UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 – Q10-Q
[X]☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2019March 31, 2020
or
[ ]☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from ___________ to __________.
Commission File Number 0-16587
Summit Financial Group, Inc.
(Exact name of registrant as specified in its charter)
|
| |
West Virginia | 55-0672148 |
(State or other jurisdiction of | (IRS Employer |
incorporation or organization) | Identification No.) |
|
| | |
300 North Main Street | |
Moorefield | West Virginia | 26836 |
(Address of principal executive offices) | (Zip Code) |
(304) (304) 530-1000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities and 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 the past 90 days.
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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
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-2 of the Exchange Act.
Large accelerated filer o Accelerated filer þ Non-accelerated filer o
Smaller reporting company o☐ Emerging growth company o☐
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. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Securities registered pursuant to Section 12(b) of the Act:
|
| | |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, Par Value $2.50 per share | SMMF | NASDAQ CapitalGlobal Select Market |
Indicate the number of shares outstanding of each of the issuer’s classes of Common Stock as of the latest practicable date.
Common Stock, $2.50 par value
12,509,81012,972,022 shares outstanding as of July 29, 2019May 7, 2020
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PART I. | FINANCIAL INFORMATION | |
| | | |
| Item 1. | Financial Statements | |
| | | |
| | Consolidated balance sheets June 30, 2019March 31, 2020 (unaudited) and December 31, 20182019 | |
| | | |
| | Consolidated statements of income for the three months ended March 31, 2020 and six months ended June 30, 2019 and 2018 (unaudited) | |
| | | |
| | Consolidated statements of comprehensive income for the three months ended March 31, 2020 and six months ended June 30, 2019 and 2018 (unaudited) | |
| | | |
| | Consolidated statements of shareholders’ equity for the three months and six months ended June 30,March 31, 2020 and 2019 and 2018 (unaudited)
| |
| | | |
| | Consolidated statements of cash flows for the sixthree months ended June 30,March 31, 2020 and 2019 and 2018 (unaudited)
| |
| | | |
| | Notes to consolidated financial statements (unaudited) | |
| | | |
| Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | |
| | | |
| Item 3. | Quantitative and Qualitative Disclosures about Market Risk | |
| | | |
| Item 4. | Controls and Procedures | |
PART II. | OTHER INFORMATION | |
| Item 1. | Legal Proceedings | |
| | | |
| Item 1A. | Risk Factors | |
| | | |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | None |
| | | |
| Item 3. | Defaults upon Senior Securities | None |
| | | |
| Item 4. | Mine Safety Disclosures | None |
| | | |
| Item 5. | Other Information | None |
| | | |
| Item 6. | Exhibits | |
| | | |
EXHIBIT INDEX | | |
| | | |
SIGNATURES | | |
Item 1. Financial Statements
Consolidated Balance Sheets (unaudited)
| | | June 30, 2019 | | December 31, 2018 | March 31, 2020 | | December 31, 2019 |
Dollars in thousands, except per share amounts | (unaudited) | | (*) | (unaudited) | | (*) |
ASSETS | | | |
| | | |
|
Cash and due from banks | $ | 13,481 |
| | $ | 23,061 |
| $ | 18,633 |
| | $ | 28,137 |
|
Interest bearing deposits with other banks | 42,994 |
| | 36,479 |
| 22,821 |
| | 33,751 |
|
Cash and cash equivalents | 56,475 |
| | 59,540 |
| 41,454 |
| | 61,888 |
|
Debt securities available for sale | 269,920 |
| | 293,147 |
| 305,045 |
| | 276,355 |
|
Other investments | 14,238 |
| | 16,635 |
| 11,804 |
| | 12,972 |
|
Loans held for sale | 314 |
| | 400 |
| 647 |
| | 1,319 |
|
Loans, net of unearned income | 1,819,002 |
| | 1,695,052 |
| 2,007,269 |
| | 1,913,499 |
|
Less: allowance for loan losses | (13,152 | ) | | (13,047 | ) | |
Less: allowance for credit losses - loans | | (24,608 | ) | | (13,074 | ) |
Loans, net | 1,805,850 |
| | 1,682,005 |
| 1,982,661 |
| | 1,900,425 |
|
Property held for sale | 21,390 |
| | 21,432 |
| 18,287 |
| | 19,276 |
|
Premises and equipment, net | 42,896 |
| | 37,553 |
| 47,078 |
| | 44,168 |
|
Accrued interest receivable | 8,909 |
| | 8,708 |
| 9,043 |
| | 8,439 |
|
Goodwill and other intangible assets | 23,585 |
| | 25,842 |
| 34,132 |
| | 23,022 |
|
Cash surrender value of life insurance policies | 42,976 |
| | 42,386 |
| 46,497 |
| | 43,603 |
|
Other assets | 12,561 |
| | 12,938 |
| 16,674 |
| | 12,025 |
|
Total assets | $ | 2,299,114 |
| | $ | 2,200,586 |
| $ | 2,513,322 |
| | $ | 2,403,492 |
|
| | | | | | |
LIABILITIES AND SHAREHOLDERS' EQUITY | |
| | |
| |
| | |
|
Liabilities | |
| | |
| |
| | |
|
Deposits | |
| | |
| |
| | |
|
Non interest bearing | $ | 234,397 |
| | $ | 222,120 |
| |
Non-interest bearing | | $ | 337,446 |
| | $ | 260,553 |
|
Interest bearing | 1,563,096 |
| | 1,412,706 |
| 1,707,468 |
| | 1,652,684 |
|
Total deposits | 1,797,493 |
| | 1,634,826 |
| 2,044,914 |
| | 1,913,237 |
|
Short-term borrowings | 225,343 |
| | 309,084 |
| 161,745 |
| | 199,345 |
|
Long-term borrowings | 726 |
| | 735 |
| 712 |
| | 717 |
|
Subordinated debentures owed to unconsolidated subsidiary trusts | 19,589 |
| | 19,589 |
| 19,589 |
| | 19,589 |
|
Other liabilities | 20,262 |
| | 16,522 |
| 30,337 |
| | 22,840 |
|
Total liabilities | 2,063,413 |
| | 1,980,756 |
| 2,257,297 |
| | 2,155,728 |
|
| | | | | | |
Commitments and Contingencies |
|
| |
|
|
|
| |
|
|
| | | | | | |
Shareholders' Equity | |
| | |
| |
| | |
|
Preferred stock, $1.00 par value, authorized 250,000 shares | — |
| | — |
| — |
| | — |
|
Common stock and related surplus, $2.50 par value; authorized 20,000,000 shares; issued: 2019 - 12,526,710 shares and 2018 - 12,399,887 shares; outstanding: 2019 - 12,449,986 shares and 2018 - 12,312,933 | 80,946 |
| | 80,431 |
| |
Unallocated common stock held by Employee Stock Ownership Plan - 2019 - 76,724 shares and 2018 - 86,954 shares | (828 | ) | | (939 | ) | |
Common stock and related surplus, $2.50 par value; authorized 20,000,000 shares; issued: 2020 - 12,980,744 shares and 2019 - 12,474,641 shares; outstanding: 2020 - 12,920,244 shares and 2019 - 12,408,542 | | 94,439 |
| | 80,084 |
|
Unallocated common stock held by Employee Stock Ownership Plan - 2020 - 60,500 shares and 2019 - 66,099 shares | | (653 | ) | | (714 | ) |
Retained earnings | 153,362 |
| | 141,354 |
| 161,408 |
| | 165,859 |
|
Accumulated other comprehensive income (loss) | 2,221 |
| | (1,016 | ) | |
Accumulated other comprehensive income | | 831 |
| | 2,535 |
|
Total shareholders' equity | 235,701 |
| | 219,830 |
| 256,025 |
| | 247,764 |
|
| | | | | | |
Total liabilities and shareholders' equity | $ | 2,299,114 |
| | $ | 2,200,586 |
| $ | 2,513,322 |
| | $ | 2,403,492 |
|
(*) - Derived from audited consolidated financial statements
See Notes to Consolidated Financial Statements
Consolidated Statements of Income (unaudited)
| | | | For the Three Months Ended June 30, | | For the Six Months Ended June 30, | | For the Three Months Ended March 31, |
Dollars in thousands, except per share amounts | | 2019 | | 2018 | | 2019 | | 2018 | | 2020 | | 2019 |
Interest income | | | | | | | | | | | | |
Interest and fees on loans | | | | | | | | | | | | |
Taxable | | $ | 24,184 |
| | $ | 20,820 |
| | $ | 47,090 |
| | $ | 41,043 |
| | $ | 25,089 |
| | $ | 22,906 |
|
Tax-exempt | | 168 |
| | 142 |
| | 314 |
| | 286 |
| | 146 |
| | 145 |
|
Interest and dividends on securities | | |
| | |
| | |
| | |
| | |
| | |
|
Taxable | | 1,607 |
| | 1,240 |
| | 3,292 |
| | 2,612 |
| | 1,758 |
| | 1,686 |
|
Tax-exempt | | 789 |
| | 1,063 |
| | 1,689 |
| | 2,082 |
| | 552 |
| | 900 |
|
Interest on interest bearing deposits with other banks | | 134 |
| | 134 |
| | 365 |
| | 274 |
| | 98 |
| | 231 |
|
Total interest income | | 26,882 |
| | 23,399 |
| | 52,750 |
| | 46,297 |
| | 27,643 |
| | 25,868 |
|
Interest expense | | |
| | |
| | |
| | |
| | |
| | |
|
Interest on deposits | | 5,967 |
| | 4,309 |
| | 11,531 |
| | 7,858 |
| | 5,351 |
| | 5,564 |
|
Interest on short-term borrowings | | 1,397 |
| | 1,242 |
| | 2,869 |
| | 2,648 |
| | 630 |
| | 1,472 |
|
Interest on long-term borrowings and subordinated debentures | | 255 |
| | 573 |
| | 514 |
| | 1,258 |
| | 219 |
| | 259 |
|
Total interest expense | | 7,619 |
| | 6,124 |
| | 14,914 |
| | 11,764 |
| | 6,200 |
| | 7,295 |
|
Net interest income | | 19,263 |
| | 17,275 |
| | 37,836 |
| | 34,533 |
| | 21,443 |
| | 18,573 |
|
Provision for loan losses | | 300 |
| | 750 |
| | 550 |
| | 1,250 |
| |
Net interest income after provision for loan losses | | 18,963 |
| | 16,525 |
| | 37,286 |
| | 33,283 |
| |
Provision for credit losses | | | 5,250 |
| | 250 |
|
Net interest income after provision for credit losses | | | 16,193 |
| | 18,323 |
|
Noninterest income | | |
| | |
| | |
| | |
| | |
| | |
|
Insurance commissions | | 606 |
| | 1,013 |
| | 1,780 |
| | 2,126 |
| | 7 |
| | 1,174 |
|
Trust and wealth management fees | | 612 |
| | 672 |
| | 1,198 |
| | 1,339 |
| | 665 |
| | 586 |
|
Service charges on deposit accounts | | 1,224 |
| | 1,116 |
| | 2,405 |
| | 2,207 |
| | 1,263 |
| | 1,180 |
|
Bank card revenue | | 893 |
| | 801 |
| | 1,707 |
| | 1,550 |
| | 933 |
| | 814 |
|
Realized securities gains, net | | 1,086 |
| | 87 |
| | 1,082 |
| | 819 |
| |
Gain on sale of Summit Insurance Services, LLC | | 1,906 |
| | — |
| | 1,906 |
| | — |
| |
Realized securities gains (losses), net | | | 1,038 |
| | (3 | ) |
Bank owned life insurance income | | 248 |
| | 249 |
| | 486 |
| | 523 |
| | 264 |
| | 238 |
|
Other | | 235 |
| | 210 |
| | 476 |
| | 459 |
| | 332 |
| | 241 |
|
Total noninterest income | | 6,810 |
| | 4,148 |
| | 11,040 |
| | 9,023 |
| | 4,502 |
| | 4,230 |
|
Noninterest expenses | | |
| | |
| | |
| | |
| | |
| | |
|
Salaries, commissions and employee benefits | | 7,576 |
| | 6,922 |
| | 14,923 |
| | 13,744 |
| | 7,672 |
| | 7,347 |
|
Net occupancy expense | | 880 |
| | 840 |
| | 1,803 |
| | 1,672 |
| | 883 |
| | 924 |
|
Equipment expense | | 1,219 |
| | 1,071 |
| | 2,398 |
| | 2,153 |
| | 1,429 |
| | 1,179 |
|
Professional fees | | 475 |
| | 385 |
| | 878 |
| | 719 |
| | 387 |
| | 403 |
|
Advertising and public relations | | 155 |
| | 188 |
| | 308 |
| | 291 |
| | 152 |
| | 153 |
|
Amortization of intangibles | | 420 |
| | 413 |
| | 897 |
| | 848 |
| | 429 |
| | 476 |
|
FDIC premiums | | 88 |
| | 240 |
| | 88 |
| | 480 |
| | 165 |
| | — |
|
Bank card expense | | 473 |
| | 361 |
| | 911 |
| | 696 |
| | 503 |
| | 439 |
|
Foreclosed properties expense, net of losses | | 1,545 |
| | 350 |
| | 1,930 |
| | 675 |
| | 966 |
| | 384 |
|
Merger-related expenses | | 382 |
| | — |
| | 445 |
| | — |
| | 788 |
| | 63 |
|
Other | | 2,116 |
| | 1,965 |
| | 4,608 |
| | 3,771 |
| | 1,625 |
| | 2,492 |
|
Total noninterest expenses | | 15,329 |
| | 12,735 |
| | 29,189 |
| | 25,049 |
| | 14,999 |
| | 13,860 |
|
Income before income tax expense | | 10,444 |
| | 7,938 |
| | 19,137 |
| | 17,257 |
| | 5,696 |
| | 8,693 |
|
Income tax expense | | 1,880 |
| | 1,658 |
| | 3,481 |
| | 3,534 |
| | 1,190 |
| | 1,601 |
|
Net income | | $ | 8,564 |
| | $ | 6,280 |
| | $ | 15,656 |
| | $ | 13,723 |
| | $ | 4,506 |
| | $ | 7,092 |
|
| | | | | | | | | | | | |
Basic earnings per common share | | $ | 0.68 |
| | $ | 0.51 |
| | $ | 1.24 |
| | $ | 1.11 |
| | $ | 0.35 |
| | $ | 0.56 |
|
Diluted earnings per common share | | $ | 0.68 |
| | $ | 0.51 |
| | $ | 1.23 |
| | $ | 1.10 |
| | $ | 0.35 |
| | $ | 0.56 |
|
See Notes to Consolidated Financial Statements
Consolidated Statements of Comprehensive Income (unaudited)
|
| | | | | | | |
| For the Three Months Ended June 30, |
Dollars in thousands | 2019 | | 2018 |
Net income | $ | 8,564 |
| | $ | 6,280 |
|
Other comprehensive income (loss): | |
| | |
|
Net unrealized (loss) gain on cashflow hedge of: 2019 - ($545), net of deferred taxes of ($131); 2018 - $496, net of deferred taxes of $119 | (414 | ) | | 377 |
|
Net unrealized gain (loss) on securities available for sale of: 2019 - $2,001, net of deferred taxes of $480 and reclassification adjustment for net realized gains included in net income of $1,086, net of tax of $261; 2018 - ($625), net of deferred taxes of ($150) and reclassification adjustment for net realized gains included in net income of $87, net of tax of $21 | 1,521 |
| | (475 | ) |
Total other comprehensive income (loss) | 1,107 |
| | (98 | ) |
Total comprehensive income | $ | 9,671 |
| | $ | 6,182 |
|
|
| | | | | | | |
| For the Three Months Ended March 31, |
Dollars in thousands | 2020 | | 2019 |
Net income | $ | 4,506 |
| | $ | 7,092 |
|
Other comprehensive (loss) income: | |
| | |
|
Net unrealized loss on cashflow hedge of: 2020 - ($1,427), net of deferred taxes of ($343); 2019 - ($12), net of deferred taxes of ($3) | (1,084 | ) | | (9 | ) |
Net unrealized (loss) gain on securities available for sale of: 2020 - ($816), net of deferred taxes of ($196) and reclassification adjustment for net realized gains included in net income of $1,038, net of tax of $249; 2019 - $3,246, net of deferred taxes of $779 and reclassification adjustment for net realized losses included in net income of ($3), net of tax of ($1) | (620 | ) | | 2,467 |
|
Net unrealized loss on pension plan of: 2019 - ($432), net of deferred taxes of ($104) | — |
| | (328 | ) |
Total other comprehensive (loss) income | (1,704 | ) | | 2,130 |
|
Total comprehensive income | $ | 2,802 |
| | $ | 9,222 |
|
|
| | | | | | | |
| For the Six Months Ended June 30, |
Dollars in thousands | 2019 | | 2018 |
Net income | $ | 15,656 |
| | $ | 13,723 |
|
Other comprehensive income (loss): | |
| | |
|
Net unrealized (loss) gain on cashflow hedge of: 2019 - ($557), net of deferred taxes of ($134); 2018 - $1,437, net of deferred taxes of $345 | (423 | ) | | 1,092 |
|
Net unrealized gain (loss) on securities available for sale of: 2019 - $5,247, net of deferred taxes of $1,259 and reclassification adjustment for net realized gains included in net income of $1,082, net of tax of $260; 2018 - ($5,013), net of deferred taxes of ($1,203) and reclassification adjustment for net realized gains included in net income of $819, net of tax of $197 | 3,988 |
| | (3,810 | ) |
Net unrealized loss on pension plan of: 2019 - ($432), net of deferred taxes of ($104) | (328 | ) | | — |
|
Total other comprehensive income (loss) | 3,237 |
| | (2,718 | ) |
Total comprehensive income | $ | 18,893 |
| | $ | 11,005 |
|
See Notes to Consolidated Financial Statements
Consolidated Statements of Shareholders’ Equity (unaudited)
|
| | | | | | | | | | | | | | | | | | | |
Dollars in thousands, except per share amounts | Common Stock and Related Surplus | | Unallocated Common Stock Held by ESOP | | Retained Earnings | | Accumulated Other Compre- hensive Income (Loss) | | Total Share- holders' Equity |
| | | | | | | | | |
Balance March 31, 2019 | $ | 86,729 |
| | $ | (884 | ) | | $ | 146,671 |
| | $ | 1,114 |
| | $ | 233,630 |
|
| | | | | | | | | |
Three Months Ended June 30, 2019 | |
| | | | |
| | |
| | |
|
Net income | — |
| | — |
| | 8,564 |
| | — |
| | 8,564 |
|
Other comprehensive income | — |
| | — |
| | — |
| | 1,107 |
| | 1,107 |
|
Exercise of stock options and SARs - 16,815 shares | 7 |
| | — |
| | — |
| | — |
| | 7 |
|
Share-based compensation expense | 149 |
| | — |
| | — |
| | — |
| | 149 |
|
Unallocated ESOP shares committed to be released - 5,115 shares | 77 |
| | 56 |
| | — |
| | — |
| | 133 |
|
Retirement of 235,717 shares of common stock | (6,076 | ) | | — |
| | — |
| | — |
| | (6,076 | ) |
Common stock issuances from reinvested dividends - 2,245 shares | 60 |
| | — |
| | — |
| | — |
| | 60 |
|
Common stock cash dividends declared ($0.15 per share) | — |
| | — |
| | (1,873 | ) | | — |
| | (1,873 | ) |
Balance, June 30, 2019 | $ | 80,946 |
| | $ | (828 | ) | | $ | 153,362 |
| | $ | 2,221 |
| | $ | 235,701 |
|
| | | | | | | | | |
Balance March 31, 2018 | $ | 81,332 |
| | $ | (1,098 | ) | | $ | 125,663 |
| | $ | (888 | ) | | $ | 205,009 |
|
| | | | | | | | | |
Three Months Ended June 30, 2018 | |
| | | | |
| | |
| | |
|
Net income | — |
| | — |
| | 6,280 |
| | — |
| | 6,280 |
|
Other comprehensive loss | — |
| | — |
| | — |
| | (98 | ) | | (98 | ) |
Share-based compensation expense | 99 |
| | — |
| | — |
| | — |
| | 99 |
|
Unallocated ESOP shares committed to be released - 5,066 shares | 78 |
| | 55 |
| | — |
| | — |
| | 133 |
|
Common stock issuances from reinvested dividends - 2,321 shares | 63 |
| | — |
| | — |
| | — |
| | 63 |
|
Common stock cash dividends declared ($0.13 per share) | — |
| | — |
| | (1,607 | ) | | — |
| | (1,607 | ) |
Balance, June 30, 2018 | $ | 81,572 |
| | $ | (1,043 | ) | | $ | 130,336 |
| | $ | (986 | ) | | $ | 209,879 |
|
|
| | | | | | | | | | | | | | | | | | | |
Dollars in thousands, except per share amounts | Common Stock and Related Surplus | | Unallocated Common Stock Held by ESOP | | Retained Earnings | | Accumulated Other Compre- hensive Income | | Total Share- holders' Equity |
| | | | | | | | | |
Balance December 31, 2019 | $ | 80,084 |
| | $ | (714 | ) | | $ | 165,859 |
| | $ | 2,535 |
| | $ | 247,764 |
|
| | | | | | | | | |
Three Months Ended March 31, 2020 | |
| | | | |
| | |
| | |
|
Impact of adoption of ASC 326 | — |
| | — |
| | (6,756 | ) | | — |
| | (6,756 | ) |
Net income | — |
| | — |
| | 4,506 |
| | — |
| | 4,506 |
|
Other comprehensive loss | — |
| | — |
| | — |
| | (1,704 | ) | | (1,704 | ) |
Share-based compensation expense | 162 |
| | — |
| | — |
| | — |
| | 162 |
|
Unallocated ESOP shares committed to be released - 5,599 shares | 70 |
| | 61 |
| | — |
| | — |
| | 131 |
|
Retirement of 66,611 shares of common stock | (1,282 | ) | | — |
| | — |
| | — |
| | (1,282 | ) |
Acquisition of Cornerstone Financial Services, Inc. - 570,000 shares, net of issuance costs | 15,354 |
| | — |
| | — |
| | — |
| | 15,354 |
|
Common stock issuances from reinvested dividends - 2,714 shares | 51 |
| | — |
| | — |
| | — |
| | 51 |
|
Common stock cash dividends declared ($0.17 per share) | — |
| | — |
| | (2,201 | ) | | — |
| | (2,201 | ) |
Balance, March 31, 2020 | $ | 94,439 |
| | $ | (653 | ) | | $ | 161,408 |
| | $ | 831 |
| | $ | 256,025 |
|
| | | | | | | | | |
Balance, December 31, 2018 | $ | 80,431 |
| | $ | (939 | ) | | $ | 141,354 |
| | $ | (1,016 | ) | | $ | 219,830 |
|
| | | | | | | | | |
Three Months Ended March 31, 2019 | |
| | | | |
| | |
| | |
|
Net income | — |
| | — |
| | 7,092 |
| | — |
| | 7,092 |
|
Other comprehensive income | — |
| | — |
| | — |
| | 2,130 |
| | 2,130 |
|
Share-based compensation expense | 132 |
| | — |
| | — |
| | — |
| | 132 |
|
Unallocated ESOP shares committed to be released - 5,115 shares | 65 |
| | 55 |
| | — |
| | — |
| | 120 |
|
Retirement of 125,200 shares of common stock | (2,876 | ) | | — |
| | — |
| | — |
| | (2,876 | ) |
Acquisition of Peoples Bankshares, Inc. - 465,931 shares, net of issuance costs | 8,918 |
| | — |
| | — |
| | — |
| | 8,918 |
|
Common stock issuances from reinvested dividends - 2,309 shares | 59 |
| | — |
| | — |
| | — |
| | 59 |
|
Common stock cash dividends declared ($0.14 per share) | — |
| | — |
| | (1,775 | ) | | — |
| | (1,775 | ) |
Balance, March 31, 2019 | $ | 86,729 |
| | $ | (884 | ) | | $ | 146,671 |
| | $ | 1,114 |
| | $ | 233,630 |
|
See Notes to Consolidated Financial Statements
Consolidated Statements of Shareholders’ Equity (unaudited)
|
| | | | | | | | | | | | | | | | | | | |
Dollars in thousands, except per share amounts | Common Stock and Related Surplus | | Unallocated Common Stock Held by ESOP | | Retained Earnings | | Accumulated Other Compre- hensive Income (Loss) | | Total Share- holders' Equity |
| | | | | | | | | |
Balance, December 31, 2018 | $ | 80,431 |
| | $ | (939 | ) | | $ | 141,354 |
| | $ | (1,016 | ) | | $ | 219,830 |
|
| | | | | | | | | |
Six Months Ended June 30, 2019 | |
| | | | |
| | |
| | |
|
Net income | — |
| | — |
| | 15,656 |
| | — |
| | 15,656 |
|
Other comprehensive income | — |
| | — |
| | — |
| | 3,237 |
| | 3,237 |
|
Exercise of stock options and SARs - 17,255 shares | 7 |
| | — |
| | — |
| | — |
| | 7 |
|
Share-based compensation expense | 281 |
| | — |
| | — |
| | — |
| | 281 |
|
Unallocated ESOP shares committed to be released - 10,230 shares | 142 |
| | 111 |
| | — |
| | — |
| | 253 |
|
Retirement of 360,917 shares of common stock | (8,952 | ) | | — |
| | — |
| | — |
| | (8,952 | ) |
Acquisition of Peoples Bankshares, Inc. - 465,931 shares, net of issuance costs | 8,918 |
| | — |
| | — |
| | — |
| | 8,918 |
|
Common stock issuances from reinvested dividends - 4,554 shares | 119 |
| | — |
| | — |
| | — |
| | 119 |
|
Common stock cash dividends declared ($0.29 per share) | — |
| | — |
| | (3,648 | ) | | — |
| | (3,648 | ) |
Balance, June 30, 2019 | $ | 80,946 |
| | $ | (828 | ) | | $ | 153,362 |
| | $ | 2,221 |
| | $ | 235,701 |
|
| | | | | | | | | |
Balance, December 31, 2017 | $ | 81,098 |
| | $ | (1,152 | ) | | $ | 119,827 |
| | $ | 1,732 |
| | $ | 201,505 |
|
| | | | | | | | | |
Six Months Ended June 30, 2018 | |
| | | | |
| | |
| | |
|
Net income | — |
| | — |
| | 13,723 |
| | — |
| | 13,723 |
|
Other comprehensive loss | — |
| | — |
| | — |
| | (2,718 | ) | | (2,718 | ) |
Exercise of stock options - 200 shares | 4 |
| | — |
| | — |
| | — |
| | 4 |
|
Share-based compensation expense | 193 |
| | — |
| | — |
| | — |
| | 193 |
|
Unallocated ESOP shares committed to be released - 10,147 shares | 151 |
| | 109 |
| | — |
| | — |
| | 260 |
|
Common stock issuances from reinvested dividends - 4,838 shares | 126 |
| | — |
| | — |
| | — |
| | 126 |
|
Common stock cash dividends declared ($0.26 per share) | — |
| | — |
| | (3,214 | ) | | — |
| | (3,214 | ) |
Balance, June 30, 2018 | $ | 81,572 |
| | $ | (1,043 | ) | | $ | 130,336 |
| | $ | (986 | ) | | $ | 209,879 |
|
See Notes to Consolidated Financial Statements
Consolidated Statements of Cash Flows (unaudited)
| | | | Six Months Ended | | Three Months Ended |
Dollars in thousands | | June 30, 2019 | | June 30, 2018 | | March 31, 2020 | | March 31, 2019 |
Cash Flows from Operating Activities | | | | | | | | |
Net income | | $ | 15,656 |
| | $ | 13,723 |
| | $ | 4,506 |
| | $ | 7,092 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | |
| | |
| | |
| | |
|
Depreciation | | 1,242 |
| | 1,058 |
| | 726 |
| | 601 |
|
Provision for loan losses | | 550 |
| | 1,250 |
| |
Provision for credit losses | | | 5,250 |
| | 250 |
|
Share-based compensation expense | | 281 |
| | 193 |
| | 162 |
| | 132 |
|
Deferred income tax benefit | | (236 | ) | | (193 | ) | | (267 | ) | | (313 | ) |
Loans originated for sale | | (6,843 | ) | | (7,764 | ) | | (6,444 | ) | | (3,946 | ) |
Proceeds from sale of loans | | 7,080 |
| | 7,775 |
| | 7,227 |
| | 3,980 |
|
Gains on loans held for sale | | (151 | ) | | (146 | ) | | (111 | ) | | (67 | ) |
Realized securities gains, net | | (1,082 | ) | | (819 | ) | |
Loss (gain) on disposal of assets | | 155 |
| | (16 | ) | |
Gain on sale of Summit Insurance Services, LLC | | (1,906 | ) | | — |
| |
Realized securities (gains) losses, net | | | (1,038 | ) | | 3 |
|
Gain on disposal of assets | | | (67 | ) | | (2 | ) |
Write-downs of foreclosed properties | | 1,445 |
| | 420 |
| | 945 |
| | 249 |
|
Amortization of securities premiums, net | | 1,290 |
| | 1,872 |
| | 558 |
| | 655 |
|
Accretion related to acquisitions, net | | (632 | ) | | (310 | ) | | (350 | ) | | (76 | ) |
Amortization of intangibles | | 897 |
| | 848 |
| | 429 |
| | 476 |
|
Earnings on bank owned life insurance | | (590 | ) | | (574 | ) | | (179 | ) | | (328 | ) |
Decrease (increase) in accrued interest receivable | | 229 |
| | (96 | ) | |
Increase in other assets | | (11 | ) | | (415 | ) | |
Increase in other liabilities | | 1,232 |
| | 1,358 |
| |
Decrease in accrued interest receivable | | | 205 |
| | 311 |
|
(Increase) decrease in other assets | | | (1,247 | ) | | 69 |
|
(Decrease) increase in other liabilities | | | (1,003 | ) | | 2,140 |
|
Net cash provided by operating activities | | 18,606 |
| | 18,164 |
| | 9,302 |
| | 11,226 |
|
Cash Flows from Investing Activities | | |
| | |
| | |
| | |
|
Proceeds from maturities and calls of securities available for sale | | 1,445 |
| | 1,050 |
| | 2,200 |
| | 1,100 |
|
Proceeds from sales of securities available for sale | | 114,171 |
| | 69,235 |
| | 74,750 |
| | 79,776 |
|
Principal payments received on securities available for sale | | 13,822 |
| | 13,393 |
| | 6,374 |
| | 4,684 |
|
Purchases of securities available for sale | | (46,060 | ) | | (44,243 | ) | | (22,321 | ) | | (31,839 | ) |
Purchases of other investments | | (6,930 | ) | | (5,938 | ) | | (5,001 | ) | | (1,348 | ) |
Proceeds from redemptions of other investments | | 9,142 |
| | 7,397 |
| | 6,397 |
| | 5,330 |
|
Net loan originations | | (85,633 | ) | | (26,200 | ) | | (52,787 | ) | | (5,295 | ) |
Purchases of premises and equipment | | (5,863 | ) | | (2,866 | ) | | (2,971 | ) | | (708 | ) |
Proceeds from disposal of premises and equipment | | 3 |
| | 12 |
| | 9 |
| | 3 |
|
Improvements to property held for sale | | (33 | ) | | (795 | ) | | (585 | ) | | (1 | ) |
Proceeds from sales of repossessed assets & property held for sale | | 2,403 |
| | 1,225 |
| | 780 |
| | 451 |
|
Proceeds from sale of Summit Insurance Services, LLC | | 7,117 |
| | — |
| |
Cash and cash equivalents acquired in acquisition, net of $12,740 cash consideration paid | | 20,589 |
| | — |
| |
Cash and cash equivalents from acquisition, net of cash consideration paid 2020 - $14,250; 2019 - $12,740 | | | 46,034 |
| | 20,589 |
|
Net cash provided by investing activities | | 24,173 |
| | 12,270 |
| | 52,879 |
| | 72,742 |
|
Cash Flows from Financing Activities | | |
| | |
| | |
| | |
|
Net increase in demand deposit, NOW and savings accounts | | 20,505 |
| | 25,848 |
| | 4,952 |
| | 25,880 |
|
Net increase in time deposits | | 29,954 |
| | 13,661 |
| |
Net (decrease) increase in time deposits | | | (46,443 | ) | | 16,032 |
|
Net decrease in short-term borrowings | | (83,741 | ) | | (48,071 | ) | | (37,599 | ) | | (122,791 | ) |
Repayment of long-term borrowings | | (9 | ) | | (25,008 | ) | | (6 | ) | | (4 | ) |
Proceeds from issuance of common stock, net of issuance costs | | 40 |
| | 126 |
| | (36 | ) | | (20 | ) |
Purchase and retirement of common stock | | (8,952 | ) | | — |
| | (1,282 | ) | | (2,876 | ) |
Exercise of stock options | | 7 |
| | 4 |
| |
Dividends paid on common stock | | (3,648 | ) | | (3,214 | ) | | (2,201 | ) | | (1,775 | ) |
Net cash used in financing activities | | (45,844 | ) | | (36,654 | ) | | (82,615 | ) | | (85,554 | ) |
Decrease in cash and cash equivalents | | (3,065 | ) | | (6,220 | ) | | (20,434 | ) | | (1,586 | ) |
Cash and cash equivalents: | | |
| | |
| | |
| | |
|
Beginning | | 59,540 |
| | 52,631 |
| | 61,888 |
| | 59,540 |
|
Ending | | $ | 56,475 |
| | $ | 46,411 |
| | $ | 41,454 |
| | $ | 57,954 |
|
(Continued) | | | | | | | | | |
See Notes to Consolidated Financial Statements | | | | | | | | |
Consolidated Statements of Cash Flows (unaudited) - continued
| | | | Six Months Ended | | Three Months Ended |
Dollars in thousands | | June 30, 2019 | | June 30, 2018 | | March 31, 2020 | | March 31, 2019 |
Supplemental Disclosures of Cash Flow Information | | | | | | | | |
Cash payments for: | | | | | | | | |
Interest | | $ | 14,645 |
| | $ | 11,713 |
| | $ | 6,338 |
| | $ | 7,134 |
|
Income taxes | | $ | 3,845 |
| | $ | 4,066 |
| | $ | — |
| | $ | — |
|
| | | | | | | | |
Supplemental Disclosures of Noncash Investing and Financing Activities | | | | |
| | | | |
|
Real property and other assets acquired in settlement of loans | | $ | 3,937 |
| | $ | 906 |
| | $ | 175 |
| | $ | 3,691 |
|
Supplemental Disclosures of Noncash Transactions Included in Acquisition | | | | | | | | |
Assets acquired | | $ | 100,377 |
| | $ | — |
| | $ | 135,130 |
| | $ | 100,377 |
|
Liabilities assumed | | $ | 114,151 |
| | $ | — |
| | $ | 176,545 |
| | $ | 114,151 |
|
See Notes to Consolidated Financial Statements
NOTE 1. BASIS OF PRESENTATION
We, Summit Financial Group, Inc. and subsidiaries, prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America for interim financial information and with instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America for annual year end financial statements. In our opinion, all adjustments considered necessary for a fair presentation have been included and are of a normal recurring nature.
The presentation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the reported amounts 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 materially from these estimates. You should carefully consider each risk factor discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019 and the COVID-19 risk factor in Part II. Item 1A Risk Factors of this quarterly report on Form 10-Q.
The results of operations for the three and six months ended June 30, 2019March 31, 2020 are not necessarily indicative of the results to be expected for the full year. The consolidated financial statements and notes included herein should be read in conjunction with our 20182019 audited financial statements and Annual Report on Form 10-K.
NOTE 2. SIGNIFICANT NEW AUTHORITATIVE ACCOUNTING GUIDANCE
Recently Adopted
We adopted ASU No. 2016-02, Leases (Topic 842) and its related amendments on its required effective date of January 1, 2019 utilizing the modified retrospective approach. Since there was no net income impact upon adoption of the new guidance, a cumulative effect adjustment to opening retained earnings was not deemed necessary. The impact, deemed insignificant, to our consolidated financial position upon adoption was the recognition, on a discounted basis, of our minimum commitments under non-cancellable operating leases on our consolidated balance sheets resulting in the recording of right of use assets and lease obligations of approximately $870,000 which is related to long-term operating leases of premises and leases of equipment used in operations. The right-of-use assets and lease liabilities are included in other assets and other liabilities in the Consolidated Balance Sheets. Our current minimum commitments under long-term operating leases are disclosed in Note 12, Commitments and Contingencies.
We adopted ASU No. 2017-08, Receivables-Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities on its required effective date of January 1, 2019. This guidance shortens the amortization period for premiums on certain callable debt securities to the earliest call date (with an explicit, noncontingent call feature that is callable at a fixed price and on a preset date), rather than contractual maturity date as currently required under GAAP. The ASU does not impact instruments without preset call dates such as mortgage-backed securities. For instruments with contingent call features, once the contingency is resolved and the security is callable at a fixed price and preset date, the security is within the scope of the ASU. The adoption of the new pronouncement did not have a significant impact on our consolidated financial statements.
Pending Adoption
During June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326) - Measurement of Credit Losses on Financial Instruments. The amendments in this ASU,Accounting Standards Codification Topic 326 ("ASC 326"), Financial Instruments - Credit Losses, as amended, among other things, requirerequires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques previously applied today willare still be permitted, although the inputs to those techniques will changehave changed to reflect the full amount of expected credit losses. In addition, the ASUASC 326 amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. The amendments in this ASU are effective
We adopted ASC 326 on January 1, 2020 using the modified retrospective approach. Results for SEC filers for fiscal years and interimthe periods within those fiscal years, beginning after December 15, 2019.January 1, 2020 are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable US GAAP. We will adoptrecorded a net reduction of retained earnings of $6.76 million upon adoption. The transition adjustment includes an increase in the guidance byallowance for credit losses for loans ("ACLL") of $6.93 million and an increase in the first quarterallowance for credit losses on off-balance sheet credit exposures of 2020$2.43 million, net of the corresponding increases in deferred tax assets of $2.13 million. The adjustments to the allowance for credit losses ("ACL") for both loans and off-balance sheet credit exposures are combined and reported on our income statement as credit loss expense. Further information regarding our policies and methodology used to estimate the ACLL is presented in Note 6 - Loans and Allowance for Credit Losses for Loans. Further information regarding our policies and methodology used to estimate the ACL on off-balance-sheet credit exposures is presented in Note 11 - Commitments and Contingencies.
We adopted ASC 326 using the prospective transition approach for financial assets purchased with a cumulative-effect adjustment to retained earningscredit deterioration (“PCD”) that were previously classified as purchased credit impaired (“PCI”) and accounted for under ASC 310-30. In accordance with the standard, we did not reassess whether PCI assets met the criteria of PCD assets as of the beginningdate of adoption. The remaining credit discount on the PCI loans was recorded as an offset to the ACLL at the time of adoption and is netted in the above adjustment. The remaining adjustment for noncredit factors on these loans will be accreted into interest income on a level-yield method over the life of the yearloans.
Additionally, we evaluated each acquired loan for PCD status at the time of adoption. In this regard, we haveWe identified loans with a cross-functional implementation team comprisednet balance of personnel from risk management, operations$9.4 million that should be considered PCD. We considered the remaining discount at the time of adoption to be for noncredit factors on these loans and information technology, loan administration and finance and engaged a third-party to assist us. The team has developed a project plan, identified key decision points and prepared a readiness assessment and gap analysis relative to required data which serves to direct our areas of focus. In addition, we have collected applicable historical data and made decisions regarding methodology and loan pool structures. We will continue to evaluate the impact the new standard will have on our consolidated financial statements as the
final impactit will be dependent, among other items, uponaccreted into interest income on a level-yield method over the loan portfolio composition and credit quality atlife of the adoption date, as well as economic conditions, financial models used and forecasts at that time.loans.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement. The amendments modify the disclosure requirements in Topic 820 to add disclosures regarding changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements and the narrative description of measurement uncertainty. Certain disclosure
requirements in Topic 820 are also removed or modified. The amendments were effective for us January 1, 2020 and did not have a material impact on our consolidated financial statements.
