UNITED STATES
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2020 |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______to_______ |
For the transition period from _______to_______
Delaware | 26-0734029 |
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) |
(205)
Title of each class | Trading symbol(s) | Name of each exchange on which registered |
Common stock, par value $.001 per share | SFBS | The NASDAQ |
Act (Check one):
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 ☐
Class | Outstanding as of |
| Common stock, $.001 par value |
Management’s Discussion and Analysis of Financial Condition and Results of Operations | ||
EX-31.01 SECTION 302 CERTIFICATION OF THE CEO
EX-31.02 SECTION 302 CERTIFICATION OF THE CFO
EX-32.01 SECTION 906 CERTIFICATION OF THE CEO
EX-32.02 SECTION 906 CERTIFICATION OF THE CFO
| ||||||||
| ||||||||
| ||||||||
September 30, 2019 | December 31, 2018 | |||||||
(Unaudited) | (1) | |||||||
ASSETS | ||||||||
Cash and due from banks | $ | 108,804 | $ | 97,516 | ||||
Interest-bearing balances due from depository institutions | 463,625 | 360,534 | ||||||
Federal funds sold | 474,298 | 223,845 | ||||||
Cash and cash equivalents | 1,046,727 | 681,895 | ||||||
Available for sale debt securities, at fair value | 688,021 | 590,184 | ||||||
Held to maturity debt securities (fair value of $250 at September 30, 2019) | 250 | - | ||||||
Mortgage loans held for sale | 8,691 | 120 | ||||||
Loans | 7,022,069 | 6,533,499 | ||||||
Less allowance for loan losses | (77,192 | ) | (68,600 | ) | ||||
Loans, net | 6,944,877 | 6,464,899 | ||||||
Premises and equipment, net | 56,570 | 57,822 | ||||||
Accrued interest and dividends receivable | 25,423 | 24,070 | ||||||
Deferred tax assets | 24,426 | 27,277 | ||||||
Other real estate owned and repossessed assets | 5,337 | 5,169 | ||||||
Bank owned life insurance contracts | 152,976 | 130,649 | ||||||
Goodwill and other identifiable intangible assets | 14,246 | 14,449 | ||||||
Other assets | 37,568 | 10,848 | ||||||
Total assets | $ | 9,005,112 | $ | 8,007,382 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
Liabilities: | ||||||||
Deposits: | ||||||||
Noninterest-bearing | $ | 1,678,672 | $ | 1,557,341 | ||||
Interest-bearing | 6,045,486 | 5,358,367 | ||||||
Total deposits | 7,724,158 | 6,915,708 | ||||||
Federal funds purchased | 370,231 | 288,725 | ||||||
Other borrowings | 64,693 | 64,666 | ||||||
Accrued interest payable | 11,476 | 10,381 | ||||||
Other liabilities | 24,017 | 12,699 | ||||||
Total liabilities | 8,194,575 | 7,292,179 | ||||||
Stockholders' equity: | ||||||||
Preferred stock, par value $0.001 per share; 1,000,000 authorized and undesignated at September 30, 2019 and December 31, 2018 | - | - | ||||||
Common stock, par value $0.001 per share; 100,000,000 shares authorized; 53,579,113 shares issued and outstanding at September 30, 2019, and 53,375,195 shares issued and outstanding at December 31, 2018 | 54 | 53 | ||||||
Additional paid-in capital | 219,234 | 218,521 | ||||||
Retained earnings | 584,968 | 500,868 | ||||||
Accumulated other comprehensive income (loss) | 5,779 | (4,741 | ) | |||||
Total stockholders' equity attributable to ServisFirst Bancshares, Inc. | 810,035 | 714,701 | ||||||
Noncontrolling interest | 502 | 502 | ||||||
Total stockholders' equity | 810,537 | 715,203 | ||||||
Total liabilities and stockholders' equity | $ | 9,005,112 | $ | 8,007,382 | ||||
(1) Derived from audited financial statements.
See Notes to Consolidated Financial Statements.
SERVISFIRST BANCSHARES, INC. | ||||||||||||||||
CONSOLIDATED STATEMENTS OF INCOME | ||||||||||||||||
(In thousands, except share and per share amounts) | ||||||||||||||||
(Unaudited) | ||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Interest income: | ||||||||||||||||
Interest and fees on loans | $ | 90,767 | $ | 78,991 | $ | 264,901 | $ | 222,285 | ||||||||
Taxable securities | 4,367 | 3,276 | 12,306 | 9,148 | ||||||||||||
Nontaxable securities | 316 | 583 | 1,155 | 1,862 | ||||||||||||
Federal funds sold | 1,768 | 892 | 4,985 | 2,137 | ||||||||||||
Other interest and dividends | 3,912 | 316 | 9,269 | 1,031 | ||||||||||||
Total interest income | 101,130 | 84,058 | 292,616 | 236,463 | ||||||||||||
Interest expense: | ||||||||||||||||
Deposits | 24,787 | 15,210 | 71,172 | 36,545 | ||||||||||||
Borrowed funds | 3,338 | 1,985 | 9,576 | 6,097 | ||||||||||||
Total interest expense | 28,125 | 17,195 | 80,748 | 42,642 | ||||||||||||
Net interest income | 73,005 | 66,863 | 211,868 | 193,821 | ||||||||||||
Provision for loan losses | 6,985 | 6,624 | 16,754 | 14,884 | ||||||||||||
Net interest income after provision for loan losses | 66,020 | 60,239 | 195,114 | 178,937 | ||||||||||||
Noninterest income: | ||||||||||||||||
Service charges on deposit accounts | 1,735 | 1,595 | 5,223 | 4,833 | ||||||||||||
Mortgage banking | 1,333 | 789 | 2,995 | 2,096 | ||||||||||||
Credit card income | 1,868 | 1,414 | 5,185 | 4,030 | ||||||||||||
Securities gains | 34 | 186 | 28 | 190 | ||||||||||||
Increase in cash surrender value life insurance | 787 | 787 | 2,327 | 2,350 | ||||||||||||
Other operating income | 453 | 294 | 1,172 | 922 | ||||||||||||
Total noninterest income | 6,210 | 5,065 | 16,930 | 14,421 | ||||||||||||
Noninterest expenses: | ||||||||||||||||
Salaries and employee benefits | 15,499 | 13,070 | 44,103 | 39,464 | ||||||||||||
Equipment and occupancy expense | 2,387 | 2,193 | 6,933 | 6,260 | ||||||||||||
Professional services | 887 | 853 | 3,072 | 2,582 | ||||||||||||
FDIC and other regulatory (credits) assessments | (296 | ) | 675 | 1,804 | 2,967 | |||||||||||
OREO expense | 78 | 289 | 312 | 765 | ||||||||||||
Other operating expenses | 6,606 | 5,544 | 20,285 | 17,136 | ||||||||||||
Total noninterest expenses | 25,161 | 22,624 | 76,509 | 69,174 | ||||||||||||
Income before income taxes | 47,069 | 42,680 | 135,535 | 124,184 | ||||||||||||
Provision for income taxes | 9,506 | 8,120 | 27,329 | 23,481 | ||||||||||||
Net income | 37,563 | 34,560 | 108,206 | 100,703 | ||||||||||||
Preferred stock dividends | - | - | 31 | 31 | ||||||||||||
Net income available to common stockholders | $ | 37,563 | $ | 34,560 | $ | 108,175 | $ | 100,672 | ||||||||
Basic earnings per common share | $ | 0.70 | $ | 0.65 | $ | 2.02 | $ | 1.89 | ||||||||
Diluted earnings per common share | $ | 0.69 | $ | 0.64 | $ | 2.00 | $ | 1.86 | ||||||||
See Notes to Consolidated Financial Statements.
SERVISFIRST BANCSHARES, INC. AND SUBSIDIARIES | ||||||||||||||||
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | ||||||||||||||||
(In thousands) | ||||||||||||||||
(Unaudited) | ||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Net income | $ | 37,563 | $ | 34,560 | $ | 108,206 | $ | 100,703 | ||||||||
Other comprehensive income (loss), net of tax: | ||||||||||||||||
Unrealized net holding gains (losses) arising during period from securities available for sale, net of tax of $427 and $2,791 for the three and nine months ended September 30, 2019, respectively, and net of benefit of $(733) and $(2,589) for the three and nine months ended September 30, 2018, respectively | 1,443 | (2,757 | ) | 10,497 | (9,740 | ) | ||||||||||
Reclassification adjustment for net gains on sale of securities available for sale, net of tax of $6 and $5 for the three and nine months ended September 30, 2019, respectively, and $39 and $40 for the three and nine months ended September 30, 2018, respectively | 18 | 147 | 23 | 150 | ||||||||||||
Other comprehensive income (loss), net of tax | 1,461 | (2,610 | ) | 10,520 | (9,590 | ) | ||||||||||
Comprehensive income | $ | 39,024 | $ | 31,950 | $ | 118,726 | $ | 91,113 | ||||||||
See Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY | ||||||||||||||||||||||||||||
(In thousands, except share amounts)(Unaudited) | ||||||||||||||||||||||||||||
Three Months Ended September 30, | ||||||||||||||||||||||||||||
Preferred Stock | Common Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Income | Noncontrolling interest | Total Stockholders' Equity | ||||||||||||||||||||||
Balance, July 1, 2018 | $ | - | $ | 53 | $ | 217,765 | $ | 443,972 | $ | (7,178 | ) | $ | 502 | $ | 655,114 | |||||||||||||
Common dividends declared, $0.11 per share | - | - | - | (5,851 | ) | - | - | (5,851 | ) | |||||||||||||||||||
Issue 46,074 shares of common stock upon exercise of stock options | - | - | 465 | - | - | - | 465 | |||||||||||||||||||||
9,426 shares of common stock withheld in net settlement upon exercise of stock options | - | - | (370 | ) | - | - | - | (370 | ) | |||||||||||||||||||
Stock-based compensation expense | - | - | 202 | - | - | - | 202 | |||||||||||||||||||||
Other comprehensive income, net of tax | - | - | - | - | (2,610 | ) | - | (2,610 | ) | |||||||||||||||||||
Net income | - | - | - | 34,560 | - | - | 34,560 | |||||||||||||||||||||
Balance, September 30, 2018 | $ | - | $ | 53 | $ | 218,062 | $ | 472,681 | $ | (9,788 | ) | $ | 502 | $ | 681,510 | |||||||||||||
Balance, July 1, 2019 | $ | - | $ | 54 | $ | 218,658 | $ | 555,425 | $ | 4,318 | $ | 502 | $ | 778,957 | ||||||||||||||
Common dividends declared, $0.15 per share | - | - | - | (8,020 | ) | - | - | (8,020 | ) | |||||||||||||||||||
Issue 41,731 shares of common stock upon exercise of stock options | - | - | 571 | - | - | - | 571 | |||||||||||||||||||||
9,069 shares of common stock withheld in net settlement upon exercise of stock options | - | - | (289 | ) | - | - | - | (289 | ) | |||||||||||||||||||
Stock-based compensation expense | - | - | 294 | - | - | - | 294 | |||||||||||||||||||||
Other comprehensive loss, net of tax | - | - | - | - | 1,461 | - | 1,461 | |||||||||||||||||||||
Net income | - | - | - | 37,563 | - | - | 37,563 | |||||||||||||||||||||
Balance, September 30, 2019 | $ | - | $ | 54 | $ | 219,234 | $ | 584,968 | $ | 5,779 | $ | 502 | $ | 810,537 | ||||||||||||||
Nine Months Ended September 30, | ||||||||||||||||||||||||||||
Preferred Stock | Common Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Income | Noncontrolling interest | Total Stockholders' Equity | ||||||||||||||||||||||
Balance, January 1, 2018 | $ | - | $ | 53 | $ | 217,693 | $ | 389,554 | $ | (198 | ) | $ | 502 | $ | 607,604 | |||||||||||||
Common dividends paid, $0.22 per share | - | - | - | (11,694 | ) | - | - | (11,694 | ) | |||||||||||||||||||
Common dividends declared, $0.11 per share | - | - | - | (5,851 | ) | - | - | (5,851 | ) | |||||||||||||||||||
Preferred dividends paid | - | - | - | (31 | ) | - | - | (31 | ) | |||||||||||||||||||
Issue 191,371 shares of common stock upon exercise of stock options | - | - | 1,325 | - | - | - | 1,325 | |||||||||||||||||||||
39,965 shares of common stock withheld in net settlement upon exercise of stock options | - | - | (1,640 | ) | - | - | - | (1,640 | ) | |||||||||||||||||||
Stock-based compensation expense | - | - | 684 | - | - | - | 684 | |||||||||||||||||||||
Other comprehensive income, net of tax | - | - | - | - | (9,590 | ) | - | (9,590 | ) | |||||||||||||||||||
Net income | - | - | - | 100,703 | - | - | 100,703 | |||||||||||||||||||||
Balance, September 30, 2018 | $ | - | $ | 53 | $ | 218,062 | $ | 472,681 | $ | (9,788 | ) | $ | 502 | $ | 681,510 | |||||||||||||
Balance, January 1, 2019 | $ | - | $ | 53 | $ | 218,521 | $ | 500,868 | $ | (4,741 | ) | $ | 502 | $ | 715,203 | |||||||||||||
Common dividends paid, $0.30 per share | - | - | - | (16,038 | ) | - | - | (16,038 | ) | |||||||||||||||||||
Common dividends declared, $0.15 per share | - | - | - | (8,037 | ) | - | - | (8,037 | ) | |||||||||||||||||||
Preferred dividends paid | - | - | - | (31 | ) | - | - | (31 | ) | |||||||||||||||||||
Issue 185,044 shares of common stock upon exercise of stock options | - | 1 | 1,674 | - | - | - | 1,675 | |||||||||||||||||||||
54,256 shares of common stock withheld in net settlement upon exercise of stock options | - | - | (1,742 | ) | - | - | - | (1,742 | ) | |||||||||||||||||||
Stock-based compensation expense | - | - | 781 | - | - | - | 781 | |||||||||||||||||||||
Other comprehensive loss, net of tax | - | - | - | - | 10,520 | - | 10,520 | |||||||||||||||||||||
Net income | - | - | - | 108,206 | - | - | 108,206 | |||||||||||||||||||||
Balance, September 30, 2019 | $ | - | $ | 54 | $ | 219,234 | $ | 584,968 | $ | 5,779 | $ | 502 | $ | 810,537 | ||||||||||||||
See Notes to Consolidated Financial Statements.
