UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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ý☒ | Quarterly Report Pursuant to Section 13 or 15(d) of theThe Securities Exchange Act of 1934 |
For the quarterly period ended September 30, 2017March 31, 2023
or
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¨☐ | Transition Report Pursuant to Section 13 or 15(d) of theThe Securities Exchange Act of 1934 |
For the transition period from to
Commission File Number: 0-18415
Isabella Bank Corporation
(Exact name of registrant as specified in its charter)
| | 38-2830092 | | | | | | | | | | | | |
Michigan | | 38-2830092 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
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401 N. Main St | Mt. Pleasant | MI | | 48858 |
(Address of principal executive offices) | | (Zip code) |
(989) 772-9471
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
None | N/A | N/A |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ý☒ Yes ¨☐ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ý☒ Yes ¨☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging“emerging growth company"company” in Rule 12b-2 of the Exchange Act. |
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Large accelerated filer | | ¨☐ | | Accelerated filer | | ý☐ |
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Non-accelerated filer | | ¨ (Do not check if a smaller reporting company) ☒ | | Smaller reporting company | | ¨☒ |
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| | | | Emerging growth company | | ¨ |
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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. | | ¨☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨☐ Yes ý☒ No
The number of common shares outstanding of the registrant’s Common Stock (no par value) was 7,853,6297,503,549 as of October 31, 2017.April 27, 2023.
ISABELLA BANK CORPORATION
QUARTERLY REPORT ON FORM 10-Q
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Item 1. | | | | |
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Item 1A. | | | | |
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Item 2. | | | | |
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Item 3. | | | | |
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Forward Looking Statements
This report contains certain forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Rule 175 promulgated thereunder, and Section 21E of the Securities Exchange Act of 1934, as amended.amended and Rule 3b-6 promulgated thereunder. We intend such forward looking statements to be covered by the safe harbor provisions for forward looking statements contained in the Private Securities Litigation Reform Act of 1995, and are included in this statement for purposes of these safe harbor provisions. Forward looking statements, which are based on certain assumptions and describe future plans, strategies and expectations, are generally identifiable by use of the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project,”“believe”, “expect”, “intend”, “anticipate”, “estimate”, “project”, or similar expressions. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on theour operations and future prospects include, but are not limited to, changes in: interest rates, general economic conditions, federal or state tax laws, monetary and fiscal policy, a health crisis, the quality or composition of the loan or investment portfolios,portfolio, demand for loan products, fluctuation in the value of collateral securing our loan portfolio, deposit flows, competition, cybersecurity risk, demand for financial services in our market area, and accounting principles, policies, practices and guidelines. These risks and uncertainties should be considered in evaluating forward looking statements and undue reliance should not be placed on such statements. Further information concerning our business, including additional factors that could materially affect our consolidated financial results, is included in our filings with the SEC.
Glossary of Acronyms and Abbreviations
The acronyms and abbreviations identified below may be used throughout this Quarterly Report on Form 10-Q or in our other SEC filings. You may find it helpful to refer back to this page while reading this report. |
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AFS: Available-for-saleACL: Allowance for credit losses | | GAAP: U.S. generally accepted accounting principles |
AFS: Available-for-sale | | IFRS: International Financial Reporting Standards |
ALCO: Asset-Liability Committee | | IRR: Interest rate risk |
ALLL: Allowance for loan and lease losses | | GLB Act: Gramm-Leach-Bliley Act of 1999 |
AOCI: Accumulated other comprehensive income | | IFRS: International Financial Reporting Standards |
ASC: FASB Accounting Standards Codification | | IRR: Interest rate risk |
ASU: FASB Accounting Standards Update | | ISDA: International Swaps and Derivatives Association |
AOCI: Accumulated other comprehensive income | | LIBOR: London Interbank Offered Rate |
ASC: FASB Accounting Standards Codification | | N/A: Not applicable |
ASU: FASB Accounting Standards Update | | N/M: Not meaningful |
ATM: Automated Teller Machineteller machine | | JOBS Act: Jumpstart our Business Startups ActNAV: Net asset value |
BHC Act: Bank Holding Company Act of 1956 | | LIBOR: London Interbank Offered RateNSF: Non-sufficient funds |
CARES Act: Coronavirus Aid, Relief, and Economic Security Act | | OCI: Other comprehensive income (loss) |
CECL: Current expected credit losses | | OMSR: Originated mortgage servicing rights |
CFPB: Consumer Financial Protection Bureau | | N/A: Not applicableOREO: Other real estate owned |
CIK: Central Index Key | | N/M: Not meaningfulOTTI: Other-than-temporary impairment |
COVID-19: Coronavirus disease 2019 | | PBO: Projected benefit obligation |
CRA: Community Reinvestment Act | | NASDAQ: NASDAQ Stock Market IndexPCAOB: Public Company Accounting Oversight Board |
DIF: Deposit Insurance Fund | | NASDAQ Banks: NASDAQ Bank Stock IndexPPP: Paycheck Protection Program |
DIFS: Department of Insurance and Financial Services | | NAV: Net asset valueRabbi Trust: A trust established to fund our Directors Plan |
Directors Plan: Isabella Bank Corporation and Related Companies Deferred Compensation Plan for Directors | | NOW: Negotiable order of withdrawalRSP: Isabella Bank Corporation Restricted Stock Plan |
Dividend Reinvestment Plan: Isabella Bank Corporation Stockholder Dividend Reinvestment Plan and Employee Stock Purchase Plan | | NSF: Non-sufficient fundsSBA: Small Business Administration |
Dodd-Frank Act: Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 | | OCI: Other comprehensive income (loss) |
ESOP: Employee Stock Ownership Plan | | OMSR: Originated mortgage servicing rights |
Exchange Act: Securities Exchange Act of 1934 | | OREO: Other real estate ownedSOFR: Secured Overnight Financing Rate |
FASB: Financial Accounting Standards Board | | OTTI: Other-than-temporary impairmentSEC: U.S. Securities and Exchange Commission |
FDI Act: Federal Deposit Insurance Act | | PBO: Projected benefit obligation |
FDIC: Federal Deposit Insurance Corporation | | PCAOB: Public Company Accounting Oversight BoardSOX: Sarbanes-Oxley Act of 2002 |
FFIEC: Federal Financial Institutions Examinations Council | | Rabbi Trust: A trust established to fund the Directors PlanTax Act: Tax Cuts and Jobs Act, enacted December 22, 2017 |
FRB: Federal Reserve Bank | | SEC: U.S. Securities and Exchange CommissionTDR: Troubled debt restructuring |
FHLB: Federal Home Loan Bank | | SOX: Sarbanes-Oxley Act of 2002XBRL: eXtensible Business Reporting Language |
Freddie Mac: Federal Home Loan Mortgage Corporation | | TDR: Troubled debt restructuringYield Curve: U.S. Treasury Yield Curve |
FTE: Fully taxable equivalent | | XBRL: eXtensible Business Reporting Language |
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements.
INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in thousands)thousands) | | | | | | | | | | | |
| March 31 2023 | | December 31 2022 |
ASSETS | | | |
Cash and cash equivalents | | | |
Cash and demand deposits due from banks | $ | 21,987 | | | $ | 27,420 | |
Fed Funds sold and interest bearing balances due from banks | 76,736 | | | 11,504 | |
Total cash and cash equivalents | 98,723 | | | 38,924 | |
AFS securities, at fair value | 568,650 | | | 580,481 | |
Mortgage loans AFS | 171 | | | 379 | |
Loans | 1,270,651 | | | 1,264,173 | |
Less allowance for credit losses | 12,640 | | | 9,850 | |
Net loans | 1,258,011 | | | 1,254,323 | |
Premises and equipment | 26,304 | | | 25,553 | |
Corporate owned life insurance policies | 33,208 | | | 32,988 | |
Equity securities without readily determinable fair values | 15,746 | | | 15,746 | |
Goodwill and other intangible assets | 48,286 | | | 48,287 | |
Accrued interest receivable and other assets | 35,525 | | | 33,586 | |
TOTAL ASSETS | $ | 2,084,624 | | | $ | 2,030,267 | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | |
Deposits | | | |
Noninterest bearing | $ | 478,829 | | | $ | 494,346 | |
Interest bearing demand deposits | 383,602 | | | 372,155 | |
Certificates of deposit under $250 and other savings | 867,435 | | | 810,642 | |
Certificates of deposit over $250 | 83,662 | | | 67,132 | |
Total deposits | 1,813,528 | | | 1,744,275 | |
Borrowed funds | | | |
Federal funds purchased and repurchase agreements | 31,995 | | | 57,771 | |
Subordinated debt, net of unamortized issuance costs | 29,267 | | | 29,245 | |
Total borrowed funds | 61,262 | | | 87,016 | |
Accrued interest payable and other liabilities | 16,501 | | | 12,766 | |
Total liabilities | 1,891,291 | | | 1,844,057 | |
Shareholders’ equity | | | |
Common stock — no par value 15,000,000 shares authorized; issued and outstanding 7,540,015 shares (including 175,663 shares held in the Rabbi Trust) in 2023 and 7,559,421 shares (including 154,879 shares held in the Rabbi Trust) in 2022 | 127,717 | | | 128,651 | |
Shares to be issued for deferred compensation obligations | 5,344 | | | 5,005 | |
Retained earnings | 90,586 | | | 89,748 | |
Accumulated other comprehensive income (loss) | (30,314) | | | (37,194) | |
Total shareholders’ equity | 193,333 | | | 186,210 | |
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 2,084,624 | | | $ | 2,030,267 | |
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| September 30 2017 | | December 31 2016 |
ASSETS | | | |
Cash and cash equivalents | | | |
Cash and demand deposits due from banks | $ | 20,650 |
| | $ | 20,167 |
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Interest bearing balances due from banks | 417 |
| | 2,727 |
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Total cash and cash equivalents | 21,067 |
| | 22,894 |
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AFS securities (amortized cost of $548,468 in 2017 and $557,648 in 2016) | 552,925 |
| | 558,096 |
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Mortgage loans AFS | 1,237 |
| | 1,816 |
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Loans | | | |
Commercial | 620,135 |
| | 575,664 |
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Agricultural | 132,998 |
| | 126,492 |
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Residential real estate | 271,480 |
| | 266,050 |
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Consumer | 52,931 |
| | 42,409 |
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Gross loans | 1,077,544 |
| | 1,010,615 |
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Less allowance for loan and lease losses | 7,700 |
| | 7,400 |
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Net loans | 1,069,844 |
| | 1,003,215 |
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Premises and equipment | 28,761 |
| | 29,314 |
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Corporate owned life insurance policies | 26,837 |
| | 26,300 |
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Accrued interest receivable | 7,388 |
| | 6,580 |
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Equity securities without readily determinable fair values | 23,461 |
| | 21,694 |
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Goodwill and other intangible assets | 48,575 |
| | 48,666 |
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Other assets | 11,872 |
| | 13,576 |
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TOTAL ASSETS | $ | 1,791,967 |
| | $ | 1,732,151 |
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LIABILITIES AND SHAREHOLDERS’ EQUITY | | | |
Deposits | | | |
Noninterest bearing | $ | 212,608 |
| | $ | 205,071 |
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NOW accounts | 220,601 |
| | 209,325 |
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Certificates of deposit under $250 and other savings | 723,834 |
| | 717,078 |
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Certificates of deposit over $250 | 59,019 |
| | 63,566 |
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Total deposits | 1,216,062 |
| | 1,195,040 |
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Borrowed funds | 367,027 |
| | 337,694 |
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Accrued interest payable and other liabilities | 12,415 |
| | 11,518 |
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Total liabilities | 1,595,504 |
| | 1,544,252 |
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Shareholders’ equity | | | |
Common stock — no par value 15,000,000 shares authorized; issued and outstanding 7,856,664 shares (including 28,547 shares held in the Rabbi Trust) in 2017 and 7,821,069 shares (including 26,042 shares held in the Rabbi Trust) in 2016 | 140,368 |
| | 139,525 |
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Shares to be issued for deferred compensation obligations | 5,364 |
| | 5,038 |
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Retained earnings | 50,680 |
| | 46,114 |
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Accumulated other comprehensive income (loss) | 51 |
| | (2,778 | ) |
Total shareholders’ equity | 196,463 |
| | 187,899 |
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TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 1,791,967 |
| | $ | 1,732,151 |
|
See notes to interim condensed consolidated financial statements (unaudited).
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(Dollars in thousands except per share amounts)amounts) | |
| Three Months Ended September 30 | | Nine Months Ended September 30 | | | Three Months Ended March 31 |
| 2017 | | 2016 | | 2017 | | 2016 | | | 2023 | | 2022 |
Interest income | | | | | | | | Interest income | | | | |
Loans, including fees | $ | 11,297 |
| | $ | 9,965 |
| | $ | 32,102 |
| | $ | 28,320 |
| Loans, including fees | | $ | 14,889 | | | $ | 12,378 | |
AFS securities | | | | | | | | AFS securities | | |
Taxable | 2,075 |
| | 2,037 |
| | 6,452 |
| | 6,740 |
| Taxable | | 2,502 | | | 1,615 | |
Nontaxable | 1,406 |
| | 1,411 |
| | 4,234 |
| | 4,337 |
| Nontaxable | | 718 | | | 660 | |
Federal funds sold and other | 198 |
| | 194 |
| | 547 |
| | 509 |
| Federal funds sold and other | | 486 | | | 109 | |
Total interest income | 14,976 |
| | 13,607 |
| | 43,335 |
| | 39,906 |
| Total interest income | | 18,595 | | | 14,762 | |
Interest expense | | | | | | | | Interest expense | | |
Deposits | 1,715 |
| | 1,496 |
| | 4,870 |
| | 4,313 |
| Deposits | | 2,829 | | | 936 | |
Borrowings | 1,485 |
| | 1,251 |
| | 4,189 |
| | 3,726 |
| Borrowings | | |
Federal funds purchased and repurchase agreements | | Federal funds purchased and repurchase agreements | | 149 | | | 9 | |
FHLB advances | | FHLB advances | | — | | | 72 | |
Subordinated debt, net of unamortized issuance costs | | Subordinated debt, net of unamortized issuance costs | | 266 | | | 266 | |
Total interest expense | 3,200 |
| | 2,747 |
| | 9,059 |
| | 8,039 |
| Total interest expense | | 3,244 | | | 1,283 | |
Net interest income | 11,776 |
| | 10,860 |
| | 34,276 |
| | 31,867 |
| Net interest income | | 15,351 | | | 13,479 | |
Provision for loan losses | 49 |
| | 17 |
| | 85 |
| | 185 |
| |
Net interest income after provision for loan losses | 11,727 |
| | 10,843 |
| | 34,191 |
| | 31,682 |
| |
Provision for credit losses | | Provision for credit losses | | 41 | | | 37 | |
Net interest income after provision for credit losses | | Net interest income after provision for credit losses | | 15,310 | | | 13,442 | |
Noninterest income | | | | | | | | Noninterest income | | | | |
Service charges and fees | 1,435 |
| | 1,276 |
| | 4,370 |
| | 3,652 |
| Service charges and fees | | 1,978 | | | 2,209 | |
Wealth management fees | | Wealth management fees | | 786 | | | 754 | |
Earnings on corporate owned life insurance policies | | Earnings on corporate owned life insurance policies | | 226 | | | 210 | |
Net gain on sale of mortgage loans | 153 |
| | 263 |
| | 507 |
| | 472 |
| Net gain on sale of mortgage loans | | 67 | | | 224 | |
Earnings on corporate owned life insurance policies | 174 |
| | 183 |
| | 537 |
| | 566 |
| |
Net gains on sale of AFS securities | — |
| | — |
| | 142 |
| | 245 |
| |
Other | 936 |
| | 1,224 |
| | 2,546 |
| | 2,986 |
| Other | | 236 | | | 150 | |
Total noninterest income | 2,698 |
| | 2,946 |
| | 8,102 |
| | 7,921 |
| Total noninterest income | | 3,293 | | | 3,547 | |
Noninterest expenses | | | | | | | | Noninterest expenses | | | | |
Compensation and benefits | 5,360 |
| | 4,940 |
| | 15,869 |
| | 14,412 |
| Compensation and benefits | | 6,589 | | | 6,074 | |
Furniture and equipment | 1,377 |
| | 1,353 |
| | 4,073 |
| | 3,988 |
| Furniture and equipment | | 1,597 | | | 1,450 | |
Occupancy | 809 |
| | 845 |
| | 2,461 |
| | 2,443 |
| Occupancy | | 1,005 | | | 966 | |
Other | 2,593 |
| | 2,295 |
| | 7,194 |
| | 6,888 |
| Other | | 3,007 | | | 2,830 | |
Total noninterest expenses | 10,139 |
| | 9,433 |
| | 29,597 |
| | 27,731 |
| Total noninterest expenses | | 12,198 | | | 11,320 | |
Income before federal income tax expense | 4,286 |
| | 4,356 |
| | 12,696 |
| | 11,872 |
| Income before federal income tax expense | | 6,405 | | | 5,669 | |
Federal income tax expense | 750 |
| | 763 |
| | 2,180 |
| | 1,855 |
| Federal income tax expense | | 1,084 | | | 935 | |
NET INCOME | $ | 3,536 |
| | $ | 3,593 |
| | $ | 10,516 |
| | $ | 10,017 |
| NET INCOME | | $ | 5,321 | | | $ | 4,734 | |
Earnings per common share | | | | | | | | Earnings per common share | | | | |
Basic | $ | 0.45 |
| | $ | 0.46 |
| | $ | 1.34 |
| | $ | 1.28 |
| Basic | | $ | 0.70 | | | $ | 0.63 | |
Diluted | $ | 0.44 |
| | $ | 0.45 |
| | $ | 1.31 |
| | $ | 1.25 |
| Diluted | | $ | 0.70 | | | $ | 0.62 | |
Cash dividends per common share | $ | 0.26 |
| | $ | 0.25 |
| | $ | 0.76 |
| | $ | 0.73 |
| Cash dividends per common share | | $ | 0.28 | | | $ | 0.27 | |
See notes to interim condensed consolidated financial statements (unaudited).
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(Dollars in thousands)thousands) |
| | | | | | | | | | | | | | | |
| Three Months Ended September 30 | | Nine Months Ended September 30 |
| 2017 | | 2016 | | 2017 | | 2016 |
Net income | $ | 3,536 |
| | $ | 3,593 |
| | $ | 10,516 |
| | $ | 10,017 |
|
Unrealized gains (losses) on AFS securities | | | | | | | |
Unrealized gains (losses) on AFS securities arising during the period | (96 | ) | | (2,548 | ) | | 4,151 |
| | 8,793 |
|
Reclassification adjustment for net realized (gains) losses included in net income | — |
| | — |
| | (142 | ) | | (245 | ) |
Tax effect (1) | 54 |
| | 937 |
| | (1,158 | ) | | (2,713 | ) |
Unrealized gains (losses) on AFS securities, net of tax | (42 | ) | | (1,611 | ) | | 2,851 |
| | 5,835 |
|
Unrealized gains (losses) on derivative instruments arising during the period | 11 |
| | 91 |
| | (33 | ) | | (61 | ) |
Tax effect (1) | (4 | ) | | (31 | ) | | 11 |
| | 21 |
|
Unrealized gains (losses) on derivative instruments, net of tax | 7 |
| | 60 |
| | (22 | ) | | (40 | ) |
Other comprehensive income, net of tax | (35 | ) | | (1,551 | ) | | 2,829 |
| | 5,795 |
|
Comprehensive income | $ | 3,501 |
| | $ | 2,042 |
| | $ | 13,345 |
| | $ | 15,812 |
|
| |
(1)
| See “Note 12 – Accumulated Other Comprehensive Income” for tax effect reconciliation.
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| | | | | | | | | | | | | | | |
| | | Three Months Ended March 31 |
| | | | | 2023 | | 2022 |
Net income | | | | | $ | 5,321 | | | $ | 4,734 | |
Unrealized gains (losses) on AFS securities arising during the period | | | | | 8,610 | | | (22,928) | |
Reclassification adjustment for net (gains) losses included in net income | | | | | (1) | | | — | |
Tax effect (1) | | | | | (1,729) | | | 4,736 | |
Unrealized gains (losses) on AFS securities, net of tax | | | | | 6,880 | | | (18,192) | |
Comprehensive income (loss) | | | | | $ | 12,201 | | | $ | (13,458) | |
(1)See “Note 9 – Accumulated Other Comprehensive Income” for tax effect reconciliation.
See notes to interim condensed consolidated financial statements (unaudited).
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED)
(Dollars in thousands except per share amounts)amounts) |
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| Common Stock | | | | | | | | |
| Common Shares Outstanding | | Amount | | Common Shares to be Issued for Deferred Compensation Obligations | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Totals |
Balance, January 1, 2016 | 7,799,867 |
| | $ | 139,198 |
| | $ | 4,592 |
| | $ | 39,960 |
| | $ | 221 |
| | $ | 183,971 |
|
Comprehensive income (loss) | — |
| | — |
| | — |
| | 10,017 |
| | 5,795 |
| | 15,812 |
|
Issuance of common stock | 131,697 |
| | 3,683 |
| | — |
| | — |
| | — |
| | 3,683 |
|
Common stock transferred from the Rabbi Trust to satisfy deferred compensation obligations | — |
| | 127 |
| | (127 | ) | | — |
| | — |
| | — |
|
Share-based payment awards under equity compensation plan | — |
| | — |
| | 443 |
| | — |
| | — |
| | 443 |
|
Common stock purchased for deferred compensation obligations | — |
| | (279 | ) | | — |
| | — |
| | — |
| | (279 | ) |
Common stock repurchased pursuant to publicly announced repurchase plan | (98,083 | ) | | (2,749 | ) | | — |
| | — |
| | — |
| | (2,749 | ) |
Cash dividends paid ($0.73 per common share) | — |
| | — |
| | — |
| | (5,697 | ) | | — |
| | (5,697 | ) |
Balance, September 30, 2016 | 7,833,481 |
| | $ | 139,980 |
| | $ | 4,908 |
| | $ | 44,280 |
| | $ | 6,016 |
| | $ | 195,184 |
|
Balance, January 1, 2017 | 7,821,069 |
| | $ | 139,525 |
| | $ | 5,038 |
| | $ | 46,114 |
| | $ | (2,778 | ) | | $ | 187,899 |
|
Comprehensive income (loss) | — |
| | — |
| | — |
| | 10,516 |
| | 2,829 |
| | 13,345 |
|
Issuance of common stock | 178,712 |
| | 4,999 |
| | — |
| | — |
| | — |
| | 4,999 |
|
Common stock transferred from the Rabbi Trust to satisfy deferred compensation obligations | — |
| | 176 |
| | (176 | ) | | — |
| | — |
| | — |
|
Share-based payment awards under equity compensation plan | — |
| | — |
| | 502 |
| | — |
| | — |
| | 502 |
|
Common stock purchased for deferred compensation obligations | — |
| | (327 | ) | | — |
| | — |
| | — |
| | (327 | ) |
Common stock repurchased pursuant to publicly announced repurchase plan | (143,117 | ) | | (4,005 | ) | | — |
| | — |
| | — |
| | (4,005 | ) |
Cash dividends paid ($0.76 per common share) | — |
| | — |
| | — |
| | (5,950 | ) | | — |
| | (5,950 | ) |
Balance, September 30, 2017 | 7,856,664 |
| | $ | 140,368 |
| | $ | 5,364 |
| | $ | 50,680 |
| | $ | 51 |
| | $ | 196,463 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | | | | | | | |
| Common Shares Outstanding | | Amount | | Common Shares to be Issued for Deferred Compensation Obligations | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Totals |
January 1, 2022 | 7,532,641 | | | $ | 129,052 | | | $ | 4,545 | | | $ | 75,592 | | | $ | 1,859 | | | $ | 211,048 | |
Comprehensive income (loss) | — | | | — | | | — | | | 4,734 | | | (18,192) | | | (13,458) | |
Issuance of common stock | 17,379 | | | 439 | | | — | | | — | | | — | | | 439 | |
Common stock transferred from the Rabbi Trust to satisfy deferred compensation obligations | — | | | 3 | | | (3) | | | — | | | — | | | — | |
Share-based payment awards under the Directors Plan | — | | | — | | | 149 | | | — | | | — | | | 149 | |
Share-based compensation expense recognized in earnings under the RSP | — | | | 31 | | | — | | | — | | | — | | | 31 | |
Common stock purchased for deferred compensation obligations | — | | | (151) | | | — | | | — | | | — | | | (151) | |
Common stock repurchased | (7,262) | | | (185) | | | — | | | — | | | — | | | (185) | |
Cash dividends paid ($0.27 per common share) | — | | | — | | | — | | | (2,031) | | | — | | | (2,031) | |
March 31, 2022 | 7,542,758 | | | $ | 129,189 | | | $ | 4,691 | | | $ | 78,295 | | | $ | (16,333) | | | $ | 195,842 | |
January 1, 2023 | 7,559,421 | | | $ | 128,651 | | | $ | 5,005 | | | $ | 89,748 | | | $ | (37,194) | | | $ | 186,210 | |
Cumulative effect of accounting change - adoption of ASC 326 | — | | | — | | | — | | | (2,417) | | | — | | | (2,417) | |
Comprehensive income (loss) | — | | | — | | | — | | | 5,321 | | | 6,880 | | | 12,201 | |
Issuance of common stock | 19,873 | | | 462 | | | — | | | — | | | — | | | 462 | |
Common stock transferred from the Rabbi Trust to satisfy deferred compensation obligations | — | | | 7 | | | (7) | | | — | | | — | | | — | |
Share-based payment awards under the Directors Plan | — | | | — | | | 346 | | | — | | | — | | | 346 | |
Share-based compensation expense recognized in earnings under the RSP | — | | | 42 | | | — | | | — | | | — | | | 42 | |
Common stock purchased for deferred compensation obligations | — | | | (508) | | | — | | | — | | | — | | | (508) | |
Common stock repurchased | (39,279) | | | (937) | | | — | | | — | | | — | | | (937) | |
Cash dividends paid ($0.28 per common share) | — | | | — | | | — | | | (2,066) | | | — | | | (2,066) | |
March 31, 2023 | 7,540,015 | | | $ | 127,717 | | | $ | 5,344 | | | $ | 90,586 | | | $ | (30,314) | | | $ | 193,333 | |
See notes to interim condensed consolidated financial statements (unaudited).
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in thousands)thousands)
| | | | | | | | | | | |
| Three Months Ended March 31 |
| 2023 | | 2022 |
OPERATING ACTIVITIES | | | |
Net income | $ | 5,321 | | | $ | 4,734 | |
Reconciliation of net income to net cash provided by operating activities: | | | |
Provision for credit losses | 41 | | | 37 | |
Depreciation | 478 | | | 542 | |
Amortization of OMSR | 36 | | | 37 | |
Amortization of acquisition intangibles | 1 | | | 4 | |
Amortization of subordinated debt issuance costs | 22 | | | 23 | |
Net amortization of AFS securities | 372 | | | 547 | |
Net gains on sale of AFS securities | (1) | | | — | |
Net gain on sale of mortgage loans | (67) | | | (224) | |
Change in OMSR valuation allowance | — | | | (300) | |
Net (gains) losses on foreclosed assets | (22) | | | (11) | |
Increase in cash value of corporate owned life insurance policies, net of expenses | (220) | | | (200) | |
Gains from redemption of corporate owned life insurance policies | — | | | (52) | |
Share-based payment awards under the Directors Plan | 346 | | | 149 | |
Share-based payment awards under the RSP | 42 | | | 31 | |
Origination of loans held-for-sale | (1,519) | | | (7,069) | |
Proceeds from loan sales | 1,794 | | | 8,059 | |
Net changes in operating assets and liabilities which provided (used) cash: | | | |
Accrued interest receivable and other assets | 1,913 | | | 338 | |
Accrued interest payable and other liabilities | (968) | | | (1,016) | |
Net cash provided by (used in) operating activities | 7,569 | | | 5,629 | |
INVESTING ACTIVITIES | | | |
Activity in AFS securities | | | |
Sales | 4,145 | | | — | |
Maturities, calls, and principal payments | 22,090 | | | 13,568 | |
Purchases | (6,166) | | | (91,361) | |
Net loan principal (originations) collections | (6,493) | | | 82,726 | |
Proceeds from sales of foreclosed assets | 67 | | | 39 | |
Purchases of premises and equipment | (1,229) | | | (462) | |
Proceeds from redemption of corporate owned life insurance policies | — | | | 383 | |
Proceeds from sale of FHLB Stock | — | | | 2,288 | |
Funding of low income housing tax credit investments | (612) | | | (39) | |
Net cash provided by (used in) investing activities | 11,802 | | | 7,142 | |
|
| | | | | | | |
| Nine Months Ended September 30 |
| 2017 | | 2016 |
OPERATING ACTIVITIES | | | |
Net income | $ | 10,516 |
| | $ | 10,017 |
|
Reconciliation of net income to net cash provided by operating activities: | | | |
Provision for loan losses | 85 |
| | 185 |
|
Impairment of foreclosed assets | 2 |
| | — |
|
Depreciation | 2,163 |
| | 2,116 |
|
Amortization of OMSR | 257 |
| | 299 |
|
Amortization of acquisition intangibles | 91 |
| | 128 |
|
Net amortization of AFS securities | 1,614 |
| | 2,115 |
|
Net (gains) losses on sale of AFS securities | (142 | ) | | (245 | ) |
Net gain on sale of mortgage loans | (507 | ) | | (472 | ) |
Increase in cash value of corporate owned life insurance policies | (537 | ) | | (566 | ) |
Share-based payment awards under equity compensation plan | 502 |
| | 443 |
|
Origination of loans held-for-sale | (28,436 | ) | | (22,994 | ) |
Proceeds from loan sales | 29,522 |
| | 23,968 |
|
Net changes in operating assets and liabilities which provided (used) cash: | | | |
Accrued interest receivable | (808 | ) | | (599 | ) |
Other assets | (1,491 | ) | | 1,005 |
|
Accrued interest payable and other liabilities | 897 |
| | 165 |
|
Net cash provided by (used in) operating activities | 13,728 |
| | 15,565 |
|
INVESTING ACTIVITIES | | | |
Activity in AFS securities | | | |
Sales | 12,827 |
| | 35,664 |
|
Maturities, calls, and principal payments | 78,352 |
| | 111,543 |
|
Purchases | (83,471 | ) | | (44,622 | ) |
Net loan principal (originations) collections | (66,928 | ) | | (138,870 | ) |
Proceeds from sales of foreclosed assets | 203 |
| | 348 |
|
Purchases of premises and equipment | (1,610 | ) | | (2,771 | ) |
Proceeds from redemption of corporate owned life insurance policies | — |
| | 1,004 |
|
Net cash provided by (used in) investing activities | (60,627 | ) | | (37,704 | ) |
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Dollars in thousands)thousands) | | | Nine Months Ended September 30 | | Three Months Ended March 31 |
| 2017 | | 2016 | | 2023 | | 2022 |
FINANCING ACTIVITIES | | | | FINANCING ACTIVITIES | | | |
Net increase (decrease) in deposits | $ | 21,022 |
| | $ | 11,270 |
| Net increase (decrease) in deposits | $ | 69,253 | | | $ | 53,822 | |
Net increase (decrease) in borrowed funds | 29,333 |
| | 15,677 |
| |
Net increase (decrease) in fed funds purchased and repurchase agreements | | Net increase (decrease) in fed funds purchased and repurchase agreements | (25,776) | | | 1,191 | |
Net increase (decrease) in FHLB advances | | Net increase (decrease) in FHLB advances | — | | | (10,000) | |
Cash dividends paid on common stock | (5,950 | ) | | (5,697 | ) | Cash dividends paid on common stock | (2,066) | | | (2,031) | |
Proceeds from issuance of common stock | 4,999 |
| | 3,683 |
| Proceeds from issuance of common stock | 462 | | | 439 | |
Common stock repurchased | (4,005 | ) | | (2,749 | ) | Common stock repurchased | (937) | | | (185) | |
Common stock purchased for deferred compensation obligations | (327 | ) | | (279 | ) | Common stock purchased for deferred compensation obligations | (508) | | | (151) | |
Net cash provided by (used in) financing activities | 45,072 |
| | 21,905 |
| Net cash provided by (used in) financing activities | 40,428 | | | 43,085 | |
Increase (decrease) in cash and cash equivalents | (1,827 | ) | | (234 | ) | Increase (decrease) in cash and cash equivalents | 59,799 | | | 55,856 | |
Cash and cash equivalents at beginning of period | 22,894 |
| | 21,569 |
| Cash and cash equivalents at beginning of period | 38,924 | | | 105,330 | |
Cash and cash equivalents at end of period | $ | 21,067 |
| | $ | 21,335 |
| Cash and cash equivalents at end of period | $ | 98,723 | | | $ | 161,186 | |
SUPPLEMENTAL CASH FLOWS INFORMATION: | | | | SUPPLEMENTAL CASH FLOWS INFORMATION: | | | |
Interest paid | $ | 9,000 |
| | $ | 8,042 |
| Interest paid | $ | 2,819 | | | $ | 1,081 | |
Income taxes paid | $ | 2,470 |
| | $ | 1,350 |
| Income taxes paid | $ | 100 | | | $ | — | |
SUPPLEMENTAL NONCASH INFORMATION: | | | | SUPPLEMENTAL NONCASH INFORMATION: | |
Investment of low income housing tax credits | | Investment of low income housing tax credits | $ | 5,000 | | | $ | — | |
Transfers of loans to foreclosed assets | $ | 214 |
| | $ | 211 |
| Transfers of loans to foreclosed assets | $ | 20 | | | $ | 4 | |
See notes to interim condensed consolidated financial statements (unaudited).
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Dollars in thousands except per share amounts)amounts)
Note 1 – Significant Accounting Policies
Basis of Presentation
As used and Consolidation: The consolidated financial statements include the accounts of Isabella Bank Corporation, a financial services holding company, and its wholly owned subsidiary, Isabella Bank. All intercompany balances and accounts have been eliminated in these notes, as well as in Management's Discussion and Analysis of Financial Condition and Results of Operationsconsolidation. References to “the Corporation”, references to “Isabella,” the “Corporation”“Isabella”, “we,” “our,” “us,”“we”, “our”, “us”, and similar terms refer to the consolidated entity consisting of Isabella Bank Corporation and its subsidiaries. subsidiary. References to Isabella Bank Corporationor “the Bank” refers solely to the parent holding company, and Isabella Bank or the “Bank” refer to Isabella Bank Corporation’sCorporation’s subsidiary, Isabella Bank.Bank.
The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In our opinion, all adjustments considered necessary for a fair presentation have been included. Operating results for the three and nine month periodsthree-month period ended September 30, 2017March 31, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017.2023. For further information, refer to our Annual Report on Form 10-K for the year ended December 31, 2016.2022.
OurUse of Estimates: In preparing consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, we make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated balance sheet and reported amounts of revenues and expenses during the reporting year. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the ACL, the fair value of AFS investment securities, and the valuation of goodwill and other intangible assets.
Accounting Changes and Reclassifications: Certain amounts reported in the interim 2022 consolidated financial statements have been reclassified to conform with the 2023 presentation.
On January 1, 2023, we adopted ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” as subsequently updated for certain clarifications, targeted relief and codification improvements. ASC 326 updated the measurement for credit losses for AFS debt securities and assets measured at amortized cost, which includes loans, trade receivables, and any other financial assets with the contractual right to receive cash and requires enhanced disclosures related to the significant estimates and judgments used in estimating credit losses.
Prior to ASU No. 2016-13, GAAP required an “incurred loss” methodology for recognizing credit losses that delayed recognition until it was probable a loss has been incurred. Under the incurred loss approach, entities were limited to a probable initial recognition threshold when credit losses were measured; an entity generally only considered past events and current conditions when measuring the incurred loss.
We adopted ASC 326 using the modified retrospective method for all financial assets measured at amortized cost and off balance sheet credit exposures. Results for reporting periods beginning January 1, 2023 are presented under ASC 326, while prior period amounts continue to be reported in accordance with previously applicable GAAP and the accounting policies described in our Annual Report on Form 10-K for the year ended December 31, 2022. We recorded a net decrease to retained earnings of $2,417 as of January 1, 2023 for the cumulative effect of adopting ASC 326.
We adopted ASC 326 using the prospective transition approach for AFS debt securities for which other-than-temporary impairment had been recognized prior to January 1, 2023. As a result, the amortized cost basis remains the same before and after the effective date of ASC 326. The effective interest rate on these debt securities was not changed. Amounts previously recognized in accumulated other comprehensive income as of January 1, 2023 relating to improvements in cash flows expected to be collected will be accreted into income over the remaining life of the asset. Recoveries of amounts previously written off relating to improvements in cash flows after January 1, 2023 will be recorded in earnings when received.
The following table details the impact of the adoption of ASC 326: | | | | | | | | | | | | | | | | | | | | | | | |
| January 1, 2023 |
| Pre-Adoption Allowance | | Impact of Adoption | | Post-Adoption Allowance | | Cumulative Effect on Retained Earnings |
Loans: | | | | | | | |
Commercial and industrial | $ | 860 | | | $ | (58) | | | $ | 802 | | | $ | 46 | |
Commercial real estate | 461 | | | 5,532 | | | 5,993 | | | (4,370) | |
Agricultural | 577 | | | (247) | | | 330 | | | 195 | |
Residential real estate | 617 | | | 3,535 | | | 4,152 | | | (2,793) | |
Consumer | 961 | | | 356 | | | 1,317 | | | (281) | |
Unallocated | 6,374 | | | (6,374) | | | — | | | 5,035 | |
Total | $ | 9,850 | | | $ | 2,744 | | | $ | 12,594 | | | $ | (2,168) | |
Off-balance-sheet credit exposures | $ | — | | | $ | 315 | | | $ | 315 | | | $ | (249) | |
In connection with the adoption of ASC 326, we revised certain accounting policies and implemented certain accounting policy elections, which are provided below. All other accounting policies are materially the same as those discussed in Note 1 to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2016.2022.
Reclassifications: Certain amountsAFS Securities: Purchases of investment securities are generally classified as AFS. However, we may elect to classify securities as either held to maturity or trading. Securities classified as AFS debt securities are recorded at fair value, with unrealized gains and losses, net of the effect of deferred income taxes, excluded from earnings and reported in other comprehensive income (loss). Included in AFS securities are auction rate money market preferred securities. These investments, for federal income tax purposes, have no federal income tax impact given the interim 2016 consolidated financial statements have been reclassified to conform with the 2017 presentation.
Note 2 – Computation of Earnings Per Common Share
Basic earnings per common share represents income available to common shareholders divided by the weighted average number of common shares outstanding during the period. Diluted earnings per common share reflects additional common shares that would have been outstanding if dilutive potential common shares had been issued. Potential common shares that may be issued relate solely to outstanding shares in the Directors Plan. |
| | | | | | | | | | | | | | | |
| Three Months Ended September 30 | | Nine Months Ended September 30 |
| 2017 | | 2016 | | 2017 | | 2016 |
Average number of common shares outstanding for basic calculation | 7,848,317 |
| | 7,824,751 |
| | 7,839,172 |
| | 7,813,084 |
|
Average potential effect of common shares in the Directors Plan (1) | 192,572 |
| | 186,667 |
| | 191,548 |
| | 184,996 |
|
Average number of common shares outstanding used to calculate diluted earnings per common share | 8,040,889 |
| | 8,011,418 |
| | 8,030,720 |
| | 7,998,080 |
|
Net income | $ | 3,536 |
| | $ | 3,593 |
| | $ | 10,516 |
| | $ | 10,017 |
|
Earnings per common share | | | | | | | |
Basic | $ | 0.45 |
| | $ | 0.46 |
| | $ | 1.34 |
| | $ | 1.28 |
|
Diluted | $ | 0.44 |
| | $ | 0.45 |
| | $ | 1.31 |
| | $ | 1.25 |
|
| |
(1)
| Exclusive of shares held in the Rabbi Trust
|
Note 3 – Accounting Standards Updates
Pending Accounting Standards Updates
ASU No. 2014-09: “Revenue from Contracts with Customers”
In May 2014, ASU No. 2014-09 created new Topic 606 to provide a common revenue standard to achieve consistency and clarification to the revenue recognition principles. The guidance outlines steps to achieve the core principle which states that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. These steps consist of: (1) identify the contract(s) with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when (or as) the entity satisfies a performance obligation.
The new authoritative guidance was originally effective on January 1, 2017; however, ASU 2015-14 was issued which deferred the effective date of ASU 2014-09 by one year to January 1, 2018. The majority of our income, as well as thatnature of the vast majority of financial institutions, isinvestments. Auction rate money market preferred securities are recorded at fair value, with unrealized gains and losses excluded from this guidance. Weearnings and reported in other comprehensive income (loss). Purchase premiums and discounts are reviewing our contracts related to trustrecognized in interest income using the interest method over the term of the securities. Realized gains and investment services and those related to other noninterest income to determine if changes in income recognition is required aslosses on the sale of AFS securities are determined using the specific identification method.
ACL - AFS Securities: AFS securities are reviewed quarterly for possible credit impairment. In determining whether a result of this guidance. Whilecredit-related impairment exists for debt securities, we anticipate some change as a result of implementing this guidance,assess whether: (a) we do not expecthave the intent to sell the security; and (b) it is more likely than not we will not have to havesell the security before recovery of its cost basis. If either of these conditions are met, any previously recognized allowances are charged-off and the security's amortized cost is written down to fair value through income. If these conditions are not met, the security is evaluated to determine whether the decline in fair value has resulted from credit losses or other factors.
In order to determine the amount of the credit loss for a significant impact on our operating results or financial statement disclosures.
ASU No. 2016-02: “Leases (Topic 842)”
In February 2016, ASU No. 2016-02 was issued to create Topic 842 - Leases which will require recognition of lease assets and lease liabilitiesdebt security, we calculate the recovery value by performing a discounted cash flow analysis based on the balance sheet for leases previously classified as operating leases. Accounting guidance is set forth for both lesseecurrent cash flows and lessor accounting. Under lessee accounting, a lessee should recognize in the statement of financial position a liabilityfuture cash flows we expect to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term.
For finance leases, a lessee is required to do the following: 1) recognize a right-of-use asset and a lease liability, initially measured atrecover. If the present value of cash flows expected to be collected is less than the lease payments,amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. The amount of the impairment related to other risk factors is recognized as a component of other comprehensive income. Adjustments to the allowance are reported in the income statement as a provision for credit losses.
We made an accounting policy election to exclude accrued interest receivable on AFS securities from the estimate of financial position; 2) recognize interestcredit losses. AFS securities are charged-off against the allowance or, in the absence of any allowance, written down through income when deemed uncollectible by management, or when criteria regarding intent or requirement to sell is met.
Loans: Loans that we have the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at their outstanding principal balance adjusted for any charge-offs, the ACL, and any deferred fees or costs. Interest income on loans is accrued over the term of the loan based on the lease liability separately from amortizationprincipal amount outstanding. Loan origination fees and certain direct loan origination costs are capitalized and recognized as a component of interest income over the term of the right-of-use asset inloan using the statement of comprehensive income; and 3) classify repayments of the principal portion of the lease liability within financing activities and paymentsappropriate yield methods.
The accrual of interest on agricultural, commercial and mortgage loans is discontinued at the lease liabilitytime the loan is 90 days or more past due unless the credit is well secured and variable lease payments within operating activities in the statementprocess of cash flows.collection. Consumer loans are typically charged-off no later than 180 days past due. Past due status is based on contractual terms of the loan. In all cases, loans are placed in nonaccrual status or charged-off at an earlier date if collection of principal or interest is considered doubtful. For operating leases,loans that are placed on nonaccrual status or charged-off, all interest accrued in the current calendar year, but not collected, is reversed against interest income while interest accrued in prior calendar years, but not collected is charged against the ACL. Interest income on loans in
nonaccrual status is not recognized until qualifying for return to accrual status. Loans are returned to accrual status when all principal and interest amounts contractually due are brought current and future payments are reasonably assured. For loans not classified as nonaccrual, interest income continues to be accrued over the term of the loan based on the principal amount outstanding.
