1990 and 2007 recessions, placing significant pressure on real estate asset prices through reach-for-yield investor behavior. The Federal Reserve has signaled that it will begin to increase rates, taper its quantitative easing program, and reduce its balance sheet of bonds and other assets in 2022, but will do so with the goal of avoiding abrupt or unpredictable changes in economic or financial conditions so as not to disrupt the financial systems, also known as “shocks;” despite this, the impact of these changes cannot be certain. Vulnerabilities in the financial system can amplify the impact of an initial shock following rate increases, potentially leading to unintended volatility, as well to disruptions in the provision of financial services, such as clearing payments, the provision of liquidity, and the availability of credit. Furthermore, asset liquidation pressures can be amplified by liquidity mismatches and the leverage of certain nonbank financial intermediaries such as hedge funds. The financial downturn in March 2020 also demonstrated that pressures on dealer intermediation can limit the availability of liquidity during times of market stress. Given the interconnectedness of the global financial system, these vulnerabilities could impact the Company’s business operations and financial condition. 15 Declines in asset values may result in impairment charges and adversely affect the value of our investments, financial performance and capital. The market value of investments in our securities portfolio has become increasingly volatile in recent years, and as of December 31, 2021, we had gross unrealized losses of $1.3 million, or 0.2% of amortized cost, in our investment portfolio (offset by gross unrealized gains of $58.9 million). The market value of investments may be affected by factors other than the underlying performance of the servicer of the securities or the mortgages underlying the securities, such as ratings downgrades, adverse changes in the business climate and a lack of liquidity in the secondary market for certain investment securities. On a quarterly basis, we formally evaluate investments and other assets for impairment indicators. Reduction in the value, or impairment of our investment securities, can impact our earnings and common stockholders' equity. We maintained a balance of $810.2 million, or 13% of our assets, in investment securities at December 31, 2021. Changes in market interest rates can affect the value of these investment securities, with increasing interest rates generally resulting in a reduction of value. Although the reduction in value from temporary increases in market rates does not affect our income until the security is sold, it does result in an unrealized loss recorded in other comprehensive income that can reduce our common stockholders’ equity. Further, we may have to record provision expense to establish an allowance for credit losses on our carried at fair value debt securities, and we must periodically test our investment securities for other-than-temporary impairment in value. In assessing whether the value of investment securities is impaired, we consider the length of time and extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issuer, and the intent and ability to retain our investment in the security for a period of time sufficient to allow for any anticipated recovery in fair value in the near term. Based on management's evaluation, it was determined that the gross unrealized losses at December 31, 2021 were primarily a function of the changes in certain market interest rates. The stock market can be volatile, and fluctuations in our operating results and other factors could cause our stock price to decline. The stock market has experienced, and may continue to experience, fluctuations that significantly impact the market prices of securities issued by many companies. Market fluctuations could also adversely affect our stock price. These fluctuations have often been unrelated or disproportionate to the operating performance of particular companies. These broad market fluctuations, as well as general economic, systemic, political and market conditions, such as recessions, loss of investor confidence, interest rate changes, or international currency fluctuations, may negatively affect the market price of our common stock. Moreover, our operating results may fluctuate and vary from period to period due to the risk factors set forth herein. As a result, period-to-period comparisons should not be relied upon as an indication of future performance. Our stock price could fluctuate significantly in response to our quarterly or annual results and the impact of these risk factors on our operating results or financial position. Secondary mortgage, government guaranteed loan and interest rate swap market conditions could have a material impact on our financial condition and results of operations. Currently, we sell a portion of the residential real estate and government guaranteed loans we originate. The profitability of these operations depends in large part upon our ability to make loans and to sell them in the secondary market at a gain. Thus, we are dependent upon the existence of an active secondary market and our ability to profitably sell loans into that market. In addition to being affected by interest rates, the secondary markets are also subject to investor demand for residential mortgages and government guaranteed loans and investor yield requirements for those loans. These conditions may fluctuate or even worsen in the future. As a result, a prolonged period of secondary market illiquidity may reduce our loan production volumes and could have a material adverse effect on our financial condition and results of operations. The interest rate swap market is dependent upon market conditions. If interest rates move, interest rate swap transactions may no longer make sense for the Company and/or its customers. Interest rate swaps are generally appropriate for commercial customers with a certain level of expertise and comfort with derivatives, so our success is dependent upon the ability to make loans to these types of commercial customers. Additionally, our ability to execute interest rate swaps is also dependent upon counterparties that are willing to enter into the interest rate swap that is equal and offsetting to the interest rate swap we enter into with the commercial customer. The mix of loans with interest rate swaps are heavily weighted towards LIHTC permanent loans. Future levels of swap fee income are dependent upon the needs of our traditional commercial and LIHTC borrowers, and the size of the related nonrefundable swap fee may fluctuate on the interest rate environment. 16 The COVID-19 pandemic continues to create disruptions that affect our business, financial condition, liquidity, and results of operations. The extent to which COVID-19 will continue to affect business operations, financial condition, credit quality, and results of operations will depend on future developments that cannot be predicted, including the duration and scope of the pandemic. The direct or indirect impact on employees, customers, counterparties, and service providers, as well as other market participants, is likely to continue through 2022 as the world attempts to gain control over the virus and emerging variants. The impact that the virus continues to have on global markets, the economy, business restrictions, and employment is ongoing as a projected return to pre-pandemic operating conditions is unknown. In the past year, the United States economy began to rebound from severe disruptions caused by the onset of the pandemic in March 2020. Economic conditions have begun to normalize with the availability of vaccines and treatments, increasing workforce employment and participation, the lessening of business and education restrictions, and demand for services beginning to return. The financial conditions of households and businesses was bolstered significantly by government stimulus, which contributed to the economic recovery but also brought about growing pains as evidenced by supply chain problems and rising prices. Although current economic conditions are more favorable than the prior year, the outlook for continued growth is characterized by elevated uncertainty with potential for unevenness across markets and sectors. Although household and business credit and liquidity is strong currently, further pandemic-related disruptions could result in increased risk of delinquencies, defaults, foreclosures, and losses on our loans; declines in assets under management, affecting wealth management revenues; negative impacts on regional economic conditions resulting in declines in local loan demand, liquidity of loan guarantors, loan collateral (particularly in real estate), loan originations, and deposit availability; and impacts on the implementation of our growth strategy. While the recovery this past year has been strong, the pace of growth in the United States and globally could decline as a result of rising inflation, the pervasiveness of supply chain challenges across industries, and the persistence of the virus in variant forms. Overall, we believe that the economic impact from COVID-19 will continue for some time and could have a material and adverse impact on our business and result in significant losses in our loan portfolio, all of which would adversely and materially impact our earnings and capital. Even after the COVID-19 pandemic has subsided, we may continue to experience materially adverse impacts to our business as a result of the global economic impact of the COVID-19 pandemic, including the availability of credit, adverse impacts on liquidity, and any recession that has occurred or may occur in the future. There are no comparable recent events that provide guidance as to the effect the spread of COVID-19 as a global pandemic may have, nor are there historical indicators to rely on in terms of how markets will react, and as a result, the ultimate impact of the pandemic is highly uncertain and subject to change. Continued elevated levels of inflation could adversely impact our business and results of operations. The United States has recently experienced elevated levels of inflation, with the consumer price index climbing approximately 7.0% in 2021. Continued levels of inflation could have complex effects on our business and results of operations, some of which could be materially adverse. For example, if interest rates were to rise in response to, or as a result of, elevated levels of inflation, the value of our securities portfolio would be negatively impacted. In addition, while we generally expect any inflation-related increases in our interest expense to be offset by increases in our interest revenue, inflation-driven increases in our levels of non-interest expense could negatively impact our results of operations. Continued elevated levels of inflation could also cause increased volatility and uncertainty in the business environment, which could adversely affect loan demand and our clients’ ability to repay indebtedness. It is also possible that governmental responses to the current inflation environment could adversely affect our business, such as changes to monetary and fiscal policy that are too strict, or the imposition or threatened imposition of price controls. The duration and severity of the current inflationary period cannot be estimated with precision. Labor shortages and failure to attract and retain qualified employees could negatively impact our business, results of operations and financial condition. A number of factors may adversely affect the labor force available to us or increase labor costs, including high employment levels, decreased labor force size and participation rates as a result of the COVID-19 pandemic, expanded unemployment benefits offered in response to the ongoing COVID-19 pandemic, and other government actions. Although we have not experienced any material labor shortage to date, we have recently observed an overall tightening and increasingly competitive local labor market. A sustained labor shortage or increased turnover rates within our employee base could lead to increased costs, such as increased compensation expense to attract and retain employees. 17 In addition, if we are unable to hire and retain employees capable of performing at a high-level, or if mitigation measures we may take to respond to a decrease in labor availability have unintended negative effects, our business could be adversely affected. An overall labor shortage, lack of skilled labor, increased turnover or labor inflation, caused by COVID-19 or as a result of general macroeconomic factors, could have a material adverse impact on our operations, results of operations, liquidity or cash flows. Regulatory and Legal Risks We may be materially and adversely affected by the highly regulated environment in which we operate. The Company and its bank subsidiaries are subject to extensive federal and state regulation, supervision and examination. Banking regulations are primarily intended to protect depositors' funds, FDIC funds, customers and the banking system as a whole, rather than stockholders. These regulations affect our lending practices, capital structure, investment practices, dividend policy and growth, among other things. As a bank holding company, we are subject to regulation and supervision primarily by the Federal Reserve. QCBT, CRBT and CSB, as Iowa-chartered state member banks, are subject to regulation and supervision primarily by both the Iowa Superintendent and the Federal Reserve. SFCB, as a Missouri-chartered commercial bank, is subject to regulation by both the Missouri Division of Finance and the Federal Reserve. We and our banks undergo periodic examinations by these regulators, who have extensive discretion and authority to prevent or remedy unsafe or unsound practices or violations of law by banks and bank holding companies. The primary federal and state banking laws and regulations that affect us are described in Appendix A “Supervision and Regulation” to this report. These laws, regulations, rules, standards, policies and interpretations are constantly evolving and may change significantly over time. U.S. financial institutions are also subject to numerous monitoring, recordkeeping, and reporting requirements designed to detect and prevent illegal activities such as money laundering and terrorist financing. These requirements are imposed primarily through the Bank Secrecy Act which was most recently amended by the USA Patriot Act. We have instituted policies and procedures to protect us and our employees, to the extent reasonably possible, from being used to facilitate money laundering, terrorist financing and other financial crimes. There can be no guarantee, however, that these policies and procedures are effective. Failure to comply with applicable laws, regulations or policies could result in sanctions by regulatory agencies, civil monetary penalties, and/or damage to our reputation, which could have a material adverse effect on us. Although we have policies and procedures designed to mitigate the risk of any such violations, there can be no assurance that such violations will not occur. Future legislation, regulation, and government policy could affect the banking industry as a whole, including our business and results of operations, in ways that are difficult to predict. In addition, our results of operations also could be adversely affected by changes in the way in which existing statutes and regulations are interpreted or applied by courts and government agencies. We are required to maintain capital to meet regulatory requirements, and if we fail to maintain sufficient capital, whether due to losses, an inability to raise additional capital or otherwise, our financial condition, liquidity and results of operations, as well as our ability to maintain regulatory compliance, would be adversely affected. The Company and each of its banking subsidiaries are required by federal and state regulatory authorities to maintain adequate levels of capital to support their operations, which have recently increased due to the effectiveness of the Basel III regulatory capital reforms. We intend to grow our business organically and to explore opportunities to grow our business by taking advantage of attractive acquisition opportunities, and such growth plans may require us to raise additional capital to ensure that we have adequate levels of capital to support such growth on top of our current operations. Our ability to raise additional capital, when and if needed or desired, will depend on conditions in the capital markets, economic conditions and a number of other factors, including investor perceptions regarding the banking industry and market conditions, and governmental activities, many of which are outside our control, and on our financial condition and performance. Accordingly, we cannot assure you that we will be able to raise additional capital if needed or on terms acceptable to us. Our failure to meet these capital and other regulatory requirements could affect customer confidence, our ability to grow, our costs of funds and FDIC insurance costs, our ability to pay dividends on common and preferred stock and to make distributions on our trust preferred securities, our ability to make acquisitions, and our business, results of operations and financial condition.
Climate change and related legislative and regulatory initiatives may result in operational changes and expenditures that could significantly impact our business.
The current and anticipated effects of climate change are creating an increasing level of concern for the state of the global environment. As a result, political and social attention to Given the lack of empirical data on the credit and other financial risks posed by climate change, it is difficult to predict how climate change may impact our financial condition and operations; however, as a banking organization, the physical effects of climate change may present certain unique risks. For example, weather disasters, shifts in local climates and other disruptions related to climate change may adversely affect the value of real properties securing our loans, which could diminish the value of our loan portfolio. Such events may also cause reductions in regional and local economic activity that may have an adverse effect on our customers, which could limit our ability to raise and invest capital in these areas and communities. Evolving law impacting cannabis-related businesses in Illinois and other states may have an impact on the Company's operations and risk profile. The Controlled Substances Act makes it illegal under federal law to manufacture, distribute, or dispense marijuana. Starting January 1, 2020, however, the Illinois Cannabis Regulation and Tax Act began permitting adults to legally purchase marijuana for recreational use from licensed dispensaries. It is the Banks' current policy to avoid knowingly providing banking products or services to entities or individuals that: (i) directly or indirectly manufacture, distribute, or dispense marijuana or hemp products, or those with a significant financial interest in such entities; or (ii) derive a significant percentage of revenue from providing products or services to, or other involvement with, such entities. The Banks are taking reasonable measures, including appropriate new account screening and customer due diligence measures, to ensure that existing and potential customers do not engage in any such activities. Nonetheless, the shift in Illinois law legalizing cannabis use has increased the number of direct and indirect cannabis-related businesses in Illinois, and therefore has increased the likelihood that the Banks could interact with such businesses, as well as their owners and employees. Such interactions could create additional legal, regulatory, strategic, and reputational risk to the Banks and the Company. Credit and Lending Risks We must effectively manage our credit risk. There are risks inherent in making any loan, including risks inherent in dealing with specific borrowers, risks of nonpayment, risks resulting from uncertainties as to the future value of collateral and risks resulting from changes in economic and industry conditions. We attempt to minimize our credit risk through prudent loan application approval procedures, careful monitoring of the concentration of our loans within specific industries and periodic independent reviews of outstanding loans by our credit review department and an external third party. However, we cannot assure you that such approval and monitoring procedures will reduce these credit risks. The majority of our subsidiary banks' loan portfolios are invested in C&I and CRE loans, and we focus on lending to small to medium-sized businesses. The size of the loans we can offer to commercial customers is less than the size of the loans that our competitors with larger lending limits can offer. This may limit our ability to establish relationships with the area's largest businesses. Smaller companies tend to be at a competitive disadvantage and generally have limited operating histories, less sophisticated internal record keeping and financial planning capabilities and fewer financial resources than larger companies. As a result, we may assume greater lending risks than financial institutions that have a lesser concentration of such loans and tend to make loans to larger, more established businesses. Collateral for these loans generally includes accounts receivable, inventory, equipment and real estate. However, depending on the overall financial condition of the borrower, some loans are made on an unsecured basis. In addition to C&I and CRE loans, our subsidiary banks are also active in residential mortgage and consumer lending. Our borrowers may experience financial difficulties, 19 and the level of nonperforming loans, charge-offs and delinquencies could rise, which could negatively impact our business through increased provision, reduced interest income on loans/leases, and increased expenses incurred to carry and resolve problem loans/leases. C&I loans make up a large portion of our loan/lease portfolio. C&I loans were $1.6 billion, or approximately 34% of our total loan/lease portfolio, as of December 31, 2021. Our C&I loans are primarily made based on the identified cash flow of the borrower and secondarily on the underlying collateral provided by the borrower. Most often, this collateral is accounts receivable, inventory, equipment and real estate. Credit support provided by the borrower for most of these loans and the probability of repayment is based on the liquidation value of the pledged collateral and enforcement of a personal guarantee, if any exists. Whenever possible, we require a personal guarantee or cosigner on commercial loans. In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers. The collateral securing these loans may lose value over time, may be difficult to appraise, and may fluctuate in value based on the success of the business. In addition, a prolonged recovery period could harm or continue to harm the businesses of our C&I customers and reduce the value of the collateral securing these loans. Our loan/lease portfolio has a significant concentration of CRE loans, which involve risks specific to real estate values. CRE lending comprises a significant portion of our lending business. Specifically, CRE loans were $2.7 billion, or approximately 57% of our total loan/lease portfolio, as of December 31, 2021. Of this amount, $421.7 million, or approximately 16%, was owner-occupied. The market value of real estate securing our CRE loans can fluctuate significantly in a short period of time as a result of market conditions in the geographic area in which the real estate is located. Adverse developments affecting real estate values in one or more of our markets could increase the credit risk associated with our loan portfolio. Additionally, real estate lending typically involves higher loan principal amounts and the repayment of the loans generally is dependent, in large part, on sufficient income from the properties securing the loans to cover operating expenses and debt service. Economic events or governmental regulations outside of the control of the borrower or lender could negatively impact the future cash flow and market values of the affected properties. Included in our CRE lending portfolio are our LIHTC construction and permanent loans, which have the same inherent risks as our other non-owner occupied CRE loans. However, the LIHTC construction and permanent loans, and related nonrefundable swap fee income, rely on federal LIHTCs to help finance the overall real estate projects and are dependent on the continued availability of such LIHTC programs. Changes to the LIHTC programs, including changes to the level of tax credits provided by the federal government on low income housing, may have an adverse effect on our business, results of operations and financial condition. Capital and Liquidity Risks Liquidity risks could affect operations and jeopardize our business, results of operations and financial condition. Liquidity is essential to our business. An inability to raise funds through deposits, borrowings, the sale of securities and/or loans and other sources could have a substantial negative effect on our liquidity. Our primary sources of funds consist of cash from operations, deposits, investment maturities, repayments, and calls, and loan/lease repayments. Additional liquidity is provided by federal funds purchased from the FRB or other correspondent banks, FHLB advances, wholesale and customer repurchase agreements, brokered deposits, and the ability to borrow at the FRB's Discount Window. Our access to funding sources in amounts adequate to finance or capitalize our activities or on terms that are acceptable to us could be impaired by factors that affect us directly or the financial services industry or economy in general, such as disruptions in the financial markets or negative views and expectations about the prospects for the financial services industry. During periods of economic turmoil, the financial services industry and the credit markets generally may be materially and adversely affected by significant declines in asset values and depressed levels of liquidity. Furthermore, regional and community banks generally have less access to the capital markets than do the national and super-regional banks because of their smaller size and limited analyst coverage. Any decline in available funding could adversely impact our ability to
20 Table of As a bank holding company, our sources of funds are limited. We are a bank holding company, and our operations are primarily conducted by our subsidiary banks, which are subject to significant federal and state regulation. When available, cash to pay dividends to our stockholders is derived primarily from dividends received from our subsidiary banks. Our ability to receive dividends or loans from our subsidiary banks is restricted. Dividend payments by our subsidiaries to us in the future will require generation of future earnings by them and could require regulatory approval if any proposed dividends are in excess of prescribed guidelines. Further, as a structural matter, our right to participate in the assets of our subsidiary banks in the event of a liquidation or reorganization of any of the banks would be subject to the claims of the creditors of such bank, including depositors, which would take priority except to the extent we may be a creditor with a recognized claim. As of December 31,
Our allowance may prove to be insufficient to absorb losses in We establish our allowance for credit losses in
In addition, we had net charge-offs as a percentage of
We face intense competition in all phases of our business from other banks, financial institutions and non-bank financial The banking and financial services businesses in our markets are highly competitive. Our competitors include large regional banks, local community banks, savings and loan associations, securities and brokerage companies, mortgage companies, insurance companies, finance companies, Fintech companies, money market mutual funds, credit unions, online lenders and other non-bank financial services providers. Many of these competitors are not subject to the same regulatory restrictions as we are. Many of our unregulated competitors compete across geographic boundaries and are able to provide customers with a feasible alternative to traditional banking services. Technology and other changes are allowing consumers and businesses to complete financial transactions that historically have involved banks through alternative methods. For example, the wide acceptance of Internet-based commerce has resulted in a number of alternative payment processing systems and lending platforms in which banks play only minor roles. Customers can now maintain funds in prepaid debit cards or digital currencies, and pay bills and transfer funds directly without the direct assistance of banks. Increased competition in our markets may result in a decrease in the amounts of our loans and deposits, reduced spreads between loan/lease rates and deposit rates or loan/lease terms that are more favorable to the borrower. Any of these results could have a material adverse effect on our ability to grow and remain profitable. If increased competition causes us to significantly discount the interest rates we offer on loans or increase the amount we pay on deposits, our net interest income could be adversely impacted. If increased competition causes us to modifyour underwriting standards, we could be exposed to higher losses from lending and leasing activities. Additionally, many of our competitors are much larger in total assets and capitalization, have greater access to capital markets, have larger lending limits and offer a broader range of financial services than we can offer.
21 Potential future acquisitions could be
As part of our business strategy, we may consider acquisitions of other banks or
Future acquisitions may involve the New lines of business or From time to time, we may seek to implement new lines of business or offer new products and services within existing lines of business in our current markets or new markets. There are substantial risks and uncertainties associated with these efforts, particularly in instances where the
If securities or industry analysts do not publish or cease publishing research reports about us, if they adversely change their recommendations regarding our stock or if our operating results do not meet their expectations, the price of our stock could decline. The trading market for our common stock can be influenced by the research and reports that industry or securities analysts may publish about us, our business, our market or our competitors. If there is limited or no securities or industry analyst coverage of us, the market price for our stock could be negatively impacted. Moreover, if any of the analysts who elect to cover us downgrade our common stock, provide more favorable relative recommendations about our competitors or if our operating results or prospects do not meet their expectations, the market price of our common stock may decline. If one or 22 more of these analysts ceases coverage of us or fails to publish reports on us regularly, demand for our stock could decrease, which could cause our stock price and trading volume to decline.
Our Reputational risk, or the risk to our business, financial condition or results of operations from negative publicity, is inherent in our business. Negative publicity can result from actual or alleged conduct in a number of areas, including legal and regulatory compliance, lending practices, corporate governance, litigation, inadequate protection of customer data, ethical behavior of our employees, and from actions taken by regulators, ratings agencies and Accounting and Tax Risks The FASB has issued an accounting standard update that has resulted in a significant change in how the Company recognizes credit losses and may have a material impact on our financial condition or In June 2016, the FASB issued an accounting standard update, "Financial Instruments-Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments," which replaced the "incurred loss" model for recognizing credit losses with an "expected loss" model referred to as the CECL model. The new CECL standard became effective for us on January 1, 2021. Under the CECL model, we are required to present certain financial assets carried at amortized cost, such as loans held for investment and held-to-maturity debt securities, at the net amount expected to be collected. CECL also requires that an allowance for credit losses be established for any unfunded loan commitments that are not cancelable. The measurement of expected credit losses is to be based on information from past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount, including anticipated losses resulting from deteriorating economic conditions as a result of events such as the COVID-19 pandemic. This measurement takes place at the time the financial asset is first added to the balance sheet and periodically thereafter. This differs significantly from the incurred loss model previously required under GAAP, which delayed recognition until it is probable a loss has been incurred. Accordingly, the adoption of the CECL model materially affected how we determine our allowance for credit losses and could require us to significantly increase our allowance in future periods. Moreover, the CECL model may create more volatility in the level of the allowance for credit losses. If we are required to materially increase our level of allowance for credit losses for any reason, such increase could adversely affect our business, financial The preparation of our Consolidated Financial Statements requires us to make estimates and judgments, which are subject to an inherent degree of uncertainty and which may differ from actual results. Our Consolidated Financial Statements are prepared in accordance with U.S. GAAP and general reporting practices within the financial services industry, From time to Operational Risks The transition to an alternative reference rate could cause instability and have a negative effect on financial market conditions. LIBOR represents the interest rate at which banks offer to lend funds to one another in the international interbank market for short-term loans. On July 27, 2017, the U.K. Financial Conduct Authority announced that it will no longer persuade or 23 compel banks to submit rates for the calculation of LIBOR rates after 2021. End dates for LIBOR have now been set, and U.S. Regulators have issued guidance as of October 2021 that urges market participants to address their existing LIBOR exposures and transition to robust and sustainable alternative rates. The Alternative Reference Rate Committee has proposed that the SOFR is the rate that represents best practice as the alternative to U.S. dollar-LIBOR for use in derivatives and other financial contracts that are currently indexed to LIBOR but has also advised participants to conduct a comprehensive evaluation of any alternative reference rates being considered for use. Contracts linked to LIBOR are vast in number and value, are intertwined with numerous financial products and services, and have diverse parties. Although the Company has actively worked to plan for the transition away from LIBOR, the transition is both complex and challenging and the downstream effect of unwinding or transitioning such contracts could cause instability and negatively impact financial markets and individual institutions. If the Company’s selected alternative rate is based on small transaction volume, it could be susceptible to volatility and disruption during times of market stress. Furthermore, if the Company fails to properly address legacy contracts by adding robust fallback positions, it will be exposed to interest rate risks and potential loss of yields. Finally, if the Company or other market participants fail to properly plan to implement alternative rates other than LIBOR it could have an adverse effect on the Company and the financial system as a whole. The Company's information systems may experience an interruption or breach in security and cyber-attacks, all of which could have a material adverse effect on the Company's business. The Company relies heavily on internal and outsourced technologies, communications, and information systems to conduct its business. Additionally, in the normal course of business, the Company collects, processes and retains sensitive and confidential information regarding our customers. As the Company's reliance on technology has increased, so have the potential risks of a technology-related operation interruption (such as disruptions in the Company's customer relationship management, general ledger, deposit, loan, or other systems) or the occurrence of a cyber-attacks (such as unauthorized access to the Company's systems). These risks have increased for all financial institutions as new technologies, the use of the Internet and telecommunications technologies (including mobile devices) to conduct financial and other business transactions and the increased sophistication and activities of organized crime, perpetrators of fraud, hackers, terrorists and others have also increased. In addition, cyber attackers have taken advantage of the pandemic to create campaigns to leverage individuals fears and uncertainties as well as capitalize on the increased number of transactions occurring on digital channels. Industry trends in ransomware, phishing, and other intrusion methods have increased significantly and will continue to pose increased risk while the Company’s operations remain partially remote. In addition to cyber-attacks or other security breaches involving the theft of sensitive and confidential information, hackers have engaged in attacks against financial institutions, retailers and government agencies, particularly denial of service attacks that are designed to disrupt key business or government services, such as customer-facing web sites. The Company is not able to anticipate or implement effective preventive measures against all security breaches of these types, especially because the techniques used change frequently and because attacks can originate from a wide variety of sources. It is also possible that a cyber incident, such as a security breach, may remain undetected for a period of time, further exposing the Company to technology-related risks. The Company also faces risks related to cyber-attacks and other security breaches in connection with credit card, debit card and other payment related transactions that typically involve the transmission of sensitive information regarding the Company's customers through various third parties, including merchant acquiring banks, payment processors, payment card networks and its processors. Some of these parties have in the past been the target of security breaches and cyber-attacks, and because the transactions involve third parties and environments such as the point of sale that the Company does not control or secure, future security breaches or cyber-attacks affecting any of these third parties could impact the Company through no fault of its own, and in some cases it may have exposure and suffer losses for breaches or attacks relating to them. Further cyber-attacks or other breaches in the future, whether affecting the Company or others, could intensify consumer concern and regulatory focus and result in increased costs, all of which could have a material adverse effect on the Company's business. To the extent we are involved in any future cyber-attacks or other breaches, the Company's reputation could be affected, which could also have a material adverse effect on the Company's business, financial condition or results of operations. 24 System failure or breaches of our network security could subject us to increased operating costs as well as litigation and other liabilities. The computer systems and network infrastructure we use could be vulnerable to unforeseen problems. Our operations are dependent upon our ability to protect our computer equipment against damage from physical theft, fire, power loss, telecommunications failure or a similar catastrophic event, as well as from security breaches, denial of service attacks, viruses, worms and other disruptive problems caused by hackers. Any damage or failure that causes an interruption in our operations could have a material adverse effect on our financial condition and results of operations. Computer break-ins, phishing and other disruptions could also jeopardize the security of information stored in and transmitted through our computer systems and network infrastructure, as well as that of our customers engaging in internet banking activities, which may result in significant liability to us and may cause existing and potential customers to refrain from doing business with us. Although we, with the help of third-party service providers, intend to continue to implement security technology and establish operational procedures to prevent such damage, there can be no assurance that these security measures will be successful. In addition, advances in computer capabilities, new discoveries in the field of cryptography or other developments could result in a compromise or breach of the algorithms we and our third-party service providers use to encrypt and protect customer transaction data. Any interruption in, or breach of security of, our computer systems and network infrastructure, or that of our internet banking customers, could damage our reputation, result in a loss of customer business, subject us to additional regulatory scrutiny, or expose us to civil litigation and possible financial liability, any of which could have a material adverse effect on our financial condition and results of operations. The Company may also need to spend additional resources to enhance protective and detective measures or to conduct investigations to remediate any vulnerabilities that arise. We are subject to certain operational risks, including, but not limited to, customer or employee misconduct or fraud and data processing system failures and errors. Employee errors and employee and customer misconduct could subject us to financial losses or We maintain a system of internal controls and insurance coverage to mitigate operational risks, including data processing system failures and errors and customer or employee fraud. Despite having business continuity plans and other The success of our SBA lending program is dependent upon the continued availability of SBA loan programs, our status as a preferred lender under the SBA loan programs and our ability to comply with applicable SBA lending requirements. As an SBA Preferred Lender, we enable our clients to obtain SBA loans without being subject to the potentially lengthy SBA approval process necessary for lenders that are not SBA Preferred Lenders. The SBA periodically reviews the lending operations of participating lenders to assess, among other things, whether the lender exhibits prudent risk management. When weaknesses are identified, the SBA may request corrective actions or impose other restrictions, including revocation of the lender's SBA Preferred Lender status. If we lose our status as an SBA Preferred Lender, we may lose our ability to compete effectively with other SBA Preferred Lenders, and as a result we would experience a material adverse effect to our financial results. Any changes to the SBA program, including changes to the level of guaranty provided by the federal government on SBA loans or changes to the level of funds appropriated by the federal government to the various SBA programs, may also have an adverse effect on our business, results of operations and financial condition. Historically we have sold the guaranteed portion of our SBA loans in the secondary market. These sales have resulted in our earning premium income and/or have created a stream of future servicing income. There can be no assurance that we will be able to continue originating these loans, that a secondary market will exist or that we will continue to realize premiums upon the sale of the 25 In the event of a loss resulting from default and the SBA determines there is a deficiency in the manner in which the loan was originated, funded or Our community banking strategy relies heavily on our We rely heavily on the success of our bank
our market areas to implement our community-based operating strategy. Recent changes in labor market conditions have contributed to heightened levels of employee attrition and increased competition for talent, which has in turn driven wage rates higher and may contribute to an increase in operating expenses. The unexpected loss of services of any key management personnel, or the inability to recruit and retain qualified personnel in the future, could have an adverse effect on our business, financial condition and results of operations. Effective succession planning is also important to our long-term success. Failure to ensure effective transfer of knowledge and smooth transitions involving key employees could hinder our strategic planning and execution. We have a continuing need for technological change, and we may not have the resources to effectively implement new technology. The financial services industry continues to undergo rapid technological changes with frequent introductions of new technology-driven products and services. In addition to enabling us to better serve our customers, the effective use of technology increases efficiency and the potential for cost reduction. Our future success will depend in part upon our ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demands for convenience as well as to create additional efficiencies in our operations as we continue to grow our market share. Many of our larger competitors have substantially greater resources to invest in technological improvements. As a result, they may be able to offer additional or superior products to those that we will be able to offer, which would put us at a competitive disadvantage. Accordingly, we cannot provide you with assurance that we will be able to effectively implement new technology-driven products and services or be successful in marketing such products and services to our customers.
We have a substantial amount of debt outstanding and may incur additional indebtedness in the future, which could restrict our operations. As of December 31, Moreover, the degree to which we are leveraged could have important consequences for our stockholders, including:
Severe weather, natural disasters, pandemic, acts of terrorism or war or other adverse external events could significantly impact the As the
Item 1B. Unresolved Staff Comments There are no unresolved staff comments. The Company’s headquarters The subsidiary banks intend to limit their investment in premises to no more than 50% of their capital. Management believes that the facilities are of sound construction, in good operating condition, are appropriately insured, and are adequately equipped for carrying on the business of the Company. No individual real estate property amounts to 10% or more of consolidated assets. There are no material pending legal proceedings to which the Company or any of its subsidiaries is a party other than ordinary routine litigation incidental to their respective businesses. Item 4. Mine Safety Disclosures Not applicable.
Part II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information. The common stock, par value $1.00 per share, of the Company is listed on The Nasdaq Global Market under the symbol “QCRH”. The stock began trading on Nasdaq on October 6, 1993. As of February Dividends on Common Stock. The Company is heavily dependent on dividend payments from its subsidiary banks to provide cash flow for the operations of the holding company and dividend payments on the Company’s common stock. Under applicable state laws, the banks are restricted as to the maximum amount of dividends that they may pay on their common stock. Applicable Iowa and Missouri laws provide that state-chartered banks in those states may not pay dividends in excess of their undivided profits. The Company’s ability to pay dividends to its stockholders may be affected by both general corporate law considerations and policies of the Federal Reserve applicable to bank holding companies. The payment of dividends by any financial institution or its holding company is affected by the requirement to maintain adequate capital pursuant to applicable capital adequacy guidelines and regulations, and a financial institution generally is prohibited from paying any dividends if, following payment thereof, the institution would be undercapitalized. See Appendix A “Supervision and Regulation” for additional information regarding regulatory restrictions on the payment of dividends. The Company also has certain contractual restrictions on its ability to pay dividends. The Company has issued debt securities in public offerings and in private placements. Under the terms of the securities, the Company may be prohibited, under certain circumstances, from paying dividends on shares of its common stock. None of these circumstances existed through the date of filing of this Annual Report on Form Purchase of Equity Securities by the Company. On February 18, 2020, the Board of Directors of the Company
There were 100,932 shares of common stock
Stockholder Return Performance Graph. The following graph indicates, for the period commencing December 31,
Item 6. [Reserved]
This section generally discusses Additionally, a comprehensive list of the acronyms and abbreviations used throughout this discussion is included in Note 1 to the Consolidated Financial Statements. GENERAL The Company was formed in February 1993 for the purpose of organizing QCBT. Over the past
The
The Company offers commercial and consumer banking products and services primarily in Iowa, Missouri and Illinois. Each of these three states has recently taken different steps to reopen since COVID-19 thrust the country into lockdown starting in March 2020. The continuation and scope of re-openings in each jurisdiction are subject to change, delay and setbacks based on ongoing regional monitoring of the Effects on the Company’s Business The extent to which COVID-19 will continue to affect business operations, financial condition, credit quality, and
The Company currently expects that the economic impact from COVID-19 will continue for some time and could have a material and adverse impact on our business and result in significant losses in our loan portfolio, all of which would adversely and materially impact our earnings and capital. Even after the COVID-19 pandemic has subsided, we may continue to experience materially adverse impacts to our business as a result of the
future. There are no comparable recent events that provide guidance as to the effect the spread of COVID-19 as a global pandemic may have, nor are there historical indicators to rely on in terms of how markets will react, and as a result, the ultimate impact of the pandemic is highly uncertain and subject to change.
CRITICAL ACCOUNTING POLICIES AND CRITICAL ACCOUNTING ESTIMATES The Company’s financial statements are prepared in accordance with 30 effects of transactions and events that have already occurred. The preparation of financial statements, in conformity with GAAP, requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance, impairment of goodwill and the fair value of financial instruments. A more detailed discussion of these critical accounting policies and estimates can be found in Note 1 to the Consolidated Financial Statements. Based on its consideration of accounting policies and estimates that involve the most complex and subjective decisions and assessments, management has identified the following as critical accounting
The Company records all assets and liabilities purchased in an acquisition, including intangibles, at fair value. Goodwill is not amortized but is subject, at a minimum, to annual tests for impairment. In certain situations, interim impairment tests may be required if events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The initial recognition of goodwill and subsequent impairment analysis requires us to make subjective judgments concerning estimates of how the acquired assets will perform in the future using valuation methods, which may include using the current market price of stock or discounted cash flow analyses. Additionally, estimated cash flows may extend beyond five years and, by their nature, are difficult to determine over an extended timeframe. Events and factors that may
significantly affect the estimates include, among others, competitive forces, customer behaviors, changes in revenue growth trends, cost structures, technology, changes in discount rates and market conditions. In determining the reasonableness of cash flow estimates, the Company reviews historical performance of the underlying assets or similar assets in an effort to assess and validate assumptions utilized in its estimates. In assessing the fair value of reporting units, we may consider the stage of the current business cycle and potential changes in market conditions. We may also utilize other information to validate the reasonableness of our valuations, including public market comparables and multiples of recent mergers and acquisitions of similar businesses. Valuation multiples may be based on tangible capital ratios of comparable companies and business segments. These multiples may be adjusted to consider competitive differences, including size, operating leverage and other factors. The carrying amount of a reporting unit is determined based on the capital required to support the reporting unit’s activities, including its tangible and intangible assets. The determination of a reporting unit’s capital allocation requires judgment and considers many factors, including the regulatory capital regulations and capital characteristics of comparably situated companies in relevant industry sectors. In certain circumstances, the Company will engage a third-party to independently validate our assessment of the fair value of our reporting units. The Company assesses the impairment of goodwill whenever events or changes in circumstances indicate the carrying value may not be recoverable. Factors considered important, which could trigger an impairment review, include the following:
ALLOWANCE FOR On January 1, 2021, the Company adopted ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326),” which replaces the incurred loss methodology with a current expected credit loss methodology, known as CECL. Additionally, CECL required an allowance for OBS exposures and HTM securities to be calculated using a current expected credit loss methodology. 31 The Company’s allowance methodology incorporates a variety of risk considerations, both quantitative and qualitative, in establishing an allowance that management believes is appropriate at each reporting date.
The Company believes that as a result of the COVID-19 pandemic, losses have been incurred that are not yet known and this could have an adverse effect in the future on the Company’s The Company also estimates expected credit losses over the contractual term of the loan for the unfunded portion of the loan commitment that is not unconditionally cancellable by the Company. Management uses an estimated average utilization rate to determine the exposure of default. The allowance for OBS exposures is calculated using probability of default and
Although management believes the level of the FAIR VALUE OF FINANCIAL INSTRUMENTS The fair value of a financial instrument is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the market in which the reporting entity transacts business. A framework has been established for measuring the fair value of financial instruments that considers the attributes specific to particular assets or liabilities and includes a three-level hierarchy for determining fair value based on the transparency of inputs to each valuation as of the measurement date. The Company estimates the fair value of financial instruments using a variety of valuation methods. When financial instruments are actively traded and have quoted market prices, quoted market prices are used for fair value and are classified as Level 1. When financial instruments, such as investment securities and derivatives, are not actively traded the Company determines fair value based on various sources and may apply matrix pricing with observable prices for similar instruments where a price for the identical instrument is not observable. The fair values of these financial instruments, which are classified as Level 2, are determined by pricing models that consider observable market data such as interest rate volatilities, LIBOR yield curve, credit spreads, prices from external market data providers and/or nonbinding broker-dealer quotations. When observable inputs do not exist, the Company estimates fair value based on available market data, and these values are classified as Level 3. FAIR VALUE OF SECURITIES The fair value of securities is determined monthly and the securities are stated at fair value. For available for sale securities, unrealized gains and losses are reported as a component of stockholders’ equity, net of the related tax effect. For both available for sale and held to maturity debt securities, any portion of a decline in value associated with credit loss is recognized in income with the remaining noncredit related component being recognized in other comprehensive income. EXECUTIVE OVERVIEW The Company reported net income of $98.9 million for the year ended December 31, 2021, and diluted EPS of $6.20. For the same period in 2020 the Company reported net income of $60.6 million and diluted EPS of $3.80. The year ended December 31, 2021 was highlighted by several significant items:
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* Core deposits are total deposits less brokered deposits Following is a table that represents the various net income measurements for the years ended December 31, 2021 and 2020.
The Company reported adjusted net income (non-GAAP) of $100.0 million, with adjusted diluted EPS of $6.27. See section titled “GAAP to Non-GAAP Reconciliations” for additional information. Adjusted net income for the year excludes a number of non-recurring items, after-tax, most significantly:
Following is a table that represents the major income and expense categories.
The following are some noteworthy developments in the Company’s financial results:
33 STRATEGIC FINANCIAL METRICS The Company has established strategic financial metrics by which it manages its business and measures its performance. The goals are periodically updated to reflect business developments. While the Company is determined to work prudently to achieve these goals, there is no assurance that they will be met. Moreover, the Company’s ability to achieve these goals will be affected by the factors discussed under “Forward Looking Statements” as well as the factors detailed in the “Risk Factors” section included under Item 1A. of Part I of this Annual Report on Form 10-K. The Company’s strategic financial metrics are as follows:
The following table shows the evaluation of the Company’s strategic financial metrics:
* The calculations provided exclude non-core noninterest income and noninterest expense. ** Loans and leases growth excludes PPP loans. It should be noted that these initiatives are long-term targets. STRATEGIC DEVELOPMENTS The Company took the following actions in 2021 to support our corporate strategy and further the strategic financial metrics shown above:
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GAAP TO NON-GAAP RECONCILIATIONS The following table presents certain non-GAAP financial measures related to the “TCE/TA ratio”, “adjusted net income”, “adjusted EPS”, “adjusted ROAA”, “NIM (TEY)”, “adjusted NIM”, “efficiency ratio”, “ACL to total loans and leases excluding PPP loans” and “loan growth excluding PPP loans”. In compliance with applicable rules of the SEC, all non-GAAP measures are reconciled to the most directly comparable GAAP measure, as follows:
The TCE/TA non-GAAP ratio has been a focus for our investors and management believes that this ratio may assist investors in analyzing the Company’s capital position without regard to the effects of intangible assets. The following tables also include several “adjusted” non-GAAP measurements of financial performance. The Company’s management believes that these measures are important to investors as they exclude non-recurring income and expense items; therefore, they provide a better comparison for analysis and may provide a better indicator of future performance. NIM (TEY) is a financial measure that the Company’s management utilizes to take into account the tax benefit associated with certain loans and securities. It is standard industry practice to measure net interest margin using tax-equivalent measures. In addition, the Company calculates NIM without the impact of acquisition accounting net accretion (adjusted NIM), as accretion amounts can fluctuate a great deal, making comparisons difficult. The efficiency ratio is a ratio that management utilizes to compare the Company to peers. It is standard in the banking industry and widely utilized by investors. ACL to total loans and leases, excluding PPP loans, and loan growth, excluding PPP loans, are ratios that management utilizes to compare the Company to its peers. The Company’s management believes these financial measures are important to investors as total loans and leases for the years ended December 31, 2021 and 2020 were materially higher due to the addition of PPP loans which are guaranteed by the government and therefore do not necessitate an increase in ACL. By excluding the PPP loans, the investor is provided a better comparison to prior years for analysis. Non-GAAP financial measures have inherent limitations, are not required to be uniformly applied, and are not audited. Although these non-GAAP financial measures are frequently used by investors to evaluate a company, they have 35 limitations as analytical tools and should not be considered in isolation, or as a substitute for analyses of results as reported under GAAP.
* Nonrecurring items (after-tax) are calculated using an estimated effective tax rate of 21% with the exception of goodwill impairment which is not deductible for tax and gain on sale of subsidiary which has an estimated effective tax rate of 30.5%. 36 NET INTEREST INCOME AND MARGIN (TAX EQUIVALENT BASIS) Net interest income, on a tax equivalent basis (non-GAAP), increased 8% to $188.4 million for the year ended December 31, 2021, as compared to the prior year. Excluding the tax equivalent adjustments, net interest income increased 7% for the year ended December 31, 2021 compared to the prior year. Net interest income improved due to several factors:
A comparison of yields, spread and margin on a tax equivalent and GAAP basis is as follows:
Acquisition accounting net accretion can fluctuate mostly depending on the payoff activity of the acquired loans. In evaluating net interest income and NIM, it's important to understand the impact of acquisition accounting net accretion when comparing periods. The above table reports NIM with and without the acquisition accounting net accretion to allow for more appropriate comparisons. A comparison of acquisition accounting net accretion included in NIM is as follows:
The Company's management closely monitors and manages NIM. From a profitability standpoint, an important challenge for the Company's subsidiary banks and leasing company is focusing on quality growth in conjunction with the improvement of their NIMs. Management continually addresses this issue with pricing and other balance sheet management strategies which included better loan pricing, reducing reliance on very rate-sensitive funding, closely managing deposit rate increases and finding additional ways to manage cost of funds through derivatives. 37 The Company’s average balances, interest income/expense, and rates earned/paid on major balance sheet categories are presented in the following table:
38 The Company’s components of change in net interest income are presented in the following table:
The Company’s operating results are also impacted by various sources of noninterest income, including trust department fees, investment advisory and management fees, deposit service fees, swap fee income, gains from the sales of residential real estate loans and government guaranteed loans, earnings on BOLI and other income. Offsetting these items, the Company incurs noninterest expenses, which include salaries and employee benefits, occupancy and equipment expense, professional and data processing fees, FDIC and other insurance expense, loan/lease expense and other administrative expenses. The Company’s operating results are also affected by economic and competitive conditions, particularly changes in interest rates, income tax rates, government policies and actions of regulatory authorities. RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, For
The Company intends to continue to grow quality loans and leases as well as diversify the securities portfolio to maximize yield while minimizing credit and interest rate risk. Comparing 39 Company’s cost of funds The Company’s management intends to continue to shift the mix of funding from wholesale funds to core deposits, including noninterest-bearing deposits. Continuing this trend is expected to strengthen the Company’s franchise value, reduce funding costs and increase fee income opportunities through deposit service charges. PROVISION FOR The ACL is established through provision for
The Company’s total provision for credit losses was $3.5 million for 2021, a decrease of $52.2 million from 2020. The adoption of ASU 2016-13 now requires an allowance on HTM debt securities and OBS exposures, specifically unfunded commitments. For the year ended December 31, 2021, the provision related to OBS was negative due to the decrease in the balance of those OBS exposures with an increase in line of credit usage. The decrease in provision on loans and leases was substantially driven by decreased qualitative allocations in response to improving economic conditions related to the effects of COVID-19. The ACL for loans and leases is established based on a number of factors, including the Company’s historical loss experience, delinquencies and charge-off trends, economic and other forecasts, the local, state and national
The Company had an The following table represents the current balance of loans to customers with concentrations in industries that management has deemed to have a higher risk of being impacted by COVID-19:
Additional discussion of the Company’s allowance
The following tables set forth the various categories of noninterest income for the years ended December 31,
In recent years, the Company has been successful in expanding its wealth management customer base. Trust department fees continue to be a significant contributor to noninterest income.
2020. Deposit service fees Gains on sales of residential real estate loans, net, The Company’s gains on the sale of government-guaranteed portions of loans for
41 non-hedging interest rate swap Securities losses, net of gains totaled Earnings on BOLI Debit card fees are the interchange fees paid on certain debit card customer transactions. Debit card fees increased Correspondent banking fees
Other noninterest income increased
The following tables set forth the various categories of noninterest expenses for the years ended December 31,
Management places strong emphasis on overall cost containment and is committed to improving the Company’s general efficiency. One-time charges relating to acquisitions and separation agreement expenses impacted expense in 2021. In 42 2020, one-time charges relating to losses on liability extinguishment, dispositions and goodwill Salaries and employee benefits, which is the largest component of noninterest expense, increased Occupancy and equipment expense Professional and data processing fees
There were no post-acquisition compensation, transition and integration costs in 2021. Post-acquisition compensation, transition and integration costs totaled Disposition costs totaled FDIC insurance, other insurance and regulatory fee expense
2020. Loan/lease expense Net cost of (income from) and gains/losses on operations of other real estate includes gains/losses on the sale of OREO, write-downs of OREO and all income/expenses associated with OREO. Net Advertising and marketing expense increased Bank service charges, a large portion of which There were no losses on liability extinguishment in 2021. Losses on Correspondent banking expense Intangible amortization expense 43 There was 2021. Goodwill impairment expense totaled There was no loss on sale of a subsidiary in 2021. Loss on sale of a subsidiary totaled $158 thousand in 2020 due to the sale of the Bates Companies. See Note 2 to the Consolidated Financial Statements for further discussion. There was no Other noninterest expense increased The provision for income taxes was
FINANCIAL CONDITION AS OF DECEMBER 31, Following is a table that represents the major categories of the Company’s balance sheet.
In
The composition of the Company’s securities portfolio is managed to meet liquidity needs while prioritizing the impact on interest rate risk and maximizing return, while minimizing credit risk. Over the recent years, the Company has investment and are generated by our specialty finance group.
Following is a breakdown of the Company’s securities portfolio by type, the percentage of net unrealized gains (losses) to carrying value on the total portfolio, and the portfolio duration as of December 31,
The Company has not invested in non-agency commercial or residential mortgage-backed securities or pooled trust preferred securities. The following is a breakdown of the weighted-average yield for each range of maturities by category of debt securities that are not held at fair value:
* Amortized cost above excludes ACL of $198 thousand. The weighted-average yield is calculated by dividing the total interest for each security per maturity range by the total amortized cost within that maturity range. Yields are not computed on a tax equivalent basis. There have been no major changes within the tax exempt portfolio. See Note 3 to the Consolidated Financial Statements for additional information regarding the Company’s investment securities. 45
*Includes PPP loans totaling $28.2 million and $273.1 million at December 31, 2021 and 2020, respectively. The Company experienced strong loan growth in 2021. The growth was broad-based with some stronger growth in multi-family and construction related to our increased focus on LIHTC lending. Historically, the Company structures most residential real estate loans to conform to the underwriting requirements of Freddie Mac and Fannie Mae to allow the subsidiary banks to resell the loans on the secondary market to avoid the interest rate risk associated with longer term fixed rate loans and recognizing noninterest income from the gain on sale. Loans originated for this purpose were classified as held for sale and are included in the residential real estate loans in the table above. Historically, the subsidiary banks structure most loans that will not conform to those underwriting requirements as adjustable rate mortgages that mature or adjust in one to five years, and then retain these loans in their portfolios. The Company holds a limited amount of
The following tables set forth the remaining maturities by loan/lease type as of December 31,
See Note 4 to the Consolidated Financial Statements for additional information on the Company’s loan/lease portfolio. ALLOWANCE FOR
current expected credit loss methodology. The adequacy of the allowance was determined by management based on factors that included the overall composition of the loan/lease portfolio, types of loans/leases, historical loss experience, loan/lease delinquencies, potential substandard and doubtful credits, economic conditions, collateral positions, government guarantees and other factors that, in management’s judgment, deserved evaluation. To ensure that an adequate Changes in the ACL for loans/leases for the years ended December 31, 2021, 2020 and 2019 are presented as follows:
47 Net charge-offs by segment and their percentage of average loans and leases are as follows:
Changes in the ACL for OBS exposures for the year ended December 31, 2021:
The ACL for OBS exposures totaled $9.1 million at the adoption of CECL on January 1, 2021. Prior to January 1, 2021, the allowance for OBS exposures was not required. The Company recorded negative $2.2 million of provision for credit losses related to OBS exposures, specifically unfunded commitments, in 2021 primarily due to increased line of credit usage resulting in lower exposure. At December 31, 2021, the allowance for OBS exposures was $6.9 million. The following is a table that reports the criticized and classified loan totals as of December 31,
* Amounts above exclude the government guaranteed portion, if any. The Company assigns internal risk ratings of Pass (Rating 2) for the government guaranteed portion. ** Criticized loans are defined as C&I and CRE loans with internally assigned risk ratings of 6, 7, or 8, regardless of performance. *** Classified loans are defined as C&I and CRE loans with internally assigned risk ratings of 7 or 8, regardless of performance. Criticized loans decreased
The following table summarizes the trend in allowance as a percentage of gross loans/leases and as a percentage of NPLs as of December 31,
The following table presents the allowance by type and the percentage of loan/lease type to total loans/leases.
* Included within the C&I – Other segment is an ACL on leases of $1.5 million. Leases represent 1% of to total loans/leases.
%Represents the percentage of the certain type of loan/lease to total loans/leases Although management believes that the See Note 4 to the Consolidated Financial Statements for additional information on the Company’s ACL.
The table below presents the amounts of
The OREO is carried at the lower of carrying amount or fair value less costs to sell. The policy of the Company is to place a loan/lease on nonaccrual status if: (a) payment in full of interest or principal is not expected; or (b) principal or interest has been in default for a period of 90 days or more unless the obligation is both in the process of collection and well secured. A loan/lease is well secured if it is secured by collateral with sufficient market value to repay principal and all accrued interest. A debt is in the process of collection if collection of the debt is proceeding in due course either through legal action, including judgment enforcement procedures, or in appropriate circumstances, through collection efforts not involving legal action which are reasonably expected to result in repayment of the debt or in its restoration to current status. In The Company’s lending/leasing practices remain unchanged and asset quality remains a top priority for management.
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DEPOSITS Deposits grew
The Company has been successful in growing its noninterest-bearing deposit portfolio over the past several years, growing average balances The Company’s correspondent bank deposits have
The Company has modified the structure and interest rates paid for those correspondent bank deposits on the balance sheet which are the noninterest bearing deposits and the money market deposits. This has led to more of the correspondent bank portfolio’s excess liquidity to shift to the EBAs at the FRB which is The Company had total uninsured deposits of $1.9 billion and $1.8 billion as of December 31, 2021 and 2020 respectively. The table below represents the time deposits in FDIC uninsured accounts by maturity:
51 There were no other time deposits otherwise uninsured. The Company had no deposits by foreign depositors in domestic offices as of December 31, 2021 and 2020. Management will continue to focus on growing its core deposit portfolio, including its correspondent banking business at QCBT, as well as shifting the mix from brokered and other higher cost deposits to lower cost core deposits. With the
significant success achieved by QCBT in growing its correspondent banking business, QCBT has developed procedures to proactively monitor this industry concentration of deposits and loans. Other deposit-related industry concentrations and large accounts are monitored by the internal asset liability management committee. See discussion regarding policy limits on bank stock loans in the Lending/Leasing section under Item 1 – Business in Part I of this Annual Report on Form The subsidiary banks purchase federal funds for short-term funding needs from the FRB or from their correspondent banks. The table below presents the composition of the Company’s short-term borrowings.
The Company’s federal funds purchased fluctuates based on the short-term funding needs of the Company’s subsidiary banks. See Note 9 to the Consolidated Financial Statements for additional information on the Company’s short-term borrowings. FHLB ADVANCES AND OTHER BORROWINGS As a result of their membership in the FHLB of Des Moines, the subsidiary banks have the ability to borrow funds for short-term or long-term purposes under a variety of programs. The subsidiary banks can utilize FHLB advances for loan matching as a hedge against the possibility of rising interest rates or when these advances provide a less costly source of funds than customer deposits.
It is management’s intention to continue to reduce its reliance on wholesale funding, including FHLB advances, wholesale structured repurchase agreements, and brokered deposits. Replacement of this funding with core deposits helps to reduce interest expense as the wholesale funding tends to be higher cost. However, the Company may choose to utilize wholesale funding sources to supplement funding needs, as this is a way for the Company to effectively and efficiently manage interest rate risk.
See Note 12 to the Consolidated Financial Statements for additional information regarding the subordinated notes. 52 The table below presents the composition of the Company’s stockholders’ equity.
* TCE/TA ratio is a non-GAAP measure. Refer to the GAAP to Non-GAAP Reconciliations section of this report for more information. As of December 31,
The following table presents the rollforward of stockholders’ equity for the years ended December 31,
* Includes
On February LIQUIDITY AND CAPITAL RESOURCES Liquidity measures the ability of the Company to meet maturing obligations and its existing commitments, to withstand fluctuations in deposit levels, to fund its operations, and to provide for customers’ credit needs. The Company monitors liquidity risk through contingency planning stress testing on a regular basis. The Company seeks to avoid over concentration of funding sources and to establish and maintain contingent funding facilities that can be drawn upon if normal funding sources become unavailable. One source of liquidity is cash and short-term assets, such as interest-bearing deposits in other banks, cash and due from banks and federal funds sold, which averaged The Federal Reserve Bank has provided a lending facility that will allow the Company, if desired, to obtain funding specifically for loans that the Company makes under the PPP, which will allow the Company to retain existing sources of liquidity for traditional operations. The Company has been able to access other available funding sources to address liquidity needs during the COVID-19 pandemic. 53 The subsidiary banks have a variety of sources of short-term liquidity available to them, including federal funds purchased from correspondent banks, FHLB advances, wholesale structured At December 31, At December 31, The Company maintains a Investing activities used cash of Financing activities provided cash of Total cash provided by operating activities was Throughout its history, the Company has secured additional capital through various resources, including common and preferred stock and the issuance of trust preferred securities and subordinated notes. As of December 31,
COMMITMENTS, CONTINGENCIES, CONTRACTUAL OBLIGATIONS, AND OFF-BALANCE SHEET ARRANGEMENTS In the normal course of business, the subsidiary banks make various commitments and incur certain contingent liabilities that are not presented in the accompanying Consolidated Financial Statements. The commitments and contingent liabilities include various guarantees, commitments to extend credit, and standby letters of credit. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The subsidiary banks evaluate each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the banks upon extension of credit, is based upon management’s credit evaluation of the Standby letters of credit are conditional commitments issued by the subsidiary banks to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements and, generally, have terms of one year or less. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The banks hold collateral, as described above, supporting those commitments if deemed necessary. In the event the customer does not perform in accordance with the terms of the 54 agreement with the third party, the banks would be required to fund the commitments. The maximum potential amount of future payments the banks could be required to make is represented by the contractual amount. If the commitment is funded, the banks would be entitled to seek recovery from the customer. At December 31, As of December 31, Additional information regarding commitments, contingencies, and off-balance sheet arrangements is described in Note 19 to the Consolidated Financial Statements. The Company has various financial obligations, including contractual obligations and commitments, which may require future cash payments. The
December 31, 2021. The Company’s operating contract obligations represent short and long-term contractual payments for data processing equipment and services, software, and other equipment and professional
IMPACT OF INFLATION AND CHANGING PRICES The Consolidated Financial Statements of the Company and the accompanying notes have been prepared in accordance with U.S. GAAP, which requires the measurement of financial position and operating results in terms of historical dollar amounts without considering the changes in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the increased cost of the Company’s operations. Unlike industrial companies, nearly all of the assets and liabilities of the Company are monetary in nature. As a result, interest rates have a greater impact on the Company’s performance than do the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or to the same extent as the price of goods and services. This document (including information incorporated by reference) contains, and future oral and written statements of the Company and its management may contain, forward-looking statements, within the meaning of such term in the Private Securities Litigation Reform Act of 1995, with respect to the financial condition, results of operations, plans, objectives, future performance and business of the Company. Forward-looking statements, which may be based upon beliefs, expectations and assumptions of the Company’s management and on information currently available to management, are generally identifiable by the use of words such as “believe,” “expect,” “anticipate,” “bode,” “predict,” “suggest,” “project,” “appear,” “plan,” “intend,” “estimate,” “may,” “will,” “would,” “could,” “should,” “likely,” or other similar expressions. Additionally, all statements in this document, including forward-looking statements, speak only as of the date they are made, and the Company undertakes no obligation to update any statement in light of new information or future events. The Company’s ability to predict results or the actual effect of future plans or strategies is inherently uncertain. The factors that could have a material adverse effect on the operations and future prospects of the Company and its subsidiaries are detailed in the “Risk Factors” section included under Item 1A. of Part I of this Annual Report on Form
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These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk The Company, like other financial institutions, is subject to direct and indirect market risk. Direct market risk exists from changes in interest rates. The Company’s net income is dependent on its net interest income. Net interest income is susceptible to interest rate risk to the degree that interest-bearing liabilities mature or reprice on a different basis than interest-earning assets. When interest-bearing liabilities mature or reprice more quickly than interest-earning assets in a given period, a significant increase in market rates of interest could adversely affect net interest income. Similarly, when interest-earning assets mature or reprice more quickly than interest-bearing liabilities, falling interest rates could result in a decrease in net interest income. In an attempt to manage the Company’s exposure to changes in interest rates, management monitors the Company’s interest rate risk. Each subsidiary bank has an asset/liability management committee of Internal asset/liability management teams consisting of members of the subsidiary banks’ management meet bi-weekly to manage the mix of assets and liabilities to maximize earnings and liquidity and minimize interest rate and other risks. Management also reviews the subsidiary banks’ securities portfolios, formulates investment strategies, and oversees the timing and implementation of transactions to assure attainment of the board’s objectives in the most effective manner. Notwithstanding the Company’s interest rate risk management activities, the potential for changing interest rates is an uncertainty that can have an adverse effect on net income. In adjusting the Company’s asset/liability position, the 56 general interest rates, the relationship between long-term and short-term interest rates, market conditions and competitive factors, the One method used to quantify interest rate risk is a short-term earnings at risk summary, which is a detailed and dynamic simulation model used to quantify the estimated exposure of net interest income to sustained interest rate changes. This simulation model captures the impact of changing interest rates on the interest income received and interest expense paid on all interest sensitive assets and liabilities reflected on the Company’s consolidated balance sheet. This sensitivity analysis demonstrates net interest income exposure annually over a five-year horizon, assuming no balance sheet growth, no balance sheet mix change, and various interest rate scenarios including no change in rates; 100, 200, 300 and 400 basis point upward shifts; and 100 and 200 basis point downward shifts in interest rates, where interest-bearing assets and liabilities reprice at their earliest possible repricing date. The model assumes parallel and pro rata shifts in interest rates over a twelve-month period for the 200 basis point upward shift and 100 and 200 basis point downward shifts. For the 400 basis point upward shift, the model assumes a parallel and pro rata shift in interest rates over a twenty-four month period. Further, in recent years, the Company added additional interest rate scenarios where interest rates experience a parallel and instantaneous shift (“shock”) upward of 100, 200, 300, and 400 basis points and a parallel and instantaneous shock downward of 100 and 200 basis points. The Company will run additional interest rate scenarios on an as-needed basis. The asset/liability management committees of the subsidiary bank boards of directors have established policy limits of a 10% decline in net interest income for the 200 basis point upward parallel shift and the 100 basis point downward parallel shift. For the 300 basis point upward shock, the established policy limit is a 25% decline in net interest income. The increased policy limit is appropriate as the shock scenario is extreme and unlikely and warrants a higher limit than the more realistic and traditional parallel/pro-rata shift scenarios.