SERVISFIRST BANCSHARES, INC. | ||||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||
(In thousands) (Unaudited) | ||||||||
Nine Months Ended September 30, | ||||||||
2019 | 2018 | |||||||
OPERATING ACTIVITIES | ||||||||
Net income | $ | 108,206 | $ | 100,703 | ||||
Adjustments to reconcile net income to net cash provided by | ||||||||
Deferred tax expense | 2,851 | 754 | ||||||
Provision for loan losses | 16,754 | 14,884 | ||||||
Depreciation | 2,774 | 2,548 | ||||||
Accretion on acquired loans | (91 | ) | (147 | ) | ||||
Amortization of core deposit intangible | 203 | 202 | ||||||
Net amortization of debt securities available for sale | 2,040 | 2,268 | ||||||
Increase in accrued interest and dividends receivable | (1,353 | ) | (4,094 | ) | ||||
Stock-based compensation expense | 781 | 684 | ||||||
Increase in accrued interest payable | 1,095 | 3,591 | ||||||
Proceeds from sale of mortgage loans held for sale | 90,188 | 81,319 | ||||||
Originations of mortgage loans held for sale | (95,764 | ) | (80,041 | ) | ||||
Net gain on sale of debt securities available for sale | (28 | ) | (15 | ) | ||||
Gain on sale of equity securities | - | (175 | ) | |||||
Gain on sale of mortgage loans held for sale | (2,995 | ) | (2,096 | ) | ||||
Net (gain) loss on sale of other real estate owned and repossessed assets | (6 | ) | 3 | |||||
Write down of other real estate owned and repossessed assets | 288 | 488 | ||||||
Operating (income) loss of tax credit partnerships | (16 | ) | 128 | |||||
Increase in cash surrender value of life insurance contracts | (2,327 | ) | (2,350 | ) | ||||
Net change in other assets, liabilities, and other operating activities | (19,766 | ) | (2,608 | ) | ||||
Net cash provided by operating activities | 102,834 | 116,046 | ||||||
INVESTMENT ACTIVITIES | ||||||||
Purchase of debt securities available for sale | (186,240 | ) | (122,821 | ) | ||||
Proceeds from maturities, calls and paydowns of debt securities available for sale | 100,687 | 63,803 | ||||||
Proceeds from sale of debt securities available for sale | - | 5,736 | ||||||
Purchase of debt securities held to maturity | (250 | ) | - | |||||
Proceeds from sale of equity securities | - | 305 | ||||||
Purchase of BOLI contracts | (20,000 | ) | - | |||||
Increase in loans | (505,224 | ) | (520,610 | ) | ||||
Purchase of premises and equipment | (1,522 | ) | (1,530 | ) | ||||
Proceeds from sale of other real estate owned and repossessed assets | 727 | 1,572 | ||||||
Net cash used in investing activities | (611,822 | ) | (573,545 | ) | ||||
FINANCING ACTIVITIES | ||||||||
Net increase in non-interest-bearing deposits | 121,331 | 64,121 | ||||||
Net increase in interest-bearing deposits | 687,119 | 349,556 | ||||||
Net increase (decrease) in federal funds purchased | 81,506 | (55,703 | ) | |||||
Repayment of Federal Home Loan Bank advances | - | (200 | ) | |||||
Proceeds from exercise of stock options | 1,675 | 1,325 | ||||||
Taxes paid in net settlement of tax obligation upon exercise of stock options | (1,742 | ) | (1,640 | ) | ||||
Dividends paid on common stock | (16,038 | ) | (11,694 | ) | ||||
Dividends paid on preferred stock | (31 | ) | (31 | ) | ||||
Net cash provided by financing activities | 873,820 | 345,734 | ||||||
Net increase (decrease) in cash and cash equivalents | 364,832 | (111,765 | ) | |||||
Cash and cash equivalents at beginning of period | 681,895 | 477,586 | ||||||
Cash and cash equivalents at end of period | $ | 1,046,727 | $ | 365,821 | ||||
SUPPLEMENTAL DISCLOSURE | ||||||||
Cash paid for: | ||||||||
Interest | $ | 79,653 | $ | 39,051 | ||||
Income taxes | 34,464 | 20,235 | ||||||
Income tax refund | (86 | ) | (2 | ) | ||||
NONCASH TRANSACTIONS | ||||||||
Other real estate acquired in settlement of loans | $ | 1,177 | $ | 1,206 | ||||
Internally financed sale of other real estate owned | - | 130 | ||||||
Dividends declared | 8,037 | 5,851 | ||||||
See Notes to Consolidated Financial Statements.
SERVISFIRST BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2019
(Unaudited)
NOTE 1 - GENERAL
The accompanying consolidated financial statements in this report have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission, including Regulation S-X and the instructions for Form 10-Q, and have not been audited. These consolidated financial statements do not include all of the information and footnotes required by U.S. generally accepted accounting principles (“U.S. GAAP”) for complete financial statements. In the opinion of management, all adjustments necessary to present fairly the consolidated financial position and the consolidated results of operations for the interim periods have been made. All such adjustments are of a normal recurring nature. The consolidated results of operations are not necessarily indicative of the consolidated results of operations which ServisFirst Bancshares, Inc. (the “Company”) and its consolidated subsidiaries, including ServisFirst Bank (the “Bank”), may achieve for future interim periods or the entire year. For further information, refer to the consolidated financial statements and footnotes included in the Company’s Form 10-K for the year ended December 31, 2018.
All reported amounts are in thousands except share and per share data.
Leases
The Company leases certain office space and equipment under operating leases. Accounting Standards Update 2016-02, “Leases (Topic 842)” requires that operating leases in effect as of date of adoption, January 1, 2019 for the Company, be recognized as a liability to make lease payments and as an asset representing the right to use the asset during the lease term, or “lease liability” and “right-of-use asset”, respectively. The lease liability is measured by the present value of remaining lease payments, discounted at the Company’s incremental borrowing rate.
Certain of the leases include one or more renewal options that extend the initial lease term one to five years. The exercise of lease renewal options is typically at the Company’s sole discretion; therefore, a majority of renewals to extend lease terms are not included in the right-of-use assets and lease liabilities as they are not reasonably certain to be exercised. Renewal options are regularly evaluated and when they are reasonably certain to be exercised, are included in lease terms.
None of the Company’s leases provide an implicit rate. The Company uses its incremental collateralized borrowing rate based on the information available at the lease commencement date in determining the present value of the lease payments.
The Company has made an accounting policy election to not apply the recognition requirements in ASU 2016-02 to short-term leases. The Company has also elected to use the practical expedients allowed by the new standard as follows: 1) forego an assessment of whether any existing contracts are or contain leases, 2) forego an assessment of the classification of existing leases as to whether they are operating leases or capital leases, and 3) forego an assessment of direct costs for any existing leases.
NOTE 2 - CASH AND CASH EQUIVALENTS
Cash on hand, cash items in process of collection, amounts due from banks, and federal funds sold are included in cash and cash equivalents.
NOTE 3 - EARNINGS PER COMMON SHARE
Basic earnings per common share are computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per common share include the dilutive effect of additional potential common shares issuable under stock options.
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
(In Thousands, Except Shares and Per Share Data) | ||||||||||||||||
Earnings per common share | ||||||||||||||||
Weighted average common shares outstanding | 53,544,747 | 53,171,144 | 53,508,710 | 53,134,861 | ||||||||||||
Net income available to common stockholders | $ | 37,563 | $ | 34,560 | $ | 108,175 | $ | 100,672 | ||||||||
Basic earnings per common share | $ | 0.70 | $ | 0.65 | $ | 2.02 | $ | 1.89 | ||||||||
Weighted average common shares outstanding | 53,544,747 | 53,171,144 | 53,508,710 | 53,134,861 | ||||||||||||
Dilutive effects of assumed conversions and exercise of stock options and warrants | 551,621 | 1,020,078 | 578,700 | 1,055,383 | ||||||||||||
Weighted average common and dilutive potential common shares outstanding | 54,096,368 | 54,191,222 | 54,087,410 | 54,190,244 | ||||||||||||
Net income available to common stockholders | $ | 37,563 | $ | 34,560 | $ | 108,175 | $ | 100,672 | ||||||||
Diluted earnings per common share | $ | 0.69 | $ | 0.64 | $ | 2.00 | $ | 1.86 | ||||||||
NOTE 4 - SECURITIES
The amortized cost and fair value of available-for-sale and held-to-maturity securities at September 30, 2019 and December 31, 2018 are summarized as follows:
Gross | Gross | |||||||||||||||
Amortized | Unrealized | Unrealized | Market | |||||||||||||
Cost | Gain | Loss | Value | |||||||||||||
September 30, 2019 | (In Thousands) | |||||||||||||||
Securities Available for Sale | ||||||||||||||||
U.S. Treasury securities | $ | 51,888 | $ | 311 | $ | (1 | ) | $ | 52,198 | |||||||
Government Agency securities | 18,234 | 129 | (2 | ) | 18,361 | |||||||||||
Mortgage-backed securities | 398,818 | 4,425 | (604 | ) | 402,639 | |||||||||||
State and municipal securities | 65,270 | 330 | (32 | ) | 65,568 | |||||||||||
Corporate debt | 146,551 | 2,834 | (130 | ) | 149,255 | |||||||||||
Total | $ | 680,761 | $ | 8,029 | $ | (769 | ) | $ | 688,021 | |||||||
Securities Held to Maturity | ||||||||||||||||
State and municipal securities | 250 | - | - | 250 | ||||||||||||
Total | $ | 250 | $ | - | $ | - | $ | 250 | ||||||||
December 31, 2018 | ||||||||||||||||
Securities Available for Sale | ||||||||||||||||
U.S. Treasury securities | $ | 58,750 | $ | 75 | $ | (397 | ) | $ | 58,428 | |||||||
Government Agency securities | 18,784 | 3 | (222 | ) | 18,565 | |||||||||||
Mortgage-backed securities | 309,244 | 591 | (5,531 | ) | 304,304 | |||||||||||
State and municipal securities | 106,465 | 208 | (679 | ) | 105,994 | |||||||||||
Corporate debt | 102,982 | 668 | (757 | ) | 102,893 | |||||||||||
Total | $ | 596,225 | $ | 1,545 | $ | (7,586 | ) | $ | 590,184 | |||||||
The amortized cost and fair value of debt securities as of September 30, 2019 and December 31, 2018 by contractual maturity are shown below. Actual maturities may differ from contractual maturities of mortgage-backed securities since the mortgages underlying the securities may be called or prepaid with or without penalty. Therefore, these securities are not included in the maturity categories along with the other categories of debt securities.
September 30, 2019 | December 31, 2018 | |||||||||||||||
Amortized Cost | Fair Value | Amortized Cost | Fair Value | |||||||||||||
(In thousands) | ||||||||||||||||
Debt securities available for sale | ||||||||||||||||
Due within one year | $ | 55,777 | $ | 55,973 | $ | 38,343 | $ | 38,225 | ||||||||
Due from one to five years | 106,374 | 107,205 | 167,873 | 166,380 | ||||||||||||
Due from five to ten years | 117,885 | 120,258 | 77,811 | 78,276 | ||||||||||||
Due after ten years | 1,907 | 1,946 | 2,954 | 2,999 | ||||||||||||
Mortgage-backed securities | 398,818 | 402,639 | 309,244 | 304,304 | ||||||||||||
| $ | 680,761 | $ | 688,021 | $ | 596,225 | $ | 590,184 | |||||||||
Debt securities held to maturity | ||||||||||||||||
Due from one to five years | $ | 250 | $ | 250 | $ | - | $ | - | ||||||||
| $ | 250 | $ | 250 | $ | - | $ | - | |||||||||
All mortgage-backed securities are with government-sponsored enterprises (GSEs) such as Federal National Mortgage Association, Government National Mortgage Association, Federal Home Loan Bank, and Federal Home Loan Mortgage Corporation.
The carrying value of debt securities pledged to secure public funds on deposit and for other purposes as required by law as of September 30, 2019 and December 31, 2018 was $408.9 million and $281.9 million, respectively.