ACL - Loans: The ACL on loans is calculated in accordance with ASC 326 and is deducted from the amortized cost basis of loans to present our best estimate of the net amount expected to be collected. The ACL is established through a lesseeprovision for credit losses charged to earnings. Loan losses are charged against the allowance when we believe the uncollectability of the loan balance is requiredconfirmed. Subsequent recoveries, if any, are credited to do the following: 1) recognizeallowance. We made an accounting policy election to exclude accrued interest receivable on loans from the estimate of credit losses.
We evaluate the ACL on a right-of-use assetregular basis. Our periodic review of the collectability of loans considers historical experience, the nature and a lease liability, initially measured atvolume of the presentloan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of the lease payments,any underlying collateral, prevailing economic conditions, and reasonable and supportable forecasts. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.
The ACL consists of a general component and loans individually analyzed. The general component covers loans not specifically analyzed and is based on historical loss experience, current conditions, and reasonable and supportable forecasts. The general component also includes uncertainties that we believe could affect our estimate of probable losses based on qualitative factors.
Loans in nonaccrual status are individually analyzed on a loan-by-loan basis. Loans evaluated individually are not included in the statement of financial position; 2) recognize a single lease cost, calculated so that the costgeneral, or pooled, component of the leaseACL. For collateralized loans, the loan's specific allowance is allocated over the lease term on a generally straight-line basis; and 3) classify all cash payments within operating activities in the statement of cash flows.
The accounting appliedmeasured by a lessor is largely unchanged from that applied under previous GAAP. The new authoritative guidance is effective for interim and annual periods beginning after December 15, 2018. We have and will continue to review our lease agreements to determine the appropriate treatment under this guidance. We do not expect these changes to have a significant impact on our operating results or financial statement disclosures.
ASU No. 2017-09: “Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting”
In May 2017, ASU No. 2017-09 provided guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting under Topic 718. The current disclosure requirements in Topic 718 apply regardless of whether an entity is required to apply modification accounting under the amendments in this update. An entity should account for the effects of a modification unless all of the following are met:
1. The fair value (or calculated value or intrinsic value, if such an alternative measurement method is used) of the modified award is the same as the fair value (or calculated value or intrinsic value, if such an alternative measurement method is used) of the original award immediately before the original award is modified. If the modification does not affect any of the inputs to the valuation technique that the entity uses to value the award, the entity is not required to estimate the value immediately before and after the modification.
2. The vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified.
3. The classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award is modified.
The new authoritative guidance is effective for interim and annual periods beginning after December 15, 2017 and is not expected to have a significant impact on our operating results or financial statement disclosures.
ASU No. 2017-12: “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities”
In August 2017, ASU No. 2017-12 was issued to improve financial reporting of hedging activities to better portray the economic results of an entity’s risk management activities. The update provides changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results.
The update addresses current GAAP designation limitations by permitting hedge accounting for risk components in hedging relationships involving nonfinancial risk and interest rate risk as follows:
1. For a cash flow hedge of a forecasted purchase or sale of a nonfinancial asset, an entity could designate as the hedged risk the variability in cash flows attributable to changes in a contractually specified component stated in the contract. The amendments remove the requirement in current GAAP that only the overall variability in cash flows or variability related to foreign currency risk could be designated as the hedged risk in a cash flow hedge of a nonfinancial asset.
2. For a cash flow hedge of interest rate risk of a variable-rate financial instrument, an entity could designate as the hedged risk the variability in cash flows attributable to the contractually specified interest rate. By eliminating the concept of benchmark interest rates for hedges of variable-rate instruments in current GAAP, the amendments remove the requirement to designate only the overall variability in cash flows as the hedged risk in a cash flow hedge of a variable-rate instrument indexed to a non-benchmark interest rate.
3. For a fair value hedge of interest rate risk, the amendments add the Securities Industry and Financial Markets Association (SIFMA) Municipal Swap Rate as an eligible benchmark interest rate in the United States in addition to those already permitted under current GAAP (the U.S. Treasury Rate, the London Interbank Offered Rate [LIBOR] Swap Rate, and the Fed Funds Effective Swap Rate [or Overnight Index Swap Rate]). This allows an entity that issues or invests in fixed-rate tax-exempt financial instruments to designate as the hedged risk changes in fair value attributable to interest rate risk related to the SIFMA Municipal Swap Rate rather than overall changes in fair value.
The amendments in this update provide further revisions to the current limitations on designation in a fair value hedge of interest rate risk. Specifically, the update changes the guidance for designating fair value hedges of interest rate risk and for measuring the change in fair value of the hedged item in fair value hedges of interest rate risk by providing four permissible accounting treatments.
In addition to the amendments to the designation and measurement guidance for qualifying hedging relationships, the amendments in this update also align the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. The following recognition and presentation guidance for qualifying hedges is required:
1. For fair value hedges, the entire change in the fair value of the hedging instrument included in the assessment of hedge effectivenesscollateral approach. The specific reserve is presented in the same income statement line that is used to present the earnings effect of the hedged item. The timing of recognition of the change in fair value of a hedging instrument included in the assessment of hedge effectiveness is the same as under current GAAP, but the presentation of hedge results could change because current GAAP does not specify a required presentation of the change in fair value of the hedging instrument.
2. For cash flow and net investment hedges, the entire change inbased on the fair value of the hedging instrument included incollateral, less costs to sell if foreclosure is probable, and an allowance is established when the assessmentcollateral value is lower than the carrying value of hedge effectiveness is recorded in other comprehensive income (forthe loan. When the discounted cash flow hedges) or in the currency translation adjustment section of other comprehensive income (for net investment hedges). Those amounts are reclassified to earnings in the same income statement line item thatmethod is used to presentmeasure the earnings effect ofloan's specific allowance, the hedged itemeffective interest rate is used to discount expected cash flows to incorporate expected prepayments. An allowance is established when the hedged
item affects earnings. The timing of recognition ofdiscounted cash flows are lower than the change in fair value of a hedging instrument could change relative to current GAAP because hedge ineffectiveness no longer is recognized in current period earnings. The presentation of hedge results also could change because current GAAP does not specify a required presentation of the change in faircarrying value of the hedging instrument inloan. Large groups of smaller-balance, homogeneous loans are collectively evaluated for measurement of an allowance.
Off Balance Sheet Credit Related Financial Instruments: In the income statement.
Lastly, the guidance within this update provides exclusions from the hedge effectiveness assessmentordinary course of business, we have entered into commitments to extend credit, including commitments under credit card arrangements, commercial lines of credit, home equity lines of credit, commercial letters of credit, and five other targeted improvements to current guidance alsostandby letters of credit. Such financial instruments are recorded only when funded. In connection with these commitments, we established an allowance for credit losses related to off-balance-sheet credit exposures. The allowance, recorded in a liability account, is calculated in accordance with ASC 326 and represents expected credit losses over the assessmentcontractual period for which we are exposed to credit risk resulting from a contractual obligation to extend credit. The estimate of hedge effectiveness. Excluding option premiumsexpected credit losses considers both the likelihood that funding will occur and forward points will still be permissible under the new guidance. The new authoritative guidance is effective for interim and annual periods beginning after December 15, 2018 and is notamount expected to be funded over the estimated remaining life of the commitment. The likelihood and expected amount of funding are based on historical utilization rates. No allowance is recognized if we have the unconditional right to cancel the obligation. The allowance is reported as a significant impact oncomponent of accrued interest payable and other liabilities in our operating results or financialconsolidated balance sheets. Adjustments to the allowance are reported in our income statement disclosures.as a component of provision for credit losses.
Note 42 – AFS Securities
The amortized cost and fair value of AFS securities,, with gross unrealized gains and losses, are as follows at: |
| | | | | | | | | | | | | | | |
| September 30, 2017 |
| Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value |
Government sponsored enterprises | $ | 231 |
| | $ | 1 |
| | $ | — |
| | $ | 232 |
|
States and political subdivisions | 207,874 |
| | 5,596 |
| | 13 |
| | 213,457 |
|
Auction rate money market preferred | 3,200 |
| | — |
| | 28 |
| | 3,172 |
|
Preferred stocks | 3,800 |
| | — |
| | 149 |
| | 3,651 |
|
Mortgage-backed securities | 216,684 |
| | 860 |
| | 1,630 |
| | 215,914 |
|
Collateralized mortgage obligations | 116,679 |
| | 600 |
| | 780 |
| | 116,499 |
|
Total | $ | 548,468 |
| | $ | 7,057 |
| | $ | 2,600 |
| | $ | 552,925 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2023 |
| Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value |
U.S. Treasury | $ | 231,521 | | | $ | — | | | $ | 19,435 | | | $ | 212,086 | |
States and political subdivisions | 111,168 | | | 938 | | | 3,387 | | | 108,719 | |
Auction rate money market preferred | 3,200 | | | — | | | 484 | | | 2,716 | |
Mortgage-backed securities | 40,645 | | | — | | | 2,848 | | | 37,797 | |
Collateralized mortgage obligations | 210,481 | | | 24 | | | 10,253 | | | 200,252 | |
Corporate | 8,150 | | | — | | | 1,070 | | | 7,080 | |
Total | $ | 605,165 | | | $ | 962 | | | $ | 37,477 | | | $ | 568,650 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value |
U.S. Treasury | $ | 231,622 | | | $ | — | | | $ | 22,921 | | | $ | 208,701 | |
States and political subdivisions | 122,023 | | | 392 | | | 4,903 | | | 117,512 | |
Auction rate money market preferred | 3,200 | | | — | | | 858 | | | 2,342 | |
Mortgage-backed securities | 42,309 | | | — | | | 3,239 | | | 39,070 | |
Collateralized mortgage obligations | 218,301 | | | — | | | 12,573 | | | 205,728 | |
Corporate | 8,150 | | | — | | | 1,022 | | | 7,128 | |
Total | $ | 625,605 | | | $ | 392 | | | $ | 45,516 | | | $ | 580,481 | |
|
| | | | | | | | | | | | | | | |
| December 31, 2016 |
| Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value |
Government sponsored enterprises | $ | 10,258 |
| | $ | 3 |
| | $ | 2 |
| | $ | 10,259 |
|
States and political subdivisions | 208,977 |
| | 4,262 |
| | 320 |
| | 212,919 |
|
Auction rate money market preferred | 3,200 |
| | — |
| | 406 |
| | 2,794 |
|
Preferred stocks | 3,800 |
| | — |
| | 375 |
| | 3,425 |
|
Mortgage-backed securities | 229,593 |
| | 581 |
| | 2,918 |
| | 227,256 |
|
Collateralized mortgage obligations | 101,820 |
| | 600 |
| | 977 |
| | 101,443 |
|
Total | $ | 557,648 |
| | $ | 5,446 |
| | $ | 4,998 |
| | $ | 558,096 |
|
The amortized cost and fair value of AFS securities by contractual maturity at September 30, 2017March 31, 2023 are as follows: |
| | | | | | | | | | | | | | | | | | | | | | | |
| Maturing | | Securities with Variable Monthly Payments or Noncontractual Maturities | | |
| Due in One Year or Less | | After One Year But Within Five Years | | After Five Years But Within Ten Years | | After Ten Years | | | Total |
Government sponsored enterprises | $ | — |
| | $ | 231 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 231 |
|
States and political subdivisions | 25,689 |
| | 73,810 |
| | 75,598 |
| | 32,777 |
| | — |
| | 207,874 |
|
Auction rate money market preferred | — |
| | — |
| | — |
| | — |
| | 3,200 |
| | 3,200 |
|
Preferred stocks | — |
| | — |
| | — |
| | — |
| | 3,800 |
| | 3,800 |
|
Mortgage-backed securities | — |
| | — |
| | — |
| | — |
| | 216,684 |
| | 216,684 |
|
Collateralized mortgage obligations | — |
| | — |
| | — |
| | — |
| | 116,679 |
| | 116,679 |
|
Total amortized cost | $ | 25,689 |
| | $ | 74,041 |
| | $ | 75,598 |
| | $ | 32,777 |
| | $ | 340,363 |
| | $ | 548,468 |
|
Fair value | $ | 25,746 |
|
| $ | 76,105 |
|
| $ | 78,383 |
|
| $ | 33,455 |
|
| $ | 339,236 |
| | $ | 552,925 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Maturing | | Securities with Variable Monthly Payments or Noncontractual Maturities | | |
| Due in One Year or Less | | After One Year But Within Five Years | | After Five Years But Within Ten Years | | After Ten Years | | | Total |
U.S. Treasury | $ | — | | | $ | 231,521 | | | $ | — | | | $ | — | | | $ | — | | | $ | 231,521 | |
States and political subdivisions | 17,802 | | | 33,582 | | | 22,070 | | | 37,714 | | | — | | | 111,168 | |
Auction rate money market preferred | — | | | — | | | — | | | — | | | 3,200 | | | 3,200 | |
Mortgage-backed securities | — | | | — | | | — | | | — | | | 40,645 | | | 40,645 | |
Collateralized mortgage obligations | — | | | — | | | — | | | — | | | 210,481 | | | 210,481 | |
Corporate | — | | | — | | | 8,150 | | | — | | | — | | | 8,150 | |
Total amortized cost | $ | 17,802 | | | $ | 265,103 | | | $ | 30,220 | | | $ | 37,714 | | | $ | 254,326 | | | $ | 605,165 | |
Fair value | $ | 17,799 | | | $ | 246,147 | | | $ | 28,826 | | | $ | 35,113 | | | $ | 240,765 | | | $ | 568,650 | |
Expected maturities for government sponsored enterprises and states and political subdivisions may differ from contractual maturities because issuers may have the right to call or prepay obligations.
As the auction rate money market preferred and preferred stocksinvestments have continual call dates, they are not reported by a specific maturity group. Because of their variable monthly payments, mortgage-backed securities and collateralized mortgage obligations are not reported by a specific maturity group. Approximately $163,000 of the amortized cost of the collateralized mortgage portfolio consist of agency commercial mortgage-backed securities with defined maturity dates of less than ten years.
A summary of the sales activity of AFS securities wasis as follows for the: | | | | | | | | | | | |
| Three Months Ended March 31 |
| 2023 | | 2022 |
Proceeds from sales of AFS securities | $ | 4,145 | | | $ | — | |
Realized gains (losses) | $ | 1 | | | $ | — | |
Applicable income tax expense (benefit) | $ | — | | | $ | — | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30 | | Nine Months Ended September 30 |
| 2017 | | 2016 | | 2017 | | 2016 |
Proceeds from sales of AFS securities | $ | — |
| | $ | — |
| | $ | 12,827 |
| | $ | 35,664 |
|
Gross realized gains (losses) | $ | — |
| | $ | — |
| | $ | 142 |
| | $ | 245 |
|
Applicable income tax expense (benefit) | $ | — |
| | $ | — |
| | $ | 48 |
| | $ | 83 |
|
The following information pertains to AFS securities with gross unrealized losses at September 30, 2017March 31, 2023 and December 31, 2016,2022, aggregated by investment category and length of time that individual securities have been in a continuous loss position. |
| | | | | | | | | | | | | | | | | | | |
| September 30, 2017 |
| Less Than Twelve Months | | Twelve Months or More | | |
| Gross Unrealized Losses | | Fair Value | | Gross Unrealized Losses | | Fair Value | | Total Unrealized Losses |
Government sponsored enterprises | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
States and political subdivisions | 12 |
| | 3,321 |
| | 1 |
| | 221 |
| | 13 |
|
Auction rate money market preferred | — |
| | — |
| | 28 |
| | 3,172 |
| | 28 |
|
Preferred stocks | — |
| | — |
| | 149 |
| | 3,651 |
| | 149 |
|
Mortgage-backed securities | 1,277 |
| | 106,229 |
| | 353 |
| | 12,777 |
| | 1,630 |
|
Collateralized mortgage obligations | 331 |
| | 33,969 |
| | 449 |
| | 15,303 |
| | 780 |
|
Total | $ | 1,620 |
| | $ | 143,519 |
| | $ | 980 |
| | $ | 35,124 |
| | $ | 2,600 |
|
Number of securities in an unrealized loss position: | | | 35 |
| | | | 13 |
| | 48 |
|
|
| | | | | | | | | | | | | | | | | | | |
| December 31, 2016 |
| Less Than Twelve Months | | Twelve Months or More | | |
| Gross Unrealized Losses | | Fair Value | | Gross Unrealized Losses | | Fair Value | | Total Unrealized Losses |
Government sponsored enterprises | $ | 2 |
| | $ | 9,936 |
| | $ | — |
| | $ | — |
| | $ | 2 |
|
States and political subdivisions | 311 |
| | 21,800 |
| | 9 |
| | 355 |
| | 320 |
|
Auction rate money market preferred | — |
| | — |
| | 406 |
| | 2,794 |
| | 406 |
|
Preferred stocks | — |
| | — |
| | 375 |
| | 3,425 |
| | 375 |
|
Mortgage-backed securities | 2,918 |
| | 175,212 |
| | — |
| | — |
| | 2,918 |
|
Collateralized mortgage obligations | 628 |
| | 51,466 |
| | 349 |
| | 11,381 |
| | 977 |
|
Total | $ | 3,859 |
| | $ | 258,414 |
| | $ | 1,139 |
| | $ | 17,955 |
| | $ | 4,998 |
|
Number of securities in an unrealized loss position: | | | 104 |
| | | | 9 |
| | 113 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2023 |
| Less Than Twelve Months | | Twelve Months or More | | |
| Gross Unrealized Losses | | Fair Value | | Gross Unrealized Losses | | Fair Value | | Total Unrealized Losses |
U.S. Treasury | $ | — | | | $ | — | | | $ | 19,435 | | | $ | 212,086 | | | $ | 19,435 | |
States and political subdivisions | 726 | | | 20,459 | | | 2,661 | | | 25,924 | | | 3,387 | |
Auction rate money market preferred | — | | | — | | | 484 | | | 2,716 | | | 484 | |
Mortgage-backed securities | 43 | | | 1,464 | | | 2,805 | | | 36,314 | | | 2,848 | |
Collateralized mortgage obligations | 4,212 | | | 106,964 | | | 6,041 | | | 87,195 | | | 10,253 | |
Corporate | — | | | — | | | 1,070 | | | 7,080 | | | 1,070 | |
Total | $ | 4,981 | | | $ | 128,887 | | | $ | 32,496 | | | $ | 371,315 | | | $ | 37,477 | |
Number of securities in an unrealized loss position: | | | 68 | | | | | 138 | | | 206 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| Less Than Twelve Months | | Twelve Months or More | | |
| Gross Unrealized Losses | | Fair Value | | Gross Unrealized Losses | | Fair Value | | Total Unrealized Losses |
U.S. Treasury | $ | 1,388 | | | $ | 18,331 | | | $ | 21,533 | | | $ | 190,369 | | | $ | 22,921 | |
States and political subdivisions | 2,389 | | | 48,083 | | | 2,514 | | | 40,667 | | | 4,903 | |
Auction rate money market preferred | — | | | — | | | 858 | | | 2,342 | | | 858 | |
Mortgage-backed securities | 3,239 | | | 39,069 | | | — | | | — | | | 3,239 | |
Collateralized mortgage obligations | 12,408 | | | 201,316 | | | 165 | | | 4,411 | | | 12,573 | |
Corporate | — | | | — | | | 1,022 | | | 7,128 | | | 1,022 | |
Total | $ | 19,424 | | | $ | 306,799 | | | $ | 26,092 | | | $ | 244,917 | | | $ | 45,516 | |
Number of securities in an unrealized loss position: | | | 178 | | | | | 266 | | | 444 | |
As of September 30, 2017 and DecemberMarch 31, 2016, we conducted an analysis to determine whether any2023, no allowance for credit losses has been recognized on AFS securities currently in an unrealized loss position, should be other-than-temporarily impaired. Such analyses considered, among other factors, the following criteria:
Has the valueas management does not believe any of the investment declined more than whatsecurities are impaired due to reasons of credit quality. This is deemed to be reasonable based on aour analysis of the underlying risk characteristics, including credit ratings, and maturity adjusted discount rate?
Isother qualitative factors related to our AFS securities and consideration of our historical credit loss experience and internal forecasts. The issuers of these securities continue to make timely principal and interest payments under the investment credit rating below investment grade?
Iscontractual terms of the securities. Furthermore, management does not have the intent to sell any of the securities classified as AFS in the table above, and believes it probable the issuer will be unable to pay the amount when due?
Is itis more likely than not that we will not have to sell the securityany such securities before a recovery of its cost basis?cost. The unrealized losses are due to increases in market interest rates over the yields available at the time the underlying securities were purchased. The fair value is expected to recover as the securities approach their respective maturity date or repricing date, or if the market yields for such investments decline.
Note 3 – Loans and ACL
Loan Composition
The following table provides a detailed listing of our loan portfolio at: | | | | | | | | | | | | | | | | | | | | | | | |
| March 31 2023 | | Percent of Total | | December 31 2022 | | Percent of Total |
Commercial and industrial: | | | | | | | |
Secured | $ | 169,395 | | | 13.33 | % | | $ | 161,895 | | | 12.80 | % |
Unsecured | 19,790 | | | 1.56 | % | | 16,533 | | | 1.31 | % |
Total commercial and industrial | 189,185 | | | 14.89 | % | | 178,428 | | | 14.11 | % |
Commercial real estate: | | | | | | | |
Commercial mortgage owner occupied | 180,888 | | | 14.24 | % | | 192,117 | | | 15.20 | % |
Commercial mortgage non-owner occupied | 219,365 | | | 17.26 | % | | 204,091 | | | 16.14 | % |
Commercial mortgage 1-4 family investor | 85,217 | | | 6.71 | % | | 85,278 | | | 6.75 | % |
Commercial mortgage multifamily | 80,940 | | | 6.37 | % | | 84,526 | | | 6.69 | % |
Total commercial real estate | 566,410 | | | 44.58 | % | | 566,012 | | | 44.78 | % |
Agricultural: | | | | | | | |
Agricultural mortgage | 71,336 | | | 5.61 | % | | 73,002 | | | 5.77 | % |
Agricultural other | 23,424 | | | 1.84 | % | | 31,983 | | | 2.53 | % |
Total agricultural | 94,760 | | | 7.45 | % | | 104,985 | | | 8.30 | % |
Residential real estate: | | | | | | | |
Senior lien | 299,784 | | | 23.59 | % | | 300,225 | | | 23.75 | % |
Junior lien | 3,386 | | | 0.27 | % | | 3,282 | | | 0.26 | % |
Home equity lines of credit | 33,016 | | | 2.60 | % | | 33,187 | | | 2.63 | % |
Total residential real estate | 336,186 | | | 26.46 | % | | 336,694 | | | 26.64 | % |
Consumer: | | | | | | | |
Secured - Direct | 37,141 | | | 2.92 | % | | 37,127 | | | 2.94 | % |
Secured - Indirect | 43,802 | | | 3.45 | % | | 37,814 | | | 2.98 | % |
Unsecured | 3,167 | | | 0.25 | % | | 3,113 | | | 0.25 | % |
Total consumer | 84,110 | | | 6.62 | % | | 78,054 | | | 6.17 | % |
Total | $ | 1,270,651 | | | 100.00 | % | | $ | 1,264,173 | | | 100.00 | % |
For a summary of the investment been extended?
Duringaccounting policies related to loans, interest recognition, and the fourth quarter of 2016, we identified one municipal bond as other-than-temporarily impaired. While management estimated the OTTIACL for loans, including updates to be realized, we also engaged the services of an independent investment valuation firmsuch policies, refer to estimate the amount of impairment as of December 31, 2016. The valuation calculated the estimated market value utilizing two different approaches:
1) Market - Appraisal“Note 1 – Significant Accounting Policies” and Comparable Investments
2) Income - Discounted Cash Flow Method
The two methods were then weighted, with a higher weighting applied to the Market approach, to determine the estimated impairment. As a result of this analysis, we recognized an OTTI of $770 in earningsour Annual Report on Form 10-K for the year ended December 31, 2016. Based on analysis of this bond, there was no additional OTTI recognized as of September 30, 2017.
Based on our analysis which included the criteria outlined above, the fact that we have asserted that we do not have the intent to sell AFS securities in an unrealized loss position, and considering it is unlikely that we will have to sell any AFS securities in an unrealized loss position before recovery of their cost basis, we do not believe that the values of any other AFS securities are other-than-temporarily impaired as of September 30, 2017 or December 31, 2016, with the exception of the one municipal bond discussed above.
Note 5 – Loans and ALLL2022.
We grant commercial, agricultural, residential real estate, and consumer loans to customers situated primarily in Clare, Gratiot, Isabella, Mecosta, Midland, Montcalm, and Saginaw counties in Michigan. The ability of the borrowers to honor their repayment obligations is often dependent upon the real estate, agricultural, manufacturing, retail, gaming, tourism, health care, higher education, and general economic conditions of this region. Substantially all of our consumer and residential real estate loans are secured by various items of property, while commercial loans are secured primarily by real estate, business assets, and personal guarantees. A portion of loans are unsecured.
Loans that we have the intent and ability to hold in our portfolio are reported at their outstanding principal balance adjusted for any charge-offs,, the ALLL,ACL, and any deferred fees or costs. InterestUnless a loan has a nonaccrual status, interest income is accrued over the term of the loan based on the principal amount outstanding. Loan origination fees and certain direct loan origination costs are capitalized and recognized as a component of interest income over the term of the loan using the level yieldappropriate amortization method.
The accrual
For loans that are placed on nonaccrual status or charged-off, all interest accrued in the current calendar year, but not collected, is reversed against interest income while interest accrued in prior calendar years, but not collected, is charged against the ALLL. Loans may be returned to accrual status after six months of continuous performance and achievement of current payment status.
Commercial and agricultural loans include loans for commercial real estate, commercial operating loans, advances to mortgage brokers, farmland and agricultural production, and loans to states and political subdivisions. Repayment of these loans is dependent upon the successful operation and management of a business. We minimize our risk by limiting the amount of direct credit exposure to any one borrower to $15,000.$18,000. Borrowers with direct credit needs of more than $15,000 are$18,000 may be serviced through the use of loan participations with other commercial banks. Commercial and agricultural real estate loans commonly require loan-to-value limits of 80% or less. Depending upon the type of loan, past credit history, and current operating results, we may require the borrower to pledge accounts receivable, inventory, and property, andor equipment. Government agency guarantee may be required. Personal guarantees and/or life insurance beneficiary assignments are generally required from the owners of closely held corporations, partnerships, and sole proprietorships. In addition, we may require annual financial statements, prepare cash flow analyses, and review credit reports.
We entered into a mortgage purchase program in 2016 with a financial institution where we participate in advances to mortgage brokers ("advances"). The mortgage brokers originate residential mortgage loans with the intent to sell them on the secondary market. We participate in the advance to the mortgage broker, which is secured by the underlying mortgage loan, until it is ultimately sold on the secondary market. As such, the average life of each participated advance is approximately 20-30 days. Funds from the sale of the loan are used to payoff our participation in the advance to the mortgage broker. We classify these advances as commercial loans and include the outstanding balance in commercial loans on our balance sheet. Under the participation agreement, we committed to a maximum outstanding aggregate amount of $30,000. The difference between our outstanding balances and the maximum outstanding aggregate amount is classified as “Unfunded commitments under lines of credit” in the “Contractual Obligations and Loan Commitments” section of the Management's Discussion and Analysis of Financial Condition and Results of Operations of this report.
We offer adjustable rate mortgages, construction loans, and fixed rate residential real estate loans which have amortization periods up to a maximum of 30 years. We consider the anticipated direction of interest rates, balance sheet duration, the sensitivity of our balance sheet to changes in interest rates, our liquidity needs, and overall loan demand to determine whether or not to sell fixed rate loans to Freddie Mac.Mac.
Our lending policies generally limit the maximum loan-to-value ratio on residential real estate loans to 100% of the lower of the appraised value of the property or the purchase price. Private mortgage insurance is typically required on loans with loan-to-value ratios in excess of 80% unless the loan qualifies for government guarantees.
Underwriting criteria for originated residential real estate loans generally include:
•Evaluation of the borrower’s ability to make monthly payments.
•Evaluation of the value of the property securing the loan.
•Ensuring the payment of principal, interest, taxes, and hazard insurance does not exceed 28% of a borrower’s gross income.
•Ensuring all debt servicing does not exceed 40% of income.
•Verification of acceptable credit reports.
•Verification of employment, income, and financial information.
Appraisals are performed by independent appraisers and are reviewed for appropriateness. All originatedGenerally, mortgage loan requests are reviewed by our mortgage loan committee or through a secondary market underwriting system; loans in excess of $500$1,000 require the approval of ourone or more of the following committees: Internal Loan Committee, the Executive Loan Committee, the Board of Directors’ Loan Committee, or the Board of Directors.
Consumer loans include secured and unsecured personal loans. Loans are amortized for a period of up to 1215 years based on the age and value of the underlying collateral. The underwriting emphasis is on a borrower’s perceived intent and ability to pay rather than collateral value. No consumer loans are sold to the secondary market.
Nonaccrual and Past Due Loans
The ALLLaccrual of interest on commercial and agricultural loans, as well as residential real estate loans, is established as lossesdiscontinued at the time a loan is 90 days or more past due unless the credit is well-secured and in the process of short-term collection. Upon transferring a loan to nonaccrual status, we perform an evaluation to determine the net realizable value of the underlying collateral. This evaluation is used to help determine if a charge-off is necessary. Consumer loans are estimated to have occurred throughtypically charged-off no later than 180 days past due. Past due status is based on the contractual term of the loan. In all cases, a provision for loan losses charged to earnings. Loan losses areis placed in nonaccrual status at an earlier date if collection of principal or interest is considered doubtful.
When a loan is placed in nonaccrual status, all interest accrued in the current calendar year, but not collected, is reversed against interest income while interest accrued in prior calendar years, but not collected, is charged against the ALLL when we believeACL. Loans may be returned to accrual status after six months of continuous performance and achievement of current payment status.
The following table summarizes nonaccrual loan data by class of loans as of: | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
| Total Nonaccrual Loans | | Nonaccrual Loans with No ACL | | Total Nonaccrual Loans | | Nonaccrual Loans with No ACL |
Commercial and industrial: | | | | | | | |
Secured | $ | 20 | | | $ | 20 | | | $ | 22 | | | $ | 22 | |
Commercial real estate: | | | | | | | |
Commercial mortgage 1-4 family investor | 57 | | 57 | | | 74 | | 74 | |
Agricultural: | | | | | | | |
Agricultural mortgage | 65 | | | 65 | | | 67 | | | 67 | |
Agricultural other | 167 | | | 167 | | | 167 | | | 167 | |
Residential real estate: | | | | | | | |
Senior lien | 179 | | | 179 | | | 127 | | | 107 | |
Total | $ | 488 | | | $ | 488 | | | $ | 457 | | | $ | 437 | |
The following tables summarize the uncollectability ofpast due and current loans for the loan balance is confirmed. Subsequent recoveries, if any, are credited to the ALLL.
The appropriateness of the ALLL is evaluated on a quarterly basis and is based upon a periodic review of the collectability of the loans in light of historical experience, the nature and volume of theentire loan portfolio adverse situations that may affect the borrower’s ability to repay, estimated valueas of: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2023 |
| Past Due: | | | | | | Accruing Loans 90 or More Days Past Due |
| 30-59 Days | | 60-89 Days | | 90 or More Days | | Current | | Total | |
Commercial and industrial: | | | | | | | | | | | |
Secured | $ | 506 | | | $ | 29 | | | $ | — | | | $ | 168,860 | | | $ | 169,395 | | | $ | — | |
Unsecured | — | | | — | | | — | | | 19,790 | | | 19,790 | | | — | |
Total commercial and industrial | 506 | | | 29 | | | — | | | 188,650 | | | 189,185 | | | — | |
Commercial real estate: | | | | | | | | | | | |
Commercial mortgage owner occupied | — | | | — | | | — | | | 180,888 | | | 180,888 | | | — | |
Commercial mortgage non-owner occupied | — | | | 2,537 | | | — | | | 216,828 | | | 219,365 | | | — | |
Commercial mortgage 1-4 family investor | — | | | — | | | — | | | 85,217 | | | 85,217 | | | — | |
Commercial mortgage multifamily | — | | | — | | | — | | | 80,940 | | | 80,940 | | | — | |
Total commercial real estate | — | | | 2,537 | | | — | | | 563,873 | | | 566,410 | | | — | |
Agricultural: | | | | | | | | | | | |
Agricultural mortgage | 340 | | | — | | | 33 | | | 70,963 | | | 71,336 | | | — | |
Agricultural other | 16 | | | — | | | — | | | 23,408 | | | 23,424 | | | — | |
Total agricultural | 356 | | | — | | | 33 | | | 94,371 | | | 94,760 | | | — | |
Residential real estate: | | | | | | | | | | | |
Senior lien | 2,143 | | | 133 | | | — | | | 297,508 | | | 299,784 | | | — | |
Junior lien | — | | | — | | | — | | | 3,386 | | | 3,386 | | | — | |
Home equity lines of credit | 21 | | | — | | | — | | | 32,995 | | | 33,016 | | | — | |
Total residential real estate | 2,164 | | | 133 | | | — | | | 333,889 | | | 336,186 | | | — | |
Consumer: | | | | | | | | | | | |
Secured - Direct | — | | | — | | | — | | | 37,141 | | | 37,141 | | | — | |
Secured - Indirect | 43 | | | — | | | — | | | 43,759 | | | 43,802 | | | — | |
Unsecured | — | | | — | | | — | | | 3,167 | | | 3,167 | | | — | |
Total consumer | 43 | | | — | | | — | | | 84,067 | | | 84,110 | | | — | |
Total | $ | 3,069 | | | $ | 2,699 | | | $ | 33 | | | $ | 1,264,850 | | | $ | 1,270,651 | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| Past Due: | | | | | | Accruing Loans 90 or More Days Past Due |
| 30-59 Days | | 60-89 Days | | 90 Days or More | | Current | | Total | |
Commercial and industrial: | | | | | | | | | | | |
Secured | $ | 536 | | | $ | — | | | $ | — | | | $ | 161,359 | | | $ | 161,895 | | | $ | — | |
Unsecured | — | | | — | | | — | | | 16,533 | | | 16,533 | | | — | |
Total commercial and industrial | 536 | | | — | | | — | | | 177,892 | | | 178,428 | | | — | |
Commercial real estate: | | | | | | | | | | | |
Commercial mortgage owner occupied | 94 | | | — | | | — | | | 192,023 | | | 192,117 | | | — | |
Commercial mortgage non-owner occupied | 4,208 | | | 2,570 | | | — | | | 197,313 | | | 204,091 | | | — | |
Commercial mortgage 1-4 family investor | — | | | — | | | 14 | | | 85,264 | | | 85,278 | | | — | |
Commercial mortgage multifamily | — | | | — | | | — | | | 84,526 | | | 84,526 | | | — | |
Total commercial real estate | 4,302 | | | 2,570 | | | 14 | | | 559,126 | | | 566,012 | | | — | |
Agricultural: | | | | | | | | | | | |
Agricultural mortgage | — | | | — | | | — | | | 73,002 | | | 73,002 | | | — | |
Agricultural other | — | | | — | | | — | | | 31,983 | | | 31,983 | | | — | |
Total agricultural | — | | | — | | | — | | | 104,985 | | | 104,985 | | | — | |
Residential real estate: | | | | | | | | | | | |
Senior lien | 3,025 | | | 225 | | | — | | | 296,975 | | | 300,225 | | | — | |
Junior lien | — | | | — | | | — | | | 3,282 | | | 3,282 | | | — | |
Home equity lines of credit | 38 | | | — | | | — | | | 33,149 | | | 33,187 | | | — | |
Total residential real estate | 3,063 | | | 225 | | | — | | | 333,406 | | | 336,694 | | | — | |
Consumer: | | | | | | | | | | | |
Secured - Direct | 1 | | | — | | | — | | | 37,126 | | | 37,127 | | | — | |
Secured - Indirect | 45 | | | 8 | | | — | | | 37,761 | | | 37,814 | | | — | |
Unsecured | 4 | | | — | | | — | | | 3,109 | | | 3,113 | | | — | |
Total consumer | 50 | | | 8 | | | — | | | 77,996 | | | 78,054 | | | — | |
Total | $ | 7,951 | | | $ | 2,803 | | | $ | 14 | | | $ | 1,253,405 | | | $ | 1,264,173 | | | $ | — | |
Credit Quality Indicators
The following table displays commercial and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.
The primary factors behind the determination of the level of the ALLL are specific allocations for impaired loans, historical loss percentages, as well as unallocated components. Specific allocations for impaired loans are primarily determined based on the difference between the loan’s outstanding balance and the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral, less cost to sell. Historical loss allocations are calculated at the loan class and segment levels based on a migration analysis of the loan portfolio, with the exception of advances to mortgage brokers, over the preceding five years. With no historical losses on advances to mortgage brokers, there is no allocation in the commercial segment displayed in the following tables based on historical loss factors. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.