Application of the simulation model analysis for select interest rate scenarios at December 31,
The simulation is within the board-established policy limits for all three scenarios. Additionally, for all of the various interest rate scenarios modeled and measured by management (as described above), the results at December 31, Interest rate risk is considered to be one of the most significant market risks affecting the Company. For that reason, the Company engages the assistance of a national consulting firm and its risk management system to monitor and control the Company’s interest rate risk exposure. Other types of market risk, such as foreign currency exchange rate risk and commodity price risk, do not arise in the normal course of the Company’s business activities.
QCR HOLDINGS, INC. Index to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of QCR Holdings, Inc.
Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of QCR Holdings, Inc. and its subsidiaries (the Company) as of December 31, years in the period ended December 31, statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31,
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, the Committee of Sponsoring Organizations of the Treadway Commission in 2013, and our report dated March over financial reporting.
Adoption of New Accounting Standard As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for credit losses on financial instruments in 2021 due to the adoption of Accounting Standards Update 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (Credit Losses). Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the Audit Committee and that: (1) relate to accounts or disclosures that are material to the financial statements and
audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. 59 Allowance for credit losses on loans and leases As described in Notes 1 and 4 to the consolidated financial statements, the allowance for credit losses on loans and leases (allowance) totaled $78.7 million at December 31, 2021. On January 1, 2021, the Company adopted ASU 2016-13, which changes the impairment model from an incurred loss model to an expected loss model. Under the expected loss model, the allowance is measured on a collective (pool) basis when similar risk characteristics exist (general reserve). Loans that do not share similar risk characteristics are evaluated on an individual basis at the balance sheet date (specific reserve). At December 31, 2021 the general reserve on loans and leases collectively evaluated for impairment totaled $76.2 million and the specific reserve on loans and leases individually evaluated totaled $2.5 million. The measurement of the general reserve is based on relevant past events, including historical experience, current conditions and reasonable and supportable forecasts that affect collectability. The Company’s reserve on collectively evaluated loans and leases includes a quantitative allowance based upon estimates of losses over the life of the loans and leases that is calculated using an existing probability of default and loss given default framework, as well as a qualitative component for factors not reflected in the historical loss experience. The qualitative component is determined based on an assessment of internal and external influences on credit quality at the present time (qualitative factors), as well as a projection of the impact in the future (future factors). Qualitative factors of significant influence include the general economic environment in the Company’s markets, both locally and nationally, as well as the impact of economic conditions on certain industries, the impact of the COVID-19 pandemic, and credit quality indicators. The Company’s future factors represent an estimate of forecasted economic conditions. The calculation also contemplates that the Company may not have sufficient information to make reasonable and supportable forecasts for the entire life of the loans and leases, which would result in a reversion to historical credit loss information. The evaluation of these qualitative factors and future factors requires that management make significant judgments, which may significantly impact the estimated allowance. We identified the implementation of ASU 2016-13 and both the qualitative and future factors, applied to the general reserve of the allowance as critical audit matters because auditing management’s implementation of the new standard as well as auditing management’s determination of the qualitative and future factors required significant auditor judgement as amounts determined by management rely on analysis that is highly subjective and includes significant estimation uncertainty. Our audit procedures related to the implementation of ASU 2016-13 included the following, among others:
accounting guidance and tested such controls for design and operating effectiveness, including management’s review and approval of the methodology and assumptions in its model.
Our audit procedures related to the Company’s qualitative factors and future factors in the general reserve included the following, among others:
the general reserve and tested such controls for design and operating effectiveness, including controls relating to management’s review and approval of the qualitative and future factors and the underlying data used in determining those factors.
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/s/ RSM US LLP We have served as the Company's auditor since 1993. Davenport, Iowa
QCR Holdings, Inc. and Subsidiaries December 31,
See Notes to Consolidated Financial Statements.
QCR Holdings, Inc. and Subsidiaries Consolidated Statements of Income Years Ended December 31,
See Notes to Consolidated Financial Statements.
QCR HOLDINGS, INC. AND SUBSIDIARIES Consolidated Statements of Comprehensive Income Years Ended December 31,
See Notes to Consolidated Financial Statements.
QCR Holdings, Inc. and Subsidiaries Consolidated Statements of Changes in Stockholders' Equity Years Ended December 31,
See Notes to Consolidated Financial Statements.
QCR Holdings, Inc. and Subsidiaries Consolidated Statements of Cash Flows Years Ended December 31,
QCR Holdings, Inc. and Subsidiaries - Continued Consolidated Statements of Cash Flows Years Ended December 31,
**Net cash paid at closing totaled
**Net cash transferred at closing totaled $154 thousand for the sale of the Bates Companies in 2020. See Notes to Consolidated Financial Statements.
67 Note 1. Nature of Business and Significant Accounting Policies Basis of presentation: The acronyms and abbreviations identified below are used in the Notes to the Consolidated Financial Statements, as well as in the other sections of this Annual Report on Form
Note 1. Nature of Business and Significant Nature of business: QCR Holdings, Inc. is a bank holding company that has elected to operate as a financial holding company under the BHCA. The Company provides bank and bank-related services through its banking subsidiaries, QCBT, CRBT, CSB and On August 12, 2020, the Company sold the Company’s wholly-owned subsidiaries, which were originally acquired on October 1, 2018. On November 30, 2019, the Company sold substantially all of the assets and transferred substantially all of the deposits and certain other liabilities of the Company’s wholly-owned subsidiary, RB&T. QCBT is a commercial bank that serves the Iowa and Illinois Quad Cities and adjacent communities. CRBT is a commercial bank that serves Cedar Rapids, Iowa, and adjacent communities including Cedar Falls and Waterloo, Iowa. CSB is a commercial bank that serves Des Moines, Iowa, and adjacent communities. QCBT, CRBT, and CSB are chartered and regulated under the laws of the state of Iowa. The remaining direct subsidiaries of the Company consist of Significant accounting policies: Accounting estimates: The preparation of financial statements, in conformity with GAAP, requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance, Principles of consolidation: The accompanying Consolidated Financial Statements include the accounts of the Company and its subsidiaries, except those
Presentation of cash flows: For purposes of reporting cash flows, cash and due from banks include cash on hand and noninterest bearing amounts due from banks. Cash flows from federal funds sold, interest bearing deposits at financial institutions, loans/leases, deposits, short-term borrowings and overnight and short-term FHLB advances are treated as net increases or decreases. 69 Note 1. Nature of Business and Significant Accounting Policies (continued) Cash and due from banks: The subsidiary banks are required by federal banking regulations to maintain certain cash and due from bank reserves. Investment securities: Investment securities HTM are those debt securities that the Company has the ability and intent to hold until maturity regardless of changes in market conditions, liquidity needs, or changes in general economic conditions. Such securities are carried at cost, net of ACL, adjusted for amortization of premiums and accretion of discounts. If the ability or intent to hold to maturity is not present for certain specified securities, such securities are considered AFS as the Company intends to hold them for an indefinite period of time but not necessarily to maturity. Any decision to sell a security classified as AFS would be based on various factors, including movements in interest rates, changes in the maturity mix of the Company’s assets and liabilities, liquidity needs, regulatory capital considerations, and other factors. Securities AFS are carried at fair value. Unrealized gains or losses, net of taxes, are reported as increases or decreases in AOCI. Realized gains or losses, determined on the basis of the cost of specific securities sold, are included in earnings. All debt securities are evaluated to determine whether declines in fair value below their amortized cost
Loans receivable, held for sale: Residential real estate loans which are originated and intended for resale in the secondary market in the foreseeable future are classified as held for sale. These loans are carried at the lower of cost or estimated market value in the aggregate. As assets specifically acquired for resale, the origination of, disposition of, and gain/loss on these loans are classified as operating activities in the statement of cash flows. Loans receivable, held for investment: Loans that management has the intent and ability to hold for the foreseeable future, or until pay-off or maturity occurs, are classified as held for investment. These loans are
production of services, the origination and collection of these loans are classified as investing activities in the statement of cash flows. The ACL is measured on a collective (pool) basis when similar risk characteristics exist. The Company discloses the The Company’s portfolio segments are as follows:
70 Note 1. Nature of Business and Significant Accounting Policies (continued) The Company’s classes of loans receivable are as follows:
Direct financing leases are considered a class of financing receivable within the overall loan/lease Generally, for all classes of loans receivable, loans are considered past due when contractual payments are delinquent for For all classes of loans receivable, loans will generally be placed on nonaccrual status when the loan has become 90 days past due (unless the loan is well secured and in the process of collection); or if any of the following conditions exist:
When a loan is placed on nonaccrual status, income recognition is ceased. Previously recorded but uncollected amounts of interest on nonaccrual loans are reversed at the time the loan is placed on nonaccrual status. Generally, cash collected on nonaccrual loans is applied to principal. Should full collection of principal be expected, cash collected on nonaccrual loans can be recognized as interest income. For all classes of loans receivable, nonaccrual loans may be restored to accrual status provided the following criteria are met:
Table of
Notes to Consolidated Financial Statements Note 1. Nature of Direct finance leases receivable, held for investment: The Company leases machinery and equipment to customers under leases that qualify as direct financing leases for financial reporting and as operating leases for income tax purposes. Under the direct financing method of accounting, the minimum lease payments to be received under the lease contract, together with the estimated unguaranteed residual values (approximately 3% to 25% of the cost of the related equipment), are recorded as lease receivables when the lease is signed and the lease property delivered to the customer. The excess of the minimum lease payments and residual values over the cost of the equipment is recorded as unearned lease income. Unearned lease income is recognized over the term of the lease on a basis that results in an approximate level rate of return on the unrecovered lease investment. Lease income is recognized on the interest method. Residual value is the estimated fair market value of the equipment on lease at lease termination. In estimating the equipment’s fair value at lease termination, the Company relies on historical experience by equipment type and manufacturer and, where available, valuations by independent appraisers, adjusted for known trends. The Company’s estimates are reviewed continuously to ensure reasonableness; however, the amounts the Company will ultimately realize could differ from the estimated amounts. If the review results in a lower estimate than had been previously established, a determination is made as to whether the decline in estimated residual value is other-than-temporary. If the decline in estimated unguaranteed residual value is judged to be other-than-temporary, the accounting for the transaction is revised using the changed estimate. The resulting reduction in the investment is recognized as a loss in the period in which the estimate is changed. An upward adjustment of the estimated residual value is not recorded. The policies for delinquency and nonaccrual for direct financing leases are materially consistent with those described above for all classes of loan receivables.
TDRs: TDRs exist when the Company, for economic or legal reasons related to the borrower’s/lessee’s financial difficulties, grants a concession (either imposed by court order, law, or agreement between the borrower/lessee and the Company) to the borrower/lessee that it would not otherwise consider. The Company attempts to maximize its recovery of the balances of the loans/leases through these various concessionary restructurings. The following criteria, related to granting a concession, together or separately, create a TDR:
72 Note 1. Nature of Business and Significant Accounting Policies (continued) Allowance: Allowance for Credit Losses on Loans and Leases The ACL on loans/leases is measured on a collective (pool) basis when similar risk characteristics exist. The Company has identified the 8 portfolio segments at which the allowance will be measured. For all portfolio segments, the allowance is established as losses are estimated to have occurred through a provision that is charged to earnings.
A discussion of the risk characteristics and the allowance by each portfolio segment follows: For C&I loans, the Company focuses on small and mid-sized businesses with primary operations as wholesalers, manufacturers, building contractors, business services companies, other banks, and retailers. The Company provides a wide range of C&I loans, including lines of credit for working capital and operational purposes, and term loans for the acquisition of facilities, equipment and other purposes. Approval is generally based on the following factors:
Collateral for C&I loans generally includes accounts receivable, inventory The Company’s lending policy specifies maximum term limits for C&I loans. For term loans, the maximum term is generally In addition, the Company often takes personal guarantees or cosigners to help assure repayment. Loans may be made on an unsecured basis if warranted by the overall financial condition of the borrower. CRE is segmented into the following categories generally based on source of repayment: Owner occupied CRE, non-owner occupied CRE and multi-family. CRE loans are also embedded in the following segments: construction and land development and 1-4 family real estate. The Company is an active lender of LIHTC project loans which includes both the construction and permanent loan. CRE loans are subject to underwriting standards and processes similar 73 Note 1. Nature of Business and Significant Accounting Policies (continued) to C&I loans, in addition to those standards and processes specific to real estate loans. Collateral for CRE loans generally includes the underlying real estate and improvements, and may include additional assets of the borrower. The Company’s lending policy specifies maximum loan-to-value limits based on the category of CRE (CRE loans on improved property, raw land, land development, and commercial construction). These limits are the same limits, or in some situations, more conservative than those established by regulatory authorities. Multi-family loans are typically repaid from rental income. LIHTC permanent loans are included in multi-family loans and the maximum term is generally up to 20 years. The Company’s lending policy also includes guidelines for real estate appraisals, including minimum appraisal standards based on certain transactions. In addition, the Company often takes personal guarantees to help assure repayment.
The
For Quantitative Factors: The Qualitative Factors: The Company’s allowance methodology also has a qualitative component, The Company utilizes the
Note 1. Nature of Business and Significant
Economic forecasting: The Company uses reasonable and supportable forecasts over the contractual term of the financial assets for each entity. This measurement is based upon relevant past events, historical experience and current conditions to determine the forecasted data which requires significant judgement. When management no longer has sufficient information to make a reasonable and supportable forecast, the data will then immediately revert back to the average historical performance for each entity. These forecasted adjustments are added to the qualitative adjustments and applied as a percentage adjustment in addition to the historical loss rates. It is expected that actual economic conditions will, in many circumstances, turn out differently than forecasted because the ultimate outcomes during the forecast period may be Loans are determined to no longer share similar risk characteristics with other assets in the segmented pool when their scheduled payments of principal and interest or more, non-accrual status or classification of a substandard or doubtful risk rating. Factors considered by management in determining
75 QCR Holdings, Inc. and Notes to Consolidated Financial Statements Note 1. Nature of Business and Low quality loans with principal balances equal to or less than $250,000 are Some loans that are determined it is determined that foreclosure is probable, the collateral’s fair value is used to estimate the financial assets expected credit losses for the current reporting period. This fair value is then reduced by the present value of estimated costs to sell. If it is determined that the asset is collateral-dependent but foreclosure is not probable, an institution can elect to apply the practical expedient to use the collateral’s fair value to estimate the asset’s expected credit loss. The Company is choosing to utilize the practical expedient. When using the practical expedient on a collateral dependent loan where repayment is reliant upon the sale of the collateral, the fair value of that collateral will be adjusted for estimated costs to sell. However, if the repayment is dependent on the operations of the company, the fair market value less estimated cost to sell cannot be used. Thus, the net present value of the cash-flow will be utilized. For
76 Note 1. Nature of Business and Significant Accounting Policies (continued) situations. This rating is intended as a transitional rating, therefore, it is generally not assigned to a borrower for a period of more than one year. |
7. | Substandard – loans which are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if applicable. These loans have a well-defined weakness or weaknesses which jeopardize repayment according to the contractual terms. There is distinct loss potential if the weaknesses are not corrected. Includes loans with insufficient cash flow coverage which are collateral dependent, |
8. | Doubtful – loans which have all the weaknesses inherent in a Substandard loan, with the added characteristic that existing weaknesses make full principal collection, on the basis of current facts, conditions and values, highly doubtful. The possibility of loss is extremely high, but because of pending factors, recognition of a loss is deferred until a more exact status can be determined. All doubtful loans will be placed on non-accrual, with all payments, including principal and interest, applied to principal reduction |
The Company has certain loans risk-rated 7 (substandard), which are not classified as impaired based on the facts of the credit. For these non-impaired and risk-rated 7 loans, the Company does not follow the same allowance methodology as it does for all other non-impaired, collectively evaluated loans. Rather, the Company performs a more detailed analysis including evaluation of the cash flow and collateral valuations. Based upon this evaluation, an estimate of the probable loss in this portfolio is collectively evaluated under ASC 450‑20. These non-impaired risk-rated 7 loans exist primarily in the C&I and CRE segments.
For term C&I and CRE loans equal to or greater than $1,000,000, the subsidiary banks with an asset size of $1.0 billion or less as of the most recent fiscal year-end require a term loan review within 15 months of the most recent credit review. For the subsidiary banks with an asset size of over $1.0 billion as of the most recent fiscal year-end, a term loan review is required within 15 months of the most recent credit review.review for term C&I and CRE loans of $2.0 million or more. A credit review encompasses any new debt issuances or renewed debt facilities that are part of the borrower’s credit relationship. The term loan/credit review is completed in enough detail to, at a minimum, validate the risk rating. Additionally, the review shall include an analysis of debt service requirements, covenant compliance, if applicable, and collateral adequacy. The frequency of the review is generally accelerated for loans with poor risk ratings.
The Company’s Loan Quality area performs a documentation review of a sampling of C&I and CRE loans, the primary purpose of which is to ensure the credit is properly documented and closed in accordance with approval authorities and conditions. A review is also performed by the Company’s Internal Audit Department of a sampling of C&I and CRE loans for proper documentation, according to an approved schedule. Validation of the risk rating is also part of Internal Audit’s review (performed by Internal Loan Review). Additionally, over the past several years, the Company has contracted an independent outside third party to review a sampling of C&I and CRE loans. Validation of the risk rating is part of this review as well.
The Company leases machinery and equipment to C&I customers under direct financing leases. All lease requests are subject to the credit requirements and criteria as set forth in the lending/leasing policy. In all cases, a formal independent credit analysis of the lessee is performed.
For direct Direct financing leases are included in the allowance consists of specificC&I-other segment and general components.
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Note 1. Nature of Business and Significant Account Policies (continued)
The specific component relates to leases that are classified as impaired, as defined for commercial loans above. For those leases that are classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired lease is lower than the carrying value of that lease.
The general component consists of quantitative and qualitative factors and covers nonimpaired leases. The quantitative factors are based on historical charge-off experience for the entire lease portfolio. The qualitative factors are determined based on an assessment of internal and/or external influences on credit quality that are not fully reflected in the historical loss data.same manner as C&I loans.
Generally, the Company’s residential real estate loans conform to the underwriting requirements of Freddie Mac and Fannie Mae to allow the subsidiary banks to resell loans in the secondary market. The subsidiary banks structure most loans that will not conform to those underwriting requirements as adjustable rate mortgages that mature or adjust in one to five years or fixed rate mortgages that mature in 15 years, and then retain these loans in their portfolios. Servicing rights are not presently retained on the loans sold in the secondary market. The Company’s lending policy establishes minimum appraisal and other credit guidelines.
The Company provides many types of installment and other consumer loans including motor vehicle, home improvement, home equity, signature loans and small personal credit lines. The Company’s lending policy addresses specific credit guidelines by consumer loan type.
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Note 1. Nature of Business and Significant Accounting Policies (continued)
For residential real estate loans, and installment and other consumer loans, these large groups of smaller balance homogenous loans are collectively evaluated for impairment. The Company applies a quantitative factor based on historical charge-off experiencefollow the same methodology as commercial loans in total for eachterms of evaluation of risk characteristics, other than these segments. Accordingly, the Company generally doesmay not separately identify individual residential real estate loans, and/or installment or other consumer loans for impairment disclosures, unless such loans are the subject of a restructuring agreementbe risk rated due to financial difficulties of the borrower.homogenous nature.
TDRs are considered impaired loans/leases and are subject tofollow the same allowance methodology as described above for impaired loans/leases by portfolio segment.all loans. Once a loan is classified as a TDR, it will remain a TDR until the loan is paid off, charged off, moved to OREO or restructured into a new note without a concession. TDR status may also be removed if the TDR was restructured in a prior calendar year, is current, accruing interest and shows sustained performance.
Allowance for Credit Losses on Off-Balance Sheet Exposures
The Company estimates expected credit losses over the contractual term of the loan for the unfunded portion of the loan commitment that is not unconditionally cancellable by the Company. Management uses an estimated average utilization rate to determine the exposure of default. The allowance on OBS exposures is calculated using probability of default and loss given default using the same segmentation and qualitative factors used for loans and leases. The allowance for OBS exposures is recorded in the Other Liabilities section of the consolidated balance sheet. The Company recorded an ACL on OBS exposures upon adoption of ASU 2016-13. See Note 4.
Allowance for Credit Losses on Held to Maturity Debt Securities
The Company measures expected credit losses on held to maturity debt securities on a collective basis based on security type. The estimate of expected credit losses considers historical credit information from external sources. The Company’s held to maturity debt securities consist primarily of investment grade obligations of states and political subdivisions. The Company recorded an ACL on HTM debt securities upon adoption of ASU 2016-13. See Note 3.
Allowance for Credit Losses on Available for Sale Debt Securities
Available for sale debt securities in unrealized loss positions are evaluated for credit related loss at least quarterly. The decline in fair value of an available for sale debt security due to credit loss results in recording an ACL to the extent the fair value is less than the amortized cost basis. Declines in fair value that have not been recorded through an ACL, such as declines due to changes in market interest rates, are recorded through other comprehensive income, net of applicable taxes. Although these evaluations involve significant judgment, an unrealized loss in the fair value of a debt security is generally considered to not be related to credit when the fair value of the security is below the carrying value primarily due to the changes in risk-free interest rates, there has not been significant deterioration in the financial condition of the issues, and the Company does not intend to sell nor does it believe it will be required to sell the security before the recovery of its cost basis. The Company did not record an ACL on AFS debt securities upon adoption of ASU 2016-13. See Note 3.
Credit related financial instruments: In the ordinary course of business, the Company has entered into commitments to extend credit and standby letters of credit. Such financial instruments are recorded when they are funded.
Transfers of financial assets: Transfers of financial assets are accounted for as sales only when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when: (1) the assets have been isolated from the Company, (2) the transferee obtains the right to pledge or exchange the assets it received, and no condition both constrains the transferee from taking advantage of its right to pledge or exchange and provides more than a modest benefit to the transferor, and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity or the ability to unilaterally cause the holder to return specific assets. In addition, for transfers of a portion of financial assets (for example, participations of loan
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Note 1. Nature of Business and Significant Accounting Policies (continued)
receivables), the transfer must meet the definition of a “participating interest” in order to account for the transfer as a sale.
Following are the characteristics of a “participating interest”:
| Pro-rata ownership in an entire financial asset. |
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Note 1. Nature of Business and Significant Account Policies (continued)
| From the date of the transfer, all cash flows received from entire financial assets are divided proportionately among the participating interest holders in an amount equal to their share of ownership. |
| The rights of each participating interest holder have the same priority, and no participating interest holder’s interest is subordinated to the interest of another participating interest holder. That is, no participating interest |
holder is entitled to receive cash before any other participating interest holder under its contractual rights as a participating interest holder.
| No party has the right to pledge or exchange the entire financial asset unless all participating interest holders agree to pledge or exchange the entire financial asset. |
BOLI: BOLI is carried at cash surrender value with increases/decreases reflected as income/expense in the statement of income.
Premises and equipment: Premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed primarily by the straight-line method over the estimated useful lives of the assets.
Restricted investment securities: Restricted investment securities represent FHLB and FRB common stock. The stock is carried at cost. These equity securities are “restricted” in that they can only be sold back to the respective institution or another member institution at par. Therefore, they are less liquid than other tradable equity securities. The Company views its investment in restricted stock as a long-term investment. Accordingly, when evaluating for impairment, the value is determined based on the ultimate recovery of the par value, rather than recognizing temporary declines in value. There have been no other-than-temporary write-downs recorded on these securities.
OREO: Real estate acquired through, or in lieu of, loan foreclosures, is held for sale and initially recorded at fair value less costs to sell, establishing a new cost basis. Any writedownwrite down to fair value taken at the time of foreclosure is charged to the allowance. Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of carrying amount or fair value less costs to sell. Subsequent write-downs to fair value are charged to earnings.
Repossessed assets: Equipment or other non-real estate property acquired through, or in lieu of foreclosure, is held for sale and initially recorded at fair value less costs to sell. Repossessed assets are included in other assets on the consolidated balance sheets.
Goodwill: The Company has recorded goodwill from various business combinations. The goodwill is not being amortized, but is evaluated at least annually for impairment. In 2019 and prior years, the goodwill evaluationThe Company’s most recent analysis was performed as of September 30th. In 2019, that September 30th evaluation was then reassessed at November 30th to facilitate a change in the annual impairment testing date going forward. In future years, the annual evaluation will be performed as of November 30th. An impairment charge is recognized when the calculated fair value of the reporting unit, including goodwill, is less than its carrying amount. The Company engaged an external specialist to assess the goodwill at the reporting unit level for the Banks in 2019. As of November 30, 2019, the Company performed an internal assessment of the2021 and it was determined 0 goodwill for the Bates Companies reporting unit. As a result of this internal assessment, the Company determined an impairment charge of $3 million was required for the Bates Companies reporting unit.existed. See further discussioninformation in Note 6. Based upon internal assessments, there was no impairment recognized during 2018 and 2017.6 to the Consolidated Financial Statements.
Core deposit intangible: The Company has recorded a core deposit intangible from historical acquisitions including CNB, CSB and Guaranty Bank, and from its merger with Springfield Bancshares.acquisitions. The core deposit intangible was the portion of the acquisition purchase price which represented the value assigned to the existing deposit base at
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Note 1. Nature of Business and Significant Account Policies (continued)
acquisition. See Notes 2 and 6 to the Consolidated Financial Statements for additional information. The core deposit intangibles have a finite life and are amortized over the estimated useful life of the deposits (estimated to be ten10 years).
Customer list intangible: The Company hashad recorded a customer list intangible from the Bates Companies acquisition. The customer list intangible was the portion of the acquisition purchase price which represented the value assigned to the existing customer base at acquisition. See Notes 2 and 6 to the Consolidated Financial Statements for addition information. The customer list intangible hashad a finite life and willwas to be amortized over the estimated useful life (estimated
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Note 1. Nature of Business and Significant Accounting Policies (continued)
(estimated to be fifteen years). With the sale of the Bates Companies in August 2020, the remaining balance of the customer list intangible was written off.
Assets and liabilities held for sale: Assets and liabilities held for sale are carried at the lower of cost or estimated market value in the aggregate. See Note 2 for further information.
Swap transactions: The Company offers a loan swap program to certain commercial loan customers.customers including C&I, CRE, and multi-family which includes LIHTC permanent loans. Through this program, the Company originates a variable rate loan with the customer. The Company and the swap customer will then enter into a fixed interest rate swap. Separately, an identical offsetting swap is entered into by the Company with a counterparty. These “back-to-back” swap arrangements are intended to offset each other and allow the Company to book a variable rate loan, while providing the customer with a contract for fixed interest payments. In these arrangements, the Company’s net cash flow is equal to the interest income received from the variable rate loan originated with the customer. These customer swaps are not designated as hedging instruments and are recorded at fair value in other assets and other liabilities.
Additionally, the Company receives an upfront, non-refundable fee from the counterparty, dependent upon the pricing, that is recognized upon receipt from the counterparty. This upfront, non-refundable fee is recorded as noninterest income and classified as swap fee income/capital markets revenue.
Derivatives and hedging activities: The Company enters into derivative financial instruments as part of its strategy to manage its exposure to changes in interest rates.
Derivative instruments represent contracts between parties that result in one party delivering cash to the other party based on a notional amount and an underlying index (such as a rate, security price or price index) as specified in the contract. The amount of cash delivered from one party to the other is determined based on the interaction of the notional amount of the contract with the underlying index.
The derivative financial instruments currently used by the Company to manage its exposure to interest rate risk include: (1) interest rate lock commitments provided to customers to fund certain mortgage loans to be sold into the secondary market (although this type of derivative is negligible); (2) interest rate caps to manage the interest rate risk of certain variable rate deposits and short-term fixed rate liabilities; and (3) interest rate swaps on variable rate trust preferred securities.securities and floating rate loans.
Interest rate caps and interest rate swaps are valued by a third party monthly and corroborated by the transaction counterparty. The Company uses the hypothetical derivative method to assess and measure effectiveness in accordance with ASC 815, Derivative and Hedging.
Preferred stock: The Company currently has 250,000 shares of preferred stock authorized, but none outstanding as of December 31, 20192021 and 2018.2020. Should the Company have preferred stock outstanding in the future, dividends declared on those shares would be deducted from net income to arrive at net income available to common stockholders. Net income available to common stockholders would then be used in the earnings per share computationcomputation.
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Note 1. Nature of Business and Significant Account Policies (continued)
Stock-based compensation plans: The Company accounts for stock-based compensation with measurement of compensation cost for all stock-based awards at fair value on the grant date and recognition of compensation over the requisite service period for awards expected to vest.
As discussed in Note 16 to the Consolidated Financial Statements, during the years ended December 31, 2019, 2018,2021, 2020, and 2017,2019, the Company recognized stock-based compensation expense for the grant-date fair value of stock based awards that are expected to vest over the requisite service period of $2.5$2.4 million, $1.4$2.2 million and $1.2$2.5 million, respectively. As required, management made an estimate of expected forfeitures and is recognizing compensation costs only for those equity awards expected to vest.
80
Note 1. Nature of Business and Significant Accounting Policies (continued)
The Company uses the Black-Scholes option pricing model to estimate the fair value of stock option grants with the following assumptions for the indicated periods:
|
|
|
|
|
|
|
|
|
|
|
|
| 2019 |
| 2018 |
| 2017 |
| |||
Dividend yield |
|
| 0.67% |
|
| 0.45% to 0.48% |
|
| 0.36% to 0.47% |
|
Expected volatility |
|
| 28.28% |
|
| 29.51% to 29.59% |
|
| 29.64% to 29.95% |
|
Risk-free interest rate |
|
| 2.90% |
|
| 2.60% to 2.94% |
|
| 2.50% to 2.81% |
|
Expected life of option grants |
|
| 6.25 years |
|
| 6 years |
|
| 6 years |
|
Weighted-average grant date fair value |
| $ | 11.29 |
| $ | 14.68 |
| $ | 14.75 |
|
| | | | | | | | | | |
|
| 2021 |
| 2020 |
| 2019 | | |||
Dividend yield | | | 0.55% | | | 0.60% to 0.81% | | | 0.67% | |
Expected volatility |
| | 23.57% | | | 25.49% to 25.70% | | | 28.28% | |
Risk-free interest rate |
| | 1.62% | | | 0.79% to 1.31% | | | 2.90% | |
Expected life of option grants |
| | 6.25 years | | | 6.25 years | | | 6.25 years | |
Weighted-average grant date fair value | | $ | 10.85 | | $ | 10.07 | | $ | 11.29 | |
The Company also uses the Black-Scholes option pricing model to estimate the fair value of stock purchase grants with the following assumptions for the indicated periods:
|
|
|
|
|
|
|
|
|
|
|
|
| 2019 |
| 2018 |
| 2017 |
| |||
Dividend yield |
|
| 0.69% to 0.75% |
|
| 0.37% to 0.51% |
|
| 0.37% to 0.42% |
|
Expected volatility |
|
| 20.15% to 21.06% |
|
| 20.90% to 21.40% |
|
| 19.80% to 19.86% |
|
Risk-free interest rate |
|
| 2.02 % to 2.46% |
|
| 1.59% to 2.22% |
|
| 0.67% to 1.18% |
|
Expected life of purchase grants |
|
| 3 to 6 months |
|
| 3 to 6 months |
|
| 3 to 6 months |
|
Weighted-average grant date fair value |
| $ | 4.81 |
| $ | 6.63 |
| $ | 6.42 |
|
| | | | | | | | | | |
|
| 2021 |
| 2020 |
| 2019 | | |||
Dividend yield | |
| 0.49% to 0.61% | | | 0.55% to 0.81% | | | 0.69% to 0.75% | |
Expected volatility | |
| 37.51% to 38.65% | | | 24.59% to 36.38% | | | 20.15% to 21.06% | |
Risk-free interest rate | |
| 0% to 0.06% | | | 0.15% to 1.65% | | | 2.02 % to 2.46% | |
Expected life of purchase grants | |
| 3 to 6 months | | | 3 to 6 months | | | 3 to 6 months | |
Weighted-average grant date fair value | | $ | 7.67 | | $ | 6.03 | | $ | 4.81 | |
The fair value is amortized on a straight-line basis over the vesting periods of the grants and will be adjusted for subsequent changes in estimated forfeitures. The expected dividend yield assumption is based on the Company’s current expectations about its anticipated dividend policy. Expected volatility is based on historical volatility of the Company’s common stock price. The risk-free interest rate for periods within the contractual life of the option or purchase is based on the U.S. Treasury yield curve in effect at the time of the grant. The expected life of the option and purchase grants is derived using the “simplified” method and represents the period of time that options and purchases are expected to be outstanding. Historical data is used to estimate forfeitures used in the model. Two separate groups of employees (employees subject to broad based grants, and executive employees and directors) are used.
As of December 31, 2019,2021, there was $475$382 thousand of unrecognized compensation cost related to stock options granted, which is expected to be recognized over a weighted average period of 1.541.98 years.
The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the quoted price of the Company’s common stock for the 394,592367,998 options that were in-the-money at December 31, 2019.2021. The aggregate intrinsic value at December 31, 20192021 was $10.2$11.6 million on options outstanding and $9.7$10.8 million on options exercisable. During the years ended December 31, 2019, 20182021, 2020 and 2017,2019, the aggregate intrinsic value of
76
Note 1. Nature of Business and Significant Account Policies (continued)
options exercised under the Company’s Equity Plansstock-based compensation was $303$419 thousand, $365$270 thousand, and $1.0 million,$303 thousand, respectively, and determined as of the date of the option exercise.
Restricted stock awards granted may not be sold or otherwise transferred until the service periods have lapsed. During the vesting periods, participants have voting rights and receive dividends. Upon termination of employment, common shares upon which the service periods have not lapsed must be returned to the Company.
All restricted share awards are classified as equity awards. The grant-date fair value of equity-classified restricted stock awards is amortized as compensation expense on a straight-line basis over the period restrictions lapse.
As of December 31, 2019,2021, there was $3.1$2.7 million of unrecognized compensation cost related to nonvested restricted stock awards expected to be recognized over a period of 2.21.7 years.
81
Note 1. Nature of Business and Significant Accounting Policies (continued)
Income taxes: The Company files its tax return on a consolidated basis with its subsidiaries. The entities follow the direct reimbursement method of accounting for income taxes under which income taxes or credits which result from the inclusion of the subsidiaries in the consolidated tax return are paid to or received from the parent company.
Deferred income taxes are provided under the liability method whereby deferred tax assets are recognized for deductible temporary differences and net operating loss and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax basis. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more likely than not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of thebenefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination.
Interest and penalties associated with unrecognized tax benefits are classified as additional income taxes in the statements of income.
Trust assets: Trust assets held by the subsidiary banks in a fiduciary, agency, or custodial capacity for their customers, other than cash on deposit at the subsidiary banks, are not included in the accompanying Consolidated Financial Statements since such items are not assets of the subsidiary banks.
Earnings per share: See Note 18 to the Consolidated Financial Statements for a complete description and calculation of basic and diluted earnings per share.
Revenue Recognition: As of January 1, 2018, the Company adopted ASU 2014‑09 using the modified retrospective approach. The adoption of the guidance had no material impact on the measurement or recognition of revenue as
77
Note 1. Nature of Business and Significant Account Policies (continued)
approximately 89% of the Company's revenue (based on 2017 audited financial results) is outside the scope of this guidance; however, additional disclosures have been added in accordance with the ASU.
Descriptions of our revenue-generating contracts with customers that are within the scope of ASU 2014‑09, which are presented in our income statements as components of non-interest income are as follows:
Trust department and Investment advisory and management fees: This is a contract between the Company and its customers for fiduciary and/or investment administration services on trust and brokerage accounts. Trust services and brokerage fee income is determined as a percentage of assets under management and is recognized over the period the underlying trust account is serviced. Such contracts are generally cancellable at any time, with the customer subject to a pro-rated fee in the month of termination.
Deposit service fees: The deposit contract obligates the Company to serve as a custodian of the customer's deposited funds and is generally terminable at will by either party. The contract permits the customer to access the funds on deposit and request additional services related to the deposit account. Deposit account related fees, including analysis charges, overdraft/nonsufficient fund charges, service charges, debit card usage fees, overdraft fees and wire transfer fees are within the scope of the guidance; however, revenue recognition practices did not change under the guidance, as deposit agreements are considered day-to-day contracts. Income for deposit accounts is recognized over the statement cycle period (typically on a monthly basis) or at the time the service is provided, if additional services are requested.
82
Note 1. Nature of Business and Significant Accounting Policies (continued)
Correspondent banking fees: AThis is a contract between the Company and its correspondent banks for corresponding banking services. This line of business provides a strong source of noninterest bearing and interest bearing deposits, fee income, high-quality loan participations and bank stock loans. Correspondent banking fee income is tied to transaction activity and revenue is recognized monthly as earned for services provided.
Reclassifications: Certain amounts in the prior year’s Consolidated Financial Statements have been reclassified, with no effect on net income or stockholders’ equity, to conform with the current period presentation.
New Accounting Prounouncement:In February 2016, the FASB issued ASU 2016‑02, Leases. Under ASU 2016‑02, lessees will be required to recognize a lease liability measured on a discounted basis and a right-of-use asset for all leases (with the exception of short-term leases). LessorRecent accounting is largely unchanged under ASU 2016‑02. However, the definition of initial direct costs was updated to include only initial direct costs that are considered incremental. This change in definition will change the manner in which the Company recognizes the costs associated with originating leases. ASU 2016‑02 was effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The standard was adopted by the Company on January 1, 2019 and had no significant impact on the Company’s Consolidated Financial Statements.
developments:In June 2016, the FASB issued ASU 2016‑13, 2016-13, Financial Instruments – Credit Losses. Under the standard, assets measured at amortized cost (including loans, leases and AFSHTM securities) will be presented at the net amount expected to be collected. Rather than the “incurred” model that is currently beingpreviously utilized, the standard will requirerequires the use of a forward-looking approach to recognizing all expected credit losses at the beginning of an asset’s life. For public companies, ASU 2016‑13 is2016-13 became effective for fiscal years beginning after December 15, 2019, including interimitems periods within those fiscal years.
On March 27, 2020, the CARES Act, a stimulus package designed in response to the economic disruption created by COVID-19, was signed into law. The CARES Act includes provisions that, if elected, temporarily delay the required implementation date of ASU 2016-13. Section 4014 of the CARES Act stipulates that no insured depository institution, bank holding company, or affiliate will be required to comply with ASU 2016-13, beginning on the date of the CARES Act’s enactment and continuing until the earlier of: (1) the date on which the national emergency related to the COVID-19 outbreak is terminated or (2) December 31, 2020.
On December 27, 2020, the Consolidated Appropriations Act was established, which extended this relief to the earlier of the first day of the Company’s fiscal year after the date of the national emergency terminates or January 1, 2022. Based upon guidance from regulators it was determined the Company could adopt ASU 2016-13 on January 1, 2021, which the Company did on January 1, 2021.
Results for reporting periods beginning after December 31, 2020 are presented under ASU 2016-13 while prior period amounts continue to be reported in accordance with previously applicable GAAP, which includes a change in terminology from “Allowance for estimated losses on loans/leases” to “Allowance for credit losses.” The Company has developedadopted the standard using a CECLmodified retrospective approach and recorded an after-tax decrease to retained earnings of $937 thousand as of January 1, 2021 due to the adoption of ASU 2016-13. This transition adjustment included an $8.1 million decrease in the allowance model which calculates reserves overrelated to loans and leases, established an ACL on held to maturity debt securities of $183 thousand and established an ACL on OBS credit exposures of $9.1 million. The Company did not record an ACL on available for sale securities upon adoption of ASU 2016-13.
The Company elected to not measure an ACL on accrued interest as such accrued interest is written off in a timely manner when deemed uncollectible. Any such write-off of accrued interest will reverse previously recognized interest income. The Company elected not to include accrued interest within the lifepresentation and disclosures of the loancarrying amount of financial assets held at amortized cost. This election is applicable to the various disclosures included within the financial statements and is largely driven by portfolio characteristics, risk-grading, economic outlook, and other key methodology assumptions. Those assumptions are based uponnotes included on the existing probabilityfollowing pages of default and loss given default framework. this Form 10-K.
The Company willelected not to utilize economicthe regulatory transition relief issued by federal regulatory authorities in the first quarter of 2020, which allowed banking institutions to delay the impact of CECL on regulatory capital, because the impact on the capital ratios of the Company and other forecasts over a four quarter reasonable andits subsidiary banks was not significant.
7883
Note 1. Nature of Business and Significant AccountAccounting Policies (continued)
supportable forecast period. InThe following table illustrated the beginningimpact of the second year, the Company will fully revert back to average historical losses. The Company’s credit administration team will periodically refine the model as needed. The Company expects to incur an increase of 5-20% of the December 31, 2019 allowance for estimated losses on loans/leases and the after-tax charge will result in a decrease to the opening stockholders' equity balanceASU 2016-13 as of January 1, 2020. A majority2021:
| | | | | | | | | |
| | As Reported | | Pre- | | Impact of | |||
| | Under | | ASU 2016-13 | | ASU 2016-13 | |||
| | ASU 2016-13 | | Adoption |
| Adoption | |||
| | (dollars in thousands) | |||||||
Assets: | | | | | | | | | |
Allowance for credit losses HTM securities | | $ | 183 | | $ | — | | $ | 183 |
| | | | | | | | | |
Loans*: | | | | | | | | | |
C&I | | | — | | | 35,421 | | | (35,421) |
C&I - revolving | | | 2,982 | | | — | | | 2,982 |
C&I - other | | | 29,130 | | | — | | | 29,130 |
CRE | | | — | | | 42,161 | | | (42,161) |
CRE - owner occupied | | | 8,696 | | | — | | | 8,696 |
CRE - non owner occupied | | | 11,428 | | | — | | | 11,428 |
Construction & Land Development | | | 11,999 | | | — | | | 11,999 |
Multi-family | | | 5,836 | | | — | | | 5,836 |
Direct financing leases | | | — | | | 1,764 | | | (1,764) |
1-4 family real estate | | | 5,042 | | | — | | | 5,042 |
Residential real estate | | | — | | | 3,732 | | | (3,732) |
Consumer | | | 1,161 | | | 1,298 | | | (137) |
Allowance for credit losses on loans | | | 76,274 | | | 84,376 | | | (8,102) |
| | | | | | | | | |
Liabilities: | | | | | | | | | |
Allowance for credit losses on OBS credit exposures | | | 9,117 | | | — | | | 9,117 |
*Loan segmentation under ASU 2016-13 follows different methodology where that segmentation is collateral driven, causing certain segments to contain commercial and non-commercial borrowers, whereas pre-ASU 2016-13 segments were borrower driven.
Further discussion contained in this report regarding the loan and lease portfolio as well as ACL on HTM securities and OBS exposures is only relevant for the year 2021 and forward. Discussion in Note 1 of the increaseCompany’s Annual Report on Form 10-K for the year ended December 31, 2020 is still applicable for years prior to the allowance is the result of economic uncertainty and unfunded commitments. The Company anticipates increases in the allowance for credit losses on longer dated portfolios and decreases in the shorter dated portfolios. The Company is in the process of finalizing the review of the most recent model run as of the implementation date and finalizing assumptions including qualitative adjustments and economic forecasts.2021.
Pending accounting developments:
In January 2017,March 2020, the FASB issued ASU 2017-04, Intangibles - Goodwill2020-4, “Reference Rate Reform,” which provides optional expedients and Other (Topic 350).exceptions for applying GAAP to loan and lease arrangements, derivative contracts, and other transactions affected by the anticipated transition away from LIBOR toward new interest rate benchmarks. ASU 2017-042020-04 is intendedeffective March 12, 2020 through December 31, 2022. An entity may elect to simplify goodwill impairment testing by eliminatingapply ASU 2020-04 for contract modifications as of January 1, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the second stepdate that the financial statements are available to be issued.
Management has assessed the impacts of ASU 2020-4 and the related opportunities and risks involved in the LIBOR transition. Specifically, management has identified all of the analysis. ASU 2017-04 requires entitiesfinancial instruments with LIBOR exposure which includes certain commercial loans, interest rate swaps, interest rate caps, and certain securities. In all cases, management has determined a plan of transition from LIBOR to comparea different index. The transition will happen prior to the fair valueexpiration of published LIBOR rates on June 30, 2023. Management expects the transition to have a reporting unit with its carrying amountminimal impact to the Company’s financial statements.
Risks and recognizeuncertainties:
On January 30, 2020, the World Health Organization declared the COVID-19 outbreak a “Public Health Emergency of International Concern” and on March 11, 2020, declared it to be a pandemic. Actions taken around the world to help mitigate the spread of COVID-19 include restrictions on travel, quarantines in certain areas, and forced closures for certain types of public places and businesses. COVID-19 and actions taken to mitigate the spread of it have had and are expected to continue to have an impairment charge for any amount byadverse impact on the economies and financial markets of many countries, including the geographical area in which the carrying amount exceedsCompany operates. On March 27, 2020, the reporting unit’s fair value,CARES Act was enacted to, among other things, provide emergency assistance for individuals, families and businesses affected by the COVID-
84
Note 1. Nature of Business and Significant Accounting Policies (continued)
19 pandemic. The extent to which COVID-19 will continue to affect business operations, financial condition, credit quality, and results of operations will depend on future developments that cannot be predicted, including the duration and scope of the pandemic.
In the past year, the United States economy began to rebound from severe disruptions caused by the onset of the pandemic in March 2020. Economic conditions have begun to normalize with the availability of vaccines and treatments, increasing workforce employment and participation, the lessening of business and education restrictions, and demand for services beginning to return. The financial conditions of households and businesses was bolstered significantly by government stimulus, which contributed to the extenteconomic recovery but also brought about growing pains as evidenced by supply chain problems and rising prices. Although current economic conditions are more favorable than the prior year, the outlook for continued growth is characterized by elevated uncertainty with potential for unevenness across markets and sectors. Although household and business credit and liquidity is strong currently, further pandemic-related disruptions could result in increased risk of delinquencies, defaults, foreclosures, and losses on our loans; declines in assets under management, affecting wealth management revenues; negative impacts on regional economic conditions resulting in declines in local loan demand, liquidity of loan guarantors, loan collateral (particularly in real estate), loan originations, and deposit availability; and impacts on the implementation of our growth strategy. While the recovery this past year has been strong, the pace of growth in the United States and globally could decline as a result of rising inflation, the pervasiveness of supply chain challenges across industries, and the persistence of the virus in variant forms.
Overall, we believe that the loss recognized does not exceedeconomic impact from COVID-19 will continue for some time and could have a material and adverse impact on our business and result in significant losses in our loan portfolio, all of which would adversely and materially impact our earnings and capital. Even after the amountCOVID-19 pandemic has subsided, we may continue to experience materially adverse impacts to our business as a result of goodwill allocatedthe global economic impact of the COVID-19 pandemic, including the availability of credit, adverse impacts on liquidity, and any recession that has occurred or may occur in the future. There are no comparable recent events that provide guidance as to that reporting unit. The Company early adopted ASU 2017-04 effective for the period beginning January 1, 2019.
In August 2017,effect the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815). ASU 2017-12 is intendedspread of COVID-19 as a global pandemic may have, nor are there historical indicators to simplify and expand the eligible hedging strategies for financial and nonfinancial risks and enhance the transparencyrely on in terms of how hedging results are presentedmarkets will react, and disclosed.as a result, the ultimate impact of the pandemic is highly uncertain and subject to change.
Note 2. Sales/Mergers/Acquisitions
Sale of the Bates Companies
On August 12, 2020, the Company sold all of the issued and outstanding capital stock of the Bates Companies. The new standard provides partial relief onaggregate consideration paid to the timingCompany was a $500 thousand note receivable, less imputed interest of certain aspects$52 thousand, plus cancellation of hedge documentation and eliminatesall future amounts otherwise to become payable to the requirement to recognize hedge ineffectiveness separately in earnings. The standard was adoptedpurchaser by the Company on January 1, 2019under an earn-out agreement entered into between the same parties in 2018 with a non-discounted value of approximately $880 thousand at the sale date.
85
QCR Holdings, Inc. and had no significant impact on the Company’sSubsidiaries
Notes to Consolidated Financial Statements.Statements
Assets and liabilities of the Bates Companies sold are summarized as follows as of the date of closing:
Note 2. Sales/Mergers/Acquisitions
| | | |
| | As of | |
|
| August 12, 2020 | |
| | (dollars in thousands) | |
| | | |
ASSETS | | | |
Cash and due from banks | | $ | 349 |
Premises and equipment, net | | | 19 |
Other assets | | | 2,259 |
Total assets sold | | $ | 2,627 |
| | | |
LIABILITIES | | | |
Other liabilities | | $ | 946 |
Total liabilities sold | | $ | 946 |
| | | |
Net assets sold | | $ | 1,681 |
| | | |
| | | |
Cash consideration | | $ | 195 |
Forgiveness of earn-out consideration | | | 880 |
Note receivable consideration | | | 448 |
Loss on sale of subsidiary | | $ | 158 |
Disposition costs in 2020 related to the sale totaled $227 thousand and were comprised primarily of legal, accounting and personnel costs.
Sale of Assets and Liabilities of Rockford Bank & Trust Company
On November 30, 2019, the Company sold substantially all of the assets and transferred substantially all of the deposits and certain other liabilities of the Company’s wholly-owned subsidiary, RB&T, to IB&T, a wholly-owned subsidiary of Heartland Financial USA, Inc., for a cash payment. The cash payment amount was determined substantially by the following formula: (i)(1) the “Purchase Price Premium”, plus (ii)(2) the aggregate net book value of the acquired assets, minus (iii)(3) the aggregate book value of the assumed liabilities. The Purchase Price Premium iswas equal to: (a)(A) 8% of RB&T’s tangible assets, multiplied by (b)(B) 0.345. The Purchase Price Premium totaled $12.5 million and the total payment by IB&T to the Company at closing was $46.6 million.
79
Note 2. Sales/Mergers/Acquisitions (continued)
Assets and liabilities of RB&T sold are summarized as follows as of the date of closing:
| | | |
|
| As of | |
| | 11/30/2019 | |
| | (dollars in thousands) | |
ASSETS | | | |
Cash and due from banks | | $ | 3,973 |
Interest-bearing deposits at financial institutions | |
| 55,291 |
Securities held to maturity, at amortized cost | | | 3,243 |
Securities available for sale, at fair value | |
| 21,874 |
Loans/leases receivable held for investment, net | |
| 357,931 |
Premises and equipment, net | |
| 5,612 |
Restricted investment securities | |
| 675 |
Other real estate owned, net | |
| 2,134 |
Other assets | |
| 3,228 |
Total assets acquired | | $ | 453,961 |
| | | |
LIABILITIES | |
|
|
Noninterest-bearing deposits | | $ | 69,802 |
Interest-bearing deposits | | | 331,486 |
Short-term borrowings | |
| 1,158 |
FHLB advances | |
| 15,000 |
Other liabilities | | | 2,241 |
Total liabilities assumed | | $ | 419,687 |
| | | |
Net assets sold | | $ | 34,274 |
| | | |
Cash consideration received | | $ | 46,560 |
Gain on sale of assets and liabilities | | $ | 12,286 |
|
|
|
|
|
|
| As of |
| |
|
| November 30, 2019 |
| |
|
| (dollars in thousands) |
| |
|
|
|
|
|
ASSETS |
|
|
|
|
Cash and due from banks |
| $ | 3,973 |
|
Interest-bearing deposits at financial institutions |
|
| 55,291 |
|
Securities held to maturity, at amortized cost |
|
| 3,243 |
|
Securities available for sale, at fair value |
|
| 21,874 |
|
Loans/leases receivable held for investment, net |
|
| 357,931 |
|
Premises and equipment, net |
|
| 5,612 |
|
Restricted investment securities |
|
| 675 |
|
Other real estate owned, net |
|
| 2,134 |
|
Other assets |
|
| 3,228 |
|
Total assets sold |
| $ | 453,961 |
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
Noninterest-bearing deposits |
| $ | 69,802 |
|
Interest-bearing deposits |
|
| 331,486 |
|
Short-term borrowings |
|
| 1,158 |
|
Federal Home Loan Bank advances |
|
| 15,000 |
|
Other liabilities |
|
| 2,241 |
|
Total liabilities sold |
| $ | 419,687 |
|
|
|
|
|
|
Net assets sold |
| $ | 34,274 |
|
|
|
|
|
|
Cash consideration received |
| $ | 46,560 |
|
Gain on sale of assets and liabilities |
| $ | 12,286 |
|
86
Note 2. Sales/Mergers/Acquisitions (continued)
The Company retained certain assets, mainly comprised of BOLI, and certain liabilities, mainly comprised of deferred compensation and income tax accruals. These assets and liabilities totaling $12.0 million and $5.0 million, respectively, as of December 31, 2019, are expected to bewere liquidated by June 30, 2020 and are included within assets and liabilities held for sale on the consolidated balance sheets.in 2020.
Disposition costs in 2019 related to the sale totaled $3.3 million and were comprised primarily of legal and accounting costs, costs in connection with the disposal of fixed assets and prepaids, personnel costs and IT deconversion costs related to the sale of RB&T.
General – Mergers/Acquisitions
The narrative in this subsection applies to all mergers and acquisitions detailed throughout this footnote.
Loans acquired in a business combination are recorded and initially measured at their estimated fair value as of the acquisition date. Credit discounts are included in the determination of fair value. A third party valuation consultant assisted with the determination of fair value.
Purchased loans are segregated into two categories: PCI loans and non-PCI (performing) loans. PCI loans are accounted for in accordance with ASC 310‑30, as they display significant credit deterioration since origination and it is probable, as of the acquisition date, that the Company will be unable to collect all contractually required payments from the borrower. Performing loans are accounted for in accordance with ASC 310‑20, as these loans do not have evidence of significant credit deterioration since origination and it is probable that the contractually required payments will be received from the borrower.
For PCI loans, the difference between the contractually required payments at acquisition and the cash flows expected to be collected is referred to as the non-accretable discount. Further, any excess cash flows expected at acquisition over the estimated fair value is referred to as the accretable yield and is recognized in interest income over the expected
80
Note 2. Sales/Mergers/Acquisitions (continued)
remaining life of the loan. Subsequent to the purchase date, increases in cash flows over those expected at the purchase date are recognized as interest income prospectively. The present value of any decreases in expected cash flows after the purchase date is recognized by recording an allowance for loan and lease losses and provision for loan losses.
For performing loans, the difference between the estimated fair value of the loans and the principal balance outstanding is accreted over the remaining life of the loans.
Bates Companies
On October 1, 2018, the Company acquired the Bates Companies, headquartered in Rockford, Illinois. The acquisition enhanced the wealth management services of the Company by adding approximately $704 million of assets under management at acquisition. In the acquisition, the Company acquired 100% of the Bates Companies’ outstanding common stock for aggregate consideration of $3.0 million cash and up to $3.0 million of the Company’s common stock. Of the total cash consideration, $1.5million in cash was paid at closing funded through operating cash. The additional $1.5 million was recorded as a promissory note and will be repaid in five equal, annual installments of $300,000 each on the first through fifth anniversaries of the closing date. Interest will be paid at a rate of 2.18% per annum, based on the applicable federal rate as of the closing date. This $1.5 million promissory note is included in Other Liabilities on the Consolidated Balance Sheet. Additionally, in a private placement exempt from registration with the SEC, the Company issued 23,501 shares of Company stock in December 2018. Assuming all future performance based targets are met, total stock consideration can reach $3.0 million, which would result in the Company issuing approximately 47,003 additional common shares based on the 10-day volume weighted average of the closing stock price of the Company ending five days prior to closing. The contingent consideration for the additional common shares, totaling $2.0 million, as of December 31, 2018, is included in Other Liabilities on the Consolidated Balance Sheet. Required performance targets were met during 2019 and the Company issued 9,400 shares of common stock in December 2019 as described above.
During 2018, the Company incurred $394 thousand of expenses related to the acquisition, comprised primarily of legal and accounting costs.
The Company recorded a customer list intangible totaling $1.6 million which is the portion of the acquisition purchase price which represents the value assigned to the existing customer base. The customer list intangible has a finite life and is amortized over the estimated useful life of the customer base. The Company recorded goodwill totaling $3.7 million which is the excess of the consideration paid over the fair value of the net assets acquired. This goodwill is not deductible for tax purposes. See Note 6 to the Consolidated Financial Statements for additional information.
The Company accounted for the business combination under the acquisition method of accounting in accordance with ASC 805. The Company recognized the full fair value of the assets acquired and liabilities assumed at the acquisition date, net of applicable income tax effects.The Company considers all purchase accounting adjustments as provisional and fair values are subject to refinement for up to one year after the closing date.
81
Note 2. Sales/Mergers/Acquisitions (continued)
Unaudited pro forma combined operating results for the years ended December 31, 2018 and 2017, giving effect to the Bates Companies acquisition as if it had occurred as of January 1, 2017, are as follows:
|
|
|
|
|
|
|
|
| For the Year Ended December 31, | ||||
|
| 2018 |
| 2017 | ||
|
| (dollars in thousands, except per share data) | ||||
|
|
|
|
|
|
|
Net interest income |
| $ | 142,368 |
| $ | 116,029 |
Noninterest income |
| $ | 44,455 |
| $ | 33,044 |
Net income |
| $ | 44,032 |
| $ | 35,627 |
|
|
|
|
|
|
|
Earnings per common share: |
|
|
|
|
|
|
Basic |
| $ | 2.98 |
| $ | 2.67 |
Diluted |
| $ | 2.92 |
| $ | 2.60 |
The pro forma results do not purport to be indicative of the results of operations that actually would have resulted had the acquisition occurred on January 1, 2017 or of future results of operations of the consolidated entities.
Springfield Bancshares, Inc.
On July 1, 2018, the Company merged with Springfield Bancshares, the holding company of SFC Bank, headquartered in Springfield, Missouri. The Company acquired 100% of Springfield Bancshares common stock in the merger. SFC Bank is a Missouri-chartered bank that operates one location in the Springfield, Missouri market. As a result of the transaction, SFC Bank became an independent charter of the Company.
The merger with Springfield Bancshares allowed the Company to enter the Springfield, Missouri market which is consistent with the Company’s strategic plan to selectively acquire other high-performing financial institutions in vibrant mid-sized metropolitan markets with a high concentration of commercial clients. Financial metrics related to the transaction were favorable, as measured by EPS and ROAA accretion.
Stockholders of Springfield Bancshares received 0.3060 shares of the Company’s common stock and $1.50 in cash in exchange for each common share of Springfield Bancshares held. On June 29, 2018, the last trading date before the closing, the Company’s common stock closed at $47.45, resulting in stock consideration valued at $80.6 million and total consideration paid by the Company of $89.0 million. To help fund the cash portion of the purchase price, on June 29, 2018, the Company borrowed $4.1 million on its existing $10.0 million revolving line of credit. The Company also borrowed $4.9 million on this same revolving line of credit to fund the repayment of certain debt assumed in the merger shortly after closing. This note is included within Other Borrowings on the Consolidated Balance Sheets. The remaining cash consideration paid to the shareholders of Springfield Bancshares came from operating cash.
The Company accounted for the business combination under the acquisition method of accounting in accordance with ASC 805. The Company recognized the full fair value of the assets acquired and liabilities assumed at the merger date, net of applicable income tax effects. The Company considers all purchase accounting adjustments as provisional and fair values are subject to refinement for up to one year after the closing date.
The excess of the consideration paid over the fair value of the net assets acquired is recorded as goodwill. This goodwill is not deductible for tax purposes. During the fourth quarter of 2018, various measurement period adjustments were made. The result of these adjustments was an increase to goodwill of $447 thousand.