In March 2020, various regulatory agencies, including the Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Corporation, (“the agencies”) issued an interagency statement on loan modifications and reporting for financial institutions working with customers affected by the Coronavirus ("COVID-19"). The interagency statement was effective immediately and impacted accounting for loan modifications. Under ASC 310-40, Receivables - Troubled Debt Restructurings by Creditors, (“ASC 310-40”), a restructuring of debt constitutes a troubled debt restructuring (“TDR”) if the creditor, for economic or legal reasons related to the debtor’s financial difficulties, grants a concession to the debtor that it would not otherwise consider. The agencies confirmed with the staff of the FASB that short-term modifications made on a good faith basis in response to the COVID-19 crisis to borrowers who were current prior to any relief, are not to be considered TDRs. This includes short-term (e.g., six months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant. Borrowers considered current are those that are less than 30 days past due on their contractual payments at the time a modification program is implemented. This interagency guidance is expected to have a material impact on the Company’s financial statements; however, this impact cannot be quantified at this time. See Note 6 of the accompanying consolidated financial statements for disclosure of the impact to date.
Pending Adoption
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740) - Simplifying the Accounting for Income Taxes. The ASU is expected to reduce cost and complexity related to the accounting for income taxes by removing specific exceptions to general principles in Topic 740 (eliminating the need for an organization to analyze whether certain exceptions apply in a given period) and improving financial statement preparers’ application of certain income tax-related guidance. This ASU is part of the FASB’s simplification initiative to make narrow-scope simplifications and improvements to accounting standards through a series of short-term projects. For public business entities, the amendments are effective for fiscal years beginning after December 15, 2019,2020, and interim periods within those fiscal years. Certain of the amendments are to be applied prospectively while others are to be applied retrospectively. Early adoption is permitted. We are currently assessing the impact that ASU 2019-12 will have on our consolidated financial statements.
In January 2020, the FASB issued ASU 2020-01, Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) - Clarifying the Interactions between Topic 321, Topic 323, and Topic 815. We do not expect the adoption of ASU 2018-132020-01 to have a material impact on our consolidated financial statements.
In March 2020, the Financial Accounting Standards Board (FASB) issued ASU 2020-04 Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting which provides temporary optional guidance to ease the potential burden in accounting for reference rate reform. The ASU provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. It is intended to help stakeholders during the global market-wide reference rate transition period. The guidance is effective for all entities as of March 12, 2020 through December 31, 2022. At this time, we do not anticipate any material adverse impact to our business operation or financial results during the period of transition.
NOTE 3. FAIR VALUE MEASUREMENTS
The table below presents the recorded amount of assets and liabilities measured at fair value on a recurring basis. | | | Balance at | | Fair Value Measurements Using: | Balance at | | Fair Value Measurements Using: |
Dollars in thousands | June 30, 2019 | | Level 1 | | Level 2 | | Level 3 | March 31, 2020 | | Level 1 | | Level 2 | | Level 3 |
Securities available for sale | | | | | | | | | | | | | | |
U.S. Government sponsored agencies | $ | 23,724 |
| | $ | — |
| | $ | 23,724 |
| | $ | — |
| $ | 40,366 |
| | $ | — |
| | $ | 40,366 |
| | $ | — |
|
Mortgage backed securities: | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
|
Government sponsored agencies | 75,334 |
| | — |
| | 75,334 |
| | — |
| 68,927 |
| | — |
| | 68,927 |
| | — |
|
Nongovernment sponsored entities | 9,170 |
| | — |
| | 9,170 |
| | — |
| 11,076 |
| | — |
| | 11,076 |
| | — |
|
State and political subdivisions | 23,365 |
| | — |
| | 23,365 |
| | — |
| 50,511 |
| | — |
| | 50,511 |
| | — |
|
Corporate debt securities | 16,972 |
| | — |
| | 16,972 |
| | — |
| 19,590 |
| | — |
| | 19,590 |
| | — |
|
Asset-backed securities | 33,452 |
| | — |
| | 33,452 |
| | — |
| 40,061 |
| | — |
| | 40,061 |
| | — |
|
Tax-exempt state and political subdivisions | 87,903 |
| | — |
| | 87,903 |
| | — |
| 74,514 |
| | — |
| | 74,514 |
| | — |
|
Total securities available for sale | $ | 269,920 |
| | $ | — |
| | $ | 269,920 |
| | $ | — |
| $ | 305,045 |
| | $ | — |
| | $ | 305,045 |
| | $ | — |
|
| | | | | | | | | | | | | | |
Derivative financial assets | | | | | | | | |
Interest rate swaps | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| |
| | | | | | | | |
Derivative financial liabilities | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
|
Interest rate swaps | $ | 1,247 |
| | $ | — |
| | $ | 1,247 |
| | $ | — |
| $ | 3,477 |
| | $ | — |
| | $ | 3,477 |
| | $ | — |
|
|
| | | | | | | | | | | | | | | |
| Balance at | | Fair Value Measurements Using: |
Dollars in thousands | December 31, 2018 | | Level 1 | | Level 2 | | Level 3 |
Securities available for sale | | | | | | | |
U.S. Government sponsored agencies | $ | 26,140 |
| | $ | — |
| | $ | 26,140 |
| | $ | — |
|
Mortgage backed securities: | |
| | |
| | |
| | |
|
Government sponsored agencies | 80,309 |
| | — |
| | 80,309 |
| | — |
|
Nongovernment sponsored entities | 614 |
| | — |
| | 614 |
| | — |
|
State and political subdivisions | 19,243 |
| | — |
| | 19,243 |
| | — |
|
Corporate debt securities | 14,512 |
| | — |
| | 14,512 |
| | — |
|
Asset-backed securities | 25,175 |
| | — |
| | 25,175 |
| | — |
|
Tax-exempt state and political subdivisions | 127,154 |
| | — |
| | 127,154 |
| | — |
|
Total securities available for sale | $ | 293,147 |
| | $ | — |
| | $ | 293,147 |
| | $ | — |
|
| | | | | | | |
Derivative financial assets | | | | | | | |
Interest rate swaps | $ | 555 |
| | $ | — |
| | $ | 555 |
| | $ | — |
|
| | | | | | | |
Derivative financial liabilities | |
| | |
| | |
| | |
|
Interest rate swaps | $ | 411 |
| | $ | — |
| | $ | 411 |
| | $ | — |
|
|
| | | | | | | | | | | | | | | |
| Balance at | | Fair Value Measurements Using: |
Dollars in thousands | December 31, 2019 | | Level 1 | | Level 2 | | Level 3 |
Securities available for sale | | | | | | | |
U.S. Government sponsored agencies | $ | 20,864 |
| | $ | — |
| | $ | 20,864 |
| | $ | — |
|
Mortgage backed securities: | |
| | |
| | |
| | |
|
Government sponsored agencies | 70,975 |
| | — |
| | 70,975 |
| | — |
|
Nongovernment sponsored entities | 10,229 |
| | — |
| | 10,229 |
| | — |
|
State and political subdivisions | 49,973 |
| | — |
| | 49,973 |
| | — |
|
Corporate debt securities | 18,200 |
| | — |
| | 18,200 |
| | — |
|
Asset-backed securities | 33,014 |
| | — |
| | 33,014 |
| | — |
|
Tax-exempt state and political subdivisions | 73,100 |
| | — |
| | 73,100 |
| | — |
|
Total securities available for sale | $ | 276,355 |
| | $ | — |
| | $ | 276,355 |
| | $ | — |
|
| | | | | | | |
Derivative financial liabilities | |
| | |
| | |
| | |
|
Interest rate swaps | $ | 988 |
| | $ | — |
| | $ | 988 |
| | $ | — |
|
We may be required, from time to time, to measure certain assets at fair value on a nonrecurring basis in accordance with U.S. generally accepted accounting principles. These include assets that are measured at the lower of cost or market that were
recognized at fair value below cost at the end of the period. Assets measured at fair value on a nonrecurring basis are included in the table below.
| | | Balance at | | Fair Value Measurements Using: | Balance at | | Fair Value Measurements Using: |
Dollars in thousands | June 30, 2019 | | Level 1 | | Level 2 | | Level 3 | March 31, 2020 | | Level 1 | | Level 2 | | Level 3 |
Residential mortgage loans held for sale | $ | 314 |
| | $ | — |
| | $ | 314 |
| | $ | — |
| $ | 647 |
| | $ | — |
| | $ | 647 |
| | $ | — |
|
| | | | | | | | | | | | | | |
Collateral-dependent impaired loans | |
| | |
| | |
| | |
| |
Collateral-dependent loans with an ACLL | | |
| | |
| | |
| | |
|
Commercial | $ | 238 |
| | $ | — |
| | $ | 8 |
| | $ | 230 |
| $ | 8 |
| | $ | — |
| | $ | 8 |
| | $ | — |
|
Commercial real estate | 420 |
| | $ | — |
| | 420 |
| | — |
| 1,863 |
| | — |
| | 1,863 |
| | — |
|
Construction and development | 515 |
| | $ | — |
| | 515 |
| | — |
| 429 |
| | — |
| | 429 |
| | — |
|
Residential real estate | 717 |
| | — |
| | 646 |
| | 71 |
| 196 |
| | — |
| | 196 |
| | — |
|
Total collateral-dependent impaired loans | $ | 1,890 |
| | $ | — |
| | $ | 1,589 |
| | $ | 301 |
| |
Total collateral-dependent loans with an ACLL | | $ | 2,496 |
| | $ | — |
| | $ | 2,496 |
| | $ | — |
|
| | | | | | | | | | | | | | |
Property held for sale | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
|
Commercial real estate | $ | 1,414 |
| | $ | — |
| | $ | 1,414 |
| | $ | — |
| $ | 1,217 |
| | $ | — |
| | $ | 1,217 |
| | $ | — |
|
Construction and development | 14,427 |
| | — |
| | 14,427 |
| | — |
| 11,676 |
| | — |
| | 11,676 |
| | — |
|
Residential real estate | 783 |
| | — |
| | 783 |
| | — |
| 557 |
| | — |
| | 557 |
| | — |
|
Total property held for sale | $ | 16,624 |
| | $ | — |
| | $ | 16,624 |
| | $ | — |
| $ | 13,450 |
| | $ | — |
| | $ | 13,450 |
| | $ | — |
|
Collateral dependent loans with an ACLL were categorized as impaired loans with specific reserves prior to the adoption of ASC 326.
|
| | | | | | | | | | | | | | | |
| Balance at | | Fair Value Measurements Using: |
Dollars in thousands | December 31, 2019 | | Level 1 | | Level 2 | | Level 3 |
Residential mortgage loans held for sale | $ | 1,319 |
| | $ | — |
| | $ | 1,319 |
| | $ | — |
|
| | | | | | | |
Collateral-dependent impaired loans | |
| | |
| | |
| | |
|
Commercial | $ | 4,831 |
| | $ | — |
| | $ | 4,831 |
| | $ | — |
|
Commercial real estate | 1,863 |
| | — |
| | 1,863 |
| | — |
|
Construction and development | 425 |
| | — |
| | 425 |
| | — |
|
Residential real estate | 692 |
| | — |
| | 566 |
| | 126 |
|
Total collateral-dependent impaired loans | $ | 7,811 |
| | $ | — |
| | $ | 7,685 |
| | $ | 126 |
|
| | | | | | | |
Property held for sale | |
| | |
| | |
| | |
|
Commercial real estate | $ | 1,304 |
| | $ | — |
| | $ | 1,304 |
| | $ | — |
|
Construction and development | 12,182 |
| | — |
| | 12,182 |
| | — |
|
Residential real estate | 705 |
| | — |
| | 705 |
| | — |
|
Total property held for sale | $ | 14,191 |
| | $ | — |
| | $ | 14,191 |
| | $ | — |
|
|
| | | | | | | | | | | | | | | |
| Balance at | | Fair Value Measurements Using: |
Dollars in thousands | December 31, 2018 | | Level 1 | | Level 2 | | Level 3 |
Residential mortgage loans held for sale | $ | 400 |
| | $ | — |
| | $ | 400 |
| | $ | — |
|
| | | | | | | |
Collateral-dependent impaired loans | |
| | |
| | |
| | |
|
Commercial | $ | 2,660 |
| | $ | — |
| | $ | 2,611 |
| | $ | 49 |
|
Commercial real estate | 420 |
| | — |
| | 420 |
| | — |
|
Construction and development | 759 |
| | — |
| | 759 |
| | — |
|
Residential real estate | 763 |
| | — |
| | 763 |
| | — |
|
Total collateral-dependent impaired loans | $ | 4,602 |
| | $ | — |
| | $ | 4,553 |
| | $ | 49 |
|
| | | | | | | |
Property held for sale | |
| | |
| | |
| | |
|
Commercial real estate | $ | 1,677 |
| | $ | — |
| | $ | 1,677 |
| | $ | — |
|
Construction and development | 16,363 |
| | — |
| | 16,363 |
| | — |
|
Residential real estate | 403 |
| | — |
| | 403 |
| | — |
|
Total property held for sale | $ | 18,443 |
| | $ | — |
| | $ | 18,443 |
| | $ | — |
|
The carrying values and estimated fair values of our financial instruments are summarized below:
|
| | | | | | | | | | | | | | | | | | |
| | March 31, 2020 | | Fair Value Measurements Using: |
Dollars in thousands | | Carrying Value | | Estimated Fair Value | | Level 1 | Level 2 | Level 3 |
Financial assets | | | | | | | | |
Cash and cash equivalents | | $ | 41,454 |
| | $ | 41,454 |
| | $ | — |
| $ | 41,454 |
| $ | — |
|
Securities available for sale | | 305,045 |
| | 305,045 |
| | — |
| 305,045 |
| — |
|
Other investments | | 11,804 |
| | 11,804 |
| | — |
| 11,804 |
| — |
|
Loans held for sale, net | | 647 |
| | 647 |
| | — |
| 647 |
| — |
|
Loans, net | | 1,982,661 |
| | 1,981,162 |
| | — |
| 2,496 |
| 1,978,666 |
|
Accrued interest receivable | | 9,043 |
| | 9,043 |
| | — |
| 9,043 |
| — |
|
Cash surrender value of life insurance policies | | 46,497 |
| | 46,497 |
| | — |
| 46,497 |
| — |
|
| | $ | 2,397,151 |
| | $ | 2,395,652 |
| | $ | — |
| $ | 416,986 |
| $ | 1,978,666 |
|
Financial liabilities | | |
| | |
| | |
| |
| |
Deposits | | $ | 2,044,914 |
| | $ | 2,054,077 |
| | $ | — |
| $ | 2,054,077 |
| $ | — |
|
Short-term borrowings | | 161,745 |
| | 161,745 |
| | — |
| 161,745 |
| — |
|
Long-term borrowings | | 712 |
| | 888 |
| | — |
| 888 |
| — |
|
Subordinated debentures owed to unconsolidated subsidiary trusts | | 19,589 |
| | 19,589 |
| | — |
| 19,589 |
| — |
|
Accrued interest payable | | 1,096 |
| | 1,096 |
| | — |
| 1,096 |
| — |
|
Derivative financial liabilities | | 3,477 |
| | 3,477 |
| | — |
| 3,477 |
| — |
|
| | $ | 2,231,533 |
| | $ | 2,240,872 |
| | $ | — |
| $ | 2,240,872 |
| $ | — |
|
|
| | | | | | | | | | | | | | | | | | |
| | June 30, 2019 | | Fair Value Measurements Using: |
Dollars in thousands | | Carrying Value | | Estimated Fair Value | | Level 1 | Level 2 | Level 3 |
Financial assets | | | | | | | | |
Cash and cash equivalents | | $ | 56,475 |
| | $ | 56,475 |
| | $ | — |
| $ | 56,475 |
| $ | — |
|
Securities available for sale | | 269,920 |
| | 269,920 |
| | — |
| 269,920 |
| — |
|
Other investments | | 14,238 |
| | 14,238 |
| | — |
| 14,238 |
| — |
|
Loans held for sale, net | | 314 |
| | 314 |
| | — |
| 314 |
| — |
|
Loans, net | | 1,805,850 |
| | 1,808,046 |
| | — |
| 1,589 |
| 1,806,457 |
|
Accrued interest receivable | | 8,909 |
| | 8,909 |
| | — |
| 8,909 |
| — |
|
Derivative financial assets | | — |
| | — |
| | — |
| — |
| — |
|
| | $ | 2,155,706 |
| | $ | 2,157,902 |
| | $ | — |
| $ | 351,445 |
| $ | 1,806,457 |
|
Financial liabilities | | |
| | |
| | |
| |
| |
Deposits | | $ | 1,797,493 |
| | $ | 1,803,314 |
| | $ | — |
| $ | 1,803,314 |
| $ | — |
|
Short-term borrowings | | 225,343 |
| | 225,343 |
| | — |
| 225,343 |
| — |
|
Long-term borrowings | | 726 |
| | 867 |
| | — |
| 867 |
| — |
|
Subordinated debentures owed to unconsolidated subsidiary trusts | | 19,589 |
| | 19,589 |
| | — |
| 19,589 |
| — |
|
Accrued interest payable | | 1,370 |
| | 1,370 |
| | — |
| 1,370 |
| — |
|
Derivative financial liabilities | | 1,247 |
| | 1,247 |
| | — |
| 1,247 |
| — |
|
| | $ | 2,045,768 |
| | $ | 2,051,730 |
| | $ | — |
| $ | 2,051,730 |
| $ | — |
|
|
| | | | | | | | | | | | | | | | | | |
| | December 31, 2019 | | Fair Value Measurements Using: |
Dollars in thousands | | Carrying Value | | Estimated Fair Value | | Level 1 | Level 2 | Level 3 |
Financial assets | | | | | | | | |
Cash and cash equivalents | | $ | 61,888 |
| | $ | 61,888 |
| | $ | — |
| $ | 61,888 |
| $ | — |
|
Securities available for sale | | 276,355 |
| | 276,355 |
| | — |
| 276,355 |
| — |
|
Other investments | | 12,972 |
| | 12,972 |
| | — |
| 12,972 |
| — |
|
Loans held for sale, net | | 1,319 |
| | 1,319 |
| | — |
| 1,319 |
| — |
|
Loans, net | | 1,900,425 |
| | 1,901,020 |
| | — |
| 7,685 |
| 1,893,335 |
|
Accrued interest receivable | | 8,439 |
| | 8,439 |
| | — |
| 8,439 |
| — |
|
Cash surrender value of life insurance policies | | 43,603 |
| | 43,603 |
| | — |
| 43,603 |
| — |
|
| | $ | 2,305,001 |
| | $ | 2,305,596 |
| | $ | — |
| $ | 412,261 |
| $ | 1,893,335 |
|
Financial liabilities | | |
| | |
| | |
| |
| |
Deposits | | $ | 1,913,237 |
| | $ | 1,918,610 |
| | $ | — |
| $ | 1,918,610 |
| $ | — |
|
Short-term borrowings | | 199,345 |
| | 199,345 |
| | — |
| 199,345 |
| — |
|
Long-term borrowings | | 717 |
| | 854 |
| | — |
| 854 |
| — |
|
Subordinated debentures owed to unconsolidated subsidiary trusts | | 19,589 |
| | 19,589 |
| | — |
| 19,589 |
| — |
|
Accrued interest payable | | 1,234 |
| | 1,234 |
| | — |
| 1,234 |
| — |
|
Derivative financial liabilities | | 988 |
| | 988 |
| | — |
| 988 |
| — |
|
| | $ | 2,135,110 |
| | $ | 2,140,620 |
| | $ | — |
| $ | 2,140,620 |
| $ | — |
|
|
| | | | | | | | | | | | | | | | | | |
| | December 31, 2018 | | Fair Value Measurements Using: |
Dollars in thousands | | Carrying Value | | Estimated Fair Value | | Level 1 | Level 2 | Level 3 |
Financial assets | | | | | | | | |
Cash and cash equivalents | | $ | 59,540 |
| | $ | 59,540 |
| | $ | — |
| $ | 59,540 |
| $ | — |
|
Securities available for sale | | 293,147 |
| | 293,147 |
| | — |
| 293,147 |
| — |
|
Other investments | | 16,635 |
| | 16,635 |
| | — |
| 16,635 |
| — |
|
Loans held for sale, net | | 400 |
| | 400 |
| | — |
| 400 |
| — |
|
Loans, net | | 1,682,005 |
| | 1,666,834 |
| | — |
| 4,553 |
| 1,662,281 |
|
Accrued interest receivable | | 8,708 |
| | 8,708 |
| | — |
| 8,708 |
| — |
|
Derivative financial assets | | 555 |
| | 555 |
| | — |
| 555 |
| — |
|
| | $ | 2,060,990 |
| | $ | 2,045,819 |
| | $ | — |
| $ | 383,538 |
| $ | 1,662,281 |
|
Financial liabilities | | |
| | |
| | |
| |
| |
Deposits | | $ | 1,634,826 |
| | $ | 1,631,456 |
| | $ | — |
| $ | 1,631,456 |
| $ | — |
|
Short-term borrowings | | 309,084 |
| | 309,084 |
| | — |
| 309,084 |
| — |
|
Long-term borrowings | | 735 |
| | 843 |
| | — |
| 843 |
| — |
|
Subordinated debentures owed to unconsolidated subsidiary trusts | | 19,589 |
| | 19,589 |
| | — |
| 19,589 |
| — |
|
Accrued interest payable | | 1,102 |
| | 1,102 |
| | — |
| 1,102 |
| — |
|
Derivative financial liabilities | | 411 |
| | 411 |
| | — |
| 411 |
| — |
|
| | $ | 1,965,747 |
| | $ | 1,962,485 |
| | $ | — |
| $ | 1,962,485 |
| $ | — |
|
NOTE 4. EARNINGS PER SHARE
The computations of basic and diluted earnings per share follow:
| | | | For the Three Months Ended June 30, | | For the Three Months Ended March 31, |
| | 2019 | | 2018 | | 2020 | | 2019 |
Dollars in thousands,except per share amounts | | Net Income (Numerator) | | Common Shares (Denominator) | | Per Share | | Net Income (Numerator) | | Common Shares (Denominator) | | Per Share | | Net Income (Numerator) | | Common Shares (Denominator) | | Per Share | | Net Income (Numerator) | | Common Shares (Denominator) | | Per Share |
Net income | | $ | 8,564 |
| | | | | | $ | 6,280 |
| | | | | | $ | 4,506 |
| | | | | | $ | 7,092 |
| | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Basic earnings per share | | $ | 8,564 |
| | 12,539,095 |
| | $ | 0.68 |
| | $ | 6,280 |
| | 12,366,522 |
| | $ | 0.51 |
| | $ | 4,506 |
| | 12,975,429 |
| | $ | 0.35 |
| | $ | 7,092 |
| | 12,717,501 |
| | $ | 0.56 |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
Effect of dilutive securities: | | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
|
Stock options | | | | 5,052 |
| | |
| | | | 7,814 |
| | |
| | | | 4,516 |
| | |
| | | | 5,313 |
| | |
|
Stock appreciation rights (SARs) | | | | 55,924 |
| | | | | | 57,648 |
| | | | | | 48,404 |
| | | | | | 55,831 |
| | |
Restricted stock units (RSUs) | | | | | 366 |
| | | | | | — |
| | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Diluted earnings per share | | $ | 8,564 |
| | 12,600,071 |
| | $ | 0.68 |
| | $ | 6,280 |
| | 12,431,984 |
| | $ | 0.51 |
| | $ | 4,506 |
| | 13,028,715 |
| | $ | 0.35 |
| | $ | 7,092 |
| | 12,778,644 |
| | $ | 0.56 |
|
|
| | | | | | | | | | | | | | | | | | | | | | |
| | For the Six Months Ended June 30, |
| | 2019 | | 2018 |
Dollars in thousands,except per share amounts | | Income (Numerator) | | Common Shares (Denominator) | | Per Share | | Income (Numerator) | | Common Shares (Denominator) | | Per Share |
Net income | | $ | 15,656 |
| | | | | | $ | 13,723 |
| | | | |
| | | | | | | | | | | | |
Basic earnings per share | | $ | 15,656 |
| | 12,627,806 |
| | $ | 1.24 |
| | $ | 13,723 |
| | 12,362,679 |
| | $ | 1.11 |
|
| | | | | | | | | | | | |
Effect of dilutive securities: | | |
| | | | |
| | | | | | |
|
Stock options | | | | 5,182 |
| | |
| | | | 7,668 |
| | |
|
Stock appreciation rights (SARs) | | | | 55,877 |
| | | | | | 55,405 |
| | |
| | | | | | | | | | | | |
Diluted earnings per share | | $ | 15,656 |
| | 12,688,865 |
| | $ | 1.23 |
| | $ | 13,723 |
| | 12,425,751 |
| | $ | 1.10 |
|
Stock option and stock appreciation right (SAR) grants are disregarded in this computation if they are determined to be anti-dilutive. OurAll stock options were dilutive for the quarter ended March 31, 2020 and our anti-dilutive stock options for the three and six monthsquarter ended June 30,March 31, 2019 were 7,700 shares. There were no anti-dilutive stock options for the three and six months ended June 30, 2018. Our anti-dilutive SARs for the threequarters ended March 31, 2020 and six monthsMarch 31, 2019 were 222,740. Our anti-dilutive RSUs for the quarter ended June 30, 2019 and June 30, 2018March 31, 2020 were 84,615 and 87,615, respectively .2,785.
NOTE 5. DEBT SECURITIES
The amortized cost, unrealized gains, unrealized losses and estimated fair values of securities at June 30, 2019March 31, 2020 and December 31, 20182019 are summarized as follows:
| | | June 30, 2019 | March 31, 2020 |
| Amortized | | Unrealized | | Estimated | Amortized | | Unrealized | | Estimated |
Dollars in thousands | Cost | | Gains | | Losses | | Fair Value | Cost | | Gains | | Losses | | Fair Value |
Available for Sale | | | | | | | | | | | | | | |
Taxable debt securities | | | | | | | | | | | | | | |
U.S. Government and agencies and corporations | $ | 23,807 |
| | $ | 259 |
| | $ | 342 |
| | $ | 23,724 |
| $ | 40,349 |
| | $ | 359 |
| | $ | 342 |
| | $ | 40,366 |
|
Residential mortgage-backed securities: | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
|
Government-sponsored agencies | 74,976 |
| | 974 |
| | 616 |
| | 75,334 |
| 67,280 |
| | 2,068 |
| | 421 |
| | 68,927 |
|
Nongovernment-sponsored entities | 9,245 |
| | 13 |
| | 88 |
| | 9,170 |
| 11,458 |
| | — |
| | 382 |
| | 11,076 |
|
State and political subdivisions | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
|
General obligations | 3,184 |
| | 69 |
| | — |
| | 3,253 |
| 9,888 |
| | 59 |
| | 15 |
| | 9,932 |
|
Water and sewer revenues | 3,750 |
| | 82 |
| | — |
| | 3,832 |
| 9,615 |
| | 123 |
| | 116 |
| | 9,622 |
|
Lease revenues | | 5,310 |
| | 61 |
| | 21 |
| | 5,350 |
|
Income tax revenues | | 5,060 |
| | 149 |
| | — |
| | 5,209 |
|
University revenues | | 5,915 |
| | 239 |
| | — |
| | 6,154 |
|
Other revenues | 15,680 |
| | 600 |
| | — |
| | 16,280 |
| 14,003 |
| | 311 |
| | 70 |
| | 14,244 |
|
Corporate debt securities | 17,267 |
| | 28 |
| | 323 |
| | 16,972 |
| 19,795 |
| | 104 |
| | 309 |
| | 19,590 |
|
Asset-backed securities | 34,078 |
| | — |
| | 626 |
| | 33,452 |
| 42,902 |
| | — |
| | 2,841 |
| | 40,061 |
|
Total taxable debt securities | 181,987 |
| | 2,025 |
| | 1,995 |
| | 182,017 |
| 231,575 |
| | 3,473 |
| | 4,517 |
| | 230,531 |
|
Tax-exempt debt securities | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
|
State and political subdivisions | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
|
General obligations | 43,198 |
| | 2,352 |
| | 2 |
| | 45,548 |
| 36,387 |
| | 2,499 |
| | — |
| | 38,886 |
|
Water and sewer revenues | 12,924 |
| | 621 |
| | — |
| | 13,545 |
| 8,900 |
| | 538 |
| | 2 |
| | 9,436 |
|
Lease revenues | 8,567 |
| | 485 |
| | — |
| | 9,052 |
| 7,329 |
| | 558 |
| | — |
| | 7,887 |
|
University revenues | 3,439 |
| | 101 |
| | — |
| | 3,540 |
| |
Transportation revenues | | 6,628 |
| | 287 |
| | — |
| | 6,915 |
|
Other revenues | 15,663 |
| | 568 |
| | 13 |
| | 16,218 |
| 10,901 |
| | 490 |
| | 1 |
| | 11,390 |
|
Total tax-exempt debt securities | 83,791 |
| | 4,127 |
| | 15 |
| | 87,903 |
| 70,145 |
| | 4,372 |
| | 3 |
| | 74,514 |
|
Total securities available for sale | $ | 265,778 |
| | $ | 6,152 |
| | $ | 2,010 |
| | $ | 269,920 |
| $ | 301,720 |
| | $ | 7,845 |
| | $ | 4,520 |
| | $ | 305,045 |
|
| | | December 31, 2018 | December 31, 2019 |
| Amortized | | Unrealized | | Estimated | Amortized | | Unrealized | | Estimated |
Dollars in thousands | Cost | | Gains | | Losses | | Fair Value | Cost | | Gains | | Losses | | Fair Value |
Available for Sale | | | | | | | | | | | | | | |
Taxable debt securities | | | | | | | | | | | | | | |
U.S. Government and agencies and corporations | $ | 26,303 |
| | $ | 203 |
| | $ | 366 |
| | $ | 26,140 |
| $ | 21,036 |
| | $ | 212 |
| | $ | 384 |
| | $ | 20,864 |
|
Residential mortgage-backed securities: | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
|
Government-sponsored agencies | 80,883 |
| | 603 |
| | 1,177 |
| | 80,309 |
| 70,379 |
| | 1,031 |
| | 435 |
| | 70,975 |
|
Nongovernment-sponsored entities | 611 |
| | 4 |
| | 1 |
| | 614 |
| 10,253 |
| | 17 |
| | 41 |
| | 10,229 |
|
State and political subdivisions | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
|
General obligations | 6,081 |
| | — |
| | 126 |
| | 5,955 |
| 12,603 |
| | 25 |
| | 171 |
| | 12,457 |
|
Water and sewer revenues | | 7,170 |
| | 71 |
| | 114 |
| | 7,127 |
|
Lease revenues | | 5,310 |
| | 25 |
| | 77 |
| | 5,258 |
|
University revenues | | 5,917 |
| | 164 |
| | 16 |
| | 6,065 |
|
Other revenues | 13,457 |
| | 17 |
| | 186 |
| | 13,288 |
| 18,831 |
| | 344 |
| | 109 |
| | 19,066 |
|
Corporate debt securities | 14,807 |
| | 9 |
| | 304 |
| | 14,512 |
| 18,268 |
| | 81 |
| | 149 |
| | 18,200 |
|
Asset-backed securities | 25,288 |
| | 10 |
| | 123 |
| | 25,175 |
| 33,826 |
| | — |
| | 812 |
| | 33,014 |
|
Total taxable debt securities | 167,430 |
| | 846 |
| | 2,283 |
| | 165,993 |
| 203,593 |
| | 1,970 |
| | 2,308 |
| | 203,255 |
|
Tax-exempt debt securities | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
|
State and political subdivisions | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
|
General obligations | 65,626 |
| | 624 |
| | 344 |
| | 65,906 |
| 36,673 |
| | 2,526 |
| | — |
| | 39,199 |
|
Water and sewer revenues | 20,018 |
| | 225 |
| | 98 |
| | 20,145 |
| 9,565 |
| | 633 |
| | — |
| | 10,198 |
|
Lease revenues | 10,980 |
| | 135 |
| | 7 |
| | 11,108 |
| 8,455 |
| | 598 |
| | — |
| | 9,053 |
|
Other revenues | 30,197 |
| | 77 |
| | 279 |
| | 29,995 |
| 13,929 |
| | 728 |
| | 7 |
| | 14,650 |
|
Total tax-exempt debt securities | 126,821 |
| | 1,061 |
| | 728 |
| | 127,154 |
| 68,622 |
| | 4,485 |
| | 7 |
| | 73,100 |
|
Total securities available for sale | $ | 294,251 |
| | $ | 1,907 |
| | $ | 3,011 |
| | $ | 293,147 |
| $ | 272,215 |
| | $ | 6,455 |
| | $ | 2,315 |
| | $ | 276,355 |
|
The below information is relative to the five5 states where issuers with the highest volume of state and political subdivision securities held in our portfolio are located. We own no such securities of any single issuer which we deem to be a concentration.
|
| | | | | | | | | | | | | | | |
| March 31, 2020 |
| Amortized | | Unrealized | | Estimated |
Dollars in thousands | Cost | | Gains | | Losses | | Fair Value |
| | | | | | | |
| | | | | | | |
California | $ | 18,077 |
| | $ | 875 |
| | $ | 25 |
| | $ | 18,927 |
|
Texas | 12,696 |
| | 547 |
| | 36 |
| | 13,207 |
|
Michigan | 10,826 |
| | 635 |
| | — |
| | 11,461 |
|
New York | 10,485 |
| | 487 |
| | — |
| | 10,972 |
|
Illinois | 9,246 |
| | 441 |
| | — |
| | 9,687 |
|
|
| | | | | | | | | | | | | | | |
| June 30, 2019 |
| Amortized | | Unrealized | | Estimated |
Dollars in thousands | Cost | | Gains | | Losses | | Fair Value |
| | | | | | | |
| | | | | | | |
California | $ | 16,108 |
| | $ | 1,126 |
| | $ | 2 |
| | $ | 17,232 |
|
Illinois | 15,518 |
| | 512 |
| | — |
| | 16,030 |
|
Michigan | 10,940 |
| | 481 |
| | — |
| | 11,421 |
|
West Virginia | 9,399 |
| | 219 |
| | 13 |
| | 9,605 |
|
New York | 8,561 |
| | 348 |
| | — |
| | 8,909 |
|
Management performs pre-purchase and ongoing analysis to confirm that all investment securities meet applicable credit quality standards.
The maturities, amortized cost and estimated fair values of securities at June 30, 2019,March 31, 2020, are summarized as follows:
|
| | | | | | | | |
Dollars in thousands | | Amortized Cost | | Estimated Fair Value |
Due in one year or less | | $ | 30,028 |
| | $ | 29,995 |
|
Due from one to five years | | 88,141 |
| | 88,321 |
|
Due from five to ten years | | 75,737 |
| | 75,248 |
|
Due after ten years | | 107,814 |
| | 111,481 |
|
| | $ | 301,720 |
| | $ | 305,045 |
|
|
| | | | | | | | |
Dollars in thousands | | Amortized Cost | | Estimated Fair Value |
Due in one year or less | | $ | 35,134 |
| | $ | 35,149 |
|
Due from one to five years | | 79,573 |
| | 79,582 |
|
Due from five to ten years | | 59,026 |
| | 59,183 |
|
Due after ten years | | 92,045 |
| | 96,006 |
|
| | $ | 265,778 |
| | $ | 269,920 |
|
The proceeds from sales, calls and maturities of securities available for sale, including principal payments received on mortgage-backed obligations, and the related gross gains and losses realized, for the sixthree months ended June 30,March 31, 2020 and 2019 and 2018 are as follows:
|
| | | | | | | | | | | | | | | | | | | | |
| | Proceeds from | | Gross realized |
Dollars in thousands | Sales | | Calls and Maturities | | Principal Payments | | Gains | | Losses |
For the Six Months Ended June 30, | | | | | | | | | |
2019 | | | | | | | | | |
| Securities available for sale | $ | 114,171 |
| | $ | 1,445 |
| | $ | 13,822 |
| | $ | 1,213 |
| | $ | 131 |
|
| | | | | | | | | | |
2018 | | | | | | | | | |
| Securities available for sale | $ | 69,235 |
| | $ | 1,050 |
| | $ | 13,393 |
| | $ | 1,637 |
| | $ | 818 |
|
|
| | | | | | | | | | | | | | | | | | | | |
| | Proceeds from | | Gross realized |
Dollars in thousands | Sales | | Calls and Maturities | | Principal Payments | | Gains | | Losses |
For the Three Months Ended March 31, | | | | | | | | | |
2020 | | | | | | | | | |
| Securities available for sale | $ | 74,750 |
| | $ | 2,200 |
| | $ | 6,374 |
| | $ | 1,038 |
| | $ | — |
|
| | | | | | | | | | |
2019 | | | | | | | | | |
| Securities available for sale | $ | 79,776 |
| | $ | 1,100 |
| | $ | 4,684 |
| | $ | 105 |
| | $ | 108 |
|
We held 6881 available for sale securities having an unrealized loss at June 30, 2019.March 31, 2020. We do not intend to sell these securities, and it is more likely than not that we will not be required to sell these securities before recovery of their amortized cost bases. We believe that this decline in value is primarily attributable to the lack of market liquidity and to changes in market interest rates and is not due to credit quality. Accordingly, no other-than-temporary impairment charge to earnings is warranted at this time.
Provided below is a summary of securities available for sale which were in an unrealized loss position at June 30, 2019March 31, 2020 and December 31, 2018.2019.