The following table identifies, as of September 30, 2019 and December 31, 2018, the Company’s investment securities that have been in a continuous unrealized loss position for less than 12 months and those that have been in a continuous unrealized loss position for 12 or more months. At September 30, 2019, 43 of the Company’s 691 debt securities had been in an unrealized loss position for 12 or more months. The Company does not intend to sell these securities, and it is more likely than not that the Company will not be required to sell the securities before recovery of their amortized cost, which may be maturity; accordingly, the Company does not consider these securities to be other-than-temporarily impaired at September 30, 2019. Further, the Company believes any deterioration in value of its current investment securities is attributable to changes in market interest rates and not credit quality of the issuer.
Less Than Twelve Months | Twelve Months or More | Total | ||||||||||||||||||||||
Gross | Gross | Gross | ||||||||||||||||||||||
Unrealized | Unrealized | Unrealized | ||||||||||||||||||||||
Losses | Fair Value | Losses | Fair Value | Losses | Fair Value | |||||||||||||||||||
(In Thousands) | ||||||||||||||||||||||||
September 30, 2019 | ||||||||||||||||||||||||
U.S. Treasury securities | $ | - | $ | - | $ | (1 | ) | $ | 2,998 | $ | (1 | ) | $ | 2,998 | ||||||||||
Government Agency securities | (2 | ) | 267 | - | - | (2 | ) | 267 | ||||||||||||||||
Mortgage-backed securities | (457 | ) | 77,726 | (147 | ) | 28,217 | (604 | ) | 105,943 | |||||||||||||||
State and municipal securities | (11 | ) | 6,170 | (21 | ) | 4,035 | (32 | ) | 10,205 | |||||||||||||||
Corporate debt | (130 | ) | 17,036 | - | - | (130 | ) | 17,036 | ||||||||||||||||
Total | $ | (600 | ) | $ | 101,199 | $ | (169 | ) | $ | 35,250 | $ | (769 | ) | $ | 136,449 | |||||||||
December 31, 2018 | ||||||||||||||||||||||||
U.S. Treasury securities | $ | (8 | ) | 1,001 | $ | (388 | ) | $ | 32,449 | $ | (396 | ) | $ | 34,206 | ||||||||||
Government Agency securities | - | - | (223 | ) | 18,429 | (223 | ) | 17,673 | ||||||||||||||||
Mortgage-backed securities | (539 | ) | 67,721 | (4,992 | ) | 204,260 | (5,531 | ) | 271,981 | |||||||||||||||
State and municipal securities | (101 | ) | 20,821 | (578 | ) | 52,190 | (679 | ) | 73,011 | |||||||||||||||
Corporate debt | (315 | ) | 36,245 | (442 | ) | 13,474 | (757 | ) | 49,718 | |||||||||||||||
Total | $ | (963 | ) | $ | 125,788 | $ | (6,623 | ) | $ | 320,802 | $ | (7,586 | ) | $ | 446,590 | |||||||||
NOTE 5 – LOANS
The following table details the Company’s loans at September 30, 2019 and December 31, 2018:
September 30, | December 31, | |||||||
2019 | 2018 | |||||||
(Dollars In Thousands) | ||||||||
Commercial, financial and agricultural | $ | 2,653,934 | $ | 2,513,225 | ||||
Real estate - construction | 550,871 | 533,192 | ||||||
Real estate - mortgage: | ||||||||
Owner-occupied commercial | 1,526,911 | 1,463,887 | ||||||
1-4 family mortgage | 632,346 | 621,634 | ||||||
Other mortgage | 1,592,072 | 1,337,068 | ||||||
Subtotal: Real estate - mortgage | 3,751,329 | 3,422,589 | ||||||
Consumer | 65,935 | 64,493 | ||||||
Total Loans | 7,022,069 | 6,533,499 | ||||||
Less: Allowance for loan losses | (77,192 | ) | (68,600 | ) | ||||
Net Loans | $ | 6,944,877 | $ | 6,464,899 | ||||
Commercial, financial and agricultural | 37.79 | % | 38.47 | % | ||||
Real estate - construction | 7.85 | % | 8.16 | % | ||||
Real estate - mortgage: | ||||||||
Owner-occupied commercial | 21.74 | % | 22.41 | % | ||||
1-4 family mortgage | 9.01 | % | 9.51 | % | ||||
Other mortgage | 22.67 | % | 20.46 | % | ||||
Subtotal: Real estate - mortgage | 53.42 | % | 52.39 | % | ||||
Consumer | 0.94 | % | 0.99 | % | ||||
Total Loans | 100.00 | % | 100.00 | % | ||||
The credit quality of the loan portfolio is summarized no less frequently than quarterly using categories similar to the standard asset classification system used by the federal banking agencies. The following table presents credit quality indicators for the loan loss portfolio segments and classes. These categories are utilized to develop the associated allowance for loan losses using historical losses adjusted for current economic conditions defined as follows:
|
|
|
|
|
|
|
|
Loans by credit quality indicator as of September 30, 2019 and December 31, 2018 were as follows:
Special | ||||||||||||||||||||
September 30, 2019 | Pass | Mention | Substandard | Doubtful | Total | |||||||||||||||
(In Thousands) | ||||||||||||||||||||
Commercial, financial and agricultural | $ | 2,573,465 | $ | 58,639 | $ | 21,830 | $ | - | $ | 2,653,934 | ||||||||||
Real estate - construction | 540,560 | 6,011 | 4,300 | - | 550,871 | |||||||||||||||
Real estate - mortgage: | ||||||||||||||||||||
Owner-occupied commercial | 1,492,829 | 12,972 | 21,110 | - | 1,526,911 | |||||||||||||||
1-4 family mortgage | 629,806 | 947 | 1,593 | - | 632,346 | |||||||||||||||
Other mortgage | 1,571,238 | 19,332 | 1,502 | - | 1,592,072 | |||||||||||||||
Total real estate mortgage | 3,693,873 | 33,251 | 24,205 | - | 3,751,329 | |||||||||||||||
Consumer | 65,935 | - | - | - | 65,935 | |||||||||||||||
Total | $ | 6,873,833 | $ | 97,901 | $ | 50,335 | $ | - | $ | 7,022,069 | ||||||||||
Special | ||||||||||||||||||||
December 31, 2018 | Pass | Mention | Substandard | Doubtful | Total | |||||||||||||||
(In Thousands) | ||||||||||||||||||||
Commercial, financial and agricultural | $ | 2,447,052 | $ | 47,754 | $ | 18,419 | $ | - | $ | 2,513,225 | ||||||||||
Real estate - construction | 525,021 | 6,749 | 1,422 | - | 533,192 | |||||||||||||||
Real estate - mortgage: | ||||||||||||||||||||
Owner-occupied commercial | 1,431,982 | 28,547 | 3,358 | - | 1,463,887 | |||||||||||||||
1-4 family mortgage | 616,884 | 2,703 | 2,047 | - | 621,634 | |||||||||||||||
Other mortgage | 1,309,101 | 16,506 | 11,461 | - | 1,337,068 | |||||||||||||||
Total real estate mortgage | 3,357,967 | 47,756 | 16,866 | - | 3,422,589 | |||||||||||||||
Consumer | 64,444 | - | 49 | - | 64,493 | |||||||||||||||
Total | $ | 6,394,484 | $ | 102,259 | $ | 36,756 | $ | - | $ | 6,533,499 | ||||||||||
Loans by performance status as of September 30, 2019 and December 31, 2018 were as follows:
September 30, 2019 | Performing | Nonperforming | Total | |||||||||
(In Thousands) | ||||||||||||
Commercial, financial and agricultural | $ | 2,637,785 | $ | 16,149 | $ | 2,653,934 | ||||||
Real estate - construction | 549,283 | 1,588 | 550,871 | |||||||||
Real estate - mortgage: | ||||||||||||
Owner-occupied commercial | 1,511,666 | 15,245 | 1,526,911 | |||||||||
1-4 family mortgage | 630,755 | 1,591 | 632,346 | |||||||||
Other mortgage | 1,585,609 | 6,463 | 1,592,072 | |||||||||
Total real estate mortgage | 3,728,030 | 23,299 | 3,751,329 | |||||||||
Consumer | 65,923 | 12 | 65,935 | |||||||||
Total | $ | 6,981,020 | $ | 41,049 | $ | 7,022,069 | ||||||
December 31, 2018 | Performing | Nonperforming | Total | |||||||||
(In Thousands) | ||||||||||||
Commercial, financial and agricultural | $ | 2,502,117 | $ | 11,108 | $ | 2,513,225 | ||||||
Real estate - construction | 532,195 | 997 | 533,192 | |||||||||
Real estate - mortgage: | ||||||||||||
Owner-occupied commercial | 1,460,529 | 3,358 | 1,463,887 | |||||||||
1-4 family mortgage | 619,465 | 2,169 | 621,634 | |||||||||
Other mortgage | 1,327,038 | 10,030 | 1,337,068 | |||||||||
Total real estate mortgage | 3,407,032 | 15,557 | 3,422,589 | |||||||||
Consumer | 64,385 | 108 | 64,493 | |||||||||
Total | $ | 6,505,729 | $ | 27,770 | $ | 6,533,499 | ||||||
Loans by past due status as of September 30, 2019 and December 31, 2018 were as follows:
September 30, 2019 | Past Due Status (Accruing Loans) | |||||||||||||||||||||||||||
Total Past | ||||||||||||||||||||||||||||
30-59 Days | 60-89 Days | 90+ Days | Due | Non-Accrual | Current | Total Loans | ||||||||||||||||||||||
(In Thousands) | ||||||||||||||||||||||||||||
Commercial, financial and agricultural | $ | 4,519 | $ | 1,127 | $ | 119 | $ | 5,765 | $ | 16,030 | $ | 2,632,139 | $ | 2,653,934 | ||||||||||||||
Real estate - construction | 650 | - | - | 650 | 1,588 | 548,633 | 550,871 | |||||||||||||||||||||
Real estate - mortgage: | ||||||||||||||||||||||||||||
Owner-occupied commercial | 9,005 | - | 118 | 9,123 | 15,127 | 1,502,661 | 1,526,911 | |||||||||||||||||||||
1-4 family mortgage | 2,229 | 600 | 112 | 2,941 | 1,480 | 627,925 | 632,346 | |||||||||||||||||||||
Other mortgage | 31 | 375 | 4,956 | 5,362 | 1,507 | 1,585,203 | 1,592,072 | |||||||||||||||||||||
Total real estate - mortgage | 11,265 | 975 | 5,186 | 17,426 | 18,114 | 3,715,789 | 3,751,329 | |||||||||||||||||||||
Consumer | 31 | 44 | 12 | 87 | - | 65,848 | 65,935 | |||||||||||||||||||||
Total | $ | 16,465 | $ | 2,146 | $ | 5,317 | $ | 23,928 | $ | 35,732 | $ | 6,962,409 | $ | 7,022,069 | ||||||||||||||
December 31, 2018 | Past Due Status (Accruing Loans) | |||||||||||||||||||||||||||
Total Past | ||||||||||||||||||||||||||||
30-59 Days | 60-89 Days | 90+ Days | Due | Non-Accrual | Current | Total Loans | ||||||||||||||||||||||
(In Thousands) | ||||||||||||||||||||||||||||
Commercial, financial and agricultural | $ | 1,222 | $ | 48 | $ | 605 | $ | 1,875 | $ | 10,503 | $ | 2,500,847 | $ | 2,513,225 | ||||||||||||||
Real estate - construction | - | 1,352 | - | 1,352 | 997 | 530,843 | 533,192 | |||||||||||||||||||||
Real estate - mortgage: | ||||||||||||||||||||||||||||
Owner-occupied commercial | 412 | - | - | 412 | 3,358 | 1,460,117 | 1,463,887 | |||||||||||||||||||||
1-4 family mortgage | 534 | 235 | 123 | 892 | 2,046 | 618,696 | 621,634 | |||||||||||||||||||||
Other mortgage | 1,174 | - | 5,008 | 6,182 | 5,022 | 1,325,864 | 1,337,068 | |||||||||||||||||||||
Total real estate - mortgage | 2,120 | 235 | 5,131 | 7,486 | 10,426 | 3,404,677 | 3,422,589 | |||||||||||||||||||||
Consumer | 58 | 123 | 108 | 289 | - | 64,204 | 64,493 | |||||||||||||||||||||
Total | $ | 3,400 | $ | 1,758 | $ | 5,844 | $ | 11,002 | $ | 21,926 | $ | 6,500,571 | $ | 6,533,499 | ||||||||||||||
The allowance for loan losses is maintained at a level which, in management’s judgment, is adequate to absorb credit losses inherent in the loan portfolio. The amount of the allowance is based on management’s evaluation of the collectability of the loan portfolio, including the nature of the portfolio, credit concentrations, trends in historical loss experience, specific impaired loans, economic conditions and other risks inherent in the portfolio. Allowances for impaired loans are generally determined based on collateral values or the present value of the estimated cash flows. The allowance is increased by a provision for loan losses, which is charged to expense, and reduced by charge-offs, net of recoveries. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the allowance for losses on loans. Such agencies may require the Company to recognize adjustments to the allowance based on their judgments about information available to them at the time of their examination.
The methodology utilized for the calculation of the allowance for loan losses is divided into four distinct categories. Those categories include allowances for non-impaired loans (ASC 450), impaired loans (ASC 310), external qualitative factors, and internal qualitative factors. A description of each category of the allowance for loan loss methodology is listed below.