82
Note 2. Sales/Mergers/Acquisitions (continued)
The fair values of the assets acquired and liabilities assumed, after measurement period adjustments to date, including the consideration paid and resulting goodwill is as follows.
|
|
|
|
|
| As of | |
|
| July 1, 2018 | |
|
| (dollars in thousands) | |
ASSETS |
|
|
|
Cash and due from banks |
| $ | 4,586 |
Interest-bearing deposits at financial institutions |
|
| 62,924 |
Securities |
|
| 4,845 |
Loans/leases receivable, net |
|
| 477,337 |
Bank-owned life insurance |
|
| 7,092 |
Premises and equipment |
|
| 6,092 |
Restricted investment securities |
|
| 3,654 |
Intangibles |
|
| 8,209 |
Other assets |
|
| 1,471 |
Total assets acquired |
| $ | 576,210 |
|
|
|
|
LIABILITIES |
|
|
|
Deposits |
| $ | 439,579 |
Short-term borrowings |
|
| 1,143 |
FHLB advances |
|
| 74,539 |
Other borrowings |
|
| 9,544 |
Other liabilities |
|
| 8,409 |
Total liabilities assumed |
| $ | 533,214 |
Net assets acquired |
| $ | 42,996 |
|
|
|
|
CONSIDERATION PAID: |
|
|
|
Cash |
| $ | 8,334 |
Common stock |
|
| 80,637 |
Total consideration paid |
| $ | 88,971 |
Goodwill |
| $ | 45,975 |
The following table presents the purchased loans as of the merger date:
|
|
|
|
|
|
|
|
|
|
|
| PCI |
| Performing |
|
|
| ||
|
| Loans |
| Loans |
| Total | |||
|
| (dollars in thousands) | |||||||
|
|
|
|
|
|
|
|
|
|
Contractually required principal payments |
| $ | 7,553 |
| $ | 479,440 |
| $ | 486,993 |
Nonaccretable discount |
|
| (1,563) |
|
| — |
|
| (1,563) |
Principal cash flows expected to be collected |
| $ | 5,990 |
| $ | 479,440 |
| $ | 485,430 |
Accretable discount |
|
| (293) |
|
| (7,800) |
|
| (8,093) |
Fair Value of acquired loans |
| $ | 5,697 |
| $ | 471,640 |
| $ | 477,337 |
Changes in accretable yield for the loans acquired are as follows:
|
|
|
|
|
|
|
|
|
|
|
| Year ended December 31, 2019 | |||||||
|
| PCI |
| Performing |
|
|
| ||
|
| Loans |
| Loans |
| Total | |||
|
| (dollars in thousands) | |||||||
|
|
|
|
|
|
|
|
|
|
Balance at the beginning of the period |
| $ | (659) |
| $ | (5,849) |
| $ | (6,508) |
Reclassification of nonaccretable discount to accretable |
|
| (159) |
|
| — |
|
| (159) |
Accretion recognized |
|
| 767 |
|
| 2,325 |
|
| 3,092 |
Balance at the end of the period |
| $ | (51) |
| $ | (3,524) |
| $ | (3,575) |
|
|
|
|
|
|
|
|
|
|
|
| For the year ended December 31, 2018 | |||||||
|
| PCI |
| Performing |
|
| |||
|
| Loans |
| Loans |
| Total | |||
Balance at the beginning of the period |
| $ | — |
| $ | — |
| $ | — |
Discount added at acquisition |
|
| (293) |
|
| (7,800) |
|
| (8,093) |
Reclassification of nonaccretable discount to accretable |
|
| (892) |
|
| — |
|
| (892) |
Accretion recognized |
|
| 526 |
|
| 1,951 |
|
| 2,477 |
Balance at the end of the period |
| $ | (659) |
| $ | (5,849) |
| $ | (6,508) |
83
Note 2. Sales/Mergers/Acquisitions (continued)
During 2019, there was no nonaccretable discount that was recognized due to the repayment of PCI loans. However, $159 thousand of nonaccretable discount was reclassified to accretable due to significant improvement on one specific credit subsequent to the merger date. Of this amount, $153 thousand was accreted to income in 2019, while the remainder will be accreted over the next 8 months, which is the remaining contractual life of the loan.
During 2018, there was no nonaccretable discount that was recognized due to the repayment of PCI loans. However, $892 thousand of nonaccretable discount was reclassified to accretable during the third quarter of 2018 due to significant improvement on one specific credit subsequent to the merger date. Of this amount, $396 thousand was accreted to income in 2018, while the remainder will be accreted over the next 8 months, which is the remaining contractual life of the loan.
Premises and equipment acquired with a fair value of $6.1million includes one branch location. The fair value was determined with the assistance of a third party appraiser. The buildings and building write-ups will be recognized in depreciation expense over 39 years.
The Company recorded a core deposit intangible totaling $8.2 million which is the portion of the merger purchase price which represents the value assigned to the existing deposit base. The core deposit intangible has a finite life and is amortized using an accelerated method over the estimated useful life of the deposits (estimated to be ten years). See Note 6 to the Consolidated Financial Statements for additional information.
FHLB advances and other borrowings assumed with a fair value of $84.1 million included $40.0 million in overnight FHLB advances, $34.5 million of FHLB term advances, $4.7 million in subordinated debentures and a $4.8 million bank stock loan. The $4.8 million bank stock loan was paid off immediately after the merger date on July 2, 2018, at its book value. See Note 10 and 11 to the Consolidated Financial Statements for additional information.
During 2018, the Company incurred $1.4 million of expenses related to the merger comprised primarily of legal, accounting, and investment banking costs. These costs are presented on their own line within the consolidated statements of income. SFC Bank results are included in the consolidated statements of income effective on the merger date. For the period July 1, 2018 to December 31, 2018, SFC Bank reported revenues of $15.2 million and net income of $4.8 million, which included $391 thousand of after tax post-acquisition, compensation, transition and integration costs.
Unaudited pro forma combined operating results for the years ended December 31, 2018 and 2017, giving effect to the merger with Springfield Bancshares as if it had occurred as of January 1, 2017, are as follows:
|
|
|
|
|
|
|
|
| For the Year Ended December 31, | ||||
|
| 2018 |
| 2017 | ||
|
| (dollars in thousands, except per share data) | ||||
|
|
|
|
|
|
|
Net interest income |
| $ | 153,229 |
| $ | 136,190 |
Noninterest income |
| $ | 42,538 |
| $ | 32,395 |
Net income |
| $ | 49,542 |
| $ | 42,316 |
|
|
|
|
|
|
|
Earnings per common share: |
|
|
|
|
|
|
Basic |
| $ | 3.17 |
| $ | 2.82 |
Diluted |
| $ | 3.11 |
| $ | 2.75 |
The pro forma results do not purport to be indicative of the results of operations that actually would have resulted had the merger occurred on January 1, 2017 or of future results of operations of the consolidated entities.
84
Note 2. Sales/Mergers/Acquisitions (continued)
Guaranty Bank and Trust
On October 1, 2017 the Company acquired Guaranty Bank, headquartered in Cedar Rapids, Iowa, from Guaranty. Guaranty Bank is an Iowa-chartered bank that operates five banking locations throughout the Cedar Rapids metropolitan area.
The acquisition of Guaranty Bank allowed the Company to grow its market share in the Cedar Rapids market. Guaranty Bank has a strong core deposit base and retail franchise. Although Guaranty already had strong earnings, the Company has identified several opportunities for enhanced future earnings performance. Lastly, financial metrics related to the transaction were favorable, as measured by EPS accretion, ROAA accretion and earn back of tangible book value dilution.
In the acquisition, the Company acquired 100% of Guaranty Bank’s outstanding common stock and purchased certain assets and assumed certain liabilities of Guaranty for aggregate consideration consisting of 79% QCR Holdings common stock (678,670 shares) and 21% cash ($7.8 million). On September 29, 2017, the last trading date before the closing, the Company’s common stock closed at $45.50, resulting in stock consideration valued at $30.9 million and total consideration paid by the Company of $38.7 million.
To help fund the cash portion of the purchase price, on September 27, 2017, the Company executed a $7.0 million four-year term note with principal and interest due quarterly. See further information in Note 11. This note is included within other borrowings on the December 31, 2017 Consolidated Balance Sheets. The remaining cash consideration paid to Guaranty came from operating cash.
The Company accounted for the business combination under the acquisition method of accounting in accordance with ASC 805. The Company recognized the full fair value of the assets acquired and liabilities assumed at the acquisition date, net of applicable income tax effects. The Company considers all purchase accounting adjustments to be finalized.
The excess of the consideration paid over the fair value of the net assets acquired is recorded as goodwill. This goodwill is deductible over 15 years for tax purposes.
The Company has several areas of specialization, including government guaranteed lending, C&I lending, interest rate swaps, leasing, wealth management, private banking and municipal bond offerings that will be offered in this expanded market, increasing future earnings potential. Guaranty Bank has a strong core deposit base. There is also value added to the Company through having an expanded footprint in a market that has strong growth potential. The experience and value of the personnel at Guaranty Bank and their knowledge of the expanded market is also beneficial.
On December 2, 2017, the Company merged Guaranty Bank with and into CRBT, with CRBT as the surviving bank. As part of the merger, the Guaranty Bank branches located at 302 3rd Avenue SE, Cedar Rapids, Iowa and 1819 42nd Street NE, Cedar Rapids, Iowa, permanently closed. The three remaining Guaranty Bank branches have become banking offices of CRBT.
85
Note 2. Sales/Mergers/Acquisitions (continued)
The fair values of the assets acquired and liabilities assumed including the consideration paid and resulting goodwill is as follows:
|
|
|
|
|
| As of | |
|
| October 1, 2017 | |
|
| (dollars in thousands) | |
ASSETS |
|
|
|
Cash and due from banks |
| $ | 4,435 |
Interest-bearing deposits at financial institutions |
|
| 3,954 |
Securities |
|
| 49,703 |
Loans/leases receivable, net |
|
| 192,518 |
Premises and equipment |
|
| 4,808 |
Restricted investment securities |
|
| 477 |
Core deposit intangible |
|
| 2,698 |
Other assets |
|
| 998 |
Total assets acquired |
| $ | 259,591 |
|
|
|
|
LIABILITIES |
|
|
|
Deposits |
| $ | 212,468 |
Short-term borrowings |
|
| 13,102 |
FHLB advances |
|
| 4,108 |
Junior subordinated debentures |
|
| 3,857 |
Other liabilities |
|
| 2,596 |
Total liabilities assumed |
| $ | 236,131 |
Net assets acquired |
| $ | 23,460 |
|
|
|
|
CONSIDERATION PAID: |
|
|
|
Cash |
| $ | 7,803 |
Common stock |
|
| 30,880 |
Total consideration paid |
| $ | 38,683 |
Goodwill |
| $ | 15,223 |
The following table presents the purchased loans as of the acquisition date:
|
|
|
|
|
|
|
|
|
|
|
| PCI |
| Performing |
| �� |
| ||
|
| Loans |
| Loans |
| Total | |||
|
| (dollars in thousands) | |||||||
|
|
|
|
|
|
|
|
|
|
Contractually required principal payments |
| $ | 3,126 |
| $ | 192,983 |
| $ | 196,109 |
Nonaccretable discount |
|
| (1,147) |
|
| — |
|
| (1,147) |
Principal cash flows expected to be collected |
| $ | 1,979 |
| $ | 192,983 |
| $ | 194,962 |
Accretable discount |
|
| (220) |
|
| (2,224) |
|
| (2,444) |
Fair Value of acquired loans |
| $ | 1,759 |
| $ | 190,759 |
| $ | 192,518 |
86
Note 2. Sales/Mergers/Acquisitions (continued)
Changes in accretable yield for the loans acquired are as follows:
|
|
|
|
|
|
|
|
|
|
|
| For the year ended December 31, 2019 | |||||||
|
| PCI |
| Performing |
|
| |||
|
| Loans |
| Loans |
| Total | |||
|
| (dollars in thousands) | |||||||
|
|
|
|
|
|
|
|
|
|
Balance at the beginning of the period |
| $ | (8) |
| $ | (1,613) |
| $ | (1,621) |
Reclassification of nonaccretable discount to accretable |
|
| (5) |
|
| — |
|
| (5) |
Accretion recognized |
|
| 7 |
|
| 518 |
|
| 525 |
Balance at the end of the period |
| $ | (6) |
| $ | (1,095) |
| $ | (1,101) |
|
|
|
|
|
|
|
|
|
|
|
| For the year ended December 31, 2018 | |||||||
|
| PCI |
| Performing |
|
| |||
|
| Loans |
| Loans |
| Total | |||
|
| (dollars in thousands) | |||||||
|
|
|
|
|
|
|
|
|
|
Balance at the beginning of the period |
| $ | (166) |
| $ | (2,197) |
| $ | (2,363) |
Accretion recognized |
|
| 158 |
|
| 584 |
|
| 742 |
Balance at the end of the period |
| $ | (8) |
| $ | (1,613) |
| $ | (1,621) |
|
|
|
|
|
|
|
|
|
|
|
| For the year ended December 31, 2017 | |||||||
|
| PCI |
| Performing |
|
| |||
|
| Loans |
| Loans |
| Total | |||
|
| (dollars in thousands) | |||||||
|
|
|
|
|
|
|
|
|
|
Balance at the beginning of the period |
| $ | (220) |
| $ | (2,224) |
| $ | (2,444) |
Accretion recognized |
|
| 54 |
|
| 27 |
|
| 81 |
Balance at the end of the period |
| $ | (166) |
| $ | (2,197) |
| $ | (2,363) |
|
|
|
|
|
|
|
|
|
|
During 2018 and 2017, there was also $137 thousand and $158 thousand, respectively, of nonaccretable discount that was recognized due to the repayment of PCI loans.
Premises and equipment acquired with a fair value of $4.8 million includes five branch locations with a fair value of $4.6 million. The fair value was determined with the assistance of a third party appraiser. The buildings and related fair value adjustments will be recognized in depreciation expense over 39 years.
The Company recorded a core deposit intangible totaling $2.7 million which is the portion of the acquisition purchase price which represents the value assigned to the existing deposit base. The core deposit intangible has a finite life and is amortized using an accelerated method over the estimated useful life of the deposits (estimated to be ten years). See Note 6 to the Consolidated Financial Statements for additional information.
During 2017, the Company incurred $805 thousand of expenses related to the acquisition, comprised primarily of legal, accounting and investment banking costs. These acquisition costs are presented on their own line within the consolidated statements of income. Also during 2017, the Company incurred $3.1 million of post-acquisition expenses, comprised primarily of personnel costs, IT integration, and conversion costs. Guaranty Bank results are included in the consolidated statements of income effective on the acquisition date.
87
Note 2. Sales/Mergers/Acquisitions (continued)
Unaudited pro forma combined operating results for the years ended December 31, 2017 and 2016, giving effect to the Guaranty Bank acquisition as if it had occurred as of January 1, 2016, are as follows:
|
|
|
|
|
|
|
|
| Year Ended December 31, | ||||
|
| 2017 |
| 2016 | ||
|
| (dollars in thousands, except per share data) | ||||
|
|
|
|
|
|
|
Net interest income |
| $ | 122,923 |
| $ | 102,902 |
Noninterest income |
| $ | 32,703 |
| $ | 34,238 |
Net income |
| $ | 38,728 |
| $ | 27,103 |
|
|
|
|
|
|
|
Earnings per common share: |
|
|
|
|
|
|
Basic |
| $ | 2.80 |
| $ | 2.05 |
Diluted |
| $ | 2.73 |
| $ | 2.02 |
The pro forma results do not purport to be indicative of the results of operations that actually would have resulted had the acquisition occurred on January 1, 2016 or of future results of operations of the consolidated entities.
The amortized cost and fair value of investment securities as of December 31, 20192021 and 20182020 are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Gross |
| Gross |
|
|
| ||
|
| Amortized |
| Unrealized |
| Unrealized |
| Fair | ||||
|
| Cost |
| Gains |
| (Losses) |
| Value | ||||
|
| (dollars in thousands) | ||||||||||
December 31, 2019: |
|
|
|
|
|
|
|
|
|
|
|
|
Securities HTM: |
|
|
|
|
|
|
|
|
|
|
|
|
Municipal securities |
| $ | 399,596 |
| $ | 26,042 |
| $ | (143) |
| $ | 425,495 |
Other securities |
|
| 1,050 |
|
| — |
|
| — |
|
| 1,050 |
|
| $ | 400,646 |
| $ | 26,042 |
| $ | (143) |
| $ | 426,545 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities AFS: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. govt. sponsored agency securities |
| $ | 19,872 |
| $ | 283 |
| $ | (77) |
| $ | 20,078 |
Residential mortgage-backed and related securities |
|
| 118,724 |
|
| 2,045 |
|
| (182) |
|
| 120,587 |
Municipal securities |
|
| 46,659 |
|
| 1,602 |
|
| (4) |
|
| 48,257 |
Other securities |
|
| 21,707 |
|
| 138 |
|
| (72) |
|
| 21,773 |
|
| $ | 206,962 |
| $ | 4,068 |
| $ | (335) |
| $ | 210,695 |
| | | | | | | | | | | | | | ||||||||||||
| | | | | Gross | | Gross | | | | | ||||||||||||||
| | Amortized | | Unrealized | | Unrealized | | Fair | | ||||||||||||||||
|
| Cost* |
| Gains |
| (Losses) |
| Value |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
|
|
|
|
| Gross |
| Gross |
|
|
| |||||||||||||||
|
| Amortized |
| Unrealized |
| Unrealized |
| Fair | |||||||||||||||||
|
| Cost |
| Gains |
| (Losses) |
| Value | |||||||||||||||||
|
| (dollars in thousands) | |||||||||||||||||||||||
December 31, 2018: |
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
| | (dollars in thousands) | |||||||||||||||||||||||
December 31, 2021: |
| |
|
| |
|
| |
|
| |
|
| ||||||||||||
Securities HTM: |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| |
|
| |
|
| |
|
|
Municipal securities |
| $ | 400,863 |
| $ | 5,661 |
| $ | (6,803) |
| $ | 399,721 | | $ | 471,533 | | $ | 49,715 | | $ | — | | $ | 521,248 | |
Other securities |
|
| 1,050 |
|
| — |
|
| (1) |
|
| 1,049 | |
| 1,050 | |
| — | |
| (1) | |
| 1,049 | |
|
| $ | 401,913 |
| $ | 5,661 |
| $ | (6,804) |
| $ | 400,770 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
| | $ | 472,583 | | $ | 49,715 | | $ | (1) | | $ | 522,297 | | ||||||||||||
| |
|
| |
|
| |
|
| |
|
| | ||||||||||||
Securities AFS: |
|
|
|
|
|
|
|
|
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
U.S. govt. sponsored agency securities |
| $ | 37,150 |
| $ | 39 |
| $ | (778) |
| $ | 36,411 | |||||||||||||
U.S. treasuries and govt. sponsored agency securities | | $ | 23,370 | | $ | 254 | | $ | (296) | | $ | 23,328 | | ||||||||||||
Residential mortgage-backed and related securities |
|
| 163,698 |
|
| 182 |
|
| (4,631) |
|
| 159,249 | |
| 92,431 | |
| 2,672 | |
| (780) | |
| 94,323 | |
Municipal securities |
|
| 59,069 |
|
| 180 |
|
| (703) |
|
| 58,546 | |
| 163,253 | |
| 5,228 | |
| (215) | |
| 168,266 | |
Asset-backed securities | | | 26,372 | | | 752 | | | — | | | 27,124 | | ||||||||||||
Other securities |
|
| 6,754 |
|
| 100 |
|
| (4) |
|
| 6,850 | |
| 24,568 | |
| 251 | |
| (30) | |
| 24,789 | |
|
| $ | 266,671 |
| $ | 501 |
| $ | (6,116) |
| $ | 261,056 | |||||||||||||
| | $ | 329,994 | | $ | 9,157 | | $ | (1,321) | | $ | 337,830 | | ||||||||||||
| | | | | | | | | | | | | |
88
Table* HTM securities shown on the balance sheet of Contents$472.4 million represent amortized cost of $472.6 million, net of allowance for credit losses of $198 thousand as of December 31, 2021.
QCR Holdings, Inc. and Subsidiaries
| | | | | | | | | | | | |
| | | | | Gross | | Gross | | | |||
| | Amortized | | Unrealized | | Unrealized | | Fair | ||||
|
| Cost |
| Gains |
| (Losses) | | Value | ||||
| | (dollars in thousands) | ||||||||||
December 31, 2020: |
| |
|
| |
|
| |
| | | |
Securities HTM: |
| |
|
| |
|
| |
| | | |
Municipal securities | | $ | 475,115 | | $ | 45,360 | | $ | (248) | | $ | 520,227 |
Other securities | |
| 1,050 | |
| — | |
| — | |
| 1,050 |
| | $ | 476,165 | | $ | 45,360 | | $ | (248) | | $ | 521,277 |
| |
|
| |
|
| |
|
| |
|
|
Securities AFS: | |
|
| |
|
| |
|
| |
|
|
U.S. govt. sponsored agency securities | | $ | 14,936 | | $ | 447 | | $ | (47) | | $ | 15,336 |
Residential mortgage-backed and related securities | |
| 127,670 | |
| 5,510 | |
| (338) | |
| 132,842 |
Municipal securities | |
| 147,241 | |
| 5,215 | |
| (48) | |
| 152,408 |
Asset-backed securities | | | 39,663 | | | 1,111 | | | (91) | | | 40,683 |
Other securities | |
| 20,550 | |
| 147 | |
| — | |
| 20,697 |
| | $ | 350,060 | | $ | 12,430 | | $ | (524) | | $ | 361,966 |
| | | | | | | | | | | | |
Notes to Consolidated Financial Statements
Note 3. Investment Securities (continued)
The Company’s HTM municipal securities consist largely of private issues of municipal debt. The municipalities are located primarily within the Midwest. The municipal debt investments are underwritten using specific guidelines with ongoing monitoring.
87
Note 3. Investment Securities (continued)
The Company’s residential mortgage-backed and related securities portfolio consists entirely of government sponsored or government guaranteed securities. The Company has not invested in commercial mortgage-backed securities or pooled trust preferred securities.
Gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, as of December 31, 20192021 and 2018,2020, are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Less than 12 Months |
| 12 Months or More |
| Total | ||||||||||||
|
|
|
| Gross |
|
|
| Gross |
|
|
| Gross | ||||||
|
| Fair |
| Unrealized |
| Fair |
| Unrealized |
| Fair |
| Unrealized | ||||||
|
| Value |
| Losses |
| Value |
| Losses |
| Value |
| Losses | ||||||
|
| (dollars in thousands) | ||||||||||||||||
December 31, 2019: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities HTM: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal securities |
| $ | 509 |
| $ | (1) |
| $ | 10,047 |
| $ | (142) |
| $ | 10,556 |
| $ | (143) |
Other securities |
|
| 550 |
|
| — |
|
| — |
|
| — |
|
| 550 |
|
| — |
|
| $ | 1,059 |
| $ | (1) |
| $ | 10,047 |
| $ | (142) |
| $ | 11,106 |
| $ | (143) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities AFS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. govt. sponsored agency securities |
| $ | 1,431 |
| $ | (21) |
| $ | 2,117 |
| $ | (56) |
| $ | 3,548 |
| $ | (77) |
Residential mortgage-backed and related securities |
|
| 2,263 |
|
| (17) |
|
| 17,862 |
|
| (165) |
|
| 20,125 |
|
| (182) |
Municipal securities |
|
| — |
|
| — |
|
| 724 |
|
| (4) |
|
| 724 |
|
| (4) |
Other securities |
|
| 17,135 |
|
| (72) |
|
| — |
|
| — |
|
| 17,135 |
|
| (72) |
|
| $ | 20,829 |
| $ | (110) |
| $ | 20,703 |
| $ | (225) |
| $ | 41,532 |
| $ | (335) |
| | | | | | | | | | | | | | | | | | | ||||||||||||||||||
| | Less than 12 Months | | 12 Months or More | | Total | ||||||||||||||||||||||||||||||
| | | | Gross | | | | Gross | | | | Gross | ||||||||||||||||||||||||
| | Fair | | Unrealized | | Fair | | Unrealized | | Fair | | Unrealized | ||||||||||||||||||||||||
|
| Value |
| Losses |
| Value |
| Losses |
| Value |
| Losses | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
|
| Less than 12 Months |
| 12 Months or More |
| Total | ||||||||||||||||||||||||||||||
|
|
|
| Gross |
|
|
| Gross |
|
|
| Gross | ||||||||||||||||||||||||
|
| Fair |
| Unrealized |
| Fair |
| Unrealized |
| Fair |
| Unrealized | ||||||||||||||||||||||||
|
| Value |
| Losses |
| Value |
| Losses |
| Value |
| Losses | ||||||||||||||||||||||||
|
| (dollars in thousands) | ||||||||||||||||||||||||||||||||||
December 31, 2018: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
| | (dollars in thousands) | ||||||||||||||||||||||||||||||||||
December 31, 2021: |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| ||||||||||||||||||
Securities HTM: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Municipal securities |
| $ | 114,201 |
| $ | (2,187) |
| $ | 69,412 |
| $ | (4,616) |
| $ | 183,613 |
| $ | (6,803) | ||||||||||||||||||
Other securities |
|
| 549 |
|
| (1) |
|
| — |
|
| — |
|
| 549 |
|
| (1) | | $ | 1,049 | | $ | (1) | | $ | — | | $ | — | | $ | 1,049 | | $ | (1) |
|
| $ | 114,750 |
| $ | (2,188) |
| $ | 69,412 |
| $ | (4,616) |
| $ | 184,162 |
| $ | (6,804) | ||||||||||||||||||
| |
|
| |
| | |
|
| |
|
| |
|
| |
|
| ||||||||||||||||||
Securities AFS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| |
| | |
|
| |
|
| |
|
| |
|
|
U.S. govt. sponsored agency securities |
| $ | 1,565 |
| $ | (34) |
| $ | 29,605 |
| $ | (744) |
| $ | 31,170 |
| $ | (778) | ||||||||||||||||||
U.S. treasuries and govt. sponsored agency securities | | $ | 9,802 | | $ | (156) | | $ | 3,035 | | $ | (140) | | $ | 12,837 | | $ | (296) | ||||||||||||||||||
Residential mortgage-backed and related securities |
|
| 12,810 |
|
| (148) |
|
| 133,535 |
|
| (4,483) |
|
| 146,345 |
|
| (4,631) | |
| 5,363 | |
| (67) | |
| 19,406 | |
| (713) | |
| 24,769 | |
| (780) |
Municipal securities |
|
| 28,356 |
|
| (394) |
|
| 15,932 |
|
| (309) |
|
| 44,288 |
|
| (703) | |
| 13,287 | |
| (211) | |
| 1,001 | |
| (4) | |
| 14,288 | |
| (215) |
Other securities |
|
| 4,249 |
|
| (4) |
|
| — |
|
| — |
|
| 4,249 |
|
| (4) | |
| 4,528 | |
| (30) | |
| — | |
| — | |
| 4,528 | |
| (30) |
|
| $ | 46,980 |
| $ | (580) |
| $ | 179,072 |
| $ | (5,536) |
| $ | 226,052 |
| $ | (6,116) | ||||||||||||||||||
| | $ | 32,980 | | $ | (464) | | $ | 23,442 | | $ | (857) | | $ | 56,422 | | $ | (1,321) | ||||||||||||||||||
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | Less than 12 Months | | 12 Months or More | | Total | ||||||||||||
| | | | Gross | | | | Gross | | | | Gross | ||||||
| | Fair | | Unrealized | | Fair | | Unrealized | | Fair | | Unrealized | ||||||
|
| Value |
| Losses |
| Value |
| Losses |
| Value |
| Losses | ||||||
| | (dollars in thousands) | ||||||||||||||||
December 31, 2020: |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Securities HTM: |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Municipal securities | | $ | 8,407 | | $ | (248) | | $ | — | | $ | — | | $ | 8,407 | | $ | (248) |
| | | | | | | | | | | | | | | | | | |
Securities AFS: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
U.S. govt. sponsored agency securities | | $ | 3,199 | | $ | (47) | | $ | — | | $ | — | | $ | 3,199 | | $ | (47) |
Residential mortgage-backed and related securities | |
| 37,549 | |
| (338) | |
| — | |
| — | |
| 37,549 | |
| (338) |
Municipal securities | |
| 10,110 | |
| (48) | |
| — | |
| — | |
| 10,110 | |
| (48) |
Asset-backed securities | | | 6,884 | | | (52) | | | 9,945 | | | (39) | | | 16,829 | | | (91) |
| | $ | 57,742 | | $ | (485) | | $ | 9,945 | | $ | (39) | | $ | 67,687 | | $ | (524) |
At December 31, 2019,2021, the investment portfolio included 541622 securities. Of this number, 3542 securities were in an unrealized loss position. The aggregate losses of these securities totaled approximately 0.1%0.17% of the total aggregate amortized cost. Of these 3542 securities, 2013 securities had an unrealized loss for 12 months or more. All of the debt securities in unrealized loss positions are considered acceptable credit risks. Based upon an evaluation of the available evidence, including the recent changes in market rates, credit rating information and information obtained from regulatory filings, management believes the declines in fair value for these debt securities are temporary. In addition,
On January 1, 2021, the Company lacksadopted ASU 2016-13, which replaced the intentlegacy GAAP OTTI model with a credit loss model. ASU 2016-13 requires an allowance on lifetime expected credit losses on held to sell thesematurity debt securities. The following table presents the activity in the allowance for credit losses held to maturity securities and it is not more-likely-than-not that the Company will be required to sell these debt securities before their anticipated recovery.
The Company did not recognize OTTI on any investment securitiesby major security type for the yearsyear ended December 31, 2019, 2018 or 2017.2021.
| | | | | | | | | | |
| | | Year Ended December 31, 2021 | |||||||
| | | Municipal | | Other | | | |||
|
| | securities |
| securities |
| Total | |||
|
| | (dollars in thousands) | |||||||
Allowance for credit losses: | | | | | | | | | | |
Beginning balance | | | $ | — | | $ | — | | $ | — |
Impact of adopting ASU 2016-13 | | | | 182 | | | 1 | | | 183 |
Provision for credit loss expense | | | | 16 | | | (1) | | | 15 |
Balance, ending | | | $ | 198 | | $ | — | | $ | 198 |
8988
Note 3. Investment Securities (continued)
The credit loss model under ASU 2016-13, applicable to AFS debt securities, requires the recognition of credit losses through an allowance account, but retains the concept from the OTTI model that credit losses are recognized once securities become impaired. See Note 1 to the Consolidated Financial Statements, “Summary of Significant Accounting Policies” included in this Form 10-K, for a discussion of the impact of the adoption of ASU 2016-13.
All sales of securities for the years ended December 31, 2019, 20182021, 2020 and 2017,2019, respectively, were from securities identified as AFS. Information on proceeds received, as well as the gains and losses from the sale of those securities are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2019 |
| 2018 |
| 2017 | |||
|
|
|
|
| (dollars in thousands) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sales of securities |
|
|
|
| $ | 30,055 |
| $ | 1,938 |
| $ | 71,092 |
Gross gains from sales of securities |
|
|
|
|
| 176 |
|
| — |
|
| 67 |
Gross losses from sales of securities |
|
|
|
|
| (206) |
|
| — |
|
| (155) |
| | | | | | | | | | | | | |
| | | | |
| 2021 |
| 2020 |
| 2019 | |||
| | | | | | (dollars in thousands) | |||||||
| | | | | | | | | | | | | |
Proceeds from sales of securities | | | | | | $ | 23,874 | | $ | 38,562 | | $ | 30,055 |
Gross gains from sales of securities | | | | | |
| — | |
| 2,553 | |
| 176 |
Gross losses from sales of securities | | | | | |
| (88) | |
| (69) | |
| (206) |
The amortized cost and fair value of securities as of December 31, 2019,2021, by contractual maturity are shown below. Expected maturities of residential mortgage-backed and related securities and asset-backed securities may differ from contractual maturities because the mortgages underlying the securities may be called or prepaid without any penalties. Therefore, these securities are not included in the maturity categories in the following summary.table.
|
|
|
|
|
|
|
|
| Amortized Cost |
| Fair Value | ||
|
| (dollars in thousands) | ||||
Securities HTM: |
|
|
|
|
|
|
Due in one year or less |
| $ | 3,220 |
| $ | 3,234 |
Due after one year through five years |
|
| 33,088 |
|
| 33,865 |
Due after five years |
|
| 364,338 |
|
| 389,446 |
|
| $ | 400,646 |
| $ | 426,545 |
Securities AFS: |
|
|
|
|
|
|
Due in one year or less |
| $ | 1,084 |
| $ | 1,084 |
Due after one year through five years |
|
| 17,089 |
|
| 17,320 |
Due after five years |
|
| 70,065 |
|
| 71,704 |
|
|
| 88,238 |
|
| 90,108 |
Residential mortgage-backed and related securities |
|
| 118,724 |
|
| 120,587 |
|
| $ | 206,962 |
| $ | 210,695 |
| | | | | | |
|
| Amortized Cost |
| Fair Value | ||
| | (dollars in thousands) | ||||
Securities HTM: |
| |
|
| |
|
Due in one year or less | | $ | 2,636 | | $ | 2,651 |
Due after one year through five years | |
| 23,246 | |
| 23,800 |
Due after five years | |
| 446,701 | |
| 495,846 |
| | $ | 472,583 | | $ | 522,297 |
Securities AFS: | |
|
| |
|
|
Due in one year or less | | $ | 5,873 | | $ | 5,943 |
Due after one year through five years | |
| 5,600 | |
| 5,764 |
Due after five years | |
| 199,718 | |
| 204,676 |
| | | 211,191 | | | 216,383 |
Residential mortgage-backed and related securities | | | 92,431 | | | 94,323 |
Asset-backed securities | |
| 26,372 | |
| 27,124 |
| | $ | 329,994 | | $ | 337,830 |
| | | | | | |
Portions of the U.S. government sponsored agencies and municipal securities contain call options, at the discretion of the issuer, to terminate the security at predetermined dates prior to the stated maturity, summarized as follows:
|
|
|
|
|
|
|
|
| Amortized Cost |
| Fair Value | ||
|
| (dollars in thousands) | ||||
Securities HTM: |
|
|
|
|
|
|
Municipal securities |
| $ | 182,653 |
| $ | 186,631 |
|
|
|
|
|
|
|
Securities AFS: |
|
|
|
|
|
|
Municipal securities |
|
| 39,674 |
|
| 40,990 |
Other securities |
|
| 4,500 |
|
| 4,638 |
|
| $ | 44,174 |
| $ | 45,628 |
| | | | | | |
|
| Amortized Cost |
| Fair Value | ||
| | (dollars in thousands) | ||||
Securities HTM: |
| |
|
| |
|
Municipal securities | | $ | 278,699 | | $ | 289,939 |
| |
|
| |
|
|
Securities AFS: | |
|
| |
|
|
Municipal securities | | | 158,262 | | | 163,070 |
Other securities | |
| 24,568 | |
| 24,789 |
| | $ | 182,830 | | $ | 187,859 |
| | | | | | |
90
Note 3. Investment Securities (continued)
As of December 31, 20192021 and 2018,2020, investment securities with a carrying value of $113.3$246.5 million and $100.9$212.8 million, respectively, were pledged on public deposits, FHLB advances, customer and wholesale repurchase agreements, derivative liabilities, in connection with a Goldman Sachs cash management program and for other purposes as required or permitted by law.
89
Note 3. Investment Securities (continued)
As of December 31, 2019,2021, the Company’s municipal securities portfolios were comprised of general obligation bonds issued by 93113 issuers with fair values totaling $77.2$114.5 million and revenue bonds issued by 154165 issuers, primarily consisting of states, counties, towns, villages and school districts with fair values totaling $396.6$575.0 million. The Company held investments in general obligation bonds in 2220 states, including six7 states in which the aggregate fair value exceeded $5.0 million. The Company held investments in revenue bonds in 1725 states, including seven13 states in which the aggregate fair value exceeded $5.0 million.
As of December 31, 2018,2020, the Company’s municipal securities portfolios were comprised of general obligation bonds issued by 110117 issuers with fair values totaling $86.4$116.7 million and revenue bonds issued by 160191 issuers, primarily consisting of states, counties, towns, villages and school districts with fair values totaling $371.9$555.9 million. The Company held investments in general obligation bonds in 2621 states, including 68 states in which the aggregate fair value exceeded $5.0 million. The Company held investments in revenue bonds in 1926 states, including 712 states in which the aggregate fair value exceeded $5.0 million.
Both general obligation and revenue bonds are diversified across many issuers. As of December 31, 20192021 and 2018,2020, the Company held revenue bonds of one single issuer,2 issuers, located in Ohio, the aggregate book or market value of which exceeded 5% of the Company’s stockholders’ equity. The issuer’sissuers’ financial condition is strong and the source of repayment is diversified. The Company monitors the investment and concentration closely. Of the general obligation and revenue bonds in the Company’s portfolio, the majority are unrated bonds that represent small, private issuances. All unrated bonds were underwritten according to loan underwriting standards and have an average risk rating of 2, indicating very high quality. Additionally, many of these bonds are funding essential municipal services (water, sewer, education, medical facilities).
The Company’s municipal securities are owned by each of the four4 charters, whose investment policies set forth limits for various subcategories within the municipal securities portfolio. Each charter is monitored individually and as of December 31, 2019,2021, all were well-withinwithin policy limitations approved by the charter’s board of directors. Policy limits are calculated as a percentage of total risk-based capital.
As of December 31, 2019,2021, the Company’s standard monitoring of its municipal securities portfolio had not uncovered any facts or circumstances resulting in significantly different credits ratings than those assigned by a nationally recognized statistical rating organization, or in the case of unrated bonds, the rating assigned using the credit underwriting standards.
9190
Note 4. Loans/Leases Receivable
The composition of the loan/lease portfolio as of December 31, 20192021 and 20182020 is presented as follows:
|
|
|
|
|
|
|
|
|
|
|
| ||
|
|
|
|
| ||
|
| 2019 |
| 2018 | ||
|
| (dollars in thousands) | ||||
|
|
|
|
|
|
|
C&I loans * |
| $ | 1,507,825 |
| $ | 1,429,410 |
CRE loans |
|
|
|
|
|
|
Owner-occupied CRE |
|
| 443,989 |
|
| 500,654 |
Commercial construction, land development, and other land |
|
| 378,797 |
|
| 236,787 |
Other non owner-occupied CRE |
|
| 913,610 |
|
| 1,028,670 |
|
|
| 1,736,396 |
|
| 1,766,111 |
|
|
|
|
|
|
|
Direct financing leases ** |
|
| 87,869 |
|
| 117,969 |
Residential real estate loans *** |
|
| 239,904 |
|
| 290,759 |
Installment and other consumer loans |
|
| 109,352 |
|
| 119,381 |
|
|
| 3,681,346 |
|
| 3,723,630 |
Plus deferred loan/lease origination costs, net of fees |
|
| 8,859 |
|
| 9,124 |
|
|
| 3,690,205 |
|
| 3,732,754 |
Less allowance |
|
| (36,001) |
|
| (39,847) |
|
| $ | 3,654,204 |
| $ | 3,692,907 |
** Direct financing leases: |
|
|
|
|
|
|
Net minimum lease payments to be received |
| $ | 97,025 |
| $ | 130,371 |
Estimated unguaranteed residual values of leased assets |
|
| 547 |
|
| 828 |
Unearned lease/residual income |
|
| (9,703) |
|
| (13,230) |
|
|
| 87,869 |
|
| 117,969 |
Plus deferred lease origination costs, net of fees |
|
| 1,892 |
|
| 3,642 |
|
|
| 89,761 |
|
| 121,611 |
Less allowance |
|
| (1,464) |
|
| (1,792) |
|
| $ | 88,297 |
| $ | 119,819 |
|
|
|
|
|
|
|
| | | |
|
| December 31, 2021 | |
| | (dollars in thousands) | |
| | | |
C&I: | | | |
C&I - revolving | | $ | 248,483 |
C&I - other * | | | 1,346,602 |
| | | 1,595,085 |
| |
|
|
CRE - owner occupied | |
| 421,701 |
CRE - non-owner occupied | |
| 646,500 |
Construction and land development | |
| 918,571 |
Multi-family | | | 600,412 |
Direct financing leases** | |
| 45,191 |
1-4 family real estate*** | | | 377,361 |
Consumer | |
| 75,311 |
| |
| 4,680,132 |
Allowance for credit losses | |
| (78,721) |
| | $ | 4,601,411 |
** Direct financing leases: | |
|
|
Net minimum lease payments to be received | | $ | 49,362 |
Estimated unguaranteed residual values of leased assets | |
| 165 |
Unearned lease/residual income | |
| (4,336) |
| |
| 45,191 |
Plus deferred lease origination costs, net of fees | |
| 568 |
| |
| 45,759 |
Less allowance for credit losses | |
| (1,546) |
| | $ | 44,213 |
| | | |
| | | |
|
| December 31, 2020 | |
| | (dollars in thousands) | |
| | | |
C&I loans* | | $ | 1,726,723 |
CRE loans | |
|
|
Owner-occupied CRE | |
| 496,471 |
Commercial construction, land development, and other land | |
| 541,455 |
Other non owner-occupied CRE | |
| 1,069,703 |
| |
| 2,107,629 |
| | | |
Direct financing leases ** | |
| 66,016 |
Residential real estate loans *** | |
| 252,121 |
Installment and other consumer loans | |
| 91,302 |
| |
| 4,243,791 |
Plus deferred loan/lease origination costs, net of fees | |
| 7,338 |
| |
| 4,251,129 |
Less allowance | |
| (84,376) |
| | $ | 4,166,753 |
** Direct financing leases: | |
|
|
Net minimum lease payments to be received | | $ | 72,940 |
Estimated unguaranteed residual values of leased assets | |
| 239 |
Unearned lease/residual income | |
| (7,163) |
| |
| 66,016 |
Plus deferred lease origination costs, net of fees | |
| 1,072 |
| |
| 67,088 |
Less allowance | |
| (1,764) |
| | $ | 65,324 |
* Includes equipmentequipment financing agreements outstanding at m2, totaling $142.0$225.1 million and $103.4$171.5 million as of December 31, 20192021 and 2018,2020, respectively and PPP loans totaling $28.2 million and $273.1 million as of December 31, 2021 and December 31, 2020, respectively.
** | Management performs an evaluation of the estimated unguaranteed residual values of leased assets on an annual basis, at a minimum. The evaluation consists of discussions with reputable and current vendors and management’s expertise and understanding of the current states of particular industries to determine informal valuations of the equipment. As necessary and where available, management will utilize valuations by independent appraisers. The majority of leases with residual values contain a lease options rider which requires the lessee to pay the residual |
91
**Management performs an evaluation of the estimated unguaranteed residual values of leased assets on an annual basis, at a minimum. The evaluation consists of discussions with reputableQCR Holdings, Inc. and current vendors and management’s expertise and understanding of the current states of particular industriesSubsidiaries
Notes to determine informal valuations of the equipment. As necessary and where available, management will utilize valuations by independent appraisers. The large majority of leases with residual values contain a lease options rider which requires the lessee to pay the residual Consolidated Financial Statements
Note 4. Loans/Leases Receivable (continued)
value directly, finance the payment of the residual value, or extend the lease term to pay the residual value. In these cases, the residual value is protected and the risk of loss is minimal.
At December 31, 2019,2021, the Company had six2 leases remaining with residual values totaling $547$165 thousand that were not protected with a lease end options rider. At December 31, 2018,2020, the Company had nine3 leases remaining with residual values totaling approximately $828$239 thousand that were not protected with a lease end options rider. Management has performed specific evaluations of these unguaranteed residual values and determined that the valuations are appropriate. There were no0 losses related to unguaranteed residual values during the years ended December 31, 2019, 2018,2021, 2020, and 2017.2019.
***Includes residential real estate loans held for sale totaling $3.7 million and $1.3$3.8 million as of December 31, 20192021 and 2018, respectively.
92
Note 4. Loans/Leases Receivable (continued)2020.
Changes in accretable yield for the loans acquired in the mergers and acquisitions are as follows:
|
|
|
|
|
|
|
|
|
|
|
| For the year ended December 31, 2019 | |||||||
|
| PCI |
| Performing |
|
|
| ||
|
| Loans |
| Loans |
| Total | |||
|
| (dollars in thousands) | |||||||
|
|
|
|
|
|
|
|
|
|
Balance at the beginning of the period |
| $ | (667) |
| $ | (10,127) |
| $ | (10,794) |
Reclassification of nonaccretable discount to accretable |
|
| (275) |
|
| — |
|
| (275) |
Accretion recognized |
|
| 885 |
|
| 3,749 |
|
| 4,634 |
Balance at the end of the period |
| $ | (57) |
| $ | (6,378) |
| $ | (6,435) |
| | | | | | | | | | |||||||||
| | For the year ended December 31, 2021 | ||||||||||||||||
| | PCI |
| Performing |
| | | |||||||||||
| | Loans | | Loans | | Total | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||
|
| For the year ended December 31, 2018 | ||||||||||||||||
|
| PCI |
| Performing |
|
|
| |||||||||||
|
| Loans |
| Loans |
| Total | ||||||||||||
|
| (dollars in thousands) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||
| | (dollars in thousands) | ||||||||||||||||
| | | | | | | | | | |||||||||
Balance at the beginning of the period |
| $ | (191) |
| $ | (6,280) |
| $ | (6,471) | | $ | — | | $ | (3,139) | | $ | (3,139) |
Discount added at acquisition |
|
| (293) |
|
| (7,800) |
|
| (8,093) | |||||||||
Reclassification of nonaccretable discount to accretable |
|
| (892) |
|
| (470) |
|
| (1,362) | |||||||||
Accretion recognized |
|
| 709 |
|
| 4,423 |
|
| 5,132 | |
| — | |
| 1,606 | |
| 1,606 |
Balance at the end of the period |
| $ | (667) |
| $ | (10,127) |
| $ | (10,794) | | $ | — | | $ | (1,533) | | $ | (1,533) |
|
|
|
|
|
|
|
|
|
| |||||||||
|
|
|
|
|
|
|
|
| �� | |||||||||
|
| For the year ended December 31, 2017 | ||||||||||||||||
|
| PCI |
| Performing |
|
|
| |||||||||||
|
| Loans |
| Loans |
| Total | ||||||||||||
|
| (dollars in thousands) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||
Balance at the beginning of the period |
| $ | (194) |
| $ | (9,116) |
| $ | (9,310) | |||||||||
Discount added at acquisition |
|
| (220) |
|
| (2,224) |
|
| (2,444) | |||||||||
Accretion recognized |
|
| 223 |
|
| 5,060 |
|
| 5,283 | |||||||||
Balance at the end of the period |
| $ | (191) |
| $ | (6,280) |
| $ | (6,471) |
| | | | | | | | | |
| | For the year ended December 31, 2020 | |||||||
| | PCI |
| Performing |
| | | ||
| | Loans | | Loans | | Total | |||
| | (dollars in thousands) | |||||||
| | | | | | | | | |
Balance at the beginning of the period | | $ | (57) | | $ | (6,378) | | $ | (6,435) |
Reclassification of nonaccretable discount to accretable | | | (530) | | | — | | | (530) |
Reclassification of nonaccretable discount to allowance | | | — | | | 353 | | | 353 |
Accretion recognized | |
| 587 | |
| 2,886 | |
| 3,473 |
Balance at the end of the period | | $ | — | | $ | (3,139) | | $ | (3,139) |
| | | | | | | | | |
| | | | | | | | | |
| | For the year ended December 31, 2019 | |||||||
| | PCI |
| Performing |
| | | ||
| | Loans | | Loans | | Total | |||
| | (dollars in thousands) | |||||||
| | | | | | | | | |
Balance at the beginning of the period | | $ | (667) | | $ | (10,127) | | $ | (10,794) |
Reclassification of nonaccretable discount to accretable | | | (275) | | | — | | | (275) |
Accretion recognized | |
| 885 | |
| 3,749 | |
| 4,634 |
Balance at the end of the period | | $ | (57) | | $ | (6,378) | | $ | (6,435) |
| | | | | | | | | |
9392
Note 4. Loans/Leases Receivable (continued)
The aging of the loan/lease portfolio by classes of loans/leases as of December 31, 20192021 and 20182020 is presented as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2019 |
| ||||||||||||||||
|
|
|
|
|
|
|
| Accruing Past |
|
|
|
|
| ||||||
|
|
|
| 30-59 Days |
| 60-89 Days |
| Due 90 Days or |
| Nonaccrual |
|
|
| ||||||
Classes of Loans/Leases |
| Current |
| Past Due |
| Past Due |
| More |
| Loans/Leases |
| Total |
| ||||||
|
| (dollars in thousands) |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
C&I |
| $ | 1,499,891 |
| $ | 6,126 |
| $ | 572 |
| $ | — |
| $ | 1,236 |
| $ | 1,507,825 |
|
CRE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner-Occupied CRE |
|
| 443,707 |
|
| 177 |
|
| 71 |
|
| — |
|
| 34 |
|
| 443,989 |
|
Commercial Construction, Land Development, and Other Land |
|
| 375,940 |
|
| 2,857 |
|
| — |
|
| — |
|
| — |
|
| 378,797 |
|
Other Non Owner-Occupied CRE |
|
| 909,684 |
|
| 73 |
|
| — |
|
| — |
|
| 3,853 |
|
| 913,610 |
|
Direct Financing Leases |
|
| 85,636 |
|
| 463 |
|
| 253 |
|
| — |
|
| 1,517 |
|
| 87,869 |
|
Residential Real Estate |
|
| 235,845 |
|
| 2,939 |
|
| 414 |
|
| — |
|
| 706 |
|
| 239,904 |
|
Installment and Other Consumer |
|
| 108,750 |
|
| 3 |
|
| 10 |
|
| 33 |
|
| 556 |
|
| 109,352 |
|
|
| $ | 3,659,453 |
| $ | 12,638 |
| $ | 1,320 |
| $ | 33 |
| $ | 7,902 |
| $ | 3,681,346 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a percentage of total loan/lease portfolio |
|
| 99.41 | % |
| 0.34 | % |
| 0.04 | % |
| 0.00 | % |
| 0.21 | % |
| 100.00 | % |
| | | | | | | | | | | | | | | | | | | |
| | 2021 |
| ||||||||||||||||
| | | | | | | | Accruing Past | | | | |
| ||||||
| | | | 30-59 Days | | 60-89 Days | | Due 90 Days or | | Nonaccrual | | |
| ||||||
Classes of Loans/Leases |
| Current |
| Past Due |
| Past Due |
| More |
| Loans/Leases |
| Total |
| ||||||
| | (dollars in thousands) | | ||||||||||||||||
C&I: | | | | | | | | | | | | | | | | | | | |
C&I - revolving | | $ | 248,483 | | $ | — | | $ | — | | $ | — | | $ | — | $ | | 248,483 | |
C&I - other | | | 1,337,034 | | | 859 | | | 7,308 | | | 1 | | | 1,400 | | | 1,346,602 | |
CRE - owner occupied | |
| 421,701 | |
| — | |
| — | |
| — | |
| — | |
| 421,701 | |
CRE - non-owner occupied | |
| 646,500 | |
| — | |
| — | |
| — | |
| — | |
| 646,500 | |
Construction and land development | | | 918,498 | | | — | | | — | | | — | | | 73 | | | 918,571 | |
Multi-family | |
| 600,412 | |
| — | |
| — | |
| — | |
| — | |
| 600,412 | |
Direct financing leases | |
| 44,174 | |
| 10 | |
| 160 | |
| — | |
| 847 | |
| 45,191 | |
1-4 family real estate | |
| 374,912 | |
| 1,325 | |
| 716 | |
| — | |
| 408 | |
| 377,361 | |
Consumer | |
| 75,272 | |
| 8 | |
| — | |
| — | |
| 31 | |
| 75,311 | |
| | $ | 4,666,986 | | $ | 2,202 | | $ | 8,184 | | $ | 1 | | $ | 2,759 | | $ | 4,680,132 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
As a percentage of total loan/lease portfolio | |
| 99.72 | % |
| 0.05 | % |
| 0.17 | % |
| 0.00 | % |
| 0.06 | % |
| 100.00 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2018 |
| ||||||||||||||||
|
|
|
|
|
|
|
| Accruing Past |
|
|
|
|
| ||||||
|
|
|
| 30-59 Days |
| 60-89 Days |
| Due 90 Days or |
| Nonaccrual |
|
|
| ||||||
Classes of Loans/Leases |
| Current |
| Past Due |
| Past Due |
| More |
| Loans/Leases |
| Total |
| ||||||
|
| (dollars in thousands) |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
C&I |
| $ | 1,423,406 |
| $ | 930 |
| $ | 597 |
| $ | 389 |
| $ | 4,088 |
| $ | 1,429,410 |
|
CRE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner-Occupied CRE |
|
| 500,138 |
|
| — |
|
| 193 |
|
| 107 |
|
| 216 |
|
| 500,654 |
|
Commercial Construction, Land Development, and Other Land |
|
| 234,704 |
|
| 1,764 |
|
| — |
|
| — |
|
| 319 |
|
| 236,787 |
|
Other Non Owner-Occupied CRE |
|
| 1,022,664 |
|
| 484 |
|
| — |
|
| — |
|
| 5,522 |
|
| 1,028,670 |
|
Direct Financing Leases |
|
| 114,078 |
|
| 1,642 |
|
| 488 |
|
| — |
|
| 1,761 |
|
| 117,969 |
|
Residential Real Estate |
|
| 284,844 |
|
| 3,877 |
|
| 206 |
|
| 89 |
|
| 1,743 |
|
| 290,759 |
|
Installment and Other Consumer |
|
| 118,343 |
|
| 356 |
|
| 24 |
|
| 47 |
|
| 611 |
|
| 119,381 |
|
|
| $ | 3,698,177 |
| $ | 9,053 |
| $ | 1,508 |
| $ | 632 |
| $ | 14,260 |
| $ | 3,723,630 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a percentage of total loan/lease portfolio |
|
| 99.32 | % |
| 0.24 | % |
| 0.04 | % |
| 0.02 | % |
| 0.38 | % |
| 100.00 | % |
| | | | | | | | | | | | | | | | | | | |
| | 2020 |
| ||||||||||||||||
| | | | | | | | Accruing Past | | | | |
| ||||||
| | | | 30-59 Days | | 60-89 Days | | Due 90 Days or | | Nonaccrual | | |
| ||||||
Classes of Loans/Leases |
| Current |
| Past Due |
| Past Due |
| More |
| Loans/Leases |
| Total |
| ||||||
| | (dollars in thousands) | | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | |
C&I | | $ | 1,720,058 | | $ | 1,535 | | $ | 323 | | $ | — | | $ | 4,807 | | $ | 1,726,723 | |
CRE | |
|
| |
|
| |
|
| |
|
| |
| | |
|
| |
Owner-occupied CRE | |
| 496,459 | |
| — | |
| — | |
| — | |
| 12 | |
| 496,471 | |
Commercial construction, land development, and other land | |
| 541,455 | |
| — | |
| — | |
| — | |
| — | |
| 541,455 | |
Other non-owner occupied CRE | |
| 1,062,215 | |
| — | |
| — | |
| — | |
| 7,488 | |
| 1,069,703 | |
Direct financing leases | |
| 64,918 | |
| 501 | |
| 191 | |
| — | |
| 406 | |
| 66,016 | |
Residential real estate | |
| 249,364 | |
| 1,512 | |
| 223 | |
| — | |
| 1,022 | |
| 252,121 | |
Installment and other consumer | |
| 91,047 | |
| 43 | |
| 4 | |
| 3 | |
| 205 | |
| 91,302 | |
| | $ | 4,225,516 | | $ | 3,591 | | $ | 741 | | $ | 3 | | $ | 13,940 | | $ | 4,243,791 | |
| | | | | | | | | | | | | | | | | | | |
As a percentage of total loan/lease portfolio | |
| 99.57 | % |
| 0.08 | % |
| 0.02 | % |
| 0.00 | % |
| 0.33 | % |
| 100.00 | % |
9493
Note 4. Loans/Leases Receivable (continued)
NPLs by classes of loans/leases as of December 31, 20192021 and 20182020 is presented as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2019 |
| ||||||||||||
|
| Accruing Past |
|
|
|
|
|
|
|
|
| ||||
|
| Due 90 Days or |
| Nonaccrual |
|
|
|
|
| Percentage of |
| ||||
Classes of Loans/Leases |
| More |
| Loans/Leases* |
| Accruing TDRs |
| Total NPLs |
| Total NPLs |
| ||||
|
| (dollars in thousands) |
| ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
C&I |
| $ | — |
| $ | 1,236 |
| $ | 646 |
| $ | 1,882 |
| 21.12 | % |
CRE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner-Occupied CRE |
|
| — |
|
| 34 |
|
| — |
|
| 34 |
| 0.38 | % |
Commercial Construction, Land Development, and Other Land |
|
| — |
|
| — |
|
| — |
|
| — |
| - | % |
Other Non Owner-Occupied CRE |
|
| — |
|
| 3,853 |
|
| — |
|
| 3,853 |
| 43.22 | % |
Direct Financing Leases |
|
| — |
|
| 1,517 |
|
| 333 |
|
| 1,850 |
| 20.75 | % |
Residential Real Estate |
|
| — |
|
| 706 |
|
| — |
|
| 706 |
| 7.92 | % |
Installment and Other Consumer |
|
| 33 |
|
| 556 |
|
| — |
|
| 589 |
| 6.61 | % |
|
| $ | 33 |
| $ | 7,902 |
| $ | 979 |
| $ | 8,914 |
| 100.00 | % |
| | | | | | | | | | | | | | | |
| | 2021 | | ||||||||||||
| | Accruing Past | | Nonaccrual | | Nonaccrual | | | | | | | |||
| | Due 90 Days or | | Loans/Leases | | Loans/Leases | | | | | Percentage of | | |||
Classes of Loans/Leases |
| More |
| with an ACL |
| without an ACL |
| Total NPLs |
| Total NPLs |
| ||||
|
| (dollars in thousands) | | ||||||||||||
C&I: | | | | | | | | | �� | | | |
| | |
C&I - revolving | | $ | — | | $ | — | | $ | — | | $ | — |
| - | % |
C&I - other | | | 1 | | | 1,130 | | | 270 | | | 1,401 | | 50.77 | |
CRE - owner occupied | |
| — | |
| — | |
| — | |
| — |
| - | |
CRE - non-owner occupied | |
| — | |
| — | |
| — | |
| — |
| - | |
Construction and land development | | | — | | | 73 | | | — | | | 73 | | 2.64 | |
Multi-family | |
| — | |
| — | |
| — | |
| — |
| - | |
Direct financing leases | |
| — | |
| 115 | |
| 732 | |
| 847 |
| 30.69 | |
1-4 family real estate | |
| — | |
| 408 | |
| — | |
| 408 |
| 14.78 | |
Consumer | |
| — | |
| 31 | |
| — | |
| 31 |
| 1.12 | |
| | $ | 1 | | $ | 1,757 | | $ | 1,002 | | $ | 2,760 |
| 100.00 | % |
| | | | | | | | | | | | | | | |
* AtThe Company did not recognize any interest income on nonaccrual loans during the year ended December 31, 2019, nonaccrual loans/leases included $747 thousand of TDRs, including $98 thousand in C&I loans, $269 thousand in CRE loans, $294 thousand in direct financing leases, $31 thousand in residential real estate loans, and $55 thousand in installment loans.2021.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2018 |
| ||||||||||||
|
| Accruing Past |
|
|
|
|
|
|
|
|
| ||||
|
| Due 90 Days or |
| Nonaccrual |
|
|
|
|
| Percentage of |
| ||||
Classes of Loans/Leases |
| More* |
| Loans/Leases ** |
| Accruing TDRs * |
| Total NPLs |
| Total NPLs |
| ||||
|
|
| (dollars in thousands) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
C&I |
| $ | 389 |
| $ | 4,088 |
| $ | 454 |
| $ | 4,931 |
| 26.58 | % |
CRE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner-Occupied CRE |
|
| 107 |
|
| 216 |
|
| — |
|
| 323 |
| 1.74 | % |
Commercial Construction, Land Development, and Other Land |
|
| — |
|
| 319 |
|
| — |
|
| 319 |
| 1.72 | % |
Other Non Owner-Occupied CRE |
|
| — |
|
| 5,522 |
|
| 2,985 |
|
| 8,507 |
| 45.86 | % |
Direct Financing Leases |
|
| — |
|
| 1,761 |
|
| 111 |
|
| 1,872 |
| 10.09 | % |
Residential Real Estate |
|
| 89 |
|
| 1,743 |
|
| 100 |
|
| 1,932 |
| 10.41 | % |
Installment and Other Consumer |
|
| 47 |
|
| 611 |
|
| 9 |
|
| 667 |
| 3.60 | % |
|
| $ | 632 |
| $ | 14,260 |
| $ | 3,659 |
| $ | 18,551 |
| 100.00 | % |
| | | | | | | | | | | | | | | |
| | 2020 |
| ||||||||||||
| | Accruing Past | | | | | | | | |
| ||||
| | Due 90 Days or | | Nonaccrual | | | | | | Percentage of |
| ||||
Classes of Loans/Leases |
| More |
| Loans/Leases * |
| Accruing TDRs |
| Total NPLs |
| Total NPLs |
| ||||
|
| | (dollars in thousands) | ||||||||||||
| | | | | | | | | | | | | | | |
C&I | | $ | — | | $ | 4,807 | | $ | 606 | | $ | 5,413 |
| 36.87 | % |
CRE | |
|
| |
|
| |
|
| |
|
|
|
| |
Owner-occupied CRE | |
| — | |
| 12 | |
| — | |
| 12 |
| 0.08 | % |
Commercial construction, land development, and other land | |
| — | |
| — | |
| — | |
| — |
| - | % |
Other non-owner occupied CRE | |
| — | |
| 7,488 | |
| — | |
| 7,488 |
| 50.99 | % |
Direct financing leases | |
| — | |
| 406 | |
| 135 | |
| 541 |
| 3.68 | % |
Residential real estate | |
| — | |
| 1,022 | |
| — | |
| 1,022 |
| 6.96 | % |
Installment and other consumer | |
| 3 | |
| 205 | |
| — | |
| 208 |
| 1.42 | % |
| | $ | 3 | | $ | 13,940 | | $ | 741 | | $ | 14,684 | | 100.00 | % |
| | | | | | | | | | | | | | | |
* At December 31, 20182020, accruing past due 90 days or more included $496$984 thousand of TDRs, including $389 thousand in C&I loans and $107
$836 thousand in CRE loans.loans, $100
** At December 31, 2018, nonaccrual loans/leases included $2.3 million of TDRs, including $265 thousand in C&I loans, $1.4 million in CRE loans, $321 thousand in direct financing leases, $344 thousand in residential real estate loans, and $3$48 thousand in installment loans.