A summary of changes in the ALLL and the recorded investment inagricultural loans by segments follows:credit risk ratings and year of origination as of: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2023 |
| 2023 | | 2022 | | 2021 | | 2020 | | 2019 | | Prior | | Revolving Loans | | Revolving Loans Converted to Term | | Total |
Commercial and industrial: Secured | | | | | | | | | | | | | | | | | |
Risk ratings 1-3 | $ | 529 | | | $ | 7,104 | | | $ | 7,882 | | | $ | 9,123 | | | $ | 1,348 | | | $ | 1,915 | | | $ | 9,696 | | | $ | — | | | $ | 37,597 | |
Risk rating 4 | 10,328 | | | 38,615 | | | 26,043 | | | 6,897 | | | 3,017 | | | 2,457 | | | 31,861 | | | — | | | 119,218 | |
Risk rating 5 | 249 | | | 3,269 | | | 1,742 | | | 556 | | | 698 | | | 176 | | | 2,757 | | | — | | | 9,447 | |
Risk rating 6 | — | | | — | | | 18 | | | 282 | | | 55 | | | 193 | | | 2,565 | | | — | | | 3,113 | |
Risk rating 7 | — | | | — | | | — | | | 20 | | | — | | | — | | | — | | | — | | | 20 | |
Risk rating 8 | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Risk rating 9 | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total | $ | 11,106 | | | $ | 48,988 | | | $ | 35,685 | | | $ | 16,878 | | | $ | 5,118 | | | $ | 4,741 | | | $ | 46,879 | | | $ | — | | | $ | 169,395 | |
Current year-to-date gross charge-offs | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Commercial and industrial: Unsecured | | | | | | | | | | | | | | | | | |
Risk ratings 1-3 | $ | — | | | $ | 259 | | | $ | 172 | | | $ | 71 | | | $ | 126 | | | $ | 1,106 | | | $ | 6,156 | | | $ | — | | | $ | 7,890 | |
Risk rating 4 | 225 | | | 2,913 | | | 974 | | | 670 | | | — | | | 8 | | | 7,017 | | | — | | | 11,807 | |
Risk rating 5 | 8 | | | 38 | | | — | | | — | | | 2 | | | — | | | 45 | | | — | | | 93 | |
Risk rating 6 | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Risk rating 7 | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Risk rating 8 | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Risk rating 9 | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total | $ | 233 | | | $ | 3,210 | | | $ | 1,146 | | | $ | 741 | | | $ | 128 | | | $ | 1,114 | | | $ | 13,218 | | | $ | — | | | $ | 19,790 | |
Current year-to-date gross charge-offs | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Commercial real estate: Owner occupied | | | | | | | | | | | | | | | | | |
Risk ratings 1-3 | $ | 1,600 | | | $ | 1,754 | | | $ | 13,266 | | | $ | 14,887 | | | $ | 1,043 | | | $ | 4,002 | | | $ | 502 | | | $ | — | | | $ | 37,054 | |
Risk rating 4 | 1,993 | | | 31,751 | | | 41,873 | | | 14,341 | | | 14,452 | | | 24,041 | | | 5,565 | | | — | | | 134,016 | |
Risk rating 5 | 51 | | | 989 | | | 273 | | | 474 | | | 3,981 | | | 2,556 | | | 22 | | | — | | | 8,346 | |
Risk rating 6 | — | | | — | | | 905 | | | — | | | — | | | 567 | | | — | | | — | | | 1,472 | |
Risk rating 7 | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Risk rating 8 | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Risk rating 9 | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total | $ | 3,644 | | | $ | 34,494 | | | $ | 56,317 | | | $ | 29,702 | | | $ | 19,476 | | | $ | 31,166 | | | $ | 6,089 | | | $ | — | | | $ | 180,888 | |
Current year-to-date gross charge-offs | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Commercial real estate: Non-owner occupied | | | | | | | | | | | | | | | | | |
Risk ratings 1-3 | $ | 78 | | | $ | 4,508 | | | $ | 6,745 | | | $ | 1,006 | | | $ | 86 | | | $ | 1,857 | | | $ | 110 | | | $ | — | | | $ | 14,390 | |
Risk rating 4 | 21,582 | | | 49,367 | | | 38,738 | | | 12,342 | | | 7,916 | | | 50,856 | | | 13,789 | | | — | | | 194,590 | |
Risk rating 5 | — | | | — | | | 577 | | | — | | | — | | | 3,785 | | | 5,965 | | | — | | | 10,327 | |
Risk rating 6 | — | | | — | | | — | | | 58 | | | — | | | — | | | — | | | — | | | 58 | |
Risk rating 7 | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Risk rating 8 | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Risk rating 9 | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total | $ | 21,660 | | | $ | 53,875 | | | $ | 46,060 | | | $ | 13,406 | | | $ | 8,002 | | | $ | 56,498 | | | $ | 19,864 | | | $ | — | | | $ | 219,365 | |
Current year-to-date gross charge-offs | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Allowance for Loan Losses |
| Three Months Ended September 30, 2017 |
| Commercial |
| Agricultural |
| Residential Real Estate |
| Consumer |
| Unallocated |
| Total |
July 1, 2017 | $ | 1,978 |
| | $ | 475 |
| | $ | 2,598 |
| | $ | 583 |
| | $ | 1,966 |
| | $ | 7,600 |
|
Charge-offs | (8 | ) | | — |
| | (77 | ) | | (72 | ) | | — |
| | (157 | ) |
Recoveries | 134 |
| | — |
| | 41 |
| | 33 |
| | — |
| | 208 |
|
Provision for loan losses | 65 |
| | (40 | ) | | (71 | ) | | 89 |
| | 6 |
| | 49 |
|
September 30, 2017 | $ | 2,169 |
| | $ | 435 |
| | $ | 2,491 |
| | $ | 633 |
| | $ | 1,972 |
| | $ | 7,700 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2023 |
| 2023 | | 2022 | | 2021 | | 2020 | | 2019 | | Prior | | Revolving Loans | | Revolving Loans Converted to Term | | Total |
Commercial real estate: 1-4 family investor | | | | | | | | | | | | | | | | | |
Risk ratings 1-3 | $ | — | | | $ | 1,192 | | | $ | 1,577 | | | $ | 943 | | | $ | 690 | | | $ | 1,120 | | | $ | 1,347 | | | $ | — | | | $ | 6,869 | |
Risk rating 4 | 1,983 | | | 13,032 | | | 31,707 | | | 16,238 | | | 2,892 | | | 5,156 | | | 5,803 | | | — | | | 76,811 | |
Risk rating 5 | 157 | | | 365 | | | 303 | | | — | | | 58 | | | — | | | — | | | — | | | 883 | |
Risk rating 6 | 297 | | | — | | | — | | | — | | | 9 | | | 291 | | | — | | | — | | | 597 | |
Risk rating 7 | — | | | — | | | — | | | — | | | 57 | | | — | | | — | | | — | | | 57 | |
Risk rating 8 | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Risk rating 9 | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total | $ | 2,437 | | | $ | 14,589 | | | $ | 33,587 | | | $ | 17,181 | | | $ | 3,706 | | | $ | 6,567 | | | $ | 7,150 | | | $ | — | | | $ | 85,217 | |
Current year-to-date gross charge-offs | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Commercial real estate: Multifamily | | | | | | | | | | | | | | | | | |
Risk ratings 1-3 | $ | — | | | $ | 4,955 | | | $ | 2,156 | | | $ | 584 | | | $ | — | | | $ | 2,013 | | | $ | 5,350 | | | $ | — | | | $ | 15,058 | |
Risk rating 4 | 331 | | | 17,550 | | | 18,627 | | | 323 | | | 637 | | | 22,411 | | | 2,520 | | | — | | | 62,399 | |
Risk rating 5 | — | | | — | | | — | | | 39 | | | — | | | — | | | — | | | — | | | 39 | |
Risk rating 6 | — | | | — | | | 41 | | | — | | | — | | | 3,029 | | | 374 | | | — | | | 3,444 | |
Risk rating 7 | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Risk rating 8 | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Risk rating 9 | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total | $ | 331 | | | $ | 22,505 | | | $ | 20,824 | | | $ | 946 | | | $ | 637 | | | $ | 27,453 | | | $ | 8,244 | | | $ | — | | | $ | 80,940 | |
Current year-to-date gross charge-offs | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Agricultural mortgage | | | | | | | | | | | | | | | | | |
Risk ratings 1-3 | $ | 363 | | | $ | 3,124 | | | $ | 1,249 | | | $ | 2,859 | | | $ | 849 | | | $ | 1,485 | | | $ | 78 | | | $ | — | | | $ | 10,007 | |
Risk rating 4 | 1,683 | | | 13,107 | | | 9,454 | | | 6,370 | | | 4,214 | | | 6,628 | | | 2,475 | | | — | | | 43,931 | |
Risk rating 5 | 126 | | | 4,476 | | | 5,932 | | | 720 | | | 189 | | | 1,063 | | | 1,468 | | | — | | | 13,974 | |
Risk rating 6 | — | | | — | | | — | | | — | | | — | | | 3,359 | | | — | | | — | | | 3,359 | |
Risk rating 7 | — | | | — | | | — | | | — | | | — | | | 65 | | | — | | | — | | | 65 | |
Risk rating 8 | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Risk rating 9 | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total | $ | 2,172 | | | $ | 20,707 | | | $ | 16,635 | | | $ | 9,949 | | | $ | 5,252 | | | $ | 12,600 | | | $ | 4,021 | | | $ | — | | | $ | 71,336 | |
Current year-to-date gross charge-offs | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Agricultural other | | | | | | | | | | | | | | | | | |
Risk ratings 1-3 | $ | 191 | | | $ | 82 | | | $ | 129 | | | $ | 270 | | | $ | 268 | | | $ | 175 | | | $ | 1,646 | | | $ | — | | | $ | 2,761 | |
Risk rating 4 | 460 | | | 3,902 | | | 2,632 | | | 743 | | | 177 | | | 233 | | | 7,750 | | | — | | | 15,897 | |
Risk rating 5 | 226 | | | 519 | | | 204 | | | 569 | | | — | | | 721 | | | 2,268 | | | — | | | 4,507 | |
Risk rating 6 | — | | | — | | | 34 | | | — | | | — | | | 58 | | | — | | | — | | | 92 | |
Risk rating 7 | — | | | — | | | — | | | — | | | — | | | 167 | | | — | | | — | | | 167 | |
Risk rating 8 | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Risk rating 9 | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total | $ | 877 | | | $ | 4,503 | | | $ | 2,999 | | | $ | 1,582 | | | $ | 445 | | | $ | 1,354 | | | $ | 11,664 | | | $ | — | | | $ | 23,424 | |
Current year-to-date gross charge-offs | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Allowance for Loan Losses |
| Nine Months Ended September 30, 2017 |
| Commercial |
| Agricultural |
| Residential Real Estate |
| Consumer |
| Unallocated |
| Total |
January 1, 2017 | $ | 1,814 |
|
| $ | 884 |
|
| $ | 2,664 |
|
| $ | 624 |
|
| $ | 1,414 |
|
| $ | 7,400 |
|
Charge-offs | (60 | ) |
| — |
|
| (120 | ) |
| (190 | ) |
| — |
|
| (370 | ) |
Recoveries | 322 |
|
| — |
|
| 140 |
|
| 123 |
|
| — |
|
| 585 |
|
Provision for loan losses | 93 |
|
| (449 | ) |
| (193 | ) |
| 76 |
|
| 558 |
|
| 85 |
|
September 30, 2017 | $ | 2,169 |
|
| $ | 435 |
|
| $ | 2,491 |
|
| $ | 633 |
|
| $ | 1,972 |
|
| $ | 7,700 |
|
20
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Allowance for Loan Losses and Recorded Investment in Loans |
| September 30, 2017 |
| Commercial | | Agricultural | | Residential Real Estate | | Consumer | | Unallocated | | Total |
ALLL | | | | | | | | | | | |
Individually evaluated for impairment | $ | 933 |
| | $ | — |
| | $ | 1,618 |
| | $ | — |
| | $ | — |
| | $ | 2,551 |
|
Collectively evaluated for impairment | 1,236 |
| | 435 |
| | 873 |
| | 633 |
| | 1,972 |
| | 5,149 |
|
Total | $ | 2,169 |
| | $ | 435 |
| | $ | 2,491 |
| | $ | 633 |
| | $ | 1,972 |
| | $ | 7,700 |
|
Loans | | | | | | | | | | | |
Individually evaluated for impairment | $ | 8,525 |
| | $ | 10,976 |
| | $ | 8,426 |
| | $ | 18 |
| | | | $ | 27,945 |
|
Collectively evaluated for impairment | 611,610 |
| | 122,022 |
| | 263,054 |
| | 52,913 |
| | | | 1,049,599 |
|
Total | $ | 620,135 |
| | $ | 132,998 |
| | $ | 271,480 |
| | $ | 52,931 |
| | | | $ | 1,077,544 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Allowance for Loan Losses |
| Three Months Ended September 30, 2016 |
| Commercial | | Agricultural | | Residential Real Estate | | Consumer | | Unallocated | | Total |
July 1, 2016 | $ | 2,119 |
| | $ | 534 |
| | $ | 3,130 |
| | $ | 541 |
| | $ | 1,276 |
| | $ | 7,600 |
|
Charge-offs | — |
| | — |
| | (57 | ) | | (74 | ) | | — |
| | (131 | ) |
Recoveries | 118 |
| | — |
| | 153 |
| | 43 |
| | — |
| | 314 |
|
Provision for loan losses | (367 | ) | | 612 |
| | (452 | ) | | 94 |
| | 130 |
| | 17 |
|
September 30, 2016 | $ | 1,870 |
| | $ | 1,146 |
| | $ | 2,774 |
| | $ | 604 |
| | $ | 1,406 |
| | $ | 7,800 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Allowance for Loan Losses |
| Nine Months Ended September 30, 2016 |
| Commercial | | Agricultural | | Residential Real Estate | | Consumer | | Unallocated | | Total |
January 1, 2016 | $ | 2,171 |
| | $ | 329 |
| | $ | 3,330 |
| | $ | 522 |
| | $ | 1,048 |
| | $ | 7,400 |
|
Charge-offs | (48 | ) | | — |
| | (426 | ) | | (206 | ) | | — |
| | (680 | ) |
Recoveries | 396 |
| | 92 |
| | 248 |
| | 159 |
| | — |
| | 895 |
|
Provision for loan losses | (649 | ) | | 725 |
| | (378 | ) | | 129 |
| | 358 |
| | 185 |
|
September 30, 2016 | $ | 1,870 |
| | $ | 1,146 |
| | $ | 2,774 |
| | $ | 604 |
| | $ | 1,406 |
| | $ | 7,800 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Allowance for Loan Losses and Recorded Investment in Loans |
| December 31, 2016 |
| Commercial | | Agricultural | | Residential Real Estate | | Consumer | | Unallocated | | Total |
ALLL | | | | | | | | | | | |
Individually evaluated for impairment | $ | 741 |
| | $ | 1 |
| | $ | 1,629 |
| | $ | — |
| | $ | — |
| | $ | 2,371 |
|
Collectively evaluated for impairment | 1,073 |
| | 883 |
| | 1,035 |
| | 624 |
| | 1,414 |
| | 5,029 |
|
Total | $ | 1,814 |
| | $ | 884 |
| | $ | 2,664 |
| | $ | 624 |
| | $ | 1,414 |
| | $ | 7,400 |
|
Loans | | | | | | | | | | | |
Individually evaluated for impairment | $ | 7,859 |
| | $ | 5,545 |
| | $ | 8,638 |
| | $ | 26 |
| | | | $ | 22,068 |
|
Collectively evaluated for impairment | 567,805 |
| | 120,947 |
| | 257,412 |
| | 42,383 |
| | | | 988,547 |
|
Total | $ | 575,664 |
|
| $ | 126,492 |
| | $ | 266,050 |
| | $ | 42,409 |
| | | | $ | 1,010,615 |
|
The following table displays the credit quality indicators for commercial and agricultural credit exposures based on internally assigned credit risk ratings as of: |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2017 |
| Commercial | | Agricultural | | |
| Real Estate | | Other | | Advances to Mortgage Brokers | | Total | | Real Estate | | Other | | Total | | Total |
Rating | | | | | | | | | | | | |
| | |
1 - Excellent | $ | 25 |
| | $ | 227 |
| | $ | — |
| | $ | 252 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 252 |
|
2 - High quality | 6,736 |
| | 10,474 |
| | — |
| | 17,210 |
| | 3,088 |
| | 1,001 |
| | 4,089 |
| | 21,299 |
|
3 - High satisfactory | 117,596 |
| | 41,844 |
| | 22,834 |
| | 182,274 |
| | 21,743 |
| | 9,822 |
| | 31,565 |
| | 213,839 |
|
4 - Low satisfactory | 327,648 |
| | 77,519 |
| | — |
| | 405,167 |
| | 48,902 |
| | 21,363 |
| | 70,265 |
| | 475,432 |
|
5 - Special mention | 4,402 |
| | 1,912 |
| | — |
| | 6,314 |
| | 11,206 |
| | 9,115 |
| | 20,321 |
| | 26,635 |
|
6 - Substandard | 6,303 |
| | 2,402 |
| | — |
| | 8,705 |
| | 3,861 |
| | 1,912 |
| | 5,773 |
| | 14,478 |
|
7 - Vulnerable | 210 |
| | 3 |
| | — |
| | 213 |
| | 488 |
| | 497 |
| | 985 |
| | 1,198 |
|
8 - Doubtful | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Total | $ | 462,920 |
| | $ | 134,381 |
| | $ | 22,834 |
| | $ | 620,135 |
| | $ | 89,288 |
| | $ | 43,710 |
| | $ | 132,998 |
| | $ | 753,133 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2016 |
| Commercial | | Agricultural | | |
| Real Estate | | Other | | Advances to Mortgage Brokers | | Total | | Real Estate | | Other | | Total | | Total |
Rating | | | | | | | | | | | | | | | |
1 - Excellent | $ | 28 |
| | $ | 438 |
| | $ | — |
| | $ | 466 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 466 |
|
2 - High quality | 11,821 |
| | 12,091 |
| | 19,688 |
| | 43,600 |
| | 3,566 |
| | 1,426 |
| | 4,992 |
| | 48,592 |
|
3 - High satisfactory | 103,529 |
| | 41,982 |
| | — |
| | 145,511 |
| | 21,657 |
| | 11,388 |
| | 33,045 |
| | 178,556 |
|
4 - Low satisfactory | 299,317 |
| | 74,432 |
| | — |
| | 373,749 |
| | 48,955 |
| | 22,715 |
| | 71,670 |
| | 445,419 |
|
5 - Special mention | 3,781 |
| | 1,178 |
| | — |
| | 4,959 |
| | 6,009 |
| | 3,085 |
| | 9,094 |
| | 14,053 |
|
6 - Substandard | 5,901 |
| | 1,474 |
| | — |
| | 7,375 |
| | 3,650 |
| | 3,508 |
| | 7,158 |
| | 14,533 |
|
7 - Vulnerable | 4 |
| | — |
| | — |
| | 4 |
| | — |
| | 533 |
| | 533 |
| | 537 |
|
8 - Doubtful | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Total | $ | 424,381 |
| | $ | 131,595 |
| | $ | 19,688 |
| | $ | 575,664 |
| | $ | 83,837 |
| | $ | 42,655 |
| | $ | 126,492 |
| | $ | 702,156 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| Commercial | | Agricultural | | |
| Real Estate | | Other | | Total | | Real Estate | | Other | | Total | | Total |
Rating | | | | | | | | | | | | | |
1 - Excellent | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
2 - High quality | 9,045 | | | 4,533 | | | 13,578 | | | 342 | | | 100 | | | 442 | | | 14,020 | |
3 - High satisfactory | 68,133 | | | 36,608 | | | 104,741 | | | 9,757 | | | 4,608 | | | 14,365 | | | 119,106 | |
4 - Low satisfactory | 462,361 | | | 126,733 | | | 589,094 | | | 44,258 | | | 21,214 | | | 65,472 | | | 654,566 | |
5 - Special mention | 20,770 | | | 7,447 | | | 28,217 | | | 12,262 | | | 4,634 | | | 16,896 | | | 45,113 | |
6 - Substandard | 5,629 | | | 3,085 | | | 8,714 | | | 6,316 | | | 1,260 | | | 7,576 | | | 16,290 | |
7 - Vulnerable | 74 | | | 22 | | | 96 | | | 67 | | | 167 | | | 234 | | | 330 | |
8 - Doubtful | — | | | — | | | — | | | — | | | — | | | — | | | — | |
9 - Loss | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total | $ | 566,012 | | | $ | 178,428 | | | $ | 744,440 | | | $ | 73,002 | | | $ | 31,983 | | | $ | 104,985 | | | $ | 849,425 | |
Internally assigned credit risk ratings are reviewed, at a minimum, when loans are renewed or when management has knowledge of improvements or deterioration of the credit quality of individual credits. Descriptions of the internally assigned credit risk ratings for commercial and agricultural loans are as follows:
1. EXCELLENT – Substantially Risk Free
Credit has strong financial condition and solid earnings history, characterized by:
•High liquidity, strong cash flow, low leverage.
•Unquestioned ability to meet all obligations when due.
•Experienced management, with management succession in place.
•Secured by cash.
2. HIGH QUALITY – Limited Risk
Credit with sound financial condition and a positive trend in earnings supplemented by:
•Favorable liquidity and leverage ratios.
•Ability to meet all obligations when due.
•Management with successful track record.
•Steady and satisfactory earnings history.
•If loan is secured, collateral is of high quality and readily marketable.
•Access to alternative financing.
•Well defined primary and secondary source of repayment.
•If supported by guaranty, the financial strength and liquidity of the guarantor(s) are clearly evident.
3.HIGH SATISFACTORY – Reasonable Risk
Credit with satisfactory financial condition and further characterized by:
•Working capital adequate to support operations.
•Cash flow sufficient to pay debts as scheduled.
•Management experience and depth appear favorable.
•Loan performing according to terms.
•If loan is secured, collateral is acceptable and loan is fully protected.
4. LOW SATISFACTORY – Acceptable Risk
Credit with bankable risks, although some signs of weaknesses are shown:
•Would include most start-up businesses.
•Occasional instances of trade slowness or repayment delinquency – may have been 10-3010-30 days slow within the past year.
•Management’s abilities are apparent yet unproven.
•Weakness in primary source of repayment with adequate secondary source of repayment.
•Loan structure generally in accordance with policy.
•If secured, loan collateral coverage is marginal.
Adequate cash flow to service debt, but coverage is low.
To be classified as less than satisfactory, only one of the following criteria must be met.
5. SPECIAL MENTION – Criticized
Credit constitutes an undue and unwarranted credit risk but not to the point of justifying a classification of substandard. The credit risk may be relatively minor yet constituteconstitutes an unwarranted risk in light of the circumstances surrounding a specific loan:
•Downward trend in sales, profit levels, and margins.
•Impaired working capital position.
•Cash flow is strained in order to meet debt repayment.
•Loan delinquency (30-60(30-60 days) and overdrafts may occur.
•Shrinking equity cushion.
•Diminishing primary source of repayment and questionable secondary source.
•Management abilities are questionable.
•Weak industry conditions.
•Litigation pending against the borrower.
•Loan may need to be restructured to improve collateral position or reduce payments.
•Collateral or guaranty offers limited protection.
•Negative debt service coverage, however the credit is well collateralized and payments are current.
6. SUBSTANDARD – Classified
Credit whereis inadequately protected by the borrower’s current net worth and paying capacity and valueof the borrower or of the collateral pledged is inadequate.pledged. There is a distinct possibility that we will implement collection procedures if the loan deficiencies are not corrected. Any commercial loan placed in nonaccrual status will be rated “7” or worse. In addition, the following characteristics may apply:
•Sustained losses have severely eroded the equity and cash flow.
•Deteriorating liquidity.
•Serious management problems or internal fraud.
•Original repayment terms liberalized.
•Likelihood of bankruptcy.
•Inability to access other funding sources.
•Reliance on secondary source of repayment.
•Litigation filed against borrower.
•Interest non-accrual may be warranted.
•Collateral provides little or no value.
•Requires excessive attention of the loan officer.
•Borrower is uncooperative with loan officer.
7.VULNERABLE – Classified
Credit is considered “Substandard” and warrants placing onin nonaccrual status. Risk of loss is being evaluated and exit strategy options are under review. Other characteristics that may apply:
•Insufficient cash flow to service debt.
•Minimal or no payments being received.
•Limited options available to avoid the collection process.
•Transition status, expect action will take place to collect loan without immediate progress being made.
8. DOUBTFUL – Workout
Credit has all the weaknesses inherent in a “Substandard” loan with the added characteristic that collection and/or liquidation is pending. The possibility of a loss is extremely high, but its classification as a loss is deferred until liquidation procedures are completed, or reasonably estimable. Other characteristics that may apply:
•Normal operations are severely diminished or have ceased.
•Seriously impaired cash flow.
•Original repayment terms materially altered.
•Secondary source of repayment is inadequate.
•Survivability as a “going concern” is impossible.
•Collection process has begun.
•Bankruptcy petition has been filed.
•Judgments have been filed.
•Portion of the loan balance has been charged-off.
9. LOSS – Charge-off
Credit is considered uncollectible and of such little value that their continuance as bankable assets is not warranted. This classification is for charged-off. loans but does not mean that the asset has absolutely no recovery or salvage value. These loans are further characterized by:
•Liquidation or reorganization under Bankruptcy, with poor prospects of collection.
•Fraudulently overstated assets and/or earnings.
•Collateral has marginal or no value.
•Debtor cannot be located.
•Over 120 days delinquent.
Our primary credit quality indicator for residential real estate and consumer loans is the individual loan’s past due aging.status. The following tables summarize the past due and current loans as of: |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2017 |
| Accruing Interest and Past Due: | | | | Total Past Due and Nonaccrual | | | | |
| 30-59 Days | | 60-89 Days | | 90 Days or More | | Nonaccrual | | | Current | | Total |
Commercial | | | | | | | | | | | | | |
Commercial real estate | $ | 466 |
| | $ | — |
| | $ | — |
| | $ | 211 |
| | $ | 677 |
| | $ | 462,243 |
| | $ | 462,920 |
|
Commercial other | 823 |
| | 29 |
| | — |
| | 3 |
| | 855 |
| | 133,526 |
| | 134,381 |
|
Advances to mortgage brokers | — |
| | — |
| | — |
| | — |
| | — |
| | 22,834 |
| | 22,834 |
|
Total commercial | 1,289 |
| | 29 |
| | — |
| | 214 |
| | 1,532 |
| | 618,603 |
| | 620,135 |
|
Agricultural | | | | | | | | | | | | | |
Agricultural real estate | — |
| | — |
| | 590 |
| | 488 |
| | 1,078 |
| | 88,210 |
| | 89,288 |
|
Agricultural other | 490 |
| | 3 |
| | — |
| | 497 |
| | 990 |
| | 42,720 |
| | 43,710 |
|
Total agricultural | 490 |
| | 3 |
| | 590 |
| | 985 |
| | 2,068 |
| | 130,930 |
| | 132,998 |
|
Residential real estate | | | | | | | | | | | | | |
Senior liens | 1,514 |
| | — |
| | 56 |
| | 383 |
| | 1,953 |
| | 225,215 |
| | 227,168 |
|
Junior liens | 8 |
| | — |
| | — |
| | 23 |
| | 31 |
| | 7,348 |
| | 7,379 |
|
Home equity lines of credit | 217 |
| | — |
| | — |
| | — |
| | 217 |
| | 36,716 |
| | 36,933 |
|
Total residential real estate | 1,739 |
| | — |
| | 56 |
| | 406 |
| | 2,201 |
| | 269,279 |
| | 271,480 |
|
Consumer | | | | | | | | | | | | | |
Secured | 39 |
| | 11 |
| | — |
| | — |
| | 50 |
| | 49,027 |
| | 49,077 |
|
Unsecured | 2 |
| | — |
| | — |
| | — |
| | 2 |
| | 3,852 |
| | 3,854 |
|
Total consumer | 41 |
| | 11 |
| | — |
| | — |
| | 52 |
| | 52,879 |
| | 52,931 |
|
Total | $ | 3,559 |
| | $ | 43 |
| | $ | 646 |
| | $ | 1,605 |
| | $ | 5,853 |
| | $ | 1,071,691 |
| | $ | 1,077,544 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2016 |
| Accruing Interest and Past Due: | | | | Total Past Due and Nonaccrual | | | | |
| 30-59 Days | | 60-89 Days | | 90 Days or More | | Nonaccrual | | | Current | | Total |
Commercial | | | | | | | | | | | | | |
Commercial real estate | $ | 1,580 |
| | $ | — |
| | $ | 35 |
| | $ | 4 |
| | $ | 1,619 |
| | $ | 422,762 |
| | $ | 424,381 |
|
Commercial other | 1,693 |
| | 35 |
| | — |
| | — |
| | 1,728 |
| | 129,867 |
| | 131,595 |
|
Advances to mortgage brokers | — |
| | — |
| | — |
| | — |
| | — |
| | 19,688 |
| | 19,688 |
|
Total commercial | 3,273 |
| | 35 |
| | 35 |
| | 4 |
| | 3,347 |
| | 572,317 |
| | 575,664 |
|
Agricultural | | | | | | | | | | | | | |
Agricultural real estate | 191 |
| | — |
| | 508 |
| | — |
| | 699 |
| | 83,138 |
| | 83,837 |
|
Agricultural other | 19 |
| | — |
| | — |
| | 533 |
| | 552 |
| | 42,103 |
| | 42,655 |
|
Total agricultural | 210 |
| | — |
| | 508 |
| | 533 |
| | 1,251 |
| | 125,241 |
| | 126,492 |
|
Residential real estate | | | | | | | | | | | | | |
Senior liens | 1,638 |
| | 174 |
| | 22 |
| | 498 |
| | 2,332 |
| | 216,681 |
| | 219,013 |
|
Junior liens | 15 |
| | — |
| | — |
| | 25 |
| | 40 |
| | 8,317 |
| | 8,357 |
|
Home equity lines of credit | 270 |
| | 6 |
| | 68 |
| | — |
| | 344 |
| | 38,336 |
| | 38,680 |
|
Total residential real estate | 1,923 |
| | 180 |
| | 90 |
| | 523 |
| | 2,716 |
| | 263,334 |
| | 266,050 |
|
Consumer | | | | | | | | | | | | | |
Secured | 110 |
| | — |
| | — |
| | — |
| | 110 |
| | 38,582 |
| | 38,692 |
|
Unsecured | 5 |
| | — |
| | — |
| | — |
| | 5 |
| | 3,712 |
| | 3,717 |
|
Total consumer | 115 |
| | — |
| | — |
| | — |
| | 115 |
| | 42,294 |
| | 42,409 |
|
Total | $ | 5,521 |
| | $ | 215 |
| | $ | 633 |
| | $ | 1,060 |
| | $ | 7,429 |
| | $ | 1,003,186 |
| | $ | 1,010,615 |
|
Impaired Loans
Loans may be classified as impaired if they meet one or more of the following criteria:
| |
1. | There has been a charge-off of its principal balance (in whole or in part);
|
| |
2. | The loan has been classified as a TDR; or
|
| |
3. | The loan is in nonaccrual status.
|
Impairment is measured on a loan-by-loan basis for commercial and agricultural loans by comparing the loan’s outstanding balance to the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral, less cost to sell, if the loan is collateral dependent. Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Impairment is measured on a loan-by-loan basis fortable displays residential real estate and consumer loans by comparingpayment status and year of origination as of: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2023 |
| 2023 | | 2022 | | 2021 | | 2020 | | 2019 | | Prior | | Revolving Loans | | Revolving Loans Converted to Term | | Total |
Residential real estate: Senior lien | | | | | | | | | | | | | | | | | |
Current | $ | 8,276 | | | $ | 46,877 | | | $ | 81,024 | | | $ | 57,419 | | | $ | 25,618 | | | $ | 63,835 | | | $ | 11,101 | | | $ | 3,304 | | | $ | 297,454 | |
Past due 30-89 days | — | | | 111 | | | 269 | | | 48 | | | 364 | | | 1,359 | | | — | | | — | | | 2,151 | |
Past due 90 or more days | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Nonaccrual | — | | | — | | | — | | | — | | | 44 | | | 135 | | | — | | | — | | | 179 | |
Total | $ | 8,276 | | | $ | 46,988 | | | $ | 81,293 | | | $ | 57,467 | | | $ | 26,026 | | | $ | 65,329 | | | $ | 11,101 | | | $ | 3,304 | | | $ | 299,784 | |
Current year-to-date gross charge-offs | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 2 | | | $ | — | | | $ | 2 | |
Residential real estate: Junior lien | | | | | | | | | | | | | | | | | |
Current | $ | 538 | | | $ | 1,524 | | | $ | 207 | | | $ | 199 | | | $ | 241 | | | $ | 677 | | | $ | — | | | $ | — | | | $ | 3,386 | |
Past due 30-89 days | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Past due 90 or more days | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Nonaccrual | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total | $ | 538 | | | $ | 1,524 | | | $ | 207 | | | $ | 199 | | | $ | 241 | | | $ | 677 | | | $ | — | | | $ | — | | | $ | 3,386 | |
Current year-to-date gross charge-offs | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Residential real estate: Home equity lines of credit | | | | | | | | | | | | | | | | | |
Current | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 32,995 | | | $ | — | | | $ | 32,995 | |
Past due 30-89 days | — | | | — | | | — | | | — | | | — | | | — | | | 21 | | | — | | | 21 | |
Past due 90 or more days | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Nonaccrual | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 33,016 | | | $ | — | | | $ | 33,016 | |
Current year-to-date gross charge-offs | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Consumer: Secured - direct | | | | | | | | | | | | | | | | | |
Current | $ | 4,646 | | | $ | 13,150 | | | $ | 9,077 | | | $ | 5,315 | | | $ | 2,512 | | | $ | 2,441 | | | $ | — | | | $ | — | | | $ | 37,141 | |
Past due 30-89 days | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Past due 90 or more days | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Nonaccrual | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total | $ | 4,646 | | | $ | 13,150 | | | $ | 9,077 | | | $ | 5,315 | | | $ | 2,512 | | | $ | 2,441 | | | $ | — | | | $ | — | | | $ | 37,141 | |
Current year-to-date gross charge-offs | $ | — | | | $ | — | | | $ | 5 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 5 | |
Consumer: Secured - indirect | | | | | | | | | | | | | | | | | |
Current | $ | 7,563 | | | $ | 13,918 | | | $ | 8,565 | | | $ | 6,811 | | | $ | 2,724 | | | $ | 4,178 | | | $ | — | | | $ | — | | | $ | 43,759 | |
Past due 30-89 days | — | | | 16 | | | — | | | 12 | | | — | | | 15 | | | — | | | — | | | 43 | |
Past due 90 or more days | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Nonaccrual | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total | $ | 7,563 | | | $ | 13,934 | | | $ | 8,565 | | | $ | 6,823 | | | $ | 2,724 | | | $ | 4,193 | | | $ | — | | | $ | — | | | $ | 43,802 | |
Current year-to-date gross write-offs | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2023 |
| 2023 | | 2022 | | 2021 | | 2020 | | 2019 | | Prior | | Revolving Loans | | Revolving Loans Converted to Term | | Total |
Consumer: Unsecured | | | | | | | | | | | | | | | | | |
Current | $ | 530 | | | $ | 1,355 | | | $ | 361 | | | $ | 225 | | | $ | 37 | | | $ | 7 | | | $ | 652 | | | $ | — | | | $ | 3,167 | |
Past due 30-89 days | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Past due 90 or more days | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Nonaccrual | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total | $ | 530 | | | $ | 1,355 | | | $ | 361 | | | $ | 225 | | | $ | 37 | | | $ | 7 | | | $ | 652 | | | $ | — | | | $ | 3,167 | |
Current year-to-date gross charge-offs | $ | 91 | | | $ | — | | | $ | 3 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 94 | |
Loan Modifications
A loan modification includes terms outside of normal lending practices to a borrower experiencing financial difficulty.
Typical modifications granted include, but are not limited to:
•Agreeing to interest rates below prevailing market rates for debt with similar risk characteristics.
•Extending the loan’s unpaidmaturity date or amortization period beyond typical lending guidelines for loans with similar risk characteristics.
•Agreeing to an interest-only payment structure, delaying principal balancepayments,or delaying payments.
•Forgiving principal.
To determine if a borrower is experiencing financial difficulty, factors we consider include:
•The borrower is currently in default on any debt.
•The borrower would likely default on any debt if the concession is not granted.
•The borrower’s cash flow is insufficient to service all debt if the concession is not granted.
•The borrower has declared, or is in the process of declaring, bankruptcy.
•The borrower is unlikely to continue as a going concern (if the entity is a business).
The following is a summary of the amortized cost basis of loan modifications granted to borrowers experiencing financial difficulty for the period ended: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2023 |
| Interest Rate Reduction | | Other-Than-Insignificant Payment Delay | | Term Extension |
| Amortized Cost Basis | | % of Total Class of Financial Receivable | | Amortized Cost Basis | | % of Total Class of Financial Receivable | | Amortized Cost Basis | | % of Total Class of Financial Receivable |
Agricultural: | | | | | | | | | | | |
Agricultural mortgage | $ | — | | | — | % | | $ | — | | | — | % | | $ | 232 | | | 0.33 | % |
Agricultural other | — | | | — | % | | — | | | — | % | | 34 | | | 0.14 | % |
Residential real estate: | | | | | | | | | | | |
Senior lien | — | | | — | % | | — | | | — | % | | 5 | | | — | % |
Total | $ | — | | | — | % | | $ | — | | | — | % | | $ | 271 | | | 0.47 | % |
We do not modify any loans by forgiving principal or accrued interest. We had committed to advance $0 in additional funds to be disbursed in connection with modified loans at March 31, 2023, as displayed in the table above, at March 31, 2023.
We closely monitor the performance of loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of our modification efforts. The following table summarizes the performance of such loans that were modified during the three months ended March 31, 2023. | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2023 |
| Past Due: | | |
| 30-59 Days | | 60-89 Days | | 90 Days or More | | Total Past Due |
Agricultural | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Residential real estate | — | | | — | | | — | | | — | |
Total | $ | — | | | $ | — | | | $ | — | | | $ | — | |
The following table summarizes the financial effect of the modifications granted to borrowers experiencing financial difficulty for the period ended: | | | | | | | | | | | |
| March 31, 2023 |
| Weighted-Average Interest Rate Reduction | | Weighted-Average Term Extension |
Agricultural | N/A | | 1 year |
Residential real estate | N/A | | 2.6 years |
There was one loan restructured during the three-month period ended March 31, 2022, with a below market interest rate and extension of amortization period, in the amount of $98.
We had no loans that defaulted in the three-month periods ended March 31, 2023 and 2022 which were modified within 12 months prior to the presentdefault date.
ACL - Loans
The credit quality of our loan portfolio is continuously monitored and is reflected within the ACL for loans. The ACL is an estimate of expected losses inherent within our loan portfolio. The ACL is adjusted by a credit loss expense, which is reported in earnings, and reduced by the charge-off of loan amounts, net of recoveries.
The ACL is evaluated on a regular basis for appropriateness. Our periodic review of the collectability of a loan considers historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.
The primary factors behind the determination of the level of the ACL are specific allocations for loans individually evaluated, historical loss percentages, delinquency status, and other credit trends and risk characteristics, including current conditions and reasonable and supportable forecasts about the future. Determining the appropriateness of the allowance is complex and requires judgment by management about the effect of matters that are inherently uncertain. In future periods evaluations of the overall loan portfolio, in light of the factors and forecasts then prevailing, may result in significant changes in the allowance and credit loss expense in those future periods.
The methodology for estimating the amount of expected futurecredit losses reported in the ACL has two basic components: a component of individual loans that do not share risk characteristics with other loans; and a pooled component for estimated expected credit losses for pools of loans that share similar risk characteristics.
For a loan that does not share risk characteristics with other loans, an individual analysis is performed to measure an allowance. Loans in nonaccrual status are individually evaluated for specific allocation of the allowance using the fair value of collateral, less costs to sell if foreclosure is probable, or the discounted cash flows discounted at the loan’s effective interest rate.
flow method. We do not recognize interest income on impaired loans in nonaccrual status. For impaired loans not classified as nonaccrual, interest income is recognized daily, as earned, according to the terms of the loan agreement and the principal amount outstanding.
In determining the allowance for credit losses, we derive an estimated credit loss assumption from a model that categorizes loan pools based on loan type and credit risk ratings or delinquency bucket. This model calculates an expected loss percentage for each loan class by considering the probability of default, based on the migration of loans from performing to loss by credit risk ratings or delinquency buckets using life-of-loan analysis, and the historical severity of loss, based on the aggregate net lifetime losses incurred per loan class.
The default and severity factors used to calculate the allowance for credit losses for loans that share similar risk characteristics with other loans are adjusted for differences between the historical period used to calculate historical default and loss severity rates and expected conditions over the remaining lives of the loans in the portfolio. These qualitative factors are used to adjust the historical probabilities of default and severity of loss so that they reflect management's expectation of future conditions based on a reasonable and supportable forecast. To the extent the lives of the loans in the portfolio extend beyond the period for which a reasonable and supportable forecast can be made, the model reverts back to the historical rates of default and severity of loss. Qualitative factors include:
•Changes in lending policies and procedures, including changes in underwriting standards and collection, charge-off, recovery practices not considered elsewhere in estimating credit losses;
•Changes in the experience, ability, and depth of lending management and other relevant staff;
•Changes in interest rates;
•Changes in international, national, regional, and local economic factors (international, national, regional, and local);
•Changes in the nature and volume of the portfolio and in the terms of loans;
•Changes in the volume and severity of past due loans, the volume of nonaccrual loans, and the volume and severity of adversely classified or graded loans;
•Lack of current financial information;
•Competition, Legal, and Regulatory; and
•The changes in the value of underlying collateral.
Upon the adoption of ASC 326, the estimated ACL using the CECL methodology increased $2,744 compared to the ACL as of December 31, 2022 using the prior incurred loss model. The manner in which credit loss allowances are allocated to the individual portfolio segments was partly impacted by a change in the way the underlying loans within each segment are pooled for modeling purposes. The impact of varying economic conditions and portfolio risk factors are now a component of the credit loss models applied to each modeling pool. In that regard, the amounts allocated to the underlying pools of loans within each portfolio segment more directly reflect the economic variables and portfolio stress factors that correlate with credit losses within each portfolio. Under the prior methodology, allocations in excess of those derived from historical loss rates were recognized as unallocated. Nonetheless, despite fluctuations in the allocation of portions of the overall allowance to the various portfolio segments, the entire allowance is available to absorb any credit losses within the entire loan portfolio.
A summary of activity in the ACL by portfolio segment and the recorded investment in loans by segments follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Allowance for Credit Losses |
| Three Months Ended March 31, 2023 |
| Commercial and Industrial | | Commercial Real Estate | | Agricultural | | Residential Real Estate | | Consumer | | Unallocated | | Total |
January 1, 2023 | $ | 860 | | | $ | 461 | | | $ | 577 | | | $ | 617 | | | $ | 961 | | | $ | 6,374 | | | $ | 9,850 | |
Impact of the adoption of ASC 326 | (58) | | | 5,532 | | | (247) | | | 3,535 | | | 356 | | | (6,374) | | | 2,744 | |
Charge-offs | — | | | — | | | — | | | (2) | | | (99) | | | — | | | (101) | |
Recoveries | — | | | 10 | | | 4 | | | 24 | | | 72 | | | — | | | 110 | |
Credit loss expense | 15 | | | 33 | | | (69) | | | (61) | | | 119 | | | — | | | 37 | |
March 31, 2023 | $ | 817 | | | $ | 6,036 | | | $ | 265 | | | $ | 4,113 | | | $ | 1,409 | | | $ | — | | | $ | 12,640 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Allowance for Loan Losses |
| Three Months Ended March 31, 2022 |
| Commercial | | Agricultural | | Residential Real Estate | | Consumer | | Unallocated | | Total |
January 1, 2022 | $ | 1,740 | | | $ | 289 | | | $ | 747 | | | $ | 908 | | | $ | 5,419 | | | $ | 9,103 | |
Charge-offs | — | | | — | | | — | | | (91) | | | — | | | (91) | |
Recoveries | 14 | | | 2 | | | 28 | | | 111 | | | — | | | 155 | |
Credit loss expense | (509) | | | 92 | | | (50) | | | (220) | | | 724 | | | 37 | |
March 31, 2022 | $ | 1,245 | | | $ | 383 | | | $ | 725 | | | $ | 708 | | | $ | 6,143 | | | $ | 9,204 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Allowance for Loan Losses and Recorded Investment in Loans |
| As of December 31, 2022 |
| Commercial | | Agricultural | | Residential Real Estate | | Consumer | | Unallocated | | Total |
Allowance | | | | | | | | | | | |
Individually evaluated for impairment | $ | 12 | | | $ | — | | | $ | 439 | | | $ | — | | | $ | — | | | $ | 451 | |
Collectively evaluated for impairment | 1,309 | | | 577 | | | 178 | | | 961 | | | 6,374 | | | 9,399 | |
Total | $ | 1,321 | | | $ | 577 | | | $ | 617 | | | $ | 961 | | | $ | 6,374 | | | $ | 9,850 | |
Loans | | | | | | | | | | | |
Individually evaluated for impairment | $ | 8,342 | | | $ | 10,935 | | | $ | 2,741 | | | $ | — | | | | | $ | 22,018 | |
Collectively evaluated for impairment | 736,098 | | | 94,050 | | | 333,953 | | | 78,054 | | | | | 1,242,155 | |
Total | $ | 744,440 | | | $ | 104,985 | | | $ | 336,694 | | | $ | 78,054 | | | | | $ | 1,264,173 | |
The following is a summary of information pertaining to impairedtable presents loans that were evaluated for expected credit losses on an individual basis and the related specific allocations, by loan segment as of: | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
| Loan Balance | | Specific Allocation | | Loan Balance | | Specific Allocation |
Commercial and industrial | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Commercial real estate | — | | | — | | | 8,342 | | | 12 | |
Agricultural | 199 | | | — | | | 10,935 | | | — | |
Residential real estate | 81 | | | — | | | 2,741 | | | 439 | |
Consumer | — | | | — | | | — | | | — | |
Total | $ | 280 | | | $ | — | | | $ | 22,018 | | | $ | 451 | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2017 | | December 31, 2016 |
| Recorded Balance | | Unpaid Principal Balance | | Valuation Allowance | | Recorded Balance | | Unpaid Principal Balance | | Valuation Allowance |
Impaired loans with a valuation allowance | | | | | | | | | | | |
Commercial real estate | $ | 4,209 |
| | $ | 4,328 |
| | $ | 766 |
| | $ | 5,811 |
| | $ | 5,992 |
| | $ | 716 |
|
Commercial other | 2,239 |
| | 2,239 |
| | 167 |
| | 1,358 |
| | 1,358 |
| | 25 |
|
Agricultural real estate | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Agricultural other | — |
| | — |
| | — |
| | 134 |
| | 134 |
| | 1 |
|
Residential real estate senior liens | 8,273 |
| | 8,903 |
| | 1,605 |
| | 8,464 |
| | 9,049 |
| | 1,615 |
|
Residential real estate junior liens | 70 |
| | 70 |
| | 13 |
| | 72 |
| | 82 |
| | 14 |
|
Home equity lines of credit | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Consumer secured | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Total impaired loans with a valuation allowance | 14,791 |
| | 15,540 |
| | 2,551 |
| | 15,839 |
| | 16,615 |
| | 2,371 |
|
Impaired loans without a valuation allowance | | | | | | | | | | | |
Commercial real estate | 1,988 |
| | 2,062 |
| | | | 604 |
| | 617 |
| | |
Commercial other | 89 |
| | 89 |
| | | | 86 |
| | 97 |
| | |
Agricultural real estate | 7,834 |
| | 7,834 |
| | | | 4,037 |
| | 4,037 |
| | |
Agricultural other | 3,142 |
| | 3,142 |
| | | | 1,374 |
| | 1,374 |
| | |
Home equity lines of credit | 83 |
| | 383 |
| | | | 102 |
| | 402 |
| | |
Consumer secured | 18 |
| | 18 |
| | | | 26 |
| | 26 |
| | |
Total impaired loans without a valuation allowance | 13,154 |
| | 13,528 |
| | | | 6,229 |
| | 6,553 |
| | |
Impaired loans | | | | | | | | | | | |
Commercial | 8,525 |
| | 8,718 |
| | 933 |
| | 7,859 |
| | 8,064 |
| | 741 |
|
Agricultural | 10,976 |
| | 10,976 |
| | — |
| | 5,545 |
| | 5,545 |
| | 1 |
|
Residential real estate | 8,426 |
| | 9,356 |
| | 1,618 |
| | 8,638 |
| | 9,533 |
| | 1,629 |
|
Consumer | 18 |
| | 18 |
| | — |
| | 26 |
| | 26 |
| | — |
|
Total impaired loans | $ | 27,945 |
| | $ | 29,068 |
| | $ | 2,551 |
| | $ | 22,068 |
| | $ | 23,168 |
| | $ | 2,371 |
|
The followingWe have designated loans classified as collateral dependent for which we apply the practical expedient to measure the ACL based on the fair value of the collateral less cost to sell, when the repayment is a summary of information pertaining to impaired loans for the: |
| | | | | | | | | | | | | | | |
| Three Months Ended September 30 |
| 2017 | | 2016 |
| Average Recorded Balance | | Interest Income Recognized | | Average Recorded Balance | | Interest Income Recognized |
Impaired loans with a valuation allowance | | | | | | | |
Commercial real estate | $ | 4,636 |
| | $ | 68 |
| | $ | 5,699 |
| | $ | 90 |
|
Commercial other | 1,669 |
| | 28 |
| | 746 |
| | 2 |
|
Agricultural real estate | — |
| | — |
| | 181 |
| | 4 |
|
Agricultural other | — |
| | — |
| | 67 |
| | 1 |
|
Residential real estate senior liens | 8,333 |
| | 79 |
| | 8,896 |
| | 85 |
|
Residential real estate junior liens | 73 |
| | 1 |
| | 105 |
| | — |
|
Home equity lines of credit | 35 |
| | — |
| | — |
| | — |
|
Consumer secured | — |
| | — |
| | — |
| | — |
|
Total impaired loans with a valuation allowance | 14,746 |
| | 176 |
| | 15,694 |
| | 182 |
|
Impaired loans without a valuation allowance | | | | | | | |
Commercial real estate | 1,546 |
| | 31 |
| | 705 |
| | 10 |
|
Commercial other | 93 |
| | 2 |
| | 67 |
| | 2 |
|
Agricultural real estate | 7,830 |
| | 98 |
| | 3,360 |
| | 42 |
|
Agricultural other | 3,221 |
| | 39 |
| | 767 |
| | 11 |
|
Home equity lines of credit | 86 |
| | 5 |
| | 112 |
| | 4 |
|
Consumer secured | 19 |
| | — |
| | 31 |
| | 1 |
|
Total impaired loans without a valuation allowance | 12,795 |
| | 175 |
| | 5,042 |
| | 70 |
|
Impaired loans | | | | | | | |
Commercial | 7,944 |
| | 129 |
| | 7,217 |
| | 104 |
|
Agricultural | 11,051 |
| | 137 |
| | 4,375 |
| | 58 |
|
Residential real estate | 8,527 |
| | 85 |
| | 9,113 |
| | 89 |
|
Consumer | 19 |
| | — |
| | 31 |
| | 1 |
|
Total impaired loans | $ | 27,541 |
| | $ | 351 |
| | $ | 20,736 |
| | $ | 252 |
|
|
| | | | | | | | | | | | | | | |
| Nine Months Ended September 30 |
| 2017 | | 2016 |
| Average Recorded Balance | | Interest Income Recognized | | Average Recorded Balance | | Interest Income Recognized |
Impaired loans with a valuation allowance | | | | | | | |
Commercial real estate | $ | 4,765 |
| | $ | 225 |
| | $ | 5,748 |
| | $ | 259 |
|
Commercial other | 1,363 |
| | 75 |
| | 298 |
| | 5 |
|
Agricultural real estate | — |
| | — |
| | 91 |
| | 6 |
|
Agricultural other | 22 |
| | — |
| | 78 |
| | 1 |
|
Residential real estate senior liens | 8,379 |
| | 245 |
| | 9,439 |
| | 278 |
|
Residential real estate junior liens | 75 |
| | 2 |
| | 126 |
| | 2 |
|
Home equity lines of credit | 23 |
| | — |
| | — |
| | — |
|
Consumer secured | — |
| | — |
| | — |
| | — |
|
Total impaired loans with a valuation allowance | 14,627 |
| | 547 |
|
| 15,780 |
|
| 551 |
|
Impaired loans without a valuation allowance | | | | | | | |
Commercial real estate | 1,483 |
| | 83 |
| | 995 |
| | 57 |
|
Commercial other | 109 |
| | 6 |
| | 92 |
| | 6 |
|
Agricultural real estate | 5,936 |
| | 218 |
| | 3,454 |
| | 130 |
|
Agricultural other | 2,353 |
| | 85 |
| | 574 |
| | 27 |
|
Home equity lines of credit | 115 |
| | 15 |
| | 118 |
| | 12 |
|
Consumer secured | 22 |
| | — |
| | 33 |
| | 3 |
|
Total impaired loans without a valuation allowance | 10,018 |
| | 407 |
| | 5,266 |
| | 235 |
|
Impaired loans | | | | | | | |
Commercial | 7,720 |
| | 389 |
| | 7,133 |
| | 327 |
|
Agricultural | 8,311 |
| | 303 |
| | 4,197 |
| | 164 |
|
Residential real estate | 8,592 |
| | 262 |
| | 9,683 |
| | 292 |
|
Consumer | 22 |
| | — |
| | 33 |
| | 3 |
|
Total impaired loans | $ | 24,645 |
| | $ | 954 |
| | $ | 21,046 |
| | $ | 786 |
|
We had committed to advance $125 and $117 in connection with impaired loans, which includes TDRs, as of September 30, 2017 and December 31, 2016, respectively.