Non-Impaired Loans. Non-impaired loans are grouped into homogeneous loan pools by loan type: commercial and industrial, construction and development, commercial real estate, second lien home equity lines of credit, and all other loans. Each loan pool is stratified by internal risk rating and multiplied by a loss allocation percentage derived from the loan pool historical loss rate. The historical loss rate is based on an age weighted 5 year history of net charge-offs experienced by pool, with the most recent net charge-off experience given a greater weighting. This results in the expected loss rate per year, adjusted by a qualitative adjustment factor and a years-to-impairment factor, for each pool of loans to derive the total amount of allowance for non-impaired loans.
Impaired Loans. Loans are considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect all amounts due according to the original terms of the loan agreement. The collection of all amounts due according to contractual terms means that both the contractual interest and principal payments of a loan will be collected as scheduled in the loan agreement. Impaired loans are measured based on the present value of expected future cash flows discounted at the rate implicit in the original loan agreement, at the loan’s observable market price or the fair value of the underlying collateral. The fair value of collateral, reduced by costs to sell on a discounted basis, is used if a loan is collateral-dependent. Fair value estimates for specifically impaired collateral-dependent loans are derived from appraised values based on the current market value or “as is” value of the property, normally from recently received and reviewed appraisals. Appraisals are obtained from certified and licensed appraisers and are based on certain assumptions, which may include construction or development status and the highest and best use of the property.These appraisals are reviewed by our credit administration department, and values are adjusted downward to reflect anticipated disposition costs. Once this estimated net realizable value has been determined, the value used in the impairment assessment is updated for each impaired loan. As subsequent events dictate and estimated net realizable values decline, required reserves may be established or further adjustments recorded.
External Qualitative Factors. The determination of the portion of the allowance for loan losses relating to external qualitative factors is based on consideration of the following factors: gross domestic product growth rate, changes in prime rate, delinquency trends, peer delinquency trends, year over year loan growth and state unemployment rate trends. Data for the three most recent periods is utilized in the calculation for each external qualitative component. The factors have a consistent weighted methodology to calculate the amount of allowance due to external qualitative factors.
Internal Qualitative Factors. The determination of the portion of the allowance for loan losses relating to internal qualitative factors is based on the consideration of criteria which includes the following: number of extensions and deferrals, single pay and interest only loans, current financial information, credit concentrations and risk grade accuracy. A self-assessment for each of the criteria is made with a consistent weighted methodology used to calculate the amount of allowance required for internal qualitative factors.
During the third quarter of 2019, the Company recorded a $7.4 million payment resulting from the termination of a Loan Guarantee Program (“LGP”) operated by the State of Alabama. The payment was recorded as an increase to the allowance for loan losses specifically related to loans formerly enrolled in this program, in accordance with the Company’s established ALLL review and evaluation criteria. In general, loans enrolled in the program had a collateral shortfall or other enhanced credit risk. In return for the Company’s acceptance of these higher risk loans, the Company received a guarantee of up to 50% of losses in the event of a borrower’s default. These were loans that would have otherwise not met the Company’s loan underwriting criteria. The program required a 1% fee on the commitment balance at origination. As of September 30, 2019, the Company had 72 loans outstanding totaling $44.3 million that were formerly enrolled in the loan guarantee program. Of this total, $37.8 million were categorized as pass within the Company's credit quality asset classification, $5.2 million were categorized as Special Mention and $1.3 million were categorized as Substandard.
The following table presents an analysis of the allowance for loan losses by portfolio segment and changes in the allowance for loan losses for the three and nine months ended September 30, 2019 and September 30, 2018. The total allowance for loan losses is disaggregated into those amounts associated with loans individually evaluated and those associated with loans collectively evaluated.
Commercial, | ||||||||||||||||||||
financial and | Real estate - | Real estate - | ||||||||||||||||||
agricultural | construction | mortgage | Consumer | Total | ||||||||||||||||
(In Thousands) | ||||||||||||||||||||
Three Months Ended September 30, 2019 | ||||||||||||||||||||
Allowance for loan losses: | ||||||||||||||||||||
Balance at June 30, 2019 | $ | 38,709 | $ | 3,419 | $ | 28,783 | $ | 475 | $ | 71,386 | ||||||||||
Charge-offs | (3,626 | ) | - | (4,974 | ) | (172 | ) | (8,772 | ) | |||||||||||
Recoveries | 126 | 1 | - | 60 | 187 | |||||||||||||||
Allocation from LGP | 4,905 | 115 | 2,386 | - | 7,406 | |||||||||||||||
Provision | 5,108 | (343 | ) | 2,069 | 151 | 6,985 | ||||||||||||||
Balance at September 30, 2019 | $ | 45,222 | $ | 3,192 | $ | 28,264 | $ | 514 | $ | 77,192 | ||||||||||
Three Months Ended September 30, 2018 | ||||||||||||||||||||
Allowance for loan losses: | ||||||||||||||||||||
Balance at June 30, 2018 | $ | 36,178 | $ | 4,062 | $ | 23,438 | $ | 561 | $ | 64,239 | ||||||||||
Charge-offs | (3,923 | ) | - | (48 | ) | (76 | ) | (4,047 | ) | |||||||||||
Recoveries | 52 | 4 | 1 | 6 | 63 | |||||||||||||||
Provision | 6,794 | (132 | ) | (62 | ) | 24 | 6,624 | |||||||||||||
Balance at September 30, 2018 | $ | 39,101 | $ | 3,934 | $ | 23,329 | $ | 515 | $ | 66,879 | ||||||||||
Nine Months Ended September 30, 2019 | ||||||||||||||||||||
Allowance for loan losses: | ||||||||||||||||||||
Balance at December 31, 2018 | $ | 39,016 | $ | 3,522 | $ | 25,508 | $ | 554 | $ | 68,600 | ||||||||||
Charge-offs | (10,273 | ) | - | (5,193 | ) | (453 | ) | (15,919 | ) | |||||||||||
Recoveries | 255 | 2 | 11 | 83 | 351 | |||||||||||||||
Allocation from LGP | 4,905 | 115 | 2,386 | - | 7,406 | |||||||||||||||
Provision | 11,319 | (447 | ) | 5,552 | 330 | 16,754 | ||||||||||||||
Balance at September 30, 2019 | $ | 45,222 | $ | 3,192 | $ | 28,264 | $ | 514 | $ | 77,192 | ||||||||||
Nine Months Ended September 30, 2018 | ||||||||||||||||||||
Allowance for loan losses: | ||||||||||||||||||||
Balance at December 31, 2017 | $ | 32,880 | $ | 4,989 | $ | 21,022 | $ | 515 | $ | 59,406 | ||||||||||
Charge-offs | (6,743 | ) | - | (869 | ) | (211 | ) | (7,823 | ) | |||||||||||
Recoveries | 229 | 108 | 44 | 31 | 412 | |||||||||||||||
Provision | 12,735 | (1,163 | ) | 3,132 | 180 | 14,884 | ||||||||||||||
Balance at September 30, 2018 | $ | 39,101 | $ | 3,934 | $ | 23,329 | $ | 515 | $ | 66,879 | ||||||||||
As of September 30, 2019 | ||||||||||||||||||||
Allowance for loan losses: | ||||||||||||||||||||
Individually Evaluated for Impairment | $ | 7,165 | $ | 110 | $ | 2,013 | $ | - | $ | 9,288 | ||||||||||
Collectively Evaluated for Impairment | 38,057 | 3,082 | 26,251 | 514 | 67,904 | |||||||||||||||
Loans: | ||||||||||||||||||||
Ending Balance | $ | 2,653,934 | $ | 550,871 | $ | 3,751,329 | $ | 65,935 | $ | 7,022,069 | ||||||||||
Individually Evaluated for Impairment | 21,855 | 4,332 | 25,306 | - | 51,493 | |||||||||||||||
Collectively Evaluated for Impairment | 2,632,079 | 546,539 | 3,726,023 | 65,935 | 6,970,576 | |||||||||||||||
As of December 31, 2018 | ||||||||||||||||||||
Allowance for loan losses: | ||||||||||||||||||||
Individually Evaluated for Impairment | $ | 6,066 | $ | 126 | $ | 1,887 | $ | 49 | $ | 8,128 | ||||||||||
Collectively Evaluated for Impairment | 32,950 | 3,396 | 23,621 | 505 | 60,472 | |||||||||||||||
Loans: | ||||||||||||||||||||
Ending Balance | $ | 2,513,225 | $ | 533,192 | $ | 3,422,589 | $ | 64,493 | $ | 6,533,499 | ||||||||||
Individually Evaluated for Impairment | 18,444 | 1,461 | 18,637 | 49 | 38,591 | |||||||||||||||
Collectively Evaluated for Impairment | 2,494,781 | 531,731 | 3,403,952 | 64,444 | 6,494,908 | |||||||||||||||
The following table presents details of the Company’s impaired loans as of September 30, 2019 and December 31, 2018, respectively. Loans which have been fully charged off do not appear in the tables.
For the three months | For the nine months | |||||||||||||||||||||||||||
ended September 30, | ended September 30, | |||||||||||||||||||||||||||
September 30, 2019 | 2019 | 2019 | ||||||||||||||||||||||||||
Interest | Interest | |||||||||||||||||||||||||||
Unpaid | Average | Income | Average | Income | ||||||||||||||||||||||||
Recorded | Principal | Related | Recorded | Recognized | Recorded | Recognized | ||||||||||||||||||||||
Investment | Balance | Allowance | Investment | in Period | Investment | in Period | ||||||||||||||||||||||
(In Thousands) | ||||||||||||||||||||||||||||
With no allowance recorded: | ||||||||||||||||||||||||||||
Commercial, financial and agricultural | $ | 2,705 | $ | 4,308 | $ | - | $ | 3,186 | $ | 50 | $ | 3,799 | $ | 129 | ||||||||||||||
Real estate - construction | 2,744 | 2,747 | - | 2,423 | 39 | 1,834 | 80 | |||||||||||||||||||||
Real estate - mortgage: | ||||||||||||||||||||||||||||
Owner-occupied commercial | 7,341 | 7,436 | - | 7,414 | 120 | 7,625 | 506 | |||||||||||||||||||||
1-4 family mortgage | 298 | 298 | - | 315 | - | 321 | 2 | |||||||||||||||||||||
Other mortgage | - | - | - | - | - | - | - | |||||||||||||||||||||
Total real estate - mortgage | 7,639 | 7,734 | - | 7,729 | 120 | 7,946 | 508 | |||||||||||||||||||||
Consumer | - | - | - | - | - | - | - | |||||||||||||||||||||
Total with no allowance recorded | 13,088 | 14,789 | - | 13,338 | 209 | 13,579 | 717 | |||||||||||||||||||||
With an allowance recorded: | ||||||||||||||||||||||||||||
Commercial, financial and agricultural | 19,150 | 26,551 | 7,165 | 21,260 | 15 | 22,568 | 467 | |||||||||||||||||||||
Real estate - construction | 1,588 | 1,588 | 110 | 1,588 | (14 | ) | 1,623 | 27 | ||||||||||||||||||||
Real estate - mortgage: | ||||||||||||||||||||||||||||
Owner-occupied commercial | 14,867 | 18,173 | 1,159 | 19,664 | 61 | 19,850 | 548 | |||||||||||||||||||||
1-4 family mortgage | 1,293 | 1,293 | 204 | 1,293 | 1 | 1,296 | 3 | |||||||||||||||||||||
Other mortgage | 1,507 | 1,507 | 650 | 1,507 | (23 | ) | 1,456 | 21 | ||||||||||||||||||||
Total real estate - mortgage | 17,667 | 20,973 | 2,013 | 22,464 | 39 | 22,602 | 572 | |||||||||||||||||||||
Consumer | - | - | - | - | - | - | - | |||||||||||||||||||||
Total with allowance recorded | 38,405 | 49,112 | 9,288 | 45,312 | 40 | 46,793 | 1,066 | |||||||||||||||||||||
Total Impaired Loans: | ||||||||||||||||||||||||||||
Commercial, financial and agricultural | 21,855 | 30,859 | 7,165 | 24,446 | 65 | 26,367 | 596 | |||||||||||||||||||||
Real estate - construction | 4,332 | 4,335 | 110 | 4,011 | 25 | 3,457 | 107 | |||||||||||||||||||||
Real estate - mortgage: | ||||||||||||||||||||||||||||
Owner-occupied commercial | 22,208 | 25,609 | 1,159 | 27,078 | 181 | 27,475 | 1,054 | |||||||||||||||||||||
1-4 family mortgage | 1,591 | 1,591 | 204 | 1,608 | 1 | 1,617 | 5 | |||||||||||||||||||||
Other mortgage | 1,507 | 1,507 | 650 | 1,507 | (23 | ) | 1,456 | 21 | ||||||||||||||||||||
Total real estate - mortgage | 25,306 | 28,707 | 2,013 | 30,193 | 159 | 30,548 | 1,080 | |||||||||||||||||||||
Consumer | - | - | - | - | - | - | - | |||||||||||||||||||||
Total impaired loans | $ | 51,493 | $ | 63,901 | $ | 9,288 | $ | 58,650 | $ | 249 | $ | 60,372 | $ | 1,783 | ||||||||||||||
December 31, 2018 | ||||||||||||||||||||
For the twelve months | ||||||||||||||||||||
ended December 31, 2018 | ||||||||||||||||||||
Unpaid | Average | Interest Income | ||||||||||||||||||
Recorded | Principal | Related | Recorded | Recognized in | ||||||||||||||||
Investment | Balance | Allowance | Investment | Period | ||||||||||||||||
(In Thousands) | ||||||||||||||||||||
With no allowance recorded: | ||||||||||||||||||||
Commercial, financial and agricultural | $ | 6,064 | $ | 6,064 | $ | - | $ | 6,142 | $ | 237 | ||||||||||
Real estate - construction | 464 | 467 | - | 524 | 28 | |||||||||||||||
Real estate - mortgage: | ||||||||||||||||||||
Owner-occupied commercial | 1,763 | 1,947 | - | 2,223 | 120 | |||||||||||||||
1-4 family mortgage | 1,071 | 1,071 | - | 1,088 | 21 | |||||||||||||||
Other mortgage | 5,061 | 5,061 | - | 5,133 | 252 | |||||||||||||||
Total real estate - mortgage | 7,895 | 8,079 | - | 8,444 | 393 | |||||||||||||||
Consumer | - | - | - | - | - | |||||||||||||||
Total with no allowance recorded | 14,423 | 14,610 | - | 15,110 | 658 | |||||||||||||||
With an allowance recorded: | ||||||||||||||||||||
Commercial, financial and agricultural | 12,380 | 20,141 | 6,066 | 15,918 | 462 | |||||||||||||||
Real estate - construction | 997 | 997 | 126 | 997 | 31 | |||||||||||||||
Real estate - mortgage: | ||||||||||||||||||||
Owner-occupied commercial | 3,358 | 3,358 | 99 | 3,364 | 105 | |||||||||||||||
1-4 family mortgage | 975 | 975 | 208 | 975 | 30 | |||||||||||||||
Other mortgage | 6,409 | 6,409 | 1,580 | 6,598 | 217 | |||||||||||||||
Total real estate - mortgage | 10,742 | 10,742 | 1,887 | 10,937 | 352 | |||||||||||||||
Consumer | 49 | 49 | 49 | 49 | 3 | |||||||||||||||
Total with allowance recorded | 24,168 | 31,929 | 8,128 | 27,901 | 848 | |||||||||||||||
Total Impaired Loans: | ||||||||||||||||||||
Commercial, financial and agricultural | 18,444 | 26,205 | 6,066 | 22,060 | 699 | |||||||||||||||
Real estate - construction | 1,461 | 1,464 | 126 | 1,521 | 59 | |||||||||||||||
Real estate - mortgage: | ||||||||||||||||||||
Owner-occupied commercial | 5,121 | 5,305 | 99 | 5,587 | 225 | |||||||||||||||
1-4 family mortgage | 2,046 | 2,046 | 208 | 2,063 | 51 | |||||||||||||||
Other mortgage | 11,470 | 11,470 | 1,580 | 11,731 | 469 | |||||||||||||||
Total real estate - mortgage | 18,637 | 18,821 | 1,887 | 19,381 | 745 | |||||||||||||||
Consumer | 49 | 49 | 49 | 49 | 3 | |||||||||||||||
Total impaired loans | $ | 38,591 | $ | 46,539 | $ | 8,128 | $ | 43,011 | $ | 1,506 | ||||||||||
Troubled Debt Restructurings (“TDR”) at September 30, 2019, December 31, 2018 and September 30, 2018 totaled $11.2 million, $14.6 million and $16.6 million, respectively. TDRs that were in accrual status totaled $3.5 million, $3.1 million and $15.5 million for the same comparative periods. At September 30, 2019, the Company had a related allowance for loan losses of $1.8 million allocated to these TDRs, compared to $4.3 million at December 31, 2018 and $3.7 million at September 30, 2018. TDR activity by portfolio segment for the three and nine months ended September 30, 2019 and 2018 is presented in the table below.