9594
Note 4. Loans/Leases Receivable (continued)
Changes in the allowanceACL loans/leases by portfolio segment for the years ended December 31, 2019, 2018,2021, 2020, and 20172019 are presented as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Year Ended December 31, 2019 |
| ||||||||||||||||
|
|
|
|
|
|
|
| Direct Financing |
| Residential Real |
| Installment and |
|
|
|
| |||
|
| C&I |
| CRE |
| Leases |
| Estate |
| Other Consumer |
| Total |
| ||||||
|
| (dollars in thousands) |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning |
| $ | 16,420 |
| $ | 17,719 |
| $ | 1,792 |
| $ | 2,557 |
| $ | 1,359 |
| $ | 39,847 |
|
Reclassification of allowance related to held for sale loans |
|
| (2,814) |
|
| (2,392) |
|
| — |
|
| (628) |
|
| (288) |
|
| (6,122) |
|
Provisions charged to expense * |
|
| 3,666 |
|
| 1,566 |
|
| 1,129 |
|
| 163 |
|
| 114 |
|
| 6,638 |
|
Loans/leases charged off |
|
| (1,476) |
|
| (1,722) |
|
| (1,647) |
|
| (191) |
|
| (98) |
|
| (5,134) |
|
Recoveries on loans/leases previously charged off |
|
| 276 |
|
| 208 |
|
| 190 |
|
| 47 |
|
| 51 |
|
| 772 |
|
Balance, ending |
| $ | 16,072 |
| $ | 15,379 |
| $ | 1,464 |
| $ | 1,948 |
| $ | 1,138 |
| $ | 36,001 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2021 | |||||||||||||||||||||||||||||||||||||
| | | | | | | | | | CRE | | CRE | | Construction | | | | | Direct | | Residential | | 1-4 | | | | | ||||||||||||
| | | | | C&I - | | C&I - | | | | | Owner | | Non-Owner | | and Land | | Multi- | | Financing | | Real | | Family | | | | | | | |||||||||
|
| C&I | | Revolving | | Other* |
| CRE | | Occupied | | Occupied | | Development | | Family |
| Leases |
| Estate | | Real Estate |
| Consumer | | Total | |||||||||||||
|
| (dollars in thousands) | |||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, beginning | | $ | 35,421 | | $ | — | | $ | — | | $ | 42,161 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 1,764 | | $ | 3,732 | | $ | — | | $ | 1,298 | | $ | 84,376 |
Adoption of ASU 2016-13 | | | (35,421) | | | 2,982 | | | 29,130 | | | (42,161) | | | 8,696 | | | 11,428 | | | 11,999 | | | 5,836 | | | (1,764) | | | (3,732) | | | 5,042 | | | (137) | | | (8,102) |
Provision | |
| — | |
| 925 | |
| (1,451) | |
| — | |
| (198) | |
| (1,088) | |
| 4,973 | |
| 3,653 | |
| — | |
| — | |
| (603) | |
| (509) | |
| 5,702 |
Charge-offs | |
| — | |
| — | |
| (2,287) | |
| — | |
| — | |
| (1,876) | |
| — | |
| (150) | |
| — | |
| — | |
| (179) | |
| (46) | |
| (4,538) |
Recoveries | |
| — | |
| — | |
| 590 | |
| — | |
| 3 | |
| 85 | |
| — | |
| — | |
| — | |
| — | |
| 281 | |
| 324 | |
| 1,283 |
Balance, ending | | $ | — | | $ | 3,907 | | $ | 25,982 | | $ | — | | $ | 8,501 | | $ | 8,549 | | $ | 16,972 | | $ | 9,339 | | $ | — | | $ | — | | $ | 4,541 | | $ | 930 | | $ | 78,721 |
*Included within the C&I-other column are ACL on leases with a beginning balance of $1.78 million, adoption impact of $685 thousand, negative provision of negative $703 thousand, charge-offs of $458 thousand and recoveries of $258 thousand. ACL on leases was $1.5 million as of December 31, 2021.
| | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2020 | ||||||||||||||||
| | | | | | Direct Financing | | Residential Real | | Installment and | | | ||||||
|
| C&I |
| CRE |
| Leases |
| Estate |
| Other Consumer |
| Total | ||||||
| | (dollars in thousands) | ||||||||||||||||
| | | | | | | | | | | | | | | | | | |
Balance, beginning | | $ | 16,072 | | $ | 15,379 | | $ | 1,464 | | $ | 1,948 | | $ | 1,138 | | $ | 36,001 |
Provision | |
| 22,899 | |
| 28,671 | |
| 2,148 | |
| 1,755 | |
| 231 | |
| 55,704 |
Charge-offs | |
| (4,199) | |
| (2,071) | |
| (1,993) | |
| — | |
| (120) | |
| (8,383) |
Recoveries | |
| 649 | |
| 182 | |
| 145 | |
| 29 | |
| 49 | |
| 1,054 |
Balance, ending | | $ | 35,421 | | $ | 42,161 | | $ | 1,764 | | $ | 3,732 | | $ | 1,298 | | $ | 84,376 |
| | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2019 | ||||||||||||||||
|
| | |
| | |
| Direct Financing |
| Residential Real |
| Installment and |
| | | |||
| | C&I | | CRE | | Leases | | Estate | | Other Consumer | | Total | ||||||
| | (dollars in thousands) | ||||||||||||||||
| | | | | | | | | | | | | | | | | | |
Balance, beginning | | $ | 16,420 | | $ | 17,719 | | $ | 1,792 | | $ | 2,557 | | $ | 1,359 | | $ | 39,847 |
Reclassification of allowance related to held for sale assets | | | (2,814) | | | (2,392) | | | — | | | (628) | | | (288) | | | (6,122) |
Provision | |
| 3,666 | |
| 1,566 | |
| 1,129 | |
| 163 | |
| 114 | |
| 6,638 |
Loans/leases charged off | |
| (1,476) | |
| (1,722) | |
| (1,647) | |
| (191) | |
| (98) | |
| (5,134) |
Recoveries on loans/leases previously charged off | |
| 276 | |
| 208 | |
| 190 | |
| 47 | |
| 51 | |
| 772 |
Balance, ending | | $ | 16,072 | | $ | 15,379 | | $ | 1,464 | | $ | 1,948 | | $ | 1,138 | | $ | 36,001 |
| | | | | | | | | | | | | | | | | | |
*Excludes provision related to loans included in assets held for sale during the year of $428 thousand for the year ending December 31, 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Year Ended December 31, 2018 |
| ||||||||||||||||
|
|
|
|
|
|
|
| Direct Financing |
| Residential Real |
| Installment and |
|
|
|
| |||
|
| C&I |
| CRE |
| Leases |
| Estate |
| Other Consumer |
| Total |
| ||||||
|
| (dollars in thousands) |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning |
| $ | 14,323 |
| $ | 13,963 |
| $ | 2,382 |
| $ | 2,466 |
| $ | 1,222 |
| $ | 34,356 |
|
Provisions charged to expense |
|
| 7,161 |
|
| 4,094 |
|
| 1,068 |
|
| 193 |
|
| 142 |
|
| 12,658 |
|
Loans/leases charged off |
|
| (5,359) |
|
| (387) |
|
| (2,002) |
|
| (127) |
|
| (44) |
|
| (7,919) |
|
Recoveries on loans/leases previously charged off |
|
| 295 |
|
| 49 |
|
| 344 |
|
| 25 |
|
| 39 |
|
| 752 |
|
Balance, ending |
| $ | 16,420 |
| $ | 17,719 |
| $ | 1,792 |
| $ | 2,557 |
| $ | 1,359 |
| $ | 39,847 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Year Ended December 31, 2017 | ||||||||||||||||
|
|
|
|
|
|
|
| Direct Financing |
| Residential Real |
| Installment and |
|
|
| |||
|
| C&I |
| CRE |
| Leases |
| Estate |
| Other Consumer |
| Total | ||||||
|
| (dollars in thousands) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning |
| $ | 12,545 |
| $ | 11,671 |
| $ | 3,112 |
| $ | 2,342 |
| $ | 1,087 |
| $ | 30,757 |
Provisions charged to expense |
|
| 2,736 |
|
| 4,044 |
|
| 1,370 |
|
| 197 |
|
| 123 |
|
| 8,470 |
Loans/leases charged off |
|
| (1,150) |
|
| (1,795) |
|
| (2,285) |
|
| (102) |
|
| (41) |
|
| (5,373) |
Recoveries on loans/leases previously charged off |
|
| 192 |
|
| 43 |
|
| 185 |
|
| 29 |
|
| 53 |
|
| 502 |
Balance, ending |
| $ | 14,323 |
| $ | 13,963 |
| $ | 2,382 |
| $ | 2,466 |
| $ | 1,222 |
| $ | 34,356 |
The composition of the ACL loans/leases by portfolio segment based on evaluation method are as follows:
| | | | | | | | | | | | | | | | | | | |
| | 2021 | | ||||||||||||||||
| | Amortized Cost of Loans Receivable | | Allowance for Credit Losses | | ||||||||||||||
| | Individually | | Collectively | | | | | Individually | | Collectively | | | | | ||||
| | Evaluated for | | Evaluated for | | | | | Evaluated for | | Evaluated for | | | | | ||||
|
| Credit Losses |
| Credit Losses | | Total | | Credit Losses |
| Credit Losses | | Total | | ||||||
| | (dollars in thousands) | |||||||||||||||||
C&I : | | | | | | | | | | | | | | | | | | | |
C&I - revolving | | $ | 2,638 | | $ | 245,845 | | $ | 248,483 | | $ | 168 | | $ | 3,739 | | $ | 3,907 | |
C&I - other* | |
| 13,456 | |
| 1,378,337 | |
| 1,391,793 | |
| 743 | |
| 25,239 | |
| 25,982 | |
| |
| 16,094 | |
| 1,624,182 | |
| 1,640,276 | |
| 911 | |
| 28,978 | |
| 29,889 | |
CRE - owner occupied | |
| 3,841 | |
| 417,860 | |
| 421,701 | |
| 1,264 | |
| 7,237 | |
| 8,501 | |
CRE - non-owner occupied | |
| 25,006 | |
| 621,494 | |
| 646,500 | |
| — | |
| 8,549 | |
| 8,549 | |
Construction and land development | |
| 10,436 | |
| 908,135 | |
| 918,571 | |
| 11 | |
| 16,961 | |
| 16,972 | |
Multi-family | | | — | | | 600,412 | | | 600,412 | | | — | | | 9,339 | | | 9,339 | |
1-4 family real estate | |
| 2,950 | |
| 374,411 | |
| 377,361 | |
| 329 | |
| 4,212 | |
| 4,541 | |
Consumer | |
| 350 | |
| 74,961 | |
| 75,311 | |
| 39 | |
| 891 | |
| 930 | |
| | $ | 58,677 | | $ | 4,621,455 | | $ | 4,680,132 | | $ | 2,554 | | $ | 76,167 | | $ | 78,721 | |
*Included within the C&I – other category are leases individually evaluated of $847 thousand with a related allowance for credit losses of $35 thousand and leases collectively evaluated of $44.4 million with a related allowance for credit losses of $1.5 million.
9695
Note 4. Loans/Leases Receivable (continued):
The allowance by impairment evaluation and by portfolio segment as
| | | | | | | | | | | | | | | | | | | |
| | 2020 |
| ||||||||||||||||
| | | | | | Direct Financing | | Residential Real | | Installment and | | |
| ||||||
|
| C&I |
| CRE |
| Leases |
| Estate |
| Other Consumer |
| Total |
| ||||||
|
| (dollars in thousands) | | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | |
Allowance for impaired loans/leases | | $ | 650 | | $ | 1,938 | | $ | — | | $ | 20 | | $ | 72 | | $ | 2,680 | |
Allowance for nonimpaired loans/leases | |
| 34,771 | |
| 40,223 | |
| 1,764 | |
| 3,712 | |
| 1,226 | |
| 81,696 | |
| | $ | 35,421 | | $ | 42,161 | | $ | 1,764 | | $ | 3,732 | | $ | 1,298 | | $ | 84,376 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Impaired loans/leases | | $ | 5,381 | | $ | 7,487 | | $ | 578 | | $ | 977 | | $ | 205 | | $ | 14,628 | |
Nonimpaired loans/leases | |
| 1,721,342 | |
| 2,100,142 | |
| 65,438 | |
| 251,144 | |
| 91,097 | |
| 4,229,163 | |
| | $ | 1,726,723 | | $ | 2,107,629 | | $ | 66,016 | | $ | 252,121 | | $ | 91,302 | | $ | 4,243,791 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Allowance as a percentage of impaired loans/leases | |
| 12.08 | % |
| 25.88 | % |
| — | % |
| 2.05 | % |
| 35.12 | % |
| 18.32 | % |
Allowance as a percentage of nonimpaired loans/leases | |
| 2.02 | % |
| 1.92 | % |
| 2.70 | % |
| 1.48 | % |
| 1.35 | % |
| 1.93 | % |
Total allowance as a percentage of total loans/leases | |
| 2.05 | % |
| 2.00 | % |
| 2.67 | % |
| 1.48 | % |
| 1.42 | % |
| 1.99 | % |
| |
| | | | | | | | | | | | | | | | | |
Information for impaired loans/leases prior to adoption of December 31, 2019 and 2018ASU 2016-13 on January 1, 2021, is presented as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2019 |
| ||||||||||||||||
|
|
|
|
|
| Direct Financing |
| Residential Real |
| Installment and |
|
|
| ||||||
|
| C&I |
| CRE |
| Leases |
| Estate |
| Other Consumer |
| Total |
| ||||||
|
| (dollars in thousands) |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for impaired loans/leases |
| $ | 170 |
| $ | 125 |
| $ | 270 |
| $ | 15 |
| $ | 80 |
| $ | 660 |
|
Allowance for nonimpaired loans/leases |
|
| 15,902 |
|
| 15,254 |
|
| 1,194 |
|
| 1,933 |
|
| 1,058 |
|
| 35,341 |
|
|
| $ | 16,072 |
| $ | 15,379 |
| $ | 1,464 |
| $ | 1,948 |
| $ | 1,138 |
| $ | 36,001 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans/leases |
| $ | 1,846 |
| $ | 3,585 |
| $ | 2,025 |
| $ | 649 |
| $ | 556 |
| $ | 8,661 |
|
Nonimpaired loans/leases |
|
| 1,505,979 |
|
| 1,732,811 |
|
| 85,844 |
|
| 239,255 |
|
| 108,796 |
|
| 3,672,685 |
|
|
| $ | 1,507,825 |
| $ | 1,736,396 |
| $ | 87,869 |
| $ | 239,904 |
| $ | 109,352 |
| $ | 3,681,346 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance as a percentage of impaired loans/leases |
|
| 9.21 | % |
| 3.49 | % |
| 13.33 | % |
| 2.31 | % |
| 14.39 | % |
| 7.62 | % |
Allowance as a percentage of nonimpaired loans/leases |
|
| 1.06 | % |
| 0.88 | % |
| 1.39 | % |
| 0.81 | % |
| 0.97 | % |
| 0.96 | % |
Total allowance as a percentage of total loans/leases |
|
| 1.07 | % |
| 0.89 | % |
| 1.67 | % |
| 0.81 | % |
| 1.04 | % |
| 0.98 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2018 |
| ||||||||||||||||
|
|
|
|
|
| Direct Financing |
| Residential Real |
| Installment and |
|
|
| ||||||
|
| C&I |
| CRE |
| Leases |
| Estate |
| Other Consumer |
| Total |
| ||||||
|
| (dollars in thousands) |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for impaired loans/leases |
| $ | 973 |
| $ | 2,124 |
| $ | 194 |
| $ | 257 |
| $ | 111 |
| $ | 3,659 |
|
Allowance for nonimpaired loans/leases |
|
| 15,447 |
|
| 15,595 |
|
| 1,598 |
|
| 2,300 |
|
| 1,248 |
|
| 36,188 |
|
|
| $ | 16,420 |
| $ | 17,719 |
| $ | 1,792 |
| $ | 2,557 |
| $ | 1,359 |
| $ | 39,847 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans/leases |
| $ | 4,499 |
| $ | 10,447 |
| $ | 2,249 |
| $ | 2,110 |
| $ | 898 |
| $ | 20,203 |
|
Nonimpaired loans/leases |
|
| 1,424,911 |
|
| 1,755,664 |
|
| 115,720 |
|
| 288,649 |
|
| 118,483 |
|
| 3,703,427 |
|
|
| $ | 1,429,410 |
| $ | 1,766,111 |
| $ | 117,969 |
| $ | 290,759 |
| $ | 119,381 |
| $ | 3,723,630 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance as a percentage of impaired loans/leases |
|
| 21.62 | % |
| 20.33 | % |
| 8.63 | % |
| 12.18 | % |
| 12.38 | % |
| 18.11 | % |
Allowance as a percentage of nonimpaired loans/leases |
|
| 1.08 | % |
| 0.89 | % |
| 1.38 | % |
| 0.80 | % |
| 1.05 | % |
| 0.98 | % |
Total allowance as a percentage of total loans/leases |
|
| 1.15 | % |
| 1.00 | % |
| 1.52 | % |
| 0.88 | % |
| 1.14 | % |
| 1.07 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
97
Note 4. Loans/Leases Receivable (continued)
Loans/leases, by classes of financing receivable, considered to be impaired as of and forin the years ended December 31, 2019, 2018, and 2017 are presentedtables below. The recorded investment represents customer balances net of any partial charge-offs recognized on the loan/lease. The unpaid principal balance represents the recorded balance outstanding on the loan/lease prior to any partial charge-offs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2019 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
| Interest Income | ||||||
|
|
|
|
|
|
|
|
|
|
| Average |
|
|
|
| Recognized for | ||
|
| Recorded |
| Unpaid Principal |
| Related |
| Recorded |
| Interest Income |
| Cash Payments | ||||||
Classes of Loans/Leases |
| Investment |
| Balance |
| Allowance |
| Investment |
| Recognized |
| Received | ||||||
|
| (dollars in thousands) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired Loans/Leases with No Specific Allowance Recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
C&I |
| $ | 1,607 |
| $ | 1,647 |
| $ | — |
| $ | 970 |
| $ | 27 |
| $ | 27 |
CRE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner-Occupied CRE |
|
| 34 |
|
| 50 |
|
| — |
|
| 24 |
|
| — |
|
| — |
Commercial Construction, Land Development, and Other Land |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
Other Non Owner-Occupied CRE |
|
| 684 |
|
| 686 |
|
| — |
|
| 738 |
|
| 29 |
|
| 29 |
Direct Financing Leases |
|
| 1,642 |
|
| 1,642 |
|
| — |
|
| 1,322 |
|
| 30 |
|
| 30 |
Residential Real Estate |
|
| 469 |
|
| 614 |
|
| — |
|
| 481 |
|
| — |
|
| — |
Installment and Other Consumer |
|
| 476 |
|
| 476 |
|
| — |
|
| 474 |
|
| — |
|
| — |
|
| $ | 4,912 |
| $ | 5,115 |
| $ | — |
| $ | 4,009 |
| $ | 86 |
| $ | 86 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired Loans/Leases with Specific Allowance Recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
C&I |
| $ | 239 |
| $ | 239 |
| $ | 170 |
| $ | 124 |
| $ | — |
| $ | — |
CRE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner-Occupied CRE |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
Commercial Construction, Land Development, and Other Land |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
Other Non Owner-Occupied CRE |
|
| 2,867 |
|
| 2,867 |
|
| 125 |
|
| 1,958 |
|
| — |
|
| — |
Direct Financing Leases |
|
| 383 |
|
| 383 |
|
| 270 |
|
| 196 |
|
| 2 |
|
| 2 |
Residential Real Estate |
|
| 180 |
|
| 180 |
|
| 15 |
|
| 72 |
|
| — |
|
| — |
Installment and Other Consumer |
|
| 80 |
|
| 80 |
|
| 80 |
|
| 62 |
|
| — |
|
| — |
|
| $ | 3,749 |
| $ | 3,749 |
| $ | 660 |
| $ | 2,412 |
| $ | 2 |
| $ | 2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Impaired Loans/Leases: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
C&I |
| $ | 1,846 |
| $ | 1,886 |
| $ | 170 |
| $ | 1,094 |
| $ | 27 |
| $ | 27 |
CRE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner-Occupied CRE |
|
| 34 |
|
| 50 |
|
| — |
|
| 24 |
|
| — |
|
| — |
Commercial Construction, Land Development, and Other Land |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
Other Non Owner-Occupied CRE |
|
| 3,551 |
|
| 3,553 |
|
| 125 |
|
| 2,696 |
|
| 29 |
|
| 29 |
Direct Financing Leases |
|
| 2,025 |
|
| 2,025 |
|
| 270 |
|
| 1,518 |
|
| 32 |
|
| 32 |
Residential Real Estate |
|
| 649 |
|
| 794 |
|
| 15 |
|
| 553 |
|
| — |
|
| — |
Installment and Other Consumer |
|
| 556 |
|
| 556 |
|
| 80 |
|
| 536 |
|
| — |
|
| — |
|
| $ | 8,661 |
| $ | 8,864 |
| $ | 660 |
| $ | 6,421 |
| $ | 88 |
| $ | 88 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9896
Note 4. Loans/Leases Receivable (continued)
Loans/leases, by classes of financing receivable, considered to be impaired as of and for the year ended December 31, 2020 and 2019 are presented as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2018 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Interest Income | ||||||
|
|
|
|
|
|
|
|
|
|
| Average |
|
|
|
| Recognized for | ||
|
| Recorded |
| Unpaid Principal |
| Related |
| Recorded |
| Interest Income |
| Cash Payments | ||||||
Classes of Loans/Leases |
| Investment |
| Balance |
| Allowance |
| Investment |
| Recognized |
| Received | ||||||
|
| (dollars in thousands) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired Loans/Leases with No Specific Allowance Recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
C&I |
| $ | 1,846 |
| $ | 4,540 |
| $ | — |
| $ | 2,346 |
| $ | 210 |
| $ | 210 |
CRE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner-Occupied CRE |
|
| 106 |
|
| 106 |
|
| — |
|
| 107 |
|
| — |
|
| — |
Commercial Construction, Land Development, and Other Land |
|
| 507 |
|
| 507 |
|
| — |
|
| 101 |
|
| — |
|
| — |
Other Non Owner-Occupied CRE |
|
| 1,804 |
|
| 1,804 |
|
| — |
|
| 540 |
|
| — |
|
| — |
Direct Financing Leases |
|
| 1,929 |
|
| 1,929 |
|
| — |
|
| 2,193 |
|
| 60 |
|
| 60 |
Residential Real Estate |
|
| 984 |
|
| 1,058 |
|
| — |
|
| 723 |
|
| 9 |
|
| 9 |
Installment and Other Consumer |
|
| 762 |
|
| 762 |
|
| — |
|
| 198 |
|
| — |
|
| — |
|
| $ | 7,938 |
| $ | 10,706 |
| $ | — |
| $ | 6,208 |
| $ | 279 |
| $ | 279 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired Loans/Leases with Specific Allowance Recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
C&I |
| $ | 2,653 |
| $ | 2,653 |
| $ | 973 |
| $ | 1,118 |
| $ | 43 |
| $ | 43 |
CRE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner-Occupied CRE |
|
| 304 |
|
| 660 |
|
| 39 |
|
| 177 |
|
| — |
|
| — |
Commercial Construction, Land Development, and Other Land |
|
| 149 |
|
| 149 |
|
| 33 |
|
| 159 |
|
| — |
|
| — |
Other Non Owner-Occupied CRE |
|
| 7,577 |
|
| 7,577 |
|
| 2,052 |
|
| 3,055 |
|
| 58 |
|
| 58 |
Direct Financing Leases |
|
| 320 |
|
| 320 |
|
| 194 |
|
| 273 |
|
| — |
|
| — |
Residential Real Estate |
|
| 1,126 |
|
| 1,126 |
|
| 257 |
|
| 553 |
|
| 12 |
|
| 12 |
Installment and Other Consumer |
|
| 136 |
|
| 136 |
|
| 111 |
|
| 125 |
|
| — |
|
| — |
|
| $ | 12,265 |
| $ | 12,621 |
| $ | 3,659 |
| $ | 5,460 |
| $ | 113 |
| $ | 113 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Impaired Loans/Leases: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
C&I |
| $ | 4,499 |
| $ | 7,193 |
| $ | 973 |
| $ | 3,464 |
| $ | 253 |
| $ | 253 |
CRE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner-Occupied CRE |
|
| 410 |
|
| 766 |
|
| 39 |
|
| 284 |
|
| — |
|
| — |
Commercial Construction, Land Development, and Other Land |
|
| 656 |
|
| 656 |
|
| 33 |
|
| 260 |
|
| — |
|
| — |
Other Non Owner-Occupied CRE |
|
| 9,381 |
|
| 9,381 |
|
| 2,052 |
|
| 3,595 |
|
| 58 |
|
| 58 |
Direct Financing Leases |
|
| 2,249 |
|
| 2,249 |
|
| 194 |
|
| 2,466 |
|
| 60 |
|
| 60 |
Residential Real Estate |
|
| 2,110 |
|
| 2,184 |
|
| 257 |
|
| 1,276 |
|
| 21 |
|
| 21 |
Installment and Other Consumer |
|
| 898 |
|
| 898 |
|
| 111 |
|
| 323 |
|
| — |
|
| — |
|
| $ | 20,203 |
| $ | 23,327 |
| $ | 3,659 |
| $ | 11,668 |
| $ | 392 |
| $ | 392 |
| | | | | | | | | | | | | | | | | | |
| | 2020 | ||||||||||||||||
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | Interest Income | ||||||
| | | | | | | | | | | Average | | | | | Recognized for | ||
| | Recorded | | Unpaid Principal | | Related | | Recorded | | Interest Income | | Cash Payments | ||||||
Classes of Loans/Leases |
| Investment |
| Balance |
| Allowance |
| Investment |
| Recognized |
| Received | ||||||
| | (dollars in thousands) | ||||||||||||||||
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Impaired Loans/Leases with No Specific Allowance Recorded: |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
C&I | | $ | 1,361 | | $ | 1,441 | | $ | — | | $ | 1,002 | | $ | 33 | | $ | 33 |
CRE | |
|
| |
| | |
| | |
| | |
| | |
| |
Owner-occupied CRE | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Commercial construction, land development, and other land | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Other non-owner occupied CRE | |
| 1,133 | |
| 1,933 | |
| — | |
| 494 | |
| 29 | |
| 29 |
Direct financing leases | |
| 578 | |
| 578 | |
| — | |
| 483 | |
| 17 | |
| 17 |
Residential real estate | |
| 719 | |
| 719 | |
| — | |
| 476 | |
| — | |
| — |
Installment and other consumer | |
| 133 | |
| 133 | |
| — | |
| 121 | |
| — | |
| — |
| | $ | 3,924 | | $ | 4,804 | | $ | — | | $ | 2,576 | | $ | 79 | | $ | 79 |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Impaired Loans/Leases with Specific Allowance Recorded: | |
|
| |
|
| |
|
| |
|
| |
| | |
|
|
C&I | | $ | 4,020 | | $ | 4,020 | | $ | 650 | | $ | 1,555 | | $ | — | | $ | — |
CRE | |
| | |
|
| |
| | |
| | |
| | |
| |
Owner-occupied CRE | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Commercial construction, land development, and other land | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Other non-owner occupied CRE | |
| 6,354 | |
| 6,354 | |
| 1,938 | |
| 5,726 | |
| — | |
| — |
Direct financing leases | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Residential real estate | |
| 258 | |
| 258 | |
| 20 | |
| 227 | |
| — | |
| — |
Installment and other consumer | |
| 72 | |
| 72 | |
| 72 | |
| 70 | |
| — | |
| — |
| | $ | 10,704 | | $ | 10,704 | | $ | 2,680 | | $ | 7,578 | | $ | — | | $ | — |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Total Impaired Loans/Leases: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
C&I | | $ | 5,381 | | $ | 5,461 | | $ | 650 | | $ | 2,557 | | $ | 33 | | $ | 33 |
CRE | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Owner-occupied CRE | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Commercial construction, land development, and other land | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Other non-owner occupied CRE | |
| 7,487 | |
| 8,287 | |
| 1,938 | |
| 6,220 | |
| 29 | |
| 29 |
Direct financing leases | |
| 578 | |
| 578 | |
| — | |
| 483 | |
| 17 | |
| 17 |
Residential real estate | |
| 977 | |
| 977 | |
| 20 | |
| 703 | |
| — | |
| — |
Installment and other consumer | |
| 205 | |
| 205 | |
| 72 | |
| 191 | |
| — | |
| — |
| | $ | 14,628 | | $ | 15,508 | | $ | 2,680 | | $ | 10,154 | | $ | 79 | | $ | 79 |
| | | | | | | | | | | | | | | | | | |
9997
Note 4. Loans/Leases Receivable (continued)
| | | | | | | | | | | | | | | | | | |
| | 2019 | ||||||||||||||||
|
| | |
| | |
| | |
| |
| |
| Interest Income | |||
| | | | | | | | | | | Average | | | | Recognized for | |||
| | Recorded | | Unpaid Principal | | Related | | Recorded | | Interest Income | | Cash Payments | ||||||
Classes of Loans/Leases | | Investment | | Balance | | Allowance | | Investment | | Recognized | | Received | ||||||
| | (dollars in thousands) | ||||||||||||||||
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Impaired Loans/Leases with No Specific Allowance Recorded: |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
C&I | | $ | 1,607 | | $ | 1,647 | | $ | — | | $ | 970 | | $ | 27 | | $ | 27 |
CRE | |
|
| |
| | |
|
| |
|
| |
|
| |
|
|
Owner-Occupied CRE | |
| 34 | |
| 50 | |
| — | |
| 24 | |
| — | |
| — |
Commercial Construction, Land Development, and Other Land | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Other Non Owner-Occupied CRE | |
| 684 | |
| 686 | |
| — | |
| 738 | |
| 29 | |
| 29 |
Direct Financing Leases | |
| 1,642 | |
| 1,642 | |
| — | |
| 1,322 | |
| 30 | |
| 30 |
Residential Real Estate | |
| 469 | |
| 614 | |
| — | |
| 481 | |
| — | |
| — |
Installment and Other Consumer | |
| 476 | |
| 476 | |
| — | |
| 474 | |
| — | |
| — |
| | $ | 4,912 | | $ | 5,115 | | $ | — | | $ | 4,009 | | $ | 86 | | $ | 86 |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Impaired Loans/Leases with Specific Allowance Recorded: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
C&I | | $ | 239 | | $ | 239 | | $ | 170 | | $ | 124 | | $ | — | | $ | — |
CRE | |
|
| |
| | |
|
| |
|
| |
|
| |
|
|
Owner-Occupied CRE | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Commercial Construction, Land Development, and Other Land | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Other Non Owner-Occupied CRE | |
| 2,867 | |
| 2,867 | |
| 125 | |
| 1,958 | |
| — | |
| — |
Direct Financing Leases | |
| 383 | |
| 383 | |
| 270 | |
| 196 | |
| 2 | |
| 2 |
Residential Real Estate | |
| 180 | |
| 180 | |
| 15 | |
| 72 | |
| — | |
| — |
Installment and Other Consumer | |
| 80 | |
| 80 | |
| 80 | |
| 62 | |
| — | |
| — |
| | $ | 3,749 | | $ | 3,749 | | $ | 660 | | $ | 2,412 | | $ | 2 | | $ | 2 |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Total Impaired Loans/Leases: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
C&I | | $ | 1,846 | | $ | 1,886 | | $ | 170 | | $ | 1,094 | | $ | 27 | | $ | 27 |
CRE | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Owner-Occupied CRE | |
| 34 | |
| 50 | |
| — | |
| 24 | |
| — | |
| — |
Commercial Construction, Land Development, and Other Land | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Other Non Owner-Occupied CRE | |
| 3,551 | |
| 3,553 | |
| 125 | |
| 2,696 | |
| 29 | |
| 29 |
Direct Financing Leases | |
| 2,025 | |
| 2,025 | |
| 270 | |
| 1,518 | |
| 32 | |
| 32 |
Residential Real Estate | |
| 649 | |
| 794 | |
| 15 | |
| 553 | |
| — | |
| — |
Installment and Other Consumer | |
| 556 | |
| 556 | |
| 80 | |
| 536 | |
| — | |
| — |
| | $ | 8,661 | | $ | 8,864 | | $ | 660 | | $ | 6,421 | | $ | 88 | | $ | 88 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2017 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Interest Income | |||
|
|
|
|
|
|
|
|
|
|
| Average |
|
|
| Recognized for | |||
|
| Recorded |
| Unpaid Principal |
| Related |
| Recorded |
| Interest Income |
| Cash Payments | ||||||
Classes of Loans/Leases |
| Investment |
| Balance |
| Allowance |
| Investment |
| Recognized |
| Received | ||||||
|
| (dollars in thousands) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired Loans/Leases with No Specific Allowance Recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
C&I |
| $ | 1,634 |
| $ | 1,645 |
| $ | — |
| $ | 1,406 |
| $ | 71 |
| $ | 71 |
CRE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner-Occupied CRE |
|
| 289 |
|
| 289 |
|
| — |
|
| 79 |
|
| 12 |
|
| 12 |
Commercial Construction, Land Development, and Other Land |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
Other Non Owner-Occupied CRE |
|
| 1,172 |
|
| 1,172 |
|
| — |
|
| 1,177 |
|
| — |
|
| — |
Direct Financing Leases |
|
| 2,945 |
|
| 2,945 |
|
| — |
|
| 2,880 |
|
| 132 |
|
| 132 |
Residential Real Estate |
|
| 943 |
|
| 1,018 |
|
| — |
|
| 686 |
|
| 1 |
|
| 1 |
Installment and Other Consumer |
|
| 134 |
|
| 134 |
|
| — |
|
| 126 |
|
| — |
|
| — |
|
| $ | 7,117 |
| $ | 7,203 |
| $ | — |
| $ | 6,354 |
| $ | 216 |
| $ | 216 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired Loans/Leases with Specific Allowance Recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
C&I |
| $ | 4,615 |
| $ | 4,618 |
| $ | 716 |
| $ | 4,584 |
| $ | 203 |
| $ | 203 |
CRE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner-Occupied CRE |
|
| 152 |
|
| 152 |
|
| 48 |
|
| 221 |
|
| — |
|
| — |
Commercial Construction, Land Development, and Other Land |
|
| 4,844 |
|
| 4,844 |
|
| 1,379 |
|
| 4,448 |
|
| — |
|
| — |
Other Non Owner-Occupied CRE |
|
| 72 |
|
| 72 |
|
| 2 |
|
| 45 |
|
| — |
|
| — |
Direct Financing Leases |
|
| 725 |
|
| 725 |
|
| 504 |
|
| 625 |
|
| — |
|
| — |
Residential Real Estate |
|
| 761 |
|
| 761 |
|
| 355 |
|
| 549 |
|
| 15 |
|
| 15 |
Installment and Other Consumer |
|
| 68 |
|
| 68 |
|
| 39 |
|
| 41 |
|
| 1 |
|
| 1 |
|
| $ | 11,237 |
| $ | 11,240 |
| $ | 3,043 |
| $ | 10,513 |
| $ | 219 |
| $ | 219 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Impaired Loans/Leases: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
C&I |
| $ | 6,249 |
| $ | 6,263 |
| $ | 716 |
| $ | 5,990 |
| $ | 274 |
| $ | 274 |
CRE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner-Occupied CRE |
|
| 441 |
|
| 441 |
|
| 48 |
|
| 300 |
|
| 12 |
|
| 12 |
Commercial Construction, Land Development, and Other Land |
|
| 4,844 |
|
| 4,844 |
|
| 1,379 |
|
| 4,448 |
|
| — |
|
| — |
Other Non Owner-Occupied CRE |
|
| 1,244 |
|
| 1,244 |
|
| 2 |
|
| 1,222 |
|
| — |
|
| — |
Direct Financing Leases |
|
| 3,670 |
|
| 3,670 |
|
| 504 |
|
| 3,505 |
|
| 132 |
|
| 132 |
Residential Real Estate |
|
| 1,704 |
|
| 1,779 |
|
| 355 |
|
| 1,235 |
|
| 16 |
|
| 16 |
Installment and Other Consumer |
|
| 202 |
|
| 202 |
|
| 39 |
|
| 167 |
|
| 1 |
|
| 1 |
|
| $ | 18,354 |
| $ | 18,443 |
| $ | 3,043 |
| $ | 16,867 |
| $ | 435 |
| $ | 435 |
*Impaired loans/leases prior to adoption of ASU 2016-13 and those individually evaluated under ASU 2016-13 for which no allowance has been provided have adequate collateral, based on management’s current estimates.
For
98
Note 4. Loans/Leases Receivable (continued)
The following table present the amortized cost basis of collateral dependent loans, by the primary collateral type, which are individually evaluated to determine expected credit losses:
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | 2021 | | |||||||||||||||||||
| | | | | Non | | | | | | | | | | | | | | | | | |
| | Commercial | | Owner-Occupied | | Owner Occupied | | | | | | | | | | | ||||||
|
| Assets |
| Real Estate | | Real Estate | | Securities | | Equipment | | Other | | Total | | |||||||
| | (dollars in thousands) | ||||||||||||||||||||
C & I: | | | | | | | | | | | | | | | | | | | | | | |
C&I - revolving | | $ | 2,518 | | $ | — | | $ | — | | $ | — | | $ | 120 | | $ | — | | $ | 2,638 | |
C&I - other* | |
| 683 | |
| — | |
| 2,471 | |
| 134 | |
| 9,877 | |
| 291 | |
| 13,456 | |
| |
| 3,201 | |
| — | |
| 2,471 | |
| 134 | |
| 9,997 | |
| 291 | |
| 16,094 | |
CRE - owner occupied | |
| — | |
| — | |
| 3,841 | |
| — | |
| — | |
| — | |
| 3,841 | |
CRE - non-owner occupied | |
| — | |
| 25,006 | |
| — | |
| — | |
| — | |
| — | |
| 25,006 | |
Construction and land development | |
| — | |
| 10,362 | |
| 74 | |
| — | |
| — | |
| — | |
| 10,436 | |
Multi-family | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
1-4 family real estate | |
| — | |
| 817 | |
| 2,133 | |
| — | |
| — | |
| — | |
| 2,950 | |
Consumer | |
| — | |
| — | |
| 340 | |
| — | |
| 1 | |
| 9 | |
| 350 | |
| | $ | 3,201 | | $ | 36,185 | | $ | 8,859 | | $ | 134 | | $ | 9,998 | | $ | 300 | | $ | 58,677 | |
| | | | | | | | | | | | | | | | | | | | | | |
*Included within the C&I – other category are leases individually evaluated of $847 thousand with primary collateral of equipment.
For certain C&I loans, all CRE loans, certain construction and CREland development loans, all multifamily loans and certain 1-4 family real estate loans, the Company’s credit quality indicator isconsists of internally assigned risk ratings. Each commercialsuch loan is assigned a risk rating upon origination. The risk rating is reviewed every 15 months, at a minimum, and on an as neededas-needed basis depending on the specific circumstances of the loan. See Note 1 for further discussion on the Company’s risk ratings.
100
Note 4. Loans/Leases Receivable (continued)
For certain C&I loans (including equipment financing loans,agreements and direct financing leases, residentialleases), certain construction and land development, certain 1-4 family real estate loans, and installment and otherall consumer loans, the Company’s credit quality indicator is performance determined by delinquency status. Prior to adoption of ASU 2016-13, this included C&I equipment financing agreements, direct financing leases, residential real estate loans, and installment and other consumer loans. Delinquency status is updated daily by the Company’s loan system.
99
Note 4. Loans/Leases Receivable (continued)
The following tables show the credit quality indicator of loans by class of receivable and year of origination as of December 31, 2021;
| | | | | | | | | | | | | | | | | | | | | | | | |
| | 2021 | ||||||||||||||||||||||
| | Term Loans |
| | | | | | ||||||||||||||||
| | Amortized Cost Basis by Origination Year |
| | | | ||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | Revolving | | | ||
| | | | | | | | | | | | | | | | | | | | Loans | | | | |
Internally Assigned | | | | | | | | | | | | | | | | Amortized | | | ||||||
Risk Rating |
| 2021 |
| 2020 |
| 2019 |
| 2018 |
| 2017 | | Prior | | Cost Basis | | Total | ||||||||
| | (dollars in thousands) | ||||||||||||||||||||||
C&I - revolving | | | | | | | | | | | | | | | | | | | | | | | | |
Pass (Ratings 1 through 5) | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 245,212 | | $ | 245,212 |
Special Mention (Rating 6) | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| 633 | |
| 633 |
Substandard (Rating 7) | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| 2,638 | |
| 2,638 |
Doubtful (Rating 8) | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Total C&I - revolving | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 248,483 | | $ | 248,483 |
| | | | | | | | | | | | | | | | | | | | | | | | |
C&I - other | | | | | | | | | | | | | | | | | | | | | | | | |
Pass (Ratings 1 through 5) | | $ | 391,532 | | $ | 362,256 | | $ | 133,678 | | $ | 82,177 | | $ | 83,419 | | $ | 53,310 | | $ | — | | $ | 1,106,372 |
Special Mention (Rating 6) | |
| 3,580 | |
| 373 | |
| 349 | |
| — | |
| 336 | |
| 2 | |
| — | |
| 4,640 |
Substandard (Rating 7) | |
| 506 | |
| 2,366 | |
| 7,138 | |
| 396 | |
| 55 | |
| 46 | |
| — | |
| 10,507 |
Doubtful (Rating 8) | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Total C&I - other | | $ | 395,618 | | $ | 364,995 | | $ | 141,165 | | $ | 82,573 | | $ | 83,810 | | $ | 53,358 | | $ | — | | $ | 1,121,519 |
| | | | | | | | | | | | | | | | | | | | | | | | |
CRE - owner occupied | | | | | | | | | | | | | | | | | | | | | | | | |
Pass (Ratings 1 through 5) | | $ | 118,014 | | $ | 143,045 | | $ | 47,660 | | $ | 30,523 | | $ | 17,038 | | $ | 46,185 | | $ | 11,477 | | $ | 413,942 |
Special Mention (Rating 6) | |
| 637 | |
| — | |
| — | |
| 233 | |
| 1,846 | |
| 1,202 | |
| — | |
| 3,918 |
Substandard (Rating 7) | |
| — | |
| — | |
| 2,080 | |
| 1,239 | |
| 522 | |
| — | |
| — | |
| 3,841 |
Doubtful (Rating 8) | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Total CRE - owner occupied | | $ | 118,651 | | $ | 143,045 | | $ | 49,740 | | $ | 31,995 | | $ | 19,406 | | $ | 47,387 | | $ | 11,477 | | $ | 421,701 |
| | | | | | | | | | | | | | | | | | | | | | | | |
CRE - non-owner occupied | | | | | | | | | | | | | | | | | | | | | | | | |
Pass (Ratings 1 through 5) | | $ | 176,813 | | $ | 145,712 | | $ | 88,697 | | $ | 63,849 | | $ | 55,752 | | $ | 28,808 | | $ | 8,592 | | $ | 568,223 |
Special Mention (Rating 6) | |
| 7,295 | |
| 20,881 | |
| 1,802 | |
| 12,230 | |
| 5,494 | |
| 5,580 | |
| — | |
| 53,282 |
Substandard (Rating 7) | |
| 1,105 | |
| 6,297 | |
| 15,563 | |
| 1,087 | |
| 943 | |
| — | |
| — | |
| 24,995 |
Doubtful (Rating 8) | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Total CRE - non-owner occupied | | $ | 185,213 | | $ | 172,890 | | $ | 106,062 | | $ | 77,166 | | $ | 62,189 | | $ | 34,388 | | $ | 8,592 | | $ | 646,500 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Construction and land development | | | | | | | | | | | | | | | | | | | | | | | | |
Pass (Ratings 1 through 5) | | $ | 394,045 | | $ | 248,360 | | $ | 126,941 | | $ | 106,790 | | $ | 3,012 | | $ | — | | $ | 13,277 | | $ | 892,425 |
Special Mention (Rating 6) | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Substandard (Rating 7) | |
| 10,362 | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| 10,362 |
Doubtful (Rating 8) | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Total Construction and land development | | $ | 404,407 | | $ | 248,360 | | $ | 126,941 | | $ | 106,790 | | $ | 3,012 | | $ | — | | $ | 13,277 | | $ | 902,787 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Multi-family | | | | | | | | | | | | | | | | | | | | | | | | |
Pass (Ratings 1 through 5) | | $ | 266,120 | | $ | 197,224 | | $ | 74,033 | | $ | 47,486 | | $ | 5,609 | | $ | 7,376 | | $ | 2,564 | | $ | 600,412 |
Special Mention (Rating 6) | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Substandard (Rating 7) | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Doubtful (Rating 8) | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Total Multi-family | | $ | 266,120 | | $ | 197,224 | | $ | 74,033 | | $ | 47,486 | | $ | 5,609 | | $ | 7,376 | | $ | 2,564 | | $ | 600,412 |
| | | | | | | | | | | | | | | | | | | | | | | | |
1-4 family real estate | | | | | | | | | | | | | | | | | | | | | | | | |
Pass (Ratings 1 through 5) | | $ | 47,097 | | $ | 24,029 | | $ | 16,188 | | $ | 7,569 | | $ | 5,845 | | $ | 5,213 | | $ | 3,079 | | $ | 109,020 |
Special Mention (Rating 6) | |
| 37 | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| 37 |
Substandard (Rating 7) | |
| — | |
| 178 | |
| — | |
| 437 | |
| 201 | |
| — | |
| — | |
| 816 |
Doubtful (Rating 8) | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Total 1-4 family real estate | | $ | 47,134 | | $ | 24,207 | | $ | 16,188 | | $ | 8,006 | | $ | 6,046 | | $ | 5,213 | | $ | 3,079 | | $ | 109,873 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Consumer | | | | | | | | | | | | | | | | | | | | | | | | |
Pass (Ratings 1 through 5) | | $ | 1,558 | | $ | 487 | | $ | 108 | | $ | 216 | | $ | — | | $ | 824 | | $ | 2,031 | | $ | 5,224 |
Special Mention (Rating 6) | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Substandard (Rating 7) | |
| — | |
| — | |
| — | |
| 137 | |
| — | |
| — | |
| — | |
| 137 |
Doubtful (Rating 8) | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Total Consumer | | $ | 1,558 | | $ | 487 | | $ | 108 | | $ | 353 | | $ | — | | $ | 824 | | $ | 2,031 | | $ | 5,361 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total | | $ | 1,418,701 | | $ | 1,151,208 | | $ | 514,237 | | $ | 354,369 | | $ | 180,072 | | $ | 148,546 | | $ | 289,503 | | $ | 4,056,636 |
100
Note 4. Loans/Leases Receivable (continued)
| | | | | | | | | | | | | | | | | | | | | | | | |
| | 2021 | | | | | | | ||||||||||||||||
| | Term Loans | |
| | | | | ||||||||||||||||
| | Amortized Cost Basis by Origination Year | | Revolving | | | ||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | Loans | | | | |
| | | | | | | | | | | | | | | | Amortized | | | ||||||
Delinquency Status * |
| 2021 |
| 2020 |
| 2019 |
| 2018 |
| 2017 | | | Prior | | Cost Basis | | Total | |||||||
|
| (dollars in thousands) | ||||||||||||||||||||||
C&I - other | | | | | | | | | | | | | | | | | | | | | | | | |
Performing | | $ | 117,163 | | $ | 54,261 | | $ | 33,390 | | $ | 14,274 | | $ | 4,200 | | $ | 455 | | $ | — | | $ | 223,743 |
Nonperforming | |
| 95 | |
| 177 | |
| 644 | |
| 368 | |
| 42 | |
| 14 | |
| — | |
| 1,340 |
Total C&I - other | | $ | 117,258 | | $ | 54,438 | | $ | 34,034 | | $ | 14,642 | | $ | 4,242 | | $ | 469 | | $ | — | | $ | 225,083 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Direct financing leases | | | | | | | | | | | | | | | | | | | | | | | | |
Performing | | $ | 6,690 | | $ | 12,130 | | $ | 11,638 | | $ | 9,235 | | $ | 3,695 | | $ | 956 | | $ | — | | $ | 44,344 |
Nonperforming | |
| — | |
| 732 | |
| — | |
| 52 | |
| 18 | |
| 45 | |
| — | |
| 847 |
Total Direct financing leases | | $ | 6,690 | | $ | 12,862 | | $ | 11,638 | | $ | 9,287 | | $ | 3,713 | | $ | 1,001 | | $ | — | | $ | 45,191 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Construction and land development | | | | | | | | | | | | | | | | | | | | | | | | |
Performing | | $ | 12,857 | | $ | 2,080 | | $ | — | | $ | 494 | | $ | — | | $ | — | | $ | 280 | | $ | 15,711 |
Nonperforming | |
| — | |
| — | |
| — | |
| — | |
| 73 | |
| — | |
| — | |
| 73 |
Total Construction and land development | | $ | 12,857 | | $ | 2,080 | | $ | — | | $ | 494 | | $ | 73 | | $ | — | | $ | 280 | | $ | 15,784 |
| | | | | | | | | | | | | | | | | | | | | | | | |
1-4 family real estate | | | | | | | | | | | | | | | | | | | | | | | | |
Performing | | $ | 104,005 | | $ | 78,713 | | $ | 19,001 | | $ | 10,784 | | $ | 10,533 | | $ | 43,976 | | $ | 68 | | $ | 267,080 |
Nonperforming | |
| — | |
| — | |
| — | |
| 106 | |
| — | |
| 302 | |
| — | |
| 408 |
Total 1-4 family real estate | | $ | 104,005 | | $ | 78,713 | | $ | 19,001 | | $ | 10,890 | | $ | 10,533 | | $ | 44,278 | | $ | 68 | | $ | 267,488 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Consumer | | | | | | | | | | | | | | | | | | | | | | | | |
Performing | | $ | 4,891 | | $ | 4,020 | | $ | 2,114 | | $ | 1,660 | | $ | 593 | | $ | 1,230 | | $ | 55,411 | | $ | 69,919 |
Nonperforming | |
| — | |
| — | |
| 15 | |
| — | |
| 15 | |
| 1 | |
| — | |
| 31 |
Total Consumer | | $ | 4,891 | | $ | 4,020 | | $ | 2,129 | | $ | 1,660 | | $ | 608 | | $ | 1,231 | | $ | 55,411 | | $ | 69,950 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total | | $ | 245,701 | | $ | 152,113 | | $ | 66,802 | | $ | 36,973 | | $ | 19,169 | | $ | 46,979 | | $ | 55,759 | | $ | 623,496 |
*Performing = loans/leases accruing and less than 90 days past due. Nonperforming = loans/leases on nonaccrual and accruing loans/leases that are greater than or equal to 90 days past due.
101
Note 4. Loans/Leases Receivable (continued)
For each class of financing receivable, the following presents the recorded investment by credit quality indicator as of December 31, 20192020 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2019 |
| |||||||||||||||
|
|
|
|
| CRE |
|
|
|
|
|
| |||||||
|
|
|
|
|
|
|
| Non-Owner Occupied |
|
|
|
|
|
| ||||
|
|
|
|
|
| Commercial |
|
|
|
|
|
|
| |||||
|
|
|
|
|
| Construction, |
|
|
|
|
|
|
| |||||
|
|
|
|
|
| Land |
|
|
|
|
|
|
| |||||
|
|
|
| Owner-Occupied |
| Development, |
|
|
|
|
| As a % of |
| |||||
Internally Assigned Risk Rating |
| C&I |
| CRE |
| and Other Land |
| Other CRE |
| Total |
| Total |
| |||||
|
| (dollars in thousands) |
| |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass (Ratings 1 through 5) |
| $ | 1,334,446 |
| $ | 439,418 |
| $ | 378,572 |
| $ | 896,206 |
| $ | 3,048,642 |
| 98.28 | % |
Special Mention (Rating 6) |
|
| 12,962 |
|
| 3,044 |
|
| 41 |
|
| 3,905 |
|
| 19,952 |
| 0.64 | % |
Substandard (Rating 7) |
|
| 18,439 |
|
| 1,527 |
|
| 184 |
|
| 13,499 |
|
| 33,649 |
| 1.08 | % |
Doubtful (Rating 8) |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
| — | % |
|
| $ | 1,365,847 |
| $ | 443,989 |
| $ | 378,797 |
| $ | 913,610 |
| $ | 3,102,243 |
| 100.00 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2019 |
| |||||||||||||||
|
|
|
| Direct Financing |
| Residential Real |
| Installment and |
|
|
| As a % of |
| |||||
Delinquency Status * |
| C&I |
| Leases |
| Estate |
| Other Consumer |
| Total |
| Total |
| |||||
|
| (dollars in thousands) |
| |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performing |
| $ | 140,992 |
| $ | 86,019 |
| $ | 239,198 |
| $ | 108,763 |
| $ | 574,972 |
| 99.29 | % |
Nonperforming |
|
| 986 |
|
| 1,850 |
|
| 706 |
|
| 589 |
|
| 4,131 |
| 0.71 | % |
|
| $ | 141,978 |
| $ | 87,869 |
| $ | 239,904 |
| $ | 109,352 |
| $ | 579,103 |
| 100.00 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2018 |
| |||||||||||||||
|
|
|
|
| CRE |
|
|
|
|
|
| |||||||
|
|
|
|
|
|
|
| Non-Owner Occupied |
|
|
|
|
|
| ||||
|
|
|
|
|
| Commercial |
|
|
|
|
|
|
| |||||
|
|
|
|
|
| Construction, |
|
|
|
|
|
|
| |||||
|
|
|
|
|
| Land |
|
|
|
|
|
|
| |||||
|
|
|
| Owner-Occupied |
| Development, |
|
|
|
|
| As a % of |
| |||||
Internally Assigned Risk Rating |
| C&I |
| CRE |
| and Other Land |
| Other CRE |
| Total |
| Total |
| |||||
|
| (dollars in thousands) |
| |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass (Ratings 1 through 5) |
| $ | 1,294,418 |
| $ | 487,949 |
| $ | 230,473 |
| $ | 1,008,626 |
| $ | 3,021,466 |
| 97.72 | % |
Special Mention (Rating 6) |
|
| 23,302 |
|
| 9,599 |
|
| 3,848 |
|
| 5,309 |
|
| 42,058 |
| 1.36 | % |
Substandard (Rating 7) |
|
| 8,286 |
|
| 3,106 |
|
| 2,466 |
|
| 14,735 |
|
| 28,593 |
| 0.92 | % |
Doubtful (Rating 8) |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
| — | % |
|
| $ | 1,326,006 |
| $ | 500,654 |
| $ | 236,787 |
| $ | 1,028,670 |
| $ | 3,092,117 |
| 100.00 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2018 |
| |||||||||||||||
|
|
|
| Direct Financing |
| Residential Real |
| Installment and |
|
|
| As a % of |
| |||||
Delinquency Status * |
| C&I |
| Leases |
| Estate |
| Other Consumer |
| Total |
| Total |
| |||||
|
| (dollars in thousands) |
| |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performing |
| $ | 102,713 |
| $ | 116,097 |
| $ | 288,827 |
| $ | 118,714 |
| $ | 626,351 |
| 99.18 | % |
Nonperforming |
|
| 691 |
|
| 1,872 |
|
| 1,932 |
|
| 667 |
|
| 5,162 |
| 0.82 | % |
|
| $ | 103,404 |
| $ | 117,969 |
| $ | 290,759 |
| $ | 119,381 |
| $ | 631,513 |
| 100.00 | % |
2019:
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | 2020 |
| |||||||||||||||
| | | | | CRE | | | | | | | |||||||
| | | | | | | | Non-Owner Occupied | | | | | | | ||||
| | | | | | Commercial | | | | | | |
| |||||
| | | | | | Construction, | | | | | | |
| |||||
| | | | | | Land | | | | | | |
| |||||
| | | | Owner-Occupied | | Development, | | | | | | As a % of |
| |||||
Internally Assigned Risk Rating |
| C&I |
| CRE |
| and Other Land |
| Other CRE |
| Total |
| Total |
| |||||
|
| (dollars in thousands) | | |||||||||||||||
| | | | | | | | | | | | | | | | | | |
Pass (Ratings 1 through 5) | | $ | 1,506,578 | | $ | 488,478 | | $ | 530,297 | | $ | 999,931 | | $ | 3,525,284 |
| 96.25 | % |
Special Mention (Rating 6) | |
| 23,929 | |
| 3,087 | |
| 680 | |
| 43,785 | |
| 71,481 |
| 1.95 | % |
Substandard (Rating 7) | |
| 24,710 | |
| 4,906 | |
| 10,478 | |
| 25,987 | |
| 66,081 |
| 1.80 | % |
Doubtful (Rating 8) | |
| — | |
| — | |
| — | |
| — | |
| — |
| — | % |
| | $ | 1,555,217 | | $ | 496,471 | | $ | 541,455 | | $ | 1,069,703 | | $ | 3,662,846 |
| 100.00 | % |
| | | | | | | | | | | | | | | | | | |
| | 2020 |
| |||||||||||||||
| | | | Direct Financing | | Residential Real | | Installment and | | | | As a % of |
| |||||
Delinquency Status * |
| C&I |
| Leases |
| Estate |
| Other Consumer |
| Total |
| Total |
| |||||
| | (dollars in thousands) | | |||||||||||||||
| | | | | | | | | | | | | | | | | | |
Performing | | $ | 170,712 | | $ | 65,475 | | $ | 251,099 | | $ | 91,094 | | $ | 578,380 |
| 99.56 | % |
Nonperforming | |
| 794 | |
| 541 | |
| 1,022 | |
| 208 | |
| 2,565 |
| 0.44 | % |
| | $ | 171,506 | | $ | 66,016 | | $ | 252,121 | | $ | 91,302 | | $ | 580,945 |
| 100.00 | % |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | 2019 | ||||||||||||||||
| | | | | CRE | | | | | | | |||||||
| | | | | | | | Non-Owner Occupied | | | | | | | ||||
| | | | | | | | Commercial | | | | | | | | |
| |
| | | | | | | | Construction, | | | | | | | | |
| |
| | | | | | | | Land | | | | | | | | |
| |
| | | | | Owner-Occupied | | Development, | | | | | | | | As a % of |
| ||
Internally Assigned Risk Rating |
| C&I |
| CRE |
| and Other Land |
| Other CRE |
| Total |
| Total |
| |||||
|
| (dollars in thousands) | | |||||||||||||||
| | | | | | | | | | | | | | | | | | |
Pass (Ratings 1 through 5) | | $ | 1,334,446 | | $ | 439,418 | | $ | 378,572 | | $ | 896,206 | | $ | 3,048,642 |
| 98.28 | % |
Special Mention (Rating 6) | |
| 12,962 | |
| 3,044 | |
| 41 | |
| 3,905 | |
| 19,952 |
| 0.64 | % |
Substandard (Rating 7) | |
| 18,439 | |
| 1,527 | |
| 184 | |
| 13,499 | |
| 33,649 |
| 1.08 | % |
Doubtful (Rating 8) | |
| — | |
| — | |
| — | |
| — | |
| — |
| — | % |
| | $ | 1,365,847 | | $ | 443,989 | | $ | 378,797 | | $ | 913,610 | | $ | 3,102,243 | | 100.00 | % |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | 2019 |
| |||||||||||||||
| | | | Direct Financing | | Residential Real | | Installment and | | | | As a % of |
| |||||
Delinquency Status * |
| C&I |
| Leases |
| Estate |
| Other Consumer |
| Total |
| Total |
| |||||
| | (dollars in thousands) | | |||||||||||||||
| | | | | | | | | | | | | | | | | | |
Performing | | $ | 140,992 | | $ | 86,019 | | $ | 239,198 | | $ | 108,763 | | $ | 574,972 |
| 99.29 | % |
Nonperforming | |
| 986 | |
| 1,850 | |
| 706 | |
| 589 | |
| 4,131 |
| 0.71 | % |
| | $ | 141,978 | | $ | 87,869 | | $ | 239,904 | | $ | 109,352 | | $ | 579,103 |
| 100.00 | % |
| | | | | | | | | | | | | | | | | | |
* Prior to adoption of ASU 2016-13: Performing = loans/leases accruing and less than 90 days past due. Nonperforming = loans/leases on nonaccrual, accruing loans/leases that are greater than or equal to 90 days past due, and accruing troubled debt restructurings.
TDRs.
101102
Note 4. Loans/Leases Receivable (continued)
TDRs totaled $1.7 million$494 thousand and $6.5$1.7 million as of December 31, 20192021 and 2018,2020, respectively.
For each class of financing receivable, the following presents the number and recorded investment of TDRs, by type of concession, that were restructured during the years ended December 31, 20192021 and 2018.2020. The difference between the pre-modification recorded investment and the post-modification recorded investment would be any partial charge-offs at the time of restructuring. The specific allowance is as of December 31, 2019 and 2018, respectively. The following excludes any TDRs that were restructured and paid off or charged off in the same year.