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2020 |
| | | Less than 12 months | | 12 months or more | | Total |
Dollars in thousands | # of securities in loss position | | Estimated Fair Value | | Unrealized Loss | | Estimated Fair Value | | Unrealized Loss | | Estimated Fair Value | | Unrealized Loss |
Taxable debt securities | | | | | | | | | | | | | |
U.S. Government agencies and corporations | 21 | | $ | 5,938 |
| | $ | 1 |
| | $ | 13,813 |
| | $ | 341 |
| | $ | 19,751 |
| | $ | 342 |
|
Residential mortgage-backed securities: | | | |
| | |
| | |
| | |
| | |
| | |
|
Government-sponsored agencies | 9 | | 2,780 |
| | 177 |
| | 9,089 |
| | 244 |
| | 11,869 |
| | 421 |
|
Nongovernment-sponsored entities | 7 | | 8,267 |
| | 241 |
| | 2,809 |
| | 141 |
| | 11,076 |
| | 382 |
|
State and political subdivisions: | | | |
| | |
| | |
| | |
| | |
| | |
|
General obligations | 4 | | 4,625 |
| | 15 |
| | — |
| | — |
| | 4,625 |
| | 15 |
|
Water and sewer revenues | 5 | | 4,861 |
| | 116 |
| | — |
| | — |
| | 4,861 |
| | 116 |
|
Lease revenues | 2 | | 2,800 |
| | 21 |
| | — |
| | — |
| | 2,800 |
| | 21 |
|
Other revenues | 5 | | 5,286 |
| | 70 |
| | — |
| | — |
| | 5,286 |
| | 70 |
|
Corporate debt securities | 6 | | 4,017 |
| | 180 |
| | 1,871 |
| | 129 |
| | 5,888 |
| | 309 |
|
Asset-backed securities | 20 | | 9,756 |
| | 534 |
| | 30,305 |
| | 2,307 |
| | 40,061 |
| | 2,841 |
|
Tax-exempt debt securities | | | |
| | |
| | |
| | |
| | |
| | |
|
State and political subdivisions: | | | |
| | |
| | |
| | |
| | |
| | |
|
Water and sewer revenues | 1 | | 560 |
| | 2 |
| | — |
| | — |
| | 560 |
| | 2 |
|
Other revenues | 1 | | 157 |
| | 1 |
| | — |
| | — |
| | 157 |
| | 1 |
|
Total | 81 | | $ | 49,047 |
| | $ | 1,358 |
| | $ | 57,887 |
| | $ | 3,162 |
| | $ | 106,934 |
| | $ | 4,520 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2019 |
| | | Less than 12 months | | 12 months or more | | Total |
Dollars in thousands | # of securities in loss position | | Estimated Fair Value | | Unrealized Loss | | Estimated Fair Value | | Unrealized Loss | | Estimated Fair Value | | Unrealized Loss |
Taxable debt securities | | | | | | | | | | | | | |
U.S. Government agencies and corporations | 15 | | $ | — |
| | $ | — |
| | $ | 14,903 |
| | $ | 384 |
| | $ | 14,903 |
| | $ | 384 |
|
Residential mortgage-backed securities: | | | |
| | |
| | |
| | |
| | |
| | |
|
Government-sponsored agencies | 21 | | 12,298 |
| | 96 |
| | 15,174 |
| | 339 |
| | 27,472 |
| | 435 |
|
Nongovernment-sponsored entities | 4 | | 8,323 |
| | 41 |
| | — |
| | — |
| | 8,323 |
| | 41 |
|
State and political subdivisions: | | | |
| | |
| | |
| | |
| | |
| | |
|
General obligations | 10 | | 10,581 |
| | 171 |
| | — |
| | — |
| | 10,581 |
| | 171 |
|
Water and sewer revenues | 4 | | 4,421 |
| | 114 |
| | — |
| | — |
| | 4,421 |
| | 114 |
|
Lease revenues | 4 | | 4,235 |
| | 77 |
| | — |
| | — |
| | 4,235 |
| | 77 |
|
University revenues | 1 | | 1,307 |
| | 16 |
| | — |
| | — |
| | 1,307 |
| | 16 |
|
Other revenues | 6 | | 6,517 |
| | 109 |
| | — |
| | — |
| | 6,517 |
| | 109 |
|
Corporate debt securities | 6 | | 1,686 |
| | 3 |
| | 3,739 |
| | 146 |
| | 5,425 |
| | 149 |
|
Asset-backed securities | 15 | | 3,441 |
| | 34 |
| | 29,573 |
| | 778 |
| | 33,014 |
| | 812 |
|
Tax-exempt debt securities | | | |
| | |
| | |
| | |
| | |
| | |
|
State and political subdivisions: | | | |
| | |
| | |
| | |
| | |
| | |
|
Other revenues | 2 | | 1,183 |
| | 7 |
| | — |
| | — |
| | 1,183 |
| | 7 |
|
Total | 88 | | $ | 53,992 |
| | $ | 668 |
| | $ | 63,389 |
| | $ | 1,647 |
| | $ | 117,381 |
| | $ | 2,315 |
|
NOTE 6. LOANS AND ALLOWANCE FOR CREDIT LOSSES FOR LOANS
Loans are generally stated at the amount of unpaid principal, reduced by unearned discount and the ACLL. Interest on loans is accrued daily on the outstanding balances. Loan origination fees and certain direct loan origination costs are deferred and amortized as adjustments of the related loan yield over its contractual life.
Generally, loans are placed on nonaccrual status when principal or interest is greater than 90 days past due based upon the loan's contractual terms. Interest on nonaccrual loans is recognized primarily using the cost-recovery method. Loans may be returned to accrual status when repayment is reasonably assured and there has been demonstrated performance under the terms of the loan or, if applicable, the terms of the restructured loans.
Commercial-related loans or portions thereof are charged off to the ACLL when the loss has been confirmed. This determination is made on a case by case basis considering many factors, including the prioritization of our claim in bankruptcy, expectations of the workout/restructuring of the loan and valuation of the borrower’s equity. We deem a loss confirmed when a loan or a portion of a loan is classified “loss” in accordance with bank regulatory classification guidelines, which state, “Assets classified loss are considered uncollectible and of such little value that their continuance as bankable assets is not warranted”.
Consumer-related loans are generally charged to the ACLL upon reaching specified stages of delinquency, in accordance with the Federal Financial Institutions Examination Council policy. For example, credit card loans are charged off by the end of the month in which the account becomes 180 days past due or within 60 days from receiving notification about a specified event (e.g., bankruptcy of the borrower), whichever is earlier. Residential mortgage loans are generally charged off to net realizable value no later than when the account becomes 180 days past due. Other consumer loans, if collateralized, are generally charged down to net realizable value at 120 days past due.
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2019 |
| | | Less than 12 months | | 12 months or more | | Total |
Dollars in thousands | # of securities in loss position | | Estimated Fair Value | | Unrealized Loss | | Estimated Fair Value | | Unrealized Loss | | Estimated Fair Value | | Unrealized Loss |
Taxable debt securities | | | | | | | | | | | | | |
U.S. Government agencies and corporations | 15 | | $ | — |
| | $ | — |
| | $ | 17,371 |
| | $ | 342 |
| | $ | 17,371 |
| | $ | 342 |
|
Residential mortgage-backed securities: | | | |
| | |
| | |
| | |
| | |
| | |
|
Government-sponsored agencies | 25 | | 17,041 |
| | 301 |
| | 16,460 |
| | 315 |
| | 33,501 |
| | 616 |
|
Nongovernment-sponsored entities | 3 | | 7,002 |
| | 88 |
| | — |
| | — |
| | 7,002 |
| | 88 |
|
Corporate debt securities | 8 | | 5,171 |
| | 117 |
| | 2,544 |
| | 206 |
| | 7,715 |
| | 323 |
|
Asset-backed securities | 15 | | 33,452 |
| | 626 |
| | — |
| | — |
| | 33,452 |
| | 626 |
|
Tax-exempt debt securities | | | |
| | |
| | |
| | |
| | |
| | |
|
State and political subdivisions: | | | |
| | |
| | |
| | |
| | |
| | |
|
General obligations | 1 | | 690 |
| | 2 |
| | — |
| | — |
| | 690 |
| | 2 |
|
Other revenues | 1 | | — |
| | — |
| | 1,023 |
| | 13 |
| | 1,023 |
| | 13 |
|
Total | 68 | | 63,356 |
| | 1,134 |
| | 37,398 |
| | 876 |
| | 100,754 |
| | 2,010 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2018 |
| | | Less than 12 months | | 12 months or more | | Total |
Dollars in thousands | # of securities in loss position | | Estimated Fair Value | | Unrealized Loss | | Estimated Fair Value | | Unrealized Loss | | Estimated Fair Value | | Unrealized Loss |
Taxable debt securities | | | | | | | | | | | | | |
U.S. Government agencies and corporations | 15 | | $ | 12,185 |
| | $ | 184 |
| | $ | 7,464 |
| | $ | 182 |
| | $ | 19,649 |
| | $ | 366 |
|
Residential mortgage-backed securities: | | | |
| | |
| | |
| | |
| | |
| | |
|
Government-sponsored agencies | 37 | | 23,277 |
| | 241 |
| | 24,472 |
| | 936 |
| | 47,749 |
| | 1,177 |
|
Nongovernment-sponsored entities | 1 | | — |
| | — |
| | 436 |
| | 1 |
| | 436 |
| | 1 |
|
State and political subdivisions: | | | |
| | |
| | |
| | |
| | |
| | |
|
General obligations | 8 | | — |
| | — |
| | 5,222 |
| | 126 |
| | 5,222 |
| | 126 |
|
Other revenues | 11 | | 968 |
| | 16 |
| | 9,450 |
| | 170 |
| | 10,418 |
| | 186 |
|
Corporate debt securities | 7 | | 2,759 |
| | 109 |
| | 4,587 |
| | 195 |
| | 7,346 |
| | 304 |
|
Asset-backed securities | 9 | | 20,129 |
| | 123 |
| | — |
| | — |
| | 20,129 |
| | 123 |
|
Tax-exempt debt securities | | | |
| | |
| | |
| | |
| | |
| | |
|
State and political subdivisions: | | | |
| | |
| | |
| | |
| | |
| | |
|
General obligations | 25 | | 7,273 |
| | 50 |
| | 16,830 |
| | 294 |
| | 24,103 |
| | 344 |
|
Water and sewer revenues | 7 | | 989 |
| | 6 |
| | 4,311 |
| | 92 |
| | 5,300 |
| | 98 |
|
Lease revenues | 2 | | 553 |
| | — |
| | 557 |
| | 7 |
| | 1,110 |
| | 7 |
|
Other revenues | 12 | | 7,309 |
| | 62 |
| | 11,531 |
| | 217 |
| | 18,840 |
| | 279 |
|
Total | 134 | | 75,442 |
| | 791 |
| | 84,860 |
| | 2,220 |
| | 160,302 |
| | 3,011 |
|
NOTE 6. LOANS
Loans are summarized as follows:
|
| | | | | | | | |
Dollars in thousands | | June 30, 2019 | | December 31, 2018 |
Commercial | | $ | 204,138 |
| | $ | 194,315 |
|
Commercial real estate | | |
| | |
|
Owner-occupied | | 262,901 |
| | 257,256 |
|
Non-owner occupied | | 574,677 |
| | 573,932 |
|
Construction and development | | |
| | |
|
Land and land development | | 67,769 |
| | 68,833 |
|
Construction | | 46,975 |
| | 24,731 |
|
Residential real estate | | |
| | |
|
Non-jumbo | | 360,752 |
| | 336,977 |
|
Jumbo | | 70,171 |
| | 73,599 |
|
Home equity | | 81,373 |
| | 80,910 |
|
Mortgage warehouse lines | | 101,607 |
| | 39,140 |
|
Consumer | | 36,715 |
| | 32,460 |
|
Other | | 11,924 |
| | 12,899 |
|
Total loans, net of unearned fees | | 1,819,002 |
| | 1,695,052 |
|
Less allowance for loan losses | | 13,152 |
| | 13,047 |
|
Loans, net | | $ | 1,805,850 |
| | $ | 1,682,005 |
|
The outstanding balance and the recorded investment of acquired loans included in the consolidated balance sheet at June 30, 2019 and December 31, 2018 are as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Acquired Loans |
| | June 30, 2019 | | December 31, 2018 |
Dollars in thousands | | Purchased Credit Impaired | | Purchased Performing | | Total | | Purchased Credit Impaired | | Purchased Performing | | Total |
Outstanding balance | | $ | 4,282 |
| | $ | 154,564 |
| | $ | 158,846 |
| | $ | 4,275 |
| | $ | 138,167 |
| | $ | 142,442 |
|
| | | | | | | | | | | | |
Recorded investment | | | | | | | | | | | | |
Commercial | | $ | — |
| | $ | 4,056 |
| | $ | 4,056 |
| | $ | — |
| | $ | 3,934 |
| | $ | 3,934 |
|
Commercial real estate | | | | | | | | | | | | |
Owner-occupied | | — |
| | 19,729 |
| | 19,729 |
| | — |
| | 16,133 |
| | 16,133 |
|
Non-owner occupied | | 1,262 |
| | 16,801 |
| | 18,063 |
| | 1,162 |
| | 23,431 |
| | 24,593 |
|
Construction and development | | | | | | | | | | | | |
Land and land development | | — |
| | 4,178 |
| | 4,178 |
| | — |
| | 5,161 |
| | 5,161 |
|
Construction | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Residential real estate | | | | | | | | | | | | |
Non-jumbo | | 1,293 |
| | 96,352 |
| | 97,645 |
| | 1,374 |
| | 77,894 |
| | 79,268 |
|
Jumbo | | 962 |
| | 3,144 |
| | 4,106 |
| | 975 |
| | 2,577 |
| | 3,552 |
|
Home equity | | — |
| | 2,440 |
| | 2,440 |
| | — |
| | 2,805 |
| | 2,805 |
|
Consumer | | — |
| | 5,854 |
| | 5,854 |
| | — |
| | 4,630 |
| | 4,630 |
|
Other | | — |
| | 15 |
| | 15 |
| | — |
| | 122 |
| | 122 |
|
Total recorded investment | | $ | 3,517 |
| | $ | 152,569 |
| | $ | 156,086 |
| | $ | 3,511 |
| | $ | 136,687 |
| | $ | 140,198 |
|
The following table presents the amortized cost of loans held for investment:
|
| | | | | | | | |
Dollars in thousands | | March 31, 2020 | | December 31, 2019 |
Commercial | | $ | 236,622 |
| | $ | 220,452 |
|
Commercial real estate - owner occupied | | |
| | |
|
Professional & medical | | 88,518 |
| | 81,973 |
|
Retail | | 118,535 |
| | 100,993 |
|
Other | | 124,433 |
| | 93,253 |
|
Commercial real estate - non-owner occupied | | | | |
Hotels & motels | | 120,201 |
| | 128,665 |
|
Mini-storage | | 55,097 |
| | 50,913 |
|
Multifamily | | 142,918 |
| | 164,398 |
|
Retail | | 107,420 |
| | 102,989 |
|
Other | | 154,983 |
| | 182,242 |
|
Construction and development | | |
| | |
|
Land & land development | | 92,332 |
| | 84,112 |
|
Construction | | 43,121 |
| | 37,523 |
|
Residential 1-4 family real estate | | |
| | |
|
Personal residence | | 276,189 |
| | 260,843 |
|
Rental - small loan | | 102,351 |
| | 101,080 |
|
Rental - large loan | | 64,944 |
| | 63,986 |
|
Home equity | | 75,170 |
| | 76,568 |
|
Mortgage warehouse lines | | 166,826 |
| | 126,237 |
|
Consumer | | 35,344 |
| | 35,021 |
|
Other | | | | |
Credit cards | | 1,673 |
| | 1,453 |
|
Overdrafts | | 592 |
| | 798 |
|
Total loans, net of unearned fees | | 2,007,269 |
| | 1,913,499 |
|
Less allowance for credit losses - loans | | 24,608 |
| | 13,074 |
|
Loans, net | | $ | 1,982,661 |
| | $ | 1,900,425 |
|
Allowance for Credit Losses - Loans
The ACLL is a summaryvaluation allowance, estimated at each balance sheet date in accordance with ASC 326, that is deducted from the amortized cost basis of loans to present the net amount expected to be collected. The amount of the ACLL represents our best estimate of current expected credit losses on loans considering available information, from internal and external sources, relevant to assessing collectability over the loans’ contractual terms, adjusted for expected prepayments when appropriate (the “life-of-loan” concept). The contractual term excludes expected extensions, renewals and modifications unless (i) management has a reasonable expectation that a troubled debt restructuring will be executed with an individual borrower or (ii) such extension or renewal options are not unconditionally cancellable by us and, in such cases, the borrower is likely to meet applicable conditions and likely to request extension or renewal. Relevant available information includes historical credit loss experience, current conditions and reasonable and supportable forecasts. While historical credit loss experience provides the basis for the estimation of expected credit losses, adjustments to historical loss information may be made for differences in current portfolio-specific risk characteristics, environmental conditions or other relevant factors. The ACLL losses is measured on a collective basis for portfolios of loans when similar risk characteristics exist. Loans that do not share risk characteristics are evaluated for expected credit losses on an individual basis and excluded from the collective evaluation. Expected credit losses for collateral dependent loans, including loans where the borrower is experiencing financial difficulty, but foreclosure is not probable, are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate.
Expected credit losses are reflected in the ACLL through a charge to provision for credit losses. When we deem all or a portion of a financial asset to be uncollectible the appropriate amount is written off and the ACLL is reduced by the same amount. The Company applies judgment to determine when a financial asset is deemed uncollectible; however, generally speaking, an asset will be considered uncollectible no later than when all efforts at collection have been exhausted. Subsequent recoveries, if any, are credited to the ACLL when received.
Loan Pools. In calculating the ACLL, most loans are segmented into pools based upon similar characteristics and risk profiles. Common characteristics and risk profiles include the type/purpose of loan, underlying collateral, geographical similarity and historical/expected credit loss patterns. In developing these loan pools for the purposes of modeling expected credit losses, we also analyzed the degree of correlation in how loans within each portfolio respond when subjected to varying economic conditions
and scenarios as well as other portfolio stress factors. We have identified the following pools of financial assets with similar risk characteristics for measuring expected credit losses:
Commercial real estate - owner occupied
Commercial real estate - non-owner occupied
Construction & development
Residential 1-4 family real estate
Mortgage warehouse lines
Consumer
Other
Residential 1-4 family rentals are classified as small loan if the original loan amount is less than $600,000 and classified as large loan if the original loan amount equals or exceeds $600,000.
We periodically reassess each pool to ensure the loans within the pool continue to share similar characteristics and risk profiles and to determine whether further segmentation is necessary.
The Company’s methodology for estimating the ACLL considers available relevant information about the collectability of cash flows, including information about past events, current conditions, and reasonable and supportable forecasts. The methodology applies historical loss information, adjusted for asset-specific characteristics, economic conditions at the measurement date, and forecasts about future economic conditions expected to exist through the contractual lives of the financial assets that are reasonable and supportable, to the identified pools of financial assets with similar risk characteristics for which the historical loss experience was observed. Our methodology reverts to historical loss information immediately when it can no longer develop reasonable and supportable forecasts.
Loss-Rate Method. We use a loss-rate (“cohort”) method to estimate expected credit losses for all loan pools. The cohort method identifies and captures the balances of pooled loans with similar risk characteristics, as of a point in time to form a cohort, then tracks the respective losses generated by that cohort of loans over their remaining lives, or until the loans are “exhausted” (reached an acceptable stage at which a significant majority of all losses are expected to have been recognized). This method encompasses loan balances for as long as the loans are outstanding, so while significant history is required to represent the life-of-loan concept, this method does not require as much history due to its inclusion of loan balances in multiple cohort periods.
Qualitative Factors. We qualitatively adjust our loan loss rates for risk factors that are not otherwise considered within our model but are nonetheless relevant in assessing the expected credit losses within our loan pools. These qualitative factor (“Q-Factor”) adjustments may increase or decrease our estimate of expected credit losses by a calculated percentage or amount based upon the estimated level of risk.
One Q-Factor adjustment to our loss rates is consideration of reasonable and supportable forecasts of economic conditions. In arriving at a reasonable and supportable economic forecast, we primarily consider the forecasted unemployment rates for the U.S., West Virginia and Virginia as loss drivers for each segmented loan pool. Secondarily, we consider the following forecasted economic data for one or more of our segmented loan pools depending on the nature of the underlying loan pool: housing price indices (U.S., West Virginia & Virginia), single-family housing starts (West Virginia & Virginia), multi-family housing starts (West Virginia &
Virginia), personal income growth (U.S., West Virginia & Virginia), U.S. consumer confidence, rental vacancy rates (U.S.), and U.S. % change in gross domestic product.
Other risks that we may consider in making Q-Factor adjustments include, among other things, the accretable yieldimpact of (i) changes in lending policies and procedures, including changes in underwriting standards and practices for collections, write-offs, and recoveries, (ii) changes in the nature and volume of the purchasedloan pools and in the terms of the underlying loans, (iii) changes in the experience, ability, and depth of our lending management and staff, (iv) changes in volume and severity of past due financial assets, the volume of non-accrual assets, and the volume and severity of adversely classified or graded assets, (v) changes in the quality of our credit impaired ("PCI"review function, (vi) changes in the value of the underlying collateral for loans that are non-collateral dependent, (vii) the existence, growth, and effect of any concentrations of credit and (viii) other external factors such as the regulatory, legal and technological environments; competition; and events such as natural disasters or health pandemics.
Collateral Dependent Loans. We may determine that an individual loan exhibits unique risk characteristics which differentiate it from other loans within our loan pools. In such cases, the loans are evaluated for expected credit losses on an individual basis and excluded from the collective evaluation. Specific allocations of the allowance for credit losses are determined by analyzing the borrower’s ability to repay amounts owed, collateral deficiencies, the relative risk grade of the loan and economic conditions affecting the borrower’s industry, among other things. A loan is considered to be collateral dependent when, based upon management's assessment, the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. In such cases, expected credit losses are based on the fair value of the collateral at the measurement date, adjusted for estimated selling costs if satisfaction of the loan depends on the sale of the collateral. We reevaluate the fair value of collateral supporting collateral dependent loans on a quarterly basis. The fair value of real estate collateral supporting collateral dependent loans is evaluated by appraisal services using a methodology that is consistent with the Uniform Standards of Professional Appraisal Practice.
Troubled Debt Restructuring. A loan that has been modified or renewed is considered a troubled debt restructuring (“TDR”) when two conditions are met: 1) the borrower is experiencing financial difficulty and 2) concessions are made for the borrower's benefit that would not otherwise be considered for a borrower or transaction with similar credit risk characteristics. The Company’s ACLL reflects all effects of a TDR when an individual asset is specifically identified as a reasonably expected TDR. The Company has determined that a TDR is reasonably expected no later than the point when the lender concludes that modification is the best course of action and it is at least reasonably possible that the troubled borrower will accept some form of concession from the lender to avoid a default. TDRs that are considered material ($500,000 and greater) are evaluated individually to determine the required ACLL. TDRs that are not considered material may be included in the Company’s existing pools based on the underlying risk characteristics of the loan to measure the ACLL.
The following table presents the activity in the ACLL by portfolio segment during the first three months of 2020:
|
| | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended March 31, 2020 |
| Allowance for Credit Losses - Loans |
Dollars in thousands | Beginning Balance Prior to Adoption of ASC 326 | Impact of Adoption of ASC 326 | Provision for Credit Losses - Loans | Day 1 Adjustment for PCD Acquired Loans | Charge- offs | Recoveries | Ending Balance |
Commercial | $ | 1,221 |
| $ | 1,064 |
| $ | 174 |
| $ | — |
| $ | (25 | ) | $ | 7 |
| $ | 2,441 |
|
Commercial real estate - owner occupied | | | | | | | |
Professional & medical | 1,058 |
| (390 | ) | 36 |
| — |
| — |
| — |
| 704 |
|
Retail | 820 |
| (272 | ) | 558 |
| 153 |
| — |
| 10 |
| 1,269 |
|
Other | 821 |
| (137 | ) | 506 |
| — |
| — |
| — |
| 1,190 |
|
Commercial real estate - non-owner occupied | | | | | | | |
Hotels & motels | 1,235 |
| (936 | ) | 1,688 |
| — |
| — |
| — |
| 1,987 |
|
Mini-storage | 485 |
| (311 | ) | 31 |
| — |
| — |
| — |
| 205 |
|
Multifamily | 1,534 |
| 8 |
| (808 | ) | — |
| — |
| — |
| 734 |
|
Retail | 964 |
| 279 |
| 202 |
| — |
| (342 | ) | 2 |
| 1,105 |
|
Other | 1,721 |
| (1,394 | ) | (31 | ) | — |
| — |
| — |
| 296 |
|
Construction and development | | | | | | | |
Land & land development | 600 |
| 2,136 |
| 1,273 |
| 111 |
| (3 | ) | 3 |
| 4,120 |
|
Construction | 242 |
| 996 |
| 440 |
| — |
| — |
| — |
| 1,678 |
|
Residential 1-4 family real estate | | | | | | | |
Personal residence | 1,275 |
| 1,282 |
| 433 |
| 146 |
| (4 | ) | 17 |
| 3,149 |
|
Rental - small loan | 532 |
| 1,453 |
| 128 |
| — |
| (20 | ) | 72 |
| 2,165 |
|
Rental - large loan | 49 |
| 2,884 |
| (246 | ) | — |
| — |
| — |
| 2,687 |
|
Home equity | 138 |
| 308 |
| 62 |
| — |
| (23 | ) | 2 |
| 487 |
|
Mortgage warehouse lines | — |
| — |
| — |
| — |
| — |
| — |
| — |
|
Consumer | 379 |
| (238 | ) | 179 |
| — |
| (118 | ) | 38 |
| 240 |
|
Other | | | | | | | |
Credit cards | — |
| 12 |
| 29 |
| — |
| (30 | ) | 5 |
| 16 |
|
Overdrafts | — |
| 182 |
| 45 |
| — |
| (133 | ) | 41 |
| 135 |
|
Total | $ | 13,074 |
| $ | 6,926 |
| $ | 4,699 |
| $ | 410 |
| $ | (698 | ) | $ | 197 |
| $ | 24,608 |
|
The following table presents, as of March 31, 2020 segregated by loan portfolio segment, details of the loan portfolio and the ACLL calculated in accordance with our credit loss accounting methodology for loans described above.
|
| | | | | | | | | | | | | | | | | | | |
| March 31, 2020 |
| Loan Balances | | Allowance for Credit Losses - Loans |
Dollars in thousands | Loans Individually Evaluated | Loans Collectively Evaluated | Total | | Loans Individually Evaluated | Loans Collectively Evaluated | Total |
Commercial | $ | 5,012 |
| $ | 231,610 |
| $ | 236,622 |
| | $ | 40 |
| $ | 2,401 |
| $ | 2,441 |
|
Commercial real estate - owner occupied | | | | | | | |
Professional & medical | 3,846 |
| 84,672 |
| 88,518 |
| | 404 |
| 300 |
| 704 |
|
Retail | 6,554 |
| 111,981 |
| 118,535 |
| | — |
| 1,269 |
| 1,269 |
|
Other | — |
| 124,433 |
| 124,433 |
| | — |
| 1,190 |
| 1,190 |
|
Commercial real estate - non-owner occupied | | | | | | | |
Hotels & motels | — |
| 120,201 |
| 120,201 |
| | — |
| 1,987 |
| 1,987 |
|
Mini-storage | — |
| 55,097 |
| 55,097 |
| | — |
| 205 |
| 205 |
|
Multifamily | — |
| 142,918 |
| 142,918 |
| | — |
| 734 |
| 734 |
|
Retail | 2,522 |
| 104,898 |
| 107,420 |
| | 57 |
| 1,048 |
| 1,105 |
|
Other | 5,337 |
| 149,646 |
| 154,983 |
| | — |
| 296 |
| 296 |
|
Construction and development | | | | | | | |
Land & land development | 1,641 |
| 90,691 |
| 92,332 |
| | 577 |
| 3,543 |
| 4,120 |
|
Construction | — |
| 43,121 |
| 43,121 |
| | — |
| 1,678 |
| 1,678 |
|
Residential 1-4 family real estate | | | | | | | |
Personal residence | 617 |
| 275,572 |
| 276,189 |
| | — |
| 3,149 |
| 3,149 |
|
Rental - small loan | 782 |
| 101,569 |
| 102,351 |
| | 16 |
| 2,149 |
| 2,165 |
|
Rental - large loan | 4,421 |
| 60,523 |
| 64,944 |
| | — |
| 2,687 |
| 2,687 |
|
Home equity | 523 |
| 74,647 |
| 75,170 |
| | — |
| 487 |
| 487 |
|
Consumer | — |
| 35,344 |
| 35,344 |
| | — |
| 240 |
| 240 |
|
Other | | |
| | | | |
Credit cards | — |
| 1,673 |
| 1,673 |
| | — |
| 16 |
| 16 |
|
Overdrafts | — |
| 592 |
| 592 |
| | — |
| 135 |
| 135 |
|
Mortgage warehouse lines | — |
| 166,826 |
| 166,826 |
| | — |
| — |
| — |
|
Total | $ | 31,255 |
| $ | 1,976,014 |
| $ | 2,007,269 |
| | $ | 1,094 |
| $ | 23,514 |
| $ | 24,608 |
|
The following table presents the amortized cost basis of collateral dependent loans, which are individually evaluated to determine expected credit losses, and the related ACLL allocated to those loans:
|
| | | | | | | | | | | | |
| March 31, 2020 |
Dollars in thousands | Real Estate Secured Loans | Non-Real Estate Secured Loans | Total Loans | Allowance for Credit Losses - Loans |
Commercial | $ | — |
| $ | 5,012 |
| $ | 5,012 |
| $ | 40 |
|
Commercial real estate - owner occupied | | | | |
Professional & medical | 1,597 |
| — |
| 1,597 |
| 162 |
|
Retail | 2,265 |
| — |
| 2,265 |
| — |
|
Other | — |
| — |
| — |
| — |
|
Commercial real estate - non-owner occupied | | | | |
Hotels & motels | — |
| — |
| — |
| — |
|
Mini-storage | — |
| — |
| — |
| — |
|
Multifamily | — |
| — |
| — |
| — |
|
Retail | 651 |
| — |
| 651 |
| 56 |
|
Other | 2,957 |
| — |
| 2,957 |
| — |
|
Construction and development | | | | |
Land & land development | 1,006 |
| — |
| 1,006 |
| 577 |
|
Construction | — |
| — |
| — |
| — |
|
Residential 1-4 family real estate | | | | |
Personal residence | 617 |
| — |
| 617 |
| — |
|
Rental - small loan | 782 |
| — |
| 782 |
| 16 |
|
Rental - large loan | 3,328 |
| — |
| 3,328 |
| — |
|
Home equity | — |
| — |
| — |
| — |
|
Consumer | — |
| — |
| — |
| — |
|
Other | | | | |
Credit cards | — |
| — |
| — |
| — |
|
Overdrafts | — |
| — |
| — |
| — |
|
Total | $ | 13,203 |
| $ | 5,012 |
| $ | 18,215 |
| $ | 851 |
|
The following table presents the activity in the ACLL by portfolio segment for the three and six monthsyear ended June 30,December 31, 2019, and 2018:as determined in accordance with ASC 310 prior to the January 1, 2020 adoption of ASC 326:
|
| | | | | | | | | | | | | | | |
| For the Year Ended December 31, 2019 |
| Allowance for Credit Losses - Loans |
Dollars in thousands | Beginning Balance | Charge- offs | Recoveries | Provision | Ending Balance |
Commercial | $ | 1,705 |
| $ | (281 | ) | $ | 17 |
| $ | (295 | ) | $ | 1,146 |
|
Commercial real estate | | | | | |
Owner occupied | 2,214 |
| (2 | ) | 21 |
| 467 |
| 2,700 |
|
Non-owner occupied | 5,742 |
| (170 | ) | 1 |
| 366 |
| 5,939 |
|
Construction and development | | | | | |
Land & land development | 339 |
| (2 | ) | 108 |
| 155 |
| 600 |
|
Construction | 64 |
| — |
| — |
| 178 |
| 242 |
|
Residential real estate | | | | | |
Non-jumbo | 2,090 |
| (979 | ) | 125 |
| 576 |
| 1,812 |
|
Jumbo | 379 |
| — |
| — |
| (368 | ) | 11 |
|
Home equity | 167 |
| (24 | ) | 19 |
| (24 | ) | 138 |
|
Mortgage warehouse lines | — |
| — |
| — |
| — |
| — |
|
Consumer | 79 |
| (285 | ) | 168 |
| 173 |
| 135 |
|
Other | 268 |
| (360 | ) | 121 |
| 322 |
| 351 |
|
Total | $ | 13,047 |
| $ | (2,103 | ) | $ | 580 |
| $ | 1,550 |
| $ | 13,074 |
|
|
| | | | | | | | | | | | | | | | |
| | For the Three Months Ended June 30, | | For the Six Months Ended June 30, |
Dollars in thousands | | 2019 | | 2018 | | 2019 | | 2018 |
Accretable yield | | $ | 623 |
| | $ | 708 |
| | $ | 632 |
| | $ | 745 |
|
Accretion | | (26 | ) | | (32 | ) | | (34 | ) | | (69 | ) |
Reclassification of nonaccretable difference due to improvement in expected cash flows | | — |
| | — |
| | — |
| | — |
|
Other changes, net | | — |
| | — |
| | (1 | ) | | — |
|
Accretable yield, June 30 | | $ | 597 |
| | $ | 676 |
| | $ | 597 |
| | $ | 676 |
|
The following table presents the contractual aging of the recorded investment inamortized cost basis of past due loans by class as of June 30, 2019March 31, 2020 and December 31, 2018.2019.
| | | At June 30, 2019 | At March 31, 2020 |
| Past Due | | | | > 90 days and Accruing | Past Due | | 90 days or more and Accruing |
Dollars in thousands | 30-59 days | | 60-89 days | | > 90 days | | Total | | Current | | 30-59 days | 60-89 days | 90 days or more | Total | Current |
Commercial | $ | 327 |
| | $ | 137 |
| | $ | 700 |
| | $ | 1,164 |
| | $ | 202,974 |
| | $ | — |
| $ | 248 |
| $ | 119 |
| $ | 393 |
| $ | 760 |
| $ | 235,862 |
| $ | — |
|
Commercial real estate | |
| | |
| | |
| | |
| | |
| | |
| |
Owner-occupied | 520 |
| | — |
| | 4,454 |
| | 4,974 |
| | 257,927 |
| | — |
| |
Non-owner occupied | — |
| | 1,205 |
| | 1,463 |
| | 2,668 |
| | 572,009 |
| | — |
| |
Commercial real estate - owner occupied | | |
| |
| |
| |
| |
| |
|
Professional & medical | | 10 |
| — |
| 1,734 |
| 1,744 |
| 86,774 |
| — |
|
Retail | | 933 |
| — |
| 2,439 |
| 3,372 |
| 115,163 |
| — |
|
Other | | — |
| — |
| 345 |
| 345 |
| 124,088 |
| — |
|
Commercial real estate - non-owner occupied | | |
Hotels & motels | | — |
| — |
| — |
| — |
| 120,201 |
| — |
|
Mini-storage | | — |
| — |
| — |
| — |
| 55,097 |
| — |
|
Multifamily | | — |
| — |
| 211 |
| 211 |
| 142,707 |
| — |
|
Retail | | — |
| 178 |
| 651 |
| 829 |
| 106,591 |
| — |
|
Other | | 986 |
| 114 |
| 51 |
| 1,151 |
| 153,832 |
| — |
|
Construction and development | |
| | |
| | |
| | |
| | |
| | |
| |
| |
| |
| |
| |
| |
|
Land and land development | 258 |
| | — |
| | 43 |
| | 301 |
| | 67,468 |
| | — |
| |
Land & land development | | 53 |
| — |
| 11 |
| 64 |
| 92,268 |
| — |
|
Construction | — |
| | — |
| | — |
| | — |
| | 46,975 |
| | — |
| — |
| — |
| — |
| — |
| 43,121 |
| — |
|
Residential mortgage | |
| | |
| | |
| | |
| | |
| | |
| |
Non-jumbo | 5,686 |
| | 806 |
| | 2,564 |
| | 9,056 |
| | 351,696 |
| | 119 |
| |
Jumbo | 642 |
| | — |
| | — |
| | 642 |
| | 69,529 |
| | — |
| |
Residential 1-4 family real estate | | |
| |
| |
| |
| |
| |
|
Personal residence | | 2,935 |
| 943 |
| 1,332 |
| 5,210 |
| 270,979 |
| — |
|
Rental - small loan | | 271 |
| 54 |
| 1,412 |
| 1,737 |
| 100,614 |
| — |
|
Rental - large loan | | 1,093 |
| — |
| — |
| 1,093 |
| 63,851 |
| — |
|
Home equity | 101 |
| | 94 |
| | 258 |
| | 453 |
| | 80,920 |
| | 21 |
| 61 |
| 124 |
| 154 |
| 339 |
| 74,831 |
| — |
|
Mortgage warehouse lines | — |
| | — |
| | — |
| | — |
| | 101,607 |
| | — |
| — |
| — |
| — |
| — |
| 166,826 |
| — |
|
Consumer | 230 |
| | 63 |
| | 109 |
| | 402 |
| | 36,313 |
| | 68 |
| 154 |
| 83 |
| 33 |
| 270 |
| 35,074 |
| — |
|
Other | — |
| | — |
| | 100 |
| | 100 |
| | 11,824 |
| | — |
| |
Credit cards | | 4 |
| 3 |
| 12 |
| 19 |
| 1,654 |
| 12 |
|
Overdrafts | | — |
| — |
| — |
| — |
| 592 |
| — |
|
Total | $ | 7,764 |
| | $ | 2,305 |
| | $ | 9,691 |
| | $ | 19,760 |
| | $ | 1,799,242 |
| | $ | 208 |
| $ | 6,748 |
| $ | 1,618 |
| $ | 8,778 |
| $ | 17,144 |
| $ | 1,990,125 |
| $ | 12 |
|
|
| | | | | | | | | | | | | | | | | | |
| At December 31, 2019 |
| Past Due | | 90 days or more and Accruing |
Dollars in thousands | 30-59 days | 60-89 days | 90 days or more | Total | Current |
Commercial | $ | 216 |
| $ | — |
| $ | 483 |
| $ | 699 |
| $ | 219,753 |
| $ | — |
|
Commercial real estate - owner occupied | |
| |
| |
| |
| |
| |
|
Professional & medical | — |
| 137 |
| 1,602 |
| 1,739 |
| 80,234 |
| — |
|
Retail | 118 |
| — |
| 2,434 |
| 2,552 |
| 98,441 |
| — |
|
Other | — |
| — |
| — |
| — |
| 93,253 |
| — |
|
Commercial real estate - non-owner occupied | | | | | | |
Hotels & motels | — |
| — |
| — |
| — |
| 128,665 |
| — |
|
Mini-storage | — |
| — |
| — |
| — |
| 50,913 |
| — |
|
Multifamily | 809 |
| — |
| 7 |
| 816 |
| 163,582 |
| — |
|
Retail | 71 |
| 179 |
| 968 |
| 1,218 |
| 101,771 |
| — |
|
Other | — |
| — |
| 387 |
| 387 |
| 181,855 |
| — |
|
Construction and development | | |
| |
| |
| |
| |
|
Land & land development | 208 |
| 28 |
| 188 |
| 424 |
| 83,688 |
| — |
|
Construction | — |
| — |
| 138 |
| 138 |
| 37,385 |
| — |
|
Residential 1-4 family real estate | |
| |
| |
| |
| |
| |
|
Personal residence | 3,361 |
| 806 |
| 937 |
| 5,104 |
| 255,739 |
| — |
|
Rental - small loan | 810 |
| 21 |
| 940 |
| 1,771 |
| 99,309 |
| — |
|
Rental - large loan | — |
| — |
| — |
| — |
| 63,986 |
| — |
|
Home equity | 760 |
| — |
| 223 |
| 983 |
| 75,585 |
| — |
|
Mortgage warehouse lines | — |
| — |
| — |
| — |
| 126,237 |
| — |
|
Consumer | 190 |
| 79 |
| 70 |
| 339 |
| 34,682 |
| — |
|
Other | | | | | | |
Credit cards | 19 |
| 6 |
| 42 |
| 67 |
| 1,386 |
| 42 |
|
Overdrafts | — |
| — |
| — |
| — |
| 798 |
| — |
|
Total | $ | 6,562 |
| $ | 1,256 |
| $ | 8,419 |
| $ | 16,237 |
| $ | 1,897,262 |
| $ | 42 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| At December 31, 2018 |
| Past Due | | | | > 90 days and Accruing |
Dollars in thousands | 30-59 days | | 60-89 days | | > 90 days | | Total | | Current | |
Commercial | $ | 254 |
| | $ | 51 |
| | $ | 483 |
| | $ | 788 |
| | $ | 193,527 |
| | $ | — |
|
Commercial real estate | |
| | |
| | |
| | |
| | |
| | |
|
Owner-occupied | — |
| | — |
| | 612 |
| | 612 |
| | 256,644 |
| | — |
|
Non-owner occupied | 156 |
| | 255 |
| | 1,756 |
| | 2,167 |
| | 571,765 |
| | — |
|
Construction and development | | | |
| | |
| | |
| | |
| | |
|
Land and land development | 190 |
| | 4 |
| | 3,174 |
| | 3,368 |
| | 65,465 |
| | — |
|
Construction | — |
| | — |
| | — |
| | — |
| | 24,731 |
| | — |
|
Residential mortgage | |
| | |
| | |
| | |
| | |
| | |
|
Non-jumbo | 4,120 |
| | 2,235 |
| | 3,753 |
| | 10,108 |
| | 326,869 |
| | — |
|
Jumbo | — |
| | — |
| | 675 |
| | 675 |
| | 72,924 |
| | — |
|
Home equity | 754 |
| | 261 |
| | 181 |
| | 1,196 |
| | 79,714 |
| | — |
|
Mortgage warehouse lines | — |
| | — |
| | — |
| | — |
| | 39,140 |
| | — |
|
Consumer | 502 |
| | 121 |
| | 125 |
| | 748 |
| | 31,712 |
| | 36 |
|
Other | 31 |
| | — |
| | — |
| | 31 |
| | 12,868 |
| | — |
|
Total | $ | 6,007 |
| | $ | 2,927 |
| | $ | 10,759 |
| | $ | 19,693 |
| | $ | 1,675,359 |
| | $ | 36 |
|
Nonaccrual loans: The following table presents the nonaccrual loans included in the net balance of loans at June 30, 2019March 31, 2020 and December 31, 2018.2019.
|
| | | | | | | | | | | | | | |
| | March 31, | | December 31, |
| | 2020 | | 2019 |
Dollars in thousands | | Nonaccrual | Nonaccrual with No Allowance for Credit Losses - Loans | | Nonaccrual | Nonaccrual with No Allowance for Credit Losses - Loans |
Commercial | | $ | 660 |
| $ | — |
| | $ | 864 |
| $ | 76 |
|
Commercial real estate - owner occupied | | |
| | | |
| |
Professional & medical | | 1,734 |
| — |
| | 1,602 |
| — |
|
Retail | | 2,554 |
| 2,265 |
| | 2,552 |
| 2,262 |
|
Other | | 388 |
| — |
| | 43 |
| — |
|
Commercial real estate - non-owner occupied | | | | | | |
Hotels & motels | | — |
| — |
| | — |
| — |
|
Mini-storage | | 55 |
| — |
| | 57 |
| — |
|
Multifamily | | 211 |
| — |
| | 38 |
| 31 |
|
Retail | | 651 |
| 167 |
| | 1,120 |
| 527 |
|
Other | | 51 |
| — |
| | 388 |
| 40 |
|
Construction and development | | |
| | | |
| |
Land & land development | | 11 |
| — |
| | 188 |
| — |
|
Construction | | — |
| — |
| | 138 |
| — |
|
Residential 1-4 family real estate | | |
| | | |
| |
Personal residence | | 1,997 |
| — |
| | 2,485 |
| 423 |
|
Rental - small loan | | 2,136 |
| 83 |
| | 1,635 |
| 150 |
|
Rental - large loan | | — |
| — |
| | — |
| — |
|
Home equity | | 210 |
| — |
| | 284 |
| — |
|
Mortgage warehouse lines | | — |
| — |
| | — |
| — |
|
Consumer | | 53 |
| — |
| | 74 |
| — |
|
Other | | | | | | |
Credit cards | | — |
| — |
| | — |
| — |
|
Overdrafts | | — |
| — |
| | — |
| — |
|
Total | | $ | 10,711 |
| $ | 2,515 |
| | $ | 11,468 |
| $ | 3,509 |
|
Credit Quality Indicators: We categorize loans into risk categories based on relevant information about the ability of borrowers to service their debt such as current financial information, historical payment experience, credit documentation, public information and current economic trends, among other factors. We analyze loans individually by classifying the loans as to credit risk. We internally grade all commercial loans at the time of loan origination. In addition, we perform an annual loan review on all non-homogenous commercial loan relationships with an aggregate exposure of $5.0 million, at which time these loans are re-graded. We use the following definitions for our risk grades:
Pass: Loans graded as Pass are loans to borrowers of acceptable credit quality and risk. They are higher quality loans that do not fit any of the other categories described below.