Three Months Ended September 30, 2019 | Nine Months Ended September 30, 2019 | |||||||||||||||||||||||
Pre- | Post- | Pre- | Post- | |||||||||||||||||||||
Modification | Modification | Modification | Modification | |||||||||||||||||||||
Outstanding | Outstanding | Outstanding | Outstanding | |||||||||||||||||||||
Number of | Recorded | Recorded | Number of | Recorded | Recorded | |||||||||||||||||||
Contracts | Investment | Investment | Contracts | Investment | Investment | |||||||||||||||||||
(In Thousands) | ||||||||||||||||||||||||
Troubled Debt Restructurings | ||||||||||||||||||||||||
Commercial, financial and agricultural | - | $ | - | $ | - | 1 | $ | 2,742 | $ | 2,742 | ||||||||||||||
Real estate - construction | - | - | - | - | - | - | ||||||||||||||||||
Real estate - mortgage: | ||||||||||||||||||||||||
Owner-occupied commercial | - | - | - | - | - | - | ||||||||||||||||||
1-4 family mortgage | - | - | - | - | - | - | ||||||||||||||||||
Other mortgage | - | - | - | - | - | - | ||||||||||||||||||
Total real estate mortgage | - | - | - | - | - | - | ||||||||||||||||||
Consumer | - | - | - | - | - | - | ||||||||||||||||||
| - | $ | - | $ | - | 1 | $ | 2,742 | $ | 2,742 | |||||||||||||||
Three Months Ended September 30, 2018 | Nine Months Ended September 30, 2018 | |||||||||||||||||||||||
Pre- | Post- | Pre- | Post- | |||||||||||||||||||||
Modification | Modification | Modification | Modification | |||||||||||||||||||||
Outstanding | Outstanding | Outstanding | Outstanding | |||||||||||||||||||||
Number of | Recorded | Recorded | Number of | Recorded | Recorded | |||||||||||||||||||
Contracts | Investment | Investment | Contracts | Investment | Investment | |||||||||||||||||||
(In Thousands) | ||||||||||||||||||||||||
Troubled Debt Restructurings | ||||||||||||||||||||||||
Commercial, financial and agricultural | 6 | $ | 7,242 | $ | 7,242 | 6 | $ | 7,242 | $ | 7,242 | ||||||||||||||
Real estate - construction | 1 | 997 | 997 | 1 | 997 | 997 | ||||||||||||||||||
Real estate - mortgage: | ||||||||||||||||||||||||
Owner-occupied commercial | 2 | 3,664 | 3,664 | 2 | 3,664 | 3,664 | ||||||||||||||||||
1-4 family mortgage | 1 | 850 | 850 | 1 | 850 | 850 | ||||||||||||||||||
Other mortgage | - | - | - | - | - | - | ||||||||||||||||||
Total real estate mortgage | 3 | 4,514 | 4,514 | 3 | 4,514 | 4,514 | ||||||||||||||||||
Consumer | - | - | - | - | - | - | ||||||||||||||||||
| 10 | $ | 12,753 | $ | 12,753 | 10 | $ | 12,753 | $ | 12,753 | |||||||||||||||
The following table presents TDRs by portfolio segment which defaulted during the three and nine months ended September 30, 2019 and 2018, and which were modified in the previous twelve months (i.e., twelve months prior to default). For purposes of this disclosure, default is defined as 90 days past due and still accruing or placement on nonaccrual status. As of September 30, 2019, the Company’s TDRs have all resulted from term extensions, rather than from interest rate reductions or debt forgiveness.
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
(In thousands) | ||||||||||||||||
Defaulted during the period, where modified in a TDR twelve months prior to default | ||||||||||||||||
Commercial, financial and agricultural | $ | - | $ | - | $ | 325 | $ | 268 | ||||||||
Real estate - construction | - | - | - | - | ||||||||||||
Real estate - mortgage: | ||||||||||||||||
Owner-occupied commercial | - | - | - | - | ||||||||||||
1-4 family mortgage | - | - | - | - | ||||||||||||
Other mortgage | - | - | - | - | ||||||||||||
Total real estate mortgage | - | - | - | - | ||||||||||||
Consumer | - | - | - | - | ||||||||||||
| $ | - | $ | - | $ | 325 | $ | 268 | |||||||||
NOTE 6 - LEASES
The Company leases space under non-cancelable operating leases for several of its banking offices and certain office equipment. The leases have remaining terms up to 9.7 years. At September 30, 2019, the Company had lease right-of-use assets and lease liabilities totaling $12.3 million and $12.4 million, respectively, which are reflected in other assets and other liabilities, respectively, in the Company’s Consolidated Balance Sheet.
Maturities of operating lease liabilities as of September 30, 2019 are as follows:
September 30, 2019 | ||||
(In Thousands) | ||||
2019 (remaining) | $ | 819 | ||
2020 | 3,297 | |||
2021 | 2,680 | |||
2022 | 2,655 | |||
2023 | 2,181 | |||
thereafter | 3,749 | |||
Total lease payments | 15,381 | |||
Less: imputed interest | (2,977 | ) | ||
Present value of operating lease liabilities | $ | 12,404 | ||
As of September 30, 2019, the weighted average remaining term of operating leases is 5.8 years and the weighted average discount rate used in the measurement of operating lease liabilities was 2.88%.
Operating cash flows related to leases were $888,000 and $2,451,000 for the three and nine months ended September 30, 2019, respectively.
Lease costs during the three and nine months ended September 30, 2019 were as follows (in thousands):
Three Months Ended September 30, 2019 | |||
Operating lease cost | $ | 809 | |
Short-term lease cost | 8 | ||
Variable lease cost | 49 | ||
Sublease income | (23 | ) | |
Net lease cost | $ | 843 | |
Nine Months Ended September 30, 2019 | |||
Operating lease cost | $ | 2,500 | |
Short-term lease cost | 21 | ||
Variable lease cost | 151 | ||
Sublease income | (35 | ) | |
Net lease cost | $ | 2,637 | |
NOTE 7 - EMPLOYEE AND DIRECTOR BENEFITS
Stock Options
The Company has a stock-based compensation plan as described below. The compensation cost that has been charged to earnings for the plan was approximately $294,000 and $781,000 for the three and nine months ended September 30, 2019 and $202,000 and $684,000 for the three and nine months ended September 30, 2018.
The Company’s 2009 Amended and Restated Stock Incentive Plan authorizes the grant of up to 5,550,000 shares and allows for the issuance of Stock Appreciation Rights, Restricted Stock, Stock Options, Performance Shares or Performance Units. The plan allows for the grant of incentive stock options and non-qualified stock options, and option awards are granted with an exercise price equal to the market value of the Company’s common stock at the date of grant. The maximum term of the options granted under the plan is ten years.
The Company estimates the fair value of each stock option award using a Black-Scholes-Merton valuation model that uses the assumptions noted in the following table. Expected volatility is based on historical volatilities of the Company’s common stock. The expected term for options granted is based on the short-cut method and represents the period of time that options granted are expected to be outstanding. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.
2019 | 2018 | |||||||
Expected volatility | 40.00 | % | 24.72 | % | ||||
Expected dividends | 1.74 | % | 1.06 | % | ||||
Expected term (in years) | 6.7 | 6.3 | ||||||
Risk-free rate | 2.56 | % | 2.67 | % | ||||
The weighted average grant-date fair value of options granted during the nine months ended September 30, 2019 and September 30, 2018 was $12.60 and $10.98, respectively.
The following table summarizes stock option activity during the nine months ended September 30, 2019 and September 30, 2018:
Weighted | ||||||||||||||||
Weighted | Average | |||||||||||||||
Average | Remaining | Aggregate | ||||||||||||||
Exercise | Contractual | Intrinsic | ||||||||||||||
Shares | Price | Term (years) | Value | |||||||||||||
(In Thousands) | ||||||||||||||||
Nine Months Ended September 30, 2019: | ||||||||||||||||
Outstanding at January 1, 2019 | 1,238,748 | $ | 13.02 | 5.2 | $ | 23,355 | ||||||||||
Granted | 10,500 | 34.44 | 9.4 | (14 | ) | |||||||||||
Exercised | (239,300 | ) | 7.02 | 2.3 | 6,162 | |||||||||||
Forfeited | (20,200 | ) | 24.88 | 6.5 | 167 | |||||||||||
Outstanding at September 30, 2019 | 989,748 | 14.46 | 5.0 | $ | 18,603 | |||||||||||
Exercisable at September 30, 2019 | 278,000 | $ | 7.36 | 3.1 | $ | 7,261 | ||||||||||
Nine Months Ended September 30, 2018: | ||||||||||||||||
Outstanding at January 1, 2018 | 1,666,834 | $ | 10.68 | 5.5 | $ | 51,377 | ||||||||||
Granted | 12,750 | 41.58 | 9.5 | (31 | ) | |||||||||||
Exercised | (231,336 | ) | 4.94 | 3.1 | 7,665 | |||||||||||
Forfeited | (33,000 | ) | 15.00 | 6.4 | 758 | |||||||||||
Outstanding at September 30, 2018 | 1,415,248 | 11.79 | 5.1 | $ | 38,998 | |||||||||||
Exercisable at September 30, 2018 | 693,100 | $ | 6.78 | 3.5 | $ | 22,513 | ||||||||||
As of September 30, 2019, there was approximately $1,198,000 of total unrecognized compensation cost related to non-vested stock options. The cost is expected to be recognized on the straight-line method over the next 1.3 years.
Restricted Stock
The Company periodically grants restricted stock awards that vest upon service conditions. Dividend payments are made during the vesting period. The value of restricted stock is determined to be the current value of the Company’s stock, and this total value will be recognized as compensation expense over the vesting period. As of September 30, 2019, there was $1,491,000 of total unrecognized compensation cost related to non-vested restricted stock. The cost is expected to be recognized evenly over the remaining 2.7 years of the restricted stock’s vesting period.