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2019 | |||||||||
|
|
|
| Pre- |
| Post- |
|
|
| ||
|
|
|
| Modification |
| Modification |
|
|
| ||
|
| Number of |
| Recorded |
| Recorded |
| Specific | |||
Classes of Loans/Leases |
| Loans / Leases |
| Investment |
| Investment |
| Allowance | |||
|
| (dollars in thousands) | |||||||||
CONCESSION - Significant Payment Delay |
|
|
|
|
|
|
|
|
|
|
|
C&I |
| 3 |
| $ | 112 |
| $ | 112 |
| $ | — |
Direct Financing Leases |
| 10 |
|
| 388 |
|
| 388 |
|
| 35 |
|
| 13 |
| $ | 500 |
| $ | 500 |
| $ | 35 |
|
|
|
|
|
|
|
|
|
|
|
|
CONCESSION - Foregiveness of Principal |
|
|
|
|
|
|
|
|
|
|
|
C&I |
| 1 |
| $ | 587 |
| $ | 537 |
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
CONCESSION - Extension of Maturity |
|
|
|
|
|
|
|
|
|
|
|
Installment and Other Consumer |
| 1 |
| $ | 56 |
| $ | 56 |
| $ | 54 |
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL |
| 15 |
| $ | 1,143 |
| $ | 1,093 |
| $ | 89 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2018 | |||||||||
|
|
|
| Pre- |
| Post- |
|
|
| ||
|
|
|
| Modification |
| Modification |
|
|
| ||
|
| Number of |
| Recorded |
| Recorded |
| Specific | |||
Classes of Loans/Leases |
| Loans/Leases |
| Investment |
| Investment |
| Allowance | |||
|
| (dollars in thousands) | |||||||||
CONCESSION - Significant Payment Delay |
|
|
|
|
|
|
|
|
|
|
|
C&I |
| 5 |
| $ | 426 |
| $ | 426 |
| $ | 250 |
Other Non Owner-Occupied CRE |
| 1 |
|
| 500 |
|
| 500 |
|
| 60 |
Residential Real Estate |
| 1 |
|
| 46 |
|
| 46 |
|
| — |
Direct Financing Leases |
| 3 |
|
| 75 |
|
| 75 |
|
| — |
|
| 10 |
| $ | 1,047 |
| $ | 1,047 |
| $ | 310 |
|
|
|
|
|
|
|
|
|
|
|
|
CONCESSION - Extension of Maturity |
|
|
|
|
|
|
|
|
|
|
|
Other Non Owner-Occupied CRE |
| 2 |
| $ | 2,976 |
| $ | 2,976 |
| $ | 1,492 |
Residential Real Estate |
| 2 |
| $ | 100 |
| $ | 100 |
| $ | 8 |
|
| 4 |
| $ | 3,076 |
| $ | 3,076 |
| $ | 1,500 |
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL |
| 14 |
| $ | 4,123 |
| $ | 4,123 |
| $ | 1,810 |
| | | | | | | | | | | |
| | 2021 | |||||||||
| | |
| Pre- |
| Post- |
| | | ||
| | | | Modification | | Modification | | | | ||
| | Number of | | Recorded | | Recorded | | Specific | |||
Classes of Loans/Leases | | Loans / Leases | | Investment | | Investment | | Allowance | |||
| | (dollars in thousands) | |||||||||
CONCESSION - Extension of Maturity | |
|
| |
|
| |
|
| |
|
1-4 family real estate | | 1 | | $ | 2,532 | | $ | 2,532 | | $ | 182 |
| |
| |
|
| |
|
| |
|
|
CONCESSION - Interest Rate Adjusted Below Market | |
| |
|
| |
|
| |
|
|
1-4 family real estate | | 1 | | $ | 54 | | $ | 54 | | $ | 6 |
Consumer | | 1 | | | 13 | | | 13 | | | 1 |
| | 2 | | $ | 67 | | $ | 67 | | $ | 7 |
| | | | | | | | | | | |
TOTAL | | 3 | | $ | 2,599 | | $ | 2,599 | | $ | 189 |
| | | | | | | | | | | |
| | 2020 | |||||||||
| | |
| Pre- |
| Post- |
| | | ||
| | | | Modification | | Modification | | | | ||
| | Number of | | Recorded | | Recorded | | Specific | |||
Classes of Loans/Leases | | Loans / Leases | | Investment | | Investment | | Allowance | |||
| | (dollars in thousands) | |||||||||
CONCESSION - Significant Payment Delay | |
|
| |
|
| |
|
| |
|
C&I | | 1 | | $ | 75 | | $ | 75 | | $ | — |
Direct Financing Leases | | 2 | | | 112 | | | 112 | | | — |
| | 3 | | $ | 187 | | $ | 187 | | $ | — |
| |
| |
|
| |
|
| |
|
|
CONCESSION - Extension of Maturity | | | | | | | | | | | |
CRE Other | | 1 | | $ | 835 | | $ | 835 | | $ | — |
| | | | | | | | | | | |
TOTAL | | 4 | | $ | 1,022 | | $ | 1,022 | | $ | — |
Of the TDRsloans restructured reported above, three1 with a post-modification recorded investment totaling $121$54 thousand were was on nonaccrual as of December 31, 20192021 and three2 with a post-modification recorded investment totaling $796$880 thousand were on nonaccrual as of December 31, 2018.2020.
For the year ended December 31, 2019,2021, the Company had twodid not have anyTDRs totaling $66 thousand that redefaulted within 12 months subsequent to restructure, where default is defined as delinquency of 90 days or more and/or placement on nonaccrual status. For the year ended December 31, 2018,2020, the Company had five TDRs1 TDR totaling $399$44 thousand that redefaulted within 12 months subsequent to restructure, where default is defined as delinquency of 90 days or more and/or placement on nonaccrual status.
Not included in the table above, theThe Company had one TDRdid not have any TDRs that waswere restructured and charged off in 2019, totaling $52 thousand.2021. There were 135 TDRs that were both restructured and charged off in 2018,2020, totaling $896$266 thousand.
102103
Note 4. Loans/Leases Receivable (continued)
On March 22, 2020, federal banking regulators issued an interagency statement that included guidance on their approach for the accounting of loan modifications in light of the economic impact of the COVID-19 pandemic. The guidance interprets current accounting standards and indicates that a lender can conclude that a borrower is not experiencing financial difficulty if short-term modifications are made in response to COVID-19, such as payment deferrals, fee waivers, extensions of repayment terms or other delays in payment that are insignificant related to the loans in which the borrower is less than 30 days past due on its contractual payments at the time a modification program is implemented. The agencies confirmed in working with the staff of the FASB that short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief are not TDRs. The regulators clarified that this guidance could continue to be applied through December 31, 2021.
In addition, the CARES Act provides financial institutions the option to temporarily suspend certain requirements under GAAP related to TDRs for a limited period of time to account for the effects of COVID-19. To be eligible, the modification must be (1) related to COVID-19, (2) executed on a loan that was not more than 30 days past due as of December 31, 2019 and (3) executed between March 1, 2020 and the earlier of (A) 60 days after the termination of the presidentially-declared emergency or (B) December 31, 2020. If a modification does not meet the criteria of the CARES act, a deferral can still be excluded from TDR treatment as long as the modifications meet the banking regulatory criteria discussed in the preceding paragraph. On December 27, 2020, the Consolidated Appropriations Act was established, which extended the eligibility window for TDR relief to the earlier of (A) 60 days after the termination of the presidentially-declared emergency or (B) January 1, 2022. Accordingly, the Company has ended the LRP.
The Company implemented its LRP during the first quarter of 2020 offering to extend qualifying customers’ payments for 90 days. As of December 31, 2021, there were 0 bank modifications of loans and 6 m2 modifications of loans and leases totaling $2.4 million, representing 0.05% of the total loan and lease portfolio that remained on deferral as of such date.
The adoption of ASU 2016-13 on January 1, 2021 required an allowance for OBS exposures, specifically on unfunded commitments. Changes in the ACL for OBS exposures for the year ended December 31, 2021 is presented as follows:
| | | |
| | For the Year Ended | |
| | December 31, 2021 | |
| | | (dollars in thousands) |
| | | |
Balance, beginning | | $ | — |
Impact of adopting ASU 2016-13 | | | 9,117 |
Provisions credited to expense | |
| (2,231) |
Balance, ending | | $ | 6,886 |
104
Note 4. Loans/Leases Receivable (continued)
Loans are made in the normal course of business to directors, executive officers, and their related interests. TheAll such loans, in the opinion of management, were made in the ordinary course of business, on substantially the same terms, of these loans, including interest rates and collateral, are similar toas those prevailing at the time for comparable transactions with persons not related to the lenders and did not involve more than the normal risk of collectability or present other persons.unfavorable features. An analysis of the changes in the aggregate committed amount of loans to insiders greater than or equal to $60,000 during the years ended December 31, 2019, 2018,2021, 2020, and 2017,2019, is as follows:
|
|
|
|
|
|
|
|
|
|
|
| 2019 |
| 2018 |
| 2017 | |||
|
| (dollars in thousands) | |||||||
|
|
|
|
|
|
|
|
|
|
Balance, beginning |
| $ | 125,496 |
| $ | 66,442 |
| $ | 61,609 |
Net increase (decrease) due to change in related parties |
|
| (12,161) |
|
| 41,797 |
|
| 11,927 |
Advances |
|
| 98,708 |
|
| 43,453 |
|
| 13,091 |
Repayments |
|
| (99,213) |
|
| (26,196) |
|
| (20,185) |
Balance, ending |
| $ | 112,830 |
| $ | 125,496 |
| $ | 66,442 |
| | | | | | | | | |
|
| 2021 |
| 2020 |
| 2019 | |||
| | (dollars in thousands) | |||||||
| | | | | | | | | |
Balance, beginning | | $ | 100,361 | | $ | 112,830 | | $ | 125,496 |
Net decrease due to change in related parties | |
| (18,832) | |
| (1,601) | |
| (12,161) |
Advances | |
| 42,817 | |
| 43,238 | |
| 98,708 |
Repayments | |
| (23,448) | |
| (54,106) | |
| (99,213) |
Balance, ending | | $ | 100,898 | | $ | 100,361 | | $ | 112,830 |
The Company’s loan portfolio includes a geographic concentration in the Midwest. Additionally, the loan portfolio includes a concentration of loans in certain industries as of December 31, 20192021 and 20182020 as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2019 |
| 2018 |
| ||||||
|
|
|
|
| Percentage of |
|
|
|
| Percentage of |
|
|
|
|
|
| Total |
|
|
|
| Total |
|
Industry Name |
| Balance |
| Loans/Leases |
| Balance |
| Loans/Leases |
| ||
|
| (dollars in thousands) | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Lessors of Residential Buildings |
| $ | 745,770 |
| 22 | % | $ | 594,346 |
| 16 | % |
Lessors of Non-Residential Buildings |
|
| 574,058 |
| 17 | % |
| 632,534 |
| 17 | % |
Administration of Urban Planning & Community & Rural Development |
|
| 133,157 |
| 4 | % |
| 111,579 |
| 3 | % |
Bank Holding Companies |
|
| 92,185 |
| 3 | % |
| 75,601 |
| 2 | % |
| | | | | | | | | | | |
| | 2021 | | 2020 |
| ||||||
| | | | | Percentage of | | | | | Percentage of |
|
| | | | | Total | | | | | Total |
|
Industry Name |
| Balance |
| Loans/Leases |
| Balance |
| Loans/Leases |
| ||
| | (dollars in thousands) | |||||||||
| | | | | | | | | | | |
Lessors of Residential Buildings* | | $ | 1,706,092 |
| 36 | % | $ | 1,134,178 |
| 27 | % |
Lessors of Non-Residential Buildings | | | 586,672 |
| 13 | % | | 591,398 |
| 14 | % |
Administration of Urban Planning & Community & Rural Development | |
| 120,416 |
| 3 | % |
| 138,514 |
| 3 | % |
Concentrations within the leasing portfolio are monitored by equipment type – none of which represent a concentration within the total loans/leases portfolio. Within the leasing portfolio, diversification is spread among construction, manufacturing and the service industries. Geographically, the lease portfolio is diversified across all 50 states. No individual state represents a concentration within the total loan/lease portfolio.* Includes loans on LIHTC projects
Note 5. Premises and Equipment
The following summarizes the components of premises and equipment as of December 31, 20192021 and 2018:
|
|
|
|
|
|
|
|
| 2019 |
| 2018 | ||
|
| (dollars in thousands) | ||||
|
|
|
|
|
|
|
Land |
| $ | 13,632 |
| $ | 15,582 |
Buildings (useful lives 15 to 50 years) |
|
| 66,070 |
|
| 64,299 |
Furniture and equipment (useful lives 3 to 10 years) |
|
| 40,228 |
|
| 36,399 |
Premises and equipment |
|
| 119,930 |
|
| 116,280 |
Less accumulated depreciation |
|
| 46,071 |
|
| 40,698 |
Premises and equipment, net |
| $ | 73,859 |
| $ | 75,582 |
2020:
| | | | | | |
|
| 2021 |
| 2020 | ||
| | (dollars in thousands) | ||||
| | | | | | |
Land | | $ | 12,513 | | $ | 13,403 |
Buildings (useful lives 15 to 39 years) | |
| 70,555 | |
| 67,844 |
Furniture and equipment (useful lives 3 to 15 years) | |
| 47,822 | |
| 42,667 |
Premises and equipment | |
| 130,890 | |
| 123,914 |
Less accumulated depreciation | |
| 52,360 | |
| 51,221 |
Premises and equipment, net | | $ | 78,530 | | $ | 72,693 |
| | | | | | |
103105
Note 5. Premises and Equipment (continued)
As a lessee, the Company has entered into operating leases for certain branch locations. Total lease expenses were $732$636 thousand and $662 thousand for the year ended December 31, 2019.2021 and 2020, respectively.
At December 31, 2019,2021 and 2020, the Company’s Right of Use “(ROU)”ROU assets (included in other assets on the consolidated balance sheets) and operating lease liabilities (included in other liabilities on the consolidated balance sheets) were both $1.9 million. No$1.3 million and $1.7 million, respectively. NaN new ROU assets were capitalized during the year ended December 31, 2019.2021 or 2020.
At December 31, 2019,2021, the contractual maturities of operating lease liabilities were as follows:
|
|
|
|
|
| Amount | |
Year ending December 31: |
| (dollars in thousands) | |
2020 |
|
| 541 |
2021 |
|
| 327 |
2022 |
|
| 251 |
2023 |
|
| 200 |
2024 |
|
| 144 |
Thereafter |
|
| 857 |
|
| $ | 2,320 |
| | | |
|
| Amount | |
Year ending December 31: |
| (dollars in thousands) | |
2022 |
| | 269 |
2023 |
| | 200 |
2024 |
| | 144 |
2025 |
| | 153 |
2026 |
| | 159 |
Thereafter |
| | 544 |
| | $ | 1,469 |
| | | |
As a lessor, the Company leases certain types of commercial vehicles and industrial equipment to its customers. The Company recognized lease-related revenue, primarily interest income from direct financing leases of $6.1$4.0 million and $5.1 million for the yearyears ended December 31, 2019.2021 and 2020, respectively. At December 31, 20192021 and 2020, the Company’s net investment in direct financing leases was $88.3 million.$44.2 million and $65.3 million, respectively.
As of December 31, 2019,2021, the contractual maturities of sales-type and direct financing lease receivables were as follows:
|
|
|
| |||
|
| Amount | ||||
| | | | |||
|
| Amount | ||||
Year ending December 31: |
| (dollars in thousands) |
| (dollars in thousands) | ||
2020 |
|
| 12,123 | |||
2021 |
|
| 18,464 | |||
2022 |
|
| 23,520 |
| | 2,590 |
2023 |
|
| 22,845 |
| | 12,461 |
2024 |
|
| 16,065 |
| | 14,319 |
2025 |
| | 14,508 | |||
2026 |
| | 5,019 | |||
Thereafter |
|
| 4,008 |
| | 465 |
Total lease payments receivable |
| $ | 97,025 | | $ | 49,362 |
Unguaranteed residual values |
|
| 547 | | | 165 |
Unearned lease/residual income |
|
| (9,703) | | | (4,336) |
|
| $ | 87,869 | |||
| | $ | 45,191 | |||
Plus deferred origination costs, net of fees |
|
| 1,892 | | | 568 |
|
| $ | 89,761 | |||
| | $ | 45,759 | |||
Less allowance |
|
| (1,464) | | | (1,546) |
Total lease payments receivable |
| $ | 88,297 | | $ | 44,213 |
104106
The
The The
Note 6. Goodwill and Intangibles
The following table presents the changes in the carrying amount of goodwill for the years ended December 31, 2019, 20182021, 2020 and 2017:2019:
|
|
|
|
|
|
|
|
|
|
|
| 2019 |
| 2018 |
| 2017 | |||
|
| (dollars in thousands) | |||||||
|
|
|
|
|
|
|
|
|
|
Balance at the beginning of period |
| $ | 77,832 |
| $ | 28,334 |
| $ | 13,111 |
Goodwill from merger with Springfield Bancshares |
|
| — |
|
| 45,975 |
|
| — |
Goodwill from acquisition of Bates Companies |
|
| — |
|
| 3,766 |
|
| — |
Goodwill from acquisition of Guaranty Bank |
|
| — |
|
| — |
|
| 15,223 |
Goodwill from acquisition of Guaranty Bank - measurement period adjustment |
|
| — |
|
| (243) |
|
| — |
Goodwill from acquisition of Bates Companies - measurement period adjustment |
|
| (84) |
|
| — |
|
| — |
Goodwill impairment - Bates Companies |
|
| (3,000) |
|
| — |
|
| — |
Balance at the end of period |
| $ | 74,748 |
| $ | 77,832 |
| $ | 28,334 |
| | | | | | | | | |
|
| 2021 |
| 2020 |
| 2019 | |||
| | (dollars in thousands) | |||||||
| | | | | | | | | |
Balance at the beginning of period | | $ | 74,066 | | $ | 74,748 | | $ | 77,832 |
Acquisition of Bates Companies - measurement period adjustment | | | — | | | — | | | (84) |
Sale of Bates Companies | | | — | | | (182) | | | — |
Goodwill impairment - Bates Companies | | | — | | | (500) | | | (3,000) |
Balance at the end of period | | $ | 74,066 | | $ | 74,066 | | $ | 74,748 |
The following table presents the goodwill by reportable segment:
| | | | | | | | | | |||||||||
| | | | | | | | | | |||||||||
| | December 31, 2021 | | December 31, 2020 | | December 31, 2019 | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||
|
| December 31, 2019 |
| December 31, 2018 |
| December 31, 2017 | ||||||||||||
|
| (dollars in thousands) | ||||||||||||||||
| | (dollars in thousands) | ||||||||||||||||
Commercial banking: |
|
|
|
|
|
|
|
|
| | | | | | | | | |
QCBT |
| $ | 3,223 |
| $ | 3,223 |
| $ | 3,223 | | $ | 3,223 | | $ | 3,223 | | $ | 3,223 |
CRBT |
|
| 14,980 |
|
| 14,980 |
|
| 15,223 | |
| 14,980 | |
| 14,980 | |
| 14,980 |
CSB |
|
| 9,888 |
|
| 9,888 |
|
| 9,888 | | | 9,888 | | | 9,888 | | | 9,888 |
SFC Bank |
|
| 45,975 |
|
| 45,975 |
|
| — | |||||||||
SFCB | |
| 45,975 | |
| 45,975 | |
| 45,975 | |||||||||
Other, Parent Company Only |
|
| 682 |
|
| 3,766 |
|
| — | | | — | | | — | | | 682 |
|
| $ | 74,748 |
| $ | 77,832 |
| $ | 28,334 | |||||||||
| | $ | 74,066 | | $ | 74,066 | | $ | 74,748 | |||||||||
| | | | | | | | | |
At November 30, 2021 and 2020 the Company’s management performed an annual internal assessment at the reporting unit level and determined 0 goodwill impairment existed.
Due to the economic impact that COVID-19 had on the Company during 2020, management concluded that factors such as the decline in macroeconomic conditions led to the occurrence of a triggering event during the first quarter of 2020, and therefore an interim impairment test over goodwill was performed as of March 31, 2020. Based upon the results of the interim goodwill assessment during the first quarter of 2020, the Company concluded that an impairment did not exist on the bank reporting units as of the time of the assessment. There was no occurrence of a triggering event during the second or third quarter of 2020 and therefore no impairment test over goodwill was needed.
During the first quarter of 2020, the Company incurred goodwill impairment expense of $500 thousand related to the Bates Companies reporting unit. This was the result of the announcement of a sale of the Bates Companies, as discussed in Note 2 to the Consolidated Financial Statements.
As of November 30, 2019, the Company’s management performed an internal assessment of the goodwill for the Bates Companies reporting unit. AsWith the Bates Companies is located in Rockford, Illinois, the Company had intended to achieve synergies and cross-selling opportunities that significantly enhanced the value of the Bates Companies. With the sale of the assets and liabilities of RB&T, which was the Company’s bank subsidiary located
in Rockford, Illinois, the Company’s valuation analysis determined the value had declined and the goodwill was impaired. Specifically, the Company determined a goodwill impairment charge of $3 million was required for the Bates Companies. The Company used a combination of methods to determine the value and related goodwill impairment charge. The methods included prices of comparable businesses as well as recent discussions with existing wealth management providers in the surrounding Rockford market.
105107
Note 6. Goodwill and Intangibles (continued)
The following table presents the changes in core deposit intangibles (included in Intangibles on the consolidated balance sheets) during the years ended December 31, 2019, 20182021, 2020 and 2017:2019:
|
|
|
|
|
|
|
|
|
|
|
| 2019 |
| 2018 |
| 2017 | |||
|
| (dollars in thousands) | |||||||
|
|
|
|
|
|
|
|
|
|
Balance at the beginning of the period |
| $ | 15,595 |
| $ | 9,079 |
| $ | 7,381 |
Core deposit intangible from merger with Springfield Bancshares |
|
| — |
|
| 8,208 |
|
| — |
Core deposit intangible from acquisition of Guaranty Bank |
|
| — |
|
| — |
|
| 2,699 |
Amortization expense |
|
| (2,129) |
|
| (1,692) |
|
| (1,001) |
Balance at the end of the period |
| $ | 13,466 |
| $ | 15,595 |
| $ | 9,079 |
|
|
|
|
|
|
|
|
|
|
Gross carrying amount |
| $ | 19,255 |
| $ | 19,255 |
| $ | 11,046 |
Accumulated amortization |
|
| (5,789) |
|
| (3,660) |
|
| (1,967) |
Net book value |
| $ | 13,466 |
| $ | 15,595 |
| $ | 9,079 |
| | | | | | | | | |
|
| 2021 | | 2020 | | 2019 | |||
| | (dollars in thousands) | |||||||
| | | | | | | | | |
Balance at the beginning of the period | | $ | 11,381 | | $ | 13,466 | | $ | 15,595 |
Amortization expense | |
| (2,032) | |
| (2,085) | |
| (2,129) |
Balance at the end of the period | | $ | 9,349 | | $ | 11,381 | | $ | 13,466 |
| |
|
| |
|
| |
|
|
Gross carrying amount | | $ | 19,255 | | $ | 19,255 | | $ | 19,255 |
Accumulated amortization | |
| (9,906) | |
| (7,874) | |
| (5,789) |
Net book value | | $ | 9,349 | | $ | 11,381 | | $ | 13,466 |
| | | | | | | | | |
The following table presents the core deposit intangibles by reportable segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2019 |
| December 31, 2018 |
| December 31, 2017 | |||
|
| (dollars in thousands) | |||||||
Commercial Banking: |
|
|
|
|
|
|
|
|
|
CRBT |
| $ | 2,684 |
| $ | 3,186 |
| $ | 3,694 |
CSB |
|
| 3,980 |
|
| 4,675 |
|
| 5,385 |
SFC Bank |
|
| 6,802 |
|
| 7,734 |
|
| — |
|
| $ | 13,466 |
| $ | 15,595 |
| $ | 9,079 |
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | |
| | | | | | | | | |
| | December 31, 2021 | | December 31, 2020 | | December 31, 2019 | |||
| | (dollars in thousands) | |||||||
Commercial Banking: | | | | | | | | | |
CRBT | | $ | 1,702 | | $ | 2,189 | | $ | 2,684 |
CSB | | | 2,653 | | | 3,305 | | | 3,980 |
SFCB | | | 4,994 | | | 5,887 | | | 6,802 |
| | $ | 9,349 | | $ | 11,381 | | $ | 13,466 |
| | | | | | | | | |
The following table presents the estimated amortization of the core deposit intangibles:
|
|
|
|
|
| Amount | |
Years ending December 31, |
| (dollars in thousands) | |
2020 |
| $ | 2,085 |
2021 |
|
| 2,032 |
2022 |
|
| 1,971 |
2023 |
|
| 1,776 |
2024 |
|
| 1,623 |
Thereafter |
|
| 3,979 |
|
| $ | 13,466 |
| | | |
|
| Amount | |
Years ending December 31, | | (dollars in thousands) | |
2022 | | $ | 1,971 |
2023 | |
| 1,776 |
2024 | |
| 1,623 |
2025 | |
| 1,535 |
2026 | |
| 1,284 |
Thereafter | |
| 1,160 |
| | $ | 9,349 |
The following table presents the changes in customer list intangible (included in Intangibles on the consolidated balance sheets)Consolidated Balance Sheets) during the years ended December 31, 20192020 and 2018:2019. There was no activity during the year ended December 31, 2021.
|
|
|
|
|
|
|
|
| 2019 |
| 2018 | ||
|
| (dollars in thousands) | ||||
Balance at the beginning of period |
| $ | 1,855 |
| $ | — |
Customer list intangible from acquisition of Bates Companies |
|
| — |
|
| 1,855 |
Customer list intangible from acquisition of Bates Companies - measurement period adjustment |
|
| (214) |
|
| — |
Amortization |
|
| (137) |
|
| — |
Balance at the end of period |
|
| 1,504 |
|
| 1,855 |
|
|
|
|
|
|
|
| | | | | | |
|
| 2020 |
| 2019 | ||
| | | | | | |
Balance at the beginning of period | | $ | 1,504 | | $ | 1,855 |
Acquisition of Bates Companies - measurement period adjustment | | | — | | | (214) |
Sale of Bates Companies | | | (1,440) | | | — |
Amortization | |
| (64) | |
| (137) |
Balance at the end of period | | $ | — | | $ | 1,504 |
| | | | | | |
The customer list intangible relates to the Parent Company Only (“All Other”) reportable segment.
106108
Note 6. Goodwill and Intangibles (continued)
The following table presents the estimated amortization of the customer list intangible:
|
|
|
|
|
| Amount | |
Years ending December 31, |
| (dollars in thousands) | |
2020 |
| $ | 109 |
2021 |
|
| 109 |
2022 |
|
| 109 |
2023 |
|
| 109 |
2024 |
|
| 109 |
Thereafter |
|
| 959 |
|
| $ | 1,504 |
Note 7. Derivatives and Hedging Activities
Derivatives are summarized as follows as of December 31, 2021 and 2020:
| | | | | | |
|
| December 31, 2021 |
| December 31, 2020 | ||
| | (dollars in thousands) | ||||
Assets: | | | | | | |
Interest rate caps - hedged | | $ | 927 | | $ | 259 |
Interest rate caps | |
| 238 | |
| 67 |
Interest rate swaps | |
| 221,055 | |
| 222,431 |
| | $ | 222,220 | | $ | 222,757 |
| | | | | | |
Liabilities: | | | | | | |
Interest rate swaps - hedged | | $ | (4,080) | | $ | (6,839) |
Interest rate swaps | | | (221,055) | | | (222,431) |
| | $ | (225,135) | | $ | (229,270) |
| | | | | | |
The Company uses interest rate swap and cap instruments to manage interest rate risk related to the variability of interest payments due to changes in interest rates.
The Company entered into interest rate caps in December 2019 to hedge against the risk of rising interest rates on liabilities. The liabilities consist of $375.0$300.0 million of deposits and the benchmark rates hedged vary at 1-month LIBOR, 3-month LIBOR and Prime. The Company entered into interest rate caps in June 2014 to hedge against the risk of rising interest rates on short-term liabilities. The short-term liabilities consisted of $30.0 million of 1-month FHLB advances, and the benchmark rate hedged was 1-month LIBOR. In 2019, short-term liabilities of $15 million matured, and the remaining short-term liabilities as well as caps were sold as part of the RB&T asset sale in the fourth quarter of 2019.Prime Rate. The interest rate caps are designated as cash flow hedges in accordance with ASC 815. An initial premium of $4.3$3.5 million was paid upfront for the caps executed in 2019.executed. The details of the interest rate caps are as follows:
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| Balance Sheet |
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| Fair Value as of |
|
| ||||||
Hedged Item |
| Effective Date |
| Maturity Date |
| Location |
| Notional Amount |
| Strike Rate |
| December 31, 2019 |
|
| December 31, 2018 |
|
| ||||
(dollars in thousands) |
| ||||||||||||||||||||
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Deposits |
| 1/1/2020 |
| 1/1/2023 |
| Other Assets |
| $ | 25,000 |
| 1.75 | % |
| $ | 112 |
|
| $ | - |
|
|
Deposits |
| 1/1/2020 |
| 1/1/2023 |
| Other Assets |
|
| 50,000 |
| 1.57 |
|
|
| 218 |
|
|
| - |
|
|
Deposits |
| 1/1/2020 |
| 1/1/2023 |
| Other Assets |
|
| 25,000 |
| 1.90 |
|
|
| 96 |
|
|
| - |
|
|
Deposits |
| 1/1/2020 |
| 1/1/2023 |
| Other Assets |
|
| 25,000 |
| 1.80 |
|
|
| 109 |
|
|
| - |
|
|
Deposits |
| 1/1/2020 |
| 1/1/2024 |
| Other Assets |
|
| 25,000 |
| 1.75 |
|
|
| 214 |
|
|
| - |
|
|
Deposits |
| 1/1/2020 |
| 1/1/2024 |
| Other Assets |
|
| 50,000 |
| 1.57 |
|
|
| 401 |
|
|
| - |
|
|
Deposits |
| 2/1/2020 |
| 2/1/2024 |
| Other Assets |
|
| 25,000 |
| 1.90 |
|
|
| 202 |
|
|
| - |
|
|
Deposits |
| 1/1/2020 |
| 1/1/2024 |
| Other Assets |
|
| 25,000 |
| 1.80 |
|
|
| 201 |
|
|
| - |
|
|
Deposits |
| 1/1/2020 |
| 1/1/2025 |
| Other Assets |
|
| 25,000 |
| 1.75 |
|
|
| 337 |
|
|
| - |
|
|
Deposits |
| 1/1/2020 |
| 1/1/2025 |
| Other Assets |
|
| 50,000 |
| 1.57 |
|
|
| 617 |
|
|
| - |
|
|
Deposits |
| 3/1/2020 |
| 3/1/2025 |
| Other Assets |
|
| 25,000 |
| 1.90 |
|
|
| 332 |
|
|
| - |
|
|
Deposits |
| 1/1/2020 |
| 1/1/2025 |
| Other Assets |
|
| 25,000 |
| 1.80 |
|
|
| 309 |
|
|
| - |
|
|
1-month FHLB Advance |
| 6/3/2014 |
| 6/5/2019 |
| Other Assets |
|
| 15,000 |
| N/A |
|
|
| - |
|
|
| 117 |
|
|
1-month FHLB Advance |
| 6/5/2014 |
| 6/5/2021 |
| Other Assets |
|
| 15,000 |
| N/A |
|
|
| - |
|
|
| 342 |
|
|
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|
| $ | 405,000 |
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|
| $ | 3,148 |
|
| $ | 459 |
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| | | | | | | | | | | | | | | | | | | | | |
| | | | | | Balance Sheet | | | | | | | Fair Value as of | | | ||||||
Hedged Item | | Effective Date | | Maturity Date | | Location | | Notional Amount | | Strike Rate | | December 31, 2021 | | | December 31, 2020 | | | ||||
(dollars in thousands) | | ||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | |
Deposits | | 1/1/2020 | | 1/1/2023 | | Derivatives - Assets | | $ | 25,000 | | 1.75 | % | | $ | 5 | | | $ | 3 | | |
Deposits | | 1/1/2020 | | 1/1/2023 | | Derivatives - Assets | | | 50,000 | | 1.57 | | | | 11 | | | | 5 | | |
Deposits | | 1/1/2020 | | 1/1/2023 | | Derivatives - Assets | | | 25,000 | | 1.80 | | | | 5 | | | | 3 | | |
Deposits | | 1/1/2020 | | 1/1/2024 | | Derivatives - Assets | | | 25,000 | | 1.75 | | | | 60 | | | | 15 | | |
Deposits | | 1/1/2020 | | 1/1/2024 | | Derivatives - Assets | | | 50,000 | | 1.57 | | | | 125 | | | | 31 | | |
Deposits | | 1/1/2020 | | 1/1/2024 | | Derivatives - Assets | | | 25,000 | | 1.80 | | | | 62 | | | | 15 | | |
Deposits | | 1/1/2020 | | 1/1/2025 | | Derivatives - Assets | | | 25,000 | | 1.75 | | | | 161 | | | | 46 | | |
Deposits | | 1/1/2020 | | 1/1/2025 | | Derivatives - Assets | | | 50,000 | | 1.57 | | | | 332 | | | | 94 | | |
Deposits | | 1/1/2020 | | 1/1/2025 | | Derivatives - Assets | | | 25,000 | | 1.80 | | | | 166 | | | | 47 | | |
| | | | | | | | $ | 300,000 | | | | | $ | 927 | | | $ | 259 | | |
| | | | | | | | | | | | | | | | | | | | | |
In December 2020, the Company redesignated 3 of its interest rate caps, which had been purchased in 2019 for $800 thousand. The caps, which were designated as cash flow hedges at the time of purchase, are now designated as
unhedged. A loss of $649 thousand was recognized due to the change in designation as the underlying hedged item no longer exists. For derivative instruments that are designated as unhedged, the change in fair value of the derivative
instrument is recognized into current earnings. The details of the unhedged interest rate caps are as follows:
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | Balance Sheet | | | | | | | | Fair Value as of | | | |||||
| | Effective Date | | Maturity Date | | Location | | Notional Amount | | Strike Rate | | | December 31, 2021 | | | December 31, 2020 | | | |||
| | (dollars in thousands) | | | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | |
| | 1/1/2020 | | 1/1/2023 | | Derivatives - Assets | | $ | 25,000 | | 1.90 | % | | $ | 3 | | | $ | 2 | | |
| | 2/1/2020 | | 2/1/2024 | | Derivatives - Assets | | | 25,000 | | 1.90 | | | | 62 | | | | 15 | | |
| | 3/1/2020 | | 3/1/2025 | | Derivatives - Assets | | | 25,000 | | 1.90 | | | | 173 | | | | 50 | | |
| | | | | | | | $ | 75,000 | | | | | $ | 238 | | | $ | 67 | | |
| | | | | | | | | | | | | | | | | | | | | |
107109
Note 7. Derivatives and Hedging Activities (continued)
In June 2018, the
The Company entered into interest rate swaps to hedge against the risk of risingdeclining interest rates on its variablefloating rate trust preferred securities. The variable rate trust preferred securities are tied to 3-month LIBOR, andloans. All of the interest rate swaps utilize 3-month LIBOR, so the hedge is effective. The interest rate swaps are designated as cash flow hedges in accordance with ASC 815. The details of the interest rate swaps are as follows:
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| Balance Sheet |
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| Fair Value as of | ||||
Hedged Item |
| Effective Date |
| Maturity Date |
| Location |
| Notional Amount |
| Receive Rate |
|
| Pay Rate |
| December 31, 2019 |
| December 31, 2018 | |||||
(dollars in thousands) | ||||||||||||||||||||||
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QCR Holdings Statutory Trust II |
| 9/30/2018 |
| 9/30/2028 |
| Other Liabilities |
| $ | 10,000 |
| 4.79 | % |
|
| 5.85 | % |
| $ | (971) |
| $ | (298) |
QCR Holdings Statutory Trust III |
| 9/30/2018 |
| 9/30/2028 |
| Other Liabilities |
|
| 8,000 |
| 4.79 | % |
|
| 5.85 | % |
|
| (777) |
|
| (239) |
QCR Holdings Statutory Trust V |
| 7/7/2018 |
| 7/7/2028 |
| Other Liabilities |
|
| 10,000 |
| 3.54 | % |
|
| 4.54 | % |
|
| (944) |
|
| (288) |
Community National Statutory Trust II |
| 9/20/2018 |
| 9/20/2028 |
| Other Liabilities |
|
| 3,000 |
| 4.08 | % |
|
| 5.17 | % |
|
| (291) |
|
| (89) |
Community National Statutory Trust III |
| 9/15//2018 |
| 9/15/2028 |
| Other Liabilities |
|
| 3,500 |
| 3.64 | % |
|
| 4.75 | % |
|
| (339) |
|
| (104) |
Guaranty Bankshares Statutory Trust I |
| 9/15/2018 |
| 9/15/2028 |
| Other Liabilities |
|
| 4,500 |
| 3.64 | % |
|
| 4.75 | % |
|
| (436) |
|
| (133) |
|
|
|
|
|
|
|
| $ | 39,000 |
| 4.18 | % |
|
| 5.24 | % |
| $ | (3,758) |
| $ | (1,151) |
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| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Balance Sheet | | | | | | | | | | | | Fair Value as of | ||||
Hedged Item | | Effective Date | | Maturity Date | | Location | | Notional Amount | | Receive Rate | | | | Pay Rate | | | December 31, 2021 | | December 31, 2020 | |||
(dollars in thousands) | ||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Loans |
| 7/1/2021 | | 7/1/2031 | | Derivatives - Liabilities |
| | 35,000 | | 1.40 | % | |
| 2.81 | % | | | (17) | | | N/A |
Loans |
| 7/1/2021 | | 7/1/2031 | | Derivatives - Liabilities |
| | 50,000 | | 1.40 | % | |
| 2.81 | % | | | (25) | | | N/A |
Loans |
| 7/1/2021 | | 7/1/2031 | | Derivatives - Liabilities |
| | 40,000 | | 1.40 | % | |
| 2.81 | % | | | (34) | | | N/A |
Loans |
| 7/1/2021 | | 7/1/2031 | | Derivatives - Liabilities |
| | 25,000 | | 1.40 | % | |
| 2.81 | % | | | (13) | | | N/A |
|
|
| | | | |
| $ | 150,000 | | | | | | | | | $ | (89) | | $ | N/A |
| | | | | | | | | | | | | | | | | | | | | | |
The Company entered into interest rate swaps to hedge against the risk of rising rates on its variable rate trust preferred securities. All of the interest rate swaps are designated as cash flow hedges in accordance with ASC 815. The details of the interest rate swaps are as follows:
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Balance Sheet | | | | | | | | | | | | Fair Value as of | ||||
Hedged Item | | Effective Date | | Maturity Date | | Location | | Notional Amount | | Receive Rate | | | Pay Rate | | December 31, 2021 | | December 31, 2020 | |||||
| | | (dollars in thousands) | | | | | | | | | | ||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
QCR Holdings Statutory Trust II |
| 9/30/2018 | | 9/30/2028 | | Derivatives - Liabilities |
| | 10,000 | | 3.07 | % | |
| 5.85 | % | | | (1,035) | | | (1,767) |
QCR Holdings Statutory Trust III |
| 9/30/2018 | | 9/30/2028 | | Derivatives - Liabilities |
| | 8,000 | | 3.07 | % | |
| 5.85 | % | | | (828) | | | (1,414) |
QCR Holdings Statutory Trust V |
| 7/7/2018 | | 7/7/2028 | | Derivatives - Liabilities |
| | 10,000 | | 1.67 | % | |
| 4.54 | % | | | (996) | | | (1,721) |
Community National Statutory Trust II |
| 9/20/2018 | | 9/20/2028 | | Derivatives - Liabilities |
| | 3,000 | | 2.38 | % | |
| 5.17 | % | | | (309) | | | (529) |
Community National Statutory Trust III |
| 9/15//2018 | | 9/15/2028 | | Derivatives - Liabilities |
| | 3,500 | | 1.95 | % | |
| 4.75 | % | | | (360) | | | (616) |
Guaranty Bankshares Statutory Trust I |
| 9/15/2018 | | 9/15/2028 | | Derivatives - Liabilities |
| | 4,500 | | 1.95 | % | |
| 4.75 | % | | | (463) | | | (792) |
|
|
| | | | |
| $ | 39,000 | | | | | | | | | $ | (3,991) | | $ | (6,839) |
| | | | | | | | | | | | | | | | | | | | | | |
In the first quarter of 2020, the Company entered into $40 million of interest rate swaps which were then terminated in the fourth quarter of 2020, resulting in a loss of $808 thousand.
Changes in the fair values of derivative financial instruments accounted for as cash flow hedges to the extent they are included in the assessment of effectiveness, are recorded as a component of AOCI. The following is a summary of how AOCI was impacted during the reporting periods:
|
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|
| Year Ended | ||||
|
| December 31, 2019 |
| December 31, 2018 | ||
|
| (dollars in thousands) | ||||
|
|
|
|
|
|
|
Unrealized loss at beginning of period, net of tax |
| $ | (1,276) |
| $ | (805) |
Amount reclassified from accumulated other comprehensive income to noninterest expense related to hedge ineffectiveness |
|
| — |
|
| 27 |
Amount reclassified from accumulated other comprehensive income to interest expense related to caplet amortization |
|
| 422 |
|
| 575 |
Amount of loss recognized in other comprehensive income, net of tax |
|
| (3,061) |
|
| (1,073) |
Unrealized loss at end of period, net of tax |
| $ | (3,915) |
| $ | (1,276) |
| | | | | | |
| | Year Ended | ||||
|
| December 31, 2021 |
| December 31, 2020 | ||
| | (dollars in thousands) | ||||
| | | | | | |
Unrealized loss at beginning of period, net of tax | | $ | (7,632) | | $ | (3,915) |
Amount reclassified from accumulated other comprehensive income to noninterest expense related to unhedging caplet | |
| — | |
| 513 |
Amount reclassified from accumulated other comprehensive income to noninterest expense related to swap termination | | | — | | | 625 |
Amount reclassified from accumulated other comprehensive income to interest expense related to caplet amortization | |
| 697 | |
| 551 |
Amount of gain (loss) recognized in other comprehensive income, net of tax | |
| 2,562 | |
| (5,406) |
Unrealized loss at end of period, net of tax | | $ | (4,373) | | $ | (7,632) |
| | | | | | |
TheAs discussed under “Swap Transactions” in Note 1 to the Consolidated Financial Statements, the Company has also entered into interest rate swap contracts that are not designated as hedging instruments. These derivative contracts relate to transactions in which the Company enters into an interest rate swap with a customer while at the same time entering into an offsetting interest rate swap with a third party financial institution. Additionally, the Company receives an upfront, non-refundable fee from the counterparty, dependent upon the pricing that is recognized upon receipt from the counterparty. Because the Company acts as an intermediary for the customer, changes in the fair value of the underlying derivative contracts, for the most part, offset each other and do not significantly impact the Company’s results of operations.
110
Note 7. Derivatives and Hedging Activities (continued)
Interest rate swaps that are not designated as hedging instruments are summarized as follows:
| | | | | | | | | | | | | |
| | | | December 31, 2021 | | December 31, 2020 | |||||||
| | | Notional Amount | | Estimated Fair Value | | Notional Amount | | Estimated Fair Value | ||||
| | | (dollars in thousands) | ||||||||||
Non-Hedging Interest Rate Derivatives Assets: | | | | | | | | | | | | | |
Interest rate swap contracts | | | $ | 2,024,599 | | $ | 221,055 | | $ | 1,495,251 | | $ | 222,431 |
Non-Hedging Interest Rate Derivatives Liabilities: | | | | | | | | | | | | | |
Interest rate swap contracts | | | $ | 2,024,599 | | $ | 221,055 | | $ | 1,495,251 | | $ | 222,431 |
The effect of cash flow hedging and fair value accounting on the consolidated statements of income for the years ended December 31, 2021 and 2020 are as follows:
| | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2021 | | | Year Ended December 31, 2020 | | | Year Ended December 31, 2019 | | ||||||||||||
| | Interest and | | Interest | | | Interest and | | Interest | | | Interest and | | Interest | | ||||||
| | Dividend Income | | Expense | | | Dividend Income | | Expense | | | Dividend Income | | Expense | | ||||||
| | (dollars in thousands) | | ||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | |
Income and expense line items presented in the consolidated statements of income | | $ | 200,155 | | $ | 21,922 | | | $ | 198,373 | | $ | 31,423 | | | $ | 216,076 | | $ | 60,517 | |
| | | | | | | | | | | | | | | | | | | | | |
The effects of cash flow hedging: | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Gain (loss) on cash flow hedges: | | | | | | | | | | | | | | | | | | | | | |
Interest rate caps on deposits | | | - | | | 697 | | | | - | | | 551 | | | | - | | | - | |
Interest rate swaps on variable rate loans | | | 1,006 | | | - | | | | - | | | 185 | | | | - | | | - | |
Interest rate swaps on TRUPS | | | - | | | 1,114 | | | | - | | | 832 | | | | - | | | 215 | |
| | | | | | | | | | | | | | | | | | | | | |
The Company’s hedged interest rate swaps and non-hedged interest rate swaps are collateralized with cash and investment securities with carrying values as follows:
| | | | | | |
|
| December 31, 2021 | | December 31, 2020 | ||
| | (dollars in thousands) | ||||
| | | | | | |
Cash | | $ | 21,100 | | $ | 45,719 |
U.S treasuries and govt. sponsored agency securities | | | 3,555 | | | 3,628 |
Municipal securities | | | 65,104 | | | 85,937 |
Residential mortgage-backed and related securities | |
| 139,166 | |
| 89,646 |
| | $ | 228,925 | | $ | 224,930 |
| | | | | | |
The Company may be exposed to credit risk in the event of non-performance by the counterparties to its interest rate derivative agreements. The Company assesses the credit risk of its financial institution counterparties by monitoring publicly available credit rating and financial information. TheAdditionally, the Company manages dealerfinancial institution counterparty credit risk by entering into interest rate derivatives only with primary and highly rated counterparties, the use of ISDA master agreements, central clearing mechanisms and counterparty limits. The agreements contain bilateral collateral arrangements with the amount of collateral to be posted generally governed by the settlement value of outstanding swaps. The Company manages the risk of default by its borrower counterparties through its normal loan underwriting and credit monitoring policies and procedures. The Company underwrites the combination of the
base loan amount and potential swap exposure and focuses on high quality borrowers with strong collateral values. The majority of the Company’s swapped loan portfolio consists of loans on projects, with loan-to-values including the potential swap exposure well below 65%. The Company does not currently anticipate any losses from failure of interest rate derivative counterparties to honor their obligations.
Interest rate swaps that are not designated as hedging instruments are summarized as follows:
|
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2019 |
|
| December 31, 2018 | ||||||
|
|
| Notional Amount |
| Estimated Fair Value |
| Notional Amount |
| Estimated Fair Value | ||||
|
|
| (dollars in thousands) | ||||||||||
Non-Hedging Interest Rate Derivatives Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap contracts |
|
| $ | 787,221 |
| $ | 84,679 |
| $ | 445,022 |
| $ | 22,196 |
Non-Hedging Interest Rate Derivatives Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap contracts |
|
| $ | 787,221 |
| $ | 84,679 |
| $ | 445,022 |
| $ | 22,196 |
108111
Note 7. Derivatives and Hedging Activities (continued)
Swap fee income totaled $28.3 million, $10.8 million and $3.1 million for the years ended December 31, 2019, 2018, and 2017, respectively.
The Company’s hedged interest rate swaps and non-hedged interest rate swaps are collateralized by investment securities with carrying values as follows:
|
|
|
|
|
|
|
|
| 2019 |
| 2018 | ||
|
| (dollars in thousands) | ||||
|
|
|
|
|
|
|
U.S govt. sponsored agency securities |
| $ | 3,541 |
| $ | — |
Municipal securities |
|
| 22,924 |
|
| — |
Residential mortgage-backed and related securities |
|
| 72,090 |
|
| — |
|
| $ | 98,555 |
| $ | — |
|
|
|
|
|
|
|
In addition to the pledged investment securities, the Company collateralized the interest rate swaps with cash totaling $10.0 million and $18.5 million as of December 31, 2019 and 2018, respectively.
The aggregate amount of certificates of deposit, each with a minimum denomination of $250,000, was $448.6$169.0 million and $592.7$175.6 million as of December 31, 20192021 and 2018,2020, respectively.
As of December 31, 2019,2021, the scheduled maturities of certificates of deposit were as follows:
|
|
|
|
Year ending December 31: |
| (dollars in thousands) | |
2020 |
| $ | 523,631 |
2021 |
|
| 130,895 |
2022 |
|
| 50,299 |
2023 |
|
| 9,162 |
2024 |
|
| 12,269 |
Thereafter |
|
| 69 |
|
| $ | 726,325 |
| | | |
| | Amount | |
| | (dollars in thousands) | |
Year ending December 31: |
| | |
2022 | | $ | 334,214 |
2023 | |
| 57,712 |
2024 | |
| 16,747 |
2025 | |
| 9,802 |
2026 | |
| 2,873 |
Thereafter | |
| — |
| | $ | 421,348 |
| | | |
The Company has public entity interest-bearing demand deposits and certificates of deposit that are collateralized by investment securities with carrying values as follows:
|
|
|
|
|
|
|
|
| 2019 |
| 2018 | ||
|
| (dollars in thousands) | ||||
|
|
|
|
|
|
|
U.S. govt. sponsored agency securities |
| $ | 6,135 |
| $ | 980 |
Residential mortgage-backed and related securities |
|
| 3,782 |
|
| 9,883 |
|
| $ | 9,917 |
| $ | 10,863 |
|
|
|
|
|
|
|
| | | | | | |
|
| 2021 |
| 2020 | ||
| | (dollars in thousands) | ||||
| | | | | | |
U.S. govt. sponsored agency securities | | $ | 3,080 | | $ | 3,668 |
Residential mortgage-backed and related securities | |
| 3,270 | |
| 4,772 |
| | $ | 6,350 | | $ | 8,440 |
| | | | | | |
The Company had a $47.4$129.5 million PUD LOC with the FHLB of Des Moines for the purpose of providing additional collateral on public deposits as of December 31, 2019.2021. As of December 31, 2018,2020, the Company had a $80.8$110.5 million PUD LOC with the FHLB of Des Moines and a $11.0 million PUD LOC with the FHLB of Chicago.Moines. There were no0 amounts outstanding under these letters of credit as of December 31, 20192021 or 2018.2020.
There were 0 prepayments of brokered certificates of deposits in 2021. The Company prepaid brokered and public time deposits totaling $29.2 million in 2020 resulting in a loss of $576 thousand.
109112
Short-term borrowings as of December 31, 20192021 and 20182020 are summarized as follows:
|
|
|
|
|
|
|
|
| 2019 |
| 2018 | ||
|
| (dollars in thousands) | ||||
|
|
|
|
|
|
|
Overnight repurchase agreements with customers |
| $ | 2,193 |
| $ | 2,084 |
Federal funds purchased |
|
| 11,230 |
|
| 26,690 |
|
| $ | 13,423 |
| $ | 28,774 |
| | | | | | |
|
| 2021 |
| 2020 | ||
| | (dollars in thousands) | ||||
| | | | | | |
Federal funds purchased | |
| 3,800 | |
| 5,430 |
| | $ | 3,800 | | $ | 5,430 |
The Company’s overnight repurchase agreements with customers are collateralized by investment securities with carrying values as follows:
|
|
|
|
|
|
|
|
| 2019 |
| 2018 | ||
|
| (dollars in thousands) | ||||
|
|
|
|
|
|
|
U.S. govt. sponsored agency securities |
| $ | 1,964 |
| $ | 3,662 |
Residential mortgage-backed and related securities |
|
| 1,456 |
|
| 20,654 |
Total securities pledged to overnight customer repurchase agreements |
|
| 3,420 |
|
| 24,316 |
Less: overcollateralized position |
|
| 1,227 |
|
| 22,232 |
|
| $ | 2,193 |
| $ | 2,084 |
Inherent in the overnight repurchase agreements is a risk that the fair value of the collateral pledged on the agreements could decline below the amount obligated under our customer repurchase agreements. The Company considers this risk minimal. The Company monitors balances daily to ensure that collateral is sufficient to meet obligations. Additionally, the Company maintains an overcollateralized position that is sufficient to cover any interest rate movements.
The securities underlying the agreements as of December 31, 2019 and 2018 were under the Company’s control in safekeeping at third-party financial institutions.
Information concerning overnight repurchase agreements with customers is summarized as follows as of December 31, 2019 and 2018:
|
|
|
|
|
|
|
|
|
| 2019 | 2018 | ||||
|
| (dollars in thousands) | |||||
|
|
|
|
|
|
|
|
Average daily balance during the period |
| $ | 4,231 |
| $ | 7,831 |
|
Average daily interest rate during the period |
|
| 0.73 | % |
| 0.38 | % |
Maximum month-end balance during the period |
| $ | 4,177 |
| $ | 10,392 |
|
Weighted average rate as of end of period |
|
| 1.00 | % |
| 0.90 | % |
110
Note 9. Short-Term Borrowings (continued)
Information concerning federal funds purchased is summarized as follows as offor the years ended December 31, 20192021 and 2018:
|
|
|
|
|
|
|
|
|
| 2019 | 2018 | ||||
|
| (dollars in thousands) | |||||
|
|
|
|
|
|
|
|
Average daily balance during the period |
| $ | 12,594 |
| $ | 13,059 |
|
Average daily interest rate during the period |
|
| 2.56 | % |
| 2.18 | % |
Maximum month-end balance during the period |
| $ | 17,010 |
| $ | 32,330 |
|
Weighted average rate as of end of period |
|
| 1.50 | % |
| 2.46 | % |
2020:
| | | | | | | |
|
| 2021 | 2020 | ||||
| | (dollars in thousands) | |||||
| | | | | | | |
Average daily balance | | $ | 6,280 | | $ | 19,573 | |
Average daily interest rate | |
| 0.08 | % |
| 0.36 | % |
Maximum month-end balance | | $ | 11,320 | | $ | 30,430 | |
Weighted average rate as of December 31 | |
| 0.08 | % |
| 0.06 | % |
The subsidiary banks are members of the FHLB of Des Moines. Maturity and interest rate information on advances from the FHLB as of December 31, 20192021 and 20182020 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2019 |
| December 31, 2018 |
| ||||||
|
|
|
|
| Weighted |
|
|
|
| Weighted |
|
|
|
|
|
| Average |
|
|
|
| Average |
|
|
|
|
|
| Interest Rate |
|
|
|
| Interest Rate |
|
|
| Amount Due |
| at Year-End |
| Amount Due |
| at Year-End |
| ||
|
| (dollars in thousands) | |||||||||
Maturity: |
|
|
|
|
|
|
|
|
|
|
|
Year ending December 31: |
|
|
|
|
|
|
|
|
|
|
|
2019 |
| $ | — |
| — | % | $ | 239,958 |
| 2.60 | % |
2020 |
|
| 110,900 |
| 1.73 |
|
| 11,484 |
| 1.74 |
|
2021 |
|
| 5,000 |
| 1.55 |
|
| 15,050 |
| 2.32 |
|
2022 |
|
| 23,400 |
| 1.73 |
|
| — |
| — |
|
2023 |
|
| 20,000 |
| 1.84 |
|
| — |
| — |
|
Total FHLB advances |
| $ | 159,300 |
| 1.74 | % | $ | 266,492 |
| 2.55 | % |
| | | | | | | | | | | |
| | December 31, 2021 | | December 31, 2020 |
| ||||||
| | | | | Weighted | | | | | Weighted |
|
| | | | | Average | | | | | Average |
|
| | | | | Interest Rate | | | | | Interest Rate |
|
|
| Amount Due |
| at Year-End |
| Amount Due |
| at Year-End |
| ||
| | (dollars in thousands) | |||||||||
Maturity: | | | | | | | | | | | |
Year ending December 31: |
| |
|
|
|
| |
|
|
| |
2021 | | $ | — | | — | % | $ | 15,000 | | 0.29 | % |
2022 | | | 15,000 | | 0.31 | | | — | | — | |
Total FHLB advances | | $ | 15,000 |
| 0.31 | % | $ | 15,000 |
| 0.29 | % |
The Company prepaid $55.3 million of FHLB advances in 2019 using2020 with excess funds generated by strong deposit growth. The loss on the prepayment of the FHLB advances totaled $386 thousand.$1.9 million for the year ended December 31, 2020.
Advances are collateralized by loans of $1.1$1.3 billion and $1.3$1.1 billion as of December 31, 20192021 and 2018,2020, respectively, in aggregate. On pledged loans, the FHLB applies varying collateral maintenance levels from 125% to 333% based on the loan type. Advances are also collateralized by securities of $1.4 million$334 thousand and $26.9 million$590 thousand as of December 31, 20192021 and 2018,2020, respectively, in aggregate. The Company continues to pledge loans under blanket liens to provide off balance sheet liquidity.
AsAll advances outstanding as of December 31, 20192021 and included within the 2020 maturity grouping above are $109.3 million of short-term advances from the FHLB. These advances have maturities ranging from 1 day to 1 month. Short-term and overnight advances totaled $190.2 million as of December 31, 2018 and had maturities ranging from 1 day to 1 month.
As of December 31, 20192021 and 2018,2020, the subsidiary banks held $11.7$7.8 million and $15.7$6.6 million, respectively, of FHLB stock, which is included in restricted investment securities on the consolidated balance sheet.
111113
Note 11. Other Borrowings and Unused Lines of Credit
Other borrowings as of December 31, 2019 and 2018 are summarized as follows:
|
|
|
|
|
|
|
|
| 2019 |
| 2018 | ||
|
| (dollars in thousands) | ||||
|
|
|
|
|
|
|
Wholesale structured repurchase agreements |
| $ | — |
| $ | 35,000 |
Term notes |
|
| — |
|
| 23,250 |
Revolving line of credit |
|
| — |
|
| 9,000 |
|
| $ | — |
| $ | 67,250 |
The Company prepaid two wholesale structured repurchase agreements in the second quarter of 2019 using excess funds generated by strong deposit growth. The first wholesale structured repurchase agreement totaled $5.0 million and had an original maturity date of March 13, 2020 with a rate of 2.58%. The second wholesalestructured
repurchase agreement totaled $20.0 million and had an original maturity of June 13, 2020 with a rate of 2.46%. The loss on the prepayment of the wholesale structured repurchase agreements totaled $50 thousand. In addition, wholesale repurchase agreements totaling $10.0 million matured in the second quarter of 2019. The wholesale structured repurchase agreements were utilized as an alternative funding source to FHLB advanes and customer deposits. Wholesale structured repurchase agreements were collateralized by certain U.S. government agency securities and residential mortgage backed and related securities with carrying values as follows:
|
|
|
|
|
|
|
|
| 2019 |
| 2018 | ||
|
| (dollars in thousands) | ||||
|
|
|
|
|
|
|
U.S. govt. sponsored agency securities |
| $ | — |
| $ | — |
Residential mortgage-backed and related securities |
|
| — |
|
| 38,870 |
Total securities pledged to wholesale customer repurchase agreements |
|
| — |
|
| 38,870 |
Less: overcollateralized position |
|
| — |
|
| 3,870 |
|
| $ | — |
| $ | 35,000 |
The Company had two term notes totaling $23.3 million at December 31, 2018 with original maturity dates of December 31, 2021. Interest on the term notes were calculated at the effective LIBOR rate plus 3.00% per annum (5.52% at December 31, 2018). The collateral on both borrowings was the original stock certificates and stock powers of all bank subsidiaries. In February 2019, immediately following the subordinated note issuance, the Company repaid the term notes.
In the second quarter of 2019,2021, the Company renewed its revolving line of credit. At renewal, the line amount was increased from $10.0 million to $20.0remained unchanged at $25.0 million for which there is nowas 0 outstanding balance as of December 31, 2019.2021. Interest on the revolving line of credit is calculated at the effective LIBOR ratePrime Rate plus 2.25% per annum (4.01%(5.50% at December 31, 2019)2021). The collateral on the revolving line of credit is 100% of the outstanding capital stock of the Compnay’sCompany’s bank subsidiaries.
112
Note 11. Other Borrowings and Unused Lines of Credit (continued)
Unused lines of credit of the subsidiary banks as of December 31, 20192021 and 20182020 are summarized as follows:
|
|
|
|
|
|
|
|
| 2019 |
| 2018 | ||
|
| (dollars in thousands) | ||||
|
|
|
|
|
|
|
Secured |
| $ | 45,342 |
| $ | 1,690 |
Unsecured |
|
| 335,300 |
|
| 362,000 |
|
| $ | 380,642 |
| $ | 363,690 |
| | | | | | |
|
| 2021 |
| 2020 | ||
| | (dollars in thousands) | ||||
| | | | | | |
Secured | | $ | 61,657 | | $ | 287,076 |
Unsecured | |
| 456,000 | |
| 456,000 |
| | $ | 517,657 | | $ | 743,076 |
TheIncluded in the Secured category above, the Company pledges select C&I, CRE and CREPPP loans to the Federal Reserve Bank of Chicago for borrowing as part of the Borrower-In-Custody program.
Subordinated notes as of December 31, 20192021 and 20182020 are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
| Amount Outstanding | Interest Rate |
|
|
| Amount Outstanding | Interest Rate |
|
|
|
| as of December 31, 2019 | as of December 31, 2019 |
|
|
| as of December 31, 2018 | as of December 31, 2018 |
| Maturity Date |
|
| (dollars in thousands) | ||||||||
|
|
|
|
|
|
|
|
|
|
|
Subordinated debenture dated 2/1/19 | $ | 65,000 | 5.375 | % |
| $ | - | N/A | % | 2/15/2029 |
Subordinated debenture dated 4/30/16 |
| 2,000 | 4.00 | % |
|
| 2,000 | 4.00 | % | 4/30/2026 |
Subordinated debenture dated 9/15/16 |
| 3,000 | 4.00 | % |
|
| 3,000 | 4.00 | % | 9/15/2026 |
Debt issuance costs |
| (1,606) |
|
|
|
| (218) |
|
|
|
Total Subordinated Debentures | $ | 68,394 |
|
|
| $ | 4,782 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | |
| | Amount Outstanding | Interest Rate | | | | Amount Outstanding | Interest Rate | | |
| | as of December 31, 2021 | as of December 31, 2021 | | | | as of December 31, 2020 | as of December 31, 2020 | | Maturity Date |
| | (dollars in thousands) | ||||||||
| | | | | | | | | | |
Subordinated debenture dated 9/14/20 | $ | 50,000 | 5.125 | % | | $ | 50,000 | 5.125 | % | 9/15/2030 |
Subordinated debenture dated 2/1/19 | | 65,000 | 5.375 | % | | | 65,000 | 5.375 | % | 2/15/2029 |
Subordinated debenture dated 4/30/16* | | - | — | % | | | 2,000 | 4.00 | % | 4/30/2026 |
Subordinated debenture dated 9/15/16* | | - | — | % | | | 3,000 | 4.00 | % | 9/15/2026 |
Debt issuance costs | | (1,150) | | | | | (1,309) | | | |
Total Subordinated Debentures | $ | 113,850 | | | | $ | 118,691 | | | |
| | | | | | | | | | |
*Assumed in acquisition of SFCB | | | | | | | | | | |
On February 12, 2019,September 14, 2020, the Company completed an underwritten publica private offering of $50.0 million in aggregate principal amount of fixed-to-floating subordinated notes that mature on September 15, 2030. The subordinated notes, which qualify as Tier 2 capital for the Company, bear interest at a fixed rate of 5.125% per year, from and including September 14, 2020 to, but excluding, September 15, 2025 or earlier redemption date. From and including September 15, 2025 to,
but excluding, the maturity date or earlier redemption date, the interest rate will reset quarterly at a variable rate, which is expected to be the then current three-month term SOFR plus 500 basis points. Interest on the subordinated notes is payable quarterly, commencing on December 15, 2020. The subordinated notes are redeemable by the Company at its option, in whole or in part, on any interest payment date on or after September 15, 2025. The subordinated notes are redeemable by the Company in whole but not in part, under certain limited circumstances set forth in the subordinated notes. Any redemption by the Company would be at a redemption price equal to 100% of the principal amount of the subordinated notes being redeemed, together with any accrued and unpaid interest on the subordinated notes being
redeemed to, but excluding, the date of redemption. The subordinated notes are subordinate in the right of payment to the Company’s senior indebtedness and the indebtedness and other liabilities of the subsidiary banks.