OLEM (Special Mention): Commercial loans categorized as OLEM are potentially weak. The credit risk may be relatively minor yet represent a risk given certain specific circumstances. If the potential weaknesses are not monitored or mitigated, the asset may weaken or inadequately protect our position in the future.
Substandard: Commercial loans categorized as Substandard are inadequately protected by the borrower’s ability to repay, equity and/or the collateral pledged to secure the loan. These loans have identified weaknesses that could hinder normal repayment or collection of the debt. These loans are characterized by the distinct possibility that we will sustain some loss if the identified weaknesses are not mitigated.
Doubtful: Commercial loans categorized as Doubtful have all the weaknesses inherent in those loans classified as Substandard, with the added elements that the full collection of the loan is improbable and the possibility of loss is high.
Loss: Loans classified as loss are considered to be non-collectible and of such little value that their continuance as a bankable asset is not warranted. This does not mean that the loan has absolutely no recovery value, but rather it is neither practical nor desirable to defer writing off the loan, even though partial recovery may be obtained in the future.
Management considers the guidance in ASC 310-20 when determining whether a modification, extension, or renewal of loan constitutes a current period origination. Generally, current period renewals of credit are reunderwritten at the point of renewal and considered current period originations for purposes of the table below. As of March 31, 2020, based on the most recent analysis performed, the risk category of loans based on year of origination is as follows:
|
| | | | | | | | |
| | June 30, | | December 31, |
Dollars in thousands | | 2019 | | 2018 |
Commercial | | $ | 948 |
| | $ | 935 |
|
Commercial real estate | | |
| | |
|
Owner-occupied | | 4,624 |
| | 1,028 |
|
Non-owner occupied | | 1,920 |
| | 2,210 |
|
Construction and development | | |
| | |
|
Land & land development | | 66 |
| | 3,198 |
|
Construction | | — |
| | — |
|
Residential mortgage | | |
| | |
|
Non-jumbo | | 4,561 |
| | 6,532 |
|
Jumbo | | 642 |
| | 675 |
|
Home equity | | 314 |
| | 299 |
|
Mortgage warehouse lines | | — |
| | — |
|
Consumer | | 92 |
| | 112 |
|
Other | | 100 |
| | — |
|
Total | | $ | 13,267 |
| | $ | 14,989 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2020 |
Dollars in thousands | | Risk Rating | 2020 | 2019 | 2018 | 2017 | 2016 | Prior | Revolvi- ng | Revolving- Term | Total |
| | | | | | | | | | | |
Commercial | | Pass | $ | 9,821 |
| $ | 44,711 |
| $ | 31,911 |
| $ | 25,730 |
| $ | 16,175 |
| $ | 14,658 |
| $ | 84,372 |
| $ | — |
| $ | 227,378 |
|
| | | Special Mention | — |
| 45 |
| 1,966 |
| 86 |
| 134 |
| 914 |
| 432 |
| — |
| 3,577 |
|
| | | Substandard | 1,166 |
| 216 |
| 244 |
| 9 |
| 117 |
| 128 |
| 3,787 |
| — |
| 5,667 |
|
Total Commercial | | | 10,987 |
| 44,972 |
| 34,121 |
| 25,825 |
| 16,426 |
| 15,700 |
| 88,591 |
| — |
| 236,622 |
|
| | | | | | | | | | | | |
Commercial Real Estate - Owner Occupied | | | | | | | | | | | |
| | | | | | | | | | | | |
Professional & medical | | Pass | 4,085 |
| 6,131 |
| 2,625 |
| 27,712 |
| 3,910 |
| 37,578 |
| 3,299 |
| — |
| 85,340 |
|
| | | Special Mention | 1,188 |
| — |
| — |
| — |
| — |
| 256 |
| — |
| — |
| 1,444 |
|
| | | Substandard | — |
| — |
| — |
| — |
| 137 |
| 1,597 |
| — |
| — |
| 1,734 |
|
Total Professional & Medical | | | 5,273 |
| 6,131 |
| 2,625 |
| 27,712 |
| 4,047 |
| 39,431 |
| 3,299 |
| — |
| 88,518 |
|
| | | | | | | | | | | | |
Retail | | Pass | 18,461 |
| 39,838 |
| 5,326 |
| 11,538 |
| 6,401 |
| 30,548 |
| 2,411 |
| — |
| 114,523 |
|
| | | Special Mention | — |
| — |
| — |
| 590 |
| 9 |
| 859 |
| — |
| — |
| 1,458 |
|
| | | Substandard | — |
| — |
| — |
| — |
| — |
| 2,554 |
| — |
| — |
| 2,554 |
|
Total Retail | | | 18,461 |
| 39,838 |
| 5,326 |
| 12,128 |
| 6,410 |
| 33,961 |
| 2,411 |
| — |
| 118,535 |
|
| | | | | | | | | | | | |
Other | | Pass | 13,415 |
| 15,232 |
| 17,585 |
| 9,744 |
| 21,576 |
| 35,532 |
| 9,719 |
| — |
| 122,803 |
|
| | | Special Mention | — |
| — |
| — |
| — |
| — |
| 807 |
| — |
| — |
| 807 |
|
| | | Substandard | — |
| — |
| — |
| 360 |
| — |
| 420 |
| 43 |
| — |
| 823 |
|
Total Other | | | 13,415 |
| 15,232 |
| 17,585 |
| 10,104 |
| 21,576 |
| 36,759 |
| 9,762 |
| — |
| 124,433 |
|
| | | | | | | | | | | | |
Total Commercial Real Estate - Owner Occupied | | | 37,149 |
| 61,201 |
| 25,536 |
| 49,944 |
| 32,033 |
| 110,151 |
| 15,472 |
| — |
| 331,486 |
|
| | | | | | | | | | | | |
Commercial Real Estate - Non-Owner Occupied | | | | | | | | | | | |
| | | | | | | | | | | | |
Hotels & motels | | Pass | 3,457 |
| 61,358 |
| 18,043 |
| 9,942 |
| 10,997 |
| 14,858 |
| 1,546 |
| — |
| 120,201 |
|
| | | Special Mention | — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
|
| | | Substandard | — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
|
Total Hotels & Motels | | | 3,457 |
| 61,358 |
| 18,043 |
| 9,942 |
| 10,997 |
| 14,858 |
| 1,546 |
| — |
| 120,201 |
|
| | | | | | | | | | | | |
Mini-storage | | Pass | 3,742 |
| 19,158 |
| 15,230 |
| 4,081 |
| 7,407 |
| 5,250 |
| 174 |
| — |
| 55,042 |
|
| | | Special Mention | — |
| — |
| — |
| — |
| — |
| 55 |
| — |
| — |
| 55 |
|
| | | Substandard | — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
|
Total Mini-storage | | | 3,742 |
| 19,158 |
| 15,230 |
| 4,081 |
| 7,407 |
| 5,305 |
| 174 |
| — |
| 55,097 |
|
| | | | | | | | | | | | |
Multifamily | | Pass | 4,345 |
| 27,186 |
| 27,440 |
| 19,281 |
| 11,435 |
| 49,939 |
| 2,947 |
| — |
| 142,573 |
|
| | | Special Mention | — |
| — |
| — |
| — |
| — |
| 104 |
| — |
| — |
| 104 |
|
| | | Substandard | — |
| — |
| — |
| — |
| — |
| 241 |
| — |
| — |
| 241 |
|
Total Multifamily | | | 4,345 |
| 27,186 |
| 27,440 |
| 19,281 |
| 11,435 |
| 50,284 |
| 2,947 |
| — |
| 142,918 |
|
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Impaired loans: Impaired loans include the following:
| |
▪ | Loans which we risk-rate (loan relationships having aggregate balances in excess of $2.5 million, or loans exceeding $500,000 and exhibiting credit weakness) through our normal loan review procedures and which, based on current information and events, it is probable that we will be unable to collect all amounts due in accordance with the original contractual terms of the loan agreement. Risk-rated loans with insignificant delays or insignificant short falls in the amount of payments expected to be collected are not considered to be impaired. |
| |
▪ | Loans that have been modified in a troubled debt restructuring. |
Both commercial and consumer loans are deemed impaired upon being contractually modified in a troubled debt restructuring. Troubled debt restructurings typically result from our loss mitigation activities and occur when we grant a concession to a borrower who is experiencing financial difficulty in order to minimize our economic loss and to avoid foreclosure or repossession of collateral. Once restructured, a loan is generally considered impaired until its maturity, regardless of whether the borrower performs under the modified terms. Although such a loan may be returned to accrual status if the criteria set forth in accounting principles generally accepted in the United States are met, the loan would continue to be evaluated for an asset-specific allowance for loan losses and we would continue to report the loan in the impaired loan table below.
The following tables present loans individually evaluated for impairment at June 30, 2019 and December 31, 2018.
|
| | | | | | | | | | | | | | | | | | | |
| June 30, 2019 |
Dollars in thousands | Recorded Investment | | Unpaid Principal Balance | | Related Allowance | | Average Impaired Balance | | Interest Income Recognized while impaired |
| | | | | | | | | |
Without a related allowance | | | | | | | | | |
Commercial | $ | 5,215 |
| | $ | 5,216 |
| | $ | — |
| | $ | 5,371 |
| | $ | 334 |
|
Commercial real estate | |
| | |
| | |
| | |
| | |
|
Owner-occupied | 8,867 |
| | 8,872 |
| | — |
| | 8,822 |
| | 207 |
|
Non-owner occupied | 10,814 |
| | 10,821 |
| | — |
| | 9,967 |
| | 504 |
|
Construction and development | |
| | |
| | |
| | |
| | |
|
Land & land development | 1,088 |
| | 1,088 |
| | — |
| | 1,129 |
| | 68 |
|
Construction | — |
| | — |
| | — |
| | — |
| | — |
|
Residential real estate | |
| | |
| | |
| | |
| | |
|
Non-jumbo | 3,705 |
| | 3,711 |
| | — |
| | 3,698 |
| | 198 |
|
Jumbo | 4,022 |
| | 4,021 |
| | — |
| | 4,044 |
| | 190 |
|
Home equity | 523 |
| | 523 |
| | — |
| | 523 |
| | 32 |
|
Mortgage warehouse lines | — |
| | — |
| | — |
| | — |
| | — |
|
Consumer | 15 |
| | 15 |
| | — |
| | 10 |
| | 1 |
|
Total without a related allowance | $ | 34,249 |
| | $ | 34,267 |
| | $ | — |
| | $ | 33,564 |
| | $ | 1,534 |
|
| | | | | | | | | |
With a related allowance | |
| | |
| | |
| | |
| | |
|
Commercial | $ | 269 |
| | $ | 269 |
| | $ | 30 |
| | $ | 184 |
| | $ | 1 |
|
Commercial real estate | |
| | |
| | |
| | |
| | |
|
Owner-occupied | 2,915 |
| | 2,914 |
| | 444 |
| | 2,924 |
| | 114 |
|
Non-owner occupied | — |
| | — |
| | — |
| | — |
| | — |
|
Construction and development | |
| | |
| | |
| | |
| | |
|
Land & land development | 1,035 |
| | 1,036 |
| | 521 |
| | 1,041 |
| | 57 |
|
Construction | — |
| | — |
| | — |
| | — |
| | — |
|
Residential real estate | | | | | | | | | |
Non-jumbo | 2,371 |
| | 2,370 |
| | 678 |
| | 2,341 |
| | 74 |
|
Jumbo | — |
| | — |
| | — |
| | — |
| | — |
|
Home equity | — |
| | — |
| | — |
| | — |
| | — |
|
Mortgage warehouse lines | — |
| | — |
| | — |
| | — |
| | — |
|
Consumer | — |
| | — |
| | — |
| | — |
| | — |
|
Total with a related allowance | $ | 6,590 |
| | $ | 6,589 |
| | $ | 1,673 |
| | $ | 6,490 |
| | $ | 246 |
|
| | | | | | | | | |
Total | |
| | |
| | |
| | |
| | |
|
Commercial | $ | 30,203 |
| | $ | 30,216 |
| | $ | 995 |
| | $ | 29,438 |
| | $ | 1,285 |
|
Residential real estate | 10,621 |
| | 10,625 |
| | 678 |
| | 10,606 |
| | 494 |
|
Consumer | 15 |
| | 15 |
| | — |
| | 10 |
| | 1 |
|
Total | $ | 40,839 |
| | $ | 40,856 |
| | $ | 1,673 |
| | $ | 40,054 |
| | $ | 1,780 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2020 |
Dollars in thousands | | Risk Rating | 2020 | 2019 | 2018 | 2017 | 2016 | Prior | Revolvi- ng | Revolving- Term | Total |
Retail | | Pass | 3,978 |
| 25,968 |
| 12,380 |
| 8,552 |
| 5,934 |
| 44,012 |
| 5,037 |
| — |
| 105,861 |
|
| | | Special Mention | — |
| — |
| — |
| 178 |
| — |
| 585 |
| — |
| — |
| 763 |
|
| | | Substandard | — |
| — |
| — |
| — |
| — |
| 796 |
| — |
| — |
| 796 |
|
Total Retail | | | 3,978 |
| 25,968 |
| 12,380 |
| 8,730 |
| 5,934 |
| 45,393 |
| 5,037 |
| — |
| 107,420 |
|
| | | | | | | | | | | | |
Other | | Pass | 6,012 |
| 21,200 |
| 51,880 |
| 11,228 |
| 28,061 |
| 31,540 |
| 1,780 |
| — |
| 151,701 |
|
| | | Special Mention | — |
| — |
| — |
| — |
| — |
| 274 |
| — |
| — |
| 274 |
|
| | | Substandard | — |
| — |
| — |
| — |
| — |
| 3,008 |
| — |
| — |
| 3,008 |
|
Total Other | | | 6,012 |
| 21,200 |
| 51,880 |
| 11,228 |
| 28,061 |
| 34,822 |
| 1,780 |
| — |
| 154,983 |
|
| | | | | | | | | | | | |
Total Commercial Real Estate - Non-Owner Occupied | | | 21,534 |
| 154,870 |
| 124,973 |
| 53,262 |
| 63,834 |
| 150,662 |
| 11,484 |
| — |
| 580,619 |
|
| | | | | | | | | | | | |
Construction and Development | | | | | | | | | | | |
| | | | | | | | | | | | |
Land & land development | | Pass | 1,634 |
| 33,039 |
| 9,603 |
| 5,368 |
| 7,059 |
| 24,530 |
| 9,048 |
| — |
| 90,281 |
|
| | | Special Mention | — |
| — |
| 14 |
| — |
| — |
| 727 |
| — |
| — |
| 741 |
|
| | | Substandard | — |
| — |
| — |
| — |
| 15 |
| 1,295 |
| — |
| — |
| 1,310 |
|
Total Land & land development | | | 1,634 |
| 33,039 |
| 9,617 |
| 5,368 |
| 7,074 |
| 26,552 |
| 9,048 |
| — |
| 92,332 |
|
| | | | | | | | | | | | |
Construction | | Pass | 2,677 |
| 23,791 |
| 8,499 |
| 6,190 |
| — |
| — |
| 1,964 |
| — |
| 43,121 |
|
| | | Special Mention | — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
|
| | | Substandard | — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
|
Total Construction | | | 2,677 |
| 23,791 |
| 8,499 |
| 6,190 |
| — |
| — |
| 1,964 |
| — |
| 43,121 |
|
| | | | | | | | | | | | |
Total Construction and Development | | | 4,311 |
| 56,830 |
| 18,116 |
| 11,558 |
| 7,074 |
| 26,552 |
| 11,012 |
| — |
| 135,453 |
|
| | | | | | | | | | | | |
Residential 1-4 Family Real Estate | | | | | | | | | | | |
| | | | | | | | | | | | |
Personal residence | | Pass | 7,744 |
| 32,737 |
| 29,372 |
| 22,589 |
| 25,890 |
| 133,941 |
| — |
| — |
| 252,273 |
|
| | | Special Mention | — |
| 188 |
| 63 |
| 122 |
| 131 |
| 13,160 |
| — |
| — |
| 13,664 |
|
| | | Substandard | — |
| 156 |
| 534 |
| 382 |
| 409 |
| 8,771 |
| — |
| — |
| 10,252 |
|
Total Personal Residence | | | 7,744 |
| 33,081 |
| 29,969 |
| 23,093 |
| 26,430 |
| 155,872 |
| — |
| — |
| 276,189 |
|
| | | | | | | | | | | | |
Rental - small loan | | Pass | 4,233 |
| 18,803 |
| 14,402 |
| 13,068 |
| 12,026 |
| 28,924 |
| 4,551 |
| — |
| 96,007 |
|
| | | Special Mention | 112 |
| 471 |
| 253 |
| 3 |
| 203 |
| 2,081 |
| 32 |
| — |
| 3,155 |
|
| | | Substandard | — |
| — |
| — |
| — |
| 254 |
| 2,935 |
| — |
| — |
| 3,189 |
|
Total Rental - Small Loan | | | 4,345 |
| 19,274 |
| 14,655 |
| 13,071 |
| 12,483 |
| 33,940 |
| 4,583 |
| — |
| 102,351 |
|
| | | | | | | | | | | | |
Rental - large loan | | Pass | 2,664 |
| 8,129 |
| 7,912 |
| 7,142 |
| 8,460 |
| 23,749 |
| 1,003 |
| — |
| 59,059 |
|
| | | Special Mention | — |
| 1,430 |
| — |
| — |
| 1,093 |
| 34 |
| — |
| — |
| 2,557 |
|
| | | Substandard | — |
| — |
| — |
| — |
| — |
| 3,328 |
| — |
| — |
| 3,328 |
|
Total Rental - Large Loan | | | 2,664 |
| 9,559 |
| 7,912 |
| 7,142 |
| 9,553 |
| 27,111 |
| 1,003 |
| — |
| 64,944 |
|
| | | | | | | | | | | | |
Home equity | | Pass | 66 |
| — |
| 91 |
| 86 |
| 134 |
| 1,439 |
| 71,143 |
| — |
| 72,959 |
|
| | | Special Mention | — |
| — |
| — |
| 40 |
| — |
| 142 |
| 1,354 |
| — |
| 1,536 |
|
| | | Substandard | — |
| — |
| — |
| — |
| — |
| 343 |
| 332 |
| — |
| 675 |
|
Total Home Equity | | | 66 |
| — |
| 91 |
| 126 |
| 134 |
| 1,924 |
| 72,829 |
| — |
| 75,170 |
|
The table above does not include PCI loans.
|
| | | | | | | | | | | | | | | | | | | |
| December 31, 2018 |
Dollars in thousands | Recorded Investment | | Unpaid Principal Balance | | Related Allowance | | Average Impaired Balance | | Interest Income Recognized while impaired |
| | | | | | | | | |
Without a related allowance | | | | | | | | | |
Commercial | $ | 1,019 |
| | $ | 1,253 |
| | $ | — |
| | $ | 321 |
| | $ | 16 |
|
Commercial real estate | |
| | |
| | |
| | |
| | |
|
Owner-occupied | 8,600 |
| | 8,605 |
| | — |
| | 7,730 |
| | 318 |
|
Non-owner occupied | 9,666 |
| | 9,673 |
| | — |
| | 9,753 |
| | 493 |
|
Construction and development | | | |
| | |
| | |
| | |
|
Land & land development | 4,767 |
| | 4,767 |
| | — |
| | 4,947 |
| | 102 |
|
Construction | — |
| | — |
| | — |
| | — |
| | — |
|
Residential real estate | |
| | |
| | |
| | |
| | |
|
Non-jumbo | 3,279 |
| | 3,284 |
| | — |
| | 3,401 |
| | 180 |
|
Jumbo | 4,132 |
| | 4,130 |
| | — |
| | 3,517 |
| | 166 |
|
Home equity | 523 |
| | 523 |
| | — |
| | 523 |
| | 30 |
|
Mortgage warehouse lines | — |
| | — |
| | — |
| | — |
| | — |
|
Consumer | 9 |
| | 10 |
| | — |
| | 13 |
| | 1 |
|
Total without a related allowance | $ | 31,995 |
| | $ | 32,245 |
| | $ | — |
| | $ | 30,205 |
| | $ | 1,306 |
|
| | | | | | | | | |
With a related allowance | |
| | |
| | |
| | |
| | |
|
Commercial | $ | 3,343 |
| | $ | 3,342 |
| | $ | 682 |
| | $ | 705 |
| | $ | 39 |
|
Commercial real estate | |
| | |
| | |
| | |
| | |
|
Owner-occupied | 2,969 |
| | 2,969 |
| | 462 |
| | 2,397 |
| | 117 |
|
Non-owner occupied | 189 |
| | 191 |
| | 9 |
| | 226 |
| | 16 |
|
Construction and development | | | |
| | |
| | |
| | |
|
Land & land development | 1,057 |
| | 1,057 |
| | 298 |
| | 1,073 |
| | 56 |
|
Construction | — |
| | — |
| | — |
| | — |
| | — |
|
Residential real estate | |
| | |
| | |
| | |
| | |
|
Non-jumbo | 2,982 |
| | 2,981 |
| | 585 |
| | 2,539 |
| | 98 |
|
Jumbo | 821 |
| | 822 |
| | 106 |
| | 827 |
| | 48 |
|
Home equity | — |
| | — |
| | — |
| | — |
| | — |
|
Mortgage warehouse lines | — |
| | — |
| | — |
| | — |
| | — |
|
Consumer | — |
| | — |
| | — |
| | — |
| | — |
|
Total with a related allowance | $ | 11,361 |
| | $ | 11,362 |
| | $ | 2,142 |
| | $ | 7,767 |
| | $ | 374 |
|
| | | | | | | | | |
Total | |
| | |
| | |
| | |
| | |
|
Commercial | $ | 31,610 |
| | $ | 31,857 |
| | $ | 1,451 |
| | $ | 27,152 |
| | $ | 1,157 |
|
Residential real estate | 11,737 |
| | 11,740 |
| | 691 |
| | 10,807 |
| | 522 |
|
Consumer | 9 |
| | 10 |
| | — |
| | 13 |
| | 1 |
|
Total | $ | 43,356 |
| | $ | 43,607 |
| | $ | 2,142 |
| | $ | 37,972 |
| | $ | 1,680 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2020 |
Dollars in thousands | | Risk Rating | 2020 | 2019 | 2018 | 2017 | 2016 | Prior | Revolvi- ng | Revolving- Term | Total |
| | | | | | | | | | | | |
Total Residential 1-4 Family Real Estate | | | 14,819 |
| 61,914 |
| 52,627 |
| 43,432 |
| 48,600 |
| 218,847 |
| 78,415 |
| — |
| 518,654 |
|
| | | | | | | | | | | | |
Mortgage warehouse lines | | Pass | — |
| — |
| — |
| — |
| — |
| — |
| 166,826 |
| — |
| 166,826 |
|
| | | Special Mention | — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
|
| | | Substandard | — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
|
Total Mortgage Warehouse Lines | | | — |
| — |
| — |
| — |
| — |
| — |
| 166,826 |
| — |
| 166,826 |
|
| | | | | | | | | | | | |
Consumer | | Pass | 4,026 |
| 14,306 |
| 7,234 |
| 3,000 |
| 1,983 |
| 1,907 |
| 645 |
| — |
| 33,101 |
|
| | | Special Mention | 183 |
| 752 |
| 408 |
| 268 |
| 119 |
| 71 |
| 17 |
| — |
| 1,818 |
|
| | | Substandard | 76 |
| 181 |
| 29 |
| 33 |
| 66 |
| 12 |
| 28 |
| — |
| 425 |
|
Total Consumer | | | 4,285 |
| 15,239 |
| 7,671 |
| 3,301 |
| 2,168 |
| 1,990 |
| 690 |
| — |
| 35,344 |
|
| | | | | | | | | | | | |
Other | | | | | | | | | | | |
| | | | | | | | | | | | |
Credit cards | | Pass | 1,673 |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| 1,673 |
|
| | | Special Mention | — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
|
| | | Substandard | — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
|
Total Credit Cards | | | 1,673 |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| 1,673 |
|
| | | | | | | | | | | | |
Overdrafts | | Pass | 592 |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| 592 |
|
| | | Special Mention | — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
|
| | | Substandard | — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
|
Total Overdrafts | | | 592 |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| 592 |
|
| | | | | | | | | | | | |
Total Other | | | 2,265 |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| 2,265 |
|
| | | | | | | | | | | | |
Total | | | $ | 95,350 |
| $ | 395,026 |
| $ | 263,044 |
| $ | 187,322 |
| $ | 170,135 |
| $ | 523,902 |
| $ | 372,490 |
| $ | — |
| $ | 2,007,269 |
|
The table above does not include PCI loans.
Included in impaired loans areAt March 31, 2020, we had TDRs of $26.2$25.8 million, of which $23.2$22.4 million were current with respect to restructured contractual payments at June 30,payments. At December 31, 2019, and $27our TDRs totaled $25.7 million, of which $26.6$22.9 million were current with respect to restructured contractual payments at December 31, 2018.payments. There were no0 commitments to lend additional funds under these restructurings at either balance sheet date.
The following tables present by class the TDRs that were restructured during the three and six months ended June 30, 2019March 31, 2020 and June 30, 2018 .March 31, 2019. Generally, the modifications were extensions of term, modifying the payment terms from principal and interest to interest only for an extended period, or reduction in interest rate. All TDRs are evaluated individually for allowance for credit loss purposes if the loan loss purposes.balance exceeds $500,000, otherwise, smaller balance TDR loans are included in the pools to determine ACLL.
| | | For the Three Months Ended June 30, 2019 | | For the Three Months Ended June 30, 2018 | For the Three Months Ended March 31, 2020 | | For the Three Months Ended March 31, 2019 |
Dollars in thousands | Number of Modifications | | Pre-modification Recorded Investment | | Post-modification Recorded Investment | | Number of Modifications | | Pre-modification Recorded Investment | | Post-modification Recorded Investment | Number of Modifications | | Pre- modification Recorded Investment | | Post- modification Recorded Investment | | Number of Modifications | | Pre- modification Recorded Investment | | Post- modification Recorded Investment |
Commercial | — |
| | $ | — |
| | $ | — |
| | 2 |
| | $ | 157 |
| | $ | 157 |
| — |
| | $ | — |
| | $ | — |
| | — |
| | $ | — |
| | $ | — |
|
Residential real estate | | | | | | | | | | | | |
Non-jumbo | — |
| | — |
| | — |
| | 5 |
| | 741 |
| | 741 |
| |
Commercial real estate - owner occupied | | | | | | | | | | | | |
Professional & medical | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Retail | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Other | | 1 |
| | 361 |
| | 361 |
| | 1 |
| | 325 |
| | 325 |
|
Commercial real estate - non-owner occupied | | | | | | | | | | | | |
Hotels & motels | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Mini-storage | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Multifamily | | — |
| | — |
| | — |
| | 1 |
| | 35 |
| | 35 |
|
Retail | | — |
| | — |
| | — |
| | 2 |
| | 162 |
| | 162 |
|
Other | | — |
| | — |
| | — |
| | 1 |
| | 126 |
| | 126 |
|
Construction and development | | | | | | | | | | | | |
Land & land development | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Construction | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Residential 1-4 family real estate | | | | | | | | — |
| | — |
| | — |
|
Personal residence | | — |
| | — |
| | — |
| | 3 |
| | 151 |
| | 151 |
|
Rental - small loan | | — |
| | — |
| | — |
| | 4 |
| | 259 |
| | 259 |
|
Rental - large loan | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Home equity | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Mortgage warehouse lines | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Consumer | | — |
| | — |
| | — |
| | 1 |
| | 16 |
| | 16 |
|
Total | — |
| | $ | — |
| | $ | — |
| | 7 |
| | $ | 898 |
| | $ | 898 |
| 1 |
| | $ | 361 |
| | $ | 361 |
| | 13 |
| | $ | 1,074 |
| | $ | 1,074 |
|
|
| | | | | | | | | | | | | | | | | | | | | |
| For the Six Months Ended June 30, 2019 | | For the Six Months Ended June 30, 2018 |
Dollars in thousands | Number of Modifications | | Pre-modification Recorded Investment | | Post-modification Recorded Investment | | Number of Modifications | | Pre-modification Recorded Investment | | Post-modification Recorded Investment |
Commercial | — |
| | $ | — |
| | $ | — |
| | 2 |
| | $ | 157 |
| | $ | 157 |
|
Commercial real estate | | | | | | | | | | | |
Owner-occupied | 1 |
| | 325 |
| | 325 |
| | — |
| | — |
| | — |
|
Non-owner occupied | 4 |
| | 324 |
| | 324 |
| | — |
| | — |
| | — |
|
Residential real estate | | | | | | | | | | | |
Non-jumbo | 7 |
| | 410 |
| | 410 |
| | 6 |
| | 805 |
| | 805 |
|
Consumer | 1 |
| | 16 |
| | 16 |
| | — |
| | — |
| | — |
|
Total | 13 |
| | $ | 1,075 |
| | $ | 1,075 |
| | 8 |
| | $ | 962 |
| | $ | 962 |
|
The following tables present defaults during the stated period of TDRs that were restructured during the past twelveprior 12 months. For purposes of these tables, a default is considered as either the loan was past due 30 days or more at any time during the period, or the loan was fully or partially charged off during the period.
|
| | | | | | | | | | | | | |
| For the Three Months Ended March 31, 2020 | | For the Three Months Ended March 31, 2019 |
Dollars in thousands | Number of Defaults | | Recorded Investment at Default Date | | Number of Defaults | | Recorded Investment at Default Date |
Commercial | — |
| | $ | — |
| | 2 |
| | $ | 157 |
|
Commercial real estate - owner occupied | | | | | | | |
Professional & medical | — |
| | — |
| | — |
| | — |
|
Retail | — |
| | — |
| | — |
| | — |
|
Other | 1 |
| | 361 |
| | — |
| | — |
|
Commercial real estate - non-owner occupied | | | | | | | |
Hotels & motels | — |
| | — |
| | — |
| | — |
|
Mini-storage | — |
| | — |
| | — |
| | — |
|
Multifamily | — |
| | — |
| | — |
| | — |
|
Retail | — |
| | — |
| | — |
| | — |
|
Other | — |
| | — |
| | 1 |
| | 127 |
|
Construction and development | | | | | | | |
Land & land development | — |
| | — |
| | — |
| | — |
|
Construction | — |
| | — |
| | — |
| | — |
|
Residential 1-4 family real estate | | | | | | | |
Personal residence | — |
| | — |
| | 4 |
| | 614 |
|
Rental - small loan | — |
| | — |
| | 3 |
| | 146 |
|
Rental - large loan | — |
| | — |
| | — |
| | — |
|
Home equity | — |
| | — |
| | — |
| | — |
|
Mortgage warehouse lines | — |
| | — |
| | — |
| | — |
|
Consumer | — |
| | — |
| | — |
| | — |
|
Total | 1 |
| | $ | 361 |
| | 10 |
| | $ | 1,044 |
|
|
| | | | | | | | | | | | | |
| For the Three Months Ended June 30, 2019 | | For the Three Months Ended June 30, 2018 |
Dollars in thousands | Number of Defaults | | Recorded Investment at Default Date | | Number of Defaults | | Recorded Investment at Default Date |
Commercial | — |
| | $ | — |
| | 2 |
| | $ | 157 |
|
Commercial real estate |
|
| |
|
| | | | |
Owner-occupied | — |
| | — |
| | 1 |
| | 2,302 |
|
Non-owner occupied | 1 |
| | 126 |
| | 1 |
| | 341 |
|
Construction and development |
| |
|
| | | | |
Land & land development | — |
| | — |
| | 1 |
| | 438 |
|
Residential real estate |
|
| |
|
| | | | |
Non-jumbo | 4 |
| | 193 |
| | 2 |
| | 506 |
|
Total | 5 |
| | $ | 319 |
| | 7 |
| | $ | 3,744 |
|
|
| | | | | | | | | | | | | |
| For the Six Months Ended June 30, 2019 | | For the Six Months Ended June 30, 2018 |
Dollars in thousands | Number of Defaults | | Recorded Investment at Default Date | | Number of Defaults | | Recorded Investment at Default Date |
Commercial | — |
| | $ | — |
| | 2 |
| | $ | 157 |
|
Commercial real estate | | | | | | | |
Owner-occupied | — |
| | — |
| | 1 |
| | 2,302 |
|
Non-owner occupied | 1 |
| | 126 |
| | 1 |
| | 341 |
|
Construction and development | | | | | | | |
Land & land development | — |
| | — |
| | 1 |
| | 438 |
|
Residential real estate | | | | | | | |
Non-jumbo | 4 |
| | 193 |
| | 3 |
| | 712 |
|
Total | 5 |
| | $ | 319 |
| | 8 |
| | $ | 3,950 |
|
The following tables detailApril 30, 2020, we had executed 550 modifications to interest only or principal and interest deferrals on outstanding loan balances of $338 million in connection with the activity regarding TDRsCOVID-19 relief provided by loan type, net of fees, for the threeCARES Act. These modifications and sixdeferrals were generally no more than 6 months ended June 30, 2019,in duration and the related allowance on TDRs.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
For the Three Months Ended June 30, 2019 |
| Construction & Land Development | | | | Commercial Real Estate | | Residential Real Estate | | | | | | | | |
Dollars in thousands | Land & Land Develop- ment | | Construc- tion | | Commer- cial | | Owner Occupied | | Non- Owner Occupied | | Non- jumbo | | Jumbo | | Home Equity | | Mortgage Warehouse Lines | | Con- sumer | | Other | | Total |
Troubled debt restructurings | | | | | | | | | | | | | | | | | | | | |
Balance April 1, 2019 | $ | 2,629 |
| | $ | — |
| | $ | 265 |
| | $ | 9,629 |
| | $ | 5,676 |
| | $ | 4,869 |
| | $ | 4,231 |
| | $ | 523 |
| | $ | — |
| | $ | 23 |
| | $ | — |
| | $ | 27,845 |
|
Additions | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Charge-offs | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Net (paydowns) advances | (506 | ) | | — |
| | (32 | ) | | (41 | ) | | (52 | ) | | (174 | ) | | (851 | ) | | — |
| | — |
| | (8 | ) | | — |
| | (1,664 | ) |
Transfer into foreclosed properties | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Refinance out of TDR status | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Balance, June 30, 2019 | $ | 2,123 |
| | $ | — |
| | $ | 233 |
| | $ | 9,588 |
| | $ | 5,624 |
| | $ | 4,695 |
| | $ | 3,380 |
| | $ | 523 |
| | $ | — |
| | $ | 15 |
| | $ | — |
| | $ | 26,181 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
Allowance related to troubled debt restructurings | $ | 521 |
| | $ | — |
| | $ | 6 |
| | $ | 271 |
| | $ | — |
| | $ | 200 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 998 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
For the Six Months Ended June 30, 2019 |
| Construction & Land Development | | | | Commercial Real Estate | | Residential Real Estate | | | | | | | | |
Dollars in thousands | Land & Land Develop- ment | | Construc- tion | | Commer- cial | | Owner Occupied | | Non- Owner Occupied | | Non- jumbo | | Jumbo | | Home Equity | | Mortgage Warehouse Lines | | Con- sumer | | Other | | Total |
Troubled debt restructurings | | | | | | | | | | | | | | | | | | | | |
Balance January 1, 2019 | $ | 2,654 |
| | $ | — |
| | $ | 273 |
| | $ | 9,365 |
| | $ | 5,404 |
| | $ | 4,490 |
| | $ | 4,278 |
| | $ | 523 |
| | $ | — |
| | $ | 10 |
| | $ | — |
| | $ | 26,997 |
|
Additions | — |
| | — |
| | — |
| | 325 |
| | 324 |
| | 410 |
| | — |
| | — |
| | — |
| | 16 |
| | — |
| | 1,075 |
|
Charge-offs | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Net (paydowns) advances | (531 | ) | | — |
| | (40 | ) | | (102 | ) | | (104 | ) | | (205 | ) | | (898 | ) | | — |
| | — |
| | (11 | ) | | — |
| | (1,891 | ) |
Transfer into foreclosed properties | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Refinance out of TDR status | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Balance, June 30, 2019 | $ | 2,123 |
| | $ | — |
| | $ | 233 |
| | $ | 9,588 |
| | $ | 5,624 |
| | $ | 4,695 |
| | $ | 3,380 |
| | $ | 523 |
| | $ | — |
| | $ | 15 |
| | $ | — |
| | $ | 26,181 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
Allowance related to troubled debt restructurings | $ | 521 |
| | $ | — |
| | $ | 6 |
| | $ | 271 |
| | $ | — |
| | $ | 200 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 998 |
|
The following table presents the recorded investment in construction and development, commercial, and commercial real estate loans which are generally evaluated based upon our internal risk ratings. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Loan Risk Profile by Internal Risk Rating | | | | | | | | | | | | | | | |
| Construction and Development | | | | | | Commercial Real Estate | | | |
| Land and Land Development | | Construction | | Commercial | | Owner Occupied | | Non-Owner Occupied | | Mortgage Warehouse Lines |
Dollars in thousands | 6/30/2019 | | 12/31/2018 | | 6/30/2019 | | 12/31/2018 | | 6/30/2019 | | 12/31/2018 | | 6/30/2019 | | 12/31/2018 | | 6/30/2019 | | 12/31/2018 | | 6/30/2019 | 12/31/2018 |
Pass | $ | 65,893 |
| | $ | 63,743 |
| | $ | 46,835 |
| | $ | 24,589 |
| | $ | 196,706 |
| | $ | 182,651 |
| | $ | 255,527 |
| | $ | 250,254 |
| | $ | 565,858 |
| | $ | 565,715 |
| | $ | 101,607 |
| $ | 39,140 |
|
OLEM (Special Mention) | 461 |
| | 472 |
| | 140 |
| | 142 |
| | 1,572 |
| | 6,748 |
| | 2,421 |
| | 1,864 |
| | 1,653 |
| | 1,554 |
| | — |
| — |
|
Substandard | 1,415 |
| | 4,618 |
| | — |
| | — |
| | 5,860 |
| | 4,916 |
| | 4,953 |
| | 5,138 |
| | 7,166 |
| | 6,663 |
| | — |
| — |
|
Doubtful | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| — |
|
Loss | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| — |
|
Total | $ | 67,769 |
| | $ | 68,833 |
| | $ | 46,975 |
| | $ | 24,731 |
| | $ | 204,138 |
| | $ | 194,315 |
| | $ | 262,901 |
| | $ | 257,256 |
| | $ | 574,677 |
| | $ | 573,932 |
| | $ | 101,607 |
| $ | 39,140 |
|
The following table presents the recorded investment and payment activity in consumer, residential real estate, and home equity loans, which are generally evaluatedwere not considered troubled debt restructurings based on interagency guidance issued in March 2020.