Troubled Debt Restructurings
Loan modifications are consideredexpected to be TDRs whenprovided substantially by the modification includes terms outsidesale or operation of normal lending practices to a borrower who is experiencing financial difficulties.
Typical concessions granted include, but are not limited to:
•Agreeing to interest rates below prevailing market rates for debt with similar risk characteristics.
•Extending the amortization period beyond typical lending guidelines for loans with similar risk characteristics.
•Agreeing to an interest only payment structurecollateral and delaying principal payments.
•Forgiving principal.
•Forgiving accrued interest.
To determine if athe borrower is experiencing financial difficulties, factors we consider include:difficulty. The fair value of the collateral is based on appraisals, which may be adjusted due to their age, and the type, location, and condition of the property or area or general market conditions to reflect the expected change in value between the effective date of the appraisal and the measurement date. Appraisals are updated every one to two years depending on the type of loan and the total exposure of the borrower. Loans evaluated for expected credit losses on an individual basis with no allowance include $280 in collateral dependent loans.
The borrower is currently in default on any
The borrower would likely default on any of their debt if the concession was not granted.
The borrower’s cash flow was insufficient to service all of their debt if the concession was not granted.
The borrower has declared, or is in the process of declaring, bankruptcy.
The borrower is unlikely to continue as a going concern (if the entity is a business).
The following is a summary of information pertaining to TDRs granted for the:Contents
|
| | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30 |
| 2017 | | 2016 |
| Number of Loans | | Pre-Modification Recorded Investment | | Post-Modification Recorded Investment | | Number of Loans | | Pre-Modification Recorded Investment | | Post-Modification Recorded Investment |
Commercial other | 3 |
| | $ | 1,385 |
| | $ | 1,385 |
| | 1 |
| | $ | 1,315 |
| | $ | 1,315 |
|
Agricultural other | — |
| | — |
| | — |
| | 2 |
| | 319 |
| | 319 |
|
Residential real estate | | | | | | | | | | | |
Senior liens | 2 |
| | 179 |
| | 179 |
| | — |
| | — |
| | — |
|
Junior liens | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Total residential real estate | 2 |
| | 179 |
| | 179 |
| | — |
| | — |
| | — |
|
Consumer unsecured | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Total | 5 |
|
| $ | 1,564 |
|
| $ | 1,564 |
| | 3 |
|
| $ | 1,634 |
|
| $ | 1,634 |
|
Note 4 – Borrowed FundsFederal funds purchased and repurchase agreements |
| | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30 |
| 2017 | | 2016 |
| Number of Loans | | Pre-Modification Recorded Investment | | Post-Modification Recorded Investment | | Number of Loans | | Pre-Modification Recorded Investment | | Post-Modification Recorded Investment |
Commercial other | 6 |
| | $ | 1,698 |
| | $ | 1,698 |
| | 1 |
| | $ | 1,315 |
| | $ | 1,315 |
|
Agricultural other | 7 |
| | 5,445 |
| | 5,445 |
| | 5 |
| | 520 |
| | 520 |
|
Residential real estate | | | | | | | | | | | |
Senior liens | 5 |
| | 434 |
| | 434 |
| | 2 |
| | 26 |
| | 26 |
|
Junior liens | 1 |
| | 8 |
| | 8 |
| | — |
| | — |
| | — |
|
Total residential real estate | 6 |
| | 442 |
| | 442 |
| | 2 |
| | 26 |
| | 26 |
|
Consumer unsecured | — |
| | — |
| | — |
| | 1 |
| | 2 |
| | 2 |
|
Total | 19 |
| | $ | 7,585 |
| | $ | 7,585 |
| | 9 |
| | $ | 1,863 |
| | $ | 1,863 |
|
The following tables summarize concessions we grantedSecurities sold under repurchase agreements without stated maturity dates, federal funds purchased, and FRB Discount Window advances generally mature within one to borrowers in financial difficulty for the: |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30 |
| 2017 | | 2016 |
| Below Market Interest Rate | | Below Market Interest Rate and Extension of Amortization Period | | Below Market Interest Rate | | Below Market Interest Rate and Extension of Amortization Period |
| Number of Loans | | Pre-Modification Recorded Investment | | Number of Loans | | Pre-Modification Recorded Investment | | Number of Loans | | Pre-Modification Recorded Investment | | Number of Loans | | Pre-Modification Recorded Investment |
Commercial other | — |
| | $ | — |
| | 3 |
| | $ | 1,385 |
| | — |
| | $ | — |
| | 1 |
| | $ | 1,315 |
|
Agricultural other | — |
| | — |
| | — |
| | — |
| | 1 |
| | 14 |
| | 1 |
| | 305 |
|
Residential real estate | | | | | | | | | | | | | | | |
Senior liens | — |
| | — |
| | 2 |
| | 179 |
| | — |
| | — |
| | — |
| | — |
|
Junior liens | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Total residential real estate | — |
| | — |
| | 2 |
| | 179 |
| | — |
| | — |
| | — |
| | — |
|
Consumer unsecured | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Total | — |
|
| $ | — |
|
| 5 |
|
| $ | 1,564 |
| | 1 |
|
| $ | 14 |
|
| 2 |
|
| $ | 1,620 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30 |
| 2017 | | 2016 |
| Below Market Interest Rate | | Below Market Interest Rate and Extension of Amortization Period | | Below Market Interest Rate | | Below Market Interest Rate and Extension of Amortization Period |
| Number of Loans | | Pre-Modification Recorded Investment | | Number of Loans | | Pre-Modification Recorded Investment | | Number of Loans | | Pre-Modification Recorded Investment | | Number of Loans | | Pre-Modification Recorded Investment |
Commercial other | — |
| | $ | — |
| | 6 |
| | $ | 1,698 |
| | — |
| | $ | — |
| | 1 |
| | $ | 1,315 |
|
Agricultural other | 4 |
| | 1,349 |
| | 3 |
| | 4,096 |
| | 1 |
| | 14 |
| | 4 |
| | 506 |
|
Residential real estate |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Senior liens | — |
| | — |
| | 5 |
| | 434 |
| | 2 |
| | 26 |
| | — |
| | — |
|
Junior liens | 1 |
| | 8 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Total residential real estate | 1 |
| | 8 |
| | 5 |
| | 434 |
| | 2 |
| | 26 |
| | — |
| | — |
|
Consumer unsecured | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1 |
| | 2 |
|
Total | 5 |
| | $ | 1,357 |
| | 14 |
| | $ | 6,228 |
| | 3 |
| | $ | 40 |
| | 6 |
| | $ | 1,823 |
|
We did not restructure any loans by forgiving principal or accrued interest infour days from the three and nine month periods ended September 30, 2017 or 2016.
Based on our historical loss experience, losses associated with TDRs are not significantly different than other impaired loans within the same loan segment. As such, TDRs, including TDRs that have been modified in the past 12 months that subsequently defaulted, are analyzed in the same manner as other impaired loans within their respective loan segment.
transaction date. We had no loans that defaulted inFRB Discount Window advances during the three and nine monththree-month periods ended September 30, 2017March 31, 2023 and September 30, 2016 which were modified within 12 months prior to the default date.2022.
The following is aA summary of TDR loan balancessecurities sold under repurchase agreements without stated maturity dates was as of: |
| | | | | | | |
| September 30, 2017 | | December 31, 2016 |
TDRs | $ | 27,259 |
| | $ | 21,382 |
|
Note 6 – Equity Securities Without Readily Determinable Fair Values
Included in equity securities without readily determinable fair values are restricted securities, which are carried at cost, and investments in unconsolidated entities accountedfollows for under the equity method of accounting.
Equity securities without readily determinable fair values consist of the following as of: |
| | | | | | | |
| September 30 2017 | | December 31 2016 |
FHLB Stock | $ | 13,700 |
| | $ | 11,900 |
|
Corporate Settlement Solutions, LLC | 7,428 |
| | 7,461 |
|
FRB Stock | 1,999 |
| | 1,999 |
|
Other | 334 |
| | 334 |
|
Total | $ | 23,461 |
| | $ | 21,694 |
|
Note 7 – Foreclosed Assets
Foreclosed assets are included in other assets in the consolidated balance sheets and consist of other real estate owned and repossessed assets. The following is a summary of foreclosed assets as of: |
| | | | | | | |
| September 30 2017 | | December 31 2016 |
Consumer mortgage loans collateralized by residential real estate foreclosed as a result of obtaining physical possession | $ | 20 |
| | $ | 18 |
|
All other foreclosed assets | 220 |
| | 213 |
|
Total | $ | 240 |
| | $ | 231 |
|
There were $260 and $18 of consumer mortgage loans collateralized by residential real estate in the process of foreclosure as of September 30, 2017 and December 31, 2016.
Below is a summary of changes in foreclosed assets during the: |
| | | | | | | |
| Three Months Ended September 30 |
| 2017 | | 2016 |
Balance, July 1 | $ | 229 |
| | $ | 249 |
|
Properties transferred | 118 |
| | 95 |
|
Impairments | (2 | ) | | — |
|
Proceeds from sale | (105 | ) | | (60 | ) |
Balance, September 30 | $ | 240 |
|
| $ | 284 |
|
|
| | | | | | | |
| Nine Months Ended September 30 |
| 2017 | | 2016 |
Balance, January 1 | $ | 231 |
| | $ | 421 |
|
Properties transferred | 214 |
| | 211 |
|
Impairments | (2 | ) | | — |
|
Proceeds from sale | (203 | ) | | (348 | ) |
Balance, September 30 | $ | 240 |
| | $ | 284 |
|
Note 8 – Borrowed Funds
Borrowed funds consist of the following obligations as of: |
| | | | | | | | | | | | | |
| September 30, 2017 | | December 31, 2016 |
| Amount | | Rate | | Amount | | Rate |
FHLB advances | $ | 310,000 |
| | 1.83 | % | | $ | 270,000 |
| | 1.82 | % |
Securities sold under agreements to repurchase without stated maturity dates | 54,977 |
| | 0.12 | % | | 60,894 |
| | 0.13 | % |
Federal funds purchased | 2,050 |
| | 1.39 | % | | 6,800 |
| | 1.00 | % |
Total | $ | 367,027 |
| | 1.57 | % | | $ | 337,694 |
| | 1.50 | % |
FHLB advances are collateralized by a blanket lien on all qualified 1-4 family residential real estate loans, specific AFS securities, and FHLB stock.
The following table lists the maturities and weighted average interest rates of FHLB advances as of: |
| | | | | | | | | | | | | |
| September 30, 2017 | | December 31, 2016 |
| Amount | | Rate | | Amount | | Rate |
Fixed rate due 2017 | $ | 40,000 |
| | 1.13 | % | | $ | 70,000 |
| | 1.39 | % |
Fixed rate due 2018 | 50,000 |
| | 2.16 | % | | 50,000 |
| | 2.16 | % |
Fixed rate due 2019 | 85,000 |
| | 1.87 | % | | 60,000 |
| | 1.99 | % |
Fixed rate due 2020 | 35,000 |
| | 1.52 | % | | 10,000 |
| | 1.98 | % |
Fixed rate due 2021 | 50,000 |
| | 1.91 | % | | 50,000 |
| | 1.91 | % |
Variable rate due 2021 1 | 10,000 |
| | 1.61 | % | | 10,000 |
| | 1.21 | % |
Fixed rate due 2022 | 20,000 |
| | 1.97 | % | | — |
| | — | % |
Fixed rate due 2023 | 10,000 |
| | 3.90 | % | | 10,000 |
| | 3.90 | % |
Fixed rate due 2026 | 10,000 |
| | 1.17 | % | | 10,000 |
| | 1.17 | % |
Total | $ | 310,000 |
| | 1.83 | % | | $ | 270,000 |
| | 1.82 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| |
(1)
| Hedged advance (see "Derivative Instruments" section below)
| | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31 |
| 2023 | | 2022 |
| Maximum Month End Balance | | Average Balance | | Weighted Average Interest Rate During the Period | | Maximum Month End Balance | | Average Balance | | Weighted Average Interest Rate During the Period |
Securities sold under agreements to repurchase without stated maturity dates | $ | 54,236 | | | $ | 39,706 | | | 1.33 | % | | $ | 53,970 | | | $ | 49,058 | | | 0.07 | % |
Federal funds purchased | $ | — | | | $ | 3 | | | 5.27 | % | | $ | — | | | $ | 1 | | | 0.61 | % |
Securities sold under agreements to repurchase are classified as secured borrowings and are reflected at the amount of cash received in connection with the transaction. The securities underlying the agreements have a carrying value and a fair value of $54,996$35,848 and $60,918$58,291 at September 30, 2017March 31, 2023 and December 31, 2016,2022, respectively. Such securities remain under our control. We may be required to provide additional collateral based on the fair value of underlying securities.
Securities sold under repurchase agreements without stated maturity dates federal funds purchased, and FRB Discount Window advances generally mature within one to four days from the transaction date. The following table provides a summary of securities sold under repurchase agreements without stated maturity dates, federal funds purchased, and FRB Discount Window advances. |
| | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30 |
| 2017 | | 2016 |
| Maximum Month End Balance | | Average Balance | | Weighted Average Interest Rate During the Period | | Maximum Month End Balance | | Average Balance | | Weighted Average Interest Rate During the Period |
Securities sold under agreements to repurchase without stated maturity dates | $ | 58,464 |
| | $ | 53,846 |
| | 0.13 | % | | $ | 56,057 |
| | $ | 54,446 |
| | 0.13 | % |
Federal funds purchased | 3,815 |
| | 1,474 |
| | 1.20 | % | | 20,600 |
| | 8,848 |
| | 0.69 | % |
FRB Discount Window | — |
| | 82 |
| | 1.60 | % | | — |
| | — |
| | — | % |
were as follows as of: | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
| Amount | | Rate | | Amount | | Rate |
Securities sold under agreements to repurchase without stated maturity dates | $ | 31,995 | | | 1.80 | % | | $ | 57,771 | | | 0.49 | % |
|
| | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30 |
| 2017 | | 2016 |
| Maximum Month End Balance | | Average Balance | | Weighted Average Interest Rate During the Period | | Maximum Month End Balance | | Average Balance | | Weighted Average Interest Rate During the Period |
Securities sold under agreements to repurchase without stated maturity dates | $ | 58,464 |
| | $ | 55,051 |
| | 0.13 | % | | $ | 61,783 |
| | $ | 57,159 |
| | 0.13 | % |
Federal funds purchased | 5,965 |
| | 3,280 |
| | 1.13 | % | | 20,600 |
| | 8,614 |
| | 0.69 | % |
FRB Discount Window | — |
| | 57 |
| | 1.54 | % | | — |
| | — |
| | — | % |
We had pledged AFS securities and 1-4 family residential real estate loans in the following amounts at: | | | | | | | | | | | |
| March 31 2023 | | December 31 2022 |
Pledged to secure borrowed funds | $ | 347,101 | | | $ | 347,331 | |
Pledged to secure repurchase agreements | 35,848 | | | 58,291 | |
Pledged for public deposits and for other purposes necessary or required by law | 74,017 | | | 48,698 | |
Total | $ | 456,966 | | | $ | 454,320 | |
|
| | | | | | | |
| September 30 2017 | | December 31 2016 |
Pledged to secure borrowed funds | $ | 416,279 |
| | $ | 363,427 |
|
Pledged to secure repurchase agreements | 54,996 |
| | 60,918 |
|
Pledged for public deposits and for other purposes necessary or required by law | 29,774 |
| | 33,916 |
|
Total | $ | 501,049 |
| | $ | 458,261 |
|
AFS securities pledged to repurchase agreements without stated maturity dates consisted of the following at: |
| | | | | | | |
| September 30 2017 | | December 31 2016 |
States and political subdivisions | $ | 4,256 |
| | $ | 5,676 |
|
Mortgage-backed securities | 15,419 |
| | 11,383 |
|
Collateralized mortgage obligations | 35,321 |
| | 43,859 |
|
Total | $ | 54,996 |
| | $ | 60,918 |
|
| | | | | | | | | | | |
| March 31 2023 | | December 31 2022 |
U.S. Treasury | $ | 32,242 | | | $ | 29,351 | |
States and political subdivisions | 2,960 | | | 11,037 | |
Mortgage-backed securities | 646 | | | 6,819 | |
Collateralized mortgage obligations | — | | | 11,084 | |
Total | $ | 35,848 | | | $ | 58,291 | |
AFS securities pledged to repurchase agreements are monitored to ensure the appropriate level is collateralized. In the event of maturities, calls, significant principal repayments, or significant decline in market values, we have an adequate levelslevel of AFS securities to pledge to satisfy required collateral.collateral requirements.
As of September 30, 2017,March 31, 2023, we had the ability to borrow up to an additional $114,839,$348,829, without pledging additional collateral.
Subordinated Notes
On June 2, 2021, we completed a private placement of $30,000 in aggregate principal amount of 3.25% Fixed-to-Floating Rate Subordinated Notes due 2031 (the "Notes"). The Notes will initially bear a fixed interest rate of 3.25% until June 15, 2026, after which time until maturity on June 15, 2031, the interest rate will reset quarterly to an annual floating rate equal to the then-current 3-month SOFR plus 256 basis points. The Notes are redeemable by us at our option, in whole or in part, on or after June 15, 2026. The Notes are not subject to redemption at the option of the holders.
The following table summarizes our outstanding notes as of: | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
| Amount | | Rate | | Amount | | Rate |
Fixed rate at 3.25% to floating, due 2031 | $ | 30,000 | | | 3.25 | % | | $ | 30,000 | | | 3.25 | % |
Unamortized issuance costs | (733) | | | | | (755) | | | |
Total subordinated debt, net | $ | 29,267 | | | | | $ | 29,245 | | | |
Note 5 – Computation of Earnings Per Common Share
Basic earnings per common share represents income available to common shareholders divided by the weighted average number of common shares outstanding during the period. Diluted earnings per common share includes additional common shares that would have been outstanding if dilutive potential common shares had been issued. Potential common shares that may be issued relate solely to outstanding shares in the Directors Plan and grant awards under the RSP.
Earnings per common share have been computed based on assets pledged as collateral. the following for the: | | | | | | | | | | | | | | | |
| | | Three Months Ended March 31 |
| | | | | 2023 | | 2022 |
Average number of common shares outstanding for basic calculation | | | | | 7,556,585 | | | 7,533,711 | |
Average potential effect of common shares in the Directors Plan (1) | | | | | 49,484 | | | 83,538 | |
Average potential effect of common shares in the RSP | | | | | 28,348 | | | 22,439 | |
Average number of common shares outstanding used to calculate diluted earnings per common share | | | | | 7,634,417 | | | 7,639,688 | |
Net income | | | | | $ | 5,321 | | | $ | 4,734 | |
Earnings per common share | | | | | | | |
Basic | | | | | $ | 0.70 | | | $ | 0.63 | |
Diluted | | | | | $ | 0.70 | | | $ | 0.62 | |
(1)Exclusive of shares held in the Rabbi Trust
Note 6 – Restricted Stock Plan
We had no investment securitiesadopted the RSP, an equity-based bonus plan, in 2020. Under the RSP, we may award restricted stock bonuses to eligible employees on an annual basis that are not fully transferable or vested until certain conditions are met. Currently, the eligible employees are the Bank's CEO, President, and CFO. The RSP authorizes the issuance of unvested restricted stock to an eligible employee with a maximum award ranging from 25% to 40% of the employee’s annual salary, on a calendar year basis. The employee must also satisfy the annual performance targets and measures established by the Board of Directors. If these grant conditions are not satisfied, then the award of restricted shares will lapse or be pledged for specific purposes.adjusted appropriately, at the discretion of the Board of Directors. All Grant Agreements contain vesting conditions and clawback provisions.
Derivative Instruments
We enter into interest rate swaps to manage exposure to interest rate risk and variability in cash flows. The interest rate swaps, associated with our variable rate borrowings, are designated upon inception as cash flow hedges of forecasted interest payments. We enter into LIBOR-based interest rate swaps that involve the receipt of variable amounts in exchange for fixed rate payments, in effect converting variable rate debt to fixed rate debt.
Cash flow hedges are assessed for effectiveness using regression analysis. The effective portionA summary of changes in fair value are recorded in OCInonvested restricted stock awards is as follows for the: | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2023 | | Three Months Ended March 31, 2022 |
| Number of Shares | | Fair Value | | Number of Shares | | Fair Value |
Balance, January 1 | 27,072 | | | $ | 592 | | | 20,123 | | | $ | 418 | |
Granted | 3,705 | | | 91 | | | 6,723 | | | 174 | |
Vested | — | | | — | | | — | | | — | |
Forfeited | — | | | — | | | — | | | — | |
Balance, March 31 | 30,777 | | | $ | 683 | | | 26,846 | | | $ | 592 | |
Expense related to RSP awards were $42 and subsequently reclassified into interest$31 for the three-month periods ended March 31, 2023 and 2022. As of March 31, 2023, there was $394 of total remaining unrecognized compensation expense inrelated to nonvested restricted stock awards granted under the same period in which the related interest on the variable rate borrowings affects earnings. In the event that a portion of the changes in fair value were determinedRSP. The remaining expense is expected to be ineffective, the ineffective amount would be recorded in earnings.recognized over a weighted-average service period of 2.86 years.
The following tables provide information on derivatives related to variable rate borrowings as of: |
| | | | | | | | | | | | | | | | |
| September 30, 2017 |
| Pay Rate | | Receive Rate | | Remaining Life (Years) | | Notional Amount | | Balance Sheet Location | | Fair Value |
Derivatives designated as hedging instruments | | | | | | | | | | | |
Cash Flow Hedges: | | | | | | | | | | | |
Interest rate swaps | 1.56 | % | | 3-Month LIBOR | | 3.6 | | $ | 10,000 |
| | Other Assets | | $ | 215 |
|
|
| | | | | | | | | | | | | | | | |
| December 31, 2016 |
| Pay Rate | | Receive Rate | | Remaining Life (Years) | | Notional Amount | | Balance Sheet Location | | Fair Value |
Derivatives designated as hedging instruments | | | | | | | | | | | |
Cash Flow Hedges: | | | | | | | | | | | |
Interest rate swaps | 1.56 | % | | 3-Month LIBOR | | 4.3 | | $ | 10,000 |
| | Other Assets | | $ | 248 |
|
Derivatives contain an element of credit risk which arises from the possibility that we will incur a loss as a result of a counterparty failing to meet its contractual obligations. Credit risk is minimized through counterparty collateral, transaction limits and monitoring procedures. We also manage dealer credit risk by entering into interest rate derivatives only with primary and highly rated counterparties, the use of ISDA master agreements and counterparties limits. We do not anticipate any losses from failure of interest rate derivative counterparties to honor their obligations.
Note 97 – Other Noninterest Expenses
A summary of expenses included in other noninterest expenses is as follows for the: | | | | | | | | | | | | | | | |
| | | Three Months Ended March 31 |
| | | | | 2023 | | 2022 |
Audit, consulting, and legal fees | | | | | $ | 535 | | | $ | 549 | |
ATM and debit card fees | | | | | 400 | | | 434 | |
Marketing costs | | | | | 245 | | | 239 | |
Memberships and subscriptions | | | | | 240 | | | 217 | |
FDIC insurance premiums | | | | | 228 | | | 125 | |
Loan underwriting fees | | | | | 215 | | | 182 | |
Director fees | | | | | 204 | | | 201 | |
Donations and community relations | | | | | 184 | | | 287 | |
All other | | | | | 756 | | | 596 | |
Total other noninterest expenses | | | | | $ | 3,007 | | | $ | 2,830 | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30 | | Nine Months Ended September 30 |
| 2017 | | 2016 | | 2017 | | 2016 |
ATM and debit card fees | $ | 253 |
| | $ | 210 |
| | $ | 873 |
| | $ | 627 |
|
Audit and related fees | 322 |
| | 319 |
| | 757 |
| | 664 |
|
Consulting fees | 259 |
| | 198 |
| | 672 |
| | 567 |
|
Director fees | 212 |
| | 207 |
| | 634 |
| | 630 |
|
Loan underwriting fees | 237 |
| | 142 |
| | 546 |
| | 377 |
|
Donations and community relations | 190 |
| | 134 |
| | 488 |
| | 399 |
|
FDIC insurance premiums | 172 |
| | 224 |
| | 480 |
| | 646 |
|
Marketing costs | 172 |
| | 101 |
| | 361 |
| | 359 |
|
Education and travel | 143 |
| | 73 |
| | 332 |
| | 309 |
|
Printing and supplies | 110 |
| | 105 |
| | 320 |
| | 325 |
|
Postage and freight | 85 |
| | 96 |
| | 304 |
| | 293 |
|
All other | 438 |
| | 486 |
| | 1,427 |
| | 1,692 |
|
Total other | $ | 2,593 |
| | $ | 2,295 |
| | $ | 7,194 |
| | $ | 6,888 |
|
Note 108 – Federal Income Taxes
The reconciliation of the provision for federal income taxes and the amount computed at the federal statutory tax rate of 34%21% of income before federal income tax expense is as follows for the: | | | | | | | | | | | | | | | |
| | | Three Months Ended March 31 |
| | | | | 2023 | | 2022 |
Income taxes at statutory rate | | | | | $ | 1,345 | | | $ | 1,190 | |
Effect of nontaxable income | | | | | | | |
Interest income on tax exempt municipal securities | | | | | (148) | | | (134) | |
Earnings on corporate owned life insurance policies | | | | | (47) | | | (55) | |
Other | | | | | (7) | | | (4) | |
Total effect of nontaxable income | | | | | (202) | | | (193) | |
Effect of nondeductible expenses | | | | | 9 | | | 11 | |
Effect of tax credits | | | | | (68) | | | (73) | |
Federal income tax expense | | | | | $ | 1,084 | | | $ | 935 | |
Note 9 – Accumulated Other Comprehensive Income
The following table summarizes the changes in AOCI by component for the: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31 |
| 2023 | | 2022 |
| Unrealized Gains (Losses) on AFS Securities | | Defined Benefit Pension Plan | | Total | | Unrealized Gains (Losses) on AFS Securities | | Defined Benefit Pension Plan | | Total |
Balance, January 1 | $ | (35,828) | | | $ | (1,366) | | | $ | (37,194) | | | $ | 3,873 | | | $ | (2,014) | | | $ | 1,859 | |
OCI before reclassifications | 8,610 | | | — | | | 8,610 | | | (22,928) | | | — | | | (22,928) | |
Amounts reclassified from AOCI | (1) | | | — | | | (1) | | | — | | | — | | | — | |
Subtotal | 8,609 | | | — | | | 8,609 | | | (22,928) | | | — | | | (22,928) | |
Tax effect | (1,729) | | | — | | | (1,729) | | | 4,736 | | | — | | | 4,736 | |
OCI, net of tax | 6,880 | | | — | | | 6,880 | | | (18,192) | | | — | | | (18,192) | |
Balance, March 31 | $ | (28,948) | | | $ | (1,366) | | | $ | (30,314) | | | $ | (14,319) | | | $ | (2,014) | | | $ | (16,333) | |
Included in OCI for the three-month periods ended March 31, 2023 and 2022 are changes in unrealized gains and losses related to auction rate money market preferred stocks. These investments, for federal income tax purposes, have no deferred federal income taxes related to unrealized gains or losses given the nature of the investments.
A summary of the components of unrealized gains on AFS securities included in OCI follows for the: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31 |
| 2023 | | 2022 |
| Auction Rate Money Market Preferred Stocks | | All Other AFS Securities | | Total | | Auction Rate Money Market Preferred Stocks | | All Other AFS Securities | | Total |
Unrealized gains (losses) arising during the period | $ | 374 | | | $ | 8,236 | | | $ | 8,610 | | | $ | (375) | | | $ | (22,553) | | | $ | (22,928) | |
Reclassification adjustment for net (gains) losses included in net income | — | | | (1) | | | (1) | | | — | | | — | | | — | |
Net unrealized gains (losses) | 374 | | | 8,235 | | | 8,609 | | | (375) | | | (22,553) | | | (22,928) | |
Tax effect | — | | | (1,729) | | | (1,729) | | | — | | | 4,736 | | | 4,736 | |
Unrealized gains (losses), net of tax | $ | 374 | | | $ | 6,506 | | | $ | 6,880 | | | $ | (375) | | | $ | (17,817) | | | $ | (18,192) | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30 | | Nine Months Ended September 30 |
| 2017 | | 2016 | | 2017 | | 2016 |
Income taxes at 34% statutory rate | $ | 1,458 |
| | $ | 1,481 |
| | $ | 4,317 |
| | $ | 4,036 |
|
Effect of nontaxable income | | | | | | | |
Interest income on tax exempt municipal securities | (452 | ) | | (457 | ) | | (1,361 | ) | | (1,400 | ) |
Earnings on corporate owned life insurance policies | (60 | ) | | (62 | ) | | (183 | ) | | (192 | ) |
Effect of tax credits | (186 | ) | | (188 | ) | | (566 | ) | | (575 | ) |
Other | (18 | ) | | (19 | ) | | (54 | ) | | (55 | ) |
Total effect of nontaxable income | (716 | ) | | (726 | ) | | (2,164 | ) | | (2,222 | ) |
Effect of nondeductible expenses | 8 |
| | 8 |
| | 27 |
| | 41 |
|
Federal income tax expense | $ | 750 |
| | $ | 763 |
| | $ | 2,180 |
| | $ | 1,855 |
|
Note 1110 – Fair Value
Under fair value measurement and disclosure authoritative guidance, we group assets and liabilities measured at fair value into three levels, based on the markets in which the assets and liabilities are traded, and the reliability of the assumptions used to determine fair value, based on the prioritization of inputs in the valuation techniques. These levels are:
| | | | | |
Level 1: | Valuation is based upon quoted prices for identical instruments traded in active markets. |
Level 2: | Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market. |
Level 3: | Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. |
The asset’s or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques maximize the use of observable inputs and minimize the use of unobservable inputs. Transfers between measurement levels are recognized at the end of reporting periods.
Fair value measurement requires the use of an exit price notion which may differ from entrance pricing. Generally we believe our assets and liabilities classified as Level 1 or Level 2 approximate an exit price notion.
Following is a description of the valuation methodologies, key inputs, and an indication of the level of the fair value hierarchy in which the assets or liabilities are classified.
Cash and cash equivalents: The carrying amounts of cash and demand deposits due from banks and interest bearing balances due from banks approximate fair values. As such, we classify cash and cash equivalents as Level 1.
AFS securities: AFS securities are recorded at fair value on a recurring basis. Level 1 fair value measurement is based upon quoted prices for identical instruments. Level 2 fair value measurement is based upon quoted prices for similar instruments. If quoted prices are not available, fair values are measured using independent pricing models or other model basedmodel-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss and liquidity assumptions. The values for Level 1 and Level 2 investment securities are generally obtained from an independent third party. On a quarterly basis, we compare the values provided to alternative pricing sources.
Mortgage loans AFS:Mortgage loans AFS are carried at the lower of cost or fair value. The fair value of mortgage loans AFS are based on the price secondary markets are currently offering for portfolios with similar characteristics. As such, we classify mortgage loans AFS subject to nonrecurring fair value adjustments as Level 2.
Loans: For variable rate loans with no significant change in credit risk, fair values are based on carrying values. Fair values for fixed rate loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. The resulting amounts are adjusted to estimate the effect of changes in the credit quality of borrowers since the loans were originated. As such, we classify loans as Level 3 assets.
Loans:We do not record loans at fair value on a recurring basis. However, from time-to-time,some loans are classified as impairedindividually evaluated for ACL purposes, and a specific allowance for loan lossesACL may be established. Loans for which it is probable that payment of interest and principal will be significantly different thanTo measure reserve, the contractual terms of the original loan agreement are considered impaired. Once a loan is identified as impaired, we measure the estimated impairment. The fair value of impaired loansthe loan is estimated using onethe fair value of several methods, includingthe collateral, less costs to sell if foreclosure is probable, or the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral, less costs to sell, if the loan is collateral dependent. Those impaired loansrate. Loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans.
We review the net realizable values of the underlying collateral for collateral dependent impaired loans on at least a quarterly basis for all loan types. To determine the collateral value, we utilize independent appraisals, broker price opinions, or internal evaluations. We review these valuations to determine whether an additional discount should be applied given the age of market information that may have been considered as well as other factors such as costs to sell an asset if it is determined that the collateral will be liquidated in connection with the ultimate settlement of the loan. We use these valuations to determine if any specific reserves or charge-offs are necessary. We may obtain new valuations in certain circumstances, including when there has been significant deterioration in the condition of the collateral, if the foreclosure process has begun, or if the existing valuation is deemed to be outdated.
The following tables list the quantitative information about loans measured at fair value information about impaired loanson a nonrecurring basis as of: |
| | | | |
| September 30, 2017 |
Valuation Technique | Fair Value | Unobservable Input | | Range |
| | Discount applied to collateral: | | |
| | Real Estate | | 20% - 30% |
| | Equipment | | 20% - 45% |
| | Accounts receivable | | 50% |
Discounted value | $16,158 | Cash crop inventory | | 30% - 40% |
| | Other inventory | | 50% - 75% |
| | Liquor license | | 75% |
| | Furniture, fixtures & equipment | | 35% - 45% |
|
| | | | |
| December 31, 2016 |
Valuation Technique | Fair Value | Unobservable Input | | Range |
| | Discount applied to collateral: | | |
| | Real Estate | | 20% - 30% |
| | Equipment | | 20% - 45% |
Discounted value | $9,166 | Cash crop inventory | | 30% - 40% |
| | Liquor license | | 75% |
| | Furniture, fixtures & equipment | | 45% |
| | | | | | | | | | | | | | | | | | | | |
| March 31, 2023 |
Valuation Technique | Fair Value | Unobservable Input | | Actual Range | | Weighted Average |
Collateral Dependent Loans - | | Discount applied to collateral: | | | | |
Discounted value | $280 | Real Estate | | 20% | | 20% |
| | Equipment | | 25% | | 25% |
| | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
Valuation Technique | Fair Value | Unobservable Input | | Actual Range | | Weighted Average |
| | Discount applied to collateral: | | | | |
| | Real Estate | | 20% - 30% | | 24% |
Impaired Loans - | | Equipment | | 25% - 35% | | 31% |
Discounted value | $17,143 | Cash crop inventory | | 40% | | 40% |
| | Livestock | | 30% | | 30% |
| | Accounts receivable | | 25% | | 27% |
| | Furniture, fixtures & equipment | | 45% | | 45% |
Collateral discount rates may have ranges to accommodate differences in the age of the independent appraisal, broker price opinion, or internal evaluation.
Accrued interest receivable: The carrying amounts of accrued interest receivable approximate fair value. As such, we classify accrued interest receivable as Level 1.
Equity securities without readily determinable fair values: Included in equity securities without readily determinable fair values are FHLB stock and FRB stock as well as our minority ownership interest in Corporate Settlement Solutions, LLC. The investment in Corporate Settlement Solutions, LLC, a title insurance agency, was made in the first quarter 2008 and we account for our investment under the equity method of accounting.
The lack of an active market, or other independent sources to validate fair value estimates coupled with the impact of future capital calls and transfer restrictions, is an inherent limitation in the valuation process. As the fair values of these investments are not readily determinable, they are not disclosed under a specific fair value hierarchy; however, they are reviewed quarterly for impairment. If we were to record an impairment adjustment related to these securities, it would be classified as a nonrecurring Level 3 fair value adjustment. During 2017 and 2016, there were no impairments recorded on equity securities without readily determinable fair values.
Foreclosed assets: Upon transfer from the loan portfolio, foreclosed assets (which are included in other assets) are adjusted to and subsequently carried at the lower of carrying value or fair value less costs to sell. Net realizable value is based upon independent market prices, appraised values of the collateral, or management’s estimation of the value of the collateral. Due to the inherent level of estimation in the valuation process, we classify foreclosed assets as nonrecurring Level 3.
The table below lists the quantitative fair value information related to foreclosed assets as of: |
| | | | | | | |
| September 30, 2017 |
Valuation Technique | Fair Value | | Unobservable Input | | Range |
| | | Discount applied to collateral: | | |
Discounted value | $ | 240 |
| | Real Estate | | 20% - 30% |
|
| | | | | | | |
| December 31, 2016 |
Valuation Technique | Fair Value | | Unobservable Input | | Range |
| | | Discount applied to collateral: | | |
Discounted value | $ | 231 |
| | Real Estate | | 20% - 30% |
Collateral discount rates may have ranges to accommodate differences in the age of the independent appraisal, broker price opinion, or internal evaluations.
Goodwill and other intangible assets: Acquisition intangibles and goodwill are evaluated for potential impairment on at least an annual basis. Acquisition intangibles and goodwill are typically qualitatively evaluated to determine if it is more likely than not that the carrying balance is impaired. If it is determined that the carrying balance of acquisition intangibles or goodwill is more likely than not to be impaired, we perform a cash flow valuation to determine the extent of the potential impairment. If the testing resulted in impairment, we would classify goodwill and other acquisition intangibles subjected to nonrecurring fair value adjustments as Level 3. During 2017 and 2016, there were no impairments recorded on goodwill and other acquisition intangibles.
OMSR: OMSR:OMSR (which are included in other assets) are subject to impairment testing. To test for impairment, we utilize a discounted cash flow analysis using interest rates and prepayment speed assumptions currently quoted for comparable instruments and discount rates. If the valuation model reflects a value less than the carrying value, OMSR are adjusted to fair value through a valuation allowance as determined by the model. As such, we classify OMSR subject to nonrecurring fair value adjustments as Level 2.
Deposits: The fair value of demand, savings, and money market deposits are equal to their carrying amounts and are classified as Level 1. Fair values for variable rate certificates of deposit approximate their carrying value. Fair values for fixed rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits. As such, fixed rate certificates of deposit are classified as Level 2.
Borrowed funds: The carrying amounts of federal funds purchased, borrowings under overnight repurchase agreements, and other short-term borrowings maturing within ninety days approximate their fair values. The fair values of other borrowed funds are estimated using discounted cash flow analyses based on current incremental borrowing arrangements. As such, borrowed funds are classified as Level 2.
Accrued interest payable: The carrying amounts of accrued interest payable approximate fair value. As such, we classify accrued interest payable as Level 1.
Derivative instruments: Derivative instruments, consisting solely of interest rate swaps, are recorded at fair value on a recurring basis. Derivatives qualifying as cash flow hedges, when highly effective, are reported at fair value in other assets or other liabilities on our Consolidated Balance Sheets with changes in value recorded in OCI. Should the hedge no longer be considered effective, the ineffective portion of the change in fair value is recorded directly in earnings in the period in which the change occurs. The fair value of a derivative is determined by quoted market prices and model based valuation techniques. As such, we classify derivative instruments as Level 2.
Commitments to extend credit, standby letters of credit, and undisbursed loans: Our commitments to extend credit, standby letters of credit, and undisbursed funds have no carrying amount and are estimated to have no realizable fair value. Historically, a majority of the unused commitments to extend credit have not been drawn upon and, generally, we do not receive fees in connection with these commitments other than standby letter of credit fees, which are not significant.
The preceding methods described may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Although we believe our valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement.
Estimated Fair Values of Financial Instruments Not Recorded at Fair Value in their Entirety on a Recurring Basis
Disclosure of the estimated fair values of financial instruments, which differ from carrying values, often requires the use of estimates. In cases where quoted market values in an active market are not available, we use present value techniques and other valuation methods to estimate the fair values of our financial instruments. These valuation methods require considerable judgment and the resulting estimates of fair value can be significantly affected by the assumptions made and methods used.