In addition, the Company has $65.0 million in aggregate principal amount of fixed-to-floating subordinated notes that mature on February 15, 2029. Net proceeds, after deducting the underwriting discount and estimated expenses, were $63.4 million. The subordinated notes, which qualify as Tier 2 captialcapital for the Company, arebear interest at a fixed rate of 5.375% per year untilfrom and after February 12, 2019 to, but excluding, February 15, 2024. On this2024 or earlier redemption date. From and after February 15, 2024 to, but excluding, the maturity date or earlier redemption date, the interest
114
Note 12. Subordinated Notes (continued)
will change reset quarterly to an annual floating rate equal tothe then current three-month LIBOR plus 282 basis points until the maturity date. The interestpoints. Interest on the subordinated notes areis payable semi-annually, commencing on August 15, 2019 during the five year fixed term and therafterthereafter quarterly, commencing on February 15, 2024. The subordinated notes have an optional redemptionare redeemable by the Company at its option, in whole or in part, on any interest payment date on or after February 15, 2024. The subordinated notes are redeemable by the Company in whole but not in part, under certain limited circumstances set forth in the subordinated notes. Any redemption by the Company would be at a redemption price equal to 100% of the principal amount of the subordinated notes being redeemed, together with any accrued and unpaid interest on the subordinated notes being redeemed to, but excluding, the date of redemption. The subordinated notes are subordinate in the right of payment to the Company’s senior indebtedness and the indebtedness and other liabilities of the subsidiary banks. Unamortized debt issuance costs related to the subordinated notes totaled $1.6$1.2 million and $1.3 million at December 31, 2019.
Immediately following2021 and 2020, respectively. The Company used a portion of the issuance,net proceeds from the Company repaidoffering to repay term notes totaling $21.3 million and the outstanding balance of $9.0 million on its revolving line of credit. The Company intends to use the remaining net proceeds from this offering for general corporate purposes, including the pursuit of opportunistic acquisitions of similar or complementary financial service organizations, repaying indebtedness, financing investments and capital expeditures, repurchasing shares of the Company’s common stock, investing in the subsidiary banks or other strategic opportunities that may arise in the future.
As part of the merger with Springfield Bancshares, the Company assumed two2 subordinated debentures with a fair value of $4.8 million. The interest rate on the subordinated debentures is fixed for the first five years of the term and then converts to floating for the remaining term, at a rate of Prime floating daily. The debentures may be called after a minimum of five years following issuance and at the prior approval of the appropriate regulatory agencies. These subordinated debentures are unsecured.million which were prepaid in full in 2021 with no resulting gain or loss.
113
Junior subordinated debentures are summarized as of December 31, 20192021 and 20182020 as follows:
|
|
|
|
|
|
|
|
| 2019 | 2018 | |||
|
| (dollars in thousands) | ||||
|
|
|
|
|
|
|
Note Payable to QCR Holdings Capital Trust II |
| $ | 10,310 |
| $ | 10,310 |
Note Payable to QCR Holdings Capital Trust III |
|
| 8,248 |
|
| 8,248 |
Note Payable to QCR Holdings Capital Trust V |
|
| 10,310 |
|
| 10,310 |
Note Payable to Community National Trust II |
|
| 3,093 |
|
| 3,093 |
Note Payable to Community National Trust III |
|
| 3,609 |
|
| 3,609 |
Note Payable to Guaranty Bankshares Statutory Trust I* |
|
| 4,640 |
|
| 4,640 |
Market Value Discount per ASC 805** |
|
| (2,372) |
|
| (2,540) |
|
| $ | 37,838 |
| $ | 37,670 |
| | | | | | |
|
| 2021 | 2020 | |||
| | (dollars in thousands) | ||||
| | | | | | |
Note Payable to QCR Holdings Capital Trust II | | $ | 10,310 | | $ | 10,310 |
Note Payable to QCR Holdings Capital Trust III | |
| 8,248 | |
| 8,248 |
Note Payable to QCR Holdings Capital Trust V | |
| 10,310 | |
| 10,310 |
Note Payable to Community National Trust II* | |
| 3,093 | |
| 3,093 |
Note Payable to Community National Trust III* | |
| 3,609 | |
| 3,609 |
Note Payable to Guaranty Bankshares Statutory Trust I** | |
| 4,640 | |
| 4,640 |
Market Value Discount per ASC 805*** | |
| (2,055) | |
| (2,217) |
| | $ | 38,155 | | $ | 37,993 |
* As part of the acquisition of Community National in 2013, the Company assumed 2 junior subordinated debentures with a total fair value of $4.2 million.
** As part of the acquisition of Guaranty Bank in 2017, the Company assumed one1 junior subordinated debenture with a fair value of $3.9 million.
*** Market value discount includes discount on junior subordinated debt acquired as described in 2013 as part* and **.
115
Table of the purchase of Community NationalContents
QCR Holdings, Inc. and junior subordinated debt acquired in 2017 as part of the purchase of Guaranty Bank.Subsidiaries
Notes to Consolidated Financial Statements
Note 13. Junior Subordinated Debentures (continued)
A schedule of the Company’s non-consolidated subsidiaries formed for the issuance of trust preferred securities, including the amounts outstanding as of December 31, 20192021 and 2018,2020, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Amount |
| Amount |
|
|
|
|
|
|
| ||
|
|
| Outstanding |
| Outstanding |
|
|
|
|
|
|
| ||
|
|
| December 31, |
| December 31, |
|
|
| Interest Rate as of |
| Interest Rate as of |
| ||
Name | Date Issued |
| 2019 |
| 2018 |
| Interest Rate |
| December 31, 2019 |
| December 31, 2018 |
| ||
|
|
| (dollars in thousands) |
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
QCR Holdings Statutory Trust II* | February 2004 |
| $ | 10,310 |
| $ | 10,310 |
| 2.85% over 3-month LIBOR |
| 4.79 | % | 5.65 | % |
QCR Holdings Statutory Trust III | February 2004 |
|
| 8,248 |
|
| 8,248 |
| 2.85% over 3-month LIBOR |
| 4.79 | % | 5.65 | % |
QCR Holdings Statutory Trust V | February 2006 |
|
| 10,310 |
|
| 10,310 |
| 1.55% over 3-month LIBOR |
| 3.54 | % | 3.99 | % |
Community National Statutory Trust II | September 2004 |
|
| 3,093 |
|
| 3,093 |
| 2.17% over 3-month LIBOR |
| 4.08 | % | 4.96 | % |
Community National Statutory Trust III | March 2007 |
|
| 3,609 |
|
| 3,609 |
| 1.75% over 3-month LIBOR |
| 3.64 | % | 4.54 | % |
Guaranty Bankshares Statutory Trust I | May 2005 |
|
| 4,640 |
|
| 4,640 |
| 1.75% over 3-month LIBOR |
| 3.64 | % | 4.54 | % |
|
|
| $ | 40,210 |
| $ | 40,210 |
| Weighted Average Rate |
| 4.18 | % | 4.94 | % |
| | | | | | | | | | | | | | |
| |
| Amount |
| Amount |
| |
| |
| |
| ||
| | | Outstanding | | Outstanding | | | | | | |
| ||
| | | December 31, | | December 31, | | | | Interest Rate as of | | Interest Rate as of |
| ||
Name | Date Issued | | 2021 | | 2020 | | Interest Rate | | December 31, 2021 | | December 31, 2020 |
| ||
| | | (dollars in thousands) | | | | | | | | ||||
| | | | | | | | | | | | | | |
QCR Holdings Statutory Trust II* | February 2004 | | $ | 10,310 | | $ | 10,310 |
| 2.85% over 3-month LIBOR |
| 3.07 | % | 3.10 | % |
QCR Holdings Statutory Trust III | February 2004 | |
| 8,248 | |
| 8,248 |
| 2.85% over 3-month LIBOR |
| 3.07 | % | 3.10 | % |
QCR Holdings Statutory Trust V | February 2006 | |
| 10,310 | |
| 10,310 |
| 1.55% over 3-month LIBOR |
| 1.67 | % | 1.79 | % |
Community National Statutory Trust II | September 2004 | |
| 3,093 | |
| 3,093 |
| 2.17% over 3-month LIBOR |
| 2.38 | % | 2.41 | % |
Community National Statutory Trust III | March 2007 | |
| 3,609 | |
| 3,609 |
| 1.75% over 3-month LIBOR |
| 1.95 | % | 1.97 | % |
Guaranty Bankshares Statutory Trust I | May 2005 | |
| 4,640 | |
| 4,640 |
| 1.75% over 3-month LIBOR |
| 1.95 | % | 1.97 | % |
| | | $ | 40,210 | | $ | 40,210 |
| Weighted Average Rate |
| 2.43 | % | 2.48 | % |
|
| | | | | | | | | | | | | |
* Original amount issued for QCR Holdings Statutory Trust II was $12,372,000.
Securities issued by all of the trusts listed above mature 30 years from the date of issuance, but all are currently callable at par at any time. Interest rate reset dates vary by Trust.
The Company uses interest rate swaps for the purpose of hedging interest rate risk on the variable rate junior subordinated debt. See Note 7 to the Consolidated Financial Statements for the details of these instruments.
116
Note 14. Federal and State Income Taxes
Federal and state income tax expense was comprised of the following components for the years ended December 31, 2019, 2018,2021, 2020, and 2017:
|
|
|
|
|
|
|
|
|
|
|
| 2019 |
| 2018 |
| 2017 | |||
|
| (dollars in thousands) | |||||||
|
|
|
|
|
|
|
|
|
|
Current |
| $ | 8,255 |
| $ | 2,723 |
| $ | 10,976 |
Deferred |
|
| 6,364 |
|
| 6,292 |
|
| (6,030) |
|
| $ | 14,619 |
| $ | 9,015 |
| $ | 4,946 |
2019:
| | | | | | | | | |
|
| 2021 |
| 2020 |
| 2019 | |||
| | (dollars in thousands) | |||||||
| | | | | | | | | |
Current | | $ | 7,290 | | $ | 27,237 | | $ | 8,255 |
Deferred | |
| 15,272 | |
| (14,530) | |
| 6,364 |
| | $ | 22,562 | | $ | 12,707 | | $ | 14,619 |
114
A reconciliation of the expected federal income tax expense to the income tax expense included in the consolidated statements of income was as follows for the years ended December 31, 2019, 2018,2021, 2020, and 2017:2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Year Ended December 31, |
| |||||||||||||
|
| 2019 |
| 2018 |
| 2017 |
| |||||||||
|
|
|
|
| % of |
|
|
|
| % of |
|
|
|
| % of |
|
|
|
|
|
| Pretax |
|
|
|
| Pretax |
|
|
|
| Pretax |
|
|
| Amount |
| Income |
| Amount |
| Income |
| Amount |
| Income |
| |||
|
| (dollars in thousands) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Computed "expected" tax expense |
| $ | 15,126 |
| 21.0 | % | $ | 10,948 |
| 21.0 | % | $ | 14,229 |
| 35 | % |
Tax exempt income, net |
|
| (4,470) |
| (6.2) |
|
| (3,958) |
| (7.6) |
|
| (5,654) |
| (13.9) |
|
Bank-owned life insurance |
|
| (360) |
| (0.5) |
|
| (343) |
| (0.6) |
|
| (631) |
| (1.5) |
|
State income taxes, net of federal benefit, current year |
|
| 3,668 |
| 5.1 |
|
| 2,681 |
| 5.2 |
|
| 1,765 |
| 4.3 |
|
Change in unrecognized tax benefits |
|
| (93) |
| (0.1) |
|
| (45) |
| (0.1) |
|
| (54) |
| (0.1) |
|
Goodwill impairment |
|
| 630 |
| 0.9 |
|
| — |
| — |
|
| — |
| — |
|
Intended liquidation of bank-owned life insurance |
|
| 790 |
| 1.1 |
|
| — |
| — |
|
| — |
| — |
|
Tax credits |
|
| (705) |
| (1.0) |
|
| (154) |
| (0.3) |
|
| (341) |
| (0.8) |
|
Acquisition costs |
|
| — |
| — |
|
| 227 |
| 0.4 |
|
| — |
| — |
|
Excess tax benefit on stock options exercised and restricted stock awards vested |
|
| (287) |
| (0.4) |
|
| (425) |
| (0.8) |
|
| (1,220) |
| (3.0) |
|
Re-measurement of deferred tax asset to incorporate newly enacted tax rates |
|
| — |
| — |
|
| — |
| — |
|
| (2,919) |
| (7.2) |
|
Other |
|
| 320 |
| 0.4 |
|
| 84 |
| 0.1 |
|
| (229) |
| (0.6) |
|
Federal and state income tax expense |
| $ | 14,619 |
| 20.3 | % | $ | 9,015 |
| 17.3 | % | $ | 4,946 |
| 12.2 | % |
| | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, |
| |||||||||||||
| | | 2021 | | 2020 | | 2019 |
| |||||||||
| | | | | | % of | | | | | % of | | | | | % of |
|
| | | | | | Pretax | | | | | Pretax | | | | | Pretax |
|
|
|
| Amount |
| Income |
| Amount |
| Income |
| Amount |
| Income |
| |||
| | | (dollars in thousands) | ||||||||||||||
| | | | | | | | | | | | | | | | | |
Computed "expected" tax expense | | | $ | 25,508 |
| 21.0 | % | $ | 15,391 |
| 21.0 | % | $ | 15,126 |
| 21.0 | % |
Tax exempt income, net | | |
| (7,537) |
| (6.2) | |
| (5,943) |
| (8.1) | |
| (4,470) |
| (6.2) | |
Bank-owned life insurance | | |
| (386) |
| (0.3) | |
| (308) |
| (0.4) | |
| (360) |
| (0.5) | |
State income taxes, net of federal benefit, current year | | |
| 5,089 |
| 4.2 | |
| 3,622 |
| 4.9 | |
| 3,668 |
| 5.1 | |
Change in unrecognized tax benefits | | |
| 578 |
| 0.5 | |
| 546 |
| 0.7 | |
| (93) |
| (0.1) | |
Goodwill impairment | | | | — | | — | | | 105 | | 0.1 | | | 630 | | 0.9 | |
Intended liquidation of bank-owned life insurance | | | | — | | — | | | — | | — | | | 790 | | 1.1 | |
Tax credits | | |
| 34 |
| — | |
| (456) |
| (0.6) | |
| (705) |
| (1.0) | |
Acquisition costs | | |
| 95 |
| 0.1 | |
| — |
| — | |
| — |
| — | |
Excess tax benefit on stock options exercised and restricted stock awards vested | | |
| (436) |
| (0.4) | |
| (242) |
| (0.3) | |
| (287) |
| (0.4) | |
Re-measurement of deferred tax asset to incorporate newly enacted tax rates | | |
| — |
| — | |
| 207 |
| 0.3 | |
| — |
| — | |
Other | | |
| (383) |
| (0.3) | |
| (215) |
| (0.3) | |
| 320 |
| 0.4 | |
Federal and state income tax expense | | | $ | 22,562 |
| 18.6 | % | $ | 12,707 |
| 17.3 | % | $ | 14,619 |
| 20.3 | % |
| | | | | | | | | | | | | | | | | |
Changes in the unrecognized tax benefits included in other liabilities are as follows for the years ended December 31, 20192021 and 2018:2020:
|
|
|
|
|
|
|
|
| 2019 |
| 2018 | ||
|
| (dollars in thousands) | ||||
|
|
|
|
|
|
|
Balance, beginning |
| $ | 1,249 |
| $ | 1,293 |
Impact of tax positions taken during current year |
|
| 375 |
|
| 287 |
Gross increase (decrease) related to tax positions of prior years |
|
| 44 |
|
| (178) |
Reduction as a result of a lapse of the applicable statute of limitations |
|
| (414) |
|
| (153) |
Balance, ending |
| $ | 1,254 |
| $ | 1,249 |
| | | | | | |
|
| 2021 |
| 2020 | ||
| | (dollars in thousands) | ||||
| | | | | | |
Balance, beginning | | $ | 1,893 | | $ | 1,254 |
Impact of tax positions taken during current year | |
| 1,326 | |
| 787 |
Gross increase (decrease) related to tax positions of prior years | |
| (646) | |
| 39 |
Reduction as a result of a lapse of the applicable statute of limitations | |
| (391) | |
| (187) |
Balance, ending | | $ | 2,182 | | $ | 1,893 |
Included in the unrecognized tax benefits liability at December 31, 20192021 are potential benefits of approximately $1.1$1.7 million that, if recognized, would affect the effective tax rate.
117
Note 14. Federal and State Income Taxes (continued)
The liability for unrecognized tax benefits includes accrued interest for tax positions, which either do not meet the more-likely-than-not recognition threshold or where the tax benefit is measured at an amount less than the tax benefit claimed or expected to be claimed on an income tax return. At December 31, 20192021 and 2018,2020, accrued interest on uncertain tax positions was approximately $232$236 thousand and $205$277 thousand, respectively. Estimated interest related to the underpayment of income taxes is classified as a component of “income tax expense” in the statements of income.
The Company’s federal income tax returns are open and subject to examination from the 20162018 tax return year and later. Various state franchise and income tax returns are generally open from the 20152017 and later tax return years based on individual state statutes of limitations.
115
Note 14. Federal and State Income Taxes (continued)
The net deferred tax liabilities consisted of the following as of December 31, 20192021 and 2018:2020:
|
|
|
|
|
|
|
|
| 2019 |
| 2018 | ||
|
| (dollars in thousands) | ||||
Deferred tax assets: |
|
|
|
|
|
|
Alternative minimum tax credits |
| $ | — |
| $ | 2,911 |
Historic tax credits |
|
| 68 |
|
| 1,937 |
Net unrealized losses on securities available for sale and derivative instruments |
|
| 126 |
|
| 1,687 |
Compensation |
|
| 8,433 |
|
| 6,772 |
Loan/lease losses |
|
| 11,332 |
|
| 9,549 |
Net operating loss carryforwards, federal and state |
|
| 739 |
|
| 849 |
Other |
|
| 605 |
|
| 53 |
|
|
| 21,303 |
|
| 23,758 |
Deferred tax liabilities: |
|
|
|
|
|
|
Premises and equipment |
|
| 4,616 |
|
| 2,717 |
Equipment financing leases |
|
| 16,252 |
|
| 18,329 |
Acquisition fair value adjustments |
|
| 3,963 |
|
| 2,739 |
Intended liquidation of bank-owned life insurance |
|
| 850 |
|
| — |
Gain on sale of assets and liabilities of subsidiary |
|
| 794 |
|
| — |
Investment accretion |
|
| 28 |
|
| 31 |
Deferred loan origination fees, net |
|
| 704 |
|
| 482 |
Other |
|
| 832 |
|
| 424 |
|
|
| 28,039 |
|
| 24,722 |
Net deferred tax liabilities |
| $ | (6,736) |
| $ | (964) |
| | | | | | |
|
| 2021 |
| 2020 | ||
| | (dollars in thousands) | ||||
Deferred tax assets: |
| |
|
| |
|
Historic tax credits | | $ | 68 | | $ | 68 |
Compensation | |
| 11,912 | |
| 10,288 |
Loan/lease losses | |
| 19,023 | |
| 20,016 |
Net operating loss carryforwards, federal and state | |
| 1,354 | |
| 628 |
Premises and equipment | | | — | | | 16,509 |
Other | |
| 17 | |
| 71 |
| |
| 32,374 | |
| 47,580 |
Deferred tax liabilities: | |
|
| |
|
|
Net unrealized gains on securities available for sale and derivative instruments | | | 747 | | | 869 |
Premises and equipment | |
| 6,099 | |
| — |
Equipment financing leases | |
| 6,462 | |
| 13,373 |
Acquisition fair value adjustments | |
| 3,269 | |
| 3,351 |
Investment accretion | |
| 27 | |
| 28 |
Deferred loan origination fees, net | |
| 1,403 | |
| 197 |
Other | |
| 677 | |
| 922 |
| |
| 18,684 | |
| 18,740 |
Net deferred tax assets | | $ | 13,690 | | $ | 28,840 |
| | | | | | |
During the third quarter of 2021, effective January 1, 2020, the Company elected a tax accounting method change for identifying costs for self-constructed assets. The change resulted in an increase in capitalized costs for tax purposes in the amount of $88.0 million as of January 1, 2020, which, in turn, resulted in the recording of a deferred tax asset. A change from one generally accepted accounting principle to another is applied retrospectively, therefore deferred income taxes as of December 31, 2020, shown in the table above, have been adjusted retrospectively to reflect this change. The impact of the change was an increase in the deferred tax asset for premises and equipment in the amount of $22.2 million. The Company has concluded it qualifies for another automatic federal income tax accounting method change for self-constructed assets and intends to elect such, effective January 1, 2021, with the filing of its 2021 income tax return. This resulted in a reversal of the deferred tax asset as of January 1, 2021.
At December 31, 2019,2021, the Company had $3.5$4.8 million of federal tax net operating loss carryforwards whichand $10.9 million of state tax net operating loss carryforwards. $3.0 million of the federal tax net operating loss carryforwards are related to the acquisition of Community National and CNB and these losses are set to expire in varying amounts between 2029 and 2033. At December 31, 2019, the Company had $2.1 million of the state tax net operating loss carryforwards whichare also related to the acquisition of Community National and CNB and are set to expire in varying amounts between 2023 and 2028. AllAn additional
118
Note 14. Federal and State Income Taxes (continued)
$1.8 million of federal tax net operating loss carryforwards and thean additional $8.8 million of state tax net operating loss carryforwards were acquired from Community National and CNB.generated in 2021. All of these net operating losses generated in 2021 are expected to be utilized in 2022.
The change in deferred income taxes was reflected in the Consolidated Financial Statements as follows for the years ended December 31, 2019, 2018,2021, 2020, and 2017:
|
|
|
|
|
|
|
|
|
|
|
| 2019 |
| 2018 |
| 2017 | |||
|
| (dollars in thousands) | |||||||
|
|
|
|
|
|
|
|
|
|
Provision for income taxes |
| $ | 6,364 |
| $ | 6,292 |
| $ | (6,030) |
Net deferred tax asset resulting from market value adjustments of acquisitions |
|
| (381) |
|
| (52) |
|
| 243 |
Net deferred tax liabilities resulting from sale of bank subsidiary |
|
| (1,644) |
|
| — |
|
| — |
Re-measurement of deferred tax asset to incorporate newly enacted tax rates |
|
| — |
|
| — |
|
| 2,919 |
Statement of stockholders' equity- Other comprehensive income (loss) |
|
| 1,433 |
|
| (1,000) |
|
| 668 |
|
| $ | 5,772 |
| $ | 5,240 |
| $ | (2,200) |
2019:
The Tax Act was enacted on December 22, 2017 and reduces the federal corporate tax rate from 35% to 21%. As a result, the Company revalued the deferred tax assets and liabilities to reflect the lower federal corporate tax rate, which resulted in the Company recognizing a benefit of $2.9 million in the fourth quarter of 2017. Additionally, while the Tax Act eliminated the corporate alternative minimum tax, it did preserve the alternative minimum tax credit and the usability.
| | | | | | | | | |
|
| 2021 |
| 2020 |
| 2019 | |||
| | (dollars in thousands) | |||||||
| | | | | | | | | |
Provision for income taxes | | $ | 15,272 | | $ | (14,530) | | $ | 6,364 |
Net deferred tax asset resulting from market value adjustments of acquisitions | |
| — | |
| — | |
| (381) |
Net deferred tax assets resulting from sale of other subsidiary | | | — | | | 363 | | | — |
Net deferred tax liabilities resulting from sale of bank subsidiary | | | — | | | — | | | (1,644) |
Statement of stockholders' equity- Other comprehensive income (loss) | |
| (122) | |
| 837 | |
| 1,433 |
| | $ | 15,150 | | $ | (13,330) | | $ | 5,772 |
| | | | | | | | | |
Note 15. Employee Benefit Plans
The Company has a profit sharing plan, which includes a provision designed to qualify under Section 401(k) of the Internal Revenue Code of 1986, as amended, to allow for participant contributions. Substantially all employees who are at least 18 years of age are eligible to participate in the plan. The Company matches 100% of the first 3% of employee contributions, and 50% of the next 3% of employee contributions, up to a maximum amount of 4.5% of an employee’s compensation. Additionally, at its discretion, the Company may make additional contributions to the plan, which are allocated to the accounts of participants in the plan based on relative compensation. There were no0 discretionary contributions for the years ended December 31, 2019, 20182021, 2020 and 2017.2019. Company matching contributions for the years ended December 31, 2019, 2018,2021, 2020, and 20172019 were as follows:
|
|
|
|
|
|
|
|
|
|
|
| 2019 |
| 2018 |
| 2017 | |||
|
| (dollars in thousands) | |||||||
|
|
|
|
|
|
|
|
|
|
Matching contribution |
| $ | 2,443 |
| $ | 2,000 |
| $ | 1,663 |
| | | | | | | | | |
|
| 2021 |
| 2020 |
| 2019 | |||
| | (dollars in thousands) | |||||||
| | | | | | | | | |
Matching contribution | | $ | 2,446 | | $ | 2,520 | | $ | 2,443 |
The Company has entered into nonqualified supplemental executive retirement plans (SERPs) with certain executive officers. The SERPs allow certain executives to accumulate retirement benefits beyond those provided by the qualified retirement plan. Changes in the liability related to the SERPs, included in other liabilities, are as follows for the years ended December 31, 2019, 20182021, 2020 and 2017:
|
|
|
|
|
|
|
|
|
|
|
| 2019 |
| 2018 |
| 2017 | |||
|
| (dollars in thousands) | |||||||
|
|
|
|
|
|
|
|
|
|
Balance, beginning |
| $ | 4,623 |
| $ | 4,330 |
| $ | 4,093 |
Expense accrued |
|
| 701 |
|
| 457 |
|
| 401 |
Cash payments made |
|
| (164) |
|
| (164) |
|
| (164) |
Balance, ending |
| $ | 5,160 |
| $ | 4,623 |
| $ | 4,330 |
2019:
| | | | | | | | | |
|
| 2021 |
| 2020 |
| 2019 | |||
| | (dollars in thousands) | |||||||
| | | | | | | | | |
Balance, beginning | | $ | 6,189 | | $ | 5,160 | | $ | 4,623 |
Expense accrued | |
| 1,532 | |
| 1,193 | |
| 701 |
Cash payments made | |
| (448) | |
| (164) | |
| (164) |
Balance, ending | | $ | 7,273 | | $ | 6,189 | | $ | 5,160 |
The Company has entered into deferred compensation agreements with certain executive officers. Under the provisions of the agreements, the officers may defer compensation and the Company matches the deferral up to certain
119
Note 15. Employee Benefit Plans (continued)
maximums. The Company’s matching contribution varies by officer and is a maximum of between $8$10 thousand and $25 thousand annually as set forth in each officer’s participation agreement. Interest on the deferred amounts is earned at The Wall Street Journal’s prime rate subject to a minimum of 4% and a maximum of 12%, with such limits differing by officer. The Company
has also entered into deferred compensation agreements with certain other officers. Under the provisions of the agreements, the officers may defer compensation and the Company matches the deferral up to certain maximums. The Company’s matching contribution differs by officer and is a maximum between 4% and 10% of the officer’s compensation. Interest on the deferred amounts is earned atThe Wall Street Journal’s prime rate plus one percentage point, and has a minimum of 4% and shall not exceed 8%.
Upon retirement, the officer will receive the deferral balance in 180 equal monthly installments. As of December 31, 20192021 and 2018,2020, the liability related to the agreements totaled $19.5$32.3 million and $15.0$24.7 million, respectively.
117
Note 15. Employee Benefit Plans (continued)
Changes in the deferred compensation agreements, included in other liabilities, are as follows for the years ended December 31, 2019, 2018,2021, 2020, and 2017:
|
|
|
|
|
|
|
|
|
|
|
| 2019 |
| 2018 |
| 2017 | |||
|
| (dollars in thousands) | |||||||
|
|
|
|
|
|
|
|
|
|
Balance, beginning |
| $ | 15,029 |
| $ | 12,347 |
| $ | 10,455 |
Employee deferrals |
|
| 2,474 |
|
| 1,407 |
|
| 933 |
Company match and interest |
|
| 2,072 |
|
| 1,367 |
|
| 1,025 |
Cash payments made |
|
| (101) |
|
| (92) |
|
| (66) |
Balance, ending |
| $ | 19,474 |
| $ | 15,029 |
| $ | 12,347 |
2019:
| | | | | | | | | |
|
| 2021 |
| 2020 |
| 2019 | |||
| | (dollars in thousands) | |||||||
| | | | | | | | | |
Balance, beginning | | $ | 24,713 | | $ | 19,474 | | $ | 15,029 |
Employee deferrals | |
| 4,900 | |
| 3,959 | |
| 2,474 |
Company match and interest | |
| 3,048 | |
| 2,628 | |
| 2,072 |
Cash payments made | |
| (308) | |
| (1,348) | |
| (101) |
Balance, ending | | $ | 32,353 | | $ | 24,713 | | $ | 19,474 |
| | | | | | | | | |
Note 16. Stock-Based Compensation
The Company’s Board of Directors adopted in January 2008, and the stockholders approved in May 2008, the QCR Holdings, Inc. 2008 Equity Incentive Plan (“2008 Equity Incentive Plan”). The Company’s Board of Directors adopted in February 2010, and the stockholders approved in May 2010, the QCR Holdings, Inc. 2010 Equity Incentive Plan (“2010 Equity Incentive Plan”). The Company’s Board of Directors adopted in February 2013, and the stockholders approved in May 2013, the QCR Holdings, Inc. 2013 Equity Incentive Plan (“2013 Equity Incentive Plan”). The Company’s Board of Directors adopted in February 2016, and the stockholders approved in May 2016, the QCR Holdings, Inc. 2016 Equity Incentive Plan (“2016 Equity Incentive Plan”). Up to 250,000, 350,000, 350,000, and 400,000 shares of common stock, respectively, may be issued to employees and directors of the Company and its subsidiaries pursuant to equity incentive awards granted under these plans.
The 2008 Equity Incentive Plan, the 2010 Equity Incentive Plan, the 2013 Equity Incentive Plan, and the 2016 Equity Incentive Plan (collectively, the “Equity Plans”) are administered by the Compensation Committee of the Board of Directors (the “Committee”). As of December 31, 2019,2021, there were 219,305132,375 remaining shares of common stock available for the grant of future awards under the Equity Plans; however, such future awards may be granted only under the 2016 Equity Incentive Plan.
The number and exercise price of options granted under the Equity Plans are determined by the Committee at the time the option is granted. In no event can the exercise price be less than the value of the common stock at the date of the grant for stock options. All options have a 10‑year10-year life and will vest and become exercisable from 3‑to‑73-to-7 years after the date of the grant.
120
Note 16. Stock-Based Compensation (continued)
Stock-based compensation expense was reflected in the Consolidated Financial Statements as follows for the years ended December 31, 2019, 2018,2021, 2020, and 2017.
|
|
|
|
|
|
|
|
|
|
|
| 2019 |
| 2018 |
| 2017 | |||
|
| (dollars in thousands) | |||||||
|
|
|
|
|
|
|
|
|
|
Stock options |
| $ | 475 |
| $ | 472 |
| $ | 554 |
Restricted stock awards |
|
| 1,850 |
|
| 857 |
|
| 553 |
Stock purchase plan |
|
| 144 |
|
| 114 |
|
| 80 |
|
| $ | 2,469 |
| $ | 1,443 |
| $ | 1,187 |
2019.
| | | | | | | | | |
|
| 2021 |
| 2020 |
| 2019 | |||
| | (dollars in thousands) | |||||||
| | | | | | | | | |
Stock options | | $ | 270 | | $ | 297 | | $ | 475 |
Restricted stock awards | | | 1,864 | | | 1,619 | | | 1,850 |
Stock purchase plan | |
| 218 | |
| 234 | |
| 144 |
| | $ | 2,352 | | $ | 2,150 | | $ | 2,469 |
| | | | | | | | | |
118
Note 16. Stock-Based Compensastion (continued)
Stock options:
A summary of the stock option plans as of December 31, 2019, 2018,2021, 2020, and 20172019 and changes during the years then ended is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, | ||||||||||||||||
|
| 2019 |
| 2018 |
| 2017 | ||||||||||||
|
|
|
|
| Weighted |
|
|
|
| Weighted |
|
|
|
| Weighted | |||
|
|
|
|
| Average |
|
|
|
| Average |
|
|
|
| Average | |||
|
|
|
|
| Exercise |
|
|
|
| Exercise |
|
|
|
| Exercise | |||
|
| Shares |
| Price |
| Shares |
| Price |
| Shares |
| Price | ||||||
Outstanding, beginning |
|
| 469,572 |
| $ | 18.52 |
|
| 513,554 |
| $ | 17.13 |
|
| 587,961 |
| $ | 14.83 |
Granted |
|
| 20,200 |
|
| 36.00 |
|
| 16,315 |
|
| 44.02 |
|
| 43,250 |
|
| 43.86 |
Exercised |
|
| (59,393) |
|
| 12.11 |
|
| (60,127) |
|
| 13.56 |
|
| (114,100) |
|
| 15.12 |
Forfeited |
|
| (3,466) |
|
| 31.59 |
|
| (170) |
|
| 16.81 |
|
| (3,557) |
|
| 26.74 |
Outstanding, ending |
|
| 426,913 |
|
| 20.14 |
|
| 469,572 |
|
| 18.52 |
|
| 513,554 |
|
| 17.13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, ending |
|
| 365,084 |
|
|
|
|
| 358,270 |
|
|
|
|
| 354,269 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average fair value per option granted |
| $ | 11.29 |
|
|
|
| $ | 14.68 |
|
|
|
| $ | 14.75 |
|
|
|
| | | | | | | | | | | | | | | | | | |
| | December 31, | ||||||||||||||||
| | 2021 | | 2020 | | 2019 | ||||||||||||
| | | | | Weighted | | | | | Weighted | | | | | Weighted | |||
| | | | | Average | | | | | Average | | | | | Average | |||
| | | | | Exercise | | | | | Exercise | | | | | Exercise | |||
|
| Shares |
| Price |
| Shares |
| Price |
| Shares |
| Price | ||||||
Outstanding, beginning | | | 407,763 | | $ | 22.24 | | | 426,913 | | $ | 20.14 | | | 469,572 | | $ | 18.52 |
Granted |
| | 22,150 | |
| 43.61 |
| | 23,350 | |
| 39.12 |
| | 20,200 | |
| 36.00 |
Exercised |
| | (60,317) | |
| 15.76 |
| | (41,650) | |
| 10.67 |
| | (59,393) | |
| 12.11 |
Forfeited |
| | (1,598) | |
| 38.50 |
| | (850) | |
| 19.94 |
| | (3,466) | |
| 31.59 |
Outstanding, ending |
| | 367,998 | |
| 24.46 |
| | 407,763 | |
| 22.24 |
| | 426,913 | |
| 20.14 |
|
| |
| |
|
|
| |
| |
|
|
| |
| |
|
|
Exercisable, ending |
| | 318,266 | |
|
|
| | 354,899 | |
|
|
| | 365,084 | |
|
|
|
| |
| |
|
|
| |
| |
|
|
| |
| |
|
|
Weighted average fair value per option granted | | $ | 10.85 | |
|
| | $ | 10.07 | |
|
| | $ | 11.29 | |
|
|
A further summary of options outstanding as of December 31, 20192021 is presented below:
| | | | | | | | | | | | |
| | Options Outstanding | | | | | | |||||
| | | | Weighted | | | | | Options Exercisable | |||
| | | | Average | | Weighted | | | | Weighted | ||
| | | | Remaining | | Average | | | | Average | ||
Range of | | Number | | Contractual | | Exercise | | Number | | Exercise | ||
Exercise Prices |
| Outstanding |
| Life |
| Price |
| Exercisable |
| Price | ||
$9.30 | | 29,406 | | 0.08 | | $ | 9.30 | | 29,406 | | $ | 9.30 |
$15.50 to $15.65 |
| 64,106 |
| 1.25 | |
| 15.64 |
| 64,066 | |
| 15.64 |
$17.10 to $18.00 |
| 110,499 |
| 2.57 | |
| 17.31 |
| 110,459 | |
| 17.31 |
$22.64 to $29.77 |
| 55,216 |
| 4.20 | |
| 22.83 |
| 53,716 | |
| 22.64 |
$36.00 to $41.95 |
| 37,834 |
| 7.66 | |
| 38.25 |
| 14,360 | |
| 37.84 |
$42.65 to $48.50 |
| 70,937 |
| 6.59 | |
| 43.78 |
| 46,259 | |
| 43.84 |
|
| 367,998 |
|
| |
|
|
| 318,266 | |
|
|
|
| | | | | | | | | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Options Outstanding |
|
|
|
|
| |||||
|
|
|
| Weighted |
|
|
|
| Options Exercisable | |||
|
|
|
| Average |
| Weighted |
|
|
| Weighted | ||
|
|
|
| Remaining |
| Average |
|
|
| Average | ||
Range of |
| Number |
| Contractual |
| Exercise |
| Number |
| Exercise | ||
Exercise Prices |
| Outstanding |
| Life |
| Price |
| Exercisable |
| Price | ||
$7.99 to $8.93 |
| 18,405 |
| 1.11 |
| $ | 8.10 |
| 18,405 |
| $ | 8.10 |
$9.00 to $9.30 |
| 88,490 |
| 1.47 |
|
| 9.21 |
| 88,490 |
|
| 9.21 |
$15.50 to $15.65 |
| 67,541 |
| 3.24 |
|
| 15.64 |
| 66,741 |
|
| 15.64 |
$17.10 to $18.00 |
| 115,645 |
| 4.56 |
|
| 17.31 |
| 114,633 |
|
| 17.30 |
$21.71 to $22.64 |
| 59,905 |
| 6.08 |
|
| 22.63 |
| 46,309 |
|
| 22.63 |
$36.00 to $48.50 |
| 76,927 |
| 7.91 |
|
| 41.84 |
| 30,506 |
|
| 43.73 |
|
| 426,913 |
|
|
|
|
|
| 365,084 |
|
|
|
121
Note 16. Stock-Based Compensation (continued)
Restricted stock awards:
A summary of changes in the Company’s nonvested restricted stock, restricted stock unit and performance stock unit awards as of December 31, 2019, 20182021, 2020 and 20172019 is presented below:
|
|
|
|
|
|
|
|
|
|
|
| December 31, | |||||||
|
| 2019 |
| 2018 |
| 2017 | |||
Outstanding, beginning |
|
| 64,099 |
|
| 46,389 |
|
| 39,438 |
Granted* |
|
| 85,961 |
|
| 37,315 |
|
| 28,289 |
Released |
|
| (37,624) |
|
| (19,605) |
|
| (21,338) |
Forfeited |
|
| (5,610) |
|
| — |
|
| — |
Outstanding, ending |
|
| 106,826 |
|
| 64,099 |
|
| 46,389 |
|
|
|
|
|
|
|
|
|
|
Weighted average fair value per share granted |
| $ | 20.14 |
| $ | 43.50 |
| $ | 44.44 |
| | | | | | | | | |
| | December 31, | |||||||
|
| 2021 |
| 2020 |
| 2019 | |||
Outstanding, beginning | | | 102,489 | | | 106,826 | | | 64,099 |
Granted* | |
| 38,360 | |
| 34,559 | |
| 85,961 |
Released | |
| (43,691) | |
| (37,296) | |
| (37,624) |
Forfeited | |
| (51) | |
| (1,600) | |
| (5,610) |
Outstanding, ending | | | 97,107 | | | 102,489 | | | 106,826 |
| | | | | | | | | |
Weighted average fair value per share granted | | $ | 45.18 | | $ | 39.39 | | $ | 20.14 |
| | | | | | | | | |
* At December 31, 2021, includes 12,412 shares of restricted stock, 25,948 restricted stock units.
At December 31, 2020, includes 8,913 shares of restricted stock and 25,646 restricted stock units.
At December 31, 2019, includes 18,634 shares of restricted stock, 49,269 restricted stock units and 18,058 performance share units.
At December 31, 2018, includes 22,660 shares of restricted stock and 14,655 restricted stock units.
At December 31, 2017, includes 28,289 shares of restricted stock.
119
Note 16. Stock-Based Compensation (continued)
The total grant value of restricted stock, and restricted stock unit and performance share unit awards that were released during the years ended December 31, 2021, 2020 and 2019 2018was $1.9 million, $1.4 million and 2017 was $1.3 million, $622 thousand and $509 thousand, respectively.
Stock purchase plan:
The Company’s Board of Directors and its stockholders adopted in October 2002 the QCR Holdings, Inc. Employee Stock Purchase Plan (the “Purchase Plan”). On May 2, 2012, the Company’s stockholders approved a complete amendment and restatement of the Purchase Plan. As of January 1, 2019,2021, there were 128,32061,186 shares of common stock available for issuance under the Purchase Plan. For each six-month offering period, the Board of Directors will determine how many of the total number of available shares will be offered. The purchase price is the lesser of 85% ofor the fair market value at the date of the grant or the investment date. The investment date, as established by the Board of Directors, is the date common stock is purchased after the end of each calendar quarter during an offering period. The maximum dollar amount any one participant can elect to contribute in an offering period is $10 thousand. Additionally, the maximum percentage that any one participant can elect to contribute is 15% of his or her compensation for the year ended December 31, 2019. The maximum percentage that any one participant could elect to contributes was 10% of his or her compensation for the years ended December 31, 20182021, 2020 and 2017.2019. Information for the stock purchase plan for the years ended December 31, 2019, 2018,2021, 2020 and 20172019 is presented below:
|
|
|
|
|
|
|
|
|
|
|
| 2019 |
| 2018 |
| 2017 | |||
Shares granted |
|
| 29,882 |
|
| 17,305 |
|
| 12,414 |
Shares purchased |
|
| 28,775 |
|
| 15,528 |
|
| 13,318 |
Weighted average fair value per share granted |
| $ | 4.81 |
| $ | 6.63 |
| $ | 6.42 |
| | | | | | | | | |
|
| 2021 |
| 2020 |
| 2019 | |||
Shares granted |
| | 28,396 |
| | 38,738 |
| | 29,882 |
Shares purchased |
| | 30,543 |
| | 37,114 |
| | 28,775 |
Weighted average fair value per share granted | | $ | 7.67 | | $ | 6.03 | | $ | 4.81 |
122
Note 17. Regulatory Capital Requirements and Restrictions on Dividends
The Company (on a consolidated basis) and the subsidiary banks are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company and subsidiary banks’ financial statements.
Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the subsidiary banks must meet specific capital guidelines that involve quantitative measures of their assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Company and the subsidiary banks to maintain minimum amounts and ratios (set forth in the following table) of total common equity Tier 1 and Tier 1 capital to risk-weighted assets and of Tier 1 capital to average assets, each as defined by regulation. Management believes, as of December 31, 20192021 and 2018,2020, that the Company and the subsidiary banks met all capital adequacy requirements to which they are subject.
Under the regulatory framework for prompt corrective action, to be categorized as “well capitalized,” an institution must maintain minimum total risk-based, Tier 1 risk-based, Tier 1 leverage and common equity Tier 1 ratios as set forth in the following tables. The Company and the subsidiary banks’ actual capital amounts and ratios as of December 31, 20192021 and 20182020 are also presented in the following table (dollars in thousands). As of December 31, 20192021 and 2018,2020, the subsidiary banks met the requirements to be “well capitalized”.
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | For Capital | | To Be Well |
| ||||||
| | | | | | | | | | | | Adequacy Purposes | | Capitalized Under |
| ||||||
| | | | | | | For Capital | | With Capital | | Prompt Corrective |
| |||||||||
| | Actual | | Adequacy Purposes | | Conservation Buffer | | Action Provisions |
| ||||||||||||
|
| Amount |
| Ratio |
| Amount | | Ratio |
| Amount | | Ratio |
| Amount | | Ratio | | ||||
| | ( dollars in thousands) | | ||||||||||||||||||
As of December 31, 2021: | | | | | | | | | | | | | | | | | | | | | |
Company: | | | | | | | | | | | | | | | | | | | | | |
Total risk-based capital | | $ | 814,629 | | 14.77 | % | $ | 441,100 | > | 8.00 | % | $ | 578,944 | > | 10.50 | % | $ | 551,375 | > | 10.00 | % |
Tier 1 risk-based capital | |
| 631,649 |
| 11.46 | |
| 330,825 | > | 6.00 | |
| 468,669 | > | 8.50 | |
| 441,100 | > | 8.00 | |
Tier 1 leverage | |
| 631,649 |
| 10.46 | |
| 241,579 | > | 4.00 | |
| 241,579 | > | 4.00 | |
| 301,974 | > | 5.00 | |
Common equity Tier 1 | |
| 593,494 |
| 10.76 | |
| 248,119 | > | 4.50 | |
| 385,962 | > | 7.00 | |
| 358,394 | > | 6.50 | |
Quad City Bank & Trust: | |
| |
| | |
| |
| | |
| |
| | |
| |
| | |
Total risk-based capital | | $ | 247,658 | | 13.29 | % | $ | 149,126 | > | 8.00 | % | $ | 195,727 | > | 10.50 | % | $ | 186,407 | > | 10.00 | % |
Tier 1 risk-based capital | |
| 224,253 |
| 12.03 | |
| 111,844 | > | 6.00 | |
| 158,446 | > | 8.50 | |
| 149,126 | > | 8.00 | |
Tier 1 leverage | |
| 224,253 |
| 10.45 | |
| 85,873 | > | 4.00 | |
| 85,873 | > | 4.00 | |
| 107,341 | > | 5.00 | |
Common equity Tier 1 | |
| 224,253 |
| 12.03 | |
| 83,883 | > | 4.50 | |
| 130,485 | > | 7.00 | |
| 121,164 | > | 6.50 | |
Cedar Rapids Bank & Trust: | |
| | | | |
| |
| | |
| |
| | |
| |
| | |
Total risk-based capital | | $ | 277,673 | | 14.85 | % | $ | 149,595 | > | 8.00 | % | $ | 196,343 | > | 10.50 | % | $ | 186,993 | > | 10.00 | % |
Tier 1 risk-based capital | |
| 254,279 |
| 13.60 | |
| 112,196 | > | 6.00 | |
| 158,944 | > | 8.50 | |
| 149,595 | > | 8.00 | |
Tier 1 leverage | |
| 254,279 |
| 12.59 | |
| 80,777 | > | 4.00 | |
| 80,777 | > | 4.00 | |
| 100,971 | > | 5.00 | |
Common equity Tier 1 | |
| 254,279 |
| 13.60 | |
| 84,147 | > | 4.50 | |
| 130,895 | > | 7.00 | |
| 121,546 | > | 6.50 | |
Community State Bank: | |
| | | | |
| |
| | |
| |
| | |
| |
| | |
Total risk-based capital | | $ | 123,365 | | 11.95 | % | $ | 82,601 | > | 8.00 | % | $ | 108,413 | > | 10.50 | % | $ | 103,251 | > | 10.00 | % |
Tier 1 risk-based capital | |
| 110,410 |
| 10.69 | |
| 61,951 | > | 6.00 | |
| 87,763 | > | 8.50 | |
| 82,601 | > | 8.00 | |
Tier 1 leverage | |
| 110,410 |
| 9.67 | |
| 45,676 | > | 4.00 | |
| 45,676 | > | 4.00 | |
| 57,095 | > | 5.00 | |
Common equity Tier 1 | |
| 110,410 |
| 10.69 | |
| 46,463 | > | 4.50 | |
| 72,276 | > | 7.00 | |
| 67,113 | > | 6.50 | |
Springfield First Community Bank: | |
| | | | |
| |
| | |
| |
| | |
| |
| | |
Total risk-based capital | | $ | 101,067 | | 13.39 | % | $ | 60,369 | > | 8.00 | % | $ | 79,235 | > | 10.50 | % | $ | 75,462 | > | 10.00 | % |
Tier 1 risk-based capital | |
| 91,625 |
| 12.14 | |
| 45,277 | > | 6.00 | |
| 64,142 | > | 8.50 | |
| 60,369 | > | 8.00 | |
Tier 1 leverage | |
| 91,625 |
| 11.08 | |
| 33,088 | > | 4.00 | |
| 33,088 | > | 4.00 | |
| 41,360 | > | 5.00 | |
Common equity Tier 1 | |
| 91,625 |
| 12.14 | |
| 33,958 | > | 4.50 | |
| 52,823 | > | 7.00 | |
| 49,050 | > | 6.50 | |
120123
Note 17. Regulatory Capital Requirements and Restrictions on Dividends (continued)
| | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||
| | | | | | | | | | | | For Capital | | To Be Well |
| |||||||||||||||||||||||||||
| | | | | | | | | | | | Adequacy Purposes | | Capitalized Under |
| |||||||||||||||||||||||||||
| | | | | | | For Capital | | With Capital | | Prompt Corrective |
| ||||||||||||||||||||||||||||||
| | Actual | | Adequacy Purposes | | Conservation Buffer | | Action Provisions |
| |||||||||||||||||||||||||||||||||
|
| Amount |
| Ratio |
| Amount | | Ratio |
| Amount | | Ratio |
| Amount | | Ratio |
| |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| For Capital |
| To Be Well |
| |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| Adequacy Purposes |
| Capitalized Under |
| |||||||||||||||||||||||||||
|
|
|
|
|
|
| For Capital |
| With Capital |
| Prompt Corrective |
| ||||||||||||||||||||||||||||||
|
| Actual |
| Adequacy Purposes |
| Conservation Buffer* |
| Action Provisions |
| |||||||||||||||||||||||||||||||||
|
| Amount |
| Ratio |
| Amount |
| Ratio |
| Amount |
| Ratio |
| Amount |
| Ratio |
| |||||||||||||||||||||||||
As of December 31, 2019: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
| | ( dollars in thousands) | | |||||||||||||||||||||||||||||||||||||||
As of December 31, 2020: | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||
Company: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | | | | | | | |
Total risk-based capital |
| $ | 581,234 |
| 13.33 | % | $ | 348,937 | > | 8.00 | % | $ | 457,980 | > | 10.50 | % | $ | 436,171 | > | 10.00 | % | | $ | 721,004 | | 14.95 | % | $ | 385,832 | > | 8.00 | % | $ | 506,404 | > | 10.50 | % | $ | 482,290 | > | 10.00 | % |
Tier 1 risk-based capital |
|
| 481,702 |
| 11.04 |
|
| 261,703 | > | 6.00 |
|
| 370,746 | > | 8.50 |
|
| 348,937 | > | 8.00 |
| |
| 546,729 |
| 11.34 | |
| 289,374 | > | 6.00 | |
| 409,946 | > | 8.50 | |
| 385,832 | > | 8.00 | |
Tier 1 leverage |
|
| 481,702 |
| 9.53 |
|
| 202,207 | > | 4.00 |
|
| 202,207 | > | 4.00 |
|
| 252,758 | > | 5.00 |
| |
| 546,729 |
| 9.49 | |
| 230,345 | > | 4.00 | |
| 230,345 | > | 4.00 | |
| 287,931 | > | 5.00 | |
Common equity Tier 1 |
|
| 443,864 |
| 10.18 |
|
| 196,277 | > | 4.50 |
|
| 305,320 | > | 7.00 |
|
| 283,511 | > | 6.50 |
| |
| 508,736 |
| 10.55 | |
| 217,030 | > | 4.50 | |
| 337,603 | > | 7.00 | |
| 313,488 | > | 6.50 | |
Quad City Bank & Trust: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| |
| | |
| |
| | |
| |
| | |
| |
| | |
Total risk-based capital |
| $ | 183,855 |
| 11.83 | % | $ | 124,362 | > | 8.00 | % | $ | 163,225 | > | 10.50 | % | $ | 155,452 | > | 10.00 | % | | $ | 213,608 | | 12.24 | % | $ | 139,581 | > | 8.00 | % | $ | 183,200 | > | 10.50 | % | $ | 174,477 | > | 10.00 | % |
Tier 1 risk-based capital |
|
| 170,137 |
| 10.94 |
|
| 93,271 | > | 6.00 |
|
| 132,134 | > | 8.50 |
|
| 124,362 | > | 8.00 |
| |
| 191,693 | | 10.99 | |
| 104,686 | > | 6.00 | |
| 148,305 | > | 8.50 | |
| 139,581 | > | 8.00 | |
Tier 1 leverage |
|
| 170,137 |
| 9.94 |
|
| 68,479 | > | 4.00 |
|
| 68,479 | > | 4.00 |
|
| 85,598 | > | 5.00 |
| |
| 191,693 | | 8.48 | |
| 90,430 | > | 4.00 | |
| 90,430 | > | 4.00 | |
| 113,038 | > | 5.00 | |
Common equity Tier 1 |
|
| 170,137 |
| 10.94 |
|
| 69,953 | > | 4.50 |
|
| 108,817 | > | 7.00 |
|
| 101,044 | > | 6.50 |
| |
| 191,693 | | 10.99 | |
| 78,514 | > | 4.50 | |
| 122,134 | > | 7.00 | |
| 113,410 | > | 6.50 | |
Cedar Rapids Bank & Trust: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| | | | |
| |
| | |
| |
| | |
| |
| | |
Total risk-based capital |
| $ | 175,498 |
| 11.90 | % | $ | 117,953 | > | 8.00 | % | $ | 154,813 | > | 10.50 | % | $ | 147,441 | > | 10.00 | % | | $ | 217,227 | | 13.14 | % | $ | 132,269 | > | 8.00 | % | $ | 173,603 | > | 10.50 | % | $ | 165,336 | > | 10.00 | % |
Tier 1 risk-based capital |
|
| 162,127 |
| 11.00 |
|
| 88,465 | > | 6.00 |
|
| 125,325 | > | 8.50 |
|
| 117,953 | > | 8.00 |
| |
| 196,438 | | 11.88 | |
| 99,202 | > | 6.00 | |
| 140,536 | > | 8.50 | |
| 132,269 | > | 8.00 | |
Tier 1 leverage |
|
| 162,127 |
| 10.41 |
|
| 62,286 | > | 4.00 |
|
| 62,286 | > | 4.00 |
|
| 77,857 | > | 5.00 |
| |
| 196,438 | | 10.01 | |
| 78,535 | > | 4.00 | |
| 78,535 | > | 4.00 | |
| 98,169 | > | 5.00 | |
Common equity Tier 1 |
|
| 162,127 |
| 11.00 |
|
| 66,349 | > | 4.50 |
|
| 103,209 | > | 7.00 |
|
| 95,837 | > | 6.50 |
| |
| 196,438 | | 11.88 | |
| 74,401 | > | 4.50 | |
| 115,735 | > | 7.00 | |
| 107,469 | > | 6.50 | |
Community State Bank: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| | | | |
| |
| | |
| |
| | |
| |
| | |
Total risk-based capital |
| $ | 92,095 |
| 12.32 | % | $ | 59,813 | > | 8.00 | % | $ | 78,504 | > | 10.50 | % | $ | 74,766 | > | 10.00 | % | | $ | 108,040 | | 12.69 | % | $ | 68,117 | > | 8.00 | % | $ | 89,404 | > | 10.50 | % | $ | 85,146 | > | 10.00 | % |
Tier 1 risk-based capital |
|
| 85,437 |
| 11.43 |
|
| 44,860 | > | 6.00 |
|
| 63,551 | > | 8.50 |
|
| 59,813 | > | 8.00 |
| |
| 97,350 | | 11.43 | |
| 51,088 | > | 6.00 | |
| 72,374 | > | 8.50 | |
| 68,117 | > | 8.00 | |
Tier 1 leverage |
|
| 85,437 |
| 10.39 |
|
| 32,902 | > | 4.00 |
|
| 32,902 | > | 4.00 |
|
| 41,128 | > | 5.00 |
| |
| 97,350 | | 10.27 | |
| 37,930 | > | 4.00 | |
| 37,930 | > | 4.00 | |
| 47,412 | > | 5.00 | |
Common equity Tier 1 |
|
| 85,437 |
| 11.43 |
|
| 33,645 | > | 4.50 |
|
| 52,336 | > | 7.00 |
|
| 48,598 | > | 6.50 |
| |
| 97,350 | | 11.43 | |
| 38,316 | > | 4.50 | |
| 59,602 | > | 7.00 | |
| 55,345 | > | 6.50 | |
Springfield First Community Bank: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| | | | |
| |
| | |
| |
| | |
| |
| | |
Total risk-based capital |
| $ | 71,074 |
| 12.72 | % | $ | 44,704 | > | 8.00 | % | $ | 58,674 | > | 10.50 | % | $ | 55,880 | > | 10.00 | % | | $ | 90,334 | | 14.35 | % | $ | 50,357 | > | 8.00 | % | $ | 66,094 | > | 10.50 | % | $ | 62,947 | > | 10.00 | % |
Tier 1 risk-based capital |
|
| 63,956 |
| 11.45 |
|
| 33,528 | > | 6.00 |
|
| 47,498 | > | 8.50 |
|
| 44,704 | > | 8.00 |
| |
| 77,668 | | 12.34 | |
| 37,768 | > | 6.00 | |
| 53,505 | > | 8.50 | |
| 50,357 | > | 8.00 | |
Tier 1 leverage |
|
| 63,956 |
| 9.70 |
|
| 26,379 | > | 4.00 |
|
| 26,379 | > | 4.00 |
|
| 32,974 | > | 5.00 |
| |
| 77,668 | | 10.87 | |
| 28,575 | > | 4.00 | |
| 28,575 | > | 4.00 | |
| 35,719 | > | 5.00 | |
Common equity Tier 1 |
|
| 63,956 |
| 11.45 |
|
| 25,146 | > | 4.50 |
|
| 39,116 | > | 7.00 |
|
| 36,322 | > | 6.50 |
| |
| 77,668 | | 12.34 | |
| 28,326 | > | 4.50 | |
| 44,063 | > | 7.00 | |
| 40,915 | > | 6.50 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For Capital |
| To Be Well |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
| Adequacy Purposes |
| Capitalized Under |
| ||||||
|
|
|
|
|
|
| For Capital |
| With Capital |
| Prompt Corrective |
| |||||||||
|
| Actual |
| Adequacy Purposes |
| Conservation Buffer |
| Action Provisions |
| ||||||||||||
|
| Amount |
| Ratio |
| Amount |
| Ratio |
| Amount |
| Ratio |
| Amount |
| Ratio |
| ||||
As of December 31, 2018: |
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|
|
|
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|
|
|
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|
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|
|
|
|
|
|
Company: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total risk-based capital |
| $ | 460,416 |
| 10.69 | % | $ | 344,551 | > | 8.00 | % | $ | 425,305 | > | 9.875 | % | $ | 430,689 | > | 10.00 | % |
Tier 1 risk-based capital |
|
| 420,569 |
| 9.77 |
|
| 258,413 | > | 6.00 |
|
| 339,168 | > | 7.875 |
|
| 344,551 | > | 8.00 |
|
Tier 1 leverage |
|
| 420,569 |
| 8.87 |
|
| 189,858 | > | 4.00 |
|
| 189,858 | > | 4.000 |
|
| 237,322 | > | 5.00 |
|
Common equity Tier 1 |
|
| 382,899 |
| 8.89 |
|
| 193,810 | > | 4.50 |
|
| 274,564 | > | 6.375 |
|
| 279,948 | > | 6.50 |
|
Quad City Bank & Trust: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total risk-based capital |
| $ | 162,009 |
| 11.38 | % | $ | 113,900 | > | 8.00 | % | $ | 140,596 | > | 9.875 | % | $ | 142,376 | > | 10.00 | % |
Tier 1 risk-based capital |
|
| 148,529 |
| 10.43 |
|
| 85,425 | > | 6.00 |
|
| 112,121 | > | 7.875 |
|
| 113,900 | > | 8.00 |
|
Tier 1 leverage |
|
| 148,529 |
| 9.04 |
|
| 65,744 | > | 4.00 |
|
| 65,744 | > | 4.000 |
|
| 82,180 | > | 5.00 |
|
Common equity Tier 1 |
|
| 148,529 |
| 10.43 |
|
| 64,069 | > | 4.50 |
|
| 90,764 | > | 6.375 |
|
| 92,544 | > | 6.50 |
|
Cedar Rapids Bank & Trust: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total risk-based capital |
| $ | 146,292 |
| 11.55 | % | $ | 101,310 | > | 8.00 | % | $ | 125,054 | > | 9.875 | % | $ | 126,637 | > | 10.00 | % |
Tier 1 risk-based capital |
|
| 133,982 |
| 10.58 |
|
| 75,982 | > | 6.00 |
|
| 99,727 | > | 7.875 |
|
| 101,310 | > | 8.00 |
|
Tier 1 leverage |
|
| 133,982 |
| 9.98 |
|
| 53,682 | > | 4.00 |
|
| 53,682 | > | 4.000 |
|
| 67,103 | > | 5.00 |
|
Common equity Tier 1 |
|
| 133,982 |
| 10.58 |
|
| 56,987 | > | 4.50 |
|
| 80,731 | > | 6.375 |
|
| 82,314 | > | 6.50 |
|
Community State Bank: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total risk-based capital |
| $ | 75,233 |
| 11.24 | % | $ | 53,567 | > | 8.00 | % | $ | 66,122 | > | 9.875 | % | $ | 66,959 | > | 10.00 | % |
Tier 1 risk-based capital |
|
| 69,101 |
| 10.32 |
|
| 40,175 | > | 6.00 |
|
| 52,730 | > | 7.875 |
|
| 53,567 | > | 8.00 |
|
Tier 1 leverage |
|
| 69,101 |
| 9.19 |
|
| 30,070 | > | 4.00 |
|
| 30,070 | > | 4.000 |
|
| 37,588 | > | 5.00 |
|
Common equity Tier 1 |
|
| 69,101 |
| 10.32 |
|
| 30,131 | > | 4.50 |
|
| 42,686 | > | 6.375 |
|
| 43,523 | > | 6.50 |
|
Springfield First Community Bank: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total risk-based capital |
| $ | 57,051 |
| 12.24 | % | $ | 37,278 | > | 8.00 | % | $ | 46,016 | > | 9.875 | % | $ | 46,598 | > | 10.00 | % |
Tier 1 risk-based capital |
|
| 51,279 |
| 11.00 |
|
| 27,959 | > | 6.00 |
|
| 36,696 | > | 7.875 |
|
| 37,278 | > | 8.00 |
|
Tier 1 leverage |
|
| 51,279 |
| 9.39 |
|
| 21,849 | > | 4.00 |
|
| 21,849 | > | 4.000 |
|
| 27,312 | > | 5.00 |
|
Common equity Tier 1 |
|
| 51,279 |
| 11.00 |
|
| 20,969 | > | 4.50 |
|
| 29,706 | > | 6.375 |
|
| 30,289 | > | 6.50 |
|
Rockford Bank & Trust |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total risk-based capital |
| $ | 50,648 |
| 10.89 | % | $ | 37,208 | > | 8.00 | % | $ | 45,929 | > | 9.875 | % | $ | 46,511 | > | 10.00 | % |
Tier 1 risk-based capital |
|
| 44,821 |
| 9.64 |
|
| 27,906 | > | 6.00 |
|
| 36,627 | > | 7.875 |
|
| 37,208 | > | 8.00 |
|
Tier 1 leverage |
|
| 44,821 |
| 8.93 |
|
| 20,081 | > | 4.00 |
|
| 20,081 | > | 4.000 |
|
| 25,101 | > | 5.00 |
|
Common equity Tier 1 |
|
| 44,821 |
| 9.64 |
|
| 20,930 | > | 4.50 |
|
| 29,650 | > | 6.375 |
|
| 30,232 | > | 6.50 |
|
* December 31, 2019 minimums reflect the fully phased-in ratios (including the capital conservation buffer).