On January 1, 2020, we purchased loans, for which there was, at the aging statustime of the loans.
|
| | | | | | | | | | | | | | | |
| Performing | | Nonperforming |
Dollars in thousands | 6/30/2019 | | 12/31/2018 | | 6/30/2019 | | 12/31/2018 |
Residential real estate | | | | | | | |
Non-jumbo | $ | 356,071 |
| | $ | 330,445 |
| | $ | 4,681 |
| | $ | 6,532 |
|
Jumbo | 69,529 |
| | 72,924 |
| | 642 |
| | 675 |
|
Home Equity | 81,039 |
| | 80,611 |
| | 334 |
| | 299 |
|
Consumer | 36,555 |
| | 32,312 |
| | 160 |
| | 148 |
|
Other | 11,824 |
| | 12,899 |
| | 100 |
| | — |
|
Total | $ | 555,018 |
| | $ | 529,191 |
| | $ | 5,917 |
| | $ | 7,654 |
|
NOTE 7. ALLOWANCE FOR LOAN LOSSES
An analysiscredit quality since origination (PCD loans). The carrying amount of the allowance for loan losses for the six month period ended June 30, 2019 and for the year ended December 31, 2018these loans at acquisition is as follows:
|
| | | | | | | | |
| | June 30, | | December 31, |
Dollars in thousands | | 2019 | | 2018 |
Balance, beginning of year | | $ | 13,047 |
| | $ | 12,565 |
|
Charge-offs: | | | | |
Commercial | | 17 |
| | 248 |
|
Commercial real estate | | | | |
Owner occupied | | 2 |
| | 38 |
|
Non-owner occupied | | — |
| | 619 |
|
Construction and development | | | | |
Land and land development | | — |
| | 259 |
|
Construction | | — |
| | — |
|
Residential real estate | | | | |
Non-jumbo | | 418 |
| | 887 |
|
Jumbo | | — |
| | — |
|
Home equity | | — |
| | 26 |
|
Mortgage warehouse lines | | — |
| | — |
|
Consumer | | 194 |
| | 244 |
|
Other | | 174 |
| | 282 |
|
Total | | 805 |
| | 2,603 |
|
Recoveries: | | |
| | |
|
Commercial | | 7 |
| | 16 |
|
Commercial real estate | | | | |
Owner occupied | | 13 |
| | 23 |
|
Non-owner occupied | | — |
| | — |
|
Construction and development | | | | |
Land and land development | | 104 |
| | 270 |
|
Construction | | — |
| | — |
|
Residential real estate | | | | |
Non-jumbo | | 48 |
| | 228 |
|
Jumbo | | — |
| | 25 |
|
Home equity | | 15 |
| | 10 |
|
Mortgage warehouse lines | | — |
| | — |
|
Consumer | | 100 |
| | 141 |
|
Other | | 73 |
| | 122 |
|
Total | | 360 |
| | 835 |
|
Net charge-offs | | 445 |
|
| 1,768 |
|
Provision for loan losses | | 550 |
| | 2,250 |
|
Balance, end of period | | $ | 13,152 |
|
| $ | 13,047 |
|
Table of Contents |
| | | | |
Dollars in thousands | | January 1, 2020 |
Purchase price of PCD loans at acquisition | | $ | 1,877 |
|
Allowance for credit losses - loans at acquisition | | 410 |
|
Non-credit discount at acquisition | | 159 |
|
Par value of PCD loans at acquisition | | 1,308 |
|
28
The following table presents the activity in the allowance for loan losses, balance in the allowance for loan losses and recorded investment in loans by portfolio segment and based on impairment during the first six months of 2019 and for the year ended 2018:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Six Months Ended June 30, 2019 | | At June 30, 2019 | | At June 30, 2019 |
| Allowance for loan losses | | Allowance related to: | | Loans |
| Beginning Balance | Charge- offs | Recoveries | Provision | Ending Balance | | Loans individua- lly evaluated for impairm- ent | Loans collective- ly evaluated for impairm- ent | Loans acquired with deteriora- ted credit quality (PCI) | Total | | Loans individua- lly evaluated for impairm- ent | Loans collective- ly evaluated for impairm- ent | Loans acquired with deteriora- ted credit quality (PCI) | Total |
Commercial | $ | 1,705 |
| $ | (17 | ) | $ | 7 |
| $ | (491 | ) | $ | 1,204 |
| | $ | 30 |
| $ | 1,174 |
| $ | — |
| $ | 1,204 |
| | $ | 5,484 |
| $ | 198,654 |
| $ | — |
| $ | 204,138 |
|
Commercial real estate | | | | | | | | | | | | | | | |
Owner occupied | 2,214 |
| (2 | ) | 13 |
| 480 |
| 2,705 |
| | 444 |
| 2,261 |
| — |
| 2,705 |
| | 11,782 |
| 251,119 |
| — |
| 262,901 |
|
Non-owner occupied | 5,742 |
| — |
| — |
| (104 | ) | 5,638 |
| | — |
| 5,547 |
| 91 |
| 5,638 |
| | 10,814 |
| 562,601 |
| 1,262 |
| 574,677 |
|
Construction and development | | | | | | | | | | | | | | | |
Land and land development | 339 |
| — |
| 104 |
| 119 |
| 562 |
| | 521 |
| 41 |
| — |
| 562 |
| | 2,123 |
| 65,646 |
| — |
| 67,769 |
|
Construction | 64 |
| — |
| — |
| 254 |
| 318 |
| | — |
| 318 |
| — |
| 318 |
| | — |
| 46,975 |
| — |
| 46,975 |
|
Residential real estate | | | | | | | | | | | | | | | |
Non-jumbo | 2,090 |
| (418 | ) | 48 |
| 485 |
| 2,205 |
| | 678 |
| 1,517 |
| 10 |
| 2,205 |
| | 6,076 |
| 353,383 |
| 1,293 |
| 360,752 |
|
Jumbo | 379 |
| — |
| — |
| (369 | ) | 10 |
| | — |
| 10 |
| — |
| 10 |
| | 4,022 |
| 65,187 |
| 962 |
| 70,171 |
|
Home equity | 167 |
| — |
| 15 |
| (62 | ) | 120 |
| | — |
| 120 |
| — |
| 120 |
| | 523 |
| 80,850 |
| — |
| 81,373 |
|
Mortgage warehouse lines | — |
| — |
| — |
| — |
| — |
| | — |
| — |
| — |
| — |
| | — |
| 101,607 |
| — |
| 101,607 |
|
Consumer | 79 |
| (194 | ) | 100 |
| 128 |
| 113 |
| | — |
| 113 |
| — |
| 113 |
| | 15 |
| 36,700 |
| — |
| 36,715 |
|
Other | 268 |
| (174 | ) | 73 |
| 110 |
| 277 |
| | — |
| 277 |
| — |
| 277 |
| | — |
| 11,924 |
| — |
| 11,924 |
|
Total | $ | 13,047 |
| $ | (805 | ) | $ | 360 |
| $ | 550 |
| $ | 13,152 |
| | $ | 1,673 |
| $ | 11,378 |
| $ | 101 |
| $ | 13,152 |
| | $ | 40,839 |
| $ | 1,774,646 |
| $ | 3,517 |
| $ | 1,819,002 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Year Ended December 31, 2018 | | At December 31, 2018 | | At December 31, 2018 |
| Allowance for loan losses | | Allowance related to: | | Loans |
| Beginning Balance | Charge- offs | Recoveries | Provision | Ending Balance | | Loans individua- lly evaluated for impairm- ent | Loans collective- ly evaluated for impairm- ent | Loans acquired with deteriora- ted credit quality (PCI) | Total | | Loans individua- lly evaluated for impairm- ent | Loans collective- ly evaluated for impairm- ent | Loans acquired with deteriora- ted credit quality (PCI) | Total |
Commercial | $ | 1,303 |
| $ | (248 | ) | $ | 16 |
| $ | 634 |
| $ | 1,705 |
| | $ | 682 |
| $ | 1,023 |
| $ | — |
| $ | 1,705 |
| | $ | 4,362 |
| $ | 189,953 |
| $ | — |
| $ | 194,315 |
|
Commercial real estate | | | | | | | | | | | | | | | |
Owner occupied | 2,424 |
| (38 | ) | 23 |
| (195 | ) | 2,214 |
| | 462 |
| 1,752 |
| — |
| 2,214 |
| | 11,569 |
| 245,687 |
| — |
| 257,256 |
|
Non-owner occupied | 4,950 |
| (619 | ) | — |
| 1,411 |
| 5,742 |
| | 9 |
| 5,729 |
| 4 |
| 5,742 |
| | 9,855 |
| 562,915 |
| 1,162 |
| 573,932 |
|
Construction and development | | | | | | | | | | | | | | | |
Land and land development | 641 |
| (259 | ) | 270 |
| (313 | ) | 339 |
| | 298 |
| 41 |
| — |
| 339 |
| | 5,824 |
| 63,009 |
| — |
| 68,833 |
|
Construction | 153 |
| — |
| — |
| (89 | ) | 64 |
| | — |
| 64 |
| — |
| 64 |
| | — |
| 24,731 |
| — |
| 24,731 |
|
Residential real estate | | | | | | | | | | | | | | | |
Non-jumbo | 1,911 |
| (887 | ) | 228 |
| 838 |
| 2,090 |
| | 585 |
| 1,495 |
| 10 |
| 2,090 |
| | 6,261 |
| 329,342 |
| 1,374 |
| 336,977 |
|
Jumbo | 72 |
| — |
| 25 |
| 282 |
| 379 |
| | 106 |
| 273 |
| — |
| 379 |
| | 4,953 |
| 67,671 |
| 975 |
| 73,599 |
|
Home equity | 638 |
| (26 | ) | 10 |
| (455 | ) | 167 |
| | — |
| 167 |
| — |
| 167 |
| | 523 |
| 80,387 |
| — |
| 80,910 |
|
Mortgage warehouse lines | — |
| — |
| — |
| — |
| — |
| | — |
| — |
| — |
| — |
| | — |
| 39,140 |
| — |
| 39,140 |
|
Consumer | 210 |
| (244 | ) | 141 |
| (28 | ) | 79 |
| | — |
| 79 |
| — |
| 79 |
| | 9 |
| 32,451 |
| — |
| 32,460 |
|
Other | 263 |
| (282 | ) | 122 |
| 165 |
| 268 |
| | — |
| 268 |
| — |
| 268 |
| | — |
| 12,899 |
| — |
| 12,899 |
|
Total | $ | 12,565 |
| $ | (2,603 | ) | $ | 835 |
| $ | 2,250 |
| $ | 13,047 |
| | $ | 2,142 |
| $ | 10,891 |
| $ | 14 |
| $ | 13,047 |
| | $ | 43,356 |
| $ | 1,648,185 |
| $ | 3,511 |
| $ | 1,695,052 |
|
NOTE 8.7. GOODWILL AND OTHER INTANGIBLE ASSETS
In accordance with ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, during first quarter 2020, we evaluated recent potential triggering events that might be indicators that our goodwill was impaired. The events include, among others, the economic disruption and uncertainty surrounding the COVID-19 pandemic. We performed Step 1 of the goodwill impairment test and determined that there were 0 indicators of impairment noted as of March 31, 2020.
The following tables present our goodwill by reporting unit at June 30, 2019activity for the quarter ending March 31, 2020 and the balance of other intangible assets by reporting unit at June 30, 2019March 31, 2020 and December 31, 2018.2019.
|
| | | | |
Dollars in thousands | | Goodwill Activity |
Balance, January 1, 2020 | | $ | 12,658 |
|
Acquired goodwill | | 10,822 |
|
Balance, March 31, 2020 | | $ | 23,480 |
|
|
| | | | | | | | | | | | |
| | Goodwill Activity |
Dollars in thousands | | Community Banking | | Insurance Services | | Total |
Balance, January 1, 2019 | | $ | 10,562 |
| | $ | 4,710 |
| | $ | 15,272 |
|
Reclassifications to goodwill | | — |
| | — |
| | — |
|
Acquired goodwill, net | | 1,855 |
| | — |
| | 1,855 |
|
Goodwill reduction in conjunction with sale of Summit Insurance Services, LLC | | — |
| | (4,710 | ) | | (4,710 | ) |
Balance, June 30, 2019 | | $ | 12,417 |
| | $ | — |
| | $ | 12,417 |
|
|
| | | | | | | | |
| | Other Intangible Assets |
Dollars in thousands | | March 31, 2020 | December 31, 2019 |
Identifiable intangible assets | | |
| | |
|
Gross carrying amount | | $ | 15,444 |
| | $ | 14,727 |
|
Less: accumulated amortization | | (4,792 | ) | | (4,363 | ) |
Net carrying amount | | $ | 10,652 |
| | $ | 10,364 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Other Intangible Assets |
| | June 30, 2019 | | December 31, 2018 |
Dollars in thousands | | Community Banking | | Insurance Services | | Total | | Community Banking | | Insurances Services | | Total |
Identifiable intangible assets | | |
| | |
| | |
| | |
| | |
| | |
|
Gross carrying amount | | $ | 14,727 |
| | $ | 3,000 |
| | $ | 17,727 |
| | $ | 12,598 |
| | $ | 3,000 |
| | $ | 15,598 |
|
Less: accumulated amortization | | 3,559 |
| | 2,367 |
| | 5,926 |
| | 2,728 |
| | 2,300 |
| | 5,028 |
|
Less: customer intangible reduction in conjunction with sale of Summit Insurance Services, LLC | | — |
| | 633 |
| | 633 |
| | — |
| | — |
| | — |
|
Net carrying amount | | $ | 11,168 |
| | $ | — |
| | $ | 11,168 |
| | $ | 9,870 |
| | $ | 700 |
| | $ | 10,570 |
|
We recorded amortization expense of $897,000$429,000 and $848,000$476,000 for the sixthree months ended June 30,March 31, 2020 and 2019, and 2018, respectively, relative to our identifiable intangible assets.
Amortization relative to our identifiable intangible assets is expected to approximate the following during the next five years:
years and thereafter:
|
| | | |
| Core Deposit |
Dollars in thousands | Intangible |
Nine month period ending December 31, 2020 | $ | 1,215 |
|
Year ending December 31, 2021 | 1,511 |
|
Year ending December 31, 2022 | 1,377 |
|
Year ending December 31, 2023 | 1,243 |
|
Year ending December 31, 2024 | 1,110 |
|
Thereafter | 4,126 |
|
|
| | | | |
| | Core Deposit |
Dollars in thousands | | Intangible |
2019 | | $ | 1,634 |
|
2020 | | 1,513 |
|
2021 | | 1,393 |
|
2022 | | 1,273 |
|
2023 | | 1,152 |
|
NOTE 9.8. DEPOSITS
The following is a summary of interest bearing deposits by type as of June 30, 2019March 31, 2020 and December 31, 2018:2019:
|
| | | | | | | | |
Dollars in thousands | | March 31, 2020 | | December 31, 2019 |
Demand deposits, interest bearing | | $ | 648,214 |
| | $ | 630,351 |
|
Savings deposits | | 457,010 |
| | 418,096 |
|
Time deposits | | 602,244 |
| | 604,237 |
|
Total | | $ | 1,707,468 |
| | $ | 1,652,684 |
|
|
| | | | | | | | |
Dollars in thousands | | June 30, 2019 | | December 31, 2018 |
Demand deposits, interest bearing | | $ | 588,948 |
| | $ | 523,257 |
|
Savings deposits | | 301,403 |
| | 284,173 |
|
Time deposits | | 672,745 |
| | 605,276 |
|
Total | | $ | 1,563,096 |
| | $ | 1,412,706 |
|
Included in time deposits are deposits acquired through a third party (“brokered deposits”) totaling $222.9$111.2 million and $220.5$150.6 million at June 30, 2019March 31, 2020 and December 31, 2018,2019, respectively.
A summary of the scheduled maturities for all time deposits as of June 30, 2019March 31, 2020 is as follows:
|
| | | |
Dollars in thousands | |
Nine month period ending December 31, 2020 | $ | 290,895 |
|
Year ending December 31, 2021 | 214,158 |
|
Year ending December 31, 2022 | 43,970 |
|
Year ending December 31, 2023 | 19,402 |
|
Year ending December 31, 2024 | 14,050 |
|
Thereafter | 19,769 |
|
Total | $ | 602,244 |
|
|
| | | |
Dollars in thousands | |
Six month period ending December 31, 2019 | $ | 141,784 |
|
Year ending December 31, 2020 | 290,872 |
|
Year ending December 31, 2021 | 127,679 |
|
Year ending December 31, 2022 | 43,620 |
|
Year ending December 31, 2023 | 18,004 |
|
Thereafter | 50,786 |
|
Total | $ | 672,745 |
|
The aggregate amount of time deposits in denominations that meet or exceed the FDIC insurance limit of $250,000 totaled $267.9$196.0 million at June 30, 2019March 31, 2020 and $255.8$198.1 million at December 31, 2018.2019.
NOTE 10.9. BORROWED FUNDS
Short-term borrowings: A summary of short-term borrowings is presented below:
| | | Six Months Ended June 30, | Three Months Ended March 31, |
| 2019 | | 2018 | 2020 | | 2019 |
Dollars in thousands | Short-term FHLB Advances | | Federal Funds Purchased and Lines of Credit | | Short-term FHLB Advances | | Federal Funds Purchased and Lines of Credit | Short-term FHLB Advances | | Federal Funds Purchased and Lines of Credit | | Short-term FHLB Advances | | Federal Funds Purchased and Lines of Credit |
Balance at June 30 | $ | 225,200 |
| | $ | 143 |
| | $ | 199,900 |
| | $ | 2,529 |
| |
Balance at March 31 | | $ | 161,600 |
| | $ | 145 |
| | $ | 186,150 |
| | $ | 142 |
|
Average balance outstanding for the period | 192,895 |
| | 777 |
| | 211,884 |
| | 3,497 |
| 119,462 |
| | 145 |
| | 198,878 |
| | 1,419 |
|
Maximum balance outstanding at any month end during period | 225,200 |
| | 143 |
| | 262,000 |
| | 3,523 |
| 161,600 |
| | 145 |
| | 190,000 |
| | 142 |
|
Weighted average interest rate for the period | 2.72 | % | | 2.48 | % | | 1.87 | % | | 1.65 | % | 1.65 | % | | 1.41 | % | | 2.71 | % | | 2.47 | % |
Weighted average interest rate for balances | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
|
outstanding at June 30 | 2.51 | % | | 2.50 | % | | 2.19 | % | | 2.00 | % | |
outstanding at March 31 | | 0.48 | % | | 0.25 | % | | 2.75 | % | | 2.50 | % |
| | | Year Ended December 31, 2018 | Year Ended December 31, 2019 |
Dollars in thousands | Short-term FHLB Advances | | Federal Funds Purchased and Lines of Credit | Short-term FHLB Advances | | Federal Funds Purchased and Lines of Credit |
Balance at December 31 | $ | 303,950 |
| | 5,134 |
| $ | 199,200 |
| | 145 |
|
Average balance outstanding for the period | 223,764 |
| | 4,378 |
| 193,992 |
| | 458 |
|
Maximum balance outstanding at any month end during period | 303,950 |
| | 7,534 |
| 237,400 |
| | 145 |
|
Weighted average interest rate for the period | 2.18 | % | | 1.95 | % | 2.48 | % | | 2.43 | % |
Weighted average interest rate for balances | | | | | | |
outstanding at December 31 | 2.71 | % | | 2.50 | % | 1.83 | % | | 1.75 | % |
Long-term borrowings: Our long-term borrowings of $726,000$712,000 and $735,000$717,000 at June 30, 2019March 31, 2020 and December 31, 2018,2019, respectively, consisted of advancesa 5.34% fixed rate advance from the Federal Home Loan Bank (“FHLB”) and structured repurchase agreements with unaffiliated institutions. All, maturing in 2026. This FHLB advances areadvance is collateralized primarily by similar amountsa blanket lien of $1.22 billion of residential mortgage loans, certain commercial loans, mortgage backed securities and securities of U. S.U.S. Government agencies and corporations.
|
| | | | | | | |
| Balance at June 30, | | Balance at December 31, |
Dollars in thousands | 2019 | | 2018 |
Long-term FHLB advances | $ | 726 |
| | $ | 735 |
|
Total | $ | 726 |
| | $ | 735 |
|
corporations..
Our long term FHLB borrowings bear both fixed and variable rates and mature in varying amounts through the year 2026.
The average interest rate paid on long-term borrowings and long-term repurchase agreements for the six month period ended June 30, 2019 was 5.34% compared to 4.26% for the first six months of 2018.
Subordinated debentures owed to unconsolidated subsidiary trusts: We have three3 statutory business trusts that were formed for the purpose of issuing mandatorily redeemable securities (the “capital securities”) for which we are obligated to third party investors and investing the proceeds from the sale of the capital securities in our junior subordinated debentures (the “debentures”). The debentures held by the trusts are their sole assets. Our subordinated debentures totaled $19.6 million at June 30, 2019March 31, 2020 and December 31, 2018.2019.
The capital securities held by SFG Capital Trust I, SFG Capital Trust II, and SFG Capital Trust III qualify as Tier 1 capital under Federal Reserve Board guidelines. In accordance with these Guidelines, trust preferred securities generally are limited to 25% of Tier 1 capital elements, net of goodwill. The amount of trust preferred securities and certain other elements in excess of the limit can be included in Tier 2 capital.
A summary of the maturities of all long-term borrowings and subordinated debentures for the next five years and thereafter is as follows:
|
| | | | | | | | | |
Dollars in thousands | | | Long-term borrowings | | Subordinated debentures owed to unconsolidated subsidiary trusts |
Year Ending December 31, | 2020 | | $ | 14 |
| | $ | — |
|
| 2021 | | 19 |
| | — |
|
| 2022 | | 21 |
| | — |
|
| 2023 | | 22 |
| | — |
|
| 2024 | | 23 |
| | — |
|
| Thereafter | | 613 |
| | 19,589 |
|
| | | $ | 712 |
| | $ | 19,589 |
|
|
| | | | | | | | | |
Dollars in thousands | | | Long-term borrowings | | Subordinated debentures owed to unconsolidated subsidiary trusts |
Year Ending December 31, | 2019 | | $ | 9 |
| | $ | — |
|
| 2020 | | 18 |
| | — |
|
| 2021 | | 20 |
| | — |
|
| 2022 | | 21 |
| | — |
|
| 2023 | | 22 |
| | — |
|
| Thereafter | | 636 |
| | 19,589 |
|
| | | $ | 726 |
| | $ | 19,589 |
|
NOTE 11.10. SHARE-BASED COMPENSATION
TheUnder the 2014 Long-Term Incentive Plan (“2014 LTIP”) was adopted by our shareholders in May 2014 to enhance the ability of the Company to attract and retain exceptionally qualified individuals to serve as key employees. The LTIP provides for the issuance of up to 500,000 shares of common stock, in the form of equity awards including, stock options, restricted stock, restricted stock units, stock appreciation rights ("SARs"), performance units, other stock-based awards or any combination thereof, to our key employees.
Stock options awarded under the 2009 Officer Stock Option PlanSARs and the 1998 Officer Stock Option Plan (collectively, the “Plans”) were not altered by the 2014 LTIP, and remain subject to the terms of the Plans. However, under the terms of the 2014 LTIP, all shares of common stock remaining issuable under the Plans at the time the 2014 LTIP was adopted ceased to be available for future issuance.
Under the 2014 LTIP and the Plans, stock options and SARsRSUs have generally been granted with an exercise price equal to the fair value of Summit's common stock on the grant date. We periodically grant employee stock options to individual employees.
During first quarter 2019, we granted 109,819 SARs that become exercisable ratably over five years (20% per year) and expire ten years after the grant date and granted 28,306 SARS that become exercisable ratably over seven years (14.29% per year) and expire ten years after the grant date.
The fair value of our employee stock options and SARs granted under the Plans is estimated at the date of grant using the Black-Scholes option-pricing model. This model requires the input of highly subjective assumptions, changes to which can materially affect the fair value estimate. Additionally, there may be other factors that would otherwise have a significant effect on the value of employee stock options and SARs granted but are not considered by the model. Because our employee stock options and SARs have characteristics significantly different from those of traded options and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options and SARs at the time of grant. The assumptions used to value SARs granted during 2019 were as follows:
|
| | | | |
| 5-year vesting SARs | 7-year vesting SARs |
Risk-free interest rate | 2.43 | % | 2.51 | % |
Expected dividend yield | 2.30 | % | 2.30 | % |
Expected common stock volatility | 35.71 | % | 40.84 | % |
Expected life | 6.5 years |
| 7.0 years |
|
A summary of our SAR and stock option activity the first three months of 2020 and 2019 is as follows:
|
| | | | |
| 5-year vesting SARs | 7-year vesting SARs |
Risk-free interest rate | 2.43 | % | 2.51 | % |
Expected dividend yield | 2.30 | % | 2.30 | % |
Expected common stock volatility | 35.71 | % | 40.84 | % |
Expected life | 6.5 years |
| 7.0 years |
|
|
| | | | | | | | | | | | |
| For the Three Months Ended March 31, |
| 2020 |
| Options/SARs | | Aggregate Intrinsic Value (in thousands) | | Remaining Contractual Term (Yrs.) | | Weighted-Average Exercise Price |
Outstanding, January 1 | 330,703 |
| | | | | | $ | 20.44 |
|
Granted | — |
| | | | | | — |
|
Exercised | — |
| | | | | | — |
|
Forfeited | — |
| | | | | | — |
|
Expired | — |
| | | | | | — |
|
Outstanding, March 31 | 330,703 |
| | $ | 1,039 |
| | 7.08 | | $ | 20.44 |
|
| | | | | | | |
Exercisable, March 31 | 146,031 |
| | $ | 732 |
| | 6.24 | | $ | 18.18 |
|
|
| | | | | | | | | | | | |
| For the Three Months Ended March 31, |
| 2019 |
| Options/SARs | | Aggregate Intrinsic Value (in thousands) | | Remaining Contractual Term (Yrs.) | | Weighted-Average Exercise Price |
Outstanding, January 1 | 232,091 |
| | | | | | $ | 17.36 |
|
Granted | 138,125 |
| | | | | | 23.94 |
|
Exercised | — |
| | | | | | — |
|
Forfeited | — |
| | | | | | — |
|
Expired | — |
| | | | | | — |
|
Outstanding, March 31 | 370,216 |
| | $ | 2,478 |
| | 7.83 | | $ | 19.82 |
|
| | | | | | | |
Exercisable, March 31 | 111,058 |
| | $ | 1,129 |
| | 6.16 | | $ | 15.77 |
|
Grants of RSUs include time-based vesting conditions that generally vest ratably over a period of 3 to 5 years. During first quarter 2020, we granted 1,846 RSUs which will fully vest on the 2 anniversary of the grant date. During 2019, we granted 2,892 RSUs which will vest ratably over 3 years. A summary of our RSU activity and related information is as follows.
|
| | | | | |
Dollars in thousands, except per share amounts | RSUs | | Weighted Average Grant Date Fair Value |
Nonvested, December 31, 2019 | 2,892 |
| | 25.93 |
|
Granted | 1,846 |
| | 27.09 |
|
Exercised | — |
| | — |
|
Forfeited | — |
| | — |
|
Vested | — |
| | — |
|
Nonvested, March 31, 2020 | 4,738 |
| | 26.38 |
|
We recognize compensation expense based on the estimated number of stock awards expected to actually vest, exclusive of the awards expected to be forfeited. During the first sixthree months of 2020 and 2019, and 2018, our share-basedtotal stock compensation expense for all share-based arrangements was $281,000$162,000 and $193,000$132,000 and the related deferred tax benefits were approximately $67,000$39,000 and $46,000.$32,000.
A summary of activity in our Plans during the first six months of 2019 and 2018 is as follows:
|
| | | | | | | | | | | | |
| For the Six Months Ended June 30, |
| 2019 |
| Options/SARs | | Aggregate Intrinsic Value (in thousands) | | Remaining Contractual Term (Yrs.) | | Weighted-Average Exercise Price |
Outstanding, January 1 | 232,091 |
| | | | | | $ | 17.36 |
|
Granted | 138,125 |
| | | | | | 23.94 |
|
Exercised | (31,413 | ) | | | | | | 11.83 |
|
Forfeited | — |
| | | | | | — |
|
Expired | — |
| | | | | | — |
|
Outstanding, June 30 | 338,803 |
| | $ | 2,132 |
| | 7.66 | | $ | 20.56 |
|
| | | | | | | |
Exercisable, June 30 | 112,989 |
| | $ | 1,189 |
| | 5.84 | | $ | 16.32 |
|
|
| | | | | | | | | | | | |
| For the Six Months Ended June 30, |
| 2018 |
| Options/SARs | | Aggregate Intrinsic Value (in thousands) | | Remaining Contractual Term (Yrs.) | | Weighted-Average Exercise Price |
Outstanding, January 1 | 250,291 |
| | | | | | $ | 17.75 |
|
Granted | — |
| | | | | | — |
|
Exercised | (200 | ) | | | | | | 17.79 |
|
Forfeited | (3,000 | ) | | | | | | 26.01 |
|
Expired | — |
| | | | | | — |
|
Outstanding, June 30 | 247,091 |
| | $ | 2,272 |
| | 6.83 | | $ | 17.65 |
|
| | | | | | | |
Exercisable, June 30 | 110,924 |
| | $ | 1,225 |
| | 5.72 | | $ | 15.80 |
|
NOTE 12.11. COMMITMENTS AND CONTINGENCIES
Off-Balance Sheet Arrangements
We are a party to certain financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of our customers. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the statement of financial position. The contract amounts of these instruments reflect the extent of involvement that we have in this class of financial instruments.
Many of our lending relationships contain both funded and unfunded elements. The funded portion is reflected on our balance sheet. The unfunded portion of these commitments is not recorded on our balance sheet until a draw is made under the loan facility. Since many of the commitments to extend credit may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash flow requirements.
A summary of the total unfunded, or off-balance sheet, credit extension commitments follows:
|
| | | | |
Dollars in thousands | | March 31, 2020 |
Commitments to extend credit: | | |
Revolving home equity and credit card lines | | $ | 70,168 |
|
Construction loans | | 147,681 |
|
Other loans | | 215,004 |
|
Standby letters of credit | | 16,732 |
|
Total | | $ | 449,585 |
|
|
| | | | |
Dollars in thousands | | June 30, 2019 |
Commitments to extend credit: | | |
Revolving home equity and credit card lines | | $ | 69,381 |
|
Construction loans | | 127,139 |
|
Other loans | | 163,887 |
|
Standby letters of credit | | 5,784 |
|
Total | | $ | 366,191 |
|
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. We evaluate each customer's credit worthiness on a case-by-case basis. The amount of collateral obtained, if we deem necessary upon extension of credit, is based on our credit evaluation. Collateral held varies but may include accounts receivable, inventory, equipment or real estate.
Standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. Standby letters of credit generally are contingent upon the failure of the customer to perform according to the terms of the underlying contract with the third party.
Our exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual amount of those instruments. We use the same credit policies in making commitments and conditional obligations as we do for on-balance sheet instruments.
Operating leases
We occupy certain facilities
Allowance For Credit Losses - Off-Balance-Sheet Credit Exposures
The ACL on off-balance-sheet credit exposures is a liability account, calculated in accordance with ASC 326, representing expected credit losses over the contractual period for which we are exposed to credit risk resulting from a contractual obligation to extend credit. No allowance is recognized if we have the unconditional right to cancel the obligation. Off-balance-sheet credit exposures primarily consist of amounts available under long-term operating leases. The aggregate minimum annual rental commitments under those leases total approximately $115,000 in 2019outstanding lines of credit and $92,000 in 2020. Total net rent expense includedletters of credit detailed in the accompanying consolidated financial statementstable above. For the period of exposure, the estimate of expected credit losses considers both the likelihood that funding will occur and the amount expected to be funded over the estimated remaining life of the commitment or other off-balance-sheet exposure. The likelihood and expected amount of funding are based on historical utilization rates. The amount of the allowance represents management's best estimate of expected credit losses on commitments expected to be funded over the contractual life of the commitment. Estimating credit losses on amounts expected to be funded uses the same methodology as described for loans in Note 6 - Loans and Allowance for Credit Losses as if such commitments were funded.
The impact to the ACL on off-balance sheet credit exposures upon adoption of ASC 326 was $100,000 for the six months ended June 30, 2019 and $140,000 for the six months ended June 30, 2018.
$2.43 million, followed by a first quarter 2020 provision of $551,000 resulting in a March 31, 2020 balance of $2.98 million.
Litigation
We are not a party to litigation except for matters that arise in the normal course of business. While it is impossible to ascertain the ultimate resolution or range of financial liability, if any, with respect to these contingent matters, in the opinion of management, after consultation with legal counsel, the outcome of these matters will not have a significant adverse effect on the consolidated financial statements.
NOTE 13.12. REGULATORY MATTERS
Our bank subsidiary, Summit Community Bank, Inc. (“Summit Community”), is subject to various regulatory capital requirements administered by the banking regulatory agencies. Under the capital adequacy guidelines and the regulatory framework for prompt corrective action, Summit Community must meet specific capital guidelines that involve quantitative
measures of its assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. Our bank subsidiary’s capital amounts and classifications 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 Summit Community to maintain minimum amounts and ratios of Common Equity Tier 1("CET1"), Total capital and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital (as defined) to average assets (as defined). We believe, as of June 30, 2019,March 31, 2020, that our bank subsidiary met all capital adequacy requirements to which they were subject.
The most recent notifications from the banking regulatory agencies categorized Summit Community as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, Summit Community must maintain minimum CET1, Total risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the table below.
The Basel III Capital Rules became effective for usIn December 2018, the federal bank regulatory agencies approved a final rule modifying their regulatory capital rules to provide an option to phase-in over a period of three years the day-one regulatory capital effects of the implementation of ASC 326. In March 2020, those agencies approved a final rule providing an option to delay the estimated impact on regulatory capital. We elected this optional phase-in period upon adoption of ASC 326 on January 1, 2015, with full compliance with all2020 and elected to delay the estimated impact. The initial impact of adoption as well as 25% of the final rule's requirements phased-inquarterly increases in the allowance for credit losses subsequent to adoption (collectively the “transition adjustments”) will be delayed for two years. After two years, the cumulative amount of the transition adjustments will become fixed and will be phased out of the regulatory capital calculations evenly over a multi-year schedule, tothree year period, with 75% recognized in year three, 50% recognized in year four, and 25% recognized in year five. After five years, the temporary regulatory capital benefits will be fully phased-in by January 1, 2019. As of June 30, 2019, Summit Community’s capital levels remained characterized as "well-capitalized" under the new rules. See the Capital Requirements section included in Part I, Item 1 -- Business of our 2018 Annual Report on Form 10-K for further discussion of Basel III.
On August 28, 2018, the Federal Reserve Board (the “Board”) issued an interim final rule expanding the applicability of the Board's small bank holding company policy statement, as required by the Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018. The interim final rule raises the small bank holding company policy statement's asset threshold from $1 billion to $3 billion in total consolidated assets, and as a result, our holding company was exempted from all regulatory capital guidelines, to which it previously had been subject, until such time as its consolidated assets exceed $3 billion.
reversed.