The following table summarizes restricted stock activity during the nine months ended September 30, 2019 and 2018, respectively:
Shares | Weighted Average Grant Date Fair Value | |||||||
Nine Months Ended September 30, 2019: | ||||||||
Non-vested at January 1, 2019 | 44,076 | $ | 38.44 | |||||
Granted | 33,774 | 33.60 | ||||||
Vested | (5,200 | ) | 20.31 | |||||
Forfeited | (2,500 | ) | 38.17 | |||||
Non-vested at September 30, 2019 | 70,150 | 37.46 | ||||||
Nine Months Ended September 30, 2018: | ||||||||
Non-vested at January 1, 2018 | 120,676 | $ | 10.29 | |||||
Granted | 12,850 | 41.48 | ||||||
Vested | (73,700 | ) | 5.88 | |||||
Forfeited | (750 | ) | 41.21 | |||||
Non-vested at September 30, 2018 | 59,076 | 22.18 | ||||||
NOTE 8 - DERIVATIVES
The Company has entered into agreements with secondary market investors to deliver loans on a “best efforts delivery” basis. When a rate is committed to a borrower, it is based on the best price that day and locked with the investor for the customer for a 30-day period. In the event the loan is not delivered to the investor, the Company has no risk or exposure with the investor. The interest rate lock commitments related to loans that are originated for later sale are classified as derivatives. The fair values of the Company’s rate lock commitments to customers as of September 30, 2019 and December 31, 2018 were not material.
NOTE 9 – RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02,Leases (Topic 842). The FASB issued this ASU to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet by lessees for those leases classified as operating leases under current U.S. GAAP and disclosing key information about leasing arrangements. The amendments in this ASU were effective for the Company on January 1, 2019. The Company elected the three practical expedients allowed by the amendments as follows: 1) forego an assessment of whether any existing contracts are or contain leases, 2) forego an assessment of the classification of existing leases as to whether they are operating leases or capital leases, and 3) forego an assessment of direct costs for any existing leases. Upon adoption on January 1, 2019, the Company recorded right-of-use assets and related lease liabilities of $15.6 million and did not restate comparative periods. There was no impact on the Company’s consolidated statements of income or cash flows. See Note 6 – Leases for additional information.
In June 2018, the FASB issued ASU 2018-07,Compensation – Stock Compensation (Topic 718), Improvements to Nonemployee Share-Based Payment Accounting. These amendments expand the scope of Topic 718, Compensation - Stock Compensation, which only included share-based payments to employees, to include share-based payments issued to nonemployees for goods or services. Consequently, the accounting for share-based payments to nonemployees and employees are now substantially aligned. The ASU superseded Subtopic 505-50, Equity – Equity-Based Payments to Non-Employees. The Company adopted this ASU effective January 1, 2019. However, the amendments did not have an impact on the Company’s Consolidated Financial Statements because the Company does not currently have any stock-based payment awards outstanding to nonemployees.
In March 2017, the FASB issued ASU 2017-08,Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20), Premium Amortization on Purchased Callable Debt Securities. The amendments shorten the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. The amendments in this ASU were effective for the Company as of January 1, 2019. The amendments in this ASU did not impact the Company’s Consolidated Financial Statements, as the Company has always amortized premiums to the first call date.
NOTE 10 - RECENT ACCOUNTING PRONOUNCEMENTS
In June 2016, the FASB issued ASU 2016-13,Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which is essentially the final rule on use of the so-called CECL model, or current expected credit losses. Among other things, the amendments in this ASU require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. In addition, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. The amendments in this ASU are effective for the company for fiscal years and interim periods within those fiscal years beginning after December 15, 2019. The Company has established a cross-functional implementation team with assigned roles and responsibilities, key tasks to complete, and a general timeline to be followed. The team meets regularly to discuss the latest developments and ensure progress is being made on the adoption plan. The Company has contracted with a third-party provider for enhanced modeling techniques that incorporate the loss measurement requirements in these amendments and is in the process of finalizing and documenting the methodologies that will be utilized, including challenging estimated credit loss model assumptions and outputs and refining the qualitative framework. The team is also currently developing controls, processes, policies and disclosures in preparation for performing a complete parallel run in the fourth quarter of 2019. The Company has scheduled an independent third-party validation of the new model(s) and anticipate completion during the fourth quarter of 2019. The Company continues to evaluate the impact adoption of ASU 2016-13 will have on its consolidated financial statements and disclosures, and while currently unable to reasonably estimate the impact of adopting the ASU, the Company expects that the impact of adoption could be significantly influenced by the composition, characteristics and quality of its loan portfolio as well as the prevailing economic conditions and forecasts as of the adoption date.
In July 2018, the FASB issued ASU 2018-13,Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. This ASU eliminates, adds and modifies certain disclosure requirements for fair value measurements. Among the changes, entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, however, entities will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. ASU No.2018-13 is effective for interim and annual reporting periods beginning after December 15, 2019; early adoption is permitted. Entities are also allowed to elect early adoption of the eliminated or modified disclosure requirements and delay adoption of the new disclosure requirements until their effective date. As ASU No.2018-13 only revises disclosure requirements, it will not have a material impact on the Company’s Consolidated Financial Statements.
NOTE 11 - FAIR VALUE MEASUREMENT
Measurement of fair value under U.S. GAAP establishes a hierarchy that prioritizes observable and unobservable inputs used to measure fair value, as of the measurement date, into three broad levels, which are described below:
Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.
Level 2: Observable prices that are based on inputs not quoted on active markets, but corroborated by market data.
Level 3: Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.
In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible and also considers counterparty credit risk in its assessment of fair value.
Debt Securities. Where quoted prices are available in an active market, securities are classified within Level 1 of the hierarchy. Level 1 securities include highly liquid government securities such as U.S. Treasuries and exchange-traded equity securities. For securities traded in secondary markets for which quoted market prices are not available, the Company generally relies on pricing services provided by independent vendors. Such independent pricing services are to advise the Company on the carrying value of the securities available for sale portfolio. As part of the Company’s procedures, the price provided from the service is evaluated for reasonableness given market changes. When a questionable price exists, the Company investigates further to determine if the price is valid. If needed, other market participants may be utilized to determine the correct fair value. The Company has also reviewed and confirmed its determinations in discussions with the pricing source regarding their methods of price discovery. Securities measured with these techniques are classified within Level 2 of the hierarchy and often involve using quoted market prices for similar securities, pricing models or discounted cash flow calculations using inputs observable in the market where available. Examples include U.S. government agency securities, mortgage-backed securities, obligations of states and political subdivisions and certain corporate, asset-backed and other securities. In cases where Level 1 or Level 2 inputs are not available, securities are classified in Level 3 of the hierarchy.
Impaired Loans. Impaired loans are measured and reported at fair value when full payment under the loan terms is not probable. Impaired loans are carried at the present value of expected future cash flows using the loan’s existing rate in a discounted cash flow calculation, or the fair value of the collateral if the loan is collateral-dependent. Expected cash flows are based on internal inputs reflecting expected default rates on contractual cash flows. This method of estimating fair value does not incorporate the exit-price concept of fair value described in ASC 820-10 and would generally result in a higher value than the exit-price approach. For loans measured using the estimated fair value of collateral less costs to sell, fair value is generally determined based on appraisals performed by certified and licensed appraisers using inputs such as absorption rates, capitalization rates and market comparables, adjusted for estimated costs to sell. Management modifies the appraised values, if needed, to take into account recent developments in the market or other factors, such as changes in absorption rates or market conditions from the time of valuation, and anticipated sales values considering management’s plans for disposition. Such modifications to the appraised values could result in lower valuations of such collateral. Estimated costs to sell are based on current amounts of disposal costs for similar assets. These measurements are classified as Level 3 within the valuation hierarchy. Impaired loans are subject to nonrecurring fair value adjustment upon initial recognition or subsequent impairment. A portion of the allowance for loan losses is allocated to impaired loans if the value of such loans is deemed to be less than the unpaid balance. Impaired loans are reviewed and evaluated on at least a quarterly basis for additional impairment and adjusted accordingly based on the same factors identified above. The amount recognized as an impairment charge related to impaired loans that are measured at fair value on a nonrecurring basis was $7.7 million and $16.1 million during the three and nine months ended September 30, 2019, respectively, and $4.9 million and $8.8 million during the three and nine months ended September 30, 2018, respectively.
Other Real Estate Owned and repossessed assets. Other real estate assets (“OREO”) acquired through, or in lieu of, foreclosure and repossessed assets are held for sale and are initially recorded at the lower of cost or fair value, less selling costs. Any write-downs to fair value at the time of transfer to OREO or repossession are charged to the allowance for loan losses subsequent to foreclosure or repossession. Values are derived from appraisals of underlying collateral and discounted cash flow analysis. Appraisals are performed by certified and licensed appraisers. Subsequent to foreclosure, valuations are updated periodically and assets are marked to current fair value, not to exceed the new cost basis. In the determination of fair value subsequent to foreclosure, management also considers other factors or recent developments, such as changes in absorption rates and market conditions from the time of valuation and anticipated sales values considering management’s plans for disposition, which could result in adjustment to lower the property value estimates indicated in the appraisals. These measurements are classified as Level 3 within the valuation hierarchy. A loss on the sale and write-downs of OREO and repossessed assets of $58,000 and $303,000 was recognized for the three and nine months ended September 30, 2019, respectively, and $228,000 and $581,000 for the three and nine months ended September 30, 2018, respectively. These charges were for write-downs in the value of OREO subsequent to foreclosure and losses on the disposal of OREO. OREO and repossessed assets are classified within Level 3 of the hierarchy.
There was one residential real estate loan with a balance of $425,000 that was foreclosed during the third quarter 2019 and classified as OREO as of September 30, 2019.
The following table presents the Company’s financial assets and financial liabilities carried at fair value on a recurring basis as of September 30, 2019 and December 31, 2018:
Fair Value Measurements at September 30, 2019 Using | ||||||||||||||||
Quoted Prices in | ||||||||||||||||
Active Markets | Significant Other | Significant | ||||||||||||||
for Identical | Observable Inputs | Unobservable | ||||||||||||||
Assets (Level 1) | (Level 2) | Inputs (Level 3) | Total | |||||||||||||
Assets Measured on a Recurring Basis: | (In Thousands) | |||||||||||||||
Available-for-sale debt securities: | ||||||||||||||||
U.S. Treasury securities | $ | - | $ | 52,198 | $ | - | $ | 52,198 | ||||||||
Government Agency securities | - | 18,361 | - | 18,361 | ||||||||||||
Mortgage-backed securities | - | 402,639 | - | 402,639 | ||||||||||||
State and municipal securities | - | 65,568 | - | 65,568 | ||||||||||||
Corporate debt | - | 142,645 | 6,610 | 149,255 | ||||||||||||
Total assets at fair value | $ | - | $ | 681,411 | $ | 6,610 | $ | 688,021 | ||||||||
Fair Value Measurements at December 31, 2018 Using | ||||||||||||||||
Quoted Prices in | ||||||||||||||||
Active Markets | Significant Other | Significant | ||||||||||||||
for Identical | Observable Inputs | Unobservable | ||||||||||||||
Assets (Level 1) | (Level 2) | Inputs (Level 3) | Total | |||||||||||||
Assets Measured on a Recurring Basis: | (In Thousands) | |||||||||||||||
Available-for-sale debt securities: | ||||||||||||||||
U.S. Treasury securities | $ | - | $ | 58,428 | $ | - | $ | 58,428 | ||||||||
Government Agency securities | - | 18,565 | - | 18,565 | ||||||||||||
Mortgage-backed securities | - | 304,304 | - | 304,304 | ||||||||||||
State and municipal securities | - | 105,994 | - | 105,994 | ||||||||||||
Corporate debt | - | 96,375 | 6,518 | 102,893 | ||||||||||||
Total assets at fair value | $ | - | $ | 583,666 | $ | 6,518 | $ | 590,184 | ||||||||
The following table presents the Company’s financial assets and financial liabilities carried at fair value on a nonrecurring basis as of September 30, 2019 and December 31, 2018:
Fair Value Measurements at September 30, 2019 | ||||||||||||||||
Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total | |||||||||||||
Assets Measured on a Nonrecurring Basis: | (In Thousands) | |||||||||||||||
Impaired loans | $ | - | $ | - | $ | 42,205 | $ | 42,205 | ||||||||
Other real estate owned and repossessed assets | - | - | 5,337 | 5,337 | ||||||||||||
Total assets at fair value | $ | - | $ | - | $ | 47,542 | $ | 47,542 | ||||||||
Fair Value Measurements at December 31, 2018 | ||||||||||||||||
Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total | |||||||||||||
Assets Measured on a Nonrecurring Basis: | (In Thousands) | |||||||||||||||
Impaired loans | $ | - | $ | - | $ | 30,463 | $ | 30,463 | ||||||||
Other real estate owned and repossessed assets | - | - | 5,169 | 5,169 | ||||||||||||
Total assets at fair value | $ | - | $ | - | $ | 35,632 | $ | 35,632 | ||||||||
The fair value of a financial instrument is the current amount that would be exchanged in a sale between willing parties, other than in a forced liquidation. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument. Current U.S. GAAP excludes certain financial instruments and all nonfinancial instruments from its fair value disclosure requirements. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.