The carrying amount and estimated fair value of financial instruments not recorded at fair value in their entirety on a recurring basis were as follows as of: |
| | | | | | | | | | | | | | | | | | | |
| September 30, 2017 |
| Carrying Value | | Estimated Fair Value | | Level 1 | | Level 2 | | Level 3 |
ASSETS | | | | | | | | | |
Cash and cash equivalents | $ | 21,067 |
| | $ | 21,067 |
| | $ | 21,067 |
| | $ | — |
| | $ | — |
|
Mortgage loans AFS | 1,237 |
| | 1,245 |
| | — |
| | 1,245 |
| | — |
|
Gross loans | 1,077,544 |
| | 1,056,912 |
| | — |
| | — |
| | 1,056,912 |
|
Less allowance for loan and lease losses | 7,700 |
| | 7,700 |
| | — |
| | — |
| | 7,700 |
|
Net loans | 1,069,844 |
| | 1,049,212 |
| | — |
| | — |
| | 1,049,212 |
|
Accrued interest receivable | 7,388 |
| | 7,388 |
| | 7,388 |
| | — |
| | — |
|
Equity securities without readily determinable fair values (1) | 23,461 |
| | N/A |
| | — |
| | — |
| | — |
|
OMSR | 2,413 |
| | 2,413 |
| | — |
| | 2,413 |
| | — |
|
LIABILITIES | | | | | | | | | |
Deposits without stated maturities | 791,567 |
| | 791,567 |
| | 791,567 |
| | — |
| | — |
|
Deposits with stated maturities | 424,495 |
| | 423,536 |
| | — |
| | 423,536 |
| | — |
|
Borrowed funds | 367,027 |
| | 367,873 |
| | — |
| | 367,873 |
| | — |
|
Accrued interest payable | 633 |
| | 633 |
| | 633 |
| | — |
| | — |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2023 |
| Carrying Value | | Estimated Fair Value | | Level 1 | | Level 2 | | Level 3 |
ASSETS | | | | | | | | | |
Cash and cash equivalents | $ | 98,723 | | | $ | 98,723 | | | $ | 98,723 | | | $ | — | | | $ | — | |
Mortgage loans AFS | 171 | | | 177 | | | — | | | 177 | | | — | |
Gross loans | 1,270,651 | | | 1,228,594 | | | — | | | — | | | 1,228,594 | |
Less allowance for credit losses | 12,640 | | | 12,640 | | | — | | | — | | | 12,640 | |
Net loans | 1,258,011 | | | 1,215,954 | | | — | | | — | | | 1,215,954 | |
Accrued interest receivable | 6,779 | | | 6,779 | | | 6,779 | | | — | | | — | |
Equity securities without readily determinable fair values (1) | 15,746 | | | N/A | | — | | | — | | | — | |
OMSR | 2,524 | | | 3,231 | | | — | | | 3,231 | | | — | |
LIABILITIES | | | | | | | | | |
Deposits without stated maturities | 1,524,926 | | | 1,524,926 | | | 1,524,926 | | | — | | | — | |
Deposits with stated maturities | 288,602 | | | 280,860 | | | — | | | 280,860 | | | — | |
Federal funds purchased and repurchase agreements | 31,995 | | | 31,912 | | | — | | | 31,912 | | | — | |
Subordinated debt, net of unamortized issuance costs | 29,267 | | | 24,564 | | | — | | | 24,564 | | | — | |
Accrued interest payable | 437 | | | 437 | | | 437 | | | — | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| Carrying Value | | Estimated Fair Value | | Level 1 | | Level 2 | | Level 3 |
ASSETS | | | | | | | | | |
Cash and cash equivalents | $ | 38,924 | | | $ | 38,924 | | | $ | 38,924 | | | $ | — | | | $ | — | |
Mortgage loans AFS | 379 | | | 395 | | | — | | | 395 | | | — | |
Gross loans | 1,264,173 | | | 1,225,669 | | | — | | | — | | | 1,225,669 | |
Less allowance for credit losses | 9,850 | | | 9,850 | | | — | | | — | | | 9,850 | |
Net loans | 1,254,323 | | | 1,215,819 | | | — | | | — | | | 1,215,819 | |
Accrued interest receivable | 7,472 | | | 7,472 | | | 7,472 | | | — | | | — | |
Equity securities without readily determinable fair values (1) | 15,746 | | | N/A | | — | | | — | | | — | |
OMSR | 2,559 | | | 3,174 | | | — | | | 3,174 | | | — | |
LIABILITIES | | | | | | | | | |
Deposits without stated maturities | 1,492,235 | | | 1,492,235 | | | 1,492,235 | | | — | | | — | |
Deposits with stated maturities | 252,040 | | | 240,964 | | | — | | | 240,964 | | | — | |
Federal funds purchased and repurchase agreements | 57,771 | | | 57,581 | | | — | | | 57,581 | | | — | |
Subordinated debt, net of unamortized issuance costs | 29,245 | | | 26,365 | | | — | | | 26,365 | | | — | |
Accrued interest payable | 255 | | | 255 | | | 255 | | | — | | | — | |
|
| | | | | | | | | | | | | | | | | | | |
| December 31, 2016 |
| Carrying Value | | Estimated Fair Value | | Level 1 | | Level 2 | | Level 3 |
ASSETS | | | | | | | | | |
Cash and cash equivalents | $ | 22,894 |
| | $ | 22,894 |
| | $ | 22,894 |
| | $ | — |
| | $ | — |
|
Mortgage loans AFS | 1,816 |
| | 1,836 |
| | — |
| | 1,836 |
| | — |
|
Gross loans | 1,010,615 |
| | 991,009 |
| | — |
| | — |
| | 991,009 |
|
Less allowance for loan and lease losses | 7,400 |
| | 7,400 |
| | — |
| | — |
| | 7,400 |
|
Net loans | 1,003,215 |
| | 983,609 |
| | — |
| | — |
| | 983,609 |
|
Accrued interest receivable | 6,580 |
| | 6,580 |
| | 6,580 |
| | — |
| | — |
|
Equity securities without readily determinable fair values (1) | 21,694 |
| | N/A |
| | — |
| | — |
| | — |
|
OMSR | 2,306 |
| | 2,306 |
| | — |
| | 2,306 |
| | — |
|
LIABILITIES | | | | | | | | | |
Deposits without stated maturities | 761,626 |
| | 761,626 |
| | 761,626 |
| | — |
| | — |
|
Deposits with stated maturities | 433,414 |
| | 430,088 |
| | — |
| | 430,088 |
| | — |
|
Borrowed funds | 337,694 |
| | 336,975 |
| | — |
| | 336,975 |
| | — |
|
Accrued interest payable | 574 |
| | 574 |
| | 574 |
| | — |
| | — |
|
(1)Due to the characteristics of equity securities without readily determinable fair values, they are not disclosed under a specific fair value hierarchy. When an impairment or write-down related to these securities is recorded, such amount would be classified as a nonrecurring Level 3 fair value adjustment. | |
(1)
| Due to the characteristics of equity securities without readily determinable fair values, they are not disclosed under a specific fair value hierarchy. If we were to record an impairment adjustment related to these securities, such amount would be classified as a nonrecurring Level 3 fair value adjustment. |
Financial Instruments Recorded at Fair Value
The table below presents the recorded amount of assets and liabilities measured at fair value on: |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2017 | | December 31, 2016 |
| Total | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 |
Recurring items | | | | | | | | | | | | | | | |
AFS securities | | | | | | | | | | | | | | | |
Government-sponsored enterprises | $ | 232 |
| | $ | — |
| | $ | 232 |
| | $ | — |
| | $ | 10,259 |
| | $ | — |
| | $ | 10,259 |
| | $ | — |
|
States and political subdivisions | 213,457 |
| | — |
| | 213,457 |
| | — |
| | 212,919 |
| | — |
| | 212,919 |
| | — |
|
Auction rate money market preferred | 3,172 |
| | — |
| | 3,172 |
| | — |
| | 2,794 |
| | — |
| | 2,794 |
| | — |
|
Preferred stocks | 3,651 |
| | 3,651 |
| | — |
| | — |
| | 3,425 |
| | 3,425 |
| | — |
| | — |
|
Mortgage-backed securities | 215,914 |
| | — |
| | 215,914 |
| | — |
| | 227,256 |
| | — |
| | 227,256 |
| | — |
|
Collateralized mortgage obligations | 116,499 |
| | — |
| | 116,499 |
| | — |
| | 101,443 |
| | — |
| | 101,443 |
| | — |
|
Total AFS securities | 552,925 |
| | 3,651 |
| | 549,274 |
| | — |
| | 558,096 |
| | 3,425 |
| | 554,671 |
| | — |
|
Derivative instruments | 215 |
| | — |
| | 215 |
| | — |
| | 248 |
| | — |
| | 248 |
| | — |
|
Nonrecurring items | | | | | | | | | | | | | | | |
Impaired loans (net of the ALLL) | 16,158 |
| | — |
| | — |
| | 16,158 |
| | 9,166 |
| | — |
| | — |
| | 9,166 |
|
Foreclosed assets | 240 |
| | — |
| | — |
| | 240 |
| | 231 |
| | — |
| | — |
| | 231 |
|
Total | $ | 569,538 |
| | $ | 3,651 |
| | $ | 549,489 |
| | $ | 16,398 |
| | $ | 567,741 |
| | $ | 3,425 |
| | $ | 554,919 |
| | $ | 9,397 |
|
Percent of assets and liabilities measured at fair value | | | 0.64 | % | | 96.48 | % | | 2.88 | % | | | | 0.60 | % | | 97.74 | % | | 1.66 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
| Total | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 |
Recurring items | | | | | | | | | | | | | | | |
AFS securities | | | | | | | | | | | | | | | |
U.S. Treasury | $ | 212,086 | | | $ | — | | | $ | 212,086 | | | $ | — | | | $ | 208,701 | | | $ | — | | | $ | 208,701 | | | $ | — | |
States and political subdivisions | 108,719 | | | — | | | 108,719 | | | — | | | 117,512 | | | — | | | 117,512 | | | — | |
Auction rate money market preferred | 2,716 | | | — | | | 2,716 | | | — | | | 2,342 | | | — | | | 2,342 | | | — | |
Mortgage-backed securities | 37,797 | | | — | | | 37,797 | | | — | | | 39,070 | | | — | | | 39,070 | | | — | |
Collateralized mortgage obligations | 200,252 | | | — | | | 200,252 | | | — | | | 205,728 | | | — | | | 205,728 | | | — | |
Corporate | 7,080 | | | — | | | 7,080 | | | — | | | 7,128 | | | — | | | 7,128 | | | — | |
Total AFS securities | 568,650 | | | — | | | 568,650 | | | — | | | 580,481 | | | — | | | 580,481 | | | — | |
Nonrecurring items | | | | | | | | | | | | | | | |
Collateral dependent (net of ACL) in 2023 Impaired loans (net of the ALLL) in 2022 | 280 | | | — | | | — | | | 280 | | | 17,143 | | | — | | | — | | | 17,143 | |
Total | $ | 568,930 | | | $ | — | | | $ | 568,650 | | | $ | 280 | | | $ | 597,624 | | | $ | — | | | $ | 580,481 | | | $ | 17,143 | |
Percent of assets and liabilities measured at fair value | | | — | % | | 99.95 | % | | 0.05 | % | | | | — | % | | 97.13 | % | | 2.87 | % |
We had no assets or liabilities recorded at fair value with changes in fair value recognized through earnings, on a recurring basis as of September 30, 2017. Foreclosed assets, which are recorded at fair value with changes in fair value recognized through earnings on a nonrecurring basis, were written down to $240 as of September 30, 2017 which resulted in an impairment recorded through earnings in the amount of $2 for the nine month period ended September 30, 2017. We had no other assets or liabilities recorded at fair value with changes in fair value recognized through earnings, on a nonrecurring basis, as of September 30, 2017.
Note 12 – Accumulated Other Comprehensive Income
The following table summarizes the changes in AOCI by component for the: |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30 |
| 2017 | | 2016 |
| Unrealized Holding Gains (Losses) on AFS Securities | | Unrealized Gains (Losses) on Derivative Instruments | | Defined Benefit Pension Plan | | Total | | Unrealized Holding Gains (Losses) on AFS Securities | | Unrealized Gains (Losses) on Derivative Instruments | | Defined Benefit Pension Plan | | Total |
Balance, July 1 | $ | 2,923 |
| | $ | 135 |
| | $ | (2,972 | ) | | $ | 86 |
| | $ | 10,982 |
| | $ | (100 | ) | | $ | (3,315 | ) | | $ | 7,567 |
|
OCI before reclassifications | (96 | ) | | 11 |
| | — |
| | (85 | ) | | (2,548 | ) | | 91 |
| | — |
| | (2,457 | ) |
Amounts reclassified from AOCI | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Subtotal | (96 | ) | | 11 |
| | — |
| | (85 | ) | | (2,548 | ) | | 91 |
| | — |
| | (2,457 | ) |
Tax effect | 54 |
| | (4 | ) | | — |
| | 50 |
| | 937 |
| | (31 | ) | | — |
| | 906 |
|
OCI, net of tax | (42 | ) | | 7 |
| | — |
| | (35 | ) | | (1,611 | ) | | 60 |
| | — |
| | (1,551 | ) |
Balance, September 30 | $ | 2,881 |
|
| $ | 142 |
|
| $ | (2,972 | ) |
| $ | 51 |
|
| $ | 9,371 |
|
| $ | (40 | ) |
| $ | (3,315 | ) |
| $ | 6,016 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30 |
| 2017 | | 2016 |
| Unrealized Holding Gains (Losses) on AFS Securities | | Unrealized Gains (Losses) on Derivative Instruments | | Defined Benefit Pension Plan | | Total | | Unrealized Holding Gains (Losses) on AFS Securities | | Unrealized Gains (Losses) on Derivative Instruments | | Defined Benefit Pension Plan | | Total |
Balance, January 1 | $ | 30 |
| | $ | 164 |
| | $ | (2,972 | ) | | $ | (2,778 | ) | | $ | 3,536 |
| | $ | — |
| | $ | (3,315 | ) | | $ | 221 |
|
OCI before reclassifications | 4,151 |
| | (33 | ) | | — |
| | 4,118 |
| | 8,793 |
| | (61 | ) | | — |
| | 8,732 |
|
Amounts reclassified from AOCI | (142 | ) | | — |
| | — |
| | (142 | ) | | (245 | ) | | — |
| | — |
| | (245 | ) |
Subtotal | 4,009 |
| | (33 | ) | | — |
| | 3,976 |
| | 8,548 |
| | (61 | ) | | — |
| | 8,487 |
|
Tax effect | (1,158 | ) | | 11 |
| | — |
| | (1,147 | ) | | (2,713 | ) | | 21 |
| | — |
| | (2,692 | ) |
OCI, net of tax | 2,851 |
| | (22 | ) | | — |
| | 2,829 |
| | 5,835 |
| | (40 | ) | | — |
| | 5,795 |
|
Balance, September 30 | $ | 2,881 |
| | $ | 142 |
| | $ | (2,972 | ) | | $ | 51 |
| | $ | 9,371 |
| | $ | (40 | ) | | $ | (3,315 | ) | | $ | 6,016 |
|
IncludedMarch 31, 2023. Further, we had no unrealized gains and losses included in OCI for recurring Level 3 fair value measurements held at the three and nine month periods ended September 30, 2017 and 2016 are changes in unrealized holding gains and losses related to auction rate money market preferred and preferred stocks. For federal income tax purposes, these securities are considered equity investments. As such, no deferred federal income taxes related to unrealized holding gains or losses are expected or recorded.
A summaryend of the components of unrealized holding gains on AFS securities included in OCI follows for the:reporting period. |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30 |
| 2017 | | 2016 |
| Auction Rate Money Market Preferred and Preferred Stocks | | All Other AFS Securities | | Total | | Auction Rate Money Market Preferred and Preferred Stocks | | All Other AFS Securities | | Total |
Unrealized gains (losses) arising during the period | $ | 63 |
| | $ | (159 | ) | | $ | (96 | ) | | $ | 208 |
| | $ | (2,756 | ) | | $ | (2,548 | ) |
Reclassification adjustment for net realized (gains) losses included in net income | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Net unrealized gains (losses) | 63 |
| | (159 | ) | | (96 | ) | | 208 |
| | (2,756 | ) | | (2,548 | ) |
Tax effect | — |
| | 54 |
| | 54 |
| | — |
| | 937 |
| | 937 |
|
Unrealized gains (losses), net of tax | $ | 63 |
|
| $ | (105 | ) |
| $ | (42 | ) |
| $ | 208 |
|
| $ | (1,819 | ) |
| $ | (1,611 | ) |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30 |
| 2017 | | 2016 |
| Auction Rate Money Market Preferred and Preferred Stocks | | All Other AFS Securities | | Total | | Auction Rate Money Market Preferred and Preferred Stocks | | All Other AFS Securities | | Total |
Unrealized gains (losses) arising during the period | $ | 604 |
| | $ | 3,547 |
| | $ | 4,151 |
| | $ | 568 |
| | $ | 8,225 |
| | $ | 8,793 |
|
Reclassification adjustment for net realized (gains) losses included in net income | — |
| | (142 | ) | | (142 | ) | | — |
| | (245 | ) | | (245 | ) |
Net unrealized gains (losses) | 604 |
| | 3,405 |
| | 4,009 |
| | 568 |
| | 7,980 |
| | 8,548 |
|
Tax effect | — |
| | (1,158 | ) | | (1,158 | ) | | — |
| | (2,713 | ) | | (2,713 | ) |
Unrealized gains (losses), net of tax | $ | 604 |
| | $ | 2,247 |
| | $ | 2,851 |
| | $ | 568 |
| | $ | 5,267 |
| | $ | 5,835 |
|
Note 13 – Parent Company Only Financial Information
Interim Condensed Balance Sheets |
| | | | | | | |
| September 30 2017 | | December 31 2016 |
ASSETS | | | |
Cash on deposit at the Bank | $ | 945 |
| | $ | 1,297 |
|
AFS securities | — |
| | 251 |
|
Investments in subsidiaries | 146,138 |
| | 138,549 |
|
Premises and equipment | 1,961 |
| | 1,991 |
|
Other assets | 52,795 |
| | 52,846 |
|
TOTAL ASSETS | $ | 201,839 |
| | $ | 194,934 |
|
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | |
Other liabilities | $ | 5,376 |
| | $ | 7,035 |
|
Shareholders' equity | 196,463 |
| | 187,899 |
|
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 201,839 |
| | $ | 194,934 |
|
Interim Condensed Statements of Income |
| | | | | | | | | | | | | | | |
| Three Months Ended September 30 | | Nine Months Ended September 30 |
| 2017 | | 2016 | | 2017 | | 2016 |
Income | | | | | | | |
Dividends from subsidiaries | $ | 2,900 |
| | $ | 2,000 |
| | $ | 7,200 |
| | $ | 5,600 |
|
Interest income | — |
| | 3 |
| | 2 |
| | 11 |
|
Management fee and other | 1,660 |
| | 1,680 |
| | 4,901 |
| | 4,962 |
|
Total income | 4,560 |
| | 3,683 |
| | 12,103 |
| | 10,573 |
|
Expenses | | | | | | | |
Compensation and benefits | 1,118 |
| | 1,196 |
| | 3,608 |
| | 3,580 |
|
Occupancy and equipment | 456 |
| | 438 |
| | 1,332 |
| | 1,281 |
|
Audit and related fees | 148 |
| | 193 |
| | 412 |
| | 389 |
|
Other | 556 |
| | 427 |
| | 1,731 |
| | 1,561 |
|
Total expenses | 2,278 |
| | 2,254 |
| | 7,083 |
| | 6,811 |
|
Income before income tax benefit and equity in undistributed earnings of subsidiaries | 2,282 |
| | 1,429 |
| | 5,020 |
| | 3,762 |
|
Federal income tax benefit | 209 |
| | 199 |
| | 737 |
| | 616 |
|
Income before equity in undistributed earnings of subsidiaries | 2,491 |
| | 1,628 |
| | 5,757 |
| | 4,378 |
|
Undistributed earnings of subsidiaries | 1,045 |
| | 1,965 |
| | 4,759 |
| | 5,639 |
|
Net income | $ | 3,536 |
| | $ | 3,593 |
| | $ | 10,516 |
| | $ | 10,017 |
|
Interim Condensed Statements of Cash Flows |
| | | | | | | |
| Nine Months Ended September 30 |
| 2017 | | 2016 |
Operating activities | | | |
Net income | $ | 10,516 |
| | $ | 10,017 |
|
Adjustments to reconcile net income to cash provided by operations | | | |
Undistributed earnings of subsidiaries | (4,759 | ) | | (5,639 | ) |
Undistributed earnings of equity securities without readily determinable fair values | 33 |
| | (287 | ) |
Share-based payment awards under equity compensation plan | 502 |
| | 443 |
|
Depreciation | 116 |
| | 117 |
|
Changes in operating assets and liabilities which provided (used) cash | | | |
Other assets | 19 |
| | 177 |
|
Accrued interest and other liabilities | (1,659 | ) | | (2,575 | ) |
Net cash provided by (used in) operating activities | 4,768 |
| | 2,253 |
|
Investing activities | | | |
Maturities, calls, principal payments, and sales of AFS securities | 249 |
| | — |
|
Purchases of premises and equipment | (86 | ) | | (86 | ) |
Net cash provided by (used in) investing activities | 163 |
| | (86 | ) |
Financing activities | | | |
Cash dividends paid on common stock | (5,950 | ) | | (5,697 | ) |
Proceeds from the issuance of common stock | 4,999 |
| | 3,683 |
|
Common stock repurchased | (4,005 | ) | | (2,749 | ) |
Common stock purchased for deferred compensation obligations | (327 | ) | | (279 | ) |
Net cash provided by (used in) financing activities | (5,283 | ) | | (5,042 | ) |
Increase (decrease) in cash and cash equivalents | (352 | ) | | (2,875 | ) |
Cash and cash equivalents at beginning of period | 1,297 |
| | 4,125 |
|
Cash and cash equivalents at end of period | $ | 945 |
| | $ | 1,250 |
|
Note 1411 – Operating Segments
Our reportable segments are based on legal entities that account for at least 10% of net operating results. The operations of the Bank as of September 30, 2017March 31, 2023 and 2016December 31, 2022 and each offor the threethree-month periods ended March 31, 2023 and nine month periods then ended, represent2022, represents approximately 90% or more of our consolidated total assets and operating results. As such, no additional segment reporting is presented.
Note 12 – Parent Company Only Financial Information
Interim Condensed Balance Sheets | | | | | | | | | | | |
| March 31 2023 | | December 31 2022 |
ASSETS | | | |
Cash on deposit at the Bank | $ | 10,182 | | | $ | 8,525 | |
Investments in subsidiaries | 163,540 | | | 158,125 | |
Premises and equipment | 1,158 | | | 1,171 | |
Other assets | 48,058 | | | 47,922 | |
TOTAL ASSETS | $ | 222,938 | | | $ | 215,743 | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | |
Subordinated debt, net of unamortized issuance costs | $ | 29,267 | | | $ | 29,245 | |
Other liabilities | 338 | | | 288 | |
Shareholders' equity | 193,333 | | | 186,210 | |
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 222,938 | | | $ | 215,743 | |
Interim Condensed Statements of Income | | | | | | | | | | | | | | | |
| | | Three Months Ended March 31 |
| | | | | 2023 | | 2022 |
Income | | | | | | | |
Dividends from subsidiaries | | | | | $ | 5,000 | | | $ | 800 | |
Interest income | | | | | 22 | | | 3 | |
Other income | | | | | 3 | | | 4 | |
Total income | | | | | 5,025 | | | 807 | |
Expenses | | | | | | | |
Interest expense | | | | | 266 | | | 266 | |
Management fee | | | | | 238 | | | 225 | |
Audit, consulting, and legal fees | | | | | 119 | | | 120 | |
Director fees | | | | | 111 | | | 106 | |
Other | | | | | 91 | | | 72 | |
Total expenses | | | | | 825 | | | 789 | |
Income before income tax benefit and equity in undistributed earnings of subsidiaries | | | | | 4,200 | | | 18 | |
Federal income tax benefit | | | | | 168 | | | 163 | |
Income before equity in undistributed earnings of subsidiaries | | | | | 4,368 | | | 181 | |
Undistributed earnings of subsidiaries | | | | | 953 | | | 4,553 | |
Net income | | | | | $ | 5,321 | | | $ | 4,734 | |
Interim Condensed Statements of Cash Flows | | | | | | | | | | | |
| Three Months Ended March 31 |
| 2023 | | 2022 |
Operating activities | | | |
Net income | $ | 5,321 | | | $ | 4,734 | |
Adjustments to reconcile net income to cash provided by operations | | | |
Undistributed earnings of subsidiaries | (953) | | | (4,553) | |
Share-based payment awards under the Directors Plan | 346 | | | 149 | |
Share-based payment awards under the RSP | 42 | | | 31 | |
Amortization of subordinated debt issuance costs | 22 | | | 23 | |
Depreciation | 13 | | | 13 | |
Changes in operating assets and liabilities which provided (used) cash | | | |
Other assets | (135) | | | (140) | |
Other liabilities | 50 | | | 230 | |
Net cash provided by (used in) operating activities | 4,706 | | | 487 | |
Investing activities | | | |
Financing activities | | | |
Cash dividends paid on common stock | (2,066) | | | (2,031) | |
Proceeds from the issuance of common stock | 462 | | | 439 | |
Common stock repurchased | (937) | | | (185) | |
Common stock purchased for deferred compensation obligations | (508) | | | (151) | |
Net cash provided by (used in) financing activities | (3,049) | | | (1,928) | |
Increase (decrease) in cash and cash equivalents | 1,657 | | | (1,441) | |
Cash and cash equivalents at beginning of period | 8,525 | | | 11,535 | |
Cash and cash equivalents at end of period | $ | 10,182 | | | $ | 10,094 | |
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.Operations.
ISABELLA BANK CORPORATION FINANCIAL REVIEW
(Dollars in thousands except per share amounts)amounts)
This section reviewsThe following is management's discussion and analysis of our financial condition and results of our operations for the unaudited three and nine monththree-month periods ended September 30, 2017March 31, 2023 and 2016.2022. This analysis should be read in conjunction with our 2016 Annual Report on Form 10-K for the year ended December 31, 2022 and with the unaudited interim condensed consolidated financial statements and notes, beginning on page 4 of this report.
Executive Summary
During the three and nine months ended September 30, 2017,March 31, 2023, we reported net income of $3,536 and $10,516$5,321 and earnings per common share of $0.45 and $1.34, respectively.$0.70. Net income and earnings per common share for the same periodsperiod of 20162022 were $3,593$4,734 and $10,017 and $0.46 and $1.28,$0.63, respectively. The increase in year-to-date earnings was primarily driven byNet interest income which increased $3,429$1,872, or 13.89%, for the first nine months of 2017three-month period ended March 31, 2023 in comparison to the same period in 2016. Increased2022. Rising interest rates and growth in loans and AFS securities led to a $3,833 increase in gross interest income resulted primarily from strong loan growth during the past year.
During the nine monththree-month period ended September 30, 2017,March 31, 2023 compared to the same period in 2022. While we've benefited from a reduction in higher-cost borrowings, the recent growth in deposits and rising interest rates on deposit accounts led to a $1,961 increase in interest expense for the three-month period ended March 31, 2023 when compared to the same period in 2022.
Noninterest income decreased $254 during the first three months of 2023 compared to the same period in 2022. This decline was driven by a $300 reduction in OMSR income. Noninterest expenses for the first three months of 2023 increased $878, in comparison to the same period in 2022, and was primarily a result of increased compensation, professional services, and FDIC insurance expenses.
As of March 31, 2023, total assets grew by 3.45% to $1,791,967, and assets under management increased to $2,528,385 which includeswere $2,084,624 and $2,915,589, respectively. Assets under management include loans sold and serviced of $259,512 and investment and trust assets managed by Isabella Wealth of $571,453, in addition to assets on our Investment and Trust Services Departmentconsolidated balance sheet. Loans outstanding as of $736,418. TotalMarch 31, 2023 totaled $1,270,651. Since December 31, 2022, gross loans increased by $66,929 from December 31, 2016 which was largely driven by$6,478 as a result of growth of $44,471 in the commercial and consumer loan portfolio, offset by a decline in our agricultural loan portfolio. The growth in the loan portfolio was funded by an increaseTotal deposits were $1,813,528 as of $21,022 in depositsMarch 31, 2023, increasing $69,253 since December 31, 2016, with2022. We experienced deposit growth in savings and CD accounts as a result of establishing new deposit relationships, and customers shifting funds to higher interest earning products. All regulatory capital ratios for the remainder being funded through additional borrowed funds.Bank exceeded the minimum thresholds to be considered a “well capitalized” institution.
Our securities portfolio totaled $568,650 at March 31, 2023 and included unrealized losses of $36,515, or 6.03%, of the portfolio. Market conditions led to a $8,609 improvement in unrealized losses at March 31, 2023 when compared to December 31, 2022. The unrealized loss position on our AFS securities portfolio resulted from increases in short-term and intermediate-term benchmark interest rates. As a result, this change in unrealized losses has reduced our balance of shareholders' equity and negatively impacted our tangible book value. Management does not anticipate the need to sell securities and incur a loss as a result of such sale.
Our net yield on interest earning assets (FTE) remained low at 3.03%was 3.22% for the nine month periodthree months ended September 30, 2017.March 31, 2023, as compared to 2.86% for the three months ended March 31, 2022. The growthmarked improvement is a result of strategies management began implementing in net interest income will increase primarily through continued growth2019, focused on positioning the Bank to benefit in a strategic mixrising interest rate environment, including a reduced reliance on higher-cost borrowed funds and brokered deposits. To maintain a competitive edge in a rising interest rate environment, we increased most of loans, investments,our deposit rates over the past two quarters. As a result, this has negatively impacted our net yield on interest earning assets and other income earning assets. We do not anticipate thatfurther increases could slow the Federal Reserve Bank will increase short term interest rates significantly in the near future; therefore, we anticipate marginal improvementsrate of growth in our net yield on interest earning assets during the remainder of the year.
Recent Events and Legislation
Recent Bank Failures and the Condition of the Banking Industry: In March 2023, disruptions in the short term.industry resulted in FDIC seizures of three banking institutions. Each bank had its own unique balance sheet issues, neither of which exist at Isabella Bank. Shortly after the FDIC takeovers, the Federal Reserve Bank and the Department of Treasury announced enhanced insurance coverage and a borrowing program to help banks in need of funding. Isabella Bank continually performs extensive interest rate, liquidity, and deposit stress testing on a regular basis to ensure our ability to timely address and survive economic uncertainty. We have dramatically improved our liquidity profile by eliminating our reliance on non-market funding while increasing our capacity to quickly acquire funds should the need arise.
Impact of the Adoption of ASC 326 (CECL): We adopted ASU No. 2016-13, as subsequently updated for certain clarifications, targeted relief and codification improvements, as of January 1, 2023. Based on portfolio characteristics and economic conditions and expectations as of January 1, 2023, we recorded a combined pre-tax increase of $3,059 to the ACL and reserve for unfunded commitments on January 1, 2023 upon the adoption of ASU 2016-13; this resulted in a reduction to retained earnings of $2,417, net of tax, as of January 1, 2023. In connection with the adoption of ASC 326, we revised certain accounting policies and implemented certain accounting policy elections, which are committedincluded in “Note 1 – Significant Accounting Policies” of our interim condensed consolidated financial statements.
Impact of COVID-19: Unexpected and unprecedented changes have occurred since early 2020 as the result of COVID-19. The full impact of the pandemic, including the uncertainties surrounding the pandemic, remain in 2023. However, significant progress has been made with vaccinations and medical treatments. Additionally, improved safety guidelines and the easing of restrictions have occurred since the onset of the pandemic. We expect the significance of the pandemic, including the extent of its effect on our financial and operational results, to increasing earningsbe dictated by continued developments related to the COVID-19 pandemic. We continue to closely monitor external events and shareholder value through growthare in continual discussion with our loan portfolio, investmentcustomers to assess, prepare, and trust services, and in deposits while managing operating costs.respond to conditions as they evolve.
Reclassifications:Reclassifications
Certain amounts reported in the 2016interim 2022 consolidated financial statements have been reclassified to conform to the 2023 presentation. Operating results for periods after January 1, 2023 are presented in accordance with ASC 326 while prior period amounts continue to be reported in accordance with previously applicable standards and the 2017 presentation.accounting policies described in our Annual Report on Form 10-K for the year ended December 31, 2022. In addition, the adoption of ASC 326 requires enhanced disclosures related to the significant estimates and judgments used in estimating credit losses.
Subsequent Events
We evaluated subsequent events after March 31, 2023 through the date our interim condensed consolidated financial statements were issued for potential recognition and disclosure. No subsequent events require financial statement recognition or disclosure between March 31, 2023 and the date our interim condensed consolidated financial statements were issued.