The following table presentstables present Summit's, as well as Summit Community's, actual and required minimum regulatory capital amounts and ratios as of June 30, 2019March 31, 2020 and December 31, 2018 under the Basel III Capital Rules. The minimum required capital levels presented below reflect the minimum required capital levels (inclusive of the full capital conservation buffers) that will be effective as of January 1, 2019 when the Basel III Capital Rules have been fully phased-in.2019. Capital levels required to be considered well capitalized are based upon prompt corrective action regulations, as amended to reflect the changes under the Basel III Capital Rules.amended.
| | | | Actual | | Minimum Required Capital - Basel III Fully Phased-in | | Minimum Required To Be Well Capitalized | | Actual | | Minimum Required Capital - Basel III | | Minimum Required To Be Well Capitalized |
Dollars in thousands | | Amount | | Ratio | | Amount | | Ratio | | Amount | | Ratio | | Amount | | Ratio | | Amount | | Ratio | | Amount | | Ratio |
As of June 30, 2019 | | | | | | | | | | | | | |
As of March 31, 2020 | | | | | | | | | | | | | |
CET1 (to risk weighted assets) | | | | | | | | | | | | | | | | | | | | | | | | |
Summit | | $ | 212,502 |
| | 11.1 | % | | N/A |
| | N/A |
| | N/A |
| | N/A |
| | $ | 231,676 |
| | 10.8 | % | | N/A |
| | N/A |
| | N/A |
| | N/A |
|
Summit Community | | 228,143 |
| | 11.9 | % | | 134,202 |
| | 7.0 | % | | 124,616 |
| | 6.5 | % | | 250,530 |
| | 11.7 | % | | 149,890 |
| | 7.0 | % | | 139,183 |
| | 6.5 | % |
Tier I Capital (to risk weighted assets) | Tier I Capital (to risk weighted assets) | | |
| | |
| | |
| | |
| | |
| Tier I Capital (to risk weighted assets) | | |
| | |
| | |
| | |
| | |
|
Summit | | 231,502 |
| | 12.1 | % | | N/A |
| | N/A |
| | N/A |
| | N/A |
| | 250,676 |
| | 11.7 | % | | N/A |
| | N/A |
| | N/A |
| | N/A |
|
Summit Community | | 228,143 |
| | 11.9 | % | | 162,959 |
| | 8.5 | % | | 153,373 |
| | 8.0 | % | | 250,530 |
| | 11.7 | % | | 182,009 |
| | 8.5 | % | | 171,303 |
| | 8.0 | % |
Total Capital (to risk weighted assets) | Total Capital (to risk weighted assets) | | | | | | | | | | | Total Capital (to risk weighted assets) | | | | | | | | | | |
Summit | | 244,654 |
| | 12.8 | % | | N/A |
| | N/A |
| | N/A |
| | N/A |
| | 267,905 |
| | 12.5 | % | | N/A |
| | N/A |
| | N/A |
| | N/A |
|
Summit Community | | 241,295 |
| | 12.6 | % | | 201,079 |
| | 10.5 | % | | 191,504 |
| | 10.0 | % | | 267,759 |
| | 12.5 | % | | 224,918 |
| | 10.5 | % | | 214,207 |
| | 10.0 | % |
Tier I Capital (to average assets) | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Summit | | 231,502 |
| | 10.4 | % | | N/A |
| | N/A |
| | N/A |
| | N/A |
| | 250,676 |
| | 10.2 | % | | N/A |
| | N/A |
| | N/A |
| | N/A |
|
Summit Community | | 228,143 |
| | 10.2 | % | | 89,468 |
| | 4.0 | % | | 111,835 |
| | 5.0 | % | | 250,530 |
| | 10.2 | % | | 98,247 |
| | 4.0 | % | | 122,809 |
| | 5.0 | % |
Table of Contents |
| | | | | | | | | | | | | | | | | | |
| | Actual | | Minimum Required Capital - Basel III Fully Phased-in | | Minimum Required To Be Well Capitalized |
Dollars in thousands | | Amount | | Ratio | | Amount | | Ratio | | Amount | | Ratio |
As of December 31, 2019 | | |
| | |
| | |
| | |
|
CET1 (to risk weighted assets) | | | | | | | | | | | | |
Summit | | 224,679 |
| | 11.1 | % | | N/A |
| | N/A |
| | N/A |
| | N/A |
|
Summit Community | | 244,045 |
| | 12.1 | % | | 141,183 |
| | 7.0 | % | | 131,099 |
| | 6.5 | % |
Tier I Capital (to risk weighted assets) | | |
| | |
| | |
| | |
| | |
|
Summit | | 243,679 |
| | 12.1 | % | | N/A |
| | N/A |
| | N/A |
| | N/A |
|
Summit Community | | 244,045 |
| | 12.1 | % | | 171,437 |
| | 8.5 | % | | 161,352 |
| | 8.0 | % |
Total Capital (to risk weighted assets) | | |
| | |
| | |
| | |
| | |
|
Summit | | 256,753 |
| | 12.7 | % | | N/A |
| | N/A |
| | N/A |
| | N/A |
|
Summit Community | | 257,119 |
| | 12.7 | % | | 212,579 |
| | 10.5 | % | | 202,456 |
| | 10.0 | % |
Tier I Capital (to average assets) | | |
| | |
| | |
| | |
| | |
| | |
|
Summit | | 243,679 |
| | 10.5 | % | | N/A |
| | N/A |
| | N/A |
| | N/A |
|
Summit Community | | 244,045 |
| | 10.6 | % | | 92,092 |
| | 4.0 | % | | 115,116 |
| | 5.0 | % |
35
|
| | | | | | | | | | | | | | | | | | |
| | Actual | | Minimum Required Capital - Basel III Fully Phased-in | | Minimum Required To Be Well Capitalized |
Dollars in thousands | | Amount | | Ratio | | Amount | | Ratio | | Amount | | Ratio |
As of December 31, 2018 | | |
| | |
| | |
| | |
|
CET1 (to risk weighted assets) | | | | | | | | | | | | |
Summit | | 197,551 |
| | 11.1 | % | | N/A |
| | N/A |
| | N/A |
| | N/A |
|
Summit Community | | 213,930 |
| | 12.0 | % | | 124,793 |
| | 7.0 | % | | 115,879 |
| | 6.5 | % |
Tier I Capital (to risk weighted assets) | | |
| | |
| | |
| | |
| | |
|
Summit | | 216,551 |
| | 12.2 | % | | N/A |
| | N/A |
| | N/A |
| | N/A |
|
Summit Community | | 213,930 |
| | 12.0 | % | | 151,534 |
| | 8.5 | % | | 142,620 |
| | 8.0 | % |
Total Capital (to risk weighted assets) | | |
| | |
| | |
| | |
| | |
|
Summit | | 229,598 |
| | 12.9 | % | | N/A |
| | N/A |
| | N/A |
| | N/A |
|
Summit Community | | 226,977 |
| | 12.8 | % | | 186,192 |
| | 10.5 | % | | 177,326 |
| | 10.0 | % |
Tier I Capital (to average assets) | | |
| | |
| | |
| | |
| | |
| | |
|
Summit | | 216,551 |
| | 10.1 | % | | N/A |
| | N/A |
| | N/A |
| | N/A |
|
Summit Community | | 213,930 |
| | 10.0 | % | | 85,572 |
| | 4.0 | % | | 106,965 |
| | 5.0 | % |
NOTE 14.13. DERIVATIVE FINANCIAL INSTRUMENTS
We have entered into four forward-starting,4 pay-fixed/receive LIBOR interest rate swaps. $40swaps as follows:
A $30 million notional with an effective date of Julyinterest rate swap expiring on October 18, 2016,2020, was designated as a cash flow hedge of $30 million of variable rate Federal Home Loan Bank advances. Under the terms of this swap we will pay a fixed rate of 2.89% and receive a variable rate equal to one month LIBOR.
A $40 million notional interest rate swap expiring on October 18, 2021, was designated as a cash flow hedge of $40 million of variable rate Federal Home Loan Bank advances. Under the terms of this swap we will pay a fixed rate of 2.19% and receive a variable rate equal to three month LIBOR.
A $20 million notional interest rate swap with an effective date of October 18, 2021 and expiring on October 18, 2023, was designated as a cash flow hedge of $20 million of forecasted variable rate Federal Home Loan Bank advances. Under the terms of this swap we will pay a fixed rate of 2.98% for1.07% and receive a 3 year period. $30variable rate equal to three month LIBOR.
A $20 million notional interest rate swap with an effective date of AprilOctober 18, 2016,2021 and expiring on October 18, 2024, was designated as a cash flow hedge of $30$20 million of forecasted variable rate Federal Home Loan Bank advances. Under the terms of this swap we will pay a fixed rate of 2.89% for1.1055% and receive a 4.5 year period. $40 million notional with an effective date of October 18, 2016, was designated as a cash flow hedge of $40 million of forecasted variable rate Federal Home Loan Bank advances. Under the termsequal to three month LIBOR.
We have entered into two2 pay fixed/receive variable interest rate swaps to hedge fair value variability of two commercial fixed rate loans with the same principal, amortization, and maturity terms of the underlying loans, which are designated as fair value hedges. hedges as follows:
Under the terms of a $9.95 million original notional interest rate swap with an effective date ofexpiring January 15, 2015,2025, we will pay a fixed rate of 4.33% forand receive a 10 year period. variable rate equal to one month LIBOR plus 2.40 percent.
Under the terms of a $11.3 million original notional interest rate swap with an effective date of December 18, 2015,expiring January 15, 2026, we will pay a fixed rate of 4.30% forand receive a 10 year period.variable rate equal to one month LIBOR plus 2.18 percent.
A summary of our derivative financial instruments as of June 30, 2019March 31, 2020 and December 31, 20182019 follows:
| | | June 30, 2019 | March 31, 2020 |
| Notional Amount | | Derivative Fair Value | | Net Ineffective | Notional Amount | | Derivative Fair Value | | Net Ineffective |
Dollars in thousands | | Asset | | Liability | | Hedge Gains/(Losses) | | Asset | | Liability | | Hedge Gains/(Losses) |
CASH FLOW HEDGES | | | | | | | | | | | | | | |
Pay-fixed/receive-variable interest rate swaps | | | | | | | | | | | | | | |
Short term borrowings | $ | 150,000 |
| | $ | — |
| | $ | 968 |
| | $ | — |
| $ | 110,000 |
| | $ | — |
| | $ | 2,106 |
| | $ | — |
|
| | | | | | | | | | | | | | |
FAIR VALUE HEDGES | | | | | | | | | | | | | | |
Pay-fixed/receive-variable interest rate swaps | | | | | | | | | | | | | | |
Commercial real estate loans | $ | 19,107 |
| | $ | — |
| | $ | 279 |
| | $ | — |
| $ | 18,657 |
| | $ | — |
| | $ | 1,371 |
| | $ | — |
|
Table of Contents |
| | | | | | | | | | | | | | | |
| December 31, 2019 |
| Notional Amount | | Derivative Fair Value | | Net Ineffective |
Dollars in thousands | | Asset | | Liability | | Hedge Gains/(Losses) |
CASH FLOW HEDGES | | | | | | | |
Pay-fixed/receive-variable interest rate swaps | | | | | | |
Short term borrowings | $ | 70,000 |
| | $ | — |
| | $ | 679 |
| | $ | — |
|
| | | | | | | |
FAIR VALUE HEDGES | | | | | | | |
Pay-fixed/receive-variable interest rate swaps | | | | | | | |
Commercial real estate loans | $ | 18,809 |
| | $ | — |
| | $ | 309 |
| | $ | — |
|
36
|
| | | | | | | | | | | | | | | |
| December 31, 2018 |
| Notional Amount | | Derivative Fair Value | | Net Ineffective |
Dollars in thousands | | Asset | | Liability | | Hedge Gains/(Losses) |
CASH FLOW HEDGES | | | | | | | |
Pay-fixed/receive-variable interest rate swaps | | | | | | |
Short term borrowings | $ | 110,000 |
| | $ | — |
| | $ | 411 |
| | $ | — |
|
| | | | | | | |
FAIR VALUE HEDGES | | | | | | | |
Pay-fixed/receive-variable interest rate swaps | | | | | | | |
Commercial real estate loans | $ | 19,399 |
| | $ | 555 |
| | $ | — |
| | $ | — |
|
Loan commitments: ASC Topic 815, Derivatives and Hedging, requires that commitments to make mortgage loans should be accounted for as derivatives if the loans are to be held for sale, because the commitment represents a written option and accordingly is recorded at the fair value of the option liability.
NOTE 15.14. ACQUISITIONS
Peoples Bankshares,Cornerstone Financial Services Inc. Acquisition
On January 1, 2019,2020, Summit Community Bank, Inc. ("SCB"), a wholly-owned subsidiary of Summit, acquired 100% of the ownership of Peoples Bankshares,Cornerstone Financial Services Inc. ("PBI"Cornerstone") and its subsidiary First PeoplesCornerstone Bank, headquartered in Mullens,West Union, West Virginia. With this transaction, Summit further expands its footprint in Wyoming and Raleigh Countiesinto the central region of West Virginia. Pursuant to the Agreement and Plan of Merger dated July 24, 2018, PBI'sSeptember 17, 2019, Cornerstone's shareholders received cash in the amount of $47.00$5,700.00 per share or 1.7193228 shares of Summit common stock, or a combination of cash and Summit stock, subject to proration to result in approximately 50% cash and 50% stock consideration in the aggregate. Total stock consideration was $9.0$15.4 million or 465,931570,000 shares of Summit common stock and cash consideration was $12.7$14.3 million. PBI'sCornerstone's assets and liabilities approximated $133$195 million and $113$176 million, respectively, at December 31, 2018.2019 and was deemed immaterial to our financial statements.
We accounted for the acquisition using the acquisition method of accounting in accordance with ASC 805, Business Combinations and accordingly, the assets and liabilities of PBICornerstone were recorded at their respective acquisition date respective fair values. Determining the fair value of assets and liabilities, particularly related to the loan portfolio, is a complicated process involving significant judgment regarding methods and assumptions used to calculate the estimated fair values. The fair values
are preliminary and subject to refinement for up to one year after the acquisition date as additional information relative to the acquisition date fair values becomes available. We recognized preliminary goodwill of $1.85$10.82 million in connection with the acquisition (not deductible for income tax purposes), which is not amortized for financial reporting purposes, but is subject to annual impairment testing. The core deposit intangible represents the value of long-term deposit relationships acquired in this transaction and will be amortized over an estimated weighted average life of 1510 years using an accelerated method which approximates the estimated run-off of the acquired deposits. The following table details the total consideration paid on January 1, 20192020 in connection with the acquisition of PBI,Cornerstone, the fair values of the assets acquired and liabilities assumed and the resulting preliminary goodwill.
Table of Contents |
| | | | | | | | | | | | |
(Dollars in thousands) | | As Recorded by Cornerstone | | Estimated Fair Value Adjustments | | Estimated Fair Values as Recorded by Summit |
Cash consideration | | | | | | $ | 14,250 |
|
Stock consideration | | | | | | 15,441 |
|
Total consideration | | | | | | 29,691 |
|
| | | | | | |
Identifiable assets acquired: | | | | | | |
Cash and cash equivalents | | $ | 60,210 |
| | $ | — |
| | $ | 60,210 |
|
Securities available for sale, at fair value | | 90,154 |
| | (47 | ) | | 90,107 |
|
Loans | | | | | |
|
|
Purchased performing | | 37,965 |
| | 188 |
| | 38,153 |
|
Purchased credit deteriorated | | 1,877 |
| | (569 | ) | | 1,308 |
|
Allowance for loan losses | | (312 | ) | | 312 |
| | — |
|
Premises and equipment | | 807 |
| | (142 | ) | | 665 |
|
Property held for sale | | 10 |
| | — |
| | 10 |
|
Core deposit intangibles | | — |
| | 717 |
| | 717 |
|
Other assets | | 4,338 |
| | (474 | ) | | 3,864 |
|
Total identifiable assets acquired | | $ | 195,049 |
| | $ | (15 | ) | | $ | 195,034 |
|
| | | | | | |
Identifiable liabilities assumed: | | | | | | |
Deposits | | 173,030 |
| | 239 |
| | 173,269 |
|
Other liabilities | | 3,303 |
| | (407 | ) | | 2,896 |
|
Total identifiable liabilities assumed | | $ | 176,333 |
| | $ | (168 | ) | | $ | 176,165 |
|
| | | | | | |
Net identifiable assets acquired | | $ | 18,716 |
| | $ | 153 |
| | $ | 18,869 |
|
| | | | | | |
Preliminary goodwill resulting from acquisition | | | | | | $ | 10,822 |
|
37
|
| | | | | | | | | | | | |
(Dollars in thousands) | | As Recorded by PBI | | Estimated Fair Value Adjustments | | Estimated Fair Values as Recorded by Summit |
Cash consideration | | | | | | $ | 12,740 |
|
Stock consideration | | | | | | 8,997 |
|
Total consideration | | | | | | 21,737 |
|
| | | | | | |
Identifiable assets acquired: | | | | | | |
Cash and cash equivalents | | $ | 33,422 |
| | $ | (93 | ) | | $ | 33,329 |
|
Securities available for sale, at fair value | | 55,206 |
| | (93 | ) | | 55,113 |
|
Loans | | | | | |
|
|
Purchased performing | | 42,376 |
| | (977 | ) | | 41,399 |
|
Purchased credit impaired | | — |
| | — |
| | — |
|
Allowance for loan losses | | (410 | ) | | 410 |
| | — |
|
Premises and equipment | | 1,382 |
| | (567 | ) | | 815 |
|
Property held for sale | | — |
| | — |
| | — |
|
Core deposit intangibles | | — |
| | 2,129 |
| | 2,129 |
|
Other assets | | 1,110 |
| | (100 | ) | | 1,010 |
|
Total identifiable assets acquired | | $ | 133,086 |
| | $ | 709 |
| | $ | 133,795 |
|
| | | | | | |
Identifiable liabilities assumed: | | | | | | |
Deposits | | 112,064 |
| | 315 |
| | 112,379 |
|
Other liabilities | | 1,422 |
| | 111 |
| | 1,533 |
|
Total identifiable liabilities assumed | | $ | 113,486 |
| | $ | 426 |
| | $ | 113,912 |
|
| | | | | | |
Net identifiable assets acquired | | $ | 19,600 |
| | $ | 283 |
| | $ | 19,883 |
|
| | | | | | |
Goodwill resulting from acquisition | | | | | | $ | 1,854 |
|
The following is a description of the methods used to determine the fair values of significant assets and liabilities presented above.
Cash and cash equivalents: The carrying amount of these assets approximates their fair value based on the short-term nature of these assets, with the exception of certificates of deposits held at other banks, which were adjusted to fair value based upon current interest rates.
Securities: Fair values for securities are based on quoted market prices, where available. If quoted market prices are not available, fair value estimates are based on observable inputs including quoted market prices for similar instruments, quoted market prices that are not in an active market or other inputs that are observable in the market.
Loans: Fair values for loans are based on a discounted cash flow methodology that considered factors including the type of loan and related collateral, collectibility, fixed or variable interest rate, term of loan, amortization status and current market rates. Loans were grouped together according to similar characteristics and were treated in the aggregate when applying various valuation techniques. The discount rates used for loans are based on current market rates for new originations of comparable loans and include adjustments for liquidity concerns, if any.
Premises and equipment: The fair value of PBI'sCornerstone's real property was determined based upon appraisals by licensed appraisers. The fair value of tangible personal property, which is not material, was assumed to equal the carrying value by PBI.Cornerstone.
Core deposit intangible: This intangible asset represents the value of the relationships with deposit customers. The fair value was estimated based on a discounted cash flow methodology that gave appropriate consideration to expected customer attrition rates, cost of the deposit base, reserve requirements and the net maintenance cost attributable to customer deposits.
Deposits: The fair values of the demand and savings deposits by definition equal the amount payable on demand at the acquisition date. The fair values for time deposits are estimated using a discounted cash flow calculation that applies interest rates currently being offered to the contractual interest rates on such time deposits.
Loans acquired in a business combination are recorded at estimated fair value on the date of acquisition without the carryover of the related allowance for loan losses. Purchased credit-impaired (PCI)
Prior to adoption of ASC 326 on January 1, 2020, loans are those for which there isacquired in a business combination that had evidence of credit deterioration since origination and for which it iswas probable at the date of acquisition that we willwould not collect all contractually required principal and interest payments.payments were considered purchased credit-impaired (PCI) loans. When determining fair value, PCI loans arewere identified as of the date of acquisition based upon evidence of credit quality such as internal risk grades and past due and nonaccrual status. The difference between contractually required payments of principal and interest at acquisition and the cash flows expected to be collected at acquisition iswas accounted for as a"nonaccretable difference," and iswas available to absorb future credit losses on those loans. For purposes of determining the nonaccretable difference, no prepayments arewere generally assumed in determining contractually required payments of principal and interest or cash flows expected to be collected. Subsequent decreases to the expected cash flows will generally resultresulted in a provision for loan losses. Subsequent significant increases in cash flows may resultcould have resulted in a reversal of the provision for loan losses to the extent of prior charges, or a transfer from nonaccretable difference to accretable yield. Further, any excess of cash flows expected at acquisition over the estimated fair value iswas accounted for as accretable yield and iswas recognized as interest income over the remaining life of the loan when there iswas a reasonable expectation about the amount and timing of such cash flows. No
Subsequent to adoption of ASC 326 on January 1, 2020, loans acquired PBIin a business combination that have experienced more-than-insignificant deterioration in credit quality since origination are considered purchased credit deteriorated (“PCD”) loans. At the acquisition date, an estimate of expected credit losses is made for groups of PCD loans with similar risk characteristics and individual PCD loans without similar risk characteristics. This initial allowance for credit losses is allocated to individual PCD loans and added to the purchase price or acquisition date fair values to establish the initial amortized cost basis of the PCD loans. As the initial allowance for credit losses is added to the purchase price, there is no credit loss expense recognized upon acquisition of a PCD loan. Any difference between the unpaid principal balance of PCD loans and the amortized cost basis is considered to relate to noncredit factors and results in a discount or premium. Discounts and premiums are recognized through interest income on a level-yield method over the life of the loans. All loans considered to be PCI prior to January 1, 2020 were designated as PCI loans.converted to PCD on that date.
Loans not designated PCIPCD loans as of the acquisition date are designated purchased performing loans. We account for purchased performing loans using the contractual cash flows method of recognizing discount accretion based on the acquired loans’ contractual cash flows. Purchased performing loans are recorded at fair value, including a credit discount. The fair value discount is accreted as an adjustment to yield over the estimated lives of the loans. There is no allowance for loan losses established at the acquisition date for purchased performing loans. A provision for loan losses is recorded for any deterioration in these loans subsequent to the acquisition.
The following presents the financial effects of adjustments recognized in the statements of income for the three and six months ended June 30,March 31, 2020 and 2019 and 2018 related to business combinations that occurred during 2016, 2017, 2019 and 2018.2020.
|
| | | | | | | |
| Income increase (decrease) |
| Three Months Ended March 31, |
Dollars in thousands | 2020 | | 2019 |
Interest and fees on loans | $ | 255 |
| | $ | (9 | ) |
Interest expense on deposits | 98 |
| | 88 |
|
Amortization of intangibles | (429 | ) | | (426 | ) |
Income before income tax expense | $ | (76 | ) | | $ | (347 | ) |
|
| | | | | | | | | | | | | | |
| Income increase (decrease) |
Dollars in thousands | Three Months Ended June 30, | | Six Months Ended June 30, |
| 2019 | | 2018 | | 2019 | 2018 |
Interest and fees on loans | $ | 425 |
| | $ | 56 |
| | $ | 467 |
| $ | 201 |
|
Interest expense on deposits | 82 |
| | 53 |
| | 170 |
| 114 |
|
Amortization of intangibles | (404 | ) | | (363 | ) | | (830 | ) | (748 | ) |
Income before income tax expense | $ | 103 |
| | $ | (254 | ) | | $ | (193 | ) | $ | (433 | ) |
MVB Bank Branches Acquisition
On April 24, 2020, SCB expanded its presence in the Eastern Panhandle of West Virginia by acquiring three MVB Bank locations in Berkeley County, West Virginia and one MVB Bank location in Jefferson County, West Virginia. Summit assumed certain deposits and loans totaling approximately $195.0 million and $35.3 million, respectively. The purchase price, subject to a customary post-closing adjustment based on the delivery within 30 calendar days following the closing date of a final closing statement setting forth the purchase price and any necessary adjustment payment amount, for the purchased assets at closing was $51.4 million consisting of (i) the average daily closing balance of the deposits for the thirty (30) day period prior to the closing multiplied by 8.00%, (ii) the aggregate amount of cash on hand as of the closing date, (iii) the aggregate net book value of all assets being assumed (excluding cash on hand, real property and accrued interest with respect to the loans to be acquired), (iv) the appraised value of the real property to be acquired, and (v) accrued interest with respect to the loans to be acquired.
NOTE 16.15. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The following is changes in accumulated other comprehensive income (loss) by component, net of tax, for the three and six months ending June 30, 2019March 31, 2020 and 2018.2019.
| | | | | | For the Three Months Ended June 30, 2019 | | For the Three Months Ended March 31, 2020 |
Dollars in thousands | | Gains and Losses on Pension Plan | | Gains and Losses on Other Post-Retirement Benefits | | Gains and Losses on Cash Flow Hedges | | Unrealized Gains (Losses) on Available-for-Sale Securities | | Total | | Gains and Losses on Pension Plan | | Gains and Losses on Other Post-Retirement Benefits | | Gains and Losses on Cash Flow Hedges | | Unrealized Gains (Losses) on Available-for-Sale Securities | | Total |
Beginning balance | | $ | (328 | ) | | $ | 139 |
| | $ | (323 | ) | | $ | 1,626 |
| | $ | 1,114 |
| | $ | (140 | ) | | $ | 48 |
| | $ | (518 | ) | | $ | 3,145 |
| | $ | 2,535 |
|
Other comprehensive income (loss) before reclassification | | — |
| | — |
| | (414 | ) | | 2,346 |
| | 1,932 |
| |
Other comprehensive (loss) income before reclassification | | | — |
| | — |
| | (1,084 | ) | | 169 |
| | (915 | ) |
Amounts reclassified from accumulated other comprehensive income | | — |
| | — |
| | — |
| | (825 | ) | | (825 | ) | | — |
| | — |
| | — |
| | (789 | ) | | (789 | ) |
Net current period other comprehensive income (loss) | | — |
| | — |
| | (414 | ) | | 1,521 |
| | 1,107 |
| |
Net current period other comprehensive loss | | | — |
| | — |
| | (1,084 | ) | | (620 | ) | | (1,704 | ) |
Ending balance | | $ | (328 | ) | | $ | 139 |
| | $ | (737 | ) | | $ | 3,147 |
| | $ | 2,221 |
| | $ | (140 | ) | | $ | 48 |
| | $ | (1,602 | ) | | $ | 2,525 |
| | $ | 831 |
|
Table of Contents |
| | | | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended March 31, 2019 |
Dollars in thousands | | Gains and Losses on Pension Plan | | Gains and Losses on Other Post-Retirement Benefits | | Gains and Losses on Cash Flow Hedges | | Unrealized Gains (Losses) on Available-for-Sale Securities | | Total |
Beginning balance | | $ | — |
| | $ | 139 |
| | $ | (314 | ) | | $ | (841 | ) | | $ | (1,016 | ) |
Other comprehensive income (loss) income before reclassification | | (328 | ) | | — |
| | (9 | ) | | 2,465 |
| | 2,128 |
|
Amounts reclassified from accumulated other comprehensive income | | — |
| | — |
| | — |
| | 2 |
| | 2 |
|
Net current period other comprehensive income (loss) | | (328 | ) | | — |
| | (9 | ) | | 2,467 |
| | 2,130 |
|
Ending balance | | $ | (328 | ) | | $ | 139 |
| | $ | (323 | ) | | $ | 1,626 |
| | $ | 1,114 |
|
39
|
| | | | | | | | | | | | | | | | |
| | For the Three Months Ended June 30, 2018 |
Dollars in thousands | | Gains and Losses on Other Post-Retirement Benefits | | Gains and Losses on Cash Flow Hedges | | Unrealized Gains (Losses) on Available-for-Sale Securities | | Total |
Beginning balance | | $ | 398 |
| | $ | (849 | ) | | $ | (437 | ) | | $ | (888 | ) |
Other comprehensive (loss) income before reclassification | | — |
| | 377 |
| | (409 | ) | | (32 | ) |
Amounts reclassified from accumulated other comprehensive income | | — |
| | — |
| | (66 | ) | | (66 | ) |
Net current period other comprehensive (loss) income | | — |
| | 377 |
| | (475 | ) | | (98 | ) |
Ending balance | | $ | 398 |
| | $ | (472 | ) | | $ | (912 | ) | | $ | (986 | ) |
|
| | | | | | | | | | | | | | | | | | | | |
| | | | For the Six Months Ended June 30, 2019 |
Dollars in thousands | | Gains and Losses on Pension Plan | | Gains and Losses on Other Post-Retirement Benefits | | Gains and Losses on Cash Flow Hedges | | Unrealized Gains (Losses) on Available-for-Sale Securities | | Total |
Beginning balance | | $ | — |
| | $ | 139 |
| | $ | (314 | ) | | $ | (841 | ) | | $ | (1,016 | ) |
Other comprehensive income (loss) before reclassification | | (328 | ) | | — |
| | (423 | ) | | 4,810 |
| | 4,059 |
|
Amounts reclassified from accumulated other comprehensive income | | — |
| | — |
| | — |
| | (822 | ) | | (822 | ) |
Net current period other comprehensive income (loss) | | (328 | ) | | — |
| | (423 | ) | | 3,988 |
| | 3,237 |
|
Ending balance | | $ | (328 | ) | | $ | 139 |
| | $ | (737 | ) | | $ | 3,147 |
| | $ | 2,221 |
|
|
| | | | | | | | | | | | | | | | |
| | For the Six Months Ended June 30, 2018 |
Dollars in thousands | | Gains and Losses on Other Post-Retirement Benefits | | Gains and Losses on Cash Flow Hedges | | Unrealized Gains (Losses) on Available-for-Sale Securities | | Total |
Beginning balance | | $ | 398 |
| | $ | (1,564 | ) | | $ | 2,898 |
| | $ | 1,732 |
|
Other comprehensive (loss) income before reclassification | | — |
| | 1,092 |
| | (3,188 | ) | | (2,096 | ) |
Amounts reclassified from accumulated other comprehensive income | | — |
| | — |
| | (622 | ) | | (622 | ) |
Net current period other comprehensive (loss) income | | — |
| | 1,092 |
| | (3,810 | ) | | (2,718 | ) |
Ending balance | | $ | 398 |
| | $ | (472 | ) | | $ | (912 | ) | | $ | (986 | ) |
NOTE 17.16. INCOME TAXES
Our income tax expense for the three months ended June 30,March 31, 2020 and March 31, 2019 and June 30, 2018 totaled $1.9$1.2 million and $1.7$1.6 million, respectively. For the six months ended June 30, 2019 and June 30, 2018 our income tax expense totaled $3.5 million. Our effective tax rate (income tax expense as a percentage of income before taxes) for the quarters ended June 30, 2019 and 2018 was 18.0% and 20.9%, respectively, and for the sixthree months ended June 30,March 31, 2020 and 2019 was 20.9% and 2018 were 18.2% and 20.5%18.4%, respectively. A reconciliation between the statutory income tax rate and our effective income tax rate for the three and six months ended June 30,March 31, 2020 and 2019 and 2018 is as follows:
|
| | | | | |
| For the Three Months Ended March 31, |
| 2020 | | 2019 |
Dollars in thousands | Percent | | Percent |
Applicable statutory rate | 21.0 | % | | 21.0 | % |
Increase (decrease) in rate resulting from: | | | |
Tax-exempt interest and dividends, net | (2.5 | )% | | (2.5 | )% |
State income taxes, net of Federal income tax benefit | 2.1 | % | | 2.0 | % |
Low-income housing and rehabilitation tax credits | (0.8 | )% | | (0.5 | )% |
Other, net | 1.1 | % | | (1.6 | )% |
Effective income tax rate | 20.9 | % | | 18.4 | % |
|
| | | | | | | | | | | |
| For the Three Months Ended June 30, | | For the Six Months Ended June 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
Dollars in thousands | Percent | | Percent | | Percent | | Percent |
Applicable statutory rate | 21.0 | % | | 21.0 | % | | 21.0 | % | | 21.0 | % |
Increase (decrease) in rate resulting from: | | | | | | | |
Tax-exempt interest and dividends, net | (1.9 | )% | | (3.2 | )% | | (2.2 | )% | | (2.9 | )% |
State income taxes, net of Federal income tax benefit | 1.6 | % | | 2.3 | % | | 1.8 | % | | 2.2 | % |
Low-income housing and rehabilitation tax credits | (0.9 | )% | | (1.2 | )% | | (0.7 | )% | | (1.1 | )% |
Other, net | (1.8 | )% | | 2.0 | % | | (1.7 | )% | | 1.3 | % |
Effective income tax rate | 18.0 | % | | 20.9 | % | | 18.2 | % | | 20.5 | % |
The components of applicable income tax expense for the three and six months ended June 30,March 31, 2020 and 2019 and 2018 are as follows:
|
| | | | | | |
| For the Three Months Ended March 31, |
Dollars in thousands | 2020 | 2019 |
Current | | |
Federal | $ | 1,269 |
| $ | 1,650 |
|
State | 188 |
| 264 |
|
| 1,457 |
| 1,914 |
|
Deferred | |
| |
Federal | (232 | ) | (274 | ) |
State | (35 | ) | (39 | ) |
| (267 | ) | (313 | ) |
Total | $ | 1,190 |
| $ | 1,601 |
|
|
| | | | | | | | | | | | | |
| For the Three Months Ended June 30, | | For the Six Months Ended June 30, |
Dollars in thousands | 2019 | 2018 | | 2019 | 2018 |
Current | | | | | |
Federal | $ | 1,596 |
| $ | 1,464 |
| | $ | 3,247 |
| $ | 3,217 |
|
State | 206 |
| 233 |
| | 470 |
| 510 |
|
| 1,802 |
| 1,697 |
| | 3,717 |
| 3,727 |
|
Deferred | |
| | | |
| |
|
Federal | 68 |
| (34 | ) | | (206 | ) | (167 | ) |
State | 10 |
| (5 | ) | | (30 | ) | (26 | ) |
| 78 |
| (39 | ) | | (236 | ) | (193 | ) |
Total | $ | 1,880 |
| $ | 1,658 |
| | $ | 3,481 |
| $ | 3,534 |
|
NOTE 18.17. REVENUE FROM CONTRACTS WITH CUSTOMERS
Interest income, loan fees, realized securities gains and losses, bank owned life insurance income and mortgage banking revenue are not in the scope of ASC Topic 606, Revenue from Contracts with Customers. With the exception of gains or losses on sales of foreclosed properties, all of our revenue from contracts with customers in the scope of ASC 606 is recognized within Noninterest Income in the Consolidated Statements of Income. Incremental costs of obtaining a contract are expensed when incurred when the amortization period is one year or less.
A description of our significant sources of revenue accounted for under ASC 606 follows:
Service fees on deposit accounts are fees we charge our deposit customers for transaction-based, account maintenance and overdraft services. Transaction-based fees, which are earned based on specific transactions or customer activity within a customer’s deposit account, are recognized at the time the related transaction or activity occurs, as it is at this point when we fulfill the customer’s request. Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of a month, representing the period over which Summit satisfied the performance obligation. Overdraft fees are recognized when the overdraft occurs. Service fees on deposit accounts are paid through a direct charge to the customer’s account.
Bank card revenue is comprised of interchange revenue and ATM fees. Interchange revenue is earned when Summit’s debit and credit cardholders conduct transactions through Mastercard and other payment networks. Interchange fees represent a percentage of the underlying cardholder’s transaction value and are generally recognized daily, concurrent with the transaction processing services provided to the cardholder. ATM fees are earned when a non-Summit cardholder uses a Summit ATM. ATM fees are recognized daily, as the related ATM transactions are settled.
Trust and wealth management fees consist of 1) trust fees and 2) commissions earned from an independent, third-party broker-dealer. We earn trust fees from our contracts with trust clients to administer or manage assets for investment. Trust fees are earned over time (generally monthly) as Summit provides the contracted services and are assessed based on the value of assets under management at each month-end. We earn commissions from investment brokerage services provided to our clients by an
independent, third-party broker-dealer. We receive monthly commissions from the third-party broker-dealer based upon client activity for the previous month.
Insurance commissions principally consisted of commissions we earned as agents of insurers for selling group employee benefit and property and casualty insurance products to clients prior to May 1, 2019 (the sale date of SIS). Group employee benefit insurance commissions were recognized over time (generally monthly) as the related customary implied servicing obligations of group policyholders were fulfilled. Property and casualty insurance commissions were recognized using methods which approximated the time of placement of the underlying policy. We were paid insurance commissions ratably as the related policy premiums were paid by clients.
The following table illustrates our total non-interest income segregated by revenues within the scope of ASC Topic 606 and those which are within the scope of other ASC Topics:
|
| | | | | | | | |
| | Three Months Ended March 31, |
Dollars in thousands | | 2020 | | 2019 |
Service fees on deposit accounts | | $ | 1,263 |
| | $ | 1,180 |
|
Bank card revenue | | 933 |
| | 814 |
|
Trust and wealth management fees | | 665 |
| | 586 |
|
Insurance commissions | | 7 |
| | 1,174 |
|
Other | | 111 |
| | 87 |
|
Net revenue from contracts with customers | | 2,979 |
| | 3,841 |
|
Non-interest income within the scope of other ASC topics | | 1,523 |
| | 389 |
|
Total noninterest income | | $ | 4,502 |
| | $ | 4,230 |
|
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
Dollars in thousands | | 2019 | | 2018 | | 2019 | | 2018 |
Service fees on deposit accounts | | $ | 1,224 |
| | $ | 1,116 |
| | $ | 2,405 |
| | $ | 2,207 |
|
Bank card revenue | | 893 |
| | 801 |
| | 1,707 |
| | 1,550 |
|
Trust and wealth management fees | | 612 |
| | 672 |
| | 1,198 |
| | 1,339 |
|
Insurance commissions | | 606 |
| | 1,013 |
| | 1,780 |
| | 2,126 |
|
Other | | 70 |
| | 58 |
| | 158 |
| | 137 |
|
Net revenue from contracts with customers | | 3,405 |
| | 3,660 |
| | 7,248 |
| | 7,359 |
|
Non-interest income within the scope of other ASC topics | | 3,405 |
| | 488 |
| | 3,792 |
| | 1,664 |
|
Total noninterest income | | $ | 6,810 |
| | $ | 4,148 |
| | $ | 11,040 |
| | $ | 9,023 |
|
Gain or loss on sale of foreclosed properties is recorded when control of the property transfers to the buyer, which generally occurs at the time of transfer of the deed. If Summit finances the sale of a foreclosed property to the buyer, we assess whether the buyer is committed to perform their obligations under the contract and whether collectability of the transaction price is probable. Once these criteria are met, the foreclosed property is derecognized and the gain or loss on sale is recorded upon transfer of control of the property to the buyer. For the three months ended June 30, 2019 and June 30, 2018, net losses on sales of foreclosed properties were $(156,000) and $(58,000), respectively. For the six months ended June 30, 2019 and June 30, 2018, net (losses)/gains on sales of foreclosed properties were $(158,000) and $6,000, respectively.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
INTRODUCTION
The following discussion and analysis focuses on significant changes in our financial condition and results of operations of Summit Financial Group, Inc. (“Company” or “Summit”) and its operating subsidiaries,subsidiary, Summit Community Bank (“Summit Community”) and Summit Insurance Services, LLC,, for the periods indicated. This discussion and analysis should be read in conjunction with our 20182019 audited consolidated financial statements and Annual Report on Form 10-K.
The Private Securities Litigation Act of 1995 indicates that the disclosure of forward-looking information is desirable for investors and encourages such disclosure by providing a safe harbor for forward-looking statements by us. Our following discussionThis Quarterly Report on Form 10-Q contains comments or information that constitute forward-looking statements (within the meaning of the Private Securities Litigation Act of 1995) that are based on current expectations that involve a number of risks and analysisuncertainties. Words such as “expects”, “anticipates”, “believes”, “estimates” and other similar expressions or future or conditional verbs such as “will”, “should”, “would” and “could” are intended to identify such forward-looking statements.