121
Note 17. Regulatory Capital Requirements and Restrictions on Dividends (continued)
The Company’s ability to pay dividends to its stockholders may be affected by both general corporate law considerations and policies of the Federal Reserve applicable to bank holding companies.
The payment of dividends by any financial institution or its holding company is affected by the requirement to maintain adequate capital pursuant to applicable capital adequacy guidelines and regulations, and a financial institution generally is prohibited from paying any dividends if, following payment thereof, the institution would be undercapitalized. Notwithstanding the availability of funds for dividends, however, the Federal Reserve may prohibit the payment of any dividends by the subsidiary banks if the Federal Reserve determines such payment would constitute an unsafe or unsound practice.
The Company also has certain contractual restrictions on its ability to pay dividends. The Company has issued junior subordinated debentures in four4 private placements and assumed three3 issues of junior subordinated debentures in connection with the acquisitions. Under the terms of the debentures, the Company may be prohibited, under certain circumstances, from paying dividends on shares of its common stock. These circumstances did not exist at December 31, 20192021 or 2018.2020.
In September 2020 and in February 2019, the Company completed a subordinated notes offering.offerings. See Note 12 ofto the Consolidated Financial Statements for further information on this subordinated notes offering.information.
On February 18, 2020, the Board of Directors of the Company announcedapproved a share repurchase program permittingunder which the Company is authorized to repurchase, offrom time to time as the Company deems appropriate, up to 800,000 shares of its outstanding common stock, or approximately 5% of the outstanding shares as of December 31, 2019. The repurchase program permitsThere were 293,153 and 100,932 shares to be repurchased in open market or private transactions, through block trades, and pursuant to any trading plan that may be adopted in accordance with Rules 10b5-1 and 10b-18 of the SEC. The timing, manner, price and amount of any repurchases will be determinedcommon stock purchased by the Company in its discretionduring the year ended December 31, 2021 and will be subject2020, respectively. There are 405,915 shares of common stock remaining for repurchase as of December 31, 2021.
124
QCR Holdings, Inc. and Subsidiaries
Notes to economic and market conditions, stock price, applicable legal requiremets and other factors. The repurchase program does not obligate the Company to purchase any particular number of shares.Consolidated Financial Statements
The following information was used in the computation of basic and diluted EPS for the years ended December 31, 2019, 2018,2021, 2020, and 2017:
|
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|
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|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2019 |
| 2018 |
| 2017 | |||
|
| (dollars in thousands, except per share data) | |||||||
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | 57,408 |
| $ | 43,120 |
| $ | 35,707 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic EPS |
| $ | 3.65 |
| $ | 2.92 |
| $ | 2.68 |
Diluted EPS |
| $ | 3.60 |
| $ | 2.86 |
| $ | 2.61 |
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding* |
|
| 15,730,016 |
|
| 14,768,687 |
|
| 13,325,128 |
Weighted average common shares issuable upon exercise of stock options |
|
|
|
|
|
|
|
|
|
and under the employee stock purchase plan |
|
| 237,759 |
|
| 296,043 |
|
| 355,344 |
Weighted average common and common equivalent shares outstanding** |
|
| 15,967,775 |
|
| 15,064,730 |
|
| 13,680,472 |
|
|
|
|
|
|
|
|
|
|
2019:
* The increase in weighted average common shares outstanding from 2017 to 2018 and 2019 was primarily due to the common stock
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | 2021 |
| 2020 |
| 2019 | |||
| | (dollars in thousands, except per share data) | |||||||
| | | | | | | | | |
Net income | | $ | 98,905 | | $ | 60,582 | | $ | 57,408 |
| | | | | | | | | |
| | | | | | | | | |
Basic EPS | | $ | 6.30 | | $ | 3.84 | | $ | 3.65 |
Diluted EPS | | $ | 6.20 | | $ | 3.80 | | $ | 3.60 |
| | | | | | | | | |
Weighted average common shares outstanding | |
| 15,708,744 | |
| 15,771,650 | |
| 15,730,016 |
Weighted average common shares issuable upon exercise of stock options | | | | | | | | | |
and under the employee stock purchase plan | |
| 235,964 | |
| 180,987 | |
| 237,759 |
Weighted average common and common equivalent shares outstanding | |
| 15,944,708 | |
| 15,952,637 | |
| 15,967,775 |
| | | | | | | | | |
issuances that occurred in conjunction with the Springfield Bancshares merger and Guaranty Bank acquisition.
*** Excludes anti-dilutive shares of 80,437, 91,9540, 104,636 and 49,91980,437 at December 31, 2021, 2020 and 2019, 2018 and 2017, respectively.
122
Note 19. Commitments and Contingencies
In the normal course of business, the subsidiary banks make various commitments and incur certain contingent liabilities that are not presented in the accompanying Consolidated Financial Statements. The commitments and contingent liabilities include various guarantees, commitments to extend credit, and standby letters of credit.
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The subsidiary banks evaluate each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the subsidiary banks upon extension of credit, is based upon management’s credit evaluation of the counterparty. Collateral held varies but may include accounts receivable, marketable securities, inventory, property, plant and equipment, and income-producing commercial properties.
Standby letters of credit are conditional commitments issued by the subsidiary banks to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements and, generally, have terms of one year or less. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The subsidiary banks hold collateral, as described above, supporting those commitments if deemed necessary. In the event the customer does not perform in accordance with the terms of the agreement with the third party, the subsidiary banks would be required to fund the commitments. The maximum potential amount of future payments the subsidiary banks could be required to make is represented by the contractual amount. If the commitment is funded, the subsidiary banks would be entitled to seek recovery from the customer. At December 31, 20192021 and 2018, no2020, 0 amounts had been recorded as liabilities for the subsidiary banks’ potential obligations under these guarantees.
As of December 31, 20192021 and 2018,2020, commitments to extend credit aggregated $1.2 billion.billion and $1.4 billion, respectively. As of December 31, 20192021 and 2018,2020, standby letters of credit aggregated $23.8$21.7 million and $20.3$24.8 million, respectively. Management does not expect that all of these commitments will be funded.
125
Note 19. Commitments and Contingencies (continued)
The Company has also executed contracts for the sale of mortgage loans in the secondary market in the amount of $3.7 million and $1.3$3.8 million as of December 31, 20192021 and 2018, respectively.2020. These amounts are included in loans held for sale at the respective balance sheet dates.
Residential mortgage loans sold to investors in the secondary market are sold with varying recourse provisions. Essentially, all loan sales agreements require the repurchase of a mortgage loan by the seller in situations such as breach of representation, warranty, or covenant, untimely document delivery, false or misleading statements, failure to obtain certain certificates of insurance, unmarketability, etc. Certain loan sales agreements contain repurchase requirements based on payment-related defects that are defined in terms of the number of days/months since the purchase, the sequence number of the payment, and/or the number of days of payment delinquency. Based on the specific terms stated in the agreements of investors purchasing residential mortgage loans from the Company’s subsidiary banks, the Company had $24.5$20.8 million and $12.4$32.4 million of sold residential mortgage loans with recourse provisions still in effect at December 31, 20192021 and 2018,2020, respectively. The subsidiary banks did not repurchase any loans from secondary market investors under the terms of loans sales agreements during the years ended December 31, 2019, 2018,2021, 2020, and 2017.2019. In the opinion of management, the risk of recourse and the subsequent requirement of loan repurchase to the subsidiary banks is not significant, and accordingly no liabilities have been established related to such.
123
Note 19. Commitments and Contingencies (continued)
Aside from cash on-hand and in-vault, the majority of the Company’s cash is maintained at upstream correspondent banks. The total amount of cash on deposit, certificates of deposit, and federal funds sold exceeded federal insured limits by approximately $34.6$48.2 million and $52.6$59.4 million as of December 31, 20192021 and 2018,2020, respectively. In the opinion of management, no material risk of loss exists due to the financial condition of the upstream correspondent banks.
Note 20. Quarterly ResultsIn an arrangement with Goldman Sachs, CRBT offers a cash management program for select customers. Based on a predetermined minimum balance, which must be maintained in the customer’s account, excess funds are automatically swept daily to an institutional money market fund administered by Goldman Sachs. At December 31, 2021 and 2020, the Company had $107.0 million and $103.8 million, respectively of Operations (Unaudited)
|
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|
|
|
|
|
|
|
|
|
|
|
| Year Ended December 31, 2019 | ||||||||||
|
| March |
| June |
| September |
| December | ||||
|
| 2019 |
| 2019 |
| 2019 |
| 2019 | ||||
|
| (dollars in thousands) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income |
| $ | 52,101 |
| $ | 54,181 |
| $ | 56,817 |
| $ | 52,977 |
Total interest expense |
|
| 15,193 |
|
| 16,168 |
|
| 16,098 |
|
| 13,058 |
Net interest income |
|
| 36,908 |
|
| 38,013 |
|
| 40,719 |
|
| 39,919 |
Provision for loan/lease losses |
|
| 2,134 |
|
| 1,941 |
|
| 2,012 |
|
| 979 |
Noninterest income |
|
| 11,992 |
|
| 17,065 |
|
| 19,906 |
|
| 29,805 |
Noninterest expense |
|
| 32,435 |
|
| 36,560 |
|
| 39,945 |
|
| 46,294 |
Income before taxes |
|
| 14,331 |
|
| 16,577 |
|
| 18,668 |
|
| 22,451 |
Federal and state income tax expense (benefit) |
|
| 1,413 |
|
| 3,073 |
|
| 3,573 |
|
| 6,560 |
Net income |
| $ | 12,918 |
| $ | 13,504 |
| $ | 15,095 |
| $ | 15,891 |
|
|
|
|
|
|
|
|
|
|
|
|
|
EPS: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | 0.82 |
| $ | 0.86 |
| $ | 0.96 |
| $ | 1.01 |
Diluted |
| $ | 0.81 |
| $ | 0.85 |
| $ | 0.94 |
| $ | 0.99 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Year Ended December 31, 2018 | ||||||||||
|
| March |
| June |
| September |
| December | ||||
|
| 2018 |
| 2018 |
| 2018 |
| 2018 | ||||
|
| (dollars in thousands) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income |
| $ | 39,546 |
| $ | 40,799 |
| $ | 49,830 |
| $ | 52,704 |
Total interest expense |
|
| 7,143 |
|
| 8,714 |
|
| 11,516 |
|
| 13,109 |
Net interest income |
|
| 32,403 |
|
| 32,085 |
|
| 38,314 |
|
| 39,595 |
Provision for loan/lease losses |
|
| 2,540 |
|
| 2,301 |
|
| 6,206 |
|
| 1,612 |
Noninterest income |
|
| 8,541 |
|
| 8,912 |
|
| 8,809 |
|
| 15,278 |
Noninterest expense |
|
| 25,863 |
|
| 26,370 |
|
| 30,500 |
|
| 36,410 |
Income before taxes |
|
| 12,541 |
|
| 12,326 |
|
| 10,417 |
|
| 16,851 |
Federal and state income tax expense |
|
| 1,991 |
|
| 1,881 |
|
| 1,608 |
|
| 3,535 |
Net income |
| $ | 10,550 |
| $ | 10,445 |
| $ | 8,809 |
| $ | 13,316 |
|
|
|
|
|
|
|
|
|
|
|
|
|
EPS: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | 0.76 |
| $ | 0.75 |
| $ | 0.56 |
| $ | 0.85 |
Diluted |
| $ | 0.74 |
| $ | 0.73 |
| $ | 0.55 |
| $ | 0.84 |
customer funds invested in this cash management program. In the opinion of management, no material risk of loss exists due to the financial condition of Goldman Sachs. As of December 31, 2021 and 2020, there were $31.5 million and $24.0 million of investment securities pledged on the Goldman Sachs program, respectively, as a cover to the swap exposure.
124126
Note 21.20. Parent Company Only Financial Statements
The following is condensed financial information of QCR Holdings, Inc. (parent company only):
Condensed Balance Sheets
December 31, 20192021 and 2018
|
|
|
|
|
|
|
|
| 2019 |
| 2018 | ||
|
| (dollars in thousands) | ||||
Assets |
|
|
|
|
|
|
Cash and due from banks |
| $ | 59,529 |
| $ | 6,606 |
Interest-bearing deposits at financial institutions |
|
| 5,601 |
|
| 1,001 |
Investment in bank subsidiaries |
|
| 570,698 |
|
| 532,164 |
Investment in nonbank subsidiaries |
|
| 13,239 |
|
| 4,880 |
Premises and equipment, net |
|
| 9,424 |
|
| 6,956 |
Goodwill |
|
| 682 |
|
| 3,766 |
Intangibles |
|
| 1,503 |
|
| 1,855 |
Other assets |
|
| 15,150 |
|
| 14,794 |
Total assets |
| $ | 675,826 |
| $ | 572,022 |
|
|
|
|
|
|
|
Liabilities and Stockholders' Equity |
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
Other borrowings |
| $ | — |
| $ | 32,250 |
Subordinated notes |
|
| 63,531 |
|
| — |
Junior subordinated debentures |
|
| 37,838 |
|
| 37,670 |
Other liabilities |
|
| 39,106 |
|
| 28,964 |
Total liabilities |
|
| 140,475 |
|
| 98,884 |
|
|
|
|
|
|
|
Stockholders' Equity: |
|
|
|
|
|
|
Common stock |
|
| 15,828 |
|
| 15,718 |
Additional paid-in capital |
|
| 274,785 |
|
| 270,761 |
Retained earnings |
|
| 245,836 |
|
| 192,203 |
Accumulated other comprehensive loss |
|
| (1,098) |
|
| (5,544) |
Total stockholders' equity |
|
| 535,351 |
|
| 473,138 |
Total liabilities and stockholders' equity |
| $ | 675,826 |
| $ | 572,022 |
2020
| | | | | | |
|
| 2021 |
| 2020 | ||
| | (dollars in thousands) | ||||
Assets | | | | | | |
Cash and due from banks | | $ | 41,531 | | $ | 88,610 |
Interest-bearing deposits at financial institutions | |
| 5,750 | |
| 7,200 |
Investment in bank subsidiaries | |
| 769,628 | |
| 655,232 |
Investment in nonbank subsidiaries | |
| 5,341 | |
| 4,540 |
Premises and equipment, net | |
| 8,632 | |
| 9,242 |
Other assets | |
| 7,716 | |
| 16,268 |
Total assets | | $ | 838,598 | | $ | 781,092 |
| |
|
| |
|
|
Liabilities and Stockholders' Equity | |
|
| |
|
|
Liabilities: | |
|
| |
|
|
Subordinated notes | | $ | 113,850 | | $ | 113,691 |
Junior subordinated debentures | |
| 38,155 | |
| 37,993 |
Other liabilities | |
| 9,583 | |
| 35,615 |
Total liabilities | |
| 161,588 | |
| 187,299 |
| |
|
| |
|
|
Stockholders' Equity: | |
|
| |
|
|
Common stock | |
| 15,613 | |
| 15,806 |
Additional paid-in capital | |
| 273,768 | |
| 275,807 |
Retained earnings | |
| 386,077 | |
| 300,804 |
Accumulated other comprehensive income | |
| 1,552 | |
| 1,376 |
Total stockholders' equity | |
| 677,010 | |
| 593,793 |
Total liabilities and stockholders' equity | | $ | 838,598 | | $ | 781,092 |
125127
Note 21.20. Parent Company Only Financial Statements (continued)
Condensed Statements of Income
Years Ended December 31, 2019, 2018,2021, 2020, and 20172019
|
|
|
|
|
|
|
|
|
| |||||||||
|
| 2019 |
| 2018 |
| 2017 | ||||||||||||
|
| (dollars in thousands) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||
| | | | | | | | | | |||||||||
|
| 2021 |
| 2020 |
| 2019 | ||||||||||||
| | (dollars in thousands) | ||||||||||||||||
| | | | | | | | | | |||||||||
Total interest income |
| $ | 77 |
| $ | 88 |
| $ | 13 | | $ | 3 | | $ | 29 | | $ | 77 |
Equity in net income of bank subsidiaries |
|
| 69,966 |
|
| 55,209 |
|
| 45,104 | |
| 117,408 | |
| 79,624 | |
| 69,966 |
Equity in net income of nonbank subsidiaries |
|
| 6,797 |
|
| (436) |
|
| 75 | |||||||||
Securities gains |
|
| — |
|
| — |
|
| 6 | |||||||||
Equity in net income (loss) of nonbank subsidiaries | |
| 456 | |
| (261) | |
| 6,797 | |||||||||
Other |
|
| 314 |
|
| (322) |
|
| 3 | |
| 853 | |
| 289 | |
| 314 |
Total income |
|
| 77,154 |
|
| 54,539 |
|
| 45,201 | |
| 118,720 | |
| 79,681 | |
| 77,154 |
|
|
|
|
|
|
|
|
|
| |||||||||
| |
|
| |
|
| |
|
| |||||||||
Interest expense |
|
| 5,836 |
|
| 3,637 |
|
| 2,658 | |
| 8,482 | |
| 6,662 | |
| 5,836 |
Salaries and employee benefits |
|
| 8,739 |
|
| 6,598 |
|
| 5,022 | |
| 12,446 | |
| 11,825 | |
| 8,739 |
Professional fees |
|
| 1,545 |
|
| 1,872 |
|
| 1,345 | |
| 1,983 | |
| 2,558 | |
| 1,545 |
Acquisition costs |
|
| — |
|
| 1,654 |
|
| 1,069 | |
| 624 | |
| — | |
| — |
Post-acquisition compensation, transition and integration costs |
|
| 3,171 |
|
| 165 |
|
| 3,151 | |
| — | |
| 145 | |
| 3,171 |
Disposition costs |
|
| 1,606 |
|
| — |
|
| — | | | 13 | | | 312 | | | 1,606 |
Goodwill impairment |
|
| 3,000 |
|
| — |
|
| — | |
| — | |
| 500 | |
| 3,000 |
Other |
|
| 2,147 |
|
| 1,026 |
|
| 1,134 | |
| 2,784 | |
| 2,505 | |
| 2,147 |
Total expenses |
|
| 26,044 |
|
| 14,952 |
|
| 14,379 | |
| 26,332 | |
| 24,507 | |
| 26,044 |
|
|
|
|
|
|
|
|
|
| |||||||||
| |
|
| |
|
| |
|
| |||||||||
Income before income tax benefit |
|
| 51,110 |
|
| 39,587 |
|
| 30,822 | |
| 92,388 | |
| 55,174 | |
| 51,110 |
|
|
|
|
|
|
|
|
|
| |||||||||
| |
|
| |
|
| |
|
| |||||||||
Income tax benefit |
|
| 6,298 |
|
| 3,533 |
|
| 4,885 | |
| 6,517 | |
| 5,408 | |
| 6,298 |
Net income |
| $ | 57,408 |
| $ | 43,120 |
| $ | 35,707 | | $ | 98,905 | | $ | 60,582 | | $ | 57,408 |
| | | | | | | | | |
126128
Note 21.20. Parent Company Only Financial Statements (continued)
Condensed Statements of Cash Flows
Years Ended December 31, 2019, 2018,2021, 2020, and 20172019
|
|
|
|
|
|
|
|
|
| |||||||||
|
| 2019 |
| 2018 |
| 2017 | ||||||||||||
|
| (dollars in thousands) | ||||||||||||||||
| | | | | | | | | | |||||||||
|
| 2021 |
| 2020 |
| 2019 | ||||||||||||
| | (dollars in thousands) | ||||||||||||||||
Cash Flows from Operating Activities: |
|
|
|
|
|
|
|
|
|
| |
|
| |
|
| |
|
Net income |
| $ | 57,408 |
| $ | 43,120 |
| $ | 35,707 | | $ | 98,905 | | $ | 60,582 | | $ | 57,408 |
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
| |||||||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | |
|
| |
|
| |
|
| |||||||||
Earnings of bank subsidiaries |
|
| (69,966) |
|
| (55,209) |
|
| (45,104) | | | (117,408) | |
| (79,624) | |
| (69,966) |
Earnings (losses) of nonbank subsidiaries |
|
| (6,797) |
|
| 436 |
|
| (75) | |||||||||
Distributions from bank subsidiaries |
|
| — |
|
| 34,500 |
|
| 21,000 | |||||||||
(Earnings) losses of nonbank subsidiaries | |
| (456) | |
| 261 | |
| (6,797) | |||||||||
Distributions from nonbank subsidiaries |
|
| 45,058 |
|
| 63 |
|
| 39 | |
| 30 | |
| 40 | |
| 45,058 |
Deferred income taxes | | | (1,093) | | | 6,909 | | | 2,498 | |||||||||
Accretion of acquisition fair value adjustments |
|
| 305 |
|
| 183 |
|
| 149 | |
| 321 | |
| 378 | |
| 305 |
Depreciation |
|
| 327 |
|
| 249 |
|
| 225 | |
| 486 | |
| 454 | |
| 327 |
Deferred compensation expense accrued | | | 573 | | | — | | | — | |||||||||
Stock-based compensation expense |
|
| 2,469 |
|
| 1,443 |
|
| 1,187 | |
| 2,352 | |
| 2,150 | |
| 2,469 |
Securities gains, net |
|
| — |
|
| — |
|
| (6) | |||||||||
Loss on sale of subsidiary | | | — | | | 158 | | | — | |||||||||
Gain on sale of fixed assets | | | 155 | | | — | | | — | |||||||||
Goodwill impairment |
|
| 3,000 |
|
| — |
|
| — | | | — | | | 500 | | | 3,000 |
Decrease (increase) in other assets |
|
| 26 |
|
| 2,232 |
|
| (969) | |
| 5 | |
| (7,380) | |
| (2,472) |
(Decrease) increase in other liabilities |
|
| 7,814 |
|
| (7,226) |
|
| (6,919) | |||||||||
Net cash provided by operating activities |
|
| 39,644 |
|
| 19,791 |
|
| 5,234 | |||||||||
|
|
|
|
|
|
|
|
|
| |||||||||
Increase (decrease) in other liabilities | |
| (14,702) | |
| (5,923) | |
| 7,814 | |||||||||
Net cash provided by (used in) operating activities | |
| (30,832) | |
| (21,495) | |
| 39,644 | |||||||||
| |
|
| |
| | |
|
| |||||||||
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
| |
|
| |
|
| |
|
|
Net increase (decrease) in interest-bearing deposits at financial institutions |
|
| (4,600) |
|
| (1,000) |
|
| — | |
| 1,450 | |
| (1,599) | |
| (4,600) |
Activity in securities portfolio: |
|
|
|
|
|
|
|
|
| |||||||||
Calls, maturities and redemptions |
|
| — |
|
| — |
|
| 6 | |||||||||
Sales |
|
| — |
|
| — |
|
| 32 | |||||||||
Capital infusion, bank subsidiaries |
|
| (8,600) |
|
| (3,500) |
|
| — | |
| — | |
| — | |
| (8,600) |
Capital infusion, non-bank subsidiaries |
|
| (100) |
|
| — |
|
| — | | | (375) | | | — | | | (100) |
Net cash paid for acquisitions |
|
| — |
|
| (5,183) |
|
| (3,369) | |||||||||
Net cash received in dissolution of subsidiary | | | — | | | 8,450 | | | — | |||||||||
Net cash received in sale of subsidiary | | | — | | | 195 | | | — | |||||||||
Purchase of premises and equipment |
|
| (2,861) |
|
| (2,257) |
|
| (69) | |
| (31) | |
| (272) | |
| (2,861) |
Net cash (used in) investing activities |
|
| (16,161) |
|
| (11,940) |
|
| (3,400) | |||||||||
|
|
|
|
|
|
|
|
|
| |||||||||
Net cash provided by (used in) investing activities | |
| 1,044 | |
| 6,774 | |
| (16,161) | |||||||||
| |
|
| |
|
| |
|
| |||||||||
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
| |
|
| |
|
| |
|
|
Activity in other borrowings: |
|
|
|
|
|
|
|
|
| |
|
| |
|
| |
|
|
Proceeds from other borrowings |
|
| — |
|
| 9,000 |
|
| 7,000 | |||||||||
Paydown on revolving line of credit |
|
| (9,000) |
|
| — |
|
| — | |
| — | | | — | | | (9,000) |
Prepayments |
|
| (21,313) |
|
| — |
|
| — | |
| — | | | — | | | (21,313) |
Calls, maturities and scheduled payments |
|
| (1,799) |
|
| (12,550) |
|
| (11,000) | | | — | |
| — | |
| (1,799) |
Proceeds from subordinated notes |
|
| 63,393 |
|
| — |
|
| — | | | — | | | 50,000 | | | 63,393 |
Payment of cash dividends on common and preferred stock |
|
| (3,767) |
|
| (3,300) |
|
| (2,494) | |||||||||
Payment of cash dividends | |
| (3,793) | |
| (3,779) | |
| (3,767) | |||||||||
Proceeds from issuance of common stock, net |
|
| 1,926 |
|
| 1,279 |
|
| 2,056 | |
| 670 | |
| 1,360 | |
| 1,926 |
Repurchase and cancellation of shares | |
| (14,168) | |
| (3,779) | |
| — | |||||||||
Net cash provided by (used in) financing activities |
|
| 29,440 |
|
| (5,571) |
|
| (4,438) | |
| (17,291) | |
| 43,802 | |
| 29,440 |
|
|
|
|
|
|
|
|
|
| |||||||||
| |
|
| |
|
| |
|
| |||||||||
Net increase (decrease) in cash and due from banks |
|
| 52,923 |
|
| 2,280 |
|
| (2,604) | |
| (47,079) | |
| 29,081 | |
| 52,923 |
|
|
|
|
|
|
|
|
|
| |||||||||
| |
|
| |
|
| |
|
| |||||||||
Cash and due from banks: |
|
|
|
|
|
|
|
|
| |
|
| |
|
| |
|
|
Beginning |
|
| 6,606 |
|
| 4,326 |
|
| 6,930 | |
| 88,610 | |
| 59,529 | |
| 6,606 |
Ending |
| $ | 59,529 |
| $ | 6,606 |
| $ | 4,326 | | $ | 41,531 | | $ | 88,610 | | $ | 59,529 |
127129
Accounting guidance on fair value measurements uses a hierarchy intended to maximize the use of observable inputs and minimize the use of unobservable inputs. This hierarchy includes three levels and is based upon the valuation techniques used to measure assets and liabilities. The three levels are as follows:
| Level 1 – Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in markets; |
| Level 2 – Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument; and |
| Level 3 – Inputs to the valuation methodology are unobservable and significant to the fair value measurement |
Assets measured at fair value on a recurring basis comprised the following at December 31, 20192021 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Fair Value Measurements at Reporting Date Using | |||||||
|
|
|
|
| Quoted Prices |
| Significant |
|
|
| ||
|
|
|
|
| in Active |
| Other |
| Significant | |||
|
|
|
|
| Markets for |
| Observable |
| Unobservable | |||
|
|
|
|
| Identical Assets |
| Inputs |
| Inputs | |||
|
| Fair Value |
| (Level 1) |
| (Level 2) |
| (Level 3) | ||||
|
| (dollars in thousands) | ||||||||||
December 31, 2019: |
|
|
|
|
|
|
|
|
|
|
|
|
Securities AFS: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. govt. sponsored agency securities |
| $ | 20,078 |
| $ | — |
| $ | 20,078 |
| $ | — |
Residential mortgage-backed and related securities |
|
| 120,587 |
|
| — |
|
| 120,587 |
|
| — |
Municipal securities |
|
| 48,257 |
|
| — |
|
| 48,257 |
|
| — |
Other securities |
|
| 21,773 |
|
| — |
|
| 21,773 |
|
| — |
Interest rate caps |
|
| 3,148 |
|
| — |
|
| 3,148 |
|
| — |
Interest rate swaps - assets |
|
| 84,679 |
|
| — |
|
| 84,679 |
|
| — |
Total assets measured at fair value |
| $ | 298,522 |
| $ | — |
| $ | 298,522 |
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps - liabilities |
| $ | 88,437 |
| $ | — |
| $ | 88,437 |
| $ | — |
Total liabilities measured at fair value |
| $ | 88,437 |
| $ | — |
| $ | 88,437 |
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018: |
|
|
|
|
|
|
|
|
|
|
|
|
Securities AFS: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. govt. sponsored agency securities |
| $ | 36,411 |
| $ | — |
| $ | 36,411 |
| $ | — |
Residential mortgage-backed and related securities |
|
| 159,249 |
|
| — |
|
| 159,249 |
|
| — |
Municipal securities |
|
| 58,546 |
|
| — |
|
| 58,546 |
|
| — |
Other securities |
|
| 6,850 |
|
| — |
|
| 6,850 |
|
| — |
Interest rate caps |
|
| 459 |
|
| — |
|
| 459 |
|
| — |
Interest rate swaps - assets |
|
| 22,196 |
|
| — |
|
| 22,196 |
|
| — |
Total assets measured at fair value |
| $ | 283,711 |
| $ | — |
| $ | 283,711 |
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps - liabilities |
| $ | 23,347 |
| $ | — |
| $ | 23,347 |
| $ | — |
Total liabilities measured at fair value |
| $ | 23,347 |
| $ | — |
| $ | 23,347 |
| $ | — |
2020:
There were no transfers of assets or liabilities between Levels 1, 2, and 3 of the fair value hierarchy during the years ended December 31, 2019 or 2018.
| | | | | | | | | | | | |
| | | | | Fair Value Measurements at Reporting Date Using | |||||||
| | | | | Quoted Prices | | Significant | | | | ||
| | | | | in Active | | Other | | Significant | |||
| | | | | Markets for | | Observable | | Unobservable | |||
| | | | | Identical Assets | | Inputs | | Inputs | |||
|
| Fair Value |
| (Level 1) |
| (Level 2) |
| (Level 3) | ||||
| | (dollars in thousands) | ||||||||||
December 31, 2021: |
| |
|
| |
|
| |
|
| |
|
Securities AFS: |
| |
|
| |
|
| |
|
| |
|
U.S. treasuries and govt. sponsored agency securities | | $ | 23,328 | | $ | — | | $ | 23,328 | | $ | — |
Residential mortgage-backed and related securities | |
| 94,323 | |
| — | |
| 94,323 | |
| — |
Municipal securities | |
| 168,266 | |
| — | |
| 168,266 | |
| — |
Asset-backed securities | | | 27,124 | | | — | | | 27,124 | | | — |
Other securities | |
| 24,789 | |
| — | |
| 24,789 | |
| — |
Derivatives | |
| 222,220 | |
| — | |
| 222,220 | |
| — |
Total assets measured at fair value | | $ | 560,050 | | $ | — | | $ | 560,050 | | $ | — |
| |
|
| |
|
| |
|
| |
|
|
Derivatives | | $ | 225,135 | | $ | — | | $ | 225,135 | | $ | — |
Total liabilities measured at fair value | | $ | 225,135 | | $ | — | | $ | 225,135 | | $ | — |
| |
|
| |
|
| |
|
| |
|
|
| |
|
| |
|
| |
|
| |
|
|
December 31, 2020: | |
|
| |
|
| |
|
| |
|
|
Securities AFS: | |
|
| |
|
| |
|
| |
|
|
U.S. govt. sponsored agency securities | | $ | 15,336 | | $ | — | | $ | 15,336 | | $ | — |
Residential mortgage-backed and related securities | |
| 132,842 | |
| — | |
| 132,842 | |
| — |
Municipal securities | |
| 152,408 | |
| — | |
| 152,408 | |
| — |
Asset-backed securities | | | 40,683 | | | — | | | 40,683 | | | — |
Other securities | |
| 20,697 | |
| — | |
| 20,697 | |
| — |
Derivatives | |
| 222,757 | |
| — | |
| 222,757 | |
| — |
Total assets measured at fair value | | $ | 584,723 | | $ | — | | $ | 584,723 | | $ | — |
| |
|
| |
|
| |
|
| |
|
|
Derivatives | | $ | 229,270 | | $ | — | | $ | 229,270 | | $ | — |
Total liabilities measured at fair value | | $ | 229,270 | | $ | — | | $ | 229,270 | | $ | — |
The remainder of the securities available for saleAFS portfolio consists of securities whereby the Company obtains fair values from an independent pricing service. The fair values are determined by pricing models that consider observable market data, such as interest rate volatilities, LIBOR yield curve, credit spreads and prices from market makers and live trading systems (Level 2 inputs).
128130
Note 22.21. Fair Value (continued)
Interest rate caps are used for the purpose of hedging interest rate risk.risk on deposits. See Note 7 to the Consolidated Financial Statements for the details of these instruments. The fair values are determined by pricing models that consider observable market data for derivative instruments with similar structures (Level 2 inputs).
Interest rate swaps are used for the purpose of hedging interest rate risk on loans and junior subordinated debt. See Note 7 to the Consolidated Financial Statements for the details of these instruments. The fair values are determined by comparing the contract rate on the swap with the observable then-current market rate for the remaining term of the transaction (Level 2 inputs).
Interest rate swaps are also executed for select commercial customers. See Note 7 to the Consolidated Financial Statements for the detail of these instruments. The fair values are determined by comparing the contractual rate on the swap with the observable then-current market rate for the remaining term of the transaction (Level 2 inputs).
Certain financial assets are measured at fair value on a non-recurring basis; that is, the assets are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment).
Assets measured at fair value on a non-recurring basis comprised the following at December 31, 20192021 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Fair Value Measurements at Reporting Date Using | |||||||
|
|
|
|
| Quoted Prices |
| Significant |
|
|
| ||
|
|
|
|
| in Active |
| Other |
| Significant | |||
|
|
|
|
| Markets for |
| Observable |
| Unobservable | |||
|
|
|
|
| Identical Assets |
| Inputs |
| Inputs | |||
|
| Fair Value |
| Level 1 |
| Level 2 |
| Level 3 | ||||
|
| (dollars in thousands) | ||||||||||
December 31, 2019: |
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans/leases |
| $ | 3,394 |
| $ | — |
| $ | — |
| $ | 3,394 |
OREO |
|
| 4,459 |
|
| — |
|
| — |
|
| 4,459 |
|
| $ | 7,853 |
| $ | — |
| $ | — |
| $ | 7,853 |
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018: |
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans/leases |
| $ | 9,657 |
| $ | — |
| $ | — |
| $ | 9,657 |
OREO |
|
| 10,128 |
|
| — |
|
| — |
|
| 10,128 |
|
| $ | 19,785 |
| $ | — |
| $ | — |
| $ | 19,785 |
2020:
Impaired loans/
| | | | | | | | | | | | |
| | | |
| Fair Value Measurements at Reporting Date Using | |||||||
| | | | | Quoted Prices | | Significant | | | | ||
| | | | | in Active | | Other | | Significant | |||
| | | | | Markets for | | Observable | | Unobservable | |||
| | | | | Identical Assets | | Inputs | | Inputs | |||
|
| Fair Value |
| Level 1 |
| Level 2 |
| Level 3 | ||||
| | (dollars in thousands) | ||||||||||
| | | | | | | | | | | | |
December 31, 2021: |
| |
|
| |
|
| |
|
| |
|
Loans/leases evaluated individually | | $ | 6,618 | | $ | — | | $ | — | | $ | 6,618 |
| | | | | | | | | | | | |
December 31, 2020: | |
|
| |
|
| |
|
| |
|
|
Loans/leases evaluated individually | | $ | 9,926 | | $ | — | | $ | — | | $ | 9,926 |
OREO | |
| 22 | |
| — | |
| — | |
| 22 |
| | $ | 9,948 | | $ | — | | $ | — | | $ | 9,948 |
| | | | | | | | | | | | |
Loans/leases evaluated individually are evaluated and valued at the time the loan/lease is identified as impaired, at the lower of cost or fair value and are classified as a Level 3 in the fair value hierarchy. Fair value is measured based on the value of the collateral securing these loans/leases. Collateral may be real estate and/or business assets including equipment, inventory and/or accounts receivable and is determined based on appraisals by qualified licensed appraisers hired by the Company. Appraised and reported values may be discounted based on management’s historical knowledge, changes in market conditions from the time of valuation, and/or management’s expertise and knowledge of the client and client’s business.
Other real estate ownedOREO in the table above consists of property acquired through foreclosures and settlements of loans. Property acquired is carried at the estimated fair value of the property, less disposal costs, and is classified as a Level 3 in the fair value hierarchy. The estimated fair value of the property is determined based on appraisals by qualified licensed appraisers hired by the Company. Appraised and reported values are discounted based on management’s historical knowledge, changes in market conditions from the time of valuation, and/or management’s expertise and knowledge of the property.
129131
Note 22.21. Fair Value (continued)
The following table presents additional quantitative information about assets measured at fair value on a non-recurring basis for which the Company has utilized Level 3 inputs to determine fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Quantitative Information about Level Fair Value Measurements |
| ||||||||||||||
|
| Fair Value |
| Fair Value |
|
|
|
|
|
|
|
|
|
|
| ||
|
| December 31, |
| December 31, |
|
|
|
|
|
|
|
|
|
|
| ||
|
| 2019 |
| 2018 |
| Valuation Technique |
| Unobservable Input |
| Range |
| ||||||
|
| (dollars in thousands) |
| ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans/leases |
| $ | 3,394 |
| $ | 9,657 |
| Appraisal of collateral |
| Appraisal adjustments |
| (10.00) | % | to |
| (30.00) | % |
OREO |
|
| 4,459 |
|
| 10,128 |
| Appraisal of collateral |
| Appraisal adjustments |
| 0.00 | % | to |
| (35.00) | % |
| | | | | | | | | | | | | | | | | |
| | Quantitative Information about Level Fair Value Measurements |
| ||||||||||||||
| | Fair Value | | Fair Value | | | | | | | | | | |
| ||
| | December 31, | | December 31, | | | | | | | | | | |
| ||
|
| 2021 |
| 2020 |
| Valuation Technique |
| Unobservable Input |
| Range | | ||||||
| | (dollars in thousands) | | ||||||||||||||
| | | | | | | | | | | | | | | | | |
Loans/leases evaluated individually | | $ | 6,618 | | $ | 9,926 |
| Appraisal of collateral |
| Appraisal adjustments |
| -10.00 | % | to |
| -30.00 | % |
OREO | |
| — | |
| 22 |
| Appraisal of collateral |
| Appraisal adjustments |
| 0.00 | % | to |
| -35.00 | % |
For impaired loans/leases evaluated individually and other real estate owned,OREO, the Company records carrying value at fair value less disposal or selling costs. The amounts reported in the tables above are fair values before the adjustment for disposal or selling costs.
There have been no changes in valuation techniques used for any assets measured at fair value during the years ended December 31, 20192021 or 2018.2020.
The following table presents the carrying values and estimated fair values of financial assets and liabilities carried on the Company’s consolidated balance sheet, including those financial assets and liabilities that are not measured and reported at fair value on a recurring basis or non-recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Fair Value |
| As of December 31, 2019 |
| As of December 31, 2018 | ||||||||
|
| Hierarchy |
| Carrying |
| Estimated |
| Carrying |
| Estimated | ||||
|
| Level |
| Value |
| Fair Value |
| Value |
| Fair Value | ||||
|
|
|
| (dollars in thousands) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
| Level 1 |
| $ | 76,254 |
| $ | 76,254 |
| $ | 85,523 |
| $ | 85,523 |
Federal funds sold |
| Level 2 |
|
| 9,800 |
|
| 9,800 |
|
| 26,398 |
|
| 26,398 |
Interest-bearing deposits at financial institutions |
| Level 2 |
|
| 147,891 |
|
| 147,891 |
|
| 133,198 |
|
| 133,198 |
Investment securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HTM |
| Level 2 |
|
| 400,646 |
|
| 426,545 |
|
| 401,913 |
|
| 400,770 |
AFS |
| * |
|
| 210,695 |
|
| 210,695 |
|
| 261,056 |
|
| 261,056 |
Loans/leases receivable, net |
| Level 3 |
|
| 3,143 |
|
| 3,394 |
|
| 8,942 |
|
| 9,657 |
Loans/leases receivable, net |
| Level 2 |
|
| 3,651,061 |
|
| 3,606,520 |
|
| 3,683,965 |
|
| 3,639,329 |
Interest rate caps |
| Level 2 |
|
| 3,148 |
|
| 3,148 |
|
| 459 |
|
| 459 |
Interest rate swaps - assets |
| Level 2 |
|
| 84,679 |
|
| 84,679 |
|
| 22,196 |
|
| 22,196 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonmaturity deposits |
| Level 2 |
|
| 3,184,726 |
|
| 3,184,726 |
|
| 3,002,327 |
|
| 3,002,327 |
Time deposits |
| Level 2 |
|
| 726,325 |
|
| 742,444 |
|
| 974,704 |
|
| 968,906 |
Short-term borrowings |
| Level 2 |
|
| 13,423 |
|
| 13,423 |
|
| 28,774 |
|
| 28,774 |
FHLB advances |
| Level 2 |
|
| 159,300 |
|
| 159,193 |
|
| 266,492 |
|
| 265,926 |
Other borrowings |
| Level 2 |
|
| — |
|
| — |
|
| 67,250 |
|
| 67,770 |
Subordinated notes |
| Level 2 |
|
| 68,394 |
|
| 68,563 |
|
| 4,782 |
|
| 4,933 |
Junior subordinated debentures |
| Level 2 |
|
| 37,838 |
|
| 30,477 |
|
| 37,670 |
|
| 29,992 |
Interest rate swaps - liabilities |
| Level 2 |
|
| 88,437 |
|
| 88,437 |
|
| 23,347 |
|
| 23,347 |
| | | | | | | | | | | | | | |
| | Fair Value | | As of December 31, 2021 | | As of December 31, 2020 | ||||||||
| | Hierarchy | | Carrying | | Estimated | | Carrying | | Estimated | ||||
|
| Level |
| Value |
| Fair Value |
| Value |
| Fair Value | ||||
| | | | (dollars in thousands) | ||||||||||
| | | | | | | | | | | | | | |
Cash and due from banks |
| Level 1 | | $ | 37,490 | | $ | 37,490 | | $ | 61,329 | | $ | 61,329 |
Federal funds sold |
| Level 2 | |
| 12,370 | |
| 12,370 | |
| 9,080 | |
| 9,080 |
Interest-bearing deposits at financial institutions |
| Level 2 | |
| 75,292 | |
| 75,292 | |
| 86,596 | |
| 86,596 |
Investment securities: |
|
| |
| | |
| | |
| | |
| |
HTM |
| Level 2 | |
| 472,385 | |
| 522,297 | |
| 476,165 | |
| 521,277 |
AFS |
| Level 2 | |
| 337,830 | |
| 337,830 | |
| 361,966 | |
| 361,966 |
Loans/leases receivable, net |
| Level 3 | |
| 6,128 | |
| 6,618 | |
| 9,191 | |
| 9,926 |
Loans/leases receivable, net |
| Level 2 | |
| 4,595,283 | |
| 4,478,899 | |
| 4,157,562 | |
| 4,112,735 |
Derivatives |
| Level 2 | |
| 222,220 | |
| 222,220 | |
| 222,757 | |
| 222,757 |
| | | | | | | | | | | | | | |
Deposits: |
|
| |
| | |
| | |
| | |
| |
Nonmaturity deposits |
| Level 2 | |
| 4,501,424 | |
| 4,501,424 | |
| 4,138,478 | |
| 4,138,478 |
Time deposits |
| Level 2 | |
| 421,348 | |
| 419,453 | |
| 460,659 | |
| 465,681 |
Short-term borrowings |
| Level 2 | |
| 3,800 | |
| 3,800 | |
| 5,430 | |
| 5,430 |
FHLB advances |
| Level 2 | |
| 15,000 | |
| 15,000 | |
| 15,000 | |
| 14,998 |
Subordinated notes | | Level 2 | | | 113,850 | | | 116,203 | | | 118,691 | | | 112,406 |
Junior subordinated debentures |
| Level 2 | |
| 38,155 | |
| 31,072 | |
| 37,993 | |
| 30,618 |
Derivatives |
| Level 2 | |
| 225,135 | |
| 225,135 | |
| 229,270 | |
| 229,270 |
130132
Note 23.22. Business Segment Information
Selected financial and descriptive information is required to be disclosed for reportable operating segments, applying a “management perspective” as the basis for identifying reportable segments. The management perspective is determined by the view that management takes of the segments within the Company when making operating decisions, allocating resources, and measuring performance. The segments of the Company have been defined by the structure of the Company’s internal organization, focusing on the financial information that the Company’s operating decision-makers routinely use to make decisions about operating matters.
The Company’s primary segment, Commercial Banking business is geographically divided by markets into the secondaryoperating segments which are the four4 subsidiary banks wholly-owned by the Company: QCBT, CRBT, CSB and SFC Bank.SFCB. Each of these secondaryoperating segments offer similar products and services, but are managed separately due to different pricing, product demand, and consumer markets. Each offers commercial, consumer, and mortgage loans and deposit services.
The Company’s Wealth Management segment represents trust and asset management and investment management and advisory services offered at the Company’s three subsidiary banks in aggregate. This segment generates income primarily from fees charged based on assets under administration for corporate and personal trusts, custodial services, and investments managed. No assets of the subsidiary banks have been allocated to the Wealth Management segment.
The Company’sCompany's All Other segment includes the corporate operations of the parent and operations of all other consolidated subsidiaries and/or defined operating segments that fall below the segment reporting thresholds. The financial results for RB&T prior to the sale of the majority of its assets and liabilities at November 30, 2019 are also included in the Company’s All Other segment as are the assets held for sale at December 31, 2019.
Selected financial information on the Company’s business segments with all intercompany accounts and transactions eliminated, is presented as follows as of and for the years ended December 31, 2019, 2018,2021, 2020, and 2017:2019:
| | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||
| | Commercial Banking | | | | Intercompany | | Consolidated | ||||||||||||||||||||||||||||||||||||
|
| QCBT |
| CRBT |
| CSB |
| SFCB |
| All other |
| Eliminations |
| Total | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
| Commercial Banking |
| Wealth |
|
|
| Intercompany |
| Consolidated | |||||||||||||||||||||||||||||||||||
| QCBT |
| CRBT* |
| CSB |
| SFC Bank |
| Management |
| All other* |
| Eliminations |
| Total | |||||||||||||||||||||||||||||
| (dollars in thousands) | |||||||||||||||||||||||||||||||||||||||||||
Twelve Months Ended December 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
| | (dollars in thousands) | ||||||||||||||||||||||||||||||||||||||||||
Year Ended December 31, 2021 | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| | |||||||||||||||||||||||
Total revenue | $ | 79,418 |
| $ | 93,147 |
| $ | 41,589 |
| $ | 31,569 |
| $ | 16,553 |
| $ | 32,791 |
| $ | (223) |
| $ | 294,844 | | $ | 88,689 | | $ | 129,080 | | $ | 43,945 | | $ | 38,342 | | $ | 119,451 | | $ | (118,930) | | $ | 300,577 |
Net interest income |
| 52,097 |
|
| 44,310 |
|
| 31,370 |
|
| 21,422 |
|
| — |
|
| 6,360 |
|
| — |
|
| 155,559 | |
| 66,232 | |
| 57,354 | |
| 35,512 | |
| 26,351 | |
| (8,479) | |
| 1,263 | |
| 178,233 |
Provision |
| 3,433 |
|
| 1,080 |
|
| 679 |
|
| 1,315 |
|
| — |
|
| 559 |
|
| — |
|
| 7,066 | |||||||||||||||||||||
Provision for credit losses | |
| 1,519 | |
| (697) | |
| 2,219 | |
| 445 | |
| — | |
| — | |
| 3,486 | |||||||||||||||||||||||
Net income (loss) | |
| 34,616 | |
| 55,411 | |
| 12,802 | |
| 14,579 | |
| 99,331 | |
| (117,834) | |
| 98,905 | |||||||||||||||||||||||
Goodwill | |
| 3,223 | |
| 14,980 | |
| 9,888 | |
| 45,975 | |
| — | |
| — | |
| 74,066 | |||||||||||||||||||||||
Intangibles | |
| — | |
| 1,702 | |
| 2,653 | |
| 4,994 | |
| — | |
| — | |
| 9,349 | |||||||||||||||||||||||
Total assets | |
| 2,142,344 | |
| 2,030,279 | |
| 1,168,606 | |
| 882,885 | |
| 845,120 | |
| (973,102) | |
| 6,096,132 | |||||||||||||||||||||||
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| | |
| | |||||||||||||||||||||||
Year Ended December 31, 2020* | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| | |||||||||||||||||||||||
Total revenue | | $ | 92,336 | | $ | 125,416 | | $ | 50,448 | | $ | 42,036 | | $ | 2,197 | | $ | (262) | | $ | 312,171 | |||||||||||||||||||||||
Net interest income | |
| 63,366 | |
| 52,857 | |
| 31,570 | |
| 24,759 | |
| (6,633) | |
| 1,031 | |
| 166,950 | |||||||||||||||||||||||
Provision for loan/lease losses | |
| 21,612 | |
| 19,438 | |
| 9,243 | |
| 5,411 | |
| — | |
| — | |
| 55,704 | |||||||||||||||||||||||
Net income (loss) from continuing operations |
| 19,006 |
|
| 26,940 |
|
| 10,824 |
|
| 8,243 |
|
| 3,567 |
|
| (11,172) |
|
| — |
|
| 57,408 | |
| 21,557 | |
| 33,890 | |
| 11,379 | |
| 12,797 | |
| (19,041) | |
| — | |
| 60,582 |
Goodwill |
| 3,223 |
|
| 14,980 |
|
| 9,888 |
|
| 45,975 |
|
| — |
|
| 682 |
|
| — |
|
| 74,748 | |
| 3,223 | |
| 14,980 | |
| 9,888 | |
| 45,975 | |
| — | |
| — | |
| 74,066 |
Intangibles |
| — |
|
| 2,684 |
|
| 3,980 |
|
| 6,802 |
|
| — |
|
| 1,504 |
|
| — |
|
| 14,970 | |
| — | |
| 2,189 | |
| 3,305 | |
| 5,887 | |
| — | |
| — | |
| 11,381 |
Total assets |
| 1,682,477 |
|
| 1,572,324 |
|
| 853,834 |
|
| 748,753 |
|
| — |
|
| 116,968 |
|
| (65,306) |
|
| 4,909,050 | |
| 2,153,773 | |
| 1,957,695 | |
| 1,004,183 | |
| 779,956 | |
| 134,407 | |
| (324,971) | |
| 5,705,043 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Twelve Months Ended December 31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||
Year Ended December 31, 2019* | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| | |||||||||||||||||||||||
Total revenue | $ | 69,691 |
| $ | 69,864 |
| $ | 36,069 |
| $ | 15,152 |
| $ | 13,433 |
| $ | 21,082 |
| $ | (871) |
| $ | 224,420 | | $ | 87,433 | | $ | 96,631 | | $ | 42,059 | | $ | 31,569 | | $ | 38,758 | | $ | (1,606) | | $ | 294,844 |
Net interest income |
| 48,682 |
|
| 43,038 |
|
| 28,763 |
|
| 11,835 |
|
| — |
|
| 10,077 |
|
| — |
|
| 142,395 | |
| 52,097 | |
| 44,310 | |
| 31,370 | |
| 21,422 | |
| 6,360 | |
| — | |
| 155,559 |
Provision |
| 3,693 |
|
| 1,833 |
|
| 1,523 |
|
| 990 |
|
| — |
|
| 4,619 |
|
| — |
|
| 12,658 | |||||||||||||||||||||
Provision for loan/lease losses | |
| 3,433 | |
| 1,080 | |
| 679 | |
| 1,315 | |
| 559 | |
| — | |
| 7,066 | |||||||||||||||||||||||
Net income (loss) from continuing operations |
| 18,347 |
|
| 20,044 |
|
| 8,389 |
|
| 4,816 |
|
| 2,952 |
|
| (11,428) |
|
| — |
|
| 43,120 | |
| 21,607 | |
| 27,716 | |
| 10,787 | |
| 8,244 | |
| (10,946) | |
| — | |
| 57,408 |
Goodwill |
| 3,223 |
|
| 14,980 |
|
| 9,888 |
|
| 45,975 |
|
| — |
|
| 3,766 |
|
| — |
|
| 77,832 | |
| 3,223 | |
| 14,980 | |
| 9,888 | |
| 45,975 | |
| 682 | |
| — | |
| 74,748 |
Intangibles |
| — |
|
| 3,186 |
|
| 4,675 |
|
| 7,735 |
|
| — |
|
| 1,854 |
|
| — |
|
| 17,450 | |
| — | |
| 2,684 | |
| 3,980 | |
| 6,802 | |
| 1,504 | |
| — | |
| 14,970 |
Total assets |
| 1,623,369 |
|
| 1,379,222 |
|
| 785,364 |
|
| 632,849 |
|
| — |
|
| 555,293 |
|
| (26,387) |
|
| 4,949,710 | |
| 1,682,477 | |
| 1,572,324 | |
| 853,833 | |
| 748,753 | |
| 116,968 | |
| (65,305) | |
| 4,909,050 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Twelve Months Ended December 31, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Total revenue | $ | 58,056 |
| $ | 45,367 |
| $ | 31,944 |
| $ | — |
| $ | 11,058 |
| $ | 20,074 |
| $ | (500) |
| $ | 165,999 | |||||||||||||||||||||
Net interest income |
| 46,407 |
|
| 31,042 |
|
| 27,021 |
|
| — |
|
| — |
|
| 11,595 |
|
| — |
|
| 116,065 | |||||||||||||||||||||
Provision for loan/lease losses |
| 3,909 |
|
| 1,050 |
|
| 2,783 |
|
| — |
|
| — |
|
| 728 |
|
| — |
|
| 8,470 | |||||||||||||||||||||
Net income (loss) |
| 22,095 |
|
| 10,712 |
|
| 7,048 |
|
| — |
|
| 2,241 |
|
| (6,389) |
|
| — |
|
| 35,707 | |||||||||||||||||||||
Goodwill |
| 3,223 |
|
| 15,223 |
|
| 9,888 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 28,334 | |||||||||||||||||||||
Intangibles |
| — |
|
| 3,694 |
|
| 5,385 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 9,079 | |||||||||||||||||||||
Total assets |
| 1,541,778 |
|
| 1,307,377 |
|
| 670,516 |
|
| — |
|
| — |
|
| 489,918 |
|
| (26,924) |
|
| 3,982,665 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*Includes financial results for Guaranty Bank for the period from October 1, 2017 through December 2, 2017, when Guaranty Bank was merged into CRBT and
financial results for RB&T for the years 2017, 2018 and the period from January 1, 2019 through November 30, 2019, prior to the sale of the majority of its assets
and liabilities. Includes financial results for the Bates Companies for the year 2019 and the period from January 1, 2020 through August 12, 2020, prior to the sale of the companies.
Note 23. Pending Acquisition
On November 9, 2021, the Company announced the signing of a definitive agreement whereby the Company will acquire GFED and merge Guaranty Bank, the banking subsidiary of GFED into SFCB, the Company’s Springfield-based charter. The combined bank will operate under the Guaranty Bank name in all Springfield and southwest Missouri markets. As of December 31, 2021, GFED had $1.2 billion in assets, $815 million in loans and $1.0 billion in deposits.
Under the terms of the merger agreement, stockholders of GFED will have the right to receive for each share of GFED common stock owned, at the election of each stockholder, and subject to proration and adjustment, (1) $30.50 in cash, (2) 0.58775 shares of the Company’s common stock, or (3) mixed consideration of $6.10 in cash and 0.4702 shares of the Company’s common stock, with total consideration to consist of approximately 80% stock and 20% cash. Based upon the $59.99 closing price of the Company’s common stock as of November 5, 2021, the transaction is valued at approximately $151.6 million. The transaction is subject to regulatory approvals, approval by GFED’s stockholders and certain customary closing conditions. The transaction is expected to close late in the first quarter or early in the second quarter of 2022.
131133
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of disclosure controls and procedures. An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a‑15(e)13a-15(e) and 15d – 15(e) promulgated under the Exchange Act) as of December 31, 2019.2021. Based on that evaluation, the Company’s management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports filed and submitted under the Exchange Act was: (1) accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, to allow for timely decisions regarding required disclosures; and (2) recorded, processed, summarized and reported as and when required.
Management’s Report on Internal Control over Financial Reporting. The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a‑15(f)13a-15(f) and 15d‑15(f)15d-15(f) of the Exchange Act). Internal control over financial reporting includes controls and procedures designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that: (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
All internal control systems, no matter how well designed, have inherent limitations, including the possibility of human error and the circumvention of overriding controls. Accordingly, even effective internal control can provide only reasonable assurance with respect to financial statement preparation. Further, because of changes in conditions, the effectiveness of internal control may vary over time.
The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2019.2021. Management’s assessment is based on the criteria established in the Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013 and was designed to provide reasonable assurance that the Company maintained effective internal control over financial reporting as of December 31, 2019.2021. Based on this assessment, management believes that the Company maintained effective internal control over financial reporting as of December 31, 2019.2021.
RSM US LLP, the Company’s independent registered public accounting firm has issued an attestation report on the Company’s internal control over financial reporting as of December 31, 2019,2021, which is included on the following pages of this Form 10‑K.10-K.
132134
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of QCR Holdings, Inc.
Opinion on the Internal Control Over Financial Reporting
We have audited QCR Holdings, Inc. and subsidiaries’its subsidiaries' (the Company) internal control over financial reporting as of December 31, 2019,2021, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019,2021, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of
December 31, 20192021 and 2018, and2020, the related consolidated statements of income, comprehensive income, changes in stockholders’stockholders' equity and cash flows for each of the three years in the period ended December 31, 20192021, and the related notes to the consolidated financial statements of the Company and our report dated March 13, 202011, 2022 expressed an unqualified opinion.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting in the accompanying Management’sManagement's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with
authorizations of management and directors of the companycompany; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial statements.
133135
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ RSM US LLP
Davenport, Iowa
March 11, 2022
Davenport, Iowa
March 13, 2020
134136
Changes in Internal Control over Financial Reporting. There have been no significant changes to the Company’s internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably like to materially affect, the Company’s internal control over financial reporting.
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspection.
Not Applicable.
135137
Part III
Item 10. Directors, Executive Officers and Corporate Governance
The information required by this item is set forth under the captions “Proposal 1: Election of Directors,” “Corporate Governance and the Board of Directors” and “Section 16(a) Beneficial Ownership Reporting Compliance” in the Company’s 20202022 Proxy Statement and is incorporated herein by reference.
Item 11. Executive Compensation
The information required by this item is set forth under the captions “Executive Compensation” and “Director Compensation” in the Company’s 20202022 Proxy Statement and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this item is set forth under the caption “Security Ownership of Certain Beneficial Owners” in the Company’s 20202022 Proxy Statement and is incorporated herein by reference.