Results of Operations (Unaudited)
The following table outlines our quarter-to-date results of operations and provides certain performance measures as of, and for the three monththree-month periods ended: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31 2023 | | December 31 2022 | | September 30 2022 | | June 30 2022 | | March 31 2022 |
INCOME STATEMENT DATA | | | | | | | | | |
Interest income | $ | 18,595 | | | $ | 17,915 | | | $ | 17,019 | | | $ | 16,102 | | | $ | 14,762 | |
Interest expense | 3,244 | | | 1,643 | | | 1,216 | | | 1,175 | | | 1,283 | |
Net interest income | 15,351 | | | 16,272 | | | 15,803 | | | 14,927 | | | 13,479 | |
Provision for credit losses | 41 | | | (57) | | | 18 | | | 485 | | | 37 | |
Noninterest income | 3,293 | | | 3,272 | | | 3,252 | | | 3,595 | | | 3,547 | |
Noninterest expenses | 12,198 | | | 11,922 | | | 11,917 | | | 11,661 | | | 11,320 | |
Federal income tax expense | 1,084 | | | 1,357 | | | 1,233 | | | 1,081 | | | 935 | |
Net income | $ | 5,321 | | | $ | 6,322 | | | $ | 5,887 | | | $ | 5,295 | | | $ | 4,734 | |
PER SHARE | | | | | | | | | |
Basic earnings | $ | 0.70 | | | $ | 0.84 | | | $ | 0.78 | | | $ | 0.70 | | | $ | 0.63 | |
Diluted earnings | $ | 0.70 | | | $ | 0.83 | | | $ | 0.77 | | | $ | 0.69 | | | $ | 0.62 | |
Dividends | $ | 0.28 | | | $ | 0.28 | | | $ | 0.27 | | | $ | 0.27 | | | $ | 0.27 | |
Tangible book value | $ | 19.24 | | | $ | 18.25 | | | $ | 16.96 | | | $ | 18.85 | | | $ | 19.56 | |
Quoted market value | | | | | | | | | |
High | $ | 25.10 | | | $ | 24.02 | | | $ | 24.95 | | | $ | 26.25 | | | $ | 26.00 | |
Low | $ | 22.08 | | | $ | 21.00 | | | $ | 21.39 | | | $ | 23.00 | | | $ | 24.50 | |
Close (1) | $ | 24.80 | | | $ | 23.50 | | | $ | 21.40 | | | $ | 24.80 | | | $ | 25.85 | |
Common shares outstanding (1) | 7,540,015 | | | 7,559,421 | | | 7,564,348 | | | 7,553,113 | | | 7,542,758 | |
PERFORMANCE RATIOS | | | | | | | | | |
Return on average total assets | 1.04 | % | | 1.24 | % | | 1.13 | % | | 1.04 | % | | 0.92 | % |
Return on average shareholders' equity | 11.35 | % | | 14.01 | % | | 12.13 | % | | 10.83 | % | | 9.02 | % |
Return on average tangible shareholders' equity | 15.28 | % | | 19.14 | % | | 16.15 | % | | 14.38 | % | | 11.72 | % |
Net interest margin yield (FTE) | 3.22 | % | | 3.43 | % | | 3.28 | % | | 3.16 | % | | 2.86 | % |
BALANCE SHEET DATA (1) | | | | | | | | | |
Gross loans | $ | 1,270,651 | | | $ | 1,264,173 | | | $ | 1,236,151 | | | $ | 1,271,910 | | | $ | 1,218,371 | |
AFS securities | $ | 568,650 | | | $ | 580,481 | | | $ | 581,233 | | | $ | 557,590 | | | $ | 544,919 | |
Total assets | $ | 2,084,624 | | | $ | 2,030,267 | | | $ | 2,063,977 | | | $ | 2,048,373 | | | $ | 2,060,933 | |
Deposits | $ | 1,813,528 | | | $ | 1,744,275 | | | $ | 1,791,033 | | | $ | 1,759,866 | | | $ | 1,764,161 | |
Borrowed funds | $ | 61,262 | | | $ | 87,016 | | | $ | 81,704 | | | $ | 86,450 | | | $ | 90,534 | |
Shareholders' equity | $ | 193,333 | | | $ | 186,210 | | | $ | 176,612 | | | $ | 190,680 | | | $ | 195,842 | |
Gross loans to deposits | 70.07 | % | | 72.48 | % | | 69.02 | % | | 72.27 | % | | 69.06 | % |
ASSETS UNDER MANAGEMENT (1) | | | | | | | | | |
Loans sold with servicing retained | $ | 259,512 | | | $ | 264,206 | | | $ | 268,879 | | | $ | 273,294 | | | $ | 275,556 | |
Assets managed by Isabella Wealth | $ | 571,453 | | | $ | 513,918 | | | $ | 464,136 | | | $ | 454,535 | | | $ | 501,829 | |
Total assets under management | $ | 2,915,589 | | | $ | 2,808,391 | | | $ | 2,796,992 | | | $ | 2,776,202 | | | $ | 2,838,318 | |
ASSET QUALITY (1) | | | | | | | | | |
Nonperforming loans to gross loans | 0.04 | % | | 0.04 | % | | 0.05 | % | | 0.05 | % | | 0.06 | % |
Nonperforming assets to total assets | 0.05 | % | | 0.05 | % | | 0.04 | % | | 0.05 | % | | 0.05 | % |
ACL to gross loans | 0.99 | % | | 0.78 | % | | 0.78 | % | | 0.76 | % | | 0.76 | % |
CAPITAL RATIOS (1) | | | | | | | | | |
Shareholders' equity to assets | 9.27 | % | | 9.17 | % | | 8.56 | % | | 9.31 | % | | 9.50 | % |
Tier 1 leverage | 8.58 | % | | 8.61 | % | | 8.44 | % | | 8.38 | % | | 8.12 | % |
Common equity tier 1 capital | 12.71 | % | | 12.91 | % | | 12.92 | % | | 12.44 | % | | 12.83 | % |
Tier 1 risk-based capital | 12.71 | % | | 12.91 | % | | 12.92 | % | | 12.44 | % | | 12.83 | % |
Total risk-based capital | 15.77 | % | | 15.79 | % | | 15.85 | % | | 15.33 | % | | 15.84 | % |
|
| | | | | | | | | | | | | | | | | | | |
| September 30 2017 | | June 30 2017 | | March 31 2017 | | December 31 2016 | | September 30 2016 |
INCOME STATEMENT DATA | | | | | | | | | |
Interest income | $ | 14,976 |
| | $ | 14,498 |
| | $ | 13,861 |
| | $ | 13,760 |
| | $ | 13,607 |
|
Interest expense | 3,200 |
| | 3,028 |
| | 2,831 |
| | 2,826 |
| | 2,747 |
|
Net interest income | 11,776 |
| | 11,470 |
| | 11,030 |
| | 10,934 |
| | 10,860 |
|
Provision for loan losses | 49 |
| | 9 |
| | 27 |
| | (320 | ) | | 17 |
|
Noninterest income | 2,698 |
| | 2,788 |
| | 2,616 |
| | 3,187 |
| | 2,946 |
|
Noninterest expenses | 10,139 |
| | 9,507 |
| | 9,951 |
| | 10,166 |
| | 9,433 |
|
Federal income tax expense | 750 |
| | 898 |
| | 532 |
| | 493 |
| | 763 |
|
Net Income | $ | 3,536 |
| | $ | 3,844 |
| | $ | 3,136 |
| | $ | 3,782 |
| | $ | 3,593 |
|
PER SHARE | | | | | | | | | |
Basic earnings | $ | 0.45 |
| | $ | 0.49 |
| | $ | 0.40 |
| | $ | 0.48 |
| | $ | 0.46 |
|
Diluted earnings | $ | 0.44 |
| | $ | 0.48 |
| | $ | 0.39 |
| | $ | 0.47 |
| | $ | 0.45 |
|
Dividends | $ | 0.26 |
| | $ | 0.25 |
| | $ | 0.25 |
| | $ | 0.25 |
| | $ | 0.25 |
|
Tangible book value* | $ | 18.82 |
| | $ | 18.62 |
| | $ | 18.34 |
| | $ | 18.16 |
| | $ | 17.93 |
|
Quoted market value | | | | | | | | | |
High | $ | 29.10 |
| | $ | 28.45 |
| | $ | 29.00 |
| | $ | 28.35 |
| | $ | 28.08 |
|
Low | $ | 27.65 |
| | $ | 27.60 |
| | $ | 27.60 |
| | $ | 27.60 |
| | $ | 27.60 |
|
Close* | $ | 29.00 |
| | $ | 28.00 |
| | $ | 27.60 |
| | $ | 27.85 |
| | $ | 27.70 |
|
Common shares outstanding* | 7,856,664 |
| | 7,862,553 |
| | 7,843,120 |
| | 7,821,069 |
| | 7,833,481 |
|
PERFORMANCE RATIOS | | | | | | | | | |
Return on average total assets | 0.79 | % | | 0.87 | % | | 0.72 | % | | 0.88 | % | | 0.85 | % |
Return on average shareholders' equity | 7.11 | % | | 7.85 | % | | 6.56 | % | | 7.77 | % | | 7.27 | % |
Return on average tangible shareholders' equity | 9.61 | % | | 10.59 | % | | 8.77 | % | | 10.70 | % | | 10.28 | % |
Net interest margin yield (FTE) | 3.08 | % | | 3.03 | % | | 2.99 | % | | 3.01 | % | | 3.05 | % |
BALANCE SHEET DATA* | | | | | | | | | |
Gross loans | $ | 1,077,544 |
| | $ | 1,048,497 |
| | $ | 1,012,920 |
| | $ | 1,010,615 |
| | $ | 989,366 |
|
AFS securities | $ | 552,925 |
| | $ | 567,862 |
| | $ | 590,114 |
| | $ | 558,096 |
| | $ | 564,229 |
|
Total assets | $ | 1,791,967 |
| | $ | 1,777,298 |
| | $ | 1,760,860 |
| | $ | 1,732,151 |
| | $ | 1,706,498 |
|
Deposits | $ | 1,216,062 |
| | $ | 1,210,152 |
| | $ | 1,231,061 |
| | $ | 1,195,040 |
| | $ | 1,175,833 |
|
Borrowed funds | $ | 367,027 |
| | $ | 360,940 |
| | $ | 327,375 |
| | $ | 337,694 |
| | $ | 325,409 |
|
Shareholders' equity | $ | 196,463 |
| | $ | 195,070 |
| | $ | 190,976 |
| | $ | 187,899 |
| | $ | 195,184 |
|
Gross loans to deposits | 88.61 | % | | 86.64 | % | | 82.28 | % | | 84.57 | % | | 84.14 | % |
ASSETS UNDER MANAGEMENT* | | | | | | | | | |
Loans sold with servicing retained | $ | 268,817 |
| | $ | 269,595 |
| | $ | 270,217 |
| | $ | 272,882 |
| | $ | 275,037 |
|
Assets managed by our Investment and Trust Services Department | $ | 467,601 |
| | $ | 454,294 |
| | $ | 444,749 |
| | $ | 427,693 |
| | $ | 424,573 |
|
Total assets under management | $ | 2,528,385 |
| | $ | 2,501,187 |
| | $ | 2,475,826 |
| | $ | 2,432,726 |
| | $ | 2,406,108 |
|
ASSET QUALITY* | | | | | | | | | |
Nonperforming loans to gross loans | 0.21 | % | | 0.26 | % | | 0.24 | % | | 0.17 | % | | 0.16 | % |
Nonperforming assets to total assets | 0.14 | % | | 0.17 | % | | 0.15 | % | | 0.11 | % | | 0.11 | % |
ALLL to gross loans | 0.71 | % | | 0.72 | % | | 0.74 | % | | 0.73 | % | | 0.79 | % |
CAPITAL RATIOS* | | | | | | | | | |
Shareholders' equity to assets | 10.96 | % | | 10.98 | % | | 10.85 | % | | 10.85 | % | | 11.44 | % |
Tier 1 leverage | 8.50 | % | | 8.50 | % | | 8.54 | % | | 8.56 | % | | 8.59 | % |
Common equity tier 1 capital | 12.20 | % | | 12.43 | % | | 12.49 | % | | 12.39 | % | | 12.41 | % |
Tier 1 risk-based capital | 12.20 | % | | 12.43 | % | | 12.49 | % | | 12.39 | % | | 12.41 | % |
Total risk-based capital | 12.84 | % | | 13.07 | % | | 13.14 | % | | 13.04 | % | | 13.10 | % |
*(1) At end of period
The following table outlines our year-to-date results of operations and provides certain performance measures as of, and for the nine monththree-month periods ended: | | | | | | | | | | | | | | | | | |
| March 31 2023 | | March 31 2022 | | March 31 2021 |
INCOME STATEMENT DATA | | | | | |
Interest income | $ | 18,595 | | | $ | 14,762 | | | $ | 15,290 | |
Interest expense | 3,244 | | | 1,283 | | | 2,089 | |
Net interest income | 15,351 | | | 13,479 | | | 13,201 | |
Provision for credit losses | 41 | | | 37 | | | (523) | |
Noninterest income | 3,293 | | | 3,547 | | | 3,532 | |
Noninterest expenses | 12,198 | | | 11,320 | | | 10,817 | |
Federal income tax expense | 1,084 | | | 935 | | | 1,041 | |
Net income | $ | 5,321 | | | $ | 4,734 | | | $ | 5,398 | |
PER SHARE | | | | | |
Basic earnings | $ | 0.70 | | | $ | 0.63 | | | $ | 0.68 | |
Diluted earnings | $ | 0.70 | | | $ | 0.62 | | | $ | 0.67 | |
Dividends | $ | 0.28 | | | $ | 0.27 | | | $ | 0.27 | |
Tangible book value | $ | 19.24 | | | $ | 19.56 | | | $ | 21.35 | |
Quoted market value | | | | | |
High | $ | 25.10 | | | $ | 26.00 | | | $ | 22.50 | |
Low | $ | 22.08 | | | $ | 24.50 | | | $ | 19.45 | |
Close (1) | $ | 24.80 | | | $ | 25.85 | | | $ | 21.75 | |
Common shares outstanding (1) | 7,540,015 | | | 7,542,758 | | | 7,958,883 | |
PERFORMANCE RATIOS | | | | | |
Return on average total assets | 1.04 | % | | 0.92 | % | | 1.09 | % |
Return on average shareholders' equity | 11.35 | % | | 9.02 | % | | 9.78 | % |
Return on average tangible shareholders' equity | 15.28 | % | | 11.72 | % | | 12.53 | % |
Net interest margin yield (FTE) | 3.22 | % | | 2.86 | % | | 2.98 | % |
BALANCE SHEET DATA (1) | | | | | |
Gross loans | $ | 1,270,651 | | | $ | 1,218,371 | | | $ | 1,195,918 | |
AFS securities | $ | 568,650 | | | $ | 544,919 | | | $ | 367,324 | |
Total assets | $ | 2,084,624 | | | $ | 2,060,933 | | | $ | 2,015,432 | |
Deposits | $ | 1,813,528 | | | $ | 1,764,161 | | | $ | 1,643,581 | |
Borrowed funds | $ | 61,262 | | | $ | 90,534 | | | $ | 141,967 | |
Shareholders' equity | $ | 193,333 | | | $ | 195,842 | | | $ | 218,282 | |
Gross loans to deposits | 70.07 | % | | 69.06 | % | | 72.76 | % |
ASSETS UNDER MANAGEMENT (1) | | | | | |
Loans sold with servicing retained | $ | 259,512 | | | $ | 275,556 | | | $ | 298,514 | |
Assets managed by Isabella Wealth | $ | 571,453 | | | $ | 501,829 | | | $ | 454,459 | |
Total assets under management | $ | 2,915,589 | | | $ | 2,838,318 | | | $ | 2,768,405 | |
ASSET QUALITY (1) | | | | | |
Nonperforming loans to gross loans | 0.04 | % | | 0.06 | % | | 0.38 | % |
Nonperforming assets to total assets | 0.05 | % | | 0.05 | % | | 0.26 | % |
ACL to gross loans | 0.99 | % | | 0.76 | % | | 0.78 | % |
CAPITAL RATIOS (1) | | | | | |
Shareholders' equity to assets | 9.27 | % | | 9.50 | % | | 10.83 | % |
Tier 1 leverage | 8.58 | % | | 8.12 | % | | 8.56 | % |
Common equity tier 1 capital | 12.71 | % | | 12.83 | % | | 13.77 | % |
Tier 1 risk-based capital | 12.71 | % | | 12.83 | % | | 13.77 | % |
Total risk-based capital | 15.77 | % | | 15.84 | % | | 14.54 | % |
|
| | | | | | | | | | | | | | | | | | | |
| September 30 2017 | | September 30 2016 | | September 30 2015 | | September 30 2014 | | September 30 2013 |
INCOME STATEMENT DATA | | | | | | | | | |
Interest income | $ | 43,335 |
| | $ | 39,906 |
| | $ | 38,479 |
| | $ | 38,118 |
| | $ | 37,695 |
|
Interest expense | 9,059 |
| | 8,039 |
| | 7,586 |
| | 7,466 |
| | 8,338 |
|
Net interest income | 34,276 |
| | 31,867 |
| | 30,893 |
| | 30,652 |
| | 29,357 |
|
Provision for loan losses | 85 |
| | 185 |
| | (1,999 | ) | | (604 | ) | | 866 |
|
Noninterest income | 8,102 |
| | 7,921 |
| | 7,858 |
| | 6,899 |
| | 8,045 |
|
Noninterest expenses | 29,597 |
| | 27,731 |
| | 26,166 |
| | 26,180 |
| | 25,057 |
|
Federal income tax expense | 2,180 |
| | 1,855 |
| | 2,750 |
| | 1,696 |
| | 1,893 |
|
Net Income | $ | 10,516 |
| | $ | 10,017 |
|
| $ | 11,834 |
| | $ | 10,279 |
| | $ | 9,586 |
|
PER SHARE | | | | | | | | | |
Basic earnings | $ | 1.34 |
| | $ | 1.28 |
| | $ | 1.52 |
| | $ | 1.33 |
| | $ | 1.25 |
|
Diluted earnings | $ | 1.31 |
| | $ | 1.25 |
| | $ | 1.49 |
| | $ | 1.30 |
| | $ | 1.22 |
|
Dividends | $ | 0.76 |
| | $ | 0.73 |
| | $ | 0.70 |
| | $ | 0.66 |
| | $ | 0.63 |
|
Tangible book value* | $ | 18.82 |
| | $ | 17.93 |
| | $ | 17.06 |
| | $ | 16.33 |
| | $ | 15.43 |
|
Quoted market value | | | | | | | | | |
High | $ | 29.10 |
| | $ | 29.90 |
| | $ | 23.85 |
| | $ | 24.00 |
| | $ | 26.00 |
|
Low | $ | 27.60 |
| | $ | 27.25 |
| | $ | 22.00 |
| | $ | 21.73 |
| | $ | 21.55 |
|
Close* | $ | 29.00 |
| | $ | 27.70 |
| | $ | 23.69 |
| | $ | 23.60 |
| | $ | 24.85 |
|
Common shares outstanding* | 7,856,664 |
| | 7,833,481 |
| | 7,765,333 |
| | 7,740,730 |
| | 7,709,781 |
|
PERFORMANCE RATIOS | | | | | | | | | |
Return on average total assets | 0.79 | % | | 0.80 | % | | 1.00 | % | | 0.90 | % | | 0.89 | % |
Return on average shareholders' equity | 7.18 | % | | 6.90 | % | | 8.80 | % | | 8.13 | % | | 7.84 | % |
Return on average tangible shareholders' equity | 9.67 | % | | 9.68 | % | | 12.06 | % | | 10.95 | % | | 11.02 | % |
Net interest margin yield (FTE) | 3.03 | % | | 3.00 | % | | 3.12 | % | | 3.20 | % | | 3.22 | % |
BALANCE SHEET DATA* | | | | | | | | | |
Gross loans | $ | 1,077,544 |
| | $ | 989,366 |
| | $ | 836,671 |
| | $ | 825,238 |
| | $ | 810,335 |
|
AFS securities | $ | 552,925 |
| | $ | 564,229 |
| | $ | 628,612 |
| | $ | 575,080 |
| | $ | 501,057 |
|
Total assets | $ | 1,791,967 |
| | $ | 1,706,498 |
| | $ | 1,619,250 |
| | $ | 1,553,974 |
| | $ | 1,459,341 |
|
Deposits | $ | 1,216,062 |
| | $ | 1,175,833 |
| | $ | 1,128,003 |
| | $ | 1,081,890 |
| | $ | 1,023,931 |
|
Borrowed funds | $ | 367,027 |
| | $ | 325,409 |
| | $ | 297,610 |
| | $ | 290,438 |
| | $ | 266,001 |
|
Shareholders' equity | $ | 196,463 |
| | $ | 195,184 |
| | $ | 182,998 |
| | $ | 172,076 |
| | $ | 161,305 |
|
Gross loans to deposits | 88.61 | % | | 84.14 | % | | 74.17 | % | | 76.28 | % | | 79.14 | % |
ASSETS UNDER MANAGEMENT* | | | | | | | | | |
Loans sold with servicing retained | $ | 268,817 |
| | $ | 275,037 |
| | $ | 289,268 |
| | $ | 290,697 |
| | $ | 294,999 |
|
Assets managed by our Investment and Trust Services Department | $ | 467,601 |
| | $ | 424,573 |
| | $ | 392,124 |
| | $ | 374,878 |
| | $ | 351,505 |
|
Total assets under management | $ | 2,528,385 |
| | $ | 2,406,108 |
| | $ | 2,300,642 |
| | $ | 2,219,549 |
| | $ | 2,105,845 |
|
ASSET QUALITY* | | | | | | | | | |
Nonperforming loans to gross loans | 0.21 | % | | 0.16 | % | | 0.10 | % | | 0.56 | % | | 0.53 | % |
Nonperforming assets to total assets | 0.14 | % | | 0.11 | % | | 0.09 | % | | 0.37 | % | | 0.37 | % |
ALLL to gross loans | 0.71 | % | | 0.79 | % | | 0.98 | % | | 1.26 | % | | 1.44 | % |
CAPITAL RATIOS* | | | | | | | | | |
Shareholders' equity to assets | 10.96 | % | | 11.44 | % | | 11.30 | % | | 11.07 | % | | 11.05 | % |
Tier 1 leverage | 8.50 | % | | 8.59 | % | | 8.54 | % | | 8.47 | % | | 8.45 | % |
Common equity tier 1 capital | 12.20 | % | | 12.41 | % | | 13.57 | % | | N/A |
| | N/A |
|
Tier 1 risk-based capital | 12.20 | % | | 12.41 | % | | 13.57 | % | | 13.86 | % | | 13.75 | % |
Total risk-based capital | 12.84 | % | | 13.10 | % | | 14.20 | % | | 15.11 | % | | 15.00 | % |
*(1) At end of period
Average Balances, Interest Rate,Rates, and Net Interest Income
The following schedules present the daily average amount outstanding for each major category of interest earning assets, non-earning assets, interest bearing liabilities, and noninterest bearing liabilities. These schedules also present an analysis of interest income and interest expense for the periods indicated. All interest income is reported on a FTE basis using a 34% federal income tax rate.rate of 21%. Loans in nonaccrual status, for the purpose of the following computations, are included in the average loan balances. FRB and FHLB restricted equity holdings are included in accrued income and other interest earning assets. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended |
| September 30, 2017 |
| June 30, 2017 |
| September 30, 2016 |
| Average Balance |
| Tax Equivalent Interest |
| Average Yield / Rate |
| Average Balance |
| Tax Equivalent Interest |
| Average Yield / Rate |
| Average Balance |
| Tax Equivalent Interest |
| Average Yield / Rate |
INTEREST EARNING ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans | $ | 1,062,439 |
|
| $ | 11,297 |
|
| 4.25 | % |
| $ | 1,028,875 |
|
| $ | 10,685 |
|
| 4.15 | % |
| $ | 948,465 |
|
| $ | 9,965 |
|
| 4.20 | % |
Taxable investment securities | 353,266 |
|
| 2,075 |
|
| 2.35 | % |
| 374,156 |
|
| 2,226 |
|
| 2.38 | % |
| 365,612 |
|
| 2,037 |
|
| 2.23 | % |
Nontaxable investment securities | 202,180 |
|
| 2,302 |
|
| 4.55 | % |
| 206,668 |
|
| 2,314 |
|
| 4.48 | % |
| 203,236 |
|
| 2,312 |
|
| 4.55 | % |
Fed Funds Sold | 4 |
| | — |
| | — | % | | 95 |
| | — |
| | — | % | | — |
| | — |
| | — | % |
Other | 27,086 |
|
| 198 |
|
| 2.92 | % |
| 23,299 |
|
| 174 |
|
| 2.99 | % |
| 25,134 |
|
| 194 |
|
| 3.09 | % |
Total earning assets | 1,644,975 |
|
| 15,872 |
|
| 3.86 | % |
| 1,633,093 |
|
| 15,399 |
|
| 3.77 | % |
| 1,542,447 |
|
| 14,508 |
|
| 3.76 | % |
NONEARNING ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses | (7,632 | ) |
|
|
|
|
| (7,554 | ) |
|
|
|
|
| (7,731 | ) |
|
|
|
|
Cash and demand deposits due from banks | 19,919 |
|
|
|
|
|
| 18,425 |
|
|
|
|
|
| 18,672 |
|
|
|
|
|
Premises and equipment | 28,859 |
|
|
|
|
|
| 28,895 |
|
|
|
|
|
| 28,865 |
|
|
|
|
|
Accrued income and other assets | 101,417 |
|
|
|
|
|
| 99,468 |
|
|
|
|
|
| 104,125 |
|
|
|
|
|
Total assets | $ | 1,787,538 |
|
|
|
|
|
| $ | 1,772,327 |
|
|
|
|
|
| $ | 1,686,378 |
|
|
|
|
|
INTEREST BEARING LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing demand deposits | $ | 218,570 |
|
| $ | 64 |
|
| 0.12 | % |
| $ | 209,638 |
|
| $ | 55 |
|
| 0.10 | % |
| $ | 203,994 |
|
| $ | 41 |
|
| 0.08 | % |
Savings deposits | 360,689 |
|
| 303 |
|
| 0.34 | % |
| 360,870 |
|
| 259 |
|
| 0.29 | % |
| 330,872 |
|
| 178 |
|
| 0.22 | % |
Time deposits | 428,758 |
|
| 1,348 |
|
| 1.26 | % |
| 436,716 |
|
| 1,301 |
|
| 1.19 | % |
| 433,591 |
|
| 1,277 |
|
| 1.18 | % |
Borrowed funds | 361,706 |
|
| 1,485 |
|
| 1.64 | % |
| 356,096 |
|
| 1,413 |
|
| 1.59 | % |
| 314,218 |
|
| 1,251 |
|
| 1.59 | % |
Total interest bearing liabilities | 1,369,723 |
|
| 3,200 |
|
| 0.93 | % |
| 1,363,320 |
|
| 3,028 |
|
| 0.89 | % |
| 1,282,675 |
|
| 2,747 |
|
| 0.86 | % |
NONINTEREST BEARING LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits | 208,078 |
|
|
|
|
|
| 202,597 |
|
|
|
|
|
| 196,682 |
|
|
|
|
|
Other | 10,763 |
|
|
|
|
|
| 10,579 |
|
|
|
|
|
| 9,332 |
|
|
|
|
|
Shareholders’ equity | 198,974 |
|
|
|
|
|
| 195,831 |
|
|
|
|
|
| 197,689 |
|
|
|
|
|
Total liabilities and shareholders’ equity | $ | 1,787,538 |
|
|
|
|
|
| $ | 1,772,327 |
|
|
|
|
|
| $ | 1,686,378 |
|
|
|
|
|
Net interest income (FTE) |
|
| $ | 12,672 |
|
|
|
|
|
| $ | 12,371 |
|
|
|
|
|
| $ | 11,761 |
|
|
|
Net yield on interest earning assets (FTE) |
|
|
|
| 3.08 | % |
|
|
|
|
| 3.03 | % |
|
|
|
|
| 3.05 | % |
|
| | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended |
| September 30, 2017 | | September 30, 2016 |
| Average Balance | | Tax Equivalent Interest | | Average Yield / Rate | | Average Balance | | Tax Equivalent Interest | | Average Yield / Rate |
INTEREST EARNING ASSETS | | | | | | | | | | | |
Loans | $ | 1,029,824 |
| | $ | 32,102 |
| | 4.16 | % | | $ | 900,021 |
| | $ | 28,320 |
| | 4.20 | % |
Taxable investment securities | 363,851 |
| | 6,452 |
| | 2.36 | % | | 405,722 |
| | 6,740 |
| | 2.21 | % |
Nontaxable investment securities | 204,728 |
| | 6,929 |
| | 4.51 | % | | 207,769 |
| | 7,091 |
| | 4.55 | % |
Fed Funds Sold | 823 |
| | 4 |
| | 0.65 | % | | — |
| | — |
| | — | % |
Other | 25,796 |
| | 543 |
| | 2.81 | % | | 25,208 |
| | 509 |
| | 2.69 | % |
Total earning assets | 1,625,022 |
| | 46,030 |
| | 3.78 | % | | 1,538,720 |
| | 42,660 |
| | 3.70 | % |
NONEARNING ASSETS | | | | | | | | | | | |
Allowance for loan losses | (7,556 | ) | | | | | | (7,576 | ) | | | | |
Cash and demand deposits due from banks | 19,003 |
| | | | | | 18,130 |
| | | | |
Premises and equipment | 28,996 |
| | | | | | 28,495 |
| | | | |
Accrued income and other assets | 99,537 |
| | | | | | 102,072 |
| | | | |
Total assets | $ | 1,765,002 |
| | | | | | $ | 1,679,841 |
| | | | |
INTEREST BEARING LIABILITIES | | | | | | | | | | | |
Interest bearing demand deposits | $ | 213,960 |
| | $ | 172 |
| | 0.11 | % | | $ | 205,444 |
| | $ | 123 |
| | 0.08 | % |
Savings deposits | 358,544 |
| | 784 |
| | 0.29 | % | | 337,863 |
| | 466 |
| | 0.18 | % |
Time deposits | 433,799 |
| | 3,914 |
| | 1.20 | % | | 427,441 |
| | 3,724 |
| | 1.16 | % |
Borrowed funds | 348,846 |
| | 4,189 |
| | 1.60 | % | | 315,061 |
| | 3,726 |
| | 1.58 | % |
Total interest bearing liabilities | 1,355,149 |
| | 9,059 |
| | 0.89 | % | | 1,285,809 |
| | 8,039 |
| | 0.83 | % |
NONINTEREST BEARING LIABILITIES | | | | | | | | | | | |
Demand deposits | 203,784 |
| | | | | | 191,082 |
| | | | |
Other | 10,729 |
| | | | | | 9,435 |
| | | | |
Shareholders’ equity | 195,340 |
| | | | | | 193,515 |
| | | | |
Total liabilities and shareholders’ equity | $ | 1,765,002 |
| | | | | | $ | 1,679,841 |
| | | | |
Net interest income (FTE) | | | $ | 36,971 |
| | | | | | $ | 34,621 |
| | |
Net yield on interest earning assets (FTE) | | | | | 3.03 | % | | | | | | 3.00 | % |
Net Interest Income | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended |
| March 31, 2023 | | December 31, 2022 | | March 31, 2022 |
| Average Balance | | Tax Equivalent Interest | | Average Yield / Rate | | Average Balance | | Tax Equivalent Interest | | Average Yield / Rate | | Average Balance | | Tax Equivalent Interest | | Average Yield / Rate |
INTEREST EARNING ASSETS | | | | | | | | | | | | | | | | | |
Loans | $ | 1,268,269 | | | $ | 14,889 | | | 4.70 | % | | $ | 1,244,972 | | | $ | 14,163 | | | 4.55 | % | | $ | 1,235,788 | | | $ | 12,378 | | | 4.01 | % |
Taxable investment securities | 504,889 | | | 2,471 | | | 1.96 | % | | 520,139 | | | 2,499 | | | 1.92 | % | | 421,503 | | | 1,615 | | | 1.53 | % |
Nontaxable investment securities | 106,240 | | | 1,021 | | | 3.84 | % | | 107,508 | | | 999 | | | 3.72 | % | | 101,604 | | | 920 | | | 3.62 | % |
Fed funds sold | 17 | | | — | | | 4.50 | % | | 14 | | | — | | | 4.00 | % | | 3 | | | — | | | 0.06 | % |
Other | 60,583 | | | 486 | | | 3.21 | % | | 56,142 | | | 522 | | | 3.72 | % | | 163,353 | | | 109 | | | 0.27 | % |
Total earning assets | 1,939,998 | | | 18,867 | | | 3.89 | % | | 1,928,775 | | | 18,183 | | | 3.77 | % | | 1,922,251 | | | 15,022 | | | 3.13 | % |
NONEARNING ASSETS | | | | | | | | | | | | | | | | | |
Allowance for credit losses | (12,660) | | | | | | | (9,792) | | | | | | | (9,128) | | | | | |
Cash and demand deposits due from banks | 25,039 | | | | | | | 24,312 | | | | | | | 26,839 | | | | | |
Premises and equipment | 25,864 | | | | | | | 25,382 | | | | | | | 24,461 | | | | | |
Accrued income and other assets | 71,063 | | | | | | | 63,553 | | | | | | | 102,805 | | | | | |
Total assets | $ | 2,049,304 | | | | | | | $ | 2,032,230 | | | | | | | $ | 2,067,228 | | | | | |
INTEREST BEARING LIABILITIES | | | | | | | | | | | | | | | | | |
Interest bearing demand deposits | $ | 379,717 | | | $ | 146 | | | 0.15 | % | | $ | 358,809 | | | $ | 104 | | | 0.12 | % | | $ | 383,474 | | | $ | 50 | | | 0.05 | % |
Savings deposits | 645,987 | | | 1,466 | | | 0.91 | % | | 635,771 | | | 535 | | | 0.34 | % | | 615,335 | | | 159 | | | 0.10 | % |
Time deposits | 267,463 | | | 1,217 | | | 1.82 | % | | 254,604 | | | 684 | | | 1.07 | % | | 290,146 | | | 727 | | | 1.00 | % |
Federal funds purchased and repurchase agreements | 39,709 | | | 149 | | | 1.50 | % | | 55,478 | | | 53 | | | 0.38 | % | | 49,058 | | | 9 | | | 0.07 | % |
FHLB advances | — | | | — | | | — | % | | — | | | — | | | — | % | | 14,889 | | | 72 | | | 1.93 | % |
Subordinated debt, net of unamortized issuance costs | 29,253 | | | 266 | | | 3.64 | % | | 29,233 | | | 267 | | | 3.65 | % | | 29,166 | | | 266 | | | 3.65 | % |
Total interest bearing liabilities | 1,362,129 | | | 3,244 | | | 0.95 | % | | 1,333,895 | | | 1,643 | | | 0.49 | % | | 1,382,068 | | | 1,283 | | | 0.37 | % |
NONINTEREST BEARING LIABILITIES | | | | | | | | | | | | | | | | | |
Demand deposits | 486,491 | | | | | | | 504,791 | | | | | | | 458,343 | | | | | |
Other | 13,094 | | | | | | | 13,103 | | | | | | | 16,898 | | | | | |
Shareholders’ equity | 187,590 | | | | | | | 180,441 | | | | | | | 209,919 | | | | | |
Total liabilities and shareholders’ equity | $ | 2,049,304 | | | | | | | $ | 2,032,230 | | | | | | | $ | 2,067,228 | | | | | |
Net interest income (FTE) | | | $ | 15,623 | | | | | | | $ | 16,540 | | | | | | | $ | 13,739 | | | |
Net yield on interest earning assets (FTE) | | | | | 3.22 | % | | | | | | 3.43 | % | | | | | | 2.86 | % |
Net interest income is the amount by which interest income on earning assets exceeds the interest expensesexpense on interest bearing liabilities. Net interest income which includes loan fees, is influenced by changes in the balance and mix of assets and liabilities, andas well as market
interest rates. WeWhile we exert some control over these factors; however,factors, FRB monetary policy and competition have a significant impact. For analytical purposes, net interest income is adjusted to an FTE basis by addingincluding the income tax savings from interest on tax exempt loans and nontaxable investment securities, thus making year to year comparisons more meaningful.
Volume and Rate Variance Analysis
The following table sets forth the effect of volume and rate changes on interest income and expense for the periods indicated. For the purpose of this table, changesChanges in interest due to volume and rate were determined as follows:
Volume—change in volume multiplied by the previous period's rate.
Rate—change in the FTE rate multiplied by the previous period's volume.
The change in interest due to both volume and rate has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2023 Compared to December 31, 2022 Increase (Decrease) Due to | | | | Three Months Ended March 31, 2023 Compared to March 31, 2022 Increase (Decrease) Due to |
| Volume | | Rate | | Net | | | | | | | | Volume | | Rate | | Net |
Changes in interest income | | | | | | | | | | | | | | | | | |
Loans | $ | 268 | | | $ | 458 | | | $ | 726 | | | | | | | | | $ | 333 | | | $ | 2,178 | | | $ | 2,511 | |
Taxable investment securities | (74) | | | 46 | | | (28) | | | | | | | | | 356 | | | 500 | | | 856 | |
Nontaxable investment securities | (12) | | | 34 | | | 22 | | | | | | | | | 43 | | | 58 | | | 101 | |
Other | 39 | | | (75) | | | (36) | | | | | | | | | (109) | | | 486 | | | 377 | |
Total changes in interest income | 221 | | | 463 | | | 684 | | | | | | | | | 623 | | | 3,222 | | | 3,845 | |
Changes in interest expense | | | | | | | | | | | | | | | | | |
Interest bearing demand deposits | 6 | | | 36 | | | 42 | | | | | | | | | — | | | 96 | | | 96 | |
Savings deposits | 9 | | | 922 | | | 931 | | | | | | | | | 8 | | | 1,299 | | | 1,307 | |
Time deposits | 36 | | | 497 | | | 533 | | | | | | | | | (61) | | | 551 | | | 490 | |
Federal funds purchased and repurchase agreements | (19) | | | 115 | | | 96 | | | | | | | | | (2) | | | 142 | | | 140 | |
FHLB advances | — | | | — | | | — | | | | | | | | | (36) | | | (36) | | | (72) | |
Subordinated debt, net of unamortized issuance costs | — | | | (1) | | | (1) | | | | | | | | | 1 | | | (1) | | | — | |
Total changes in interest expense | 32 | | | 1,569 | | | 1,601 | | | | | | | | | (90) | | | 2,051 | | | 1,961 | |
Net change in interest margin (FTE) | $ | 189 | | | $ | (1,106) | | | $ | (917) | | | | | | | | | $ | 713 | | | $ | 1,171 | | | $ | 1,884 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2017 Compared to June 30, 2017 Increase (Decrease) Due to | | Three Months Ended September 30, 2017 Compared to September 30, 2016 Increase (Decrease) Due to | | Nine Months Ended September 30, 2017 Compared to September 30, 2016 Increase (Decrease) Due to |
| Volume | | Rate | | Net | | Volume | | Rate | | Net | | Volume | | Rate | | Net |
Changes in interest income | | | | | | | | | | | | | | | | | |
Loans | $ | 353 |
| | $ | 259 |
| | $ | 612 |
| | $ | 1,211 |
| | $ | 121 |
| | $ | 1,332 |
| | $ | 4,049 |
| | $ | (267 | ) | | $ | 3,782 |
|
Taxable investment securities | (123 | ) | | (28 | ) | | (151 | ) | | (70 | ) | | 108 |
| | 38 |
| | (724 | ) | | 436 |
| | (288 | ) |
Nontaxable investment securities | (51 | ) | | 39 |
| | (12 | ) | | (12 | ) | | 2 |
| | (10 | ) | | (103 | ) | | (59 | ) | | (162 | ) |
Fed Funds Sold | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 4 |
| | — |
| | 4 |
|
Other | 28 |
| | (4 | ) | | 24 |
| | 15 |
| | (11 | ) | | 4 |
| | 12 |
| | 22 |
| | 34 |
|
Total changes in interest income | 207 |
| | 266 |
| | 473 |
| | 1,144 |
| | 220 |
| | 1,364 |
| | 3,238 |
| | 132 |
| | 3,370 |
|
Changes in interest expense | | | | | | | | | | | | | | | | | |
Interest bearing demand deposits | 2 |
| | 7 |
| | 9 |
| | 3 |
| | 20 |
| | 23 |
| | 5 |
| | 44 |
| | 49 |
|
Savings deposits | — |
| | 44 |
| | 44 |
| | 17 |
| | 108 |
| | 125 |
| | 30 |
| | 288 |
| | 318 |
|
Time deposits | (24 | ) | | 71 |
| | 47 |
| | (14 | ) | | 85 |
| | 71 |
| | 56 |
| | 134 |
| | 190 |
|
Borrowed funds | 23 |
| | 49 |
| | 72 |
| | 194 |
| | 40 |
| | 234 |
| | 405 |
| | 58 |
| | 463 |
|
Total changes in interest expense | 1 |
| | 171 |
| | 172 |
| | 200 |
| | 253 |
| | 453 |
| | 496 |
| | 524 |
| | 1,020 |
|
Net change in interest margin (FTE) | $ | 206 |
| | $ | 95 |
| | $ | 301 |
| | $ | 944 |
| | $ | (33 | ) | | $ | 911 |
| | $ | 2,742 |
| | $ | (392 | ) | | $ | 2,350 |
|
WhileThe interest rate increases during 2022 and the first quarter of 2023 have alleviated much of the pressure placed on our net interest margin. Over the past two quarters, rising rates on deposit accounts has slowed growth in our net interest margin. With future rate increases expected during the remainder of the year, we should see improvement in net yield on interest earning assets increased during the quarter, yields continue to bebut at low levels. The persistent low interest rate environment coupled with a high concentrationslower rates than recent periods. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Average Yield / Rate for the Three-Month Periods Ended: |
| March 31 2023 | | December 31 2022 | | September 30 2022 | | June 30 2022 | | March 31 2022 |
Total earning assets | 3.89 | % | | 3.77 | % | | 3.53 | % | | 3.41 | % | | 3.13 | % |
Total interest bearing liabilities | 0.95 | % | | 0.49 | % | | 0.35 | % | | 0.34 | % | | 0.37 | % |
Net yield on interest earning assets (FTE) | 3.22 | % | | 3.43 | % | | 3.28 | % | | 3.16 | % | | 2.86 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Quarter to Date Net Interest Income (FTE) |
| March 31 2023 | | December 31 2022 | | September 30 2022 | | June 30 2022 | | March 31 2022 |
Total interest income (FTE) | $ | 18,867 | | | $ | 18,183 | | | $ | 17,276 | | | $ | 16,373 | | | $ | 15,022 | |
Total interest expense | 3,244 | | | 1,643 | | | 1,216 | | | 1,175 | | | 1,283 | |
Net interest income (FTE) | $ | 15,623 | | | $ | 16,540 | | | $ | 16,060 | | | $ | 15,198 | | | $ | 13,739 | |
Table of AFS securities as a percentage of earning assets has also placed downward pressure on net interest margin. While we do not anticipate significant improvement in our net yield on interest earning assets, we do expect marginal improvement as a result of loan growth throughout 2017. |
| | | | | | | | | | | | | | |
| Average Yield / Rate for the Three Month Periods Ended: |
| September 30 2017 |
| June 30 2017 |
| March 31 2017 |
| December 31 2016 |
| September 30 2016 |
Total earning assets | 3.86 | % | | 3.77 | % | | 3.70 | % | | 3.73 | % | | 3.76 | % |
Total interest bearing liabilities | 0.93 | % | | 0.89 | % | | 0.85 | % | | 0.87 | % | | 0.86 | % |
Net yield on interest earning assets (FTE) | 3.08 | % |
| 3.03 | % | | 2.99 | % | | 3.01 | % | | 3.05 | % |
|
| | | | | | | | | | | | | | | | | | | |
| Quarter to Date Net Interest Income (FTE) |
| September 30 2017 | | June 30 2017 | | March 31 2017 | | December 31 2016 | | September 30 2016 |
Total interest income (FTE) | $ | 15,872 |
| | $ | 15,399 |
| | $ | 14,759 |
| | $ | 14,642 |
| | $ | 14,508 |
|
Total interest expense | 3,200 |
| | 3,028 |
| | 2,831 |
| | 2,826 |
| | 2,747 |
|
Net interest income (FTE) | $ | 12,672 |
| | $ | 12,371 |
| | $ | 11,928 |
| | $ | 11,816 |
| | $ | 11,761 |
|
Contents
Allowance for Loan and Lease Losses
The viability of any financial institution is ultimately determined by its management of credit risk. Loans represent our single largest concentration of risk. The ALLL is our estimation of incurred losses within the existing loan portfolio. We allocate the ALLL throughout the loan portfolio based on our assessment of the underlying risks associated with each loan segment. Our assessments include allocations based on specific impairment valuation allowances, historical charge-offs, internally assigned credit risk ratings, and past due and nonaccrual balances. A portion of the ALLL is not allocated to any one loan segment, but is instead a representation of other qualitative risks that reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.
The following table summarizes our charge-offs, recoveries, provisions for loan losses, and ALLL balances as of, and for the: |
| | | | | | | | | | | | | | | |
| Three Months Ended September 30 | | Nine Months Ended September 30 |
| 2017 | | 2016 | | 2017 | | 2016 |
ALLL at beginning of period | $ | 7,600 |
| | $ | 7,600 |
| | $ | 7,400 |
| | $ | 7,400 |
|
Charge-offs | | | | | | | |
Commercial and agricultural | 8 |
| | — |
| | 60 |
| | 48 |
|
Residential real estate | 77 |
| | 57 |
| | 120 |
| | 426 |
|
Consumer | 72 |
| | 74 |
| | 190 |
| | 206 |
|
Total charge-offs | 157 |
| | 131 |
| | 370 |
| | 680 |
|
Recoveries | | | | | | | |
Commercial and agricultural | 134 |
| | 118 |
| | 322 |
| | 488 |
|
Residential real estate | 41 |
| | 153 |
| | 140 |
| | 248 |
|
Consumer | 33 |
| | 43 |
| | 123 |
| | 159 |
|
Total recoveries | 208 |
| | 314 |
| | 585 |
| | 895 |
|
Net loan charge-offs (recoveries) | (51 | ) | | (183 | ) | | (215 | ) | | (215 | ) |
Provision for loan losses | 49 |
| | 17 |
| | 85 |
| | 185 |
|
ALLL at end of period | $ | 7,700 |
| | $ | 7,800 |
| | $ | 7,700 |
| | $ | 7,800 |
|
Net loan charge-offs (recoveries) to average loans outstanding | — | % | | (0.02 | )% | | (0.02 | )% | | (0.02 | )% |
The following table summarizes our charge-offs, recoveries, provisions for loan losses, and ALLL balances as of, and for the three month periods ended: |
| | | | | | | | | | | | | | | | | | | |
| September 30 2017 | | June 30 2017 | | March 31 2017 | | December 31 2016 | | September 30 2016 |
Total charge-offs | $ | 157 |
| | $ | 69 |
| | $ | 144 |
| | $ | 236 |
| | $ | 131 |
|
Total recoveries | 208 |
| | 160 |
| | 217 |
| | 156 |
| | 314 |
|
Net loan charge-offs (recoveries) | (51 | ) | | (91 | ) | | (73 | ) | | 80 |
| | (183 | ) |
Net loan charge-offs (recoveries) to average loans outstanding | — | % | | (0.01 | )% | | (0.01 | )% | | 0.01 | % | | (0.02 | )% |
Provision for loan losses | $ | 49 |
| | $ | 9 |
| | $ | 27 |
| | $ | (320 | ) | | $ | 17 |
|
Provision for loan losses to average loans outstanding | — | % | | — | % | | — | % | | (0.03 | )% | | — | % |
ALLL | $ | 7,700 |
| | $ | 7,600 |
| | $ | 7,500 |
| | $ | 7,400 |
| | $ | 7,800 |
|
ALLL as a % of loans at end of period | 0.71 | % | | 0.72 | % | | 0.74 | % | | 0.73 | % | | 0.79 | % |
Net loan recoveries and the continuation of strong credit quality indicators have resulted in a reduction of the required ALLL as a percentage of loans over the past year. During this time, credit quality indicators, specifically historical loss factors, remain strong and have led to lower levels of required reserves. While the ALLL as a percentage of loans has declined, the balance of the ALLL has increased in recent periods as a result of our strong loan growth. The addition of advances to mortgage brokers contributed to the overall decline in the level of ALLL to gross loans as there are no historical losses requiring reserves. While these advances contribute to other qualitative factors, the impact is not significant on the required level of the ALLL.
The following table illustrates our changes within the two main components of the ALLL as of: |
| | | | | | | | | | | | | | | | | | | |
| September 30 2017 | | June 30 2017 | | March 31 2017 | | December 31 2016 | | September 30 2016 |
ALLL | | | | | | | | | |
Individually evaluated for impairment | $ | 2,551 |
| | $ | 2,455 |
| | $ | 2,381 |
| | $ | 2,371 |
| | $ | 2,523 |
|
Collectively evaluated for impairment | 5,149 |
| | 5,145 |
| | 5,119 |
| | 5,029 |
| | 5,277 |
|
Total | $ | 7,700 |
| | $ | 7,600 |
| | $ | 7,500 |
| | $ | 7,400 |
| | $ | 7,800 |
|
ALLL to gross loans | | | | | | | | | |
Individually evaluated for impairment | 0.24 | % | | 0.23 | % | | 0.24 | % | | 0.23 | % | | 0.26 | % |
Collectively evaluated for impairment | 0.47 | % | | 0.49 | % | | 0.50 | % | | 0.50 | % | | 0.53 | % |
Total | 0.71 | % | | 0.72 | % | | 0.74 | % | | 0.73 | % | | 0.79 | % |
For further discussion of the allocation of the ALLL, see “Note 5 – Loans and ALLL” of our interim condensed consolidated financial statements.
Loans Past Due and Loans in Nonaccrual StatusLoans
Fluctuations in past due and nonaccrual status loans can have a significant impact on the ALLL.ACL. To determine the potential impact, and corresponding estimated losses, we analyze our historical loss trends on loans past due greater than 30 days and nonaccrual status loans. We monitor all loans that are past due and in nonaccrual status for indications of additional deterioration. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total Past Due and Nonaccrual Loans |
| March 31 2023 | | December 31 2022 | | September 30 2022 | | June 30 2022 | | March 31 2022 |
Commercial and industrial | $ | 291 | | | $ | 307 | | | $ | 348 | | | $ | 350 | | | $ | 132 | |
Commercial real estate | 2,844 | | | 7,197 | | | 2,399 | | | 82 | | | 280 | |
Agricultural | 588 | | | 234 | | | 574 | | | 271 | | | 283 | |
Residential real estate | 2,365 | | | 3,333 | | | 507 | | | 345 | | | 1,560 | |
Consumer | 43 | | | 59 | | | 180 | | | 457 | | | 109 | |
Total | $ | 6,131 | | | $ | 11,130 | | | $ | 4,008 | | | $ | 1,505 | | | $ | 2,364 | |
Total past due and nonaccrual loans to gross loans | 0.48 | % | | 0.88 | % | | 0.32 | % | | 0.12 | % | | 0.19 | % |
|
| | | | | | | | | | | | | | | | | | | |
| Total Past Due and Nonaccrual Loans |
| September 30 2017 | | June 30 2017 | | March 31 2017 | | December 31 2016 | | September 30 2016 |
Commercial and agricultural | $ | 3,600 |
| | $ | 4,920 |
| | $ | 5,758 |
| | $ | 4,598 |
| | $ | 3,148 |
|
Residential real estate | 2,201 |
| | 2,358 |
| | 3,168 |
| | 2,716 |
| | 2,436 |
|
Consumer | 52 |
| | 64 |
| | 35 |
| | 115 |
| | 51 |
|
Total | $ | 5,853 |
| | $ | 7,342 |
| | $ | 8,961 |
| | $ | 7,429 |
| | $ | 5,635 |
|
Total past due and nonaccrual loans to gross loans | 0.54 | % | | 0.70 | % | | 0.88 | % | | 0.74 | % | | 0.57 | % |
WhileThe recent fluctuations in past due and nonaccrual status loans have fluctuated overwithin the last year, they continue to be at low levels and arecommercial loan portfolio were the result of strong loan performance. A summary of loansone past due relationship. Therefore, we do not believe the recent increase is an indicator of credit deterioration.
The accrual of interest on commercial and in nonaccrual status, including the composition of the ending balance of nonaccrual statusagricultural loans, by type,as well as residential real estate loans, is included in “Note 5 – Loans and ALLL” of our interim condensed consolidated financial statements.
Troubled Debt Restructurings
We have taken a proactive approach to avoid foreclosures on borrowers who are willing to work with us in modifying their loans, thus making them more affordable. While this approach has permitted certain borrowers to develop a payment structure that will allow them to continue making payments in lieu of foreclosure, it has contributed to a significant level of loans classified as TDR. The modifications have been successful for us and our customers as very few of the modified loans have resulted in foreclosures. Atdiscontinued at the time of the TDR, the loan is reviewed to determine whether or not to classify the loan as accrual or nonaccrual status. The majority of new modifications result in terms that satisfy our criteria for continued interest accrual. TDRs that have been placed on nonaccrual status may be placed back on accrual status after six months of continued performance and achievement of current payment status.
We restructure debt with borrowers who, due to financial difficulties, are unable to service their debt under the original terms. We may extend the amortization period, reduce interest rates, allow interest only payment structures, forgive principal, forgive interest, or a combination of these modifications. Typically, the modifications are for a period of five years or less. There were no TDRs that were government sponsored as of September 30, 2017 or December 31, 2016.
Losses associated with TDRs, if any, are included in the estimation of the ALLL in the quarter in which a loan is identified as a TDR, and we review the analysis of the ALLL estimation each reporting period to ensure its continued appropriateness.