The estimated fair values of the Company’s financial instruments not measured at fair value on a recurring or non-recurring basis as of September 30, 2019 and December 31, 2018 were as follows:
September 30, 2019 | December 31, 2018 | |||||||||||||||
Carrying | Carrying | |||||||||||||||
Amount | Fair Value | Amount | Fair Value | |||||||||||||
(In Thousands) | ||||||||||||||||
Financial Assets: | ||||||||||||||||
Level 1 inputs: | ||||||||||||||||
Cash and due from banks | $ | 572,429 | $ | 572,429 | $ | 458,050 | $ | 458,050 | ||||||||
Level 2 inputs: | ||||||||||||||||
Federal funds sold | 474,298 | 474,298 | 223,845 | 223,845 | ||||||||||||
Mortgage loans held for sale | 8,691 | 8,656 | 120 | 121 | ||||||||||||
Level 3 inputs: | ||||||||||||||||
Held to maturity debt securities | 250 | 250 | - | - | ||||||||||||
Loans, net | 6,902,672 | 6,816,956 | 6,464,899 | 6,398,604 | ||||||||||||
Financial liabilities: | ||||||||||||||||
Level 2 inputs: | ||||||||||||||||
Deposits | $ | 7,724,158 | $ | 7,728,323 | $ | 6,915,708 | $ | 6,910,176 | ||||||||
Federal funds purchased | 370,231 | 370,231 | 288,725 | 288,725 | ||||||||||||
Other borrowings | 64,693 | 64,629 | 64,666 | 64,613 | ||||||||||||
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
2019.
Net income available to common stockholders for the three months ended SeptemberJune 30, 20192020 was $37.6$40.4 million, an increase of $3.0$4.8 million, or 8.7%13.5%, from $34.6$35.6 million for the corresponding period in 2018.2019. Basic and diluted earnings per common share were $0.70$0.75 and $0.69,$0.75, respectively, for the three months ended SeptemberJune 30, 2019,2020, compared to basic and diluted earnings per common share of $0.65$0.67 and $0.64$0.66 for the corresponding period in 2018.
2019.
2019.
2019.
be temporary in nature.
The Company does not invest in collateralized debt obligations (“CDOs”). We have $149.3At June 30, 2020, we had $237.4 million of bank holding company subordinated notes. All of these notes were rated BBB or better by Kroll Bond Rating Agency at the time of our investment in them. All other corporate bonds had a Standard and Poor’s or Moody’s rating of A-1 or better when purchased. The total investment portfolio at SeptemberJune 30, 20192020 has a combined average credit rating of AA.
Percentage of Total Loans in MSA | ||||
| % | |||
|
| |||
Huntsville, AL | 8.6 | % | ||
| % | |||
Montgomery, AL | % | |||
|
| |||
| 6.2 | % | ||
| % | |||
| % | |||
| % | |||
| % | |||
| % | |||
| Atlanta, GA | 6.5 | % | ||
| Charleston, SC | 4.4 | % | ||
Loans in our new Sarasota, Florida office are included
Asset Quality
either event.
2020.
During the third quarter of 2019, the Company recorded a $7.4 million payment resulting from the termination of a Loan Guarantee Program (“LGP”) operated by the State of Alabama. The payment was recorded as an increase to the allowance for loan losses specifically related to loans formerly enrolled in this program, in accordance with the Company’s established ALLL review and evaluation criteria. In general, loans enrolled in the program had a collateral shortfall or other enhanced credit risk. In return for the Company’s acceptance of these higher risk loans, the Company received a guarantee of up to 50% of losses in the event of a borrower’s default. These were loans that would have otherwise not met the Company’s loan underwriting criteria. The program required a 1% fee on the commitment balance at origination. As of September 30, 2019, the Company had 72 loans outstanding totaling $44.3 million that were formerly enrolled in the loan guarantee program.
As of and for the Three Months Ended | As of and for the Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Total loans outstanding, net of unearned income | $ | 7,022,069 | $ | 6,363,531 | $ | 7,022,069 | $ | 6,363,531 | ||||||||
Average loans outstanding, net of unearned income | $ | 6,961,270 | $ | 6,233,377 | $ | 6,785,257 | $ | 6,036,547 | ||||||||
Allowance for loan losses at beginning of period | 71,386 | 64,239 | 68,600 | 59,406 | ||||||||||||
Charge-offs: | ||||||||||||||||
Commercial, financial and agricultural loans | 3,626 | 3,923 | 10,273 | 6,743 | ||||||||||||
Real estate - mortgage | 4,974 | 48 | 5,193 | 869 | ||||||||||||
Consumer loans | 172 | 76 | 453 | 211 | ||||||||||||
Total charge-offs | 8,772 | 4,047 | 15,919 | 7,823 | ||||||||||||
Recoveries: | ||||||||||||||||
Commercial, financial and agricultural loans | 126 | 52 | 255 | 229 | ||||||||||||
Real estate - construction | - | 4 | 2 | 108 | ||||||||||||
Real estate - mortgage | 1 | 1 | 11 | 44 | ||||||||||||
Consumer loans | 60 | 6 | 83 | 31 | ||||||||||||
Total recoveries | 187 | 63 | 351 | 412 | ||||||||||||
Net charge-offs | 8,585 | 3,984 | 15,568 | 7,411 | ||||||||||||
| Allocation from LGP | 7,406 | - | 7,406 | - | ||||||||||||
Provision for loan losses | 6,985 | 6,624 | 16,754 | 14,884 | ||||||||||||
Allowance for loan losses at period end | $ | 77,192 | $ | 66,879 | $ | 77,192 | $ | 66,879 | ||||||||
Allowance for loan losses to period end loans | 1.10 | % | 1.05 | % | 1.10 | % | 1.05 | % | ||||||||
Net charge-offs to average loans | 0.49 | % | 0.25 | % | 0.31 | % | 0.16 | % | ||||||||
Management believes that the comprehensive allowance analysis developed by our credit administration group is in compliance with all current regulatory guidelines; however, actual losses could differ from management’s estimates.
2019:
| As of and for the Three Months Ended | As of and for the Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| (Dollars in thousands) | ||||||||||||||||
| Total loans outstanding, net of unearned income | $ | 8,315,375 | $ | 6,968,886 | $ | 8,315,375 | $ | 6,968,886 | ||||||||
| Average loans outstanding, net of unearned income | $ | 8,333,704 | $ | 6,789,051 | $ | 7,847,426 | $ | 6,695,792 | ||||||||
| Allowance for loan losses at beginning of period | 85,414 | 70,207 | 76,584 | 68,600 | ||||||||||||
| Charge-offs: | ||||||||||||||||
| Commercial, financial and agricultural loans | 1,358 | 3,610 | 3,998 | 6,647 | ||||||||||||
| Real estate - construction | 376 | - | 830 | - | ||||||||||||
| Real estate - mortgage | 2,520 | 169 | 4,198 | 219 | ||||||||||||
| Consumer loans | 62 | 63 | 120 | 281 | ||||||||||||
| Total charge-offs | 4,316 | 3,842 | �� | 9,146 | 7,147 | |||||||||||
| Recoveries: | ||||||||||||||||
| Commercial, financial and agricultural loans | 84 | 117 | 146 | 129 | ||||||||||||
| Real estate - construction | 1 | - | 2 | 1 | ||||||||||||
| Real estate - mortgage | 13 | 4 | 14 | 11 | ||||||||||||
| Consumer loans | 28 | 16 | 40 | 23 | ||||||||||||
| Total recoveries | 126 | 137 | 202 | 164 | ||||||||||||
| Net charge-offs | 4,190 | 3,705 | 8,944 | 6,983 | ||||||||||||
| Provision for loan losses | 10,283 | 4,884 | 23,867 | 9,769 | ||||||||||||
| Allowance for loan losses at period end | $ | 91,507 | $ | 71,386 | $ | 91,507 | $ | 71,386 | ||||||||
| Allowance for loan losses to period end loans | 1.10 | % | 1.02 | % | 1.10 | % | 1.02 | % | ||||||||
| Net charge-offs to average loans | 0.20 | % | 0.22 | % | 0.23 | % | 0.21 | % | ||||||||
Percentage of loans | ||||||||
in each category | ||||||||
September 30, 2019 | Amount | to total loans | ||||||
(In Thousands) | ||||||||
Commercial, financial and agricultural | $ | 45,222 | 37.79 | % | ||||
Real estate - construction | 3,192 | 7.85 | % | |||||
Real estate - mortgage | 28,264 | 53.42 | % | |||||
Consumer | 514 | 0.94 | % | |||||
Total | $ | 77,192 | 100.00 | % | ||||
Percentage of loans | ||||||||
in each category | ||||||||
December 31, 2018 | Amount | to total loans | ||||||
(In Thousands) | ||||||||
Commercial, financial and agricultural | $ | 39,016 | 38.47 | % | ||||
Real estate - construction | 3,522 | 8.16 | % | |||||
Real estate - mortgage | 25,508 | 52.39 | % | |||||
Consumer | 554 | 0.99 | % | |||||
Total | $ | 68,600 | 100.00 | % | ||||
| Percentage of loans | ||||||||
| in each category | ||||||||
| June 30, 2020 | Amount | to total loans | ||||||
| (In Thousands) | ||||||||
| Commercial, financial and agricultural | $ | 47,986 | 42.07 | % | ||||
| Real estate - construction | 4,531 | 6.55 | % | |||||
| Real estate - mortgage | 38,399 | 50.65 | % | |||||
| Consumer | 591 | 0.73 | % | |||||
| Total | $ | 91,507 | 100.00 | % | ||||
| Percentage of loans | ||||||||
| in each category | ||||||||
| December 31, 2019 | Amount | to total loans | ||||||
| (In Thousands) | ||||||||
| Commercial, financial and agricultural | $ | 43,666 | 37.13 | % | ||||
| Real estate - construction | 2,768 | 7.18 | % | |||||
| Real estate - mortgage | 29,653 | 54.80 | % | |||||
| Consumer | 497 | 0.89 | % | |||||
| Total | $ | 76,584 | 100.00 | % | ||||
Nine Months Ended September 30, | ||||||||
2019 | 2018 | |||||||
(In thousands) | ||||||||
Balance at beginning of period | $ | 5,169 | $ | 6,701 | ||||
Transfers from loans and capitalized expenses | 1,177 | 1,206 | ||||||
Proceeds from sales | (727 | ) | (1,572 | ) | ||||
Internally financed sales | - | (130 | ) | |||||
Write-downs / net gain (loss) on sales | (282 | ) | (491 | ) | ||||
Balance at end of period | $ | 5,337 | $ | 5,714 | ||||
2019:
| Six Months Ended June 30, | ||||||||
| 2020 | 2019 | |||||||
| (In thousands) | ||||||||
| Balance at beginning of period | $ | 8,178 | $ | 5,169 | ||||
| Transfers from loans and capitalized expenses | 1,023 | 752 | ||||||
| Proceeds from sales | (852 | ) | (48 | ) | ||||
| Internally financed sales | - | - | ||||||
| Write-downs / net gain (loss) on sales | (1,812 | ) | (224 | ) | ||||
| Balance at end of period | $ | 6,537 | $ | 5,649 | ||||
September 30, 2019 | December 31, 2018 | |||||||||||||||
Number of | Number of | |||||||||||||||
Balance | Loans | Balance | Loans | |||||||||||||
(Dollar Amounts In Thousands) | ||||||||||||||||
Nonaccrual loans: | ||||||||||||||||
Commercial, financial and agricultural | $ | 16,030 | 29 | $ | 10,503 | 16 | ||||||||||
Real estate - construction | 1,588 | 2 | 997 | 1 | ||||||||||||
Real estate - mortgage: | ||||||||||||||||
Owner-occupied commercial | 15,127 | 4 | 3,358 | 2 | ||||||||||||
1-4 family mortgage | 1,480 | 6 | 2,046 | 9 | ||||||||||||
Other mortgage | 1,507 | 1 | 5,022 | 1 | ||||||||||||
Total real estate - mortgage | 18,114 | 11 | 10,426 | 12 | ||||||||||||
Consumer | - | - | - | - | ||||||||||||
Total Nonaccrual loans: | $ | 35,732 | 42 | $ | 21,926 | 29 | ||||||||||
90+ days past due and accruing: | ||||||||||||||||
Commercial, financial and agricultural | $ | 119 | 3 | $ | 605 | 10 | ||||||||||
Real estate - construction | - | - | - | - | ||||||||||||
Real estate - mortgage: | ||||||||||||||||
Owner-occupied commercial | 118 | 1 | - | - | ||||||||||||
1-4 family mortgage | 112 | 1 | 123 | 1 | ||||||||||||
Other mortgage | 4,956 | 1 | 5,008 | 1 | ||||||||||||
Total real estate - mortgage | 5,186 | 3 | 5,131 | 2 | ||||||||||||
Consumer | 12 | 8 | 108 | 28 | ||||||||||||