Although we believe the expectations reflected in such forward-looking statements are reasonable, actual results may differ materially. Factors that might cause such a difference include: the effect of financial conditionthe COVID-19 crisis, including the negative impacts and resultsdisruptions on the communities we serve, and the domestic and global economy, which may have an adverse effect on our business; current and future economic and market conditions, including the effects of declines in housing prices, high unemployment rates, U.S. fiscal debt, budget and tax matters, geopolitical matters, and any slowdown in global economic growth; fiscal and monetary policies of the Federal Reserve; future provisions for credit losses on loans and debt securities; changes in nonperforming assets; changes in interest rates and interest rate relationships; demand for products and services; the degree of competition by traditional and non-traditional competitors; the successful integration of operations contains certain forward-lookingof our acquisitions; changes in banking laws and regulations; changes in tax laws; the impact of technological advances; the outcomes of contingencies; trends in customer behavior as well as their ability to repay loans; and changes in the national and local economies. We undertake no obligation to revise these statements that involve risk and uncertainty. In order to comply withfollowing the termsdate of the safe harbor, we note that a variety of factors could cause our actual results and experience to differ materially from the anticipated results or other expectations expressed in those forward-looking statements.this filing.
OVERVIEW
On January 1, 2019,2020, we acquired Peoples Bankshares,Cornerstone Financial Service, Inc. ("PBI"Cornerstone") and its subsidiary, First PeoplesCornerstone Bank, Inc., headquartered in Mullens,West Union, West Virginia. PBI'sCornerstone's results are included in our financial statements from the acquisition date forward, impacting comparisons to the prior-year first quarter period. On May 1, 2019, we sold our insurance agency, Summit Insurance Services, LLC ("SIS"). Accordingly, their results are included in our financial statements only until date of sale, impacting comparisons to the prior-year three and six months ended June 30 and the linkedfirst quarter.
Our primary source of income is net interest income from loans and deposits. Business volumes tend to be influenced by the overall economic factors including market interest rates, business spending, and consumer confidence, as well as competitive conditions within the marketplace.
Primarily due to our PBICornerstone acquisition and organic loan growth, average interest earning assets increased by 5.88%10.82% for the first sixthree months in 20192020 compared to the same period of 20182019 while our net interest earnings on a tax equivalent basis increased 9.12%6.43%. Our tax equivalent net interest margin increased 1110 basis points as our yield on interest earning assets increased 34decreased 25 basis points while our cost of interest bearing funds increased 31decreased 35 basis points.
COVID-19 IMPACTS
Overview
Our business has been, and continues to be, impacted by the recent and ongoing outbreak of COVID-19. In March 2020, COVID-19 was declared a pandemic by the World Health Organization and a national emergency by the President of the United States. Efforts to limit the spread of COVID-19 have led to shelter-in-place orders, the closure of non-essential businesses, travel restrictions, supply chain disruptions and prohibitions on public gatherings, among other things, throughout many parts of the United States and, in particular, the markets in which we operate. As the current pandemic is ongoing and dynamic in nature, there are many uncertainties related to COVID-19 including, among other things, its ultimate geographic spread; its severity; the duration of the outbreak; the impact to our clients, employees and vendors; the impact to the financial services and banking industry; and the impact to the economy as a whole as well the effect of actions taken, or that may yet be taken, by governmental authorities to contain the outbreak or to mitigate its impact (both economic and health-related). COVID-19 has negatively affected, and is expected to continue to negatively affect, our business, financial position and operating results. In light of the uncertainties and continuing developments discussed herein, the ultimate adverse impact of COVID-19 cannot be reliably estimated at this time, but it has been and is expected to continue to be material.
Impact on our Operations
The resulting closures of non-essential businesses and related economic disruption has impacted our operations as well as the operations of our clients. In West Virginia and Virginia, financial services have been identified as essential services, and accordingly, our business remains open. To address the issues arising as a result of COVID-19, we have implemented various plans, strategies and protocols to protect our employees, maintain services for clients, assure the functional continuity of our operating systems, controls and processes, and mitigate financial risks posed by changing market conditions. In order to protect employees and assure workforce continuity and operational redundancy, we imposed business travel restrictions, enhanced our sanitizing protocols within our facilities and physically separated, to the extent possible, our critical operations workforce that cannot work remotely. To limit the risk of virus spread, the Company implemented drive-thru only and by appointment operating protocols throughout its bank branch network. We also maintained active communications with our critical vendors to assure all mission-critical activities and functions are being performed in line with our client-service standards. We continue to serve our customers that require branch access for account issues, safe deposit access and similar items by appointment and our customer contact center is successfully managing the volume of incoming calls.
Impact on our Financial Position and Results of Operations
Lending and Credit Risks
COVID-19 has had a material impact on our loan credit risks for first quarter 2020. While we have not yet experienced any charge-offs related to COVID-19, our allowance for credit losses ACL computation and resulting provision for credit losses are significantly impacted by the estimated potential future economic impact of the COVID-19 crisis. Due to deteriorated forecasted economic scenarios since the pandemic was declared in early March, our need for additional ACL increased significantly. Should economic conditions worsen, we could experience further increases in our ACL and record additional credit loss expense.
We have taken actions to identify and assess our COVID-19 related credit exposures by asset classes and borrower types. Depending on the demonstrated need of the client, in certain cases, we are either modifying to interest only or deferring the full loan payment for up to six months. Accordingly, the following table summarizes the aggregate balances of loans the Company has modified as result of COVID-19 through April 30, 2020 classified by types of loans and impacted borrowers.
|
| | | | | | | | | | | | | | |
| | Loan Balances Modified Due to COVID-19 through April 30, 2020 |
Dollars in thousands | Total Loan Balance as of 3/31/2020 | Interest Only Payments (6 Months or Less) | Payment Deferral (6 Months or Less) | Total Loans Modified | Percentage of Loans Modified |
Hospitality industry | $ | 120,201 |
| $ | 56,006 |
| $ | 45,778 |
| $ | 101,784 |
| 84.7 | % |
Non-owner occupied retail stores | 107,420 |
| 36,105 |
| 12,683 |
| 48,788 |
| 44.0 | % |
Owner-occupied retail stores | 118,535 |
| 21,289 |
| 9,251 |
| 30,540 |
| 25.2 | % |
Restaurants | 7,416 |
| 2,173 |
| 1,988 |
| 4,161 |
| 53.1 | % |
Oil & gas industry | 32,297 |
| 914 |
| 4,425 |
| 5,339 |
| 16.5 | % |
Other commercial | 898,310 |
| 79,091 |
| 29,251 |
| 108,342 |
| 12.0 | % |
Total Commercial Loans | 1,284,179 |
| 195,578 |
| 103,376 |
| 298,954 |
| 23.1 | % |
Residential 1-4 family personal | 276,189 |
| 3,592 |
| 12,292 |
| 15,884 |
| 5.9 | % |
Residential 1-4 family rentals | 167,295 |
| 16,263 |
| 5,640 |
| 21,903 |
| 12.1 | % |
Home equity | 75,170 |
| — |
| 402 |
| 402 |
| 0.5 | % |
Total Residential Real Estate Loans | 518,654 |
| 19,855 |
| 18,334 |
| 38,189 |
| 7.1 | % |
Consumer | 35,344 |
| 336 |
| 632 |
| 968 |
| 2.8 | % |
Mortgage warehouse lines | 166,826 |
| — |
| — |
| — |
| 0.0 | % |
Credit cards and overdrafts | 2,266 |
| — |
| — |
| — |
| 0.0 | % |
Total Loans | $ | 2,007,269 |
| $ | 215,769 |
| $ | 122,342 |
| $ | 338,111 |
| 16.6 | % |
Modified loans with deferred payments will continue to accrue interest during the deferral period unless otherwise classified as nonperforming. Consistent with bank regulatory guidance, borrowers that were otherwise current on loan payments that were granted COVID-19 related financial hardship payment deferrals will continue to be reported as current loans throughout the agreed upon deferral periods. COVID-19 related loan modifications are also deemed to be insignificant borrower concessions, and therefore, such modified loans were not classified as troubled-debt restructured loans as of March 31, 2020. We anticipate that the amounts of COVID-19 related loan modifications will continue to increase during Q2 2020.
Our loan interest income could be reduced due to COVID-19. While interest and fees will still accrue to income, through normal accounting, should eventual credit losses on these deferred payments emerge, interest income and fees accrued would need to be reversed. In such a scenario, interest income in future periods could be negatively impacted. At this time, we are unable to project the materiality of such an impact.
Summit is participating in the Paycheck Protection Program (“PPP”), a $660 billion low-interest business loan program funded by the U.S. Treasury Department and administered by the U.S. Small Business Administration. The PPP Loan Program provides U.S. government guarantees for lenders, as well as loan forgiveness incentives for borrowers that predominately utilize the loan proceeds to cover employee compensation-related business costs. Through April 30, 2020, Summit had approved 639 PPP loans totaling $96.1 million. While we anticipate high levels of client utilization of the PPP loan program, our liquidity resources are adequate to meet the funding requirements of these loans.
Capital and Liquidity
Although there is a high degree of uncertainty around the magnitude and duration of the economic impact of the COVID-19 pandemic, management believes that our financial position, including high levels of capital and liquidity, will allow us to successfully endure the negative economic impacts of the crisis. Our capital management activities, coupled with our historically strong earnings performance and prudent dividend practices, have allowed us to build and maintain strong capital reserves. At March 31, 2020, all of Summit’s regulatory capital ratios significantly exceeded well-capitalized standards. More specifically, the Company bank subsidiary’s Tier 1 Leverage Ratio, a common measure to evaluate a financial institutions capital strength, was 10.2% at March 31, 2020, which represents over two times its well-capitalized regulatory minimum of 5.0%.
In addition, management believes the Company’s liquidity position is strong. The Company’s bank subsidiary maintains a funding base largely comprised of core noninterest bearing demand deposit accounts and low cost interest-bearing transactional deposit accounts with clients that operate or reside within the footprint of its branch bank network. At March 31, 2020, the Company’s cash and cash equivalent balances were $41.5 million. In addition, Summit maintains an available-for-sale securities portfolio, comprised primarily of highly liquid U.S. agency securities, highly-rated municipal securities and U.S. agency-backed mortgage backed securities, which serves as a ready source of liquidity. At March 31, 2020, the Company’s available-for-sale securities portfolio totaled $305.0 million, $205.8 million of which was unpledged as collateral. The Company bank subsidiary’s unused borrowing capacity at the Federal Home Loan Bank of Pittsburgh at March 31, 2020 was $689.2 million, and it maintained $177.1 million of borrowing availability at the Federal Reserve Bank of Richmond’s discount window. The Company has not experienced significant draws on clients’ available commercial lines of credit and home equity lines of credit due to the COVID-19 crisis, nor has it observed any significant or unusual client activity that portends unmanageable levels of stress on the our liquidity profile.
The COVID-19 crisis is expected to continue to impact our financial results, as well as demand for our services and products during the second quarter of 2020 and potentially beyond. The short and long-term implications of the COVID-19 crisis, and related monetary and fiscal stimulus measures, on our future revenues, earnings results, allowance for credit losses, capital reserves and liquidity are unknown at present.
CRITICAL ACCOUNTING POLICIES
Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America and follow general practices within the financial services industry. Application of these principles requires us to make estimates, assumptions and judgments that affect the amounts reported in our financial statements and accompanying notes. These estimates, assumptions and judgments are based on information available as of the date of the financial statements; accordingly, as this information changes, the financial statements could reflect different estimates, assumptions and judgments. Certain policies inherently have a greater reliance on the use of estimates, assumptions and judgments and as such have a greater possibility of producing results that could be materially different than originally reported.
Our most significant accounting policies are presented in the notes to the consolidated financial statements of our 20182019 Annual Report on Form 10-K. These policies, along with the other disclosures presented in the financial statement notes and in this financial review, provide information on how significant assets and liabilities are valued in the financial statements and how those values are determined.
Based on the valuation techniques used and the sensitivity of financial statement amounts to the methods, assumptions and estimates underlying those amounts, we have identified the determination of ACL in accordance with the allowance for loan losses, the valuation of goodwill,ASC 326 (as adopted on January 1, 2020), fair value measurements and accounting for acquired loans to be the accounting areas that require the most subjective or complex judgments and as such could be most subject to revision as new information becomes available. Refer to
Note 6 of the accompanying consolidated financial statements for a discussion of the methodogy we employ regarding the ACL.
For additional information regarding critical accounting policies, refer to Critical Accounting Policies section in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the 20182019 Form 10-K. There have been no significant changes in our application of critical accounting policies since December 31, 2018.2019.
RESULTS OF OPERATIONS
Earnings Summary
Net income for the sixthree months ended June 30, 2019 increased to $15.7March 31, 2020 was $4.5 million, or $1.23$0.35 per diluted share, from $13.7compared to $7.1 million, or $1.10$0.56 per diluted share for the same period of 2018. Net income2019. The decrease in earnings for the three months ended June 30, 2019March 31, 2020 was $8.6 million, or $0.68 per diluted share, compared to $6.3 million, or $0.51 per diluted share for the same period of 2018. The increased earnings for the six and three months ended June 30, 2019 were primarily attributable to increased provision for credit losses, higher writedowns on foreclosed properties, increased merger-related expenses and fewer insurance commissions due to the sale of our insurance subsidiary in early 2019. Partially offsetting these negative factors were increased net interest income and larger gains on sales of securities, a $1.9 million pre-tax gain on sale of our insurance agency, SIS, in second quarter while being negatively impacted by generally higher operating expenses due to the PBI acquisition and larger writedowns on foreclosed properties.securities. Returns on average equity and assets for the first sixthree months of 20192020 were 13.46%6.92% and 1.39%0.73%, respectively, compared with 13.43%12.28% and 1.29%1.27% for the same period of 2018.2019.
PBI’sCornerstone’s results of operations are included in our consolidated results of operations from the date of acquisition, and therefore our three months ended June 30, 20192020 results reflect increased levels of average balances, income and expense as compared to the same periodperiods of 20182019 results. At consummation (prior to fair value acquisition adjustments), PBICornerstone had total assets of $133.1$195.0 million, net loans of $42.4$39.8 million, and deposits of $112.1$173.0 million. Also impacting comparability of results is the sale of SIS. Their results are included in our financial statements only until date of sale, impacting comparisons to the prior-year three and six months ended June 30 and the linked quarter,March 31, however, historically SIS's results of operations accounted for less than $0.01 per share of the company's quarterly earnings.
Net Interest Income
Net interest income is the principal component of our earnings and represents the difference between interest and fee income generated from earning assets and the interest expense paid on deposits and borrowed funds. Fluctuations in interest rates as well as changes in the volume and mix of earning assets and interest bearing liabilities can materially impact net interest income.
Q2 2019Q1 2020 compared to Q1Q4 2019
For the quarter ended June 30, 2019,March 31, 2020, our net interest income on a fully taxable-equivalent basis increased $666,000$1.6 million to $19.52$21.63 million compared to $18.85$20.01 million for the quarter end MarchDecember 31, 2019. Our taxable-equivalent earnings on interest earning assets increased $989,000,$572,000, while the cost of interest bearing liabilities increased $323,000decreased $1.0 million (see Tables I and II).
For the three months ended June 30, 2019March 31, 2020 average interest earning assets increased to $2.11$2.32 billion compared to $2.09$2.19 billion for the three months ended MarchDecember 31, 2019, while average interest bearing liabilities increased to $1.76 billion for the three months ended June 30, 2019 from $1.74$1.85 billion for the three months ended March 31, 2020 from $1.82 billion for the three months ended December 31, 2019.
For the quarter ended June 30, 2019,March 31, 2020, our net interest margin increased to 3.72%3.76%, compared to 3.66%3.63% for the linked quarter, as the yields on earning assets increased 9decreased 11 basis points, while the cost of our interest bearing funds increaseddecreased by 323 basis points. At acquisition, PBI'sCornerstone's deposit costs were significantly lower than Summit's cost of deposits, thus substantially offsetting the increase in market rates during 2019.positively impacting our overall cost of funds.
Excluding the impact of accretion and amortization of fair value acquisition accounting adjustments related to the interest earning assets and interest bearing liabilities acquired by merger, Summit's net interest margin was 3.62%3.70% and 3.64%3.60% for the three months ended June 30, 2019March 31, 2020 and MarchDecember 31, 2019.
Q2 2019Q1 2020 compared to Q2 2018Q1 2019
For the quarter ended June 30, 2019,March 31, 2020, our net interest income on a fully taxable-equivalent basis increased $1.92$2.8 million to $19.52$21.63 million compared to $17.60$18.85 million for the quarter end June 30, 2018.March 31, 2019. Our taxable-equivalent earnings on interest earning assets increased $3.4$1.7 million, while the cost of interest bearing liabilities increased $1.5decreased $1.1 million (see Tables I and II).
For the three months ended June 30, 2019March 31, 2020 average interest earning assets increased 6.8%10.8% to $2.11$2.32 billion compared to $1.97$2.09 billion for the three months ended June 30, 2018,March 31, 2019, while average interest bearing liabilities increased 5.5%6.0% from $1.67$1.74 billion for the three months ended June 30, 2018March 31, 2019 to $1.76$1.85 billion for the three months ended June 30, 2019.March 31, 2020.
For the quarter ended June 30, 2019,March 31, 2020, our net interest margin increased to 3.72%3.76%, compared to 3.58%3.66% for the same period of 2018,2019, as the yields on earning assets increased 34decreased 25 basis points, while the cost of our interest bearing funds increaseddecreased by 2635 basis points.
Excluding the impact of accretion and amortization of fair value acquisition accounting adjustments related to the interest earning assets and interest bearing liabilities acquired by merger, Summit's net interest margin was 3.56%3.64% for the three months ended June 30, 2018.March 31, 2019.
| | Table I - Average Balance Sheet and Net Interest Income Analysis | Table I - Average Balance Sheet and Net Interest Income Analysis | | | | | | Table I - Average Balance Sheet and Net Interest Income Analysis | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Quarter Ended | For the Quarter Ended |
| June 30, 2019 | | March 31, 2019 | | June 30, 2018 | March 31, 2020 | | December 31, 2019 | | March 31, 2019 |
Dollars in thousands | Average Balance | | Earnings/ Expense | | Yield/ Rate | | Average Balance | | Earnings/ Expense | | Yield/ Rate | | Average Balance | | Earnings/ Expense | | Yield/ Rate | Average Balance | | Earnings/ Expense | | Yield/ Rate | | Average Balance | | Earnings/ Expense | | Yield/ Rate | | Average Balance | | Earnings/ Expense | | Yield/ Rate |
Interest earning assets | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Loans, net of unearned fees (1) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Taxable | $ | 1,749,032 |
| | $ | 24,184 |
| | 5.55 | % | | $ | 1,712,286 |
| | $ | 22,907 |
| | 5.43 | % | | $ | 1,618,726 |
| | $ | 20,820 |
| | 5.16 | % | $ | 1,935,473 |
| | $ | 25,089 |
| | 5.21 | % | | $ | 1,853,197 |
| | $ | 24,622 |
| | 5.27 | % | | $ | 1,712,286 |
| | $ | 22,907 |
| | 5.43 | % |
Tax-exempt (2) | 14,695 |
| | 213 |
| | 5.81 | % | | 14,907 |
| | 184 |
| | 5.01 | % | | 15,800 |
| | 180 |
| | 4.57 | % | 14,873 |
| | 185 |
| | 5.00 | % | | 15,738 |
| | 189 |
| | 4.76 | % | | 14,907 |
| | 184 |
| | 5.01 | % |
Securities | |
| | |
| | |
| | |
| | |
| | |
| | | | | | | |
| | |
| | |
| | |
| | |
| | |
| | | | | | |
Taxable | 203,049 |
| | 1,607 |
| | 3.17 | % | | 195,932 |
| | 1,687 |
| | 3.49 | % | | 160,632 |
| | 1,240 |
| | 3.10 | % | 258,889 |
| | 1,757 |
| | 2.73 | % | | 218,375 |
| | 1,654 |
| | 3.00 | % | | 195,932 |
| | 1,687 |
| | 3.49 | % |
Tax-exempt (2) | 100,307 |
| | 999 |
| | 3.99 | % | | 114,831 |
| | 1,139 |
| | 4.02 | % | | 136,984 |
| | 1,346 |
| | 3.94 | % | 70,239 |
| | 699 |
| | 4.00 | % | | 69,276 |
| | 686 |
| | 3.93 | % | | 114,831 |
| | 1,139 |
| | 4.02 | % |
Federal funds sold and interest bearing deposits with other banks | 38,214 |
| | 134 |
| | 1.41 | % | | 51,187 |
| | 230 |
| | 1.82 | % | | 38,936 |
| | 134 |
| | 1.38 | % | 35,648 |
| | 98 |
| | 1.11 | % | | 32,779 |
| | 105 |
| | 1.27 | % | | 51,187 |
| | 230 |
| | 1.82 | % |
Total interest earning assets | 2,105,297 |
| | 27,137 |
| | 5.17 | % | | 2,089,143 |
| | 26,147 |
| | 5.08 | % | | 1,971,078 |
| | 23,720 |
| | 4.83 | % | 2,315,122 |
| | 27,828 |
| | 4.83 | % | | 2,189,365 |
| | 27,256 |
| | 4.94 | % | | 2,089,143 |
| | 26,147 |
| | 5.08 | % |
Noninterest earning assets | |
| | |
| | |
| | | | | | | | | | | | | |
| | |
| | |
| | | | | | | | | | | | |
Cash & due from banks | 14,124 |
| | |
| | |
| | 12,825 |
| | | | | | 9,100 |
| | | | | 14,422 |
| | |
| | |
| | 12,932 |
| | | | | | 12,825 |
| | | | |
Premises and equipment | 41,318 |
| | |
| | |
| | 38,404 |
| | | | | | 35,721 |
| | | | | 46,151 |
| | |
| | |
| | 44,136 |
| | | | | | 38,404 |
| | | | |
Property held for sale | 23,149 |
| | | | | | 21,386 |
| | | | | | 21,435 |
| | | | | 19,354 |
| | | | | | 20,284 |
| | | | | | 21,386 |
| | | | |
Other assets | 86,493 |
| | |
| | |
| | 91,954 |
| | | | | | 86,638 |
| | | | | 101,492 |
| | |
| | |
| | 83,197 |
| | | | | | 91,954 |
| | | | |
Allowance for loan losses | (13,260 | ) | | |
| | |
| | (13,309 | ) | | | | | | (12,541 | ) | | | | | (20,452 | ) | | |
| | |
| | (13,055 | ) | | | | | | (13,309 | ) | | | | |
Total assets | $ | 2,257,121 |
| | |
| | |
| | $ | 2,240,403 |
| | | | | | $ | 2,111,431 |
| | | | | $ | 2,476,089 |
| | |
| | |
| | $ | 2,336,859 |
| | | | | | $ | 2,240,403 |
| | | | |
Interest bearing liabilities | |
| | |
| | |
| | | | | | | | | | | | | |
| | |
| | |
| | | | | | | | | | | | |
Interest bearing demand deposits | $ | 575,240 |
| | $ | 1,731 |
| | 1.21 | % | | $ | 556,766 |
| | $ | 1,663 |
| | 1.21 | % | | $ | 457,016 |
| | $ | 901 |
| | 0.79 | % | $ | 643,955 |
| | $ | 1,081 |
| | 0.68 | % | | $ | 619,939 |
| | $ | 1,378 |
| | 0.88 | % | | $ | 556,766 |
| | $ | 1,663 |
| | 1.21 | % |
Savings deposits | 305,342 |
| | 921 |
| | 1.21 | % | | 310,848 |
| | 898 |
| | 1.17 | % | | 332,809 |
| | 798 |
| | 0.96 | % | 449,021 |
| | 1,337 |
| | 1.20 | % | | 351,653 |
| | 1,201 |
| | 1.35 | % | | 310,848 |
| | 898 |
| | 1.17 | % |
Time deposits | 673,272 |
| | 3,315 |
| | 1.97 | % | | 654,404 |
| | 3,003 |
| | 1.86 | % | | 640,626 |
| | 2,610 |
| | 1.63 | % | 615,102 |
| | 2,933 |
| | 1.92 | % | | 641,160 |
| | 3,373 |
| | 2.09 | % | | 654,404 |
| | 3,003 |
| | 1.86 | % |
Short-term borrowings | 187,120 |
| | 1,397 |
| | 2.99 | % | | 200,297 |
| | 1,472 |
| | 2.98 | % | | 187,475 |
| | 1,242 |
| | 2.66 | % | 119,607 |
| | 630 |
| | 2.12 | % | | 188,007 |
| | 1,062 |
| | 2.24 | % | | 200,297 |
| | 1,472 |
| | 2.98 | % |
Long-term borrowings and capital trust securities | 20,317 |
| | 255 |
| | 5.03 | % | | 20,321 |
| | 259 |
| | 5.17 | % | | 52,147 |
| | 573 |
| | 4.40 | % | 20,304 |
| | 219 |
| | 4.32 | % | | 20,308 |
| | 230 |
| | 4.49 | % | | 20,321 |
| | 259 |
| | 5.17 | % |
Total interest bearing liabilities | 1,761,291 |
| | 7,619 |
| | 1.73 | % | | 1,742,636 |
| | 7,295 |
| | 1.70 | % | | 1,670,073 |
| | 6,124 |
| | 1.47 | % | 1,847,989 |
| | 6,200 |
| | 1.35 | % | | 1,821,067 |
| | 7,244 |
| | 1.58 | % | | 1,742,636 |
| | 7,295 |
| | 1.70 | % |
Noninterest bearing liabilities and shareholders' equity | |
| | |
| | |
| | | | | | | | | | | | | |
| | |
| | |
| | | | | | | | | | | | |
Demand deposits | 241,811 |
| | |
| | |
| | 248,354 |
| | | | | | 219,134 |
| | | | | 339,340 |
| | |
| | |
| | 248,159 |
| | | | | | 248,354 |
| | | | |
Other liabilities | 19,750 |
| | |
| | |
| | 18,322 |
| | | | | | 15,608 |
| | | | | 28,400 |
| | |
| | |
| | 22,856 |
| | | | | | 18,322 |
| | | | |
Total liabilities | 2,022,852 |
| | |
| | |
| | 2,009,312 |
| | | | | | 1,904,815 |
| | | | | 2,215,729 |
| | |
| | |
| | 2,092,082 |
| | | | | | 2,009,312 |
| | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Shareholders' equity | 234,269 |
| | |
| | |
| | 231,091 |
| | | | | | 206,616 |
| | | | | 260,360 |
| | |
| | |
| | 244,777 |
| | | | | | 231,091 |
| | | | |
Total liabilities and shareholders' equity | $ | 2,257,121 |
| | |
| | |
| | $ | 2,240,403 |
| | | | | | $ | 2,111,431 |
| | | | | $ | 2,476,089 |
| | |
| | |
| | $ | 2,336,859 |
| | | | | | $ | 2,240,403 |
| | | | |
Net interest earnings | |
| | $ | 19,518 |
| | |
| | | | $ | 18,852 |
| | | | | | $ | 17,596 |
| | | |
| | $ | 21,628 |
| | |
| | | | $ | 20,012 |
| | | | | | $ | 18,852 |
| | |
Net yield on interest earning assets | Net yield on interest earning assets | | |
| | 3.72 | % | | | | | | 3.66 | % | | | | | | 3.58 | % | Net yield on interest earning assets | | |
| | 3.76 | % | | | | | | 3.63 | % | | | | | | 3.66 | % |
| |
(1) | - For purposes of this table, nonaccrual loans are included in average loan balances. |
| |
(2) | - Interest income on tax-exempt securities and loans has been adjusted assuming a Federal tax rate of 21% for all periods presented. The tax equivalent adjustment resulted in an increase in interest income of $255,000,$185,000, $184,000, and $279,000 and $321,000 for the three months ended June 30,March 31, 2020, December 31, 2019 and March 31, 2019, and June 30, 2018, respectively. |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
Table II - Changes in Net Interest Income Attributable to Rate and Volume | | | | | | |
| | | | | | | | |
| | For the Quarter Ended | | For the Quarter Ended |
| | June 30, 2019 vs. March 31, 2019 | | June 30, 2019 vs. June 30, 2018 |
| | Increase (Decrease) Due to Change in: | | Increase (Decrease) Due to Change in: |
Dollars in thousands | | Volume | | Rate | | Net | | Volume | | Rate | | Net |
Interest earned on: | | | | | | | | | | | | |
Loans | | | | | | | | | | | | |
Taxable | | $ | 628 |
| | $ | 649 |
| | $ | 1,277 |
| | $ | 1,741 |
| | $ | 1,623 |
| | $ | 3,364 |
|
Tax-exempt | | (3 | ) | | 32 |
| | 29 |
| | (14 | ) | | 47 |
| | 33 |
|
Securities | | |
| | | | | | | | |
| | |
|
Taxable | | 66 |
| | (147 | ) | | (81 | ) | | 334 |
| | 32 |
| | 366 |
|
Tax-exempt | | (133 | ) | | (7 | ) | | (140 | ) | | (365 | ) | | 18 |
| | (347 | ) |
Federal funds sold and interest bearing deposits with other banks | | (51 | ) | | (45 | ) | | (96 | ) | | (2 | ) | | 2 |
| | — |
|
Total interest earned on interest earning assets | | 507 |
| | 482 |
| | 989 |
| | 1,694 |
| | 1,722 |
| | 3,416 |
|
| | | | | | | | | | | | |
Interest paid on: | | |
| | | | | | |
| | |
| | |
|
Interest bearing demand deposits | | 72 |
| | (4 | ) | | 68 |
| | 273 |
| | 557 |
| | 830 |
|
Savings deposits | | (13 | ) | | 36 |
| | 23 |
| | (70 | ) | | 193 |
| | 123 |
|
Time deposits | | 100 |
| | 211 |
| | 311 |
| | 138 |
| | 566 |
| | 704 |
|
Short-term borrowings | | (83 | ) | | 8 |
| | (75 | ) | | (2 | ) | | 157 |
| | 155 |
|
Long-term borrowings and capital trust securities | | — |
| | (4 | ) | | (4 | ) | | (390 | ) | | 72 |
| | (318 | ) |
Total interest paid on interest bearing liabilities | | 76 |
| | 247 |
| | 323 |
| | (51 | ) | | 1,545 |
| | 1,494 |
|
| | | | | | | | | | | | |
Net interest income | | $ | 431 |
| | $ | 235 |
| | $ | 666 |
| | $ | 1,745 |
| | $ | 177 |
| | $ | 1,922 |
|
|
| | | | | | | | | | | | | | | | | | | | | |
Table III - Average Balance Sheet and Net Interest Income Analysis | | | | | |
| | | | | | | | | | | |
| For the Six Months Ended |
| June 30, 2019 | | June 30, 2018 |
Dollars in thousands | Average Balance | | Earnings/ Expense | | Yield/ Rate | | Average Balance | | Earnings/ Expense | | Yield/ Rate |
Interest earning assets | | | | | | | | | | | |
Loans, net of unearned fees (1) | | | | | | | | | | | |
Taxable | $ | 1,730,801 |
| | $ | 47,090 |
| | 5.49 | % | | $ | 1,615,289 |
| | $ | 41,043 |
| | 5.12 | % |
Tax-exempt (2) | 14,801 |
| | 397 |
| | 5.41 | % | | 16,052 |
| | 362 |
| | 4.55 | % |
Securities | |
| | |
| | |
| | | | | | |
Taxable | 199,759 |
| | 3,292 |
| | 3.32 | % | | 176,091 |
| | 2,612 |
| | 2.99 | % |
Tax-exempt (2) | 107,586 |
| | 2,138 |
| | 4.01 | % | | 134,658 |
| | 2,635 |
| | 3.95 | % |
Federal funds sold and interest bearing deposits with other banks | 44,910 |
| | 365 |
| | 1.64 | % | | 39,294 |
| | 274 |
| | 1.41 | % |
Total interest earning assets | 2,097,857 |
| | 53,282 |
| | 5.12 | % | | 1,981,384 |
| | 46,926 |
| | 4.78 | % |
Noninterest earning assets | |
| | |
| | |
| | | | | | |
Cash & due from banks | 13,005 |
| | |
| | |
| | 9,528 |
| | | | |
Premises and equipment | 39,877 |
| | |
| | |
| | 35,156 |
| | | | |
Property held for sale | 22,272 |
| | | | | | 21,381 |
| | | | |
Other assets | 89,062 |
| | |
| | |
| | 86,222 |
| | | | |
Allowance for loan losses | (13,287 | ) | | |
| | |
| | (12,639 | ) | | | | |
Total assets | $ | 2,248,786 |
| | |
| | |
| | $ | 2,121,032 |
| | | | |
Interest bearing liabilities | |
| | |
| | |
| | | | | | |
Interest bearing demand deposits | $ | 566,183 |
| | $ | 3,395 |
| | 1.21 | % | | $ | 440,149 |
| | $ | 1,533 |
| | 0.7 | % |
Savings deposits | 307,990 |
| | 1,819 |
| | 1.19 | % | | 339,546 |
| | 1,515 |
| | 0.9 | % |
Time deposits | 663,853 |
| | 6,317 |
| | 1.92 | % | | 631,634 |
| | 4,810 |
| | 1.54 | % |
Short-term borrowings | 193,672 |
| | 2,869 |
| | 2.99 | % | | 215,425 |
| | 2,648 |
| | 2.48 | % |
Long-term borrowings and capital trust securities | 20,319 |
| | 514 |
| | 5.10 | % | | 58,706 |
| | 1,258 |
| | 4.32 | % |
Total interest bearing liabilities | 1,752,017 |
| | 14,914 |
| | 1.72 | % | | 1,685,460 |
| | 11,764 |
| | 1.41 | % |
Noninterest bearing liabilities and shareholders' equity | |
| | |
| | |
| | | | | | |
Demand deposits | 244,984 |
| | |
| | |
| | 215,031 |
| | | | |
Other liabilities | 19,096 |
| | |
| | |
| | 16,188 |
| | | | |
Total liabilities | 2,016,097 |
| | |
| | |
| | 1,916,679 |
| | | | |
| | | | | | | | | | | |
Shareholders' equity - common | 232,689 |
| | |
| | |
| | 204,353 |
| | | | |
Total liabilities and shareholders' equity | $ | 2,248,786 |
| | |
| | |
| | $ | 2,121,032 |
| | | | |
Net interest earnings | |
| | $ | 38,368 |
| | |
| | | | $ | 35,162 |
| | |
Net yield on interest earning assets | | |
| | 3.69 | % | | | | | | 3.58 | % |
| |
(1) | - For purposes of this table, nonaccrual loans are included in average loan balances. |
| |
(2) | - Interest income on tax-exempt securities and loans has been adjusted assuming a Federal tax rate of 21%. The tax equivalent adjustment resulted in an increase in interest income of $532,000 and $629,000 for the six months ended June 30, 2019 and 2018, respectively. |
| | Table IV - Changes in Net Interest Income Attributable to Rate and Volume | | | |
Table II - Changes in Net Interest Income Attributable to Rate and Volume | | Table II - Changes in Net Interest Income Attributable to Rate and Volume | | | | | | |
| | | | | | | | | | |
| | For the Six Months Ended | | For the Quarter Ended | | For the Quarter Ended |
| | June 30, 2019 versus June 30, 2018 | | March 31, 2020 vs. December 31, 2019 | | March 31, 2020 vs. March 31, 2019 |
| | Increase (Decrease) Due to Change in: | | Increase (Decrease) Due to Change in: | | Increase (Decrease) Due to Change in: |
Dollars in thousands | | Volume | | Rate | | Net | | Volume | | Rate | | Net | | Volume | | Rate | | Net |
Interest earned on: | | | | | | | | | | | | | | | | | | |
Loans | | | | | | | | | | | | | | | | | | |
Taxable | | $ | 3,039 |
| | $ | 3,008 |
| | $ | 6,047 |
| | $ | 802 |
| | $ | (335 | ) | | $ | 467 |
| | $ | 3,071 |
| | $ | (889 | ) | | $ | 2,182 |
|
Tax-exempt | | (30 | ) | | 65 |
| | 35 |
| | (12 | ) | | 8 |
| | (4 | ) | | 1 |
| | — |
| | 1 |
|
Securities | | |
| | |
| | |
| | |
| | | | | | | | |
| | |
|
Taxable | | 372 |
| | 308 |
| | 680 |
| | 270 |
| | (167 | ) | | 103 |
| | 485 |
| | (415 | ) | | 70 |
|
Tax-exempt | | (538 | ) | | 41 |
| | (497 | ) | | 5 |
| | 8 |
| | 13 |
| | (434 | ) | | (6 | ) | | (440 | ) |
Federal funds sold and interest bearing deposits with other banks | | 42 |
| | 49 |
| | 91 |
| | 8 |
| | (15 | ) | | (7 | ) | | (58 | ) | | (74 | ) | | (132 | ) |
Total interest earned on interest earning assets | | 2,885 |
| | 3,471 |
| | 6,356 |
| | 1,073 |
| | (501 | ) | | 572 |
| | 3,065 |
| | (1,384 | ) | | 1,681 |
|
| | | | | | | | | | | | | | | | | | |
Interest paid on: | | |
| | |
| | |
| | |
| | | | | | |
| | |
| | |
|
Interest bearing demand deposits | | 529 |
| | 1,333 |
| | 1,862 |
| | 49 |
| | (346 | ) | | (297 | ) | | 237 |
| | (819 | ) | | (582 | ) |
Savings deposits | | (151 | ) | | 455 |
| | 304 |
| | 290 |
| | (154 | ) | | 136 |
| | 419 |
| | 20 |
| | 439 |
|
Time deposits | | 255 |
| | 1,252 |
| | 1,507 |
| | (147 | ) | | (293 | ) | | (440 | ) | | (169 | ) | | 99 |
| | (70 | ) |
Short-term borrowings | | (285 | ) | | 506 |
| | 221 |
| | (375 | ) | | (57 | ) | | (432 | ) | | (491 | ) | | (351 | ) | | (842 | ) |
Long-term borrowings and capital trust securities | | (939 | ) | | 195 |
| | (744 | ) | | — |
| | (11 | ) | | (11 | ) | | — |
| | (40 | ) | | (40 | ) |
Total interest paid on interest bearing liabilities | | (591 | ) | | 3,741 |
| | 3,150 |
| | (183 | ) | | (861 | ) | | (1,044 | ) | | (4 | ) | | (1,091 | ) | | (1,095 | ) |
| | | | | | | | | | | | | | | | | | |
Net interest income | | $ | 3,476 |
| | $ | (270 | ) | | $ | 3,206 |
| | $ | 1,256 |
| | $ | 360 |
| | $ | 1,616 |
| | $ | 3,069 |
| | $ | (293 | ) | | $ | 2,776 |
|
Noninterest Income
On May 1, 2019, we sold our insurance agency, Summit Insurance Services, LLC which resulted in a pre-tax gain of $1.91 million. Total noninterest income for the sixthree months ended June 30, 2019March 31, 2020 increased 22.4%6.4% compared to same period in 20182019 principally due to the increased realized gain on sale of SIS. On a quarterly basis, total noninterest incomesecurities gains, which was 64.2% higher in 2019 compared to 2018 due to higher realized gains on sales of securities and the gain on sale of SIS. Both 2019 periods were negatively impactedpartially offset by lower insurance commissions due to the sale of SIS. Further detail regarding noninterest income is reflected in the following table.
| | Table V - Noninterest Income | | | | | | | | | | |
| For the Quarter Ended June 30, | | For the Six Months Ended June 30, | For the Quarter Ended March 31, |
Dollars in thousands | 2019 | | 2018 | | 2019 | | 2018 | 2020 | | 2019 |
Insurance commissions | $ | 606 |
| | $ | 1,013 |
| | $ | 1,780 |
| | $ | 2,126 |
| $ | 7 |
| | $ | 1,174 |
|
Trust and wealth management fees | 612 |
| | 672 |
| | 1,198 |
| | 1,339 |
| 665 |
| | 586 |
|
Service charges on deposit accounts | 1,224 |
| | 1,116 |
| | 2,405 |
| | 2,207 |
| 1,263 |
| | 1,180 |
|
Bank card revenue | 893 |
| | 801 |
| | 1,707 |
| | 1,550 |
| 933 |
| | 814 |
|
Realized securities gains | 1,086 |
| | 87 |
| | 1,082 |
| | 819 |
| 1,038 |
| | (3 | ) |
Gain on sale of Summit Insurance Services, LLC | 1,906 |
| | — |
| | 1,906 |
| | — |
| |
Bank owned life insurance income | 248 |
| | 249 |
| | 486 |
| | 523 |
| 264 |
| | 238 |
|
Other | 235 |
| | 210 |
| | 476 |
| | 459 |
| 332 |
| | 241 |
|
Total | $ | 6,810 |
| | $ | 4,148 |
| | $ | 11,040 |
| | $ | 9,023 |
| $ | 4,502 |
| | $ | 4,230 |
|
Noninterest Expense
Total noninterest expense increased 20.4%8.2% for the quarter ended June 30, 2019 compared to the quarter ended June 30, 2018 and increased 16.5% for the sixfirst three months ended June 30, 2019, asof 2020 compared to the same period in 2018of 2019 with higher foreclosed properties expense, and higher salaries, commissions, and employee benefits and increased merger expenses having the largest negative impacts and fewer FDIC premiums during 2019deferred director compensation plan income having the largest positive impact. Table VI below shows the breakdown of the changes.
| | Table VI - Noninterest Expense | Table VI - Noninterest Expense | | | | | | | | | | | | | Table VI - Noninterest Expense | | | | |
| For the Quarter Ended June 30, | | For the Six Months Ended June 30, | For the Quarter Ended March 31, |
| | | Change | | | | | | Change | | | | | Change | | |
Dollars in thousands | 2019 | | $ | | % | | 2018 | | 2019 | | $ | | % | | 2018 | 2020 | | $ | | % | | 2019 |
Salaries, commissions, and employee benefits | $ | 7,576 |
| | $ | 654 |
| | 9.4 | % | | $ | 6,922 |
| | $ | 14,923 |
| | $ | 1,179 |
| | 8.6 | % | | $ | 13,744 |
| $ | 7,672 |
| | $ | 325 |
| | 4.4 | % | | $ | 7,347 |
|
Net occupancy expense | 880 |
| | 40 |
| | 4.8 | % | | 840 |
| | 1,803 |
| | 131 |
| | 7.8 | % | | 1,672 |
| 883 |
| | (41 | ) | | (4.4 | )% | | 924 |
|
Equipment expense | 1,219 |
| | 148 |
| | 13.8 | % | | 1,071 |
| | 2,398 |
| | 245 |
| | 11.4 | % | | 2,153 |
| 1,429 |
| | 250 |
| | 21.2 | % | | 1,179 |
|
Professional fees | 475 |
| | 90 |
| | 23.4 | % | | 385 |
| | 878 |
| | 159 |
| | 22.1 | % | | 719 |
| 387 |
| | (16 | ) | | (4.0 | )% | | 403 |
|
Advertising and public relations | 155 |
| | (33 | ) | | (17.6 | )% | | 188 |
| | 308 |
| | 17 |
| | 5.8 | % | | 291 |
| 152 |
| | (1 | ) | | (0.7 | )% | | 153 |
|
Amortization of intangibles | 420 |
| | 7 |
| | 1.7 | % | | 413 |
| | 897 |
| | 49 |
| | 5.8 | % | | 848 |
| 429 |
| | (47 | ) | | (9.9 | )% | | 476 |
|
FDIC premiums | 88 |
| | (152 | ) | | (63.3 | )% | | 240 |
| | 88 |
| | (392 | ) | | (81.7 | )% | | 480 |
| 165 |
| | 165 |
| | n/a |
| | — |
|
Bank card expense | 473 |
| | 112 |
| | 31.0 | % | | 361 |
| | 911 |
| | 215 |
| | 30.9 | % | | 696 |
| 503 |
| | 64 |
| | 14.6 | % | | 439 |
|
Foreclosed properties expense, net of losses | 1,545 |
| | 1,195 |
| | 341.4 | % | | 350 |
| | 1,930 |
| | 1,255 |
| | 185.9 | % | | 675 |
| 966 |
| | 582 |
| | 151.6 | % | | 384 |
|
Merger-related expenses | 382 |
| | 382 |
| | (100.0 | )% | | — |
| | 445 |
| | 445 |
| | N/A |
| | — |
| 788 |
| | 725 |
| | 1,150.8 | % | | 63 |
|
Other | 2,116 |
| | 151 |
| | 7.7 | % | | 1,965 |
| | 4,608 |
| | 837 |
| | 22.2 | % | | 3,771 |
| 1,625 |
| | (867 | ) | | (34.8 | )% | | 2,492 |
|
Total | $ | 15,329 |
| | $ | 2,594 |
| | 20.4 | % | | $ | 12,735 |
| | $ | 29,189 |
| | $ | 4,140 |
| | 16.5 | % | | $ | 25,049 |
| $ | 14,999 |
| | $ | 1,139 |
| | 8.2 | % | | $ | 13,860 |
|
Salaries, commissions, and employee benefits: The increasesincrease in these expenses infor the three months and six months ended June 30, 2019March 31, 2020 compared to the same periodsperiod of 2018 are2019 is primarily due to an increase in number of employees, resulting from the PBICornerstone acquisition, and general merit raises.