The following tables provide a roll-forward of TDRs for the: |
| | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2017 |
| Accruing Interest | | Nonaccrual | | Total |
| Number of Loans | | Balance | | Number of Loans | | Balance | | Number of Loans | | Balance |
July 1, 2017 | 155 |
| | $ | 25,182 |
| | 5 |
| | $ | 1,159 |
| | 160 |
| | $ | 26,341 |
|
New modifications | 3 |
| | 1,354 |
| | 2 |
| | 210 |
| | 5 |
| | 1,564 |
|
Principal advances (payments) | — |
| | (165 | ) | | — |
| | (12 | ) | | — |
| | (177 | ) |
Loans paid-off | (6 | ) | | (460 | ) | | — |
| | — |
| | (6 | ) | | (460 | ) |
Partial charge-offs | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Balances charged-off | (1 | ) | | (9 | ) | | — |
| | — |
| | (1 | ) | | (9 | ) |
Transfers to OREO | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Transfers to accrual status | 1 |
| | 51 |
| | (1 | ) | | (51 | ) | | — |
| | — |
|
Transfers to nonaccrual status | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
September 30, 2017 | 152 |
| | $ | 25,953 |
| | 6 |
| | $ | 1,306 |
| | 158 |
| | $ | 27,259 |
|
|
| | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2017 |
| Accruing Interest | | Nonaccrual | | Total |
| Number of Loans | | Balance | | Number of Loans | | Balance | | Number of Loans | | Balance |
January 1, 2017 | 153 |
| | $ | 20,593 |
| | 5 |
| | $ | 789 |
| | 158 |
| | $ | 21,382 |
|
New modifications | 16 |
| | 6,909 |
| | 3 |
| | 676 |
| | 19 |
| | 7,585 |
|
Principal advances (payments) | — |
| | (587 | ) | | — |
| | (34 | ) | | — |
| | (621 | ) |
Loans paid-off | (16 | ) | | (987 | ) | | — |
| | — |
| | (16 | ) | | (987 | ) |
Partial charge-offs | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Balances charged-off | (1 | ) | | (9 | ) | | — |
| | — |
| | (1 | ) | | (9 | ) |
Transfers to OREO | — |
| | — |
| | (2 | ) | | (91 | ) | | (2 | ) | | (91 | ) |
Transfers to accrual status | 2 |
| | 126 |
| | (2 | ) | | (126 | ) | | — |
| | — |
|
Transfers to nonaccrual status | (2 | ) | | (92 | ) | | 2 |
| | 92 |
| | — |
| | — |
|
September 30, 2017 | 152 |
| | $ | 25,953 |
| | 6 |
| | $ | 1,306 |
| | 158 |
| | $ | 27,259 |
|
|
| | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2016 |
| Accruing Interest | | Nonaccrual | | Total |
| Number of Loans | | Balance | | Number of Loans | | Balance | | Number of Loans | | Balance |
July 1, 2016 | 151 |
| | $ | 18,843 |
| | 6 |
| | $ | 587 |
| | 157 |
| | $ | 19,430 |
|
New modifications | 3 |
| | 1,634 |
| | — |
| | — |
| | 3 |
| | 1,634 |
|
Principal advances (payments) | — |
| | (204 | ) | | — |
| | (9 | ) | | — |
| | (213 | ) |
Loans paid-off | (5 | ) | | (272 | ) | | — |
| | — |
| | (5 | ) | | (272 | ) |
Partial charge-offs | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Balances charged-off | (1 | ) | | (57 | ) | | — |
| | — |
| | (1 | ) | | (57 | ) |
Transfers to OREO | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Transfers to accrual status | 3 |
| | 218 |
| | (3 | ) | | (218 | ) | | — |
| | — |
|
Transfers to nonaccrual status | (2 | ) | | (103 | ) | | 2 |
| | 103 |
| | — |
| | — |
|
September 30, 2016 | 149 |
| | $ | 20,059 |
| | 5 |
| | $ | 463 |
| | 154 |
| | $ | 20,522 |
|
|
| | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2016 |
| Accruing Interest | | Nonaccrual | | Total |
| Number of Loans | | Balance | | Number of Loans | | Balance | | Number of Loans | | Balance |
January 1, 2016 | 155 |
| | $ | 20,931 |
| | 5 |
| | $ | 394 |
| | 160 |
| | $ | 21,325 |
|
New modifications | 9 |
| | 1,863 |
| | — |
| | — |
| | 9 |
| | 1,863 |
|
Principal advances (payments) | — |
| | (831 | ) | | — |
| | (26 | ) | | — |
| | (857 | ) |
Loans paid-off | (11 | ) | | (1,348 | ) | | (1 | ) | | (221 | ) | | (12 | ) | | (1,569 | ) |
Partial charge-offs | — |
| | — |
| | — |
| | (133 | ) | | — |
| | (133 | ) |
Balances charged-off | (2 | ) | | (72 | ) | | — |
| | — |
| | (2 | ) | | (72 | ) |
Transfers to OREO | — |
| | — |
| | (1 | ) | | (35 | ) | | (1 | ) | | (35 | ) |
Transfers to accrual status | 3 |
| | 218 |
| | (3 | ) | | (218 | ) | | — |
| | — |
|
Transfers to nonaccrual status | (5 | ) | | (702 | ) | | 5 |
| | 702 |
| | — |
| | — |
|
September 30, 2016 | 149 |
| | $ | 20,059 |
| | 5 |
| | $ | 463 |
| | 154 |
| | $ | 20,522 |
|
The following table summarizes our TDRs as of: |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2017 | | December 31, 2016 | | |
| Accruing Interest | | Nonaccrual | | Total | | Accruing Interest | | Nonaccrual | | Total | | Total Change |
Current | $ | 24,641 |
| | $ | 233 |
| | $ | 24,874 |
| | $ | 17,557 |
| | $ | 559 |
| | $ | 18,116 |
| | $ | 6,758 |
|
Past due 30-59 days | 1,086 |
| | 216 |
| | 1,302 |
| | 2,898 |
| | 230 |
| | 3,128 |
| | (1,826 | ) |
Past due 60-89 days | 3 |
| | — |
| | 3 |
| | 138 |
| | — |
| | 138 |
| | (135 | ) |
Past due 90 days or more | 223 |
| | 857 |
| | 1,080 |
| | — |
| | — |
| | — |
| | 1,080 |
|
Total | $ | 25,953 |
| | $ | 1,306 |
| | $ | 27,259 |
| | $ | 20,593 |
| | $ | 789 |
| | $ | 21,382 |
| | $ | 5,877 |
|
Additional disclosures about TDRs are included in “Note 5 – Loans and ALLL” of our interim condensed consolidated financial statements.
Impaired Loans
The following is a summary of information pertaining to impaired loans as of: |
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2017 | | December 31, 2016 |
| Recorded Balance | | Unpaid Principal Balance | | Valuation Allowance | | Recorded Balance | | Unpaid Principal Balance | | Valuation Allowance |
TDRs | | | | | | | | | | | |
Commercial real estate | $ | 6,062 |
| | $ | 6,181 |
| | $ | 766 |
| | $ | 6,264 |
| | $ | 6,383 |
| | $ | 713 |
|
Commercial other | 2,324 |
| | 2,324 |
| | 167 |
| | 1,444 |
| | 1,455 |
| | 25 |
|
Agricultural real estate | 7,834 |
| | 7,834 |
| | — |
| | 4,037 |
| | 4,037 |
| | — |
|
Agricultural other | 3,014 |
| | 3,014 |
| | — |
| | 1,380 |
| | 1,380 |
| | 1 |
|
Residential real estate senior liens | 7,854 |
| | 8,234 |
| | 1,524 |
| | 8,058 |
| | 8,437 |
| | 1,539 |
|
Residential real estate junior liens | 70 |
| | 70 |
| | 13 |
| | 71 |
| | 71 |
| | 13 |
|
Home equity lines of credit | 83 |
| | 383 |
| | — |
| | 102 |
| | 402 |
| | — |
|
Consumer secured | 18 |
| | 18 |
| | — |
| | 26 |
| | 26 |
| | — |
|
Total TDRs | 27,259 |
| | 28,058 |
| | 2,470 |
| | 21,382 |
| | 22,191 |
| | 2,291 |
|
Other impaired loans | | | | | | | | | | | |
Commercial real estate | 136 |
| | 210 |
| | — |
| | 151 |
| | 226 |
| | 3 |
|
Commercial other | 3 |
| | 3 |
| | — |
| | — |
| | — |
| | — |
|
Agricultural real estate | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Agricultural other | 128 |
| | 128 |
| | — |
| | 128 |
| | 128 |
| | — |
|
Residential real estate senior liens | 419 |
| | 669 |
| | 81 |
| | 406 |
| | 612 |
| | 76 |
|
Residential real estate junior liens | — |
| | — |
| | — |
| | 1 |
| | 11 |
| | 1 |
|
Home equity lines of credit | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Consumer secured | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Total other impaired loans | 686 |
| | 1,010 |
| | 81 |
| | 686 |
| | 977 |
| | 80 |
|
Total impaired loans | $ | 27,945 |
| | $ | 29,068 |
| | $ | 2,551 |
| | $ | 22,068 |
| | $ | 23,168 |
| | $ | 2,371 |
|
Additional disclosure related to impaired loans is included in “Note 5 – Loans and ALLL” of our interim condensed consolidated financial statements.
Nonperforming Assets
The following table summarizes our nonperforming assets as of: |
| | | | | | | | | | | | | | | | | | | |
| September 30 2017 | | June 30 2017 | | March 31 2017 | | December 31 2016 | | September 30 2016 |
Nonaccrual status loans | $ | 1,605 |
| | $ | 1,563 |
| | $ | 1,138 |
| | $ | 1,060 |
| | $ | 690 |
|
Accruing loans past due 90 days or more | 646 |
| | 1,203 |
| | 1,339 |
| | 633 |
| | 847 |
|
Total nonperforming loans | 2,251 |
| | 2,766 |
| | 2,477 |
| | 1,693 |
| | 1,537 |
|
Foreclosed assets | 240 |
| | 229 |
| | 158 |
| | 231 |
| | 284 |
|
Total nonperforming assets | $ | 2,491 |
| | $ | 2,995 |
| | $ | 2,635 |
| | $ | 1,924 |
| | $ | 1,821 |
|
Nonperforming loans as a % of total loans | 0.21 | % | | 0.26 | % | | 0.24 | % | | 0.17 | % | | 0.16 | % |
Nonperforming assets as a % of total assets | 0.14 | % | | 0.17 | % | | 0.15 | % | | 0.11 | % | | 0.11 | % |
Typically after a loan is 90 days or more past due itunless the credit is placed on nonaccrual status unless it is well securedwell-secured and in the process of short-term collection. Upon transferring the loansa loan to nonaccrual status, we perform an evaluation to determine the net realizable value of the underlying collateral. This evaluation is used to help determine if any charge-offsa charge-off is necessary. Consumer loans are necessary.typically charged-off no later than 180 days past due. Loans may be placed back on accrual status after six months of continued performance and achievement of current payment status. Nonperforming loans have declined in recent periods with current levelsThe level of nonperforming loans continuingcontinued to be atdecline and remains low levels.in comparison to peer banks.
Included in the The following table summarizes nonaccrual loan balances above were loans currently classified as TDR as of: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31 2023 | | December 31 2022 | | September 30 2022 | | June 30 2022 | | March 31 2022 |
Commercial and industrial | $ | 20 | | | $ | 22 | | | $ | 100 | | | $ | 102 | | | $ | 107 | |
Commercial real estate | 57 | | | 74 | | | 78 | | | 82 | | | 212 | |
Agricultural | 232 | | | 234 | | | 266 | | | 271 | | | 283 | |
Residential real estate | 179 | | | 127 | | | 136 | | | 85 | | | 145 | |
Total | $ | 488 | | | $ | 457 | | | $ | 580 | | | $ | 540 | | | $ | 747 | |
Nonaccrual loans as a % of loans at end of period | 0.04 | % | | 0.04 | % | | 0.05 | % | | 0.04 | % | | 0.06 | % |
|
| | | | | | | |
| September 30 2017 | | December 31 2016 |
Commercial and agricultural | $ | 1,068 |
| | $ | 405 |
|
Residential real estate | 238 |
| | 384 |
|
Total | $ | 1,306 |
| | $ | 789 |
|
Additional disclosures about A summary of loans past due and in nonaccrual status, including the composition of the ending balance of nonaccrual status loans areby type, is included in “Note 5“Note 3 – Loans and ALLL”ACL” of our interim condensed consolidated financial statements.
Nonperforming Assets
The following table summarizes our nonperforming assets as of: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31 2023 | | December 31 2022 | | September 30 2022 | | June 30 2022 | | March 31 2022 |
Nonaccrual loans | $ | 488 | | | $ | 457 | | | $ | 580 | | | $ | 540 | | | $ | 747 | |
Accruing loans past due 90 days or more | — | | | — | | | 21 | | | 119 | | | — | |
Total nonperforming loans | 488 | | | 457 | | | 601 | | | 659 | | | 747 | |
Foreclosed assets | 414 | | | 439 | | | 240 | | | 241 | | | 187 | |
Debt securities | 77 | | | 77 | | | 77 | | | 131 | | | 131 | |
Total nonperforming assets | $ | 979 | | | $ | 973 | | | $ | 918 | | | $ | 1,031 | | | $ | 1,065 | |
Nonperforming loans as a % of total loans | 0.04 | % | | 0.04 | % | | 0.05 | % | | 0.05 | % | | 0.06 | % |
Nonperforming assets as a % of total assets | 0.05 | % | | 0.05 | % | | 0.04 | % | | 0.05 | % | | 0.05 | % |
ACL - Loans
The viability of any financial institution is ultimately determined by its management of credit risk. Loans represent our single largest concentration of risk. The ACL is our estimation of expected losses within the existing loan portfolio. We continueallocate the ACL throughout the loan portfolio based on our assessment of the underlying risks associated within each loan segment. Our assessments include allocations based on specific valuation allowances, historical charge-offs, internally assigned credit risk ratings, past due and nonaccrual balances, historical loss percentages, and other credit trends and risk characteristics, including current conditions and reasonable and supportable forecasts about the future.
Upon the adoption of ASC 326 on January 1, 2023, the total amount of the allowance for credit losses on loans estimated using the CECL methodology increased $2,744 compared to devote considerable attention to identifying impairedthe total amount of the allowance for credit losses on loans and adjusting the net carrying value of these loans to their current net realizable values through the establishment of a specific reserve or the recording of a charge-off. We believe that we have identified all impaired loansestimated as of September 30, 2017.
We believe thatDecember 31, 2022 using the levelprior incurred loss model. The manner in which credit loss allowances are allocated to the individual portfolio segments was partly impacted by a change in the way the underlying loans within each segment are pooled for modeling purposes. The impact of varying economic conditions and portfolio risk factors are now a component of the ALLLcredit loss models applied to each modeling pool. In that regard, the amounts allocated to the underlying pools of loans within each portfolio segment more directly reflect the economic variables and portfolio stress factors that correlate with credit losses within each portfolio. Under the prior methodology, allocations in excess of those derived from historical loss rates were recognized as unallocated. Nonetheless, despite fluctuations in the allocation of portions of the overall allowance to the various portfolio segments, the entire allowance is appropriateavailable to absorb any credit losses within the entire loan portfolio.
The following table summarizes our charge-offs, recoveries, provision for credit losses, and ACL balances as of, September 30, 2017.and for the: | | | | | | | | | | | | | | | |
| | | Three Months Ended March 31 |
| | | | | 2023 | | 2022 |
Allowance at beginning of period | | | | | $ | 9,850 | | | $ | 9,103 | |
Adoption of ASC 326 | | | | | 2,744 | | | — | |
Charge-offs | | | | | | | |
Commercial and industrial | | | | | — | | | — | |
Commercial real estate | | | | | — | | | — | |
Agricultural | | | | | — | | | — | |
Residential real estate | | | | | 2 | | | — | |
Consumer | | | | | 99 | | | 91 | |
Total charge-offs | | | | | 101 | | | 91 | |
Recoveries | | | | | | | |
Commercial and industrial | | | | | — | | | 14 | |
Commercial real estate | | | | | 10 | | | — | |
Agricultural | | | | | 4 | | | 2 | |
Residential real estate | | | | | 24 | | | 28 | |
Consumer | | | | | 72 | | | 111 | |
Total recoveries | | | | | 110 | | | 155 | |
Net loan charge-offs (recoveries) | | | | | (9) | | | (64) | |
Provision for credit losses | | | | | 37 | | | 37 | |
Allowance at end of period | | | | | $ | 12,640 | | | $ | 9,204 | |
Net loan charge-offs (recoveries) to average loans outstanding | | | | | 0.00 | % | | (0.01) | % |
The following table summarizes our charge-offs, recoveries, provisions for credit losses, and ACL balances as of, and for the three-month periods ended: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31 2023 | | December 31 2022 | | September 30 2022 | | June 30 2022 | | March 31 2022 |
Total charge-offs | $ | 101 | | | $ | 249 | | | $ | 173 | | | $ | 106 | | | $ | 91 | |
Total recoveries | 110 | | | 479 | | | 132 | | | 117 | | | 155 | |
Net loan charge-offs (recoveries) | (9) | | | (230) | | | 41 | | | (11) | | | (64) | |
Net loan charge-offs (recoveries) to average loans outstanding | 0.00 | % | | (0.02) | % | | 0.00 | % | | 0.00 | % | | (0.01) | % |
Provision for credit losses | $ | 37 | | | $ | (57) | | | $ | 18 | | | $ | 485 | | | $ | 37 | |
Provision for credit losses to average loans outstanding | 0.00 | % | | 0.00 | % | | 0.00 | % | | 0.04 | % | | 0.00 | % |
ACL | $ | 12,640 | | | $ | 9,850 | | | $ | 9,677 | | | $ | 9,700 | | | $ | 9,204 | |
ACL as a % of loans at end of period | 0.99 | % | | 0.78 | % | | 0.78 | % | | 0.76 | % | | 0.76 | % |
ACL as a % of nonaccrual loans | 2,590.16 | % | | 2,155.36 | % | | 1,668.45 | % | | 1,796.30 | % | | 1,232.13 | % |
The following table illustrates the two main components of the ACL as of: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31 2023 | | December 31 2022 | | September 30 2022 | | June 30 2022 | | March 31 2022 |
ACL | | | | | | | | | |
Individually evaluated | $ | — | | | $ | 451 | | | $ | 474 | | | $ | 515 | | | $ | 573 | |
Collectively evaluated | 12,640 | | | 9,399 | | | 9,203 | | | 9,185 | | | 8,631 | |
Total | $ | 12,640 | | | $ | 9,850 | | | $ | 9,677 | | | $ | 9,700 | | | $ | 9,204 | |
ACL to gross loans | | | | | | | | | |
Individually evaluated | 0.00 | % | | 0.04 | % | | 0.04 | % | | 0.04 | % | | 0.05 | % |
Collectively evaluated | 0.99 | % | | 0.74 | % | | 0.74 | % | | 0.72 | % | | 0.71 | % |
Total | 0.99 | % | | 0.78 | % | | 0.78 | % | | 0.76 | % | | 0.76 | % |
While we utilize our best judgment and information available, the ultimate adequacy of the ACL is dependent upon a variety of factors beyond our control, including the performance of our borrowers, the economy, and changes in interest rates. We will continue to closely monitor overall credit quality indicators and our policies and procedures related to the analysis of the ALLLACL to ensure that the ALLLACL remains at thean appropriate level.
For further discussion of the allocation of the ACL, see “Note 3 – Loans and ACL” of our interim condensed consolidated financial statements.
Noninterest Income and Noninterest Expenses
Significant noninterest income account balances are highlighted in the following table with additional descriptions of significant fluctuations: |
| | | | | | | | | | | | | | |
| Three Months Ended September 30 |
| | | | | Change |
| 2017 | | 2016 | | $ | | % |
Service charges and fees | | | | | | | |
ATM and debit card fees | $ | 667 |
| | $ | 606 |
| | $ | 61 |
| | 10.07 | % |
NSF and overdraft fees | 481 |
| | 480 |
| | 1 |
| | 0.21 | % |
Freddie Mac servicing fee | 169 |
| | 172 |
| | (3 | ) | | (1.74 | )% |
Service charges on deposit accounts | 88 |
| | 92 |
| | (4 | ) | | (4.35 | )% |
Net OMSR income (loss) | (77 | ) | | (108 | ) | | 31 |
| | 28.70 | % |
All other | 107 |
| | 34 |
| | 73 |
| | 214.71 | % |
Total service charges and fees | 1,435 |
| | 1,276 |
| | 159 |
| | 12.46 | % |
Net gain on sale of mortgage loans | 153 |
| | 263 |
| | (110 | ) | | (41.83 | )% |
Earnings on corporate owned life insurance policies | 174 |
| | 183 |
| | (9 | ) | | (4.92 | )% |
Net gains (losses) on sale of AFS securities | — |
| | — |
| | — |
| | — | % |
Other | | | | | | | |
Trust and brokerage advisory fees | 724 |
| | 1,000 |
| | (276 | ) | | (27.60 | )% |
Corporate Settlement Solutions joint venture | 84 |
| | 145 |
| | (61 | ) | | (42.07 | )% |
Other | 128 |
| | 79 |
| | 49 |
| | 62.03 | % |
Total other | 936 |
| | 1,224 |
| | (288 | ) | | (23.53 | )% |
Total noninterest income | $ | 2,698 |
| | $ | 2,946 |
| | $ | (248 | ) | | (8.42 | )% |
tables for the: | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31 |
| | | | | Change |
| 2023 | | 2022 | | $ | | % |
Service charges and fees | | | | | | | |
ATM and debit card fees | $ | 1,160 | | | $ | 1,093 | | | $ | 67 | | | 6.13 | % |
Service charges and fees on deposit accounts | 611 | | | 609 | | | 2 | | | 0.33 | % |
Freddie Mac servicing fee | 159 | | | 171 | | | (12) | | | (7.02) | % |
Net OMSR income (loss) | (36) | | | 264 | | | (300) | | | (113.64) | % |
Other fees for customer services | 84 | | | 72 | | | 12 | | | 16.67 | % |
Total service charges and fees | 1,978 | | | 2,209 | | | (231) | | | (10.46) | % |
Wealth management fees | 786 | | | 754 | | | 32 | | | 4.24 | % |
Earnings on corporate owned life insurance policies | 226 | | | 210 | | | 16 | | | 7.62 | % |
Net gain on sale of mortgage loans | 67 | | | 224 | | | (157) | | | (70.09) | % |
All other | 236 | | | 150 | | | 86 | | | 57.33 | % |
Total noninterest income | $ | 3,293 | | | $ | 3,547 | | | $ | (254) | | | (7.16) | % |
|
| | | | | | | | | | | | | | |
| Nine Months Ended September 30 |
| | | | | Change |
| 2017 | | 2016 | | $ | | % |
Service charges and fees | | | | | | | |
ATM and debit card fees | $ | 1,945 |
| | $ | 1,840 |
| | $ | 105 |
| | 5.71 | % |
NSF and overdraft fees | 1,383 |
| | 1,360 |
| | 23 |
| | 1.69 | % |
Freddie Mac servicing fee | 508 |
| | 529 |
| | (21 | ) | | (3.97 | )% |
Service charges on deposit accounts | 259 |
| | 263 |
| | (4 | ) | | (1.52 | )% |
Net OMSR income (loss) | 107 |
| | (437 | ) | | 544 |
| | 124.49 | % |
All other | 168 |
| | 97 |
| | 71 |
| | 73.20 | % |
Total service charges and fees | 4,370 |
| | 3,652 |
| | 718 |
| | 19.66 | % |
Net gain on sale of mortgage loans | 507 |
| | 472 |
| | 35 |
| | 7.42 | % |
Earnings on corporate owned life insurance policies | 537 |
| | 566 |
| | (29 | ) | | (5.12 | )% |
Net gains (losses) on sale of AFS securities | 142 |
| | 245 |
| | (103 | ) | | (42.04 | )% |
Other | | | | | | | |
Trust and brokerage advisory fees | 1,961 |
| | 2,135 |
| | (174 | ) | | (8.15 | )% |
Corporate Settlement Solutions joint venture | 171 |
| | 362 |
| | (191 | ) | | (52.76 | )% |
Other | 414 |
| | 489 |
| | (75 | ) | | (15.34 | )% |
Total other | 2,546 |
| | 2,986 |
| | (440 | ) | | (14.74 | )% |
Total noninterest income | $ | 8,102 |
| | $ | 7,921 |
| | $ | 181 |
| | 2.29 | % |
SignificantOMSR income results are driven, in part, by changes in noninterest income are detailed below:
Offeringoffering rates on residential mortgage loans, anticipated prepayments in the servicing-retained portfolio, and the volume of loans within the servicing-retained portfolio. Decreased prepayment speeds, have been the most significant drivers behind fluctuations in net OMSR income (loss). We anticipate increases in mortgage rates and decreased prepayment speeds; therefore, we anticipate year-to-date net OMSR income to be positive during the remainder of 2017.
We anticipate increases in our originations in purchase money mortgage activity as a result of our various initiativesan increase in interest rates, was the primary driver of the income recognized during 2022. A decline in volume of originated loans and the balance of loans serviced led to drive growth. AsOMSR losses during the first three months of 2023. Income during 2023 will be driven by the volume of loans originated within the servicing-retained portfolio, along with any further future increases in interest rates.
The amount of loans sold is driven by customer demand and balance sheet management strategies. Loan demand declined in the first quarter of 2023 compared to the prior year resulting in fewer mortgage loans being originated and sold and as a result, we expecta decline in net gainsgain on the sale of mortgage loans to increase during the remainder of 2017.
We continue to invest considerable efforts to increase our market share in trust and brokerage advisory services. These efforts have translated into increases in such fee income. We anticipate that fee income will continue to increase during the remainder of 2017; however, 2017 year-to-date income will remain lower than income in 2016 due to a fee income assessment change during the third quarter of 2016 which resulted in higher earnings in 2016.
Corporate Settlement Solutions income is down in 2017 compared to 2016 resulting from decreased revenue related to lower levels of loan origination and refinancing activities. Year-to-date income for 2017loans. Demand is expected to continue to fall below 2016slow during the remainder of 2023 due to the continual rise in interest rates and as a result, net gain on sale of mortgage loans is not expected to exceed 2022 levels.
The fluctuations in all other noninterest income isare spread throughout various categories, none of which are individually significant.
Significant noninterest expense account balances are highlighted in the following table with additional descriptionstables for the: | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31 |
| | | | | Change |
| 2023 | | 2022 | | $ | | % |
Compensation and benefits | $ | 6,589 | | | $ | 6,074 | | | $ | 515 | | | 8.48 | % |
Furniture and equipment | 1,597 | | | 1,450 | | | 147 | | | 10.14 | % |
Occupancy | 1,005 | | | 966 | | | 39 | | | 4.04 | % |
Other | | | | | | | |
Audit, consulting, and legal fees | 535 | | | 549 | | | (14) | | | (2.55) | % |
ATM and debit card fees | 400 | | | 434 | | | (34) | | | (7.83) | % |
Marketing costs | 245 | | | 239 | | | 6 | | | 2.51 | % |
Memberships and subscriptions | 240 | | | 217 | | | 23 | | | 10.60 | % |
FDIC insurance premiums | 228 | | | 125 | | | 103 | | | 82.40 | % |
Loan underwriting fees | 215 | | | 182 | | | 33 | | | 18.13 | % |
Director fees | 204 | | | 201 | | | 3 | | | 1.49 | % |
Donations and community relations | 184 | | | 287 | | | (103) | | | (35.89) | % |
All other | 756 | | | 596 | | | 160 | | | 26.85 | % |
Total other noninterest expenses | 3,007 | | | 2,830 | | | 177 | | | 6.25 | % |
Total noninterest expenses | $ | 12,198 | | | $ | 11,320 | | | $ | 878 | | | 7.76 | % |
The FDIC adopted a final rule, applicable to all insured depository institutions, to increase initial base deposit insurance assessment rate schedules uniformly by 2 basis point, beginning in the first quarterly assessment period of
significant fluctuations:2023. The increase in assessment rate schedules is intended to increase the likelihood that the reserve ratio of the Deposit Insurance fund reaches the statutory minimum of 1.35 percent by the statutory deadline of September 30, 2028. FDIC expense for the remainder of 2023 will continue to exceed 2022 levels. |
| | | | | | | | | | | | | | |
| Three Months Ended September 30 |
| | | | | Change |
| 2017 | | 2016 | | $ | | % |
Compensation and benefits | | | | | | | |
Employee salaries | $ | 4,005 |
| | $ | 3,610 |
| | $ | 395 |
| | 10.94 | % |
Employee benefits | 1,355 |
| | 1,330 |
| | 25 |
| | 1.88 | % |
Total compensation and benefits | 5,360 |
| | 4,940 |
| | 420 |
| | 8.50 | % |
Furniture and equipment | | | | | | | |
Service contracts | 814 |
| | 825 |
| | (11 | ) | | (1.33 | )% |
Depreciation | 511 |
| | 483 |
| | 28 |
| | 5.80 | % |
All other | 52 |
| | 45 |
| | 7 |
| | 15.56 | % |
Total furniture and equipment | 1,377 |
| | 1,353 |
| | 24 |
| | 1.77 | % |
Occupancy | | | | | | | |
Depreciation | 212 |
| | 195 |
| | 17 |
| | 8.72 | % |
Outside services | 178 |
| | 171 |
| | 7 |
| | 4.09 | % |
Property taxes | 142 |
| | 141 |
| | 1 |
| | 0.71 | % |
Utilities | 132 |
| | 168 |
| | (36 | ) | | (21.43 | )% |
All other | 145 |
| | 170 |
| | (25 | ) | | (14.71 | )% |
Total occupancy | 809 |
| | 845 |
| | (36 | ) | | (4.26 | )% |
Other | | | | | | | |
ATM and debit card fees | 253 |
| | 210 |
| | 43 |
| | 20.48 | % |
Audit and related fees | 322 |
| | 319 |
| | 3 |
| | 0.94 | % |
Consulting fees | 259 |
| | 198 |
| | 61 |
| | 30.81 | % |
Director fees | 212 |
| | 207 |
| | 5 |
| | 2.42 | % |
Loan underwriting fees | 237 |
| | 142 |
| | 95 |
| | 66.90 | % |
Donations and community relations | 190 |
| | 134 |
| | 56 |
| | 41.79 | % |
FDIC insurance premiums | 172 |
| | 224 |
| | (52 | ) | | (23.21 | )% |
Marketing costs | 172 |
| | 101 |
| | 71 |
| | 70.30 | % |
Education and travel | 143 |
| | 73 |
| | 70 |
| | 95.89 | % |
Printing and supplies | 110 |
| | 105 |
| | 5 |
| | 4.76 | % |
Postage and freight | 85 |
| | 96 |
| | (11 | ) | | (11.46 | )% |
All other | 438 |
| | 486 |
| | (48 | ) | | (9.88 | )% |
Total other | 2,593 |
| | 2,295 |
| | 298 |
| | 12.98 | % |
Total noninterest expenses | $ | 10,139 |
| | $ | 9,433 |
| | $ | 706 |
| | 7.48 | % |
|
| | | | | | | | | | | | | | |
| Nine Months Ended September 30 |
| | | | | Change |
| 2017 | | 2016 | | $ | | % |
Compensation and benefits | | | | | | | |
Employee salaries | $ | 12,127 |
| | $ | 10,387 |
| | $ | 1,740 |
| | 16.75 | % |
Employee benefits | 3,742 |
| | 4,025 |
| | (283 | ) | | (7.03 | )% |
Total compensation and benefits | 15,869 |
| | 14,412 |
| | 1,457 |
| | 10.11 | % |
Furniture and equipment | | | | | | | |
Service contracts | 2,386 |
| | 2,323 |
| | 63 |
| | 2.71 | % |
Depreciation | 1,531 |
| | 1,533 |
| | (2 | ) | | (0.13 | )% |
All other | 156 |
| | 132 |
| | 24 |
| | 18.18 | % |
Total furniture and equipment | 4,073 |
| | 3,988 |
| | 85 |
| | 2.13 | % |
Occupancy | | | | | | | |
Depreciation | 632 |
| | 583 |
| | 49 |
| | 8.40 | % |
Outside services | 577 |
| | 555 |
| | 22 |
| | 3.96 | % |
Property taxes | 434 |
| | 429 |
| | 5 |
| | 1.17 | % |
Utilities | 390 |
| | 429 |
| | (39 | ) | | (9.09 | )% |
All other | 428 |
| | 447 |
| | (19 | ) | | (4.25 | )% |
Total occupancy | 2,461 |
| | 2,443 |
| | 18 |
| | 0.74 | % |
Other | | | | | | | |
ATM and debit card fees | 873 |
| | 627 |
| | 246 |
| | 39.23 | % |
Audit and related fees | 757 |
| | 664 |
| | 93 |
| | 14.01 | % |
Consulting fees | 672 |
| | 567 |
| | 105 |
| | 18.52 | % |
Director fees | 634 |
| | 630 |
| | 4 |
| | 0.63 | % |
Loan underwriting fees | 546 |
| | 377 |
| | 169 |
| | 44.83 | % |
Donations and community relations | 488 |
| | 399 |
| | 89 |
| | 22.31 | % |
FDIC insurance premiums | 480 |
| | 646 |
| | (166 | ) | | (25.70 | )% |
Marketing costs | 361 |
| | 359 |
| | 2 |
| | 0.56 | % |
Education and travel | 332 |
| | 309 |
| | 23 |
| | 7.44 | % |
Printing and supplies | 320 |
| | 325 |
| | (5 | ) | | (1.54 | )% |
Postage and freight | 304 |
| | 293 |
| | 11 |
| | 3.75 | % |
All other | 1,427 |
| | 1,692 |
| | (265 | ) | | (15.66 | )% |
Total other | 7,194 |
| | 6,888 |
| | 306 |
| | 4.44 | % |
Total noninterest expenses | $ | 29,597 |
| | $ | 27,731 |
| | $ | 1,866 |
| | 6.73 | % |
Significant changes in noninterest expenses are detailed below:
Employee salaries haveDonations and community relations increased in 2017during 2022 as a result of new positions required for future growth withininitiatives designed to deepen and strengthen our new markets, normal merit increasesrelationship with the communities in which we operate and increased incentive compensation. Asserve, which includes an expanded footprint. Although such we anticipate employee salaries expense to continue to trend higherexpenses were lower during the first quarter of 2023, for the remainder of 2017 compared to the expense levels of 2016.
Employee benefits have declined in 2017 due to a settlement with an insurance claim administrator in favor of Isabella Bank.
ATM and debit card fees have increased in 2017 due to an early contract termination fee.
Consulting fees have increased in 2017 due to compliance related services due to staff vacancies. Fees are expected to exceed 2016 levels for the remainder of 2017.
Loan underwriting fees have increased due to increased consumer loan originations. Fees2023 expenses are expected to increase during the remainder of 2017 and exceed 2016 levels.
FDIC insurance premiums have declined in 2017approximate 2022 levels as a result of changes to the premium calculation set forth by the FDIC in 2016; therefore, 2017 expenses are expected to be lower than 2016 for the remainder of the year.we continue this initiative.
The fluctuations in all other noninterest expenses are spread throughout various categories, none of which are individually significant.
Analysis of Changes in Financial Condition
| |
| September 30 2017 | | December 31 2016 | | $ Change | | % Change (unannualized) | | March 31 2023 | | December 31 2022 | | $ Change | | % Change (unannualized) |
ASSETS | | | | | | | | ASSETS | | | | | | | |
Cash and cash equivalents | $ | 21,067 |
| | $ | 22,894 |
| | $ | (1,827 | ) | | (7.98 | )% | Cash and cash equivalents | $ | 98,723 | | | $ | 38,924 | | | $ | 59,799 | | | 153.63 | % |
AFS securities | | | | | | | | AFS securities | |
Amortized cost of AFS securities | 548,468 |
| | 557,648 |
| | (9,180 | ) | | (1.65 | )% | Amortized cost of AFS securities | 605,165 | | | 625,605 | | | (20,440) | | | (3.27) | % |
Unrealized gains (losses) on AFS securities | 4,457 |
| | 448 |
| | 4,009 |
| | N/M |
| Unrealized gains (losses) on AFS securities | (36,515) | | | (45,124) | | | 8,609 | | | N/M |
AFS securities | 552,925 |
| | 558,096 |
| | (5,171 | ) | | (0.93 | )% | AFS securities | 568,650 | | | 580,481 | | | (11,831) | | | (2.04) | % |
Mortgage loans AFS | 1,237 |
| | 1,816 |
| | (579 | ) | | (31.88 | )% | Mortgage loans AFS | 171 | | | 379 | | | (208) | | | (54.88) | % |
Loans | | | | |
|
| | | Loans | |
Gross loans | 1,077,544 |
| | 1,010,615 |
| | 66,929 |
| | 6.62 | % | Gross loans | 1,270,651 | | | 1,264,173 | | | 6,478 | | | 0.51 | % |
Less allowance for loan and lease losses | 7,700 |
| | 7,400 |
| | 300 |
| | 4.05 | % | |
Less allowance for credit losses | | Less allowance for credit losses | 12,640 | | | 9,850 | | | 2,790 | | | 28.32 | % |
Net loans | 1,069,844 |
| | 1,003,215 |
| | 66,629 |
| | 6.64 | % | Net loans | 1,258,011 | | | 1,254,323 | | | 3,688 | | | 0.29 | % |
Premises and equipment | 28,761 |
| | 29,314 |
| | (553 | ) | | (1.89 | )% | Premises and equipment | 26,304 | | | 25,553 | | | 751 | | | 2.94 | % |
Corporate owned life insurance policies | 26,837 |
| | 26,300 |
| | 537 |
| | 2.04 | % | Corporate owned life insurance policies | 33,208 | | | 32,988 | | | 220 | | | 0.67 | % |
Accrued interest receivable | 7,388 |
| | 6,580 |
| | 808 |
| | 12.28 | % | |
Equity securities without readily determinable fair values | 23,461 |
| | 21,694 |
| | 1,767 |
| | 8.15 | % | Equity securities without readily determinable fair values | 15,746 | | | 15,746 | | | — | | | — | % |
Goodwill and other intangible assets | 48,575 |
| | 48,666 |
| | (91 | ) | | (0.19 | )% | Goodwill and other intangible assets | 48,286 | | | 48,287 | | | (1) | | | — | % |
Other assets | 11,872 |
| | 13,576 |
| | (1,704 | ) | | (12.55 | )% | |
Accrued interest receivable and other assets | | Accrued interest receivable and other assets | 35,525 | | | 33,586 | | | 1,939 | | | 5.77 | % |
TOTAL ASSETS | $ | 1,791,967 |
| | $ | 1,732,151 |
| | $ | 59,816 |
| | 3.45 | % | TOTAL ASSETS | $ | 2,084,624 | | | $ | 2,030,267 | | | $ | 54,357 | | | 2.68 | % |
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | | | | LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | | | |
Liabilities | | | | | | | | Liabilities | |
Deposits | $ | 1,216,062 |
| | $ | 1,195,040 |
| | $ | 21,022 |
| | 1.76 | % | Deposits | $ | 1,813,528 | | | $ | 1,744,275 | | | $ | 69,253 | | | 3.97 | % |
Borrowed funds | 367,027 |
| | 337,694 |
| | 29,333 |
| | 8.69 | % | Borrowed funds | 61,262 | | | 87,016 | | | (25,754) | | | (29.60) | % |
Accrued interest payable and other liabilities | 12,415 |
| | 11,518 |
| | 897 |
| | 7.79 | % | Accrued interest payable and other liabilities | 16,501 | | | 12,766 | | | 3,735 | | | 29.26 | % |
Total liabilities | 1,595,504 |
| | 1,544,252 |
| | 51,252 |
| | 3.32 | % | Total liabilities | 1,891,291 | | | 1,844,057 | | | 47,234 | | | 2.56 | % |
Shareholders’ equity | 196,463 |
| | 187,899 |
| | 8,564 |
| | 4.56 | % | Shareholders’ equity | 193,333 | | | 186,210 | | | 7,123 | | | 3.83 | % |
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 1,791,967 |
| | $ | 1,732,151 |
| | $ | 59,816 |
| | 3.45 | % | TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 2,084,624 | | | $ | 2,030,267 | | | $ | 54,357 | | | 2.68 | % |
As shown above, total assets have increased $59,816 since$54,357 from December 31, 2016 which was2022, driven primarily driven by loan growth of $66,929. This growth was funded by an increase in depositscash. Deposit growth, creating excess cash, totaled $69,253 during the first quarter. We experienced a decline in AFS securities due primarily to maturities and principal paydowns in borrowed fundsthe normal course of $21,022business. Unrealized losses on AFS securities improved during the first quarter as a result of market conditions at March 31, 2023. Loans grew $6,478, largely driven by growth in the commercial and $29,333, respectively, since December 31, 2016. While generating quality loans will continue to be competitive, we expect that loans will continue to growconsumer loan portfolios, offset by a decline in 2017.our agricultural loan portfolio.
The following table outlines the changes in loans:loan balances: | | | | | | | | | | | | | | | | | | | | | | | |
| March 31 2023 | | December 31 2022 | | $ Change | | % Change (unannualized) |
Commercial | $ | 755,595 | | | $ | 744,440 | | | $ | 11,155 | | | 1.50 | % |
Agricultural | 94,760 | | | 104,985 | | | (10,225) | | | (9.74) | % |
Residential real estate | 336,186 | | | 336,694 | | | (508) | | | (0.15) | % |
Consumer | 84,110 | | | 78,054 | | | 6,056 | | | 7.76 | % |
Total | $ | 1,270,651 | | | $ | 1,264,173 | | | $ | 6,478 | | | 0.51 | % |
|
| | | | | | | | | | | | | | |
| September 30 2017 | | December 31 2016 | | $ Change | | % Change (unannualized) |
Commercial | $ | 620,135 |
| | $ | 575,664 |
| | $ | 44,471 |
| | 7.73 | % |
Agricultural | 132,998 |
| | 126,492 |
| | 6,506 |
| | 5.14 | % |
Residential real estate | 271,480 |
| | 266,050 |
| | 5,430 |
| | 2.04 | % |
Consumer | 52,931 |
| | 42,409 |
| | 10,522 |
| | 24.81 | % |
Total | $ | 1,077,544 |
| | $ | 1,010,615 |
| | $ | 66,929 |
| | 6.62 | % |
The following table displays loan balances as of: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31 2023 | | December 31 2022 | | September 30 2022 | | June 30 2022 | | March 31 2022 |
Commercial | $ | 755,595 | | | $ | 744,440 | | | $ | 730,504 | | | $ | 772,567 | | | $ | 727,614 | |
Agricultural | 94,760 | | | 104,985 | | | 96,850 | | | 94,726 | | | 88,169 | |
Residential real estate | 336,186 | | | 336,694 | | | 334,412 | | | 329,795 | | | 328,559 | |
Consumer | 84,110 | | | 78,054 | | | 74,385 | | | 74,822 | | | 74,029 | |
Total | $ | 1,270,651 | | | $ | 1,264,173 | | | $ | 1,236,151 | | | $ | 1,271,910 | | | $ | 1,218,371 | |
|
| | | | | | | | | | | | | | | | | | | |
| September 30 2017 | | June 30 2017 | | March 31 2017 | | December 31 2016 | | September 30 2016 |
Commercial | $ | 620,135 |
| | $ | 600,584 |
| | $ | 576,822 |
| | $ | 575,664 |
| | $ | 554,847 |
|
Agricultural | 132,998 |
| | 130,954 |
| | 126,049 |
| | 126,492 |
| | 133,637 |
|
Residential real estate | 271,480 |
| | 270,207 |
| | 267,141 |
| | 266,050 |
| | 260,122 |
|
Consumer | 52,931 |
| | 46,752 |
| | 42,908 |
| | 42,409 |
| | 40,760 |
|
Total | $ | 1,077,544 |
| | $ | 1,048,497 |
| | $ | 1,012,920 |
| | $ | 1,010,615 |
| | $ | 989,366 |
|
While competition forAdvances to mortgage brokers, within the commercial loans continuesloan portfolio, which is not considered a component of our core lending business, was the primary driver behind the fluctuations experienced since March 31, 2022, as participation in this mortgage purchase program paused during most of 2022 and into 2023. We've experienced an increase in core commercial loan demand in recent periods. As demand is expected to be strong,continue, we experienced significant growth in these segments of the portfolio during 2016 and 2017 and anticipate continued growth in the commercial loan portfolio during the remainder of 2017. Residential real estate and consumer2023. While Agricultural loans have also experienced growthincreased over the last year and are both expected to increase forcontinue during the remainder of 2017.2023, we do not anticipate the same level of growth experienced in 2022 as the result of the competitive lending environment. Residential mortgage lending activities have slowed over the last year as a result of rising interest rates. As interest rates are expected to continue to increase in 2023, growth in residential loans is anticipated to continue but at a slower pace. We've experienced steady growth in consumer loans and expect this trend to continue during the reminder of 2023.