The table below sets forth the following information as of December 31, 20192021 for (i) all compensation plans previously approved by the Company’s stockholders and (ii) all compensation plans not previously approved by the Company’s stockholders:
(a) | The number of securities to be issued upon the exercise of outstanding options, warrants, and rights; |
(b) | The weighted-average exercise price of such outstanding options, warrants, and rights; and |
(c) | Other than securities to be issued upon the exercise of such outstanding options, warrants, and rights, the number of securities remaining available for future issuance under the plans. |
| | | | | | | | |
| | EQUITY COMPENSATION PLAN INFORMATION |
| |||||
| | | | | | | Number of securities remaining |
|
| | Number of securities to be | | | | | available for future issuance |
|
| | issued upon exercise of | | Weighted-average exercise price | | under equity compensation |
| |
| | outstanding options, warrants, | | of outstanding options, | | plans (excluding securities |
| |
Plan category |
| and rights |
| warrants, and rights (1) |
| reflected in column (a)) |
| |
|
| (a) |
| | (b) |
| (c) | |
Equity compensation plans approved by stockholders |
| 452,586 | (2) | $ | 24.65 |
| 193,561 | (3) |
|
|
| |
|
|
|
|
|
Equity compensation plans not approved by stockholders |
| — | |
| — |
| — |
|
|
|
| |
|
|
|
|
|
Total |
| 452,586 | (2) | $ | 24.65 |
| 193,561 | (3) |
|
| | | | | | | |
|
|
|
|
|
|
|
|
|
|
| EQUITY COMPENSATION PLAN INFORMATION |
| |||||
|
|
|
|
|
|
| Number of securities remaining |
|
|
| Number of securities to be |
|
|
|
| available for future issuance |
|
|
| issued upon exercise of |
| Weighted-average exercise price |
| under equity compensation |
| |
|
| outstanding options, warrants, |
| of outstanding options, |
| plans (excluding securities |
| |
Plan category |
| and rights |
| warrants, and rights |
| reflected in column (a)) |
| |
|
| (a) |
|
| (b) |
| (c) |
|
Equity compensation plans approved by stockholders |
| 503,884 | (2) | $ | 20.24 |
| 347,625 | (3) |
|
|
|
|
|
|
|
|
|
Equity compensation plans not approved by stockholders |
| — |
|
| — |
| — |
|
|
|
|
|
|
|
|
|
|
Total |
| 503,884 | (2) | $ | 20.24 |
| 347,625 | (3) |
(1) | The weighted average exercise price only relates to outstanding option awards. |
(2) | Includes |
|
Employee Stock Purchase Plan.
138
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this item is set forth under the captions “Corporate Governance and the Board of Directors” and “Transactions with Management and Directors” in the Company’s 20202022 Proxy Statement and is incorporated herein by reference.
136
Item 14. Principal Accountant Fees and Services
The information required by this item is set forth under the caption “Proposal 3: Ratification of Selection of Independent Registered Public Accounting Firm” in the Company’s 20202022 Proxy Statement and is incorporated herein by reference.
137
Part IV
Item 15. Exhibits and Financial Statement Schedules
(a) | 1. Financial Statements |
These documents are listed in the Index to Consolidated Financial Statements under Item 8.
(a) | 2. Financial Statement Schedules |
Financial statement schedules are omitted, as they are not required or are not applicable, or the required information is shown in the Consolidated Financial Statements and the accompanying notes thereto.
(a) | 3. Exhibits |
The following exhibits are either filed as a part of this Annual Report on Form 10‑K10-K or are incorporated herein by reference:
Exhibit | Exhibit Description | |
| | |
| | |
| | |
3.1 | | |
| | |
3.2 | | |
| | |
4.1 | | Certain instruments defining the rights of holders of long-term debt of the Company, none of which authorize a total amount of indebtedness in excess of 10% of the total assets of the Company and its subsidiaries on a consolidated basis, have not been filed as exhibits. The Company hereby agrees to furnish a copy of any of these agreements to the Securities and Exchange Commission upon request. |
| | |
4.2 | | |
| ||
| | |
| | |
| ||
138
139
| | |
| | |
| | |
| | |
| ||
| ||
| ||
| ||
| | |
| | |
| | |
| | |
| | |
| | |
| | |
10.6+ | |
139
| ||
| | |
10.7+ | ||
| ||
| | |
10.8+ |
| |
| | |
| ||
10.9+ | ||
| ||
| ||
| | |
| | |
| | |
| | |
| | |
10.12+ | | |
| | |
| | |
| | |
| | |
140
10.14+ | | |
| | |
10.15+ | |
140
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
10.21+ | | |
| ||
| ||
| ||
| | |
| | |
| | |
10.23+ | | |
| | |
21.1 | | Subsidiaries of QCR Holdings, Inc. |
| | |
23.1 | | |
| | |
31.1 | | |
| | |
31.2 | | |
| | |
32.1 | | |
| | |
32.2 | | |
| | |
141
101 |
| |
| Inline XBRL Interactive data files pursuant to Rule 405 of Regulation S-T: (i) Consolidated Balance Sheets at December 31, | |
| | |
104 | | Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibit 101). |
| | |
+ | | A compensatory arrangement. |
| | |
* | |
|
| |
|
|
Item 16. Form 10‑K10-K Summary
None
142
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| QCR HOLDINGS, INC. | |
| | |
Dated: March | By: | /s/ Larry J. Helling |
| | Larry J. Helling |
| | Chief Executive Officer |
| | |
Dated: March | By: | /s/ Todd A. Gipple |
| | Todd A. Gipple |
| | President, Chief Operating Officer and Chief Financial Officer |
| | |
Dated: March | By: | /s/ Nick W. Anderson |
| | Nick W. Anderson |
| | Chief Accounting Officer |
| | (Principal Accounting Officer) |
Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant in the capacities and on the dates indicated.
143
SIGNATURES
| | | | |
Signature | Title | Date | ||
| |
| |
|
| ||||
/s/ | | Chair of the Board of Directors | | March |
| | | | |
| | | | |
/s/ | | Vice-Chair of the Board of Directors | | March |
| | | | |
| | | | |
/s/ Larry J. Helling | | Chief Executive Officer and Director | | March |
Larry J. Helling | | | | |
| | | | |
/s/ John Paul E. Besong | | Director | | March |
John Paul E. Besong | | | | |
| | | | |
/s/ Todd A. Gipple | | President, Chief Operating Officer | | March |
Todd A. Gipple | | Chief Financial Officer and Director | | |
| | | | |
| ||||
/s/ Mary Kay Bates | | Director | | March |
Mary Kay Bates | | | | |
| | | | |
/s/ Mark C. Kilmer | | Director | | March |
Mark C. Kilmer | | | | |
| | | | |
/s/ | | Director | | March |
| | | | |
| | | | |
/s/ | | Director | | March |
| | | | |
| | | | |
/s/ | | Director | | March |
| | | | |
| | | | |
|
|
| ||
| ||||
| ||||
/s/ Donna J. Sorensen, J.D. | | Director | | March |
Donna J. Sorensen, J.D. | | | | |
| | | | |
|
144
SUPERVISION AND REGULATION
General
FDIC-insured institutions, their holding companies and their affiliates are extensively regulated under federal and state law. As a result, the growth and earnings performance of the Company may be affected not only by management decisions and general economic conditions, but also by the requirements of federal and state statutes and by the regulations and policies of various bank regulatory agencies, including the Iowa Division of Banking, the Missouri Division of Finance, the Federal Reserve, the FDIC and the CFPB. Furthermore, taxation laws administered by the Internal Revenue Service and state taxing authorities, accounting rules developed by the Financial Accounting Standards Board, securities laws administered by the SEC and state securities authorities, and anti-money laundering laws enforced by the Treasury have an impact on the business of the Company. The effect of these statutes, regulations, regulatory policies and accounting rules are significant to the Company’s operations and results.
Federal and state banking laws impose a comprehensive system of supervision, regulation and enforcement on the operations of FDIC-insured institutions, their holding companies and affiliates that is intended primarily for the protection of the FDIC-insured deposits and depositors of banks, rather than stockholders. These laws, and the regulations of the bank regulatory agencies issued under them, affect, among other things, the scope of the Company’s business, the kinds and amounts of investments the Company and the Banks may make, reserve requirements, required capital levels relative to assets, the nature and amount of collateral for loans, the establishment of branches, the ability to merge, consolidate and acquire, dealings with the Company’s and the Banks’ insiders and affiliates and the Company’s payment of dividends.
In reaction to the global financial crisis and particularly following the passage of the Dodd FrankDodd-Frank Act, the Company experienced heightened regulatory requirements and scrutiny. Although the reforms primarily targeted systemically important financial service providers, their influence filtered down in varying degrees to community banks over time and caused the Company’s compliance and risk management processes, and the costs thereof, to increase. However, in May 2018, theThe Economic Growth, Regulatory Relief and Consumer Protection Act of 2018 (“Regulatory Relief Act”) was enacted by Congress in part to provide regulatory relief for community banks and their holding companies. To that end, the law eliminated questions about the applicability of certain Dodd-Frank Act reforms to community bank systems, including relieving the Company of any requirement to engage in mandatory stress tests, maintain a risk committee or comply with the Volcker Rule’s complicated prohibitions on proprietary trading and ownership of private funds. The Company believes theseThese reforms arehave been favorable to itsthe Company’s operations.
The supervisory framework for U.S. banking organizations subjects banks and bank holding companies to regular examination by their respective regulatory agencies, which results in examination reports and ratings that are not publicly available and that can impact the conduct and growth of their business. These examinations consider not only compliance with applicable laws and regulations, but also capital levels, asset quality and risk, management ability and performance, earnings, liquidity, and various other factors. The regulatory agencies generally have broad discretion to impose restrictions and limitations on the operations of a regulated entity where the agencies determine, among other things, that such operations are unsafe or unsound, fail to comply with applicable law or are otherwise inconsistent with laws and regulations.
The following is a summary of the material elements of the supervisory and regulatory framework applicable to the Company and its subsidiary banks, beginning with a discussion of the continuing regulatory emphasis on the Company’s capital levels.Banks. It does not describe all of the statutes, regulations and regulatory policies that apply, nor does it restate all of the requirements of those that are described. The descriptions are qualified in their entirety by reference to the particular statutory and regulatory provision.
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COVID-19 Pandemic
The federal bank regulatory agencies, along with their state counterparts, issued a steady stream of guidance responding to the COVID-19 pandemic and they took a number of unprecedented steps to help banks navigate the pandemic and mitigate its impact. These included, without limitation: requiring banks to focus on business continuity and pandemic planning; adding pandemic scenarios to stress testing; encouraging bank use of capital buffers and reserves in lending programs; permitting certain regulatory reporting extensions; reducing margin requirements on swaps; permitting certain otherwise prohibited investments in investment funds; issuing guidance to encourage banks to work with customers affected by the pandemic and encourage loan workouts; and providing credit under the CRA for certain pandemic-related loans, investments and public service. Because of the need for social distancing measures, the agencies revamped the manner in which they conducted periodic examinations of their regulated institutions, including making greater use of off-site reviews, and they have continued using virtual bank examinations in 2022.
Reference is made to the discussion of Economic Risks in the Risk Factors section and Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Company’s Form 10-K for discussions of the impact of the COVID-19 pandemic. In addition, information as to selected topics is contained in the relevant sections of this Supervision and Regulation discussion provided below.
The Role of Capital
Regulatory capital represents the net assets of a banking organization available to absorb losses. Because of the risks attendant to their business, FDIC-insured institutions generally are generally required to hold more capital than other businesses, which directly affects the Company’s earnings capabilities. WhileAlthough capital has historically been one of the key
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measures of the financial health of both bank holding companies and banks, its role became fundamentally more important in the wake of the global financial crisis, as the banking regulators recognized that the amount and quality of capital held by banks prior to the crisis was insufficient to absorb losses during periods of severe stress. Certain provisions of the Dodd-Frank Act and Basel III, discussed below, establish capital standards for banks and bank holding companies that are meaningfully more stringent than those in place previously.
Minimum Required Capital Levels. Banks have been required to hold minimum levels of capital based on guidelines established by the bank regulatory agencies since 1983. The minimums have been expressed in terms of ratios of “capital” divided by “total assets”. As discussed below, bank capital measures have become more sophisticated over the years and have focused more on the quality of capital and the risk of assets. Bank holding companies have historically had to comply with less stringent capital standards than their bank subsidiaries and have been able to raise capital with hybrid instruments such as trust preferred securities.” The Dodd-Frank Act mandated the Federal Reserve to establish minimum capital levels for holding companies on a consolidated basis as stringent as those required for FDIC-insured institutions. A result of this change is that the proceeds of hybrid instruments, such as trust preferred securities, were excluded from capital over a phase-out period. However, if such securities were issued prior to May 19, 2010 by bank holding companies with less than $15 billion of assets, they may be retained, subject to certain restrictions. Because the Company has assets of less than $15 billion, the Company is able to maintain its trust preferred proceeds as capital but the Company has to comply with new capital mandates in other respects and will not be able to raise capital in the future through the issuance of trust preferred securities.
The Basel International Capital Accords. The risk-based capital guidelines for U.S. banks sincebeginning in 1989 werehave been based upon the 1988international capital accord knownaccords (known as “Basel I”“Basel” rules) adopted by the international Basel Committee on Banking Supervision, a committee of central banks and bank supervisors that acts as the primary global standard-setter for prudential regulation, as implemented by the U.S. bank regulatory agencies on an interagency basis. The accordaccords recognized that bank assets for the purpose of the capital ratio calculations needed to be assigned risk weightsweighted (the theory being that riskier assets should require more capital) and that off-balance sheet exposures needed to be factored in the calculations. Basel I had a very simple formula for assigning risk weights to bank assets from 0% to 100% based on four categories. In 2008,Following the banking agencies collaboratively began to phase-in capital standards based on a second capital accord, referred to as “Basel II,” for large or “core” international banks (generally defined for U.S. purposes as having total assets of $250 billion or more, or consolidated foreign exposures of $10 billion or more) known as “advanced approaches” banks. The primary focus of Basel II was on the calculation of risk weights based on complex models developed by each advanced approaches bank. Because most banks were not subject to Basel II, the U.S. bank regulators worked to improve the risk sensitivity of Basel I standards without imposing the complexities of Basel II. This “standardized approach” increased the number of risk-weight categories and recognized risks well above the original 100% risk weight. It is institutionalized by the Dodd-Frank Act for all banking organizations, even for the advanced approaches banks, as a floor.
On September 12, 2010,global financial crisis, the Group of Governors and Heads of Supervision, the oversight body of the Basel Committee on Banking Supervision, announced agreement on a strengthened set of capital requirements for banking organizations around the world, known as Basel III, to address deficiencies recognized in connection with the global financial crisis.
The Basel III Rule. In July 2013, the U.S. federal bankingThe United States bank regulatory agencies approved the implementation ofadopted the Basel III regulatory capital reforms, in pertinent part, and, at the same time, promulgated rules effecting certaineffected changes required by the Dodd-Frank Act, in regulations that were effective (with certain phase-ins) in 2015 (the “Basel III Rule”). In contrast toBasel III established capital requirements historically, which werestandards for banks and bank holding companies that are meaningfully more stringent than those in place previously: it increased the required quantity and quality of capital; and it required a more complex, detailed and calibrated assessment of risk in the formcalculation of guidelines, Basel III was released in the formrisk weightings.
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The Basel III Rule is applicable to all banking organizations that are subject to minimum capital requirements, including federal and state banks and savings and loan associations, as well as to most bank and savings and loan holding companies, other than “small bank holding companies” (generally holding companies with consolidated assets of less than $3 billion) and certain qualifying banking organizations that may elect a simplified framework (which the Company has not done.) Thus, thecompanies. The Company and the Banks are each currently subject to the Basel III Rule as described below.Rule.
The Basel III Rule increased the required quantity and quality of capital and for nearly every class of assets, it requires a more complex, detailed and calibrated assessment of risk and calculation of risk-weight amounts.
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Not only did the Basel III Rule increase most of the required minimum capital ratios in effect prior to January 1, 2015, but in requiring that forms of capital be of higher quality to absorb loss, it introduced the concept of Common Equity Tier 1 Capital, which consists primarily of common stock, related surplus (net of Treasury stock), retained earnings, and Common Equity Tier 1 minority interests subject to certain regulatory adjustments. The Basel III Rule also changed the definition of capital by establishing more stringent criteria that instruments must meet to be considered Additional Tier 1 Capital (primarily non-cumulative perpetual preferred stock that meets certain requirements) and Tier 2 Capital (primarily other types of preferred stock and subordinated debt, subject to limitations). A number of instruments that qualified as Tier 1 Capital under Basel I do not qualify, or their qualifications changed. For example, noncumulative perpetual preferred stock, which qualified as simple Tier 1 Capital under Basel I, does not qualify as Common Equity Tier 1 Capital, but qualifies as Additional Tier 1 Capital. The Basel III Rule also constrained the inclusion of minority interests, mortgage-servicing assets, and deferred tax assets in capital and requiresrequired deductions from Common Equity Tier 1 Capital in the event that such assets exceedexceeded a certain percentage of a banking institution’s Common Equity Tier 1 Capital.
The Basel III Rule requires minimum capital ratios as follows:
| A ratio of |
| A |
| A continuation of the minimum required amount of Total Capital (Tier 1 plus Tier 2) |
| A |
In addition, institutions that seek the freedom to make capital distributions (including for dividends and repurchases of stock) and pay discretionary bonuses to executive officers without restriction must also maintain 2.5% in Common Equity Tier 1 Capital attributable to a capital conservation buffer. The purpose of the conservation buffer is to ensure that banking institutions maintain a buffer of capital that can be used to absorb losses during periods of financial and economic stress. Factoring in the conservation buffer increases the minimum ratios depicted above to 7% for Common Equity Tier 1 Capital, 8.5% for Tier 1 Capital and 10.5% for Total Capital. The federal bank regulators released a joint statement in response to the COVID-19 pandemic reminding the industry that capital and liquidity buffers were meant to give banks the means to support the economy in adverse situations, and that the agencies would support banks that use the buffers for that purpose if undertaken in a safe and sound manner.
Well-Capitalized Requirements. The ratios described above are minimum standards in order for banking organizations to be considered “adequately capitalized.” Bank regulatory agencies uniformly encourage banks to hold more capital and be “well-capitalized” and, to that end, federal law and regulations provide various incentives for banking organizations to maintain regulatory capital at levels in excess of minimum regulatory requirements. For example, a banking organization that is well-capitalized may: (i) qualify for exemptions from prior notice or application requirements otherwise applicable to certain types of activities; (ii) qualify for expedited processing of other required notices or applications; and (iii) accept, roll-over or renew brokered deposits. Higher capital levels could also be required if warranted by the particular circumstances or risk profiles of individual banking organizations. For example, the Federal Reserve’s capital guidelines contemplate that additional capital may be required to take adequate account of, among other things, interest rate risk, or the risks posed by concentrations of credit, nontraditional activities or securities trading activities. Further, any banking organization experiencing or anticipating significant growth would be expected to
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maintain capital ratios, including tangible capital positions (i.e., Tier 1 Capital less all intangible assets), well above the minimum levels.
Under the capital regulations of the Federal Reserve, in order to be well‑capitalized,well-capitalized, a banking organization must maintain:
| A Common Equity Tier 1 Capital ratio to risk-weighted assets of 6.5% or more; |
| A ratio of Tier 1 Capital to total risk-weighted assets of 8% or more; |
| A ratio of Total Capital to total risk-weighted assets of 10% or more; and |
| A leverage ratio of Tier 1 Capital to total adjusted average quarterly assets of 5% or greater. |
It is possible under the Basel III Rule to be well-capitalized while remaining out of compliance with the capital conservation buffer discussed above.
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As of December 31, 2019:2021: (i) none of the Banks werewas subject to a directive from the Iowa Division of Banking, the Missouri Division of Finance, or the Federal Reserve, as applicable, to increase its capital and (ii) the Banks were well-capitalized, as defined by Federal Reserve regulations. As of December 31, 2019,2021, the Company had regulatory capital in excess of the Federal Reserve’s requirements and met the Basel III Rule requirements to be well-capitalized. The Company also is also in compliance with the capital conservation buffer.
Prompt Corrective Action. The concept of an institution being “well-capitalized” is part of a regulatory enforcement regime that provides the federal banking regulators with broad power to take “prompt corrective action” to resolve the problems of depository institutions based on the capital level of each particular institution.The extent of the regulators’ powers depends on whether the institution in question is “adequately capitalized,” “undercapitalized,” “significantly undercapitalized” or “critically undercapitalized,” in each case as defined by regulation. Depending upon the capital category to which an institution is assigned, the regulators’ corrective powers include: (i) requiring the institution to submit a capital restoration plan; (ii) limiting the institution’s asset growth and restricting its activities; (iii) requiring the institution to issue additional capital stock (including additional voting stock) or to sell itself; (iv) restricting transactions between the institution and its affiliates; (v) restricting the interest rate that the institution may pay on deposits; (vi) ordering a new election of directors of the institution; (vii) requiring that senior executive officers or directors be dismissed; (viii) prohibiting the institution from accepting deposits from correspondent banks; (ix) requiring the institution to divest certain subsidiaries; (x) prohibiting the payment of principal or interest on subordinated debt; and (xi) ultimately, appointing a receiver for the institution.
Community Bank Capital Simplification.Community banks have long raised concerns with bank regulators about the regulatory burden, complexity, and costs associated with certain provisions of the Basel III Rule. In response, Congress provided an “off-ramp” for institutions, like the Company, with total consolidated assets of less than $10 billion. Section 201 of the Regulatory Relief Act instructed the federal banking regulators to establish a single “Community Bank Leverage Ratio” (“CBLR”) of between 8 and 10%. Under the final rule, a community banking organization is eligible to elect the new framework if it has: less than $10 billion in total consolidated assets, limited amounts of certain assets and off-balance sheet exposures, and a CBLR greater than 9%. The Company may elect the CBLR framework at any time but has not currently determined to do so.
RegulationSupervision and SupervisionRegulation of the Company
General. The Company, as the sole stockholder of the Banks, is a bank holding company. As a bank holding company, the Company is registered with, and is subject to regulation, supervision and enforcement by, the Federal Reserve under the BHCA. The Company is legally obligated to act as a source of financial
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strength to the Banks and to commit resources to support the Banks in circumstances where the Company might not otherwise do so. Under the BHCA, the Company is subject to periodic examination by the Federal Reserve. The Company is required to file with the Federal Reserve periodic reports of the Company’s operations and such additional information regarding the Company and its subsidiaries as the Federal Reserve may require.
Acquisitions, Activities and Financial Holding Company Election. The primary purpose of a bank holding company is to control and manage banks. The BHCA generally requires the prior approval of the Federal Reserve for any merger involving a bank holding company or any acquisition by a bank holding company of another bank or bank holding company. Subject to certain conditions (including deposit concentration limits established by the BHCA), the Federal Reserve may allow a bank holding company to acquire banks located in any state of the U.S..United States. In approving interstate acquisitions, the Federal Reserve is required to give effect to applicable state law limitations on the aggregate amount of deposits that may be held by the acquiring bank holding company and its FDIC-insured institution affiliates in the state in which the target bank is located (provided that those limits do not discriminate against out-of-state institutions or their holding companies) and state laws that require that the target bank have been in existence for a minimum period of time (not to exceed five years) before being acquired by an out-of-state bank holding company. Furthermore, in accordance with the Dodd-Frank Act, bank holding companies must be well-capitalized and well-managed in order to effect interstate mergers or acquisitions. For a discussion of the capital requirements, see “--The“—The Role of Capital” above.
The BHCA generally prohibits the Company from acquiring direct or indirect ownership or control of more than 5% of the voting shares of any company that is not a bank and from engaging in any business other than that of
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banking, managing and controlling banks or furnishing services to banks and their subsidiaries. This general prohibition is subject to a number of exceptions. The principal exception allows bank holding companies to engage in, and to own shares of companies engaged in, certain businesses found by the Federal Reserve prior to November 11, 1999, to be “so closely related to banking ... as to be a proper incident thereto.” This authority permits the Company to engage in a variety of banking-related businesses, including the ownership and operation of a savings association, or any entity engaged in consumer finance, equipment leasing, the operation of a computer service bureau (including software development) and mortgage banking and brokerage services. The BHCA does not place territorial restrictions on the domestic activities of nonbank subsidiaries of bank holding companies. The Company operates Bates Financial Advisors, Inc., a registered investment advisor, and Bates Securities, Inc., a broker-dealer, as nonbanking subsidiaries under this authority.
Additionally, bank holding companies that meet certain eligibility requirements prescribed by the BHCA and elect to operate as financial holding companies may engage in, or own shares in companies engaged in, a wider range of nonbanking activities, including securities and insurance underwriting and sales, merchant banking and any other activity that the Federal Reserve, in consultation with the Secretary of the Treasury, determines by regulation or order is financial in nature or incidental to any such financial activity or that the Federal Reserve determines by order to be complementary to any such financial activity, andas long as the activity does not pose a substantial risk to the safety or soundness of FDIC-insured institutions or the financial system generally. The Company has elected to operate as a financial holding company.
In order to maintain its status as a financial holding company, the Company and the Banks must be well-capitalized, well-managed, and the Banks must have a least a satisfactory CRA rating. If the Federal Reserve determines that a financial holding company is not well-capitalized or well-managed, the Company hasFederal Reserve will provide a period of time in which to achieve compliance, but, during the period of noncompliance, the Federal Reserve may place any limitations on the Company that it believes to bedeems appropriate. Furthermore, if the Federal Reserve determines that a financial holding company’s subsidiary bank has not received a satisfactory CRA rating, that company will not be able to commence any new financial activities or acquire a company that engages in such activities.
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Change in Control. Federal law also prohibits any person or company from acquiring “control” of an FDIC-insured depository institution or its holding company without prior notice to the appropriate federal bank regulator. “Control” is conclusively presumed to exist upon the acquisition of 25% or more of the outstanding voting securities of a bank or bank holding company but may arise under certain circumstances between 10% and 24.99% ownership.
Capital Requirements. Bank holding companies are required to maintain capital in accordance with Federal Reserve capital adequacy requirements. For a discussion of capital requirements, see “—The Role of Capital” above.
Dividend Payments. The Company’s ability to pay dividends to its stockholders may be affected by both general corporate law considerations and policies of the Federal Reserve applicable to bank holding companies. As a Delaware corporation, the Company is subject to the limitations of the DGCL, which allow the Company to pay dividends only out of its surplus (as defined and computed in accordance with the provisions of the DGCL) or if the Company has no such surplus, out of its net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year.
As a general matter, the Federal Reserve has indicated that the board of directors of a bank holding company should eliminate, defer or significantly reduce dividends to stockholders if: (i) the company’s net income available to stockholders for the past four quarters, net of dividends previously paid during that period, is not sufficient to fully fund the dividends; (ii) the prospective rate of earnings retention is inconsistent with the company’s capital needs and overall current and prospective financial condition; or (iii) the company will not meet, or is in danger of not meeting, its minimum regulatory capital adequacy ratios. The Federal Reserve also possesses enforcement powers over bank holding companies and their nonbank subsidiaries to prevent or remedy actions that represent unsafe or unsound practices or violations of applicable statutes and regulations. Among these powers is the ability to proscribe the payment of dividends by banks and bank holding companies. In addition, under the Basel III Rule, institutions that seek the freedom to pay dividends have to maintain 2.5% in Common Equity Tier 1 Capital attributable to the capital conservation buffer. See “—The Role of Capital” above.
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Incentive Compensation. There have been a number of developments in recent years focused on incentive compensation plans sponsored by bank holding companies and banks, reflecting recognition by the bank regulatory agencies and Congress that flawed incentive compensation practices in the financial industry were one of many factors contributing to the global financial crisis. Layered on top of that are the abuses in the headlines dealing with product cross-selling incentive plans. The result is interagency guidance on sound incentive compensation practices.
The interagency guidance recognized three core principles. Effective incentive plans should: (i) provide employees incentives that appropriately balance risk and reward; (ii) be compatible with effective controls and risk-management; and (iii) be supported by strong corporate governance, including active and effective oversight by the organization’s board of directors. Much of the guidance addresses large banking organizations and, because of the size and complexity of their operations, the regulators expect those organizations to maintain systematic and formalized policies, procedures, and systems for ensuring that the incentive compensation arrangements for all executive and non-executive employees covered by this guidance are identified and reviewed, and appropriately balance risks and rewards. Smaller banking organizations, like the Company, that use incentive compensation arrangements are expected to be less extensive, formalized, and detailed than those of the larger banks.
Monetary Policy. The monetary policy of the Federal Reserve has a significant effect on the operating results of financial or bank holding companies and their subsidiaries. Among the tools available to the Federal Reserve to affect the money supply are open market transactions in U.S. government securities
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and changes in the discount rate on bank borrowings and changes in reserve requirements against bank deposits.borrowings. These means are used in varying combinations to influence overall growth and distribution of bank loans, investments and deposits, and their use may affect interest rates charged on loans or paid on deposits.
Federal Securities Regulation. The Company’s common stock is registered with the SEC under the Securities Act of 1933, as amended, and the Exchange Act. Consequently, the Company is subject to the information, proxy solicitation, insider trading and other restrictions and requirements of the SEC under the Exchange Act.
Corporate Governance. The Dodd-Frank Act addressed many investor protection, corporate governance and executive compensation matters that will affect most U.S. publicly traded companies. The Dodd Frank ActIt increased stockholder influence over boards of directors by requiring companies to give stockholders a nonbinding vote on executive compensation and so-called “golden parachute” payments and authorizing the SEC to promulgate rules that would allow stockholders to nominate and solicit voters for their own candidates using a company’s proxy materials. The legislation also directed the Federal Reserve to promulgate rules prohibiting excessive compensation paid to executives of bank holding companies, regardless of whether such companies are publicly traded.
Supervision and Regulation of the Banks
General. The Company owns four subsidiary banks: QCBT, CRBT and CSB are chartered under Iowa law (collectively, the “Iowa Banks”) and SFC BankSFCB is chartered under Missouri law. The deposit accounts of the Banks are insured by the FDIC’s DIF to the maximum extent provided under federal law and FDIC regulations, currently $250,000 per insured depositor category. All four of the Company’s subsidiary banks are members of the Federal Reserve System (“member banks”). In 2019, the Company sold RB&T and it no longer hasowns a bank subsidiary chartered under Illinois law.in Illinois. QCBT owns Quad Cities Investment Advisers,QCIA, a registered investment advisor (“QCIA”),adviser, as a wholly-ownedwholly owned subsidiary.
As Iowa-chartered, FDIC-insured banks, the Iowa Banks are subject to the examination, supervision, reporting and enforcement requirements of the Iowa Division of Banking, as the chartering authority for Iowa banks. As a Missouri-chartered, FDIC-insured bank, SFC BankSFCB is subject to the examination, supervision, reporting and enforcement requirements of the Missouri Division of Finance, as the chartering authority for Missouri banks. All four of the Company’s subsidiary banks also are also subject to the examination, reporting and enforcement requirements of the Federal Reserve, as the primary federal regulator of member banks. In addition, the FDIC, as administrator of the DIF, has regulatory authority over the Banks.
Deposit Insurance. As FDIC-insured institutions, the Banks are required to pay deposit insurance premium assessments to the FDIC. The FDIC has adopted a risk-based assessment system whereby FDIC-insured institutions pay
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insurance premiums at rates based on their risk classification. For institutions like the Banks that are not considered large and highly complex banking organizations, assessments are now based on examination ratings and financial ratios. The total base assessment rates currently range from 1.5 basis points to 30 basis points. At least semi-annually, the FDIC updates its loss and income projections for the DIF and, if needed, increases or decreases the assessment rates, following notice and comment on proposed rulemaking. The assessment base against which an FDIC-insured institution’s deposit insurance premiums paid to the DIF has been calculated since effectiveness of the Dodd-Frank Act based on its average consolidated total assets less its average tangible equity. This method shifted the burden of deposit insurance premiums toward those large depository institutions that rely on funding sources other than U.S. deposits.
The reserve ratio is the FDIC insurance fund balance divided by estimated insured deposits. The Dodd-Frank Act altered the minimum reserve ratio of the DIF, increasing the minimum from 1.15 %1.15% to 1.35 %1.35% of the estimated amount of total insured deposits, and eliminating the requirement that the FDIC pay dividends to FDIC-insured institutions when the reserve ratio exceeds certain thresholds.deposits. The reserve ratio reached 1.36 %1.36% as of September 30, 2018, exceeding the statutory required minimum reserve ratio of 1.35 %.2018. As a result, the FDIC is providingprovided assessment credits to insured depository institutions, like the Banks, with total consolidated assets of less than $10 billion, for the portion of their regular assessments that contributed to growth in the reserve ratio between 1.15 %1.15% and 1.35 %.1.35%. The share ofFDIC applied the aggregate small bank credits allocated to each insured institution is proportional to its credit base, defined as the averagefor quarterly
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assessment periods beginning July 1, 2019, and, as long as2019. However, the reserve ratio isfell to 1.30% in 2020 because of extraordinary insured deposit growth caused by an unprecedented inflow of more than $1 trillion in estimated insured deposits in the first half of 2020, stemming mainly from the COVID-19 pandemic. Although the FDIC could have ceased the small bank credits, it waived the requirement that the reserve ratio be at least 1.35 %,1.35% for full remittance of the remaining assessment credits, and it refunded all small bank credits to the Banks as of September 30, 2020.
The DIF balance was $121.9 billion on September 30, 2021, up $1.4 billion from the end of the second quarter. The reserve ratio remained at 1.27%, as growth in the fund balance kept pace with growth in insured deposits. The FDIC will remitstaff continues to closely monitor the full nominal value offactors that affect the reserve ratio, and any remaining credits in a lump-sum payment.change could impact FDIC assessments.
Supervisory Assessments. Each of the Banks is required to pay supervisory assessments to its respective state banking regulator to fund the operations of that agency. The amount of the assessment payable by each Bank is calculated on the basis of that Bank’s total assets. During the year ended December 31, 2019,2021, the Iowa Banks paid supervisory assessments to the Iowa Division of Banking totaling $310,117, RB&T paid supervisory assessments to the IDFPR totaling $17,526$312,943 and SFC BankSFCB paid supervisory assessments to the Missouri Division of Finance totaling $47,899.$52,710.
Capital Requirements. Banks are generally required to maintain capital levels in excess of other businesses. For a discussion of capital requirements, see “—The Role of Capital” above.
Liquidity Requirements. Liquidity is a measure of the ability and ease with which bank assets may be converted to cash. Liquid assets are those that can be converted to cash quickly if needed to meet financial obligations. To remain viable, FDIC-insured institutions must have enough liquid assets to meet their near-term obligations, such as withdrawals by depositors. Because the global financial crisis was in part a liquidity crisis, Basel III also includes a liquidity framework that requires FDIC-insured institutions to measure their liquidity against specific liquidity tests. One test, referred to as the liquidity coverage ratio or LCR, is designed to ensure that the banking entity has an adequate stock of unencumbered high-quality liquid assets that can be converted easily and immediately in private markets into cash to meet liquidity needs for a 30-calendar day liquidity stress scenario. The other test, known as the net stable funding ratio or NSFR, is designed to promote more medium- and long-term funding of the assets and activities of FDIC-insured institutions over a one-year horizon. These tests provide an incentive for banks and holding companies to increase their holdings in Treasury securities and other sovereign debt as a component of assets, increase the use of long-term debt as a funding source and rely on stable funding like core deposits (in lieu of brokered deposits).
In addition to liquidity guidelines already in place, the federal bank regulatory agencies implemented the Basel III LCR in September 2014, which requires large financial firms to hold levels of liquid assets sufficient to protect against constraints on their funding during times of financial turmoil, and in 2016 proposed implementation of the NSFR. While these rules do not, and will not, apply to the Banks, they continue to review their liquidity risk management policies in light of developments.
Liability of Commonly Controlled Institutions. Under federal law, institutions insured by the FDIC may be liable for any loss incurred by, or reasonably expected to be incurred by, the FDIC in connection with the default of commonly controlled FDIC-insured depository institutions or any assistance provided by the FDIC to commonly
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controlled FDIC-insured depository institutions in danger of default. Because the Company controls each of the Banks, the Banks are commonly-controlledcommonly controlled for purposes of these provisions of federal law.
Dividend Payments. The primary source of funds for the Company is dividends from the Banks. In general, the Banks may only pay dividends either out of their historical net income after any required
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transfers to surplus or reserves have been made or out of their retained earnings. The Federal Reserve Act also imposes limitations on the amount of dividends that may be paid by state member banks, such as the Banks. Without prior Federal Reserve approval, a state member bank may not pay dividends in any calendar year that, in the aggregate, exceed thethat bank’s calendar year-to-date net income plus the bank’s retained net income for the two preceding calendar years.
The payment of dividends by any FDIC-insured institution is affected by the requirement to maintain adequate capital pursuant to applicable capital adequacy guidelines and regulations, and an FDIC-insured institution generally is prohibited from paying any dividends if, following payment thereof, the institution would be undercapitalized. As described above, each of the Banks exceeded its minimum capital requirements under applicable guidelines as of December 31, 2019.2021. Notwithstanding the availability of funds for dividends, however, the Federal Reserve, the FDIC, the Missouri Division of Finance or the Iowa Division of Banking, as applicable, may prohibit the payment of dividends by one of the Banks if it determines such payment would constitute an unsafe or unsound practice. In addition, under the Basel III Rule, institutions that seek the freedom to pay unrestricted dividends have to maintain 2.5% in Common Equity Tier 1 Capital attributable to the capital conservation buffer. See “—The Role of Capital” above.
State Bank Investments and Activities. The Banks are permitted to make investments and engage in activities directly or through subsidiaries as authorized by Iowa or Missouri law, as applicable. However, under federal law and FDIC regulations, FDIC-insured state banks are prohibited, subject to certain exceptions, from making or retaining equity investments of a type, or in an amount, that are not permissible for a national bank. Federal law and FDIC regulations also prohibit FDIC-insured state banks and their subsidiaries, subject to certain exceptions, from engaging as principal in any activity that is not permitted for a national bank unless the bank meets, and continues to meet, its minimum regulatory capital requirements and the FDIC determines that the activity would not pose a significant risk to the DIF. These restrictions have not had, and are not currently expected to have, a material impact on the operations of the Banks.
Insider Transactions. The Banks are subject to certain restrictions imposed by federal law on “covered transactions” between each Bank and its “affiliates.” The Company is an affiliate of the Banks for purposes of these restrictions, and covered transactions subject to the restrictions include extensions of credit to the Company, investments in the stock or other securities of the Company and the acceptance of the stock or other securities of the Company as collateral for loans made by any of the Banks. The Dodd-Frank Act enhanced the requirements for certain transactions with affiliates, including an expansion of the definition of “covered transactions” and an increase in the amount of time for which collateral requirements regarding covered transactions must be maintained.
Certain limitations and reporting requirements are also placed on extensions of credit by each Bank to its directors and officers, to directors and officers of the Company and its subsidiaries, to principal stockholders of the Company and to “related interests” of such directors, officers and principal stockholders. In addition, federal law and regulations may affect the terms uponon which any person who is a director or officer of the Company or the Banks, or a principal stockholder of the Company, may obtain credit from banks with which any of the Banks maintains a correspondent relationship.
Safety and Soundness Standards/Risk Management. The federal banking agencies have adopted operational and managerial standards to promote the safety and soundness of FDIC-insured institutions. The standards apply to internal controls, information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, compensation, fees and benefits, asset quality and earnings.
In general, the safety and soundness standards prescribe the goals to be achieved in each area, and each institution is responsible for establishing its own procedures to achieve those goals. WhileAlthough regulatory standards do not have the force of law, if an institution operates in an unsafe and unsound manner, the FDIC-insuredFDIC-
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insured institution’s primary federal regulator may require the institution to submit a plan for achieving and maintaining compliance. If an FDIC-insured institution fails to submit an acceptable compliance plan or fails in any material respect to implement a
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compliance plan that has been accepted by its primary federal regulator, the regulator is required to issue an order directing the institution to cure the deficiency. Until the deficiency cited in the regulator’s order is cured, the regulator may restrict the FDIC-insured institution’s rate of growth, require the FDIC-insured institution to increase its capital, restrict the rates that the institution pays on deposits, or require the institution to take any action that the regulator deems appropriate under the circumstances. Noncompliance with safety and soundness also may also constitute grounds for other enforcement action by the federal bank regulatory agencies, including cease and desist orders and civil money penalty assessments.
During the past decade, the bank regulatory agencies have increasingly emphasized the importance of sound risk management processes and strong internal controls when evaluating the activities of the FDIC-insured institutions that they supervise. Properly managing risks has been identified as critical to the conduct of safe and sound banking activities and has become even more important as new technologies, product innovation, and the size and speed of financial transactions have changed the nature of banking markets. The agencies have identified a spectrum of risks facing a banking institution including, but not limited to, credit, market, liquidity, operational, legal and reputational risk. The key risk themes identified for 2020 are: (i) elevated operational risk as banks adapt to an evolving technology environment and persistent cybersecurity risks; (ii) the need for banks to prepare for a cyclical change in credit risk while credit performance is strong; (iii) elevated interest rate risk due to lower rates continuing to compress net interest margins; and (iv) strategic risks from non-depository financial institutions, use of innovative and evolving technology, and progressive data analysis capabilities. Each Bank is expected to have active board and senior management oversight; adequate policies, procedures and limits; adequate risk measurement, monitoring and management information systems; and comprehensive internal controls.
Privacy and Cybersecurity. The Banks are subject to many U.S. federal and state laws and regulations governing requirements for maintaining policies and procedures to protect non-public confidential information of their customers. These laws require each Bank to periodically disclose its privacy policies and practices relating to sharing such information and permit consumers to opt out of their ability to share information with unaffiliated third parties under certain circumstances. They also impact each Bank’s ability to share certain information with affiliates and non-affiliates for marketing and/or non-marketing purposes, or to contact customers with marketing offers. In addition, the Banks are required to implement a comprehensive information security program that includes administrative, technical, and physical safeguards to ensure the security and confidentiality of customer records and information. These security and privacy policies and procedures for the protection of personal and confidential information, are in effect across all businesses and geographic locations.
Branching Authority. The Iowa Banks have the authority under Iowa law to establish branches anywhere in the State of Iowa, subject to receipt of all required regulatory approvals. In 1997, the Company formed a de novo Illinois bank that was merged into QCBT, resulting in QCBT establishing a branch office in Illinois. Under Illinois law, QCBT may continue to establish offices in Illinois to the same extent permitted for an Illinois bank (subject to certain conditions, including certain regulatory notice requirements). Similarly, SFC BankSFCB has the authority under Missouri law to establish branches anywhere in the State of Missouri, subject to receipt of all required regulatory approvals.
Federal The Dodd-Frank Act permits well-capitalized and well-managed banks to establish new interstate branches or acquire individual branches of a bank in another state (rather than the acquisition of an out-of-state bank in its entirety) without impediments. In addition, federal law permits state and national banks to merge with banks in other states subject to: (i) regulatory approval; (ii) federal and state deposit concentration limits; and (iii) state law limitations requiring the merging bank to have been in existence for a minimum period of time (not to exceed five years) prior to the merger. The Dodd-Frank Act permits well-capitalized and well-managed banks to establish new interstate branches or acquire individual branches of a bank in another state (rather than the acquisition of an out-of-state bank in its entirety) without impediments.
Transaction Account Reserves.Federal Reserve regulations requirelaw requires FDIC-insured institutions to maintain reserves against their transaction accounts (primarily NOW and regular checking accounts). For 2020, the first $16.9 million of otherwise reservable balances are exempt from reserves and have a zero percent reserve requirement; for transaction accounts aggregating between $16.9 million to $127.5 million, the reserve requirement is 3% of those transaction account balances; and for net transaction accounts in excess of $127.5 million, the reserve requirement is 10% of the aggregateprovide liquidity. The amount of total transaction account balances in excess of $127.5 million. These reserve requirements are subject to annual adjustmentreserves is established by the Federal Reserve.
Reserve based on tranches of zero, three and ten percent of a bank’s transaction account deposits. However, in March 2020, in an unprecedented move, the Federal Reserve announced that the banking system had ample reserves, and, as reserve requirements no longer played a significant role in this regime, it reduced all reserve tranches to zero percent, thereby freeing banks from the legally mandated reserve maintenance requirement. The action permits the Banks to loan or invest
153154
funds that were previously unavailable. The Federal Reserve has indicated that it expects to continue to operate in an ample reserves regime for the foreseeable future.
Federal Home Loan Bank System. The Banks are each a member of the FHLB, which serves as a central credit facility for its members. The FHLB is funded primarily from proceeds from the sale of obligations of the FHLB system. It makes loans to member banks in the form of FHLB advances. All advances from the FHLB are required to be fully collateralized as determined by the FHLB.
Community Reinvestment Act Requirements. The Community Reinvestment ActCRA requires the Banks to have a continuing and affirmative obligation in a safe and sound manner to help meet the credit needs of the entire community, including low- and moderate-income neighborhoods. Federal regulators regularly assess each Bank’s record of meeting the credit needs of its communities. Applications for additional acquisitions would be affected by the evaluation of the Bank’s effectiveness in meeting its Community Reinvestment ActCRA requirements. In a joint statement responding to the COVID-19 pandemic, the bank regulatory agencies announced favorable CRA consideration for banks providing retail banking services and lending activities in their assessment areas, consistent with safe and sound banking practices, that are responsive to the needs of low- and moderate-income individuals, small businesses, and small farms affected by the pandemic. Those activities include waiving certain fees, easing restrictions on out-of-state and non-customer checks, expanding credit products, increasing credit limits for creditworthy borrowers, providing alternative service options, and offering prudent payment accommodations. The joint statement also provided favorable CRA consideration for certain pandemic-related community development activities.
Anti-Money Laundering. The USA PatriotPATRIOT Act, isthe Bank Secrecy Act and other similar laws are designed to deny terrorists and criminals the ability to obtain access to the U.S. financial system and hashave significant implications for FDIC-insured institutions brokers, dealers and other businesses involved in the transfer of money. The USA Patriot Act mandatesThese laws mandate financial services companies to have policies and procedures with respect to measures designed to address any or all of the following matters: (i) customer identification programs; (ii) money laundering; (iii) terrorist financing; (iv) identifying and reporting suspicious activities and currency transactions; (v) currency crimes; and (vi) cooperation between FDIC-insured institutions and law enforcement authorities.
Concentrations in Commercial Real Estate. Concentration risk exists when FDIC-insured institutions deploy too many assets to any one industry or segment. A concentration in commercial real estate (“CRE”) is one example of regulatory concern. The interagency Concentrations in Commercial Real Estate Lending, Sound Risk Management Practices guidance (“CRE Guidance”) provides supervisory criteria, including the following numerical indicators, to assist bank examiners in identifying banks with potentially significant commercial real estate loan concentrations that may warrant greater supervisory scrutiny: (i) commercial real estateCRE loans exceeding 300% of capital and increasing 50% or more in the preceding three years; or (ii) construction and land development loans exceeding 100% of capital. The CRE Guidance does not limit banks’ levels of commercial real estateCRE lending activities, but rather guides institutions in developing risk management practices and levels of capital that are commensurate with the level and nature of their commercial real estate concentrations. On December 18, 2015, the federal banking agencies issued a statement to reinforce prudent risk-management practices related to CRE lending, having observed substantial growth in many CRE asset and lending markets, increased competitive pressures, rising CRE concentrations in banks, and an easing of CRE underwriting standards. The federal bank agencies reminded FDIC-insured institutions to maintain underwriting discipline and exercise prudent risk-management practices to identify, measure, monitor, and manage the risks arising from CRE lending. In addition, FDIC-insured institutions must maintain capital commensurate with the level and nature of their CRE concentration risk. As of December 31, 2019,2021, QCBT, CRBT CSB and SFC BankSFCB were in compliance with the 300% guideline for commercial real estate loans. Although CSB’s loan portfolio has historically been real estate dominated and its real estate portfolio levels exceed these policy limits, it has established a Credit Risk Committee to routinely monitor its real estate portfolio.
155
Consumer Financial Services. The historical structure of federal consumer protection regulation applicable to all providers of consumer financial products and services changed significantly on July 21, 2011, when the CFPB commenced operations to supervise and enforce consumer protection laws. The CFPB has broad rulemaking authority for a wide range of consumer protection laws that apply to all providers of consumer products and services, including the Banks, as well as the authority to prohibit “unfair, deceptive or abusive” acts and practices. The CFPB has examination and enforcement authority over providers with more than $10 billion in assets. FDIC-insured institutions with $10 billion or less in assets, like the Banks, continue to be examined by their applicable bank regulators.
Because abuses in connection with residential mortgages were a significant factor contributing to the global financial crisis, many new rules issued by the CFPB, andas required by the Dodd-Frank Act, addressed mortgage and mortgage-related products, their underwriting, origination, servicing and sales. The Dodd-Frank Act significantly expanded underwriting requirements applicable to loans secured by 1-4 family residential real property and augmented federal law combating predatory lending practices. In addition to numerous disclosure requirements, the Dodd‑FrankDodd-Frank Act and the CFPB’s enabling rules imposed new standards for mortgage loan originations on all lenders, including banks and savings associations, in an effort to strongly encourage lenders to verify a borrower’s ability to repay, while also establishing a presumption of compliance for certain “qualified mortgages.” The Regulatory Relief Act provided relief in connection with mortgages for banks
154
with assets of less than $10 billion, and, as a result, mortgages the Banks make are now considered to be qualified mortgages if they are held in portfolio for the life of the loan.
The CFPB’s rules have not had a significant impact on theany Bank operations, of the Banks, except for higher compliance costs.
Regulation of the Bates Companies and QCIA
The Bates Companies and QCIA provideprovides financial investment services as part of the wealth management operations of the Company. Bates Financial Advisors, Inc. and QCIA areis an investment advisersadviser registered with the SEC. The SEC has supervisory, examination and enforcement authority over their respectiveits operations. The SEC'sSEC’s focus is primarily for the protection of investors under the federal securities laws. Bates Securities, Inc. is a broker-dealer that executes trades in investment products primarily for customers of Bates Financial Advisors, Inc. It is a member of FINRA and is regulated by the SEC. FINRA is a non-governmental organization that regulates member brokerage firms with an emphasis on investor protection and market integrity.
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Guide 3 Information
The following tables and schedules show selected comparative financial information required by the SEC Securities Act Guide 3, regarding the business of the Company for the periods shown.
I. Distribution of Assets, Liabilities and Stockholders Equity; Interest Rates and Interest Differential
A. and B. Consolidated Average Balance Sheets and Analysis of Net Interest Earnings
The information requested is disclosed in the MD&A section of the Company's Form 10-K for the fiscal year ended December 31, 2019.
C. Analysis of Changes of Interest Income/Interest Expense
The information requested is disclosed in the MD&A section of the Company's Form 10-K for the fiscal year ended December 31, 2019.
156
II. Investment Portfolio
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The following tables present the amortized cost and fair value of investment securities as of December 31, 2019, 2018, and 2017.
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| Gross |
| Gross |
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| Amortized |
| Unrealized |
| Unrealized |
| Fair | ||||
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| Cost |
| Gains |
| (Losses) |
| Value | ||||
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| (dollars in thousands) | ||||||||||
December 31, 2019 |
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Securities held to maturity: |
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Municipal securities |
| $ | 399,596 |
| $ | 26,042 |
| $ | (143) |
| $ | 425,495 |
Other securities |
|
| 1,050 |
|
| — |
|
| — |
|
| 1,050 |
|
|
|
|
|
|
|
|
|
|
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|
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Totals |
| $ | 400,646 |
| $ | 26,042 |
| $ | (143) |
| $ | 426,545 |
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Securities available for sale: |
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U.S. gov't.sponsored agency securities |
| $ | 19,872 |
| $ | 283 |
| $ | (77) |
| $ | 20,078 |
Residential mortgage-backed and related securities |
|
| 118,724 |
|
| 2,045 |
|
| (182) |
|
| 120,587 |
Municipal securities |
|
| 46,659 |
|
| 1,602 |
|
| (4) |
|
| 48,257 |
Other securities |
|
| 21,707 |
|
| 138 |
|
| (72) |
|
| 21,773 |
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|
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|
|
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|
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Totals |
| $ | 206,962 |
| $ | 4,068 |
| $ | (335) |
| $ | 210,695 |
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|
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December 31, 2018 |
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Securities held to maturity: |
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|
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Municipal securities |
| $ | 400,863 |
| $ | 5,661 |
| $ | (6,803) |
| $ | 399,721 |
Other securities |
|
| 1,050 |
|
| — |
|
| (1) |
|
| 1,049 |
|
|
|
|
|
|
|
|
|
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|
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Totals |
| $ | 401,913 |
| $ | 5,661 |
| $ | (6,804) |
| $ | 400,770 |
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|
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Securities available for sale: |
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U.S. gov't.sponsored agency securities |
| $ | 37,150 |
| $ | 39 |
| $ | (778) |
| $ | 36,411 |
Residential mortgage-backed and related securities |
|
| 163,698 |
|
| 182 |
|
| (4,631) |
|
| 159,249 |
Municipal securities |
|
| 59,069 |
|
| 180 |
|
| (703) |
|
| 58,546 |
Other securities |
|
| 6,754 |
|
| 100 |
|
| (4) |
|
| 6,850 |
|
|
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Totals |
| $ | 266,671 |
| $ | 501 |
| $ | (6,116) |
| $ | 261,056 |
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December 31, 2017 |
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|
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Securities held to maturity: |
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|
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Municipal securities |
| $ | 378,424 |
| $ | 2,764 |
| $ | (2,488) |
| $ | 378,700 |
Other securities |
|
| 1,050 |
|
| — |
|
| — |
|
| 1,050 |
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|
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|
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|
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Totals |
| $ | 379,474 |
| $ | 2,764 |
| $ | (2,488) |
| $ | 379,750 |
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|
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Securities available for sale: |
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U.S. gov't.sponsored agency securities |
| $ | 38,409 |
| $ | 37 |
| $ | (349) |
| $ | 38,097 |
Residential mortgage-backed and related securities |
|
| 165,460 |
|
| 155 |
|
| (2,313) |
|
| 163,301 |
Municipal securities |
|
| 66,176 |
|
| 660 |
|
| (211) |
|
| 66,625 |
Other securities |
|
| 4,014 |
|
| 897 |
|
| (27) |
|
| 4,885 |
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Totals |
| $ | 274,059 |
| $ | 1,749 |
| $ | (2,900) |
| $ | 272,908 |
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157
NOTE: Stock of the Federal Home Loan Bank and Federal Reserve Bank are NOT included in the above. The Company carries these investments within restricted investment securities on the consolidated balance sheets. Following is a summary of the carrying value of all of the Company's restricted investment securities as of December 31, 2019, 2018, and 2017:
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| As of December 31, | |||||||
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| 2019 |
| 2018 |
| 2017 | |||
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| (dollars in thousands) | |||||||
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Federal Home Loan Bank |
| $ | 11,702 |
| $ | 15,732 |
| $ | 11,697 |
Federal Reserve Bank |
|
| 11,496 |
|
| 9,903 |
|
| 8,032 |
Other |
|
| 54 |
|
| 54 |
|
| 54 |
Totals |
| $ | 23,252 |
| $ | 25,689 |
| $ | 19,783 |
B. Investment Securities, Maturities, and Yields
The following table presents the maturity of securities held on December 31, 2019 and the weighted average stated coupon rates by range of maturity:
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| Weighted |
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| Amortized |
| Average |
| |
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| Cost |
| Yield |
| |
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| (dollars in thousands) |
| |||
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U.S. gov't.sponsored agency securities: |
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Within 1 year |
| $ | — |
| — | % |
After 1 but within 5 years |
|
| 3,500 |
| 2.13 | % |
After 5 but within 10 years |
|
| 895 |
| 4.00 | % |
After 10 years |
|
| 15,477 |
| 2.71 | % |
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Total |
| $ | 19,872 |
| 2.66 | % |
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Residential mortgage-backed and related securities: |
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After 1 but within 5 years |
| $ | 22,442 |
| 2.33 | % |
After 5 but within 10 years |
|
| 51,053 |
| 2.66 | % |
After 10 years |
|
| 45,229 |
| 2.54 | % |
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Total |
| $ | 118,724 |
| 2.55 | % |
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Municipal securities: |
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Within 1 year |
| $ | 4,055 |
| 3.20 | % |
After 1 but within 5 years |
|
| 45,844 |
| 3.25 | % |
After 5 but within 10 years |
|
| 76,754 |
| 3.26 | % |
After 10 years |
|
| 319,602 |
| 3.81 | % |
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Total |
| $ | 446,255 |
| 3.65 | % |
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Other securities: |
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Within 1 year |
| $ | 249 |
| 2.49 | % |
After 1 but within 5 years |
|
| 1,050 |
| 3.62 | % |
After 5 but within 10 years |
|
| 4,500 |
| 5.76 | % |
After 10 years |
|
| 16,958 |
| 3.31 | % |
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Total |
| $ | 22,757 |
| 3.62 | % |
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NOTE: Yields above are NOT computed on a tax equivalent basis |
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158
C. As of December 31, 2019, there were no securities with aggregate book value and market value purchased from a single issuer (as defined by Section 2(4) of the Securities Act of 1933) that exceeded 10% of stockholders' equity.
III. Loan/Lease Portfolio
A. Types of Loans/Leases
The information requested is disclosed in MD&A section of the Company's Form 10-K for the fiscal year ended December 31, 2019.
B. Maturities and Sensitivities of Loans/Leases to Changes in Interest Rates
The information requested is disclosed in MD&A section of the Company's Form 10-K for the fiscal year ended December 31, 2019.
C. Risk Elements
1. Nonaccrual, Past Due and Restructured Loans/Leases
The gross interest income that would have been recorded if nonaccrual loans/leases and performing troubled debt restructurings had been current in accordance with their original terms was $428 thousand and none, respectively, for the year ended December 31, 2019. The amount of interest collected on nonaccrual loans/leases and performing troubled debt restructurings that was included in interest income was none and $88 thousand, respectively, for the year ended December 31, 2019.
The remaining information requested is disclosed in MD&A section of the Company's Form 10-K for the fiscal year ended December 31, 2019.
2. Potential Problem Loans/Leases.
To management's best knowledge, there are no such significant loans/leases that have not been disclosed in the table presented in the MD&A section of the Company's Form 10-K for the fiscal year ended December 31, 2019.
3. Foreign Outstandings. None.
4. Loan/Lease Concentrations.
As of December 31, 2019, there were two concentrations of loans/leases exceeding 10% of total loans/leases, which is not otherwise disclosed in Item III. A. Those concentrations are Lessors of Non-Residential Buildings & Dwellings at 17% and Lessors of Residential Buildings & Dwellings at 22%.
D. Other Interest-Bearing Assets
As of December 31, 2019, there are no interest-bearing assets required to be disclosed in this Appendix.
IV. Summary of Loan/Lease Loss Experience
A. Analysis of the Allowance for Estimated Losses on Loans/Leases
The information requested is disclosed in MD&A section of the Company's Form 10-K for the fiscal year ended December 31, 2019.
B. Allocation of the Allowance for Estimated Losses on Loans/Leases
The information requested is disclosed in MD&A section of the Company's Form 10-K for the fiscal year ended December 31, 2019.
159
V. Deposits.
The average amount of and average rate paid for the categories of deposits for the years ended December 31, 2019, 2018, and 2017 are included in the consolidated average balance sheets and can be found in the MD&A section of the Company's Form 10-K for the fiscal year ended December 31, 2019.
The Company has no deposits by foreign depositors in domestic offices as of December 31, 2019.
Included in interest bearing deposits at December 31, 2019, were certificates of deposit totaling $515 million that were $100,000 or greater. Maturities of these certificates were as follows:
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| December 31, | |
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| 2019 | |
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| (dollars in thousands) | |
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One to three months |
| $ | 144,090 |
Three to six months |
|
| 95,887 |
Six to twelve months |
|
| 127,123 |
Over twelve months |
|
| 148,137 |
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Total certificates of deposit greater than or equal to $100,000 |
| $ | 515,237 |
VI. Return on Equity and Assets.
The following tables present the return on assets and equity and the equity to assets ratio of the Company:
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| Years ended |
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| December 31, |
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| 2019 |
| 2018 |
| 2017 |
| |||
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| (dollars in thousands) |
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Average total assets |
| $ | 5,102,980 |
| $ | 4,392,121 |
| $ | 3,519,848 |
|
Average equity |
|
| 507,409 |
|
| 405,973 |
|
| 310,210 |
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Net income |
|
| 57,408 |
|
| 43,120 |
|
| 35,707 |
|
Return on average assets |
|
| 1.12 | % |
| 0.98 | % |
| 1.01 | % |
Return on average common equity |
|
| 11.31 | % |
| 10.62 | % |
| 11.51 | % |
Return on average total equity |
|
| 11.31 | % |
| 10.62 | % |
| 11.51 | % |
Dividend payout ratio |
|
| 6.58 | % |
| 8.22 | % |
| 7.46 | % |
Average equity to average assets ratio |
|
| 9.94 | % |
| 9.24 | % |
| 8.81 | % |
160
VII. Short Term Borrowings.
The following tables present the information requested on short-term borrowings of the Company:
Short-term borrowings as of December 31, 2019, 2018, and 2017 are summarized as follows:
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| 2019 |
| 2018 |
| 2017 | |||
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| (dollars in thousands) | |||||||
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Overnight repurchase agreements with customers |
| $ | 2,193 |
| $ | 2,084 |
| $ | 7,003 |
Federal funds purchased |
|
| 11,230 |
|
| 26,690 |
|
| 6,990 |
|
| $ | 13,423 |
| $ | 28,774 |
| $ | 13,993 |
Information concerning overnight repurchase agreements with customers is summarized as follows:
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| 2019 |
| 2018 |
| 2017 |
| |||
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| (dollars in thousands) |
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Average daily balance during the period |
| $ | 4,231 |
| $ | 7,831 |
| $ | 7,476 |
|
Average daily interest rate during the period |
|
| 0.73 | % |
| 0.38 | % |
| 0.08 | % |
Maximum month-end balance during the period |
| $ | 4,177 |
| $ | 10,392 |
| $ | 11,829 |
|
Weighted average rate as of end of period |
|
| 1.00 | % |
| 0.90 | % |
| 0.15 | % |
|
|
|
|
|
|
|
|
|
|
|
Securities underlying the agreements as of end of period: |
|
|
|
|
|
|
|
|
|
|
Carrying value |
| $ | 4,110 |
| $ | 24,316 |
| $ | 20,894 |
|
Fair value |
|
| 4,110 |
|
| 24,316 |
|
| 20,894 |
|
Information concerning federal funds purchased is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
| 2019 |
| 2018 |
| 2017 |
| |||
|
| (dollars in thousands) |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
Average daily balance during the period |
| $ | 12,594 |
| $ | 13,059 |
| $ | 13,486 |
|
Average daily interest rate during the period |
|
| 2.56 | % |
| 2.18 | % |
| 1.31 | % |
Maximum month-end balance during the period |
| $ | 17,010 |
| $ | 32,330 |
| $ | 33,650 |
|
Weighted average rate as of end of period |
|
| 1.50 | % |
| 2.46 | % |
| 1.24 | % |
161