Net occupancy expense: The increase in net occupancy expense for the three and six months ended June 30, 2019 is primarily due to the acquired PBI locations.
Equipment: The increase in equipment expense is primarily increased depreciation and amortization related to various technological upgrades, both hardware and software, made during the past two years and also the PBICornerstone acquisition.
FDIC premiums: For the three months ended March 31, 2020, FDIC premiums increased as we are nearing the full utilization of the FDIC's Small Bank Assessment Credits resulting from the reserve ratio meeting the required 1.38 percent threshold. We expect increased assessments to continue throughout 2020.
Foreclosed properties expense, net of losses: During secondfirst quarter 2019,2020, we recorded higher writedowns of foreclosed properties to their fair value with the goal of selling such properties more rapidly.
Merger-related expenses: Merger-related expenses during first quarter 2020 are related to the Cornerstone and MVB branch acquisitions.
Other: The increasedecrease in other expenses for the sixthree months ended June 30, 2019March 31, 2020 is largely due to a $448,000$967,000 net increase in deferred director compensation plan expenses.income. Under the plan, the directors optionally defer their director fees into a "phantom" investment plan whereby the company recognizes expense or benefit relative to the phantom returns or losses of such investments. As a result of the stock market’s exceptionally robust performancedeterioration during Q1 2019,2020, we recognized significantly greater quarterly$483,000 of deferred director compensation income in Q1 2020 compared to $484,000 expense thus far in 2019 than we have ever recognized previously.Q1 2019.
Income Taxes
Our income tax expense for the three months ended June 30,March 31, 2020 and March 31, 2019 and June 30, 2018 totaled $1.9$1.2 million and $1.7 million, respectively. For the six months ended June 30, 2019 and June 30, 2018 our income tax expense totaled $3.48 million and $3.53$1.6 million, respectively. Our effective tax rate (income tax expense as a percentage of income before taxes) for the quarters ended June 30,March 31, 2020 and 2019 was 20.9% and 2018 was 18.0% and 20.9%18.4%, respectively and for the six months ended June 30, 2019 and June 30, 2018 was 18.2% and 20.5%.respectively. Refer to Note 1716 of the accompanying financial statements for further information regarding our income taxes.
Credit Experience
For purposes of this discussion, nonperforming assets include foreclosed properties, other repossessed assets, and nonperforming loans, which is comprised of loans 90 days or more past due and still accruing interest and nonaccrual loans. Performing TDRs are excluded from nonperforming loans.
The provision for loancredit losses represents charges to earnings necessary to maintain an adequate allowance for probableto cover an estimate of the full amount of expected credit losses inherent in the loan portfolio.relative to loans. Our determination of the appropriate level of the allowance is based on an ongoing analysis of credit quality and loss potential in the loan portfolio, change in the composition and risk
characteristics of the loan portfolio, and the anticipated influence of national and local economic conditions. The adequacy of the allowance for loan losses is reviewed quarterly and adjustments are made as considered necessary.
We recorded $550,000$5.25 million and $1,250,000$250,000 provisions for loancredit losses (for both funded loans and unfunded commitments) for the first sixthree months of 20192020 and 2018. 2019. The decrease is primarily due projected economic impact of COVID-19 on our loss drivers over the reasonable and supportable forecast period created the need for $5,100,000, of additional ACL, which includes the ACL for unfunded commitments. While not material, approximately $150,000 of the increase in required ACL was also driven by loans acquired during the quarter as a result of the acquisition of Cornerstone Bank. Changes in loan volume and the mix in the underlying portfolio were insignificant to more favorable asset quality indicators.the ACL for the quarter.
As illustrated in Table VII below, our non-performing assets have decreased since year end 2018.2019.
| | Table VII - Summary of Non-Performing Assets | | | | | | | | | | | | |
| | June 30, | | December 31, | | March 31, | | December 31, |
Dollars in thousands | | 2019 | | 2018 | | 2018 | | 2020 | | 2019 | | 2019 |
Accruing loans past due 90 days or more | | $ | 208 |
| | $ | 317 |
| | $ | 36 |
| | $ | 12 |
| | $ | 105 |
| | $ | 42 |
|
Nonaccrual loans | | |
| | |
| | |
| | |
| | |
| | |
|
Commercial | | 948 |
| | 954 |
| | 935 |
| | 560 |
| | 729 |
| | 764 |
|
Commercial real estate | | 6,544 |
| | 3,238 |
| | 3,238 |
| | 5,644 |
| | 2,981 |
| | 5,800 |
|
Commercial construction and development | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Residential construction and development | | 66 |
| | 3,233 |
| | 3,198 |
| | 11 |
| | 24 |
| | 326 |
|
Residential real estate | | 5,517 |
| | 7,957 |
| | 7,506 |
| | 4,343 |
| | 5,859 |
| | 4,404 |
|
Consumer | | 92 |
| | 77 |
| | 112 |
| | 53 |
| | 146 |
| | 74 |
|
Other | | 100 |
| | — |
| | — |
| | 100 |
| | 130 |
| | 100 |
|
Total nonaccrual loans | | 13,267 |
| | 15,459 |
| | 14,989 |
| | 10,711 |
| | 9,869 |
| | 11,468 |
|
Foreclosed properties | | |
| | |
| | |
| | |
| | |
| | |
|
Commercial | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Commercial real estate | | 1,544 |
| | 1,818 |
| | 1,762 |
| | 1,866 |
| | 1,841 |
| | 1,930 |
|
Commercial construction and development | | 4,910 |
| | 6,815 |
| | 6,479 |
| | 4,511 |
| | 6,326 |
| | 4,601 |
|
Residential construction and development | | 13,132 |
| | 11,517 |
| | 11,543 |
| | 10,774 |
| | 14,347 |
| | 11,169 |
|
Residential real estate | | 1,804 |
| | 1,456 |
| | 1,648 |
| | 1,136 |
| | 1,879 |
| | 1,576 |
|
Total foreclosed properties | | 21,390 |
| | 21,606 |
| | 21,432 |
| | 18,287 |
| | 24,393 |
| | 19,276 |
|
Repossessed assets | | 12 |
| | 12 |
| | 5 |
| | 49 |
| | 34 |
| | 17 |
|
Total nonperforming assets | | $ | 34,877 |
| | $ | 37,394 |
| | $ | 36,462 |
| | $ | 29,059 |
| | $ | 34,401 |
| | $ | 30,803 |
|
Total nonperforming loans as a percentage of total loans | | 0.74 | % | | 0.97 | % | | 0.89 | % | | 0.53 | % | | 0.57 | % | | 0.60 | % |
Total nonperforming assets as a percentage of total assets | | 1.52 | % | | 1.77 | % | | 1.66 | % | | 1.16 | % | | 1.53 | % | | 1.28 | % |
Allowance for loan losses as a percentage of nonperforming loans | | 97.60 | % | | 79.74 | % | | 86.84 | % | | 229.49 | % | | 131.66 | % | | 113.58 | % |
Allowance for loan losses as a percentage of period end loans | | 0.72 | % | | 0.77 | % | | 0.77 | % | | 1.23 | % | | 0.76 | % | | 0.68 | % |
The following table details the activity regarding our foreclosed properties for the three and six months ended June 30, 2019March 31, 2020 and 2018.
2019.
| | Table VIII - Foreclosed Property Activity | | | | | | |
| For the Three Months Ended June 30, | | For the Six Months Ended June 30, | For the Three Months Ended March 31, |
Dollars in thousands | 2019 | | 2018 | | 2019 | | 2018 | 2020 | | 2019 |
Beginning balance | $ | 24,393 |
| | $ | 21,442 |
| | $ | 21,432 |
| | $ | 21,470 |
| $ | 19,276 |
| | $ | 21,432 |
|
Acquisitions | 247 |
| | 262 |
| | 3,903 |
| | 903 |
| 136 |
| | 3,656 |
|
Improvements | 32 |
| | 694 |
| | 33 |
| | 795 |
| 585 |
| | 1 |
|
Disposals | (2,086 | ) | | (629 | ) | | (2,533 | ) | | (1,142 | ) | (764 | ) | | (447 | ) |
Writedowns to fair value | (1,196 | ) | | (163 | ) | | (1,445 | ) | | (420 | ) | (946 | ) | | (249 | ) |
Balance June 30 | $ | 21,390 |
| | $ | 21,606 |
| | $ | 21,390 |
| | $ | 21,606 |
| |
Balance March 31 | | $ | 18,287 |
| | $ | 24,393 |
|
Refer to Note 6 of the accompanying consolidated financial statements for information regarding our past due loans, impaired loans, nonaccrual loans, and troubled debt restructurings and to Note 8 of the notes to the consolidated financial statements ofinformation regarding our 2018 Annual Report on Form 10-K for a summary of the methodology we employ on a quarterly basis to evaluate the overall adequacy of our allowance for loancredit losses.
Substantially all of our nonperforming loans are secured by real estate. The majority of these loans were underwritten in accordance with our loan-to-value policy guidelines which range from 70-85% at the time of origination. The fair values of the underlying collateral value or the discounted cash flows remain in excess of the recorded investment in many of our nonperforming loans and therefore, no specific reserve allocation is required.
At June 30, 2019March 31, 2020 and December 31, 2018,2019, our allowance for loan credit losses totaled $13.2$24.6 million, or 0.72%1.23% of total loans and $13.0$13.1 million, or 0.77%0.68% of total loans. The allowance for loan credit losses is considered adequate to cover our currentan estimate of probablethe full amount of expected credit losses inherent in our loan portfolio.relative to loans.
At June 30, 2019March 31, 2020 and December 31, 20182019 we had approximately $21.4$18.3 million and $21.4$19.3 million in foreclosed properties which were obtained as the result of foreclosure proceedings. Although foreclosed property is recorded at fair value less estimated costs to sell, the prices ultimately realized upon their sale may or may not result in us recognizing additional gains or losses.
FINANCIAL CONDITION
Our total assets were $2.30$2.51 billion at June 30, 2019March 31, 2020 and $2.20$2.40 billion at December 31, 2018.2019. Table IX below is a summary of significant changes in our financial position between December 31, 20182019 and June 30, 2019.March 31, 2020.
| | Table IX - Summary of Significant Changes in Financial Position | | | | | Increase (Decrease) | | | | | | Increase (Decrease) | | |
| | Balance December 31, | | Impact of PBI Acquisition | | Other Changes | | Balance June 30, | | Balance December 31, | | Impact of Cornerstone Acquisition | | Other Changes | | Balance March 31, |
Dollars in thousands | | 2018 | | 2019 | | 2019 | | 2020 |
Assets | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 59,540 |
| | $ | 33,329 |
| | $ | (36,394 | ) | | $ | 56,475 |
| | $ | 61,888 |
| | $ | 60,210 |
| | $ | (80,644 | ) | | $ | 41,454 |
|
Securities available for sale | | 293,147 |
| | 55,113 |
| | (78,340 | ) | | 269,920 |
| | 276,355 |
| | 90,075 |
| | (61,385 | ) | | 305,045 |
|
Other investments | | 16,635 |
| | 72 |
| | (2,469 | ) | | 14,238 |
| | 12,972 |
| | 79 |
| | (1,247 | ) | | 11,804 |
|
Loans, net | | 1,682,005 |
| | 41,398 |
| | 82,447 |
| | 1,805,850 |
| | 1,900,425 |
| | 39,530 |
| | 42,706 |
| | 1,982,661 |
|
Property held for sale | | 21,432 |
| | — |
| | (42 | ) | | 21,390 |
| | 19,276 |
| | 10 |
| | (999 | ) | | 18,287 |
|
Premises and equipment | | 37,553 |
| | 815 |
| | 4,528 |
| | 42,896 |
| | 44,168 |
| | 807 |
| | 2,103 |
| | 47,078 |
|
Goodwill and other intangibles | | 25,842 |
| | 3,983 |
| | (6,240 | ) | | 23,585 |
| | 23,022 |
| | — |
| | 11,110 |
| | 34,132 |
|
Cash surrender value of life insurance policies | | 42,386 |
| | — |
| | 590 |
| | 42,976 |
| | 43,603 |
| | 2,715 |
| | 179 |
| | 46,497 |
|
Other assets | | 22,046 |
| | 939 |
| | (1,200 | ) | | 21,785 |
| | 21,783 |
| | 1,605 |
| | 2,976 |
| | 26,364 |
|
Total Assets | | $ | 2,200,586 |
| | $ | 135,649 |
| | $ | (37,120 | ) | | $ | 2,299,115 |
| |
Total assets | | | $ | 2,403,492 |
| | $ | 195,031 |
| | $ | (85,201 | ) | | $ | 2,513,322 |
|
| | | | | | | | | | | | | | | | |
Liabilities | | |
| | | | |
| | |
| | |
| | | | |
| | |
|
Deposits | | $ | 1,634,826 |
| | $ | 112,379 |
| | $ | 50,288 |
| | $ | 1,797,493 |
| | $ | 1,913,237 |
| | $ | 173,030 |
| | $ | (41,353 | ) | | $ | 2,044,914 |
|
Short-term borrowings | | 309,084 |
| | — |
| | (83,741 | ) | | 225,343 |
| | 199,345 |
| | — |
| | (37,600 | ) | | 161,745 |
|
Long-term borrowings | | 735 |
| | — |
| | (9 | ) | | 726 |
| | 717 |
| | — |
| | (5 | ) | | 712 |
|
Subordinated debentures owed to unconsolidated subsidiary trusts | | 19,589 |
| | — |
| | — |
| | 19,589 |
| | 19,589 |
| | — |
| | — |
| | 19,589 |
|
Other liabilities | | 16,522 |
| | 1,533 |
| | 2,207 |
| | 20,262 |
| | 22,840 |
| | 3,287 |
| | 4,210 |
| | 30,337 |
|
| | | | | | | | | | | | | | | | |
Shareholders' Equity | | 219,830 |
| | 21,737 |
| | (5,866 | ) | | 235,701 |
| | 247,764 |
| | 18,714 |
| | (10,453 | ) | | 256,025 |
|
| | | | | | | | | | | | | | | | |
Total liabilities and shareholders' equity | | $ | 2,200,586 |
| | $ | 135,649 |
| | $ | (37,121 | ) | | $ | 2,299,114 |
| | $ | 2,403,492 |
| | $ | 195,031 |
| | $ | (85,201 | ) | | $ | 2,513,322 |
|
The following is a discussion of the significant changes in our financial position during the first sixthree months of 2019:2020:
Cash and cash equivalents: Net reduction of $36.4$80.6 million is primarily attributable to repayments of short-term Federal Home Loan Bank ("FHLB") advances and the cash consideration of $12.7$14.3 million paid in conjunction with the PBICornerstone acquisition.
Securities available for sale: The net decrease of $78.3$61.4 million in securities available for sale is principally a result of sales of a large portion of the acquired PBICornerstone securities portfolio and the sales of a portion of our tax-exempt municipals securities, whose proceeds were used to pay down short-term FHLB advances and fund loan growth.growth and calls and maturities of brokered and direct CDs.
Loans: Mortgage warehouse lines of credit grew $40.6 million during first quarter 2020 as we expanded our existing line participations and established two new participations in light of strong mortgage refinance and home purchase activity nationally. Excluding mortgage warehouse lines of credit and Cornerstone loans grew $61.5acquired on January 1, 2020, organic loan growth was $13.4 million during the first sixthree months of 2019, primarily in2020, as the commercial, construction and development portfolio and commercial portfolio grew approximately $10.7 million and $14.5 million, respectively, while commercial real estate portfolio, residential real estate portfolios.portfolio and consumer portfolios declined approximately $8.1 million, $1.1 million and $1.3 million, respectively.
Deposits: During the first sixthree months of 2019,2020, noninterest bearing checking deposits increased $76.9 million, interest bearing checking deposits grew $47.0$17.9 million, Direct CDssavings deposits grew $9.1$38.9 million, and retail CDs increased $15.2$44.3 million while noninterest bearing checking decreased $10.9brokered CDs declined $39.4 million and saving depositsDirect CDs decreased $13.9$10.0 million.
Short-term borrowings: The net decrease in short-term borrowings was attributable to repayments of short-term FHLB advances primarily using cash acquired in conjunction with PBICornerstone acquisition and proceeds from sales of securities, and increased deposits.securities.
Shareholders' equity: Changes in shareholders' equity are a result of net income, other comprehensive income, dividends and dividends.the impact on retained earnings for adoption of ASC 326 on January 1, 2020.
Refer to Notes 5, 6, 9,8, and 109 of the notes to the accompanying consolidated financial statements for additional information with regard to changes in the composition of our securities, loans, deposits and borrowings between June 30, 2019March 31, 2020 and December 31, 2018.2019.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity reflects our ability to ensure the availability of adequate funds to meet loan commitments and deposit withdrawals, as well as provide for other transactional requirements. Liquidity is provided primarily by funds invested in cash and due from banks (net of float and reserves), Federal funds sold, non-pledged securities, and available lines of credit with the Federal Home Loan Bank of Pittsburgh (“FHLB”) and Federal Reserve Bank of Richmond, which totaled approximately $966 million$1.1 billion or 42.01%42.88% of total consolidated assets at June 30, 2019.March 31, 2020.
Our liquidity strategy is to fund loan growth with deposits and other borrowed funds while maintaining an adequate level of short- and medium-term investments to meet normal daily loan and deposit activity. As a member of the FHLB, we have access to approximately $818$852 million. As of June 30, 2019March 31, 2020 and December 31, 2018,2019, these advances totaled approximately $226$162 million and $304$200 million, respectively. At June 30, 2019,March 31, 2020, we had additional borrowing capacity of $592$689 million through FHLB programs. We have established a line with the Federal Reserve Bank to be used as a contingency liquidity vehicle. The amount available on this line at June 30, 2019March 31, 2020 was approximately $153$177 million, which is secured by a pledge of certain consumer and our commercial and industrial loan portfolios. We have a $6 million unsecured line of credit with a correspondent bank. Also, we classify all of our securities as available for sale to enable us to liquidate them if the need arises.
Liquidity risk represents the risk of loss due to the possibility that funds may not be available to satisfy current or future commitments based on external market issues, customer or creditor perception of financial strength, and events unrelated to Summit such as war, terrorism, pandemic or financial institution market specific issues. The Asset/Liability Management Committee (“ALCO”), comprised of members of senior management and certain members of the Board of Directors, oversees our liquidity risk management process. The ALCO develops and recommends policies and limits governing our liquidity to the Board of
Directors for approval with the objective of ensuring that we can obtain cost-effective funding to meet current and future obligations, as well as maintain sufficient levels of on-hand liquidity, under both normal and “stressed” circumstances.
We continuously monitor our liquidity position to ensure that day-to-day as well as anticipated funding needs are met. We are not aware of any trends, commitments, events or uncertainties that have resulted in or are reasonably likely to result in a material change to our liquidity.
One of our continuous goals is maintenance of a strong capital position. Through management of our capital resources, we seek to provide an attractive financial return to our shareholders while retaining sufficient capital to support future growth. Shareholders’ equity at June 30, 2019March 31, 2020 totaled $235.7$256.0 million compared to $219.8$247.8 million at December 31, 2018.2019.
Refer to Note 1312 of the notes to the accompanying consolidated financial statements for additional information regarding regulatory restrictions on our capital as well as our subsidiaries’ capital.
CONTRACTUAL CASH OBLIGATIONS
During our normal course of business, we incur contractual cash obligations. The following table summarizes our contractual cash obligations at June 30, 2019.March 31, 2020.
| | Table X - Contractual Cash Obligations | Table X - Contractual Cash Obligations | | | Table X - Contractual Cash Obligations | | |
Dollars in thousands | | Long Term Debt | | Capital Trust Securities | | Operating Leases | | Long Term Debt | | Capital Trust Securities | | Operating Leases |
2019 | | $ | 9 |
| | $ | — |
| | $ | 115 |
| | $ | 14 |
| | $ | — |
| | $ | 297 |
|
2020 | | 18 |
| | — |
| | 92 |
| | 19 |
| | — |
| | 480 |
|
2021 | | 20 |
| | — |
| | 71 |
| | 21 |
| | — |
| | 443 |
|
2022 | | 21 |
| | — |
| | 73 |
| | 22 |
| | — |
| | 305 |
|
2023 | | 22 |
| | — |
| | 53 |
| | 23 |
| | — |
| | 261 |
|
Thereafter | | 636 |
| | 19,589 |
| | 75 |
| | 613 |
| | 19,589 |
| | 1,325 |
|
Total | | $ | 726 |
| | $ | 19,589 |
| | $ | 479 |
| | $ | 712 |
| | $ | 19,589 |
| | $ | 3,111 |
|
OFF-BALANCE SHEET ARRANGEMENTS
We are involved with some off-balance sheet arrangements that have or are reasonably likely to have an effect on our financial condition, liquidity, or capital. These arrangements at June 30, 2019March 31, 2020 are presented in the following table.
| | Table XI - Off-Balance Sheet Arrangements | | June 30, | | March 31, |
Dollars in thousands | | 2019 | | 2020 |
Commitments to extend credit: | | | | |
Revolving home equity and credit card lines | | $ | 69,381 |
| | $ | 70,168 |
|
Construction loans | | 127,139 |
| | 147,681 |
|
Other loans | | 163,887 |
| | 215,004 |
|
Standby letters of credit | | 5,784 |
| | 16,732 |
|
Total | | $ | 366,191 |
| | $ | 449,585 |
|
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Market Risk Management
Market risk is the risk of loss arising from adverse changes in the fair value of financial instruments due to changes in interest rates, exchange rates and equity prices. Interest rate risk is our primary market risk and results from timing differences in the repricing of assets, liabilities and off-balance sheet instruments, changes in relationships between rate indices and the potential exercise of imbedded options. The principal objective of asset/liability management is to minimize interest rate risk and our actions in this regard are taken under the guidance of our Asset/Liability Management Committee (“ALCO”), which is comprised of members of senior management and members of the Board of Directors. The ALCO actively formulates the economic assumptions that we use in our financial planning and budgeting process and establishes policies which control and monitor our sources, uses and prices of funds.
Some amount of interest rate risk is inherent and appropriate to the banking business. Our net income is affected by changes in the absolute level of interest rates. Our interest rate risk position is well-matched over the near-term. That is, absent any changes in the volumes of our interest earning assets or interest bearing liabilities, assets are likely to reprice faster than liabilities, resulting in an increase in net income in a rising rate environment. Net income would decrease in a falling interest rate environment. Net income is also subject to changes in the shape of the yield curve. In general, a flattening yield curve would decrease our earnings due to the compression of earning asset yields and funding rates, while a steepening would increase earnings as margins widen.
Several techniques are available to monitor and control the level of interest rate risk. We control interest rate risk principally by matching the maturities of our interest earning assets with similar maturing interest bearing liabilities and by hedging adverse risk exposures with derivative financial instruments such as interest rate swaps and caps. We primarily use earnings simulations modeling to monitor interest rate risk. The earnings simulation model forecasts the effects on net interest income under a variety of interest rate scenarios that incorporate changes in the absolute level of interest rates and changes in the shape of the yield curve. Each increase or decrease in interest rates is assumed to gradually take place over the next 12 months, and then remain stable, except for the up 400 scenario, which assumes a gradual increase in rates over 24 months. Assumptions used to project yields and rates for new loans and deposits are derived from historical analysis. Securities portfolio maturities and prepayments are reinvested in like instruments. Mortgage loan prepayment assumptions are developed from industry estimates of prepayment speeds. Noncontractual deposit repricings are modeled on historical patterns.
The following table presents the estimated sensitivity of our net interest income to changes in interest rates, as measured by our earnings simulation model as of June 30, 2019.March 31, 2020. The sensitivity is measured as a percentage change in net interest income given the stated changes in interest rates (gradual change over 12 months, stable thereafter for the down 100 and the up 200 scenarios, and gradual change over 24 months for the up 400 scenario)thereafter) compared to net interest income with rates unchanged in the same period. The estimated changes set forth below are dependent on the assumptions discussed above.
| | | | Estimated % Change in Net Interest Income over: | | Estimated % Change in Net Interest Income over: |
Change in | | 0 - 12 Months | | 13 - 24 Months | | 0 - 12 Months | | 13 - 24 Months |
Interest Rates | | Actual |
| | Actual |
| | Actual |
| | Actual |
|
Down 100 basis points (1) | | 0.44 | % | | 2.82 | % | | 0.82 | % | | 0.97 | % |
Up 100 basis points (1) | | -0.34 | % | | 2.87 | % | | -2.96 | % | | -0.35 | % |
Up 200 basis points (1) | | -0.22 | % | | 3.01 | % | | -2.72 | % | | -1.55 | % |
| | | | | | | | |
(1) assumes a parallel shift in the yield curve over 12 months, with no change thereafter
| (1) assumes a parallel shift in the yield curve over 12 months, with no change thereafter
| (1) assumes a parallel shift in the yield curve over 12 months, with no change thereafter
|
Item 4. Controls and Procedures
Our management, including the Chief Executive Officer and Chief Financial Officer, has conducted as of June 30, 2019,March 31, 2020, an evaluation of the effectiveness of disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e). Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures as of June 30, 2019March 31, 2020 were effective. ThereEffective January 1, 2020, the Company adopted ASC 326, Financial Instruments – Credit Losses. We implemented changes to the policies, processes, and controls over the estimation of the allowance for credit losses to support the adoption of ASC 326. Many controls under this new standard mirror controls under prior GAAP. New controls were established over the review of economic forecasting projections obtained from an independent third party. Except as related to the adoption of ASC 326, there were no changes in our internal control over financial reporting that occurred during the quarter ended June 30, 2019March 31, 2020, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Part II. Other Information
Item 1. Legal Proceedings
Refer to Note 1211 of the Notes to the Consolidated Financial Statements in Part I, Item 1 for information regarding legal proceedings not reportable under this Item.
Item 1A. Risk Factors
In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2018.2019. The following risk factor is provided to supplement that discussion.
Our business, financial condition, liquidity and results of operations have been, and will likely continue to be, adversely affected by the COVID-19 pandemic.
In March 2020, the World Health Organization declared COVID-19 as a global pandemic. The COVID-19 pandemic has created economic and financial disruptions that have adversely affected, and are likely to continue to adversely affect, our business, financial condition, liquidity and results of operations. The extent to which the COVID-19 pandemic will continue to negatively affect our business, financial condition, liquidity and results of operations will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic, the effectiveness of our plans, the direct and indirect impact of the pandemic on our employees, clients, counterparties and service providers, as well as other market participants, and actions taken by governmental authorities and other third parties in response to the pandemic.
The COVID-19 pandemic has contributed to:
Severe unemployment and business disruption and decreased consumer confidence and commercial activity generally, leading to an increased risk of delinquencies, defaults and foreclosures.
Higher and more volatile credit loss expense and high potential for increased charge-offs.
Ratings downgrades, credit deterioration and defaults in many industries, particularly restaurants, hospitality, entertainment, energy and commercial real estate.
A sudden and significant reduction in the valuation of the equity, fixed-income and commodity markets and the significant increase in the volatility of those markets.
A decrease in the rates and yields on U.S. Treasury securities, which may lead to decreased net interest income.
A reduction in the value of the assets that we manage or otherwise administer or service for others, affecting related fee income and demand for our services.
Our financial position and results of operations are particularly susceptible to the ability of our loan customers to meet loan obligations, the availability of our workforce and the availability of our critical vendors. While its effects continue to materialize, the COVID-19 crisis has resulted in a significant decrease in commercial activity throughout our market area as well as nationally. This decrease in commercial activity may cause our clients and vendors to be unable to meet existing payment or other obligations to us. The national public health crisis arising from the COVID-19 crisis and public expectations about it, combined with certain pre-existing factors, including, but not limited to, international trade disputes, inflation risks and oil price volatility, could further destabilize the financial markets and geographies in which we operate. The resulting economic pressure on consumers and uncertainty regarding the sustainability of any economic improvements has impacted the creditworthiness of potential and current borrowers. Borrower loan defaults that adversely affect our earnings correlate with severely deteriorating economic conditions including the unemployment rate, which, in turn, are likely to impact our borrowers' creditworthiness and our ability to make loans.
In addition, the economic pressures and uncertainties arising from the COVID-19 crisis may result in specific changes in consumer and business spending and borrowing and saving habits, affecting the demand for loans and other products and services we offer. Consumers affected by COVID-19 may continue to demonstrate changed behavior even after the crisis is over. For example, consumers may decrease discretionary spending on a permanent or long-term basis, certain industries may take longer to recover -- particularly those that rely on travel or large gatherings -- as consumers may be hesitant to return to full social interaction. We lend to customers operating in such industries including restaurants, hotels/lodging, entertainment, energy, retail and commercial real estate, among others, that have been significantly impacted by COVID-19, and we are continuing to monitor these customers closely.
Any disruption to our ability to deliver financial products or services to, or interact with, our clients could result in losses or increased operational costs, harm our reputation or result in regulatory fines, penalties and other sanctions. The COVID-19 crisis could still greatly affect our routine and essential operations due to further limited access to or closures of our branch facilities
and other physical offices; and government or regulatory agency orders, among other things. The business and operations of our third-party service providers, many of whom perform critical services for our business, could also be significantly impacted, which in turn could impact us.
The Federal Reserve has taken various actions and the U.S. government has enacted several fiscal stimulus measures to counteract the economic disruption caused by the COVID-19 pandemic and provide economic assistance to individual households and businesses, stabilize the markets and support economic growth. The success of these measures is unknown and they may not be sufficient to fully mitigate the negative impact of the COVID-19 pandemic.
We face an increased risk of litigation and governmental, regulatory and third-party scrutiny as a result of the effects of COVID-19 on market and economic conditions and actions governmental authorities take in response to those conditions. Furthermore, various governmental programs such as the Payroll Protection Plan loan program are complex and our participation may lead to additional litigation and governmental, regulatory and third-party scrutiny, negative publicity and damage to our reputation.
The extent to which the COVID-19 pandemic impacts our business, results of operations and financial condition will depend on future developments, which are highly uncertain and are difficult to predict, including, but not limited to, the duration and spread of the pandemic, its severity, the actions to contain the virus or treat its impact, and how quickly and to what extent normal economic and operating conditions can resume. Even after the COVID-19 pandemic has subsided, we may continue to experience materially adverse impacts to our business as a result of the virus’s global economic impact, including the availability of credit, adverse impacts on our 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, and, as a result, the ultimate impact of the outbreak is highly uncertain and subject to change. We do not yet know the full extent of the impacts on our business, our operations or the global economy as a whole. However, the effects could have a material impact on our results of operations and heighten many of our known risks described in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2019.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
In February 2020, the Board of Directors authorized the open market repurchase of up to 750,000 shares of the issued and outstanding shares of Summit's common stock ("February 2020 Repurchase Plan"). The timing and quantity of purchases under this stock repurchase plan are at the discretion of management. The plan may be discontinued, suspended, or restarted at any time at the Company's discretion.
The following table sets forth certain information regarding Summit’s purchase of its common stock under the Repurchase Plan for the quarter ended March 31, 2020.
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Period | Total Number of Shares Purchased (a) | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Maximum Number of Shares that May Yet be Purchased Under the Plans or Programs |
January 1, 2020 - January 31, 2020 | — |
| | $ | — |
| | — |
| | — |
|
February 1, 2020 - February 29, 2020 | — |
| | — |
| | — |
| | — |
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March 1, 2020 - March 31, 2020 | 66,611 |
| | 19.21 |
| | 66,611 |
| | 683,389 |
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(a) Shares purchased under the February 2020 Repurchase Plan.
Item 6. Exhibits
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Exhibit 2.1 | Amendment to Purchase and Assumption Agreement by and between MVB Bank, Inc. and Summit Community Bank, Inc. |
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Exhibit 3.i | Amended and Restated Articles of Incorporation of Summit Financial Group, Inc. |
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Exhibit 3.ii | Articles of Amendment 2009 |
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Exhibit 3.iii | Articles of Amendment 2011 |
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Exhibit 3.iv | Amended and Restated By-Laws of Summit Financial Group, Inc. |
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Exhibit 11 | Statement re: Computation of Earnings per Share – Information contained in Note 4 to the Consolidated Financial Statements on page 13 of this Quarterly Report is incorporated herein by reference. |
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Exhibit 31.1 | Sarbanes-Oxley Act Section 302 Certification of Chief Executive Officer |
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Exhibit 31.2 | Sarbanes-Oxley Act Section 302 Certification of Chief Financial Officer |
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Exhibit 32.1 | Sarbanes-Oxley Act Section 906 Certification of Chief Executive Officer |
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Exhibit 32.2 | Sarbanes-Oxley Act Section 906 Certification of Chief Financial Officer |
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Exhibit 101 | Interactive Data File (XBRL) |
EXHIBIT INDEX
| | Exhibit No. | Description | Page Number | Description | Page Number |
2.1 | | | |
(3) | Articles of Incorporation and By-laws: | | Articles of Incorporation and By-laws: | |
| | (a) | | (a) |
| | (b) | | (b) |
| | (c) | | (c) |
| | (d) | | (d) |
11 | | 15 | | 14 |
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31.1 | | | | |
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31.2 | | | | |
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32.1* | | | | |
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32.2* | | | | |
101** | Interactive data file (XBRL) | | Interactive data file (XBRL) | |
*Furnished, not filed.
** As provided in Rule 406T of Regulation S-T, this information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934.
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(a) | Incorporated by reference to Exhibit 3.i of Summit Financial Group, Inc.’s filing on Form 10-Q dated March 31, 2006. |
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(b) | Incorporated by reference to Exhibit 3.1 of Summit Financial Group, Inc.’s filing on Form 8-K dated September 30, 2009. |
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(c) | Incorporated by reference to Exhibit 3.1 of Summit Financial Group, Inc.’s filing on Form 8-K dated November 3, 2011. |
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(d) | Incorporated by reference to Exhibit 3.1 of Summit Financial Group, Inc.’s filing on Form 10-Q dated March 31, 2007.26, 2020. |
SIGNATURES
Pursuant to the requirements 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.
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| | SUMMIT FINANCIAL GROUP, INC. |
| | (registrant) |
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| | By: | /s/ H. Charles Maddy, III |
| | | H. Charles Maddy, III, |
| | | President and Chief Executive Officer |
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| | | |
| | | |
| | By: | /s/ Robert S. Tissue |
| | | Robert S. Tissue, |
| | | SeniorExecutive Vice President and Chief Financial Officer |
| | | |
| | | |
| | | |
| | By: | /s/ Julie R. Markwood |
| | | Julie R. Markwood, |
| | | Senior Vice President and Chief Accounting Officer |
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Date: | August 2, 2019May 8, 2020 | | |