The following table outlines the changes in deposits:deposit balances: | | | | | | | | | | | | | | | | | | | | | | | |
| March 31 2023 | | December 31 2022 | | $ Change | | % Change (unannualized) |
Noninterest bearing demand deposits | $ | 478,829 | | | $ | 494,346 | | | $ | (15,517) | | | (3.14) | % |
Interest bearing demand deposits | 383,602 | | | 372,155 | | | 11,447 | | | 3.08 | % |
Savings deposits | 662,495 | | | 625,734 | | | 36,761 | | | 5.87 | % |
Certificates of deposit | 288,103 | | | 251,541 | | | 36,562 | | | 14.54 | % |
Internet certificates of deposit | 499 | | | 499 | | | — | | | — | % |
Total | $ | 1,813,528 | | | $ | 1,744,275 | | | $ | 69,253 | | | 3.97 | % |
|
| | | | | | | | | | | | | | |
| September 30 2017 | | December 31 2016 | | $ Change | | % Change (unannualized) |
Noninterest bearing demand deposits | $ | 212,608 |
| | $ | 205,071 |
| | $ | 7,537 |
| | 3.68 | % |
Interest bearing demand deposits | 220,601 |
| | 209,325 |
| | 11,276 |
| | 5.39 | % |
Savings deposits | 358,358 |
| | 347,230 |
| | 11,128 |
| | 3.20 | % |
Certificates of deposit | 309,778 |
| | 321,914 |
| | (12,136 | ) | | (3.77 | )% |
Brokered certificates of deposit | 95,979 |
| | 88,632 |
| | 7,347 |
| | 8.29 | % |
Internet certificates of deposit | 18,738 |
| | 22,868 |
| | (4,130 | ) | | (18.06 | )% |
Total | $ | 1,216,062 |
| | $ | 1,195,040 |
| | $ | 21,022 |
| | 1.76 | % |
The following table displays deposit balances as of: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31 2023 | | December 31 2022 | | September 30 2022 | | June 30 2022 | | March 31 2022 |
Noninterest bearing demand deposits | $ | 478,829 | | | $ | 494,346 | | | $ | 510,127 | | | $ | 488,110 | | | $ | 461,473 | |
Interest bearing demand deposits | 383,602 | | | 372,155 | | | 368,537 | | | 370,284 | | | 387,187 | |
Savings deposits | 662,495 | | | 625,734 | | | 651,129 | | | 635,397 | | | 635,195 | |
Certificates of deposit | 288,103 | | | 251,541 | | | 260,741 | | | 265,477 | | | 279,708 | |
Internet certificates of deposit | 499 | | | 499 | | | 499 | | | 598 | | | 598 | |
Total | $ | 1,813,528 | | | $ | 1,744,275 | | | $ | 1,791,033 | | | $ | 1,759,866 | | | $ | 1,764,161 | |
|
| | | | | | | | | | | | | | | | | | | |
| September 30 2017 | | June 30 2017 | | March 31 2017 | | December 31 2016 | | September 30 2016 |
Noninterest bearing demand deposits | $ | 212,608 |
| | $ | 210,122 |
| | $ | 207,448 |
| | $ | 205,071 |
| | $ | 201,804 |
|
Interest bearing demand deposits | 220,601 |
| | 212,365 |
| | 216,975 |
| | 209,325 |
| | 205,817 |
|
Savings deposits | 358,358 |
| | 357,756 |
| | 365,287 |
| | 347,230 |
| | 331,414 |
|
Certificates of deposit | 309,778 |
| | 314,482 |
| | 320,345 |
| | 321,914 |
| | 324,910 |
|
Brokered certificates of deposit | 95,979 |
| | 94,948 |
| | 98,442 |
| | 88,632 |
| | 87,583 |
|
Internet certificates of deposit | 18,738 |
| | 20,479 |
| | 22,564 |
| | 22,868 |
| | 24,305 |
|
Total | $ | 1,216,062 |
| | $ | 1,210,152 |
| | $ | 1,231,061 |
| | $ | 1,195,040 |
| | $ | 1,175,833 |
|
Deposit demand continues to be driven byTotal deposits have increased over the past 12 months with significant growth in non-contractual deposits, such as demand and savings deposits, whiledeposits. While we experienced a decline in certificates of deposit throughout 2022, we had significant growth during the first three months of 2023 as a result of the recent increase in the interest rate environment. We expect interest rates to continue to rise in 2023 and Internet certificatesanticipate the continuation in the shift of deposit have gradually declined. Brokered certificatescustomers moving to higher interest earning products.
The primary objective of fundingour investing activities is to manage our overall exposure to changes in interest rates. Secondary considerations include ensuring ample access to liquidity, generating returns, and fluctuate from period-to-periodproviding current income. Over the last two years, the flat yield curve encouraged the use of excess funds to reduce higher-cost borrowings as opposed to investing in AFS securities. However, based on ourbalance sheet strategies, excess funds above what is required to retire future maturities of higher-cost funding needs, including changes in assets such as loans and investments.
The balance of AFS securities fluctuates from period-to-period based on changes in loans and deposits. While loan growth has been strong over the last year, we purchasedsources was prudently deployed to purchase AFS securities in periods when deposit growth outpaced loan demand. Conversely, we have sold AFS securities in periods when loan demand has outpaced deposit growth. We remain active in investments with our local schools and municipalities. Potential future growth is anticipated in state and political subdivisions and purchases of mortgage-backed securities and collateralized mortgage obligations. periods.
The following table displays fair values of AFS securities as of: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31 2023 | | December 31 2022 | | September 30 2022 | | June 30 2022 | | March 31 2022 |
U.S. Treasury | $ | 212,086 | | | $ | 208,701 | | | $ | 206,791 | | | $ | 214,474 | | | $ | 218,268 | |
States and political subdivisions | 108,719 | | | 117,512 | | | 114,000 | | | 119,649 | | | 114,015 | |
Auction rate money market preferred | 2,716 | | | 2,342 | | | 2,479 | | | 2,497 | | | 2,867 | |
Mortgage-backed securities | 37,797 | | | 39,070 | | | 41,042 | | | 45,796 | | | 49,578 | |
Collateralized mortgage obligations | 200,252 | | | 205,728 | | | 209,720 | | | 167,572 | | | 152,441 | |
Corporate | 7,080 | | | 7,128 | | | 7,201 | | | 7,602 | | | 7,750 | |
Total | $ | 568,650 | | | $ | 580,481 | | | $ | 581,233 | | | $ | 557,590 | | | $ | 544,919 | |
|
| | | | | | | | | | | | | | | | | | | |
| September 30 2017 | | June 30 2017 | | March 31 2017 | | December 31 2016 | | September 30 2016 |
Government sponsored enterprises | $ | 232 |
| | $ | 281 |
| | $ | 10,264 |
| | $ | 10,259 |
| | $ | 344 |
|
States and political subdivisions | 213,457 |
| | 222,093 |
| | 222,777 |
| | 212,919 |
| | 219,689 |
|
Auction rate money market preferred | 3,172 |
| | 3,095 |
| | 2,977 |
| | 2,794 |
| | 3,145 |
|
Preferred stocks | 3,651 |
| | 3,665 |
| | 3,597 |
| | 3,425 |
| | 3,588 |
|
Mortgage-backed securities | 215,914 |
| | 221,957 |
| | 229,774 |
| | 227,256 |
| | 226,649 |
|
Collateralized mortgage obligations | 116,499 |
| | 116,771 |
| | 120,725 |
| | 101,443 |
| | 110,814 |
|
Total | $ | 552,925 |
| | $ | 567,862 |
| | $ | 590,114 |
| | $ | 558,096 |
| | $ | 564,229 |
|
Borrowed funds include FHLB advances, securities sold under agreements to repurchase, subordinated debt, and federal funds purchased. The balance of borrowed funds fluctuates from period-to-periodperiod to period based on our funding needs includingthat arise from changes in loans, investments, and deposits. To provide balance sheet growth, we may utilize borrowings and brokered deposits to fund earning assets. The following table displays borrowed funds balances as of: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31 2023 | | December 31 2022 | | September 30 2022 | | June 30 2022 | | March 31 2022 |
Securities sold under agreements to repurchase without stated maturity dates | $ | 31,995 | | | $ | 57,771 | | | $ | 52,479 | | | $ | 47,247 | | | $ | 51,353 | |
FHLB advances | — | | | — | | | — | | | 10,000 | | | 10,000 | |
Fixed rate at 3.25% to floating, due 2031 | 29,267 | | | 29,245 | | | 29,225 | | | 29,203 | | | 29,181 | |
Total | $ | 61,262 | | | $ | 87,016 | | | $ | 81,704 | | | $ | 86,450 | | | $ | 90,534 | |
|
| | | | | | | | | | | | | | | | | | | |
| September 30 2017 | | June 30 2017 | | March 31 2017 | | December 31 2016 | | September 30 2016 |
FHLB advances | $ | 310,000 |
| | $ | 310,000 |
| | $ | 270,000 |
| | $ | 270,000 |
| | $ | 250,000 |
|
Securities sold under agreements to repurchase without stated maturity dates | 54,977 |
| | 49,950 |
| | 57,375 |
| | 60,894 |
| | 54,809 |
|
Federal funds purchased | 2,050 |
| | 990 |
| | — |
| | 6,800 |
| | 20,600 |
|
Total | $ | 367,027 |
| | $ | 360,940 |
| | $ | 327,375 |
| | $ | 337,694 |
| | $ | 325,409 |
|
Capital
Capital consists solelyOver the last few years, we used excess funds to reduce FHLB advances. On June 2, 2021, we completed a private placement of common stock, retained earnings, and accumulated other comprehensive income (loss)$30,000 in aggregate principal amount of 3.25% Fixed-to-Floating Rate Subordinated Notes due 2031 (the "Notes"). We are authorized to raise capital through dividend reinvestment, employee and director stock purchases, and shareholder stock purchases. Pursuant to these authorizations, we issued 178,712 shares or $4,999The Notes will initially bear a fixed interest rate of common stock during3.25% until June 15, 2026, after which time until maturity on June 15, 2031, the first nine months of 2017, as compared to 131,697 shares or $3,683 of common stock during the same period in 2016. We also offer the Directors Plan in which participants either directly purchase stock or purchase stock units through deferred fees, in lieu of cash payments. Pursuant to this plan, we increased shareholders’ equity by $502 and $443 during the nine month periods ended September 30, 2017 and 2016, respectively.
We have a publicly announced common stock repurchase plan. Pursuant to this plan, we repurchased 143,117 shares or $4,005 of common stock during the first nine months of 2017 and 98,083 shares or $2,749 during the first nine months of 2016. As of September 30, 2017, we were authorized to repurchase upinterest rate will reset quarterly to an additional 56,839 shares of common stock.
The FRB has established minimum risk based capital guidelines. Pursuant to these guidelines, a framework has been established that assigns risk weights to each category of on and off-balance-sheet items to arrive at risk adjusted total assets. Regulatory capital is divided by the risk adjusted assets with the resulting ratio comparedannual floating rate equal to the minimum standard to determine whether a corporation has adequate capital. On July 2, 2013, the FRB published revised BASEL III Capital standards for banks.then-current 3-month SOFR plus 256 basis points. The final rules redefine what is includedNotes are redeemable by us at our option, in whole or deducted from equity capital, changes risk weighting for certainin part, on and off-balance sheet assets, increases the minimum required equity capital to be considered well capitalized, and introduces a capital conservation buffer.or after June 15, 2026. The rules, which are being gradually phased in between 2015 and 2019,Notes are not expectedsubject to have a material impact onredemption at the Corporation but will require us to hold more capital than has historically been required.option of the holders.
There are no significant regulatory constraints placed on our capital. The FRB’s current recommended minimum primary capital to assets requirement is 6.00%. Our primary capital to adjusted average assets, or tier 1 leverage ratio, was 8.50% as of September 30, 2017.
Effective January 1, 2015, the minimum standard for primary, or Tier 1 capital, increased from 4.00% to 6.00%. The minimum standard for total capital is 8.00%. Also effective January 1, 2015 was the new common equity tier 1 capital ratio which had a minimum requirement of 4.50%. Beginning on January 1, 2016 the capital conservation buffer went into effect which will further increase the required levels each year through 2019. The following table sets forth the percentages required under the Risk Based Capital guidelines and our ratios as of: |
| | | | | | | | | | | |
| September 30 2017 | | December 31 2016 |
| Actual | | Minimum Required | | Actual | | Minimum Required |
Common equity tier 1 capital | 12.200 | % | | 5.750 | % | | 12.390 | % | | 5.125 | % |
| | | | | | | |
Tier 1 capital | 12.200 | % | | 7.250 | % | | 12.390 | % | | 6.625 | % |
Tier 2 capital | 0.640 | % | | 2.000 | % | | 0.650 | % | | 2.000 | % |
Total Capital | 12.840 | % | | 9.250 | % | | 13.040 | % | | 8.625 | % |
Tier 2 capital, or secondary capital, includes only the ALLL. The percentage for the secondary capital under the required column is the maximum amount allowed from all sources.
The FRB and FDIC also prescribe minimum capital requirements for Isabella Bank. At September 30, 2017, the Bank exceeded these minimum capital requirements.
Contractual Obligations and Loan Commitments
We have various financial obligations, including contractual obligations and commitments related to deposits and borrowings, which may require future cash payments. We also have loan related commitments that may impact liquidity. The commitments include unused lines of credit, commercial and standby letters of credit, and commitments to grant loans. These commitments to grant loans include residential mortgage loans with the majority committed to be sold to the secondary market. Many of these commitments historically have expired without being drawn upon and do not necessarily represent our future cash requirements.
We are party to credit related financial instruments with off-balance-sheet risk. These financial instruments are entered into in the normal course of business to meet the financing needs of our customers. These financial instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the consolidated balance sheets. The contractcontractual or notional amounts of these instruments reflect the extent of involvement we have in a particular class of financial instrument.
The following table summarizes our credit related financial instruments with off-balance-sheet risk as of: |
| | | | | | | |
| September 30 2017 | | December 31 2016 |
Unfunded commitments under lines of credit | $ | 165,768 |
| | $ | 168,840 |
|
Commitments to grant loans | 43,353 |
| | 29,339 |
|
Commercial and standby letters of credit | 1,622 |
| | 1,223 |
|
Total | $ | 210,743 |
| | $ | 199,402 |
|
Unfunded commitments under lines of credit are commitments for possible future extensions of credit to existing customers. These commitments may expire without being drawn upon and do not necessarily represent future cash requirements. Advances to mortgage brokers are also included in unfunded commitments under lines of credit. The unfunded commitment amount is the difference between our outstanding balances and the maximum outstanding aggregate amount.
Commitments to grant loans 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. The amount of collateral obtained, if it is deemed necessary, is based on management’s credit evaluation of the customer. Commitments to grant loans include residential mortgage loans with the majority being loans committed to be sold to the secondary market.
Commercial and standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support private borrowing arrangements, including commercial paper, bond financing, and similar transactions. These commitments to extend credit and letters of credit generally mature within one year. The credit risk involved in these transactions is essentially the same as that involved in extending loans to customers. We evaluate each customer's credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary upon the extension of credit, is based on a credit evaluation of the borrower. While we consider standby letters of credit to be guarantees, the amount of the liability related to such guarantees on the commitment date is not significant and a liability related to such guarantees is not recorded on the consolidated balance sheets.
Our exposure to credit-related loss in the event of nonperformance by the counter partiescounterparties to the financial instruments for commitments to extend credit and standby letters of credit could be up to the contractual notional amount of those instruments. We use the same credit policies when analyzing the creditworthiness of counterparties as we do for extending loans to customers. No significant losses are anticipated as a result of these commitments.
Capital
Capital consists solely of common stock, retained earnings, and accumulated other comprehensive income (loss). We are authorized to raise capital through dividend reinvestment, employee and director stock purchases, and shareholder stock purchases. Pursuant to these authorizations, we issued 19,873 shares or $462 of common stock during the first three months of 2023, as compared to 17,379 shares or $439 of common stock during the same period in 2022. We also offer the Directors Plan in which participants purchase stock units through deferred fees, in lieu of cash payments. Pursuant to this plan, we increased shareholders’ equity by $346 and $149 during the three-month periods ended March 31, 2023 and 2022, respectively. We also grant restricted stock awards pursuant to the RSP. Pursuant to this plan, we increased shareholders’ equity by $42 during the first three months of 2023, as compared to $31 during the same period in 2022.
We have publicly announced a common stock repurchase plan. Pursuant to this plan, we repurchased 39,279 shares or $937 of common stock during the first three months of 2023 and 7,262 shares or $185 during the first three months of 2022. As of March 31, 2023, we were authorized to repurchase up to an additional 380,547 shares of common stock.
The FRB has established minimum risk-based capital guidelines. Pursuant to these guidelines, a framework has been established that assigns risk weights to each category of on and off-balance-sheet items to arrive at risk adjusted total assets. Regulatory capital is divided by the risk adjusted assets with the resulting ratio compared to the minimum standard to determine whether a corporation has adequate capital.
The common equity tier 1 capital ratio has a minimum requirement of 4.50%. The minimum standard for primary, or Tier 1 capital is 6.00% and the minimum standard for total capital is 8.00%. The minimum requirements presented below include the minimum required capital levels based on the Basel III Capital Rules. Capital requirements to be considered well capitalized are based upon prompt corrective action regulations, as amended to reflect the changes under the Basel III Capital Rules. The following table sets forth these requirements and our ratios as of: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
| Actual | | Minimum Required - BASEL III | | Required to be Considered Well Capitalized | | Actual | | Minimum Required - BASEL III | | Required to be Considered Well Capitalized |
Common equity tier 1 capital | 12.71 | % | | 7.00 | % | | 6.50 | % | | 12.91 | % | | 7.00 | % | | 6.50 | % |
Tier 1 capital | 12.71 | % | | 8.50 | % | | 8.00 | % | | 12.91 | % | | 8.50 | % | | 8.00 | % |
Total capital | 15.77 | % | | 10.50 | % | | 10.00 | % | | 15.79 | % | | 10.50 | % | | 10.00 | % |
Tier 1 leverage | 8.58 | % | | 4.00 | % | | 5.00 | % | | 8.61 | % | | 4.00 | % | | 5.00 | % |
Total capital includes Tier 1 capital and Tier 2 capital. Tier 2 capital includes a permissible portion of the allowances for loan and lease losses and subordinated debt, net of unamortized issuance costs. There are no significant regulatory constraints placed on our capital. At March 31, 2023, the Bank also exceeded minimum capital requirements.
Liquidity
Liquidity is monitored regularly by our ALCO, which consists of members of senior management. The committee reviews projected cash flows, key ratios, and liquidity available from both primary and secondary sources.
Our primary sources of liquidity are cash and cash equivalents and unencumbered AFS securities. These categories totaled $514,304 or 24.67% of assets as of March 31, 2023, compared to $488,981 or 24.08% as of December 31, 2022. The increase in the amount and percentage of primary liquidity is a direct result of an increase in market deposits, an increase in unencumbered AFS securities from purchases during 2022, and a deliberate reduction in non-market funding which required collateralization. Liquidity is important for financial institutions because of their need to meet loan funding commitments, depositor withdrawal requests, and various other commitments including expansion of operations, investment opportunities, and payment of cash dividends. Based on these same factors, daily liquidity could vary significantly.
Deposit accounts are our primary source of funds. Our secondary sources include the ability to borrow from the FHLB, from the FRB, and through various correspondent banks in the form of federal funds purchased and a line of credit. These funding methods typically carry a higher interest rate than traditional market deposit accounts. In recent periods, we have elected to use excess funds to reduce borrowings and other higher-cost funding sources. Some borrowed funds, including FHLB advances, FRB Discount Window advances, and repurchase agreements, require us to pledge assets, typically in the form of AFS securities or loans, as collateral. As of March 31, 2023, we had available lines of credit of $348,829. In early April, one of our Fed Funds lines was paused by the correspondent bank in response to recent events in the banking industry and the subsequent market conditions. As such, our available lines of credit was reduced to $328,829.
The frequency and complexity of our liquidity stress testing has increased since early 2020 and continues to evolve due to economic uncertainly as a result of COVID-19 and changes within the interest rate and economic environment. Our liquidity position remained strong at March 31, 2023, which is illustrated in the following table: | | | | | |
| March 31 2023 |
Total cash and cash equivalents | $ | 98,723 | |
Available lines of credit | |
Fed funds lines with correspondent banks | 93,000 | |
FHLB borrowings | 241,545 | |
FRB Discount Window | 9,284 | |
Other lines of credit | 5,000 | |
Total available lines of credit | 348,829 | |
Unencumbered lendable value of FRB collateral, estimated1 | 350,000 | |
Total cash and liquidity | $ | 797,552 | |
(1)Includes estimated unencumbered lendable value of FHLB collateral of $300,000
The following table summarizes our sources and uses of cash for the three-month period ended March 31: | | | | | | | | | | | | | | | | | |
| 2023 | | 2022 | | $ Variance |
Net cash provided by (used in) operating activities | $ | 7,569 | | | $ | 5,629 | | | $ | 1,940 | |
Net cash provided by (used in) investing activities | 11,802 | | | 7,142 | | | 4,660 | |
Net cash provided by (used in) financing activities | 40,428 | | | 43,085 | | | (2,657) | |
Increase (decrease) in cash and cash equivalents | 59,799 | | | 55,856 | | | 3,943 | |
Cash and cash equivalents January 1 | 38,924 | | | 105,330 | | | (66,406) | |
Cash and cash equivalents March 31 | $ | 98,723 | | | $ | 161,186 | | | $ | (62,463) | |
Fair Value
We utilize fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. AFS securities, cash flow hedge derivative instruments and certain liabilities are recorded at fair value on a recurring basis. Additionally, from time-to-time,time to time, we may be required to record at fair value other assets on a nonrecurring basis, such as mortgage loans AFS, impairedcollateral dependent loans, goodwill, foreclosed assets, OMSR,, and certain other assets and liabilities. These nonrecurring fair value adjustments typically involve the application of lower of cost or market accounting or write-downswrite downs of individual assets.
For further information regarding fair value measurements see “Note 11“Note 10 – Fair Value”Value” of our notes to the interim condensed consolidated financial statements.
Liquidity
Liquidity is monitored regularly by our Market Risk Committee, which consists of members of senior management. The committee reviews projected cash flows, key ratios, and liquidity available from both primary and secondary sources.
Our primary sources of liquidity are cash and cash equivalents and unencumbered AFS securities. These categories totaled $269,687 or 15.05% of assets as of September 30, 2017, compared to $307,112 or 17.73% as of December 31, 2016. The decrease in primary liquidity is a direct result of our unencumbered AFS securities activity during 2017. Liquidity is important for financial institutions because of their need to meet loan funding commitments, depositor withdrawal requests, and various other commitments including expansion of operations, investment opportunities, and payment of cash dividends. Liquidity varies significantly daily, based on customer activity.
Our primary source of funds is through deposit accounts. We also have the ability to borrow from the FHLB, the FRB, and through various correspondent banks in the form of federal funds purchased and a line of credit. These funding methods typically carry a higher interest rate than traditional market deposit accounts. Some borrowed funds, including FHLB advances, FRB Discount Window advances, and repurchase agreements, require us to pledge assets, typically in the form of AFS securities or loans, as collateral. As of September 30, 2017, we had available lines of credit of $114,839.
The following table summarizes our sources and uses of cash for the nine month period ended September 30: |
| | | | | | | | | | | |
| 2017 | | 2016 | | $ Variance |
Net cash provided by (used in) operating activities | $ | 13,728 |
| | $ | 15,565 |
| | $ | (1,837 | ) |
Net cash provided by (used in) investing activities | (60,627 | ) | | (37,704 | ) | | (22,923 | ) |
Net cash provided by (used in) financing activities | 45,072 |
| | 21,905 |
| | 23,167 |
|
Increase (decrease) in cash and cash equivalents | (1,827 | ) | | (234 | ) | | (1,593 | ) |
Cash and cash equivalents January 1 | 22,894 |
| | 21,569 |
| | 1,325 |
|
Cash and cash equivalents September 30 | $ | 21,067 |
| | $ | 21,335 |
| | $ | (268 | ) |
Market Risk
Our primary market risks are interest rate risk and liquidity risk. We have no significant foreign exchange risk in the management of IRR. Any changes in foreign exchange rates or commodity prices would have an insignificant impact on our interest income and cash flows.
IRR is the exposure of our net interest income to changes in interest rates. IRR results from the difference in the maturity or repricing frequency of a financial institution's interest earning assets and its interest bearing liabilities. Managing IRR is the fundamental method by which financial institutions earn income and create shareholder value. Excessive exposure to IRR could pose a significant risk to our earnings and capital.
The FRB has adopted a policy requiring usbanks to effectively manage the various risks that can have a material impact on our safety and soundness. The risks include credit, interest rate, liquidity, operational, and reputational. We have policies, procedures, and internal controls for measuring and managing these risks. Specifically, our Funds ManagementALCO policy and procedures include defining acceptable types and terms of investments and funding sources, liquidity requirements, limits on investments in long
termlong-term assets, limiting the mismatch in repricing opportunityopportunities of assets and liabilities, and the frequency of measuring and reporting to our Board.Board of Directors.
The primary technique to measure IRR is simulation analysis. Simulation analysis forecasts the effects on the balance sheet structure and net interest income under a variety of scenarios that incorporate changes in interest rates, the shape of yield curves, interest rate relationships, loan prepayments, and changes in funding sources. These forecasts are compared against net interest income projected in a stable interest rate environment. While many assets and liabilities reprice either at maturity or in accordance with their contractual terms, several balance sheet components demonstrate characteristics that require an evaluation
to more accurately reflect their repricing behavior. Key assumptions in the simulation analysis include prepayments on loans, probable calls of investment securities, changes in market conditions, loan volumes and loan pricing, deposit sensitivity, and customer preferences. These assumptions are inherently uncertain as they are subject to fluctuation and revision in a dynamic rate environment. As a result, the simulation analysis cannot precisely forecast the impact of rising and falling interest rates on net interest income. Actual results will differ from simulated results due to many other factors, including changes in balance sheet components, interest rate changes, changes in market conditions, and management strategies.
Our interest rate sensitivity is estimated by first forecasting the next 12 and 24 months of net interest income under an assumed environment of a constant balance sheet and constant market interest rates (base case). We then compare the results of various simulation analyses to the base case. At September 30, 2017, we projected the change in net interest income during the next 12 and 24 months assuming market interest rates were to immediately decrease by 100 basis points and increase by 100, 200, 300, and 400 basis points in a parallel fashion over the entire yield curve during the same time period. We did not project scenarios showing decreases in interest rates beyond 100 basis points as this is considered extremely unlikely given current interest rate levels. These projections were based on our assets and liabilities remaining static over the next 12 and 24 months, while factoring in probable calls and prepayments of certain investment securities and residential real estate and consumer loans. While it is extremely unlikely that interest rates would immediately increase to these levels, we feel that these extreme scenarios help us identify potential gaps and mismatches in the repricing characteristics of assets and liabilities. We regularly monitor our projected net interest income sensitivity to ensure that it remains within established limits. As
Gap analysis, the secondary method to measure IRR, measures the cash flows and/or the earliest repricing of September 30, 2017, our interest rate sensitivity results were within Board approved limits.
bearing assets and liabilities. This analysis is useful for measuring trends in the repricing characteristics of the balance sheet. Significant assumptions are required in this process because of the embedded repricing options contained in assets and liabilities. Residential real estate and consumer loans allow the borrower to repay the balance prior to maturity without penalty, while commercial and agricultural loans may have prepayment penalties. The following tables summarize ouramount of prepayments is dependent upon many factors, including the interest rate sensitivity forof a given loan in comparison to the next 12current offering rates, the level of home sales, and 24 months as of: |
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| September 30, 2017 |
| 12 Months |
| 24 Months |
Immediate basis point change assumption (short-term) | -100 | | +100 | | +200 | | +300 | | +400 | | -100 | | +100 | | +200 | | +300 | | +400 |
Percent change in net interest income vs. constant rates | (1.48 | )% | | 1.90 | % | | 3.67 | % | | 5.28 | % | | 7.15 | % | | (1.57 | )% | | 2.37 | % | | 4.35 | % | | 5.85 | % | | 7.12 | % |
|
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| December 31, 2016 |
| 12 Months | | 24 Months |
Immediate basis point change assumption (short-term) | -100 | | +100 | | +200 | | +300 | | +400 | | -100 | | +100 | | +200 | | +300 | | +400 |
Percent change in net interest income vs. constant rates | (4.49 | )% | | 2.19 | % | | 4.31 | % | | 5.68 | % | | 6.67 | % | | (5.32 | )% | | 2.64 | % | | 5.01 | % | | 6.33 | % | | 6.75 | % |
The following tables provide information about assets and liabilities that are sensitive to changesthe overall availability of credit in the market place. Generally, a decrease in interest rates aswill result in an increase in cash flows from these assets. A significant portion of September 30, 2017our securities are callable or have prepayment options. The call and December 31, 2016.prepayment options are more likely to be exercised in a period of decreasing interest rates. Savings and demand accounts may generally be withdrawn on request without prior notice. The principal amountstiming of investments, loans, other interest earning assets, borrowings, and timecash flows from these deposits maturing were calculatedis estimated based on the contractual maturity dates. Estimated cash flows for savings and NOW accounts are based on our estimatedhistorical experience. Certificates of deposit decay rates. |
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| September 30, 2017 |
| 2018 | | 2019 | | 2020 | | 2021 | | 2022 | | Thereafter | | Total | | Fair Value |
Rate sensitive assets | | | | | | | | | | | | | | | |
Other interest bearing assets | $ | 317 |
| | $ | — |
| | $ | 100 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 417 |
| | $ | 413 |
|
Average interest rates | 0.13 | % | | — | % | | 0.35 | % | | — | % | | — | % | | — | % | | 0.19 | % | | |
AFS securities | $ | 97,221 |
| | $ | 76,245 |
| | $ | 75,047 |
| | $ | 64,571 |
| | $ | 57,336 |
| | $ | 182,505 |
| | $ | 552,925 |
| | $ | 552,925 |
|
Average interest rates | 2.31 | % | | 2.43 | % | | 2.56 | % | | 2.57 | % | | 2.37 | % | | 2.51 | % | | 2.46 | % | | |
Fixed interest rate loans (1) | $ | 165,818 |
| | $ | 115,736 |
| | $ | 111,844 |
| | $ | 128,218 |
| | $ | 118,105 |
| | $ | 210,925 |
| | $ | 850,646 |
| | $ | 830,014 |
|
Average interest rates | 4.04 | % | | 4.33 | % | | 4.25 | % | | 4.19 | % | | 4.25 | % | | 4.03 | % | | 4.16 | % | | |
Variable interest rate loans (1) | $ | 74,253 |
| | $ | 34,336 |
| | $ | 23,884 |
| | $ | 21,932 |
| | $ | 25,710 |
| | $ | 46,783 |
| | $ | 226,898 |
| | $ | 226,898 |
|
Average interest rates | 5.07 | % | | 4.60 | % | | 4.81 | % | | 4.20 | % | | 4.28 | % | | 3.88 | % | | 4.55 | % | | |
Rate sensitive liabilities | | | | | | | | | | | | | | | |
Fixed rate borrowed funds | $ | 137,027 |
| | $ | 95,000 |
| | $ | 20,000 |
| | $ | 35,000 |
| | $ | 50,000 |
| | $ | 20,000 |
| | $ | 357,027 |
| | $ | 357,873 |
|
Average interest rates | 1.08 | % | | 1.82 | % | | 1.85 | % | | 1.78 | % | | 1.97 | % | | 2.54 | % | | 1.60 | % | | |
Variable rate borrowed funds | $ | — |
| | $ | — |
| | $ | — |
| | $ | 10,000 |
| | $ | — |
| | $ | — |
| | $ | 10,000 |
| | $ | 10,000 |
|
Average interest rates | — | % | | — | % | | — | % | | 1.61 | % | | — | % | | — | % | | 1.61 | % | | |
Savings and NOW accounts | $ | 147,447 |
| | $ | 42,087 |
| | $ | 37,635 |
| | $ | 33,677 |
| | $ | 30,159 |
| | $ | 287,954 |
| | $ | 578,959 |
| | $ | 578,959 |
|
Average interest rates | 0.49 | % | | 0.21 | % | | 0.21 | % | | 0.20 | % | | 0.20 | % | | 0.18 | % | | 0.26 | % | | |
Fixed interest rate certificates of deposit | $ | 201,000 |
| | $ | 73,091 |
| | $ | 35,115 |
| | $ | 49,089 |
| | $ | 39,561 |
| | $ | 21,022 |
| | $ | 418,878 |
| | $ | 417,919 |
|
Average interest rates | 0.96 | % | | 1.25 | % | | 1.58 | % | | 1.70 | % | | 1.81 | % | | 2.02 | % | | 1.28 | % | | |
Variable interest rate certificates of deposit | $ | 2,346 |
| | $ | 3,269 |
| | $ | 2 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 5,617 |
| | $ | 5,617 |
|
Average interest rates | 1.07 | % | | 1.26 | % | | — | % | | — | % | | — | % | | — | % | | 1.18 | % | | |
|
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| December 31, 2016 |
| 2017 | | 2018 | | 2019 | | 2020 | | 2021 | | Thereafter | | Total | | Fair Value |
Rate sensitive assets | | | | | | | | | | | | | | | |
Other interest bearing assets | $ | 2,727 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 2,727 |
| | $ | 2,727 |
|
Average interest rates | 0.34 | % | | — | % | | — | % | | — | % | | — | % | | — | % | | 0.34 | % | | |
AFS securities | $ | 114,247 |
| | $ | 71,220 |
| | $ | 64,931 |
| | $ | 63,150 |
| | $ | 66,976 |
| | $ | 177,572 |
| | $ | 558,096 |
| | $ | 558,096 |
|
Average interest rates | 2.35 | % | | 2.38 | % | | 2.45 | % | | 2.64 | % | | 2.57 | % | | 2.50 | % | | 2.47 | % | | |
Fixed interest rate loans (1) | $ | 159,964 |
| | $ | 115,741 |
| | $ | 103,514 |
| | $ | 107,185 |
| | $ | 112,811 |
| | $ | 199,160 |
| | $ | 798,375 |
| | $ | 778,769 |
|
Average interest rates | 4.15 | % | | 4.25 | % | | 4.34 | % | | 4.16 | % | | 4.15 | % | | 4.10 | % | | 4.18 | % | | |
Variable interest rate loans (1) | $ | 69,024 |
| | $ | 29,179 |
| | $ | 38,248 |
| | $ | 16,179 |
| | $ | 23,632 |
| | $ | 35,978 |
| | $ | 212,240 |
| | $ | 212,240 |
|
Average interest rates | 4.83 | % | | 4.32 | % | | 4.16 | % | | 3.62 | % | | 3.74 | % | | 3.86 | % | | 4.26 | % | | |
Rate sensitive liabilities | | | | | | | | | | | | | | | |
Fixed rate borrowed funds | $ | 137,694 |
| | $ | 50,000 |
| | $ | 60,000 |
| | $ | 10,000 |
| | $ | 50,000 |
| | $ | 20,000 |
| | $ | 327,694 |
| | $ | 326,975 |
|
Average interest rates | 0.83 | % | | 2.16 | % | | 1.99 | % | | 1.98 | % | | 1.91 | % | | 2.54 | % | | 1.55 | % | | |
Variable rate borrowed funds | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 10,000 |
| | $ | — |
| | $ | 10,000 |
| | $ | 10,000 |
|
Average interest rates | — | % | | — | % | | — | % | | — | % | | 1.21 | % | | — | % | | 1.21 | % | | |
Savings and NOW accounts | $ | 84,972 |
| | $ | 42,596 |
| | $ | 38,220 |
| | $ | 34,326 |
| | $ | 30,858 |
| | $ | 325,583 |
| | $ | 556,555 |
| | $ | 556,555 |
|
Average interest rates | 0.57 | % | | 0.12 | % | | 0.11 | % | | 0.11 | % | | 0.11 | % | | 0.11 | % | | 0.18 | % | | |
Fixed interest rate certificates of deposit | $ | 195,389 |
| | $ | 80,139 |
| | $ | 45,110 |
| | $ | 33,929 |
| | $ | 50,978 |
| | $ | 24,881 |
| | $ | 430,426 |
| | $ | 427,100 |
|
Average interest rates | 0.86 | % | | 1.18 | % | | 1.35 | % | | 1.58 | % | | 1.68 | % | | 1.84 | % | | 1.18 | % | | |
Variable interest rate certificates of deposit | $ | 1,078 |
| | $ | 1,910 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 2,988 |
| | $ | 2,988 |
|
Average interest rates | 0.62 | % | | 0.99 | % | | — | % | | — | % | | — | % | | — | % | | 0.85 | % | | |
(1) The fair value reported is exclusive of the allocation of the ALLL.have penalties that discourage early withdrawals.
We do not believe that there has been a material change in the nature or categories of our primary market risk exposure, or the particular markets that present the primary risk of loss. As of the date of this report, weWe do not know of or expect there to be any material change in the general nature of our primary market risk exposure in the near term, and we do not expect to make material changes in those methods used to measure and assessour market risk methods in the near term. We may change those methods in the future to adapt to changes in circumstances or to implement new techniques.
Gap analysis is also utilized as a method to measure interest rate sensitivity. Interest rate sensitivity is determined by the amount of earning assets and interest bearing liabilities repricing within a specific time period, and their relative sensitivity to a change in interest rates. We strive to achieve reasonable stability in the net interest margin through periods of changing interest rates. One specific focus of interest rate sensitivity is the loan portfolio, primarily with commercial and agricultural loans.. Item 3. Quantitative and Qualitative Disclosures about Market Risk.
The information presented in the section captioned “Market Risk”“Market Risk” in Management's Discussion and Analysis of Financial Condition and Results of Operations is incorporated herein by reference.
Item 4. Controls and Procedures.
DISCLOSURE CONTROLS AND PROCEDURES
We carried out an evaluation, under the supervision and with the participation of the Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15(d)-15(e) under the Exchange Act) as of September 30, 2017,March 31, 2023, pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, the Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures as of September 30, 2017,March 31, 2023, were effective to ensure that information required to be disclosed in reports that we file or submit under the Exchange Act are recorded, processed, summarized and reported within the time periods specified in SEC rules and forms.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
During the most recent fiscal quarter, no change occurred in our internal control over financial reporting that materially affected, or is likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
Item 1. Legal Proceedings.
We are not involved in any material legal proceedings. We are involved in ordinary, routine litigation incidental to our business; however, no such routine proceedings are expected to result in any material adverse effect on operations, earnings, financial condition, or cash flows.
Item 1A. Risk Factors.
There have been no material changes to the risk factors disclosed in Item 1A in our Annual Report on Form 10-K for the year ended December 31, 2016.2022.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
| |
(C) | Repurchases of Common Stock |
(A)None
(B)None
(C)Repurchases of Common Stock
We have adopted and publicly announced a common stock repurchase plan. The plan was last amended on December 21, 2016,April 28, 2021, to allow for the repurchase of an additional 200,000500,000 shares of common stock after that date. These authorizations do not have expiration dates. As common shares are repurchased under this plan, they are retired and revert back towith the status of authorized, but unissued, common shares.
The following table provides information for the three monththree-month period ended September 30, 2017,March 31, 2023, with respect to this plan: | | | | | | | | | | | | | | | | | | | | | | | |
| Common Shares Repurchased | | Total Number of Common Shares Purchased as Part of Publicly Announced Plan or Program | | Maximum Number of Common Shares That May Yet Be Purchased Under the Plans or Programs |
| Number | | Average Price Per Common Share | | |
December 31, 2022 | | | | | | | 419,826 | |
January 1 - 31 | 8,425 | | | $ | 22.67 | | | 8,425 | | | 411,401 | |
February 1 - 28 | 8,484 | | | 24.16 | | | 8,484 | | | 402,917 | |
March 1 - 31 | 22,370 | | | 24.18 | | | 22,370 | | | 380,547 | |
March 31, 2023 | 39,279 | | | $ | 23.85 | | | 39,279 | | | 380,547 | |
|
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| Common Shares Repurchased | | Total Number of Common Shares Purchased as Part of Publicly Announced Plan or Program | | Maximum Number of Common Shares That May Yet Be Purchased Under the Plans or Programs |
| Number | | Average Price Per Common Share | | |
Balance, June 30 | | | | | | | 105,875 |
|
July 1 -31 | 10,431 |
| | $ | 27.99 |
| | 10,431 |
| | 95,444 |
|
August 1 - 31 | 31,647 |
| | 28.19 |
| | 31,647 |
| | 63,797 |
|
September 1 - 30 | 6,958 |
| | 28.60 |
| | 6,958 |
| | 56,839 |
|
Balance, September 30 | 49,036 |
| | $ | 28.20 |
| | 49,036 |
| | 56,839 |
|
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
Not applicable.
Item 6. Exhibits.
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Exhibit Number | | Exhibits |
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| | | | Exhibits4.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on June 2, 2021) |
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101.1* | | 101.INS (XBRL(Inline XBRL Instance Document) |
| | |
| | 101.SCH (XBRL(Inline XBRL Taxonomy Extension Schema Document) |
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| | 101.CAL (XBRL(Inline XBRL Calculation Linkbase Document) |
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| | 101.LAB (XBRL(Inline XBRL Taxonomy Label Linkbase Document) |
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| | 101.DEF (XBRL(Inline XBRL Taxonomy Linkbase Document) |
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| | 101.PRE (XBRL(Inline XBRL Taxonomy Presentation Linkbase Document) |
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*104 | In accordance with Rule 406T of Regulations S-T, the XBRL related information shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be part of any registration statement or other document filed under the Securities Act or the Exchange Act, except as shall be expressly set forth by specific reference in such filing. | Cover Page Interactive Data File |
* In accordance with Rule 406T of Regulations S-T, the XBRL related information shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be part of any registration statement or other document filed under the Securities Act or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.
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. | | | | | | | | | | | | | | |
| | Isabella Bank Corporation |
| | | |
Date: | April 28, 2023 | | | /s/ Jae A. Evans |
| | | | Jae A. Evans |
| | | | President and Chief Executive Officer |
| | | | (Principal Executive Officer) |
| | | | |
Date: | April 28, 2023 | Isabella Bank Corporation | | /s/ Neil M. McDonnell |
| | | | Neil M. McDonnell |
Date: | November 3, 2017 | | | /s/ Jae A. Evans |
| | | | Jae A. Evans |
| | | | President, Chief Executive Officer |
| | | | (Principal Executive Officer) |
| | | |
Date: | November 3, 2017 | | | /s/ Rhonda S. Tudor |
| | | | Rhonda S. Tudor |
| | | | Interim Chief Financial Officer |
| | | | (Principal AccountingFinancial Officer) |