Total 90+ days past due and accruing: | $ | 5,317 | 14 | $ | 5,844 | 40 | ||||||||||
Total Nonperforming Loans: | $ | 41,049 | 56 | $ | 27,770 | 69 | ||||||||||
Plus: Other real estate owned and repossessions | 5,649 | 12 | 5,169 | 12 | ||||||||||||
Total Nonperforming Assets | $ | 46,698 | 68 | $ | 32,939 | 81 | ||||||||||
Restructured accruing loans: | ||||||||||||||||
Commercial, financial and agricultural | $ | 2,742 | 1 | $ | 3,073 | 3 | ||||||||||
Real estate - construction | - | - | - | - | ||||||||||||
Real estate - mortgage: | ||||||||||||||||
Owner-occupied commercial | 726 | 1 | - | - | ||||||||||||
1-4 family mortgage | - | - | - | - | ||||||||||||
Other mortgage | - | - | - | - | ||||||||||||
Total real estate - mortgage | 726 | 1 | - | - | ||||||||||||
Consumer | - | - | - | - | ||||||||||||
Total restructured accruing loans: | $ | 3,468 | 2 | $ | 3,073 | 3 | ||||||||||
Total Nonperforming assets and restructured accruing loans | $ | 50,166 | 70 | $ | 36,012 | 84 | ||||||||||
Ratios: | ||||||||||||||||
Nonperforming loans to total loans | 0.58 | % | 0.43 | % | ||||||||||||
Nonperforming assets to total loans plus other real estate owned and repossessions | 0.66 | % | 0.50 | % | ||||||||||||
Nonperforming assets plus restructured accruing loans to total loans plus other real estate owned and repossessions | 0.71 | % | 0.55 | % | ||||||||||||
| June 30, 2020 | December 31, 2019 | |||||||||||||||
| Number of | Number of | |||||||||||||||
| Balance | Loans | Balance | Loans | |||||||||||||
| (Dollar Amounts In Thousands) | ||||||||||||||||
| Nonaccrual loans: | ||||||||||||||||
| Commercial, financial and agricultural | $ | 13,888 | 24 | $ | 14,729 | 29 | ||||||||||
| Real estate - construction | 587 | 3 | 1,588 | 2 | ||||||||||||
| Real estate - mortgage: | ||||||||||||||||
| Owner-occupied commercial | 1,714 | 5 | 10,826 | 3 | ||||||||||||
| 1-4 family mortgage | 683 | 7 | 1,440 | 5 | ||||||||||||
| Other mortgage | - | - | 1,507 | 1 | ||||||||||||
| Total real estate - mortgage | 2,397 | 12 | 13,773 | 9 | ||||||||||||
| Consumer | 9 | 1 | - | - | ||||||||||||
| Total Nonaccrual loans: | $ | 16,881 | 40 | $ | 30,090 | 40 | ||||||||||
| 90+ days past due and accruing: | ||||||||||||||||
| Commercial, financial and agricultural | $ | 248 | 2 | $ | 201 | 3 | ||||||||||
| Real estate - construction | - | - | - | - | ||||||||||||
| Real estate - mortgage: | ||||||||||||||||
| Owner-occupied commercial | - | - | - | - | ||||||||||||
| 1-4 family mortgage | - | - | 873 | 5 | ||||||||||||
| Other mortgage | 4,861 | 1 | 4,924 | 1 | ||||||||||||
| Total real estate - mortgage | 4,861 | 1 | 5,797 | 6 | ||||||||||||
| Consumer | 24 | 6 | 23 | 8 | ||||||||||||
| Total 90+ days past due and accruing: | $ | 5,133 | 9 | $ | 6,021 | 17 | ||||||||||
| Total Nonperforming Loans: | $ | 22,014 | 49 | $ | 36,111 | 57 | ||||||||||
| Plus: Other real estate owned and repossessions | 6,537 | 11 | 8,178 | 12 | ||||||||||||
| Total Nonperforming Assets | $ | 28,551 | 60 | $ | 44,289 | 69 | ||||||||||
| Restructured accruing loans: | ||||||||||||||||
| Commercial, financial and agricultural | $ | 975 | 3 | $ | 625 | 2 | ||||||||||
| Real estate - construction | - | - | - | - | ||||||||||||
| Real estate - mortgage: | ||||||||||||||||
| Owner-occupied commercial | - | - | - | - | ||||||||||||
| 1-4 family mortgage | - | - | - | - | ||||||||||||
| Other mortgage | - | - | - | - | ||||||||||||
| Total real estate - mortgage | - | - | - | - | ||||||||||||
| Consumer | - | - | - | - | ||||||||||||
| Total restructured accruing loans: | $ | 975 | 3 | $ | 625 | 2 | ||||||||||
| Total Nonperforming assets and restructured accruing loans | $ | 29,526 | 63 | $ | 44,914 | 71 | ||||||||||
| Ratios: | ||||||||||||||||
| Nonperforming loans to total loans | 0.26 | % | 0.50 | % | ||||||||||||
| Nonperforming assets to total loans plus other real estate owned and repossessions | 0.34 | % | 0.61 | % | ||||||||||||
| Nonperforming assets plus restructured accruing loans to total loans plus other real estate owned and repossessions | 0.35 | % | 0.62 | % | ||||||||||||
The following table summarizes balances of our deposits and the percentage of each type to the total at SeptemberJune 30, 20192020 and December 31, 2018:
September 30, 2019 | December 31, 2018 | |||||||||||||||
Noninterest-bearing demand | $ | 1,678,672 | 21.73 | % | $ | 1,557,341 | 22.52 | % | ||||||||
Interest-bearing demand | 5,286,288 | 68.44 | % | 4,624,909 | 66.88 | % | ||||||||||
Savings | 59,980 | 0.78 | % | 53,880 | 0.78 | % | ||||||||||
Time deposits , $250,000 and under | 263,421 | 3.41 | % | 257,925 | 3.73 | % | ||||||||||
Time deposits, over $250,000 | 435,797 | 5.64 | % | 421,653 | 6.10 | % | ||||||||||
| $ | 7,724,158 | 100.00 | % | $ | 6,915,708 | 100.00 | % | |||||||||
2019:
| June 30, 2020 | December 31, 2019 | |||||||||||||||
| Noninterest-bearing demand | $ | 2,678,893 | 28.67 | % | $ | 1,749,879 | 23.24 | % | ||||||||
| Interest-bearing demand | 5,786,886 | 61.94 | % | 4,986,155 | 66.21 | % | ||||||||||
| Savings | 77,387 | 0.83 | % | 65,808 | 0.87 | % | ||||||||||
| Time deposits , $250,000 and under | 277,278 | 2.97 | % | 267,259 | 3.55 | % | ||||||||||
| Time deposits, over $250,000 | 422,474 | 4.52 | % | 461,332 | 6.13 | % | ||||||||||
| Brokered CDs | 100,000 | 1.07 | % | - | - | % | ||||||||||
| $ | 9,342,918 | 100.00 | % | $ | 7,530,433 | 100.00 | % | |||||||||
● | $34.75 million of 5% Subordinated Notes due July 15, 2025, which were issued in a private placement in July 2015 and pay interest semi-annually; and |
● | $30.0 million of 4.5% Subordinated Notes due November 8, 2027, which were issued in a private placement in November 2017 and pay interest semi-annually. |
However, uncertainties brought about by the COVID-19 pandemic may adversely affect our ability to obtain funding or may increase the cost of funding.
Payments due by Period | ||||||||||||||||||||
Over 1 - 3 | Over 3 - 5 | |||||||||||||||||||
Total | 1 year or less | years | years | Over 5 years | ||||||||||||||||
(In Thousands) | ||||||||||||||||||||
Contractual Obligations (1) | ||||||||||||||||||||
Deposits without a stated maturity | $ | 7,024,940 | $ | - | $ | - | $ | - | $ | - | ||||||||||
Certificates of deposit (2) | 699,218 | 414,249 | 199,408 | 85,561 | - | |||||||||||||||
Federal funds purchased | 370,231 | 370,231 | - | - | - | |||||||||||||||
Subordinated debentures | 64,750 | - | - | - | 64,750 | |||||||||||||||
Operating lease commitments | 16,825 | 3,583 | 5,911 | 4,063 | 3,268 | |||||||||||||||
Total | $ | 8,175,964 | $ | 788,063 | $ | 205,319 | $ | 89,624 | $ | 68,018 | ||||||||||
| Payments due by Period | ||||||||||||||||||||
| Over 1 - 3 | Over 3 - 5 | |||||||||||||||||||
| Total | 1 year or less | years | years | Over 5 years | ||||||||||||||||
| (In Thousands) | ||||||||||||||||||||
| Contractual Obligations (1) | ||||||||||||||||||||
| Deposits without a stated maturity | $ | 8,464,353 | $ | - | $ | - | $ | - | $ | - | ||||||||||
| Certificates of deposit (2) | 778,565 | 443,718 | 273,236 | 61,611 | - | |||||||||||||||
| Brokered certificates of deposit | 100,000 | 50,000 | 50,000 | |||||||||||||||||
| Federal funds purchased | 635,606 | 635,606 | - | - | - | |||||||||||||||
| Subordinated debentures | 64,750 | - | - | - | 64,750 | |||||||||||||||
| Operating lease commitments | 11,833 | 1,515 | 4,813 | 3,080 | 2,425 | |||||||||||||||
| Total | $ | 10,055,107 | $ | 1,130,839 | $ | 328,049 | $ | 64,691 | $ | 67,175 | ||||||||||
| (1) | Excludes interest. | ||||||||||
|
| ||||||||||
| Certificates of deposit give customers the right to early withdrawal. Early withdrawals may be subject to penalties. The penalty amount depends on the remaining time to maturity at the time of early withdrawal. | ||||||||||
Capital Adequacy
To Be Well Capitalized | ||||||||||||||||||||||||
For Capital Adequacy | Under Prompt Corrective | |||||||||||||||||||||||
Actual | Purposes | Action Provisions | ||||||||||||||||||||||
Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||||||||
As of September 30, 2019: | (Dollars in Thousands) | |||||||||||||||||||||||
CET 1 Capital to Risk-Weighted Assets: | ||||||||||||||||||||||||
Consolidated | $ | 790,168 | 10.39 | % | $ | 342,283 | 4.50 | % | N/A | N/A | ||||||||||||||
ServisFirst Bank | 852,807 | 11.21 | % | 342,269 | 4.50 | % | $ | 494,389 | 6.50 | % | ||||||||||||||
Tier 1 Capital to Risk-Weighted Assets: | ||||||||||||||||||||||||
Consolidated | 790,670 | 10.39 | % | 456,377 | 6.00 | % | N/A | N/A | ||||||||||||||||
ServisFirst Bank | 853,309 | 11.22 | % | 456,359 | 6.00 | % | 608,479 | 8.00 | % | |||||||||||||||
Total Capital to Risk-Weighted Assets: | ||||||||||||||||||||||||
Consolidated | 933,055 | 12.27 | % | 608,502 | 8.00 | % | N/A | N/A | ||||||||||||||||
ServisFirst Bank | 931,001 | 12.24 | % | 608,479 | 8.00 | % | 760,598 | 10.00 | ||||||||||||||||
Tier 1 Capital to Average Assets: | ||||||||||||||||||||||||
Consolidated | 790,670 | 8.88 | % | 356,012 | 4.00 | % | N/A | N/A | ||||||||||||||||
ServisFirst Bank | 853,309 | 9.59 | % | 355,998 | 4.00 | % | 444,997 | 5.00 | % | |||||||||||||||
As of December 31, 2018: | ||||||||||||||||||||||||
CET 1 Capital to Risk-Weighted Assets: | ||||||||||||||||||||||||
Consolidated | $ | 705,203 | 10.12 | % | $ | 313,564 | 4.50 | % | N/A | N/A | ||||||||||||||
ServisFirst Bank | 768,614 | 11.03 | % | 313,554 | 4.50 | % | $ | 452,911 | 6.50 | % | ||||||||||||||
Tier 1 Capital to Risk-Weighted Assets: | ||||||||||||||||||||||||
Consolidated | 705,705 | 10.13 | % | 418,086 | 6.00 | % | N/A | N/A | ||||||||||||||||
ServisFirst Bank | 769,116 | 11.04 | % | 418,071 | 6.00 | % | 557,428 | 8.00 | % | |||||||||||||||
Total Capital to Risk-Weighted Assets: | ||||||||||||||||||||||||
Consolidated | 839,471 | 12.05 | % | 557,448 | 8.00 | % | N/A | N/A | ||||||||||||||||
ServisFirst Bank | 867,715 | 12.03 | % | 557,428 | 8.00 | % | 696,786 | 10.00 | % | |||||||||||||||
Tier 1 Capital to Average Assets: | ||||||||||||||||||||||||
Consolidated | 705,705 | 9.07 | % | 311,214 | 4.00 | % | N/A | N/A | ||||||||||||||||
ServisFirst Bank | 769,116 | 9.89 | % | 311,206 | 4.00 | % | 389,007 | 5.00 | % | |||||||||||||||
As of September 30, 2018: | ||||||||||||||||||||||||
CET 1 Capital to Risk-Weighted Assets: | ||||||||||||||||||||||||
Consolidated | $ | 676,506 | 10.08 | % | $ | 302,011 | 4.50 | % | N/A | N/A | ||||||||||||||
ServisFirst Bank | 740,140 | 11.03 | % | 301,997 | 4.50 | % | $ | 436,219 | 6.50 | % | ||||||||||||||
Tier 1 Capital to Risk-Weighted Assets: | ||||||||||||||||||||||||
Consolidated | 677,008 | 10.09 | % | 402,682 | 6.00 | % | N/A | N/A | ||||||||||||||||
ServisFirst Bank | 740,642 | 11.04 | % | 402,663 | 6.00 | % | 536,884 | 8.00 | % | |||||||||||||||
Total Capital to Risk-Weighted Assets: | ||||||||||||||||||||||||
Consolidated | 809,044 | 120.05 | % | 536,909 | 8.00 | % | N/A | N/A | ||||||||||||||||
ServisFirst Bank | 808,021 | 12.04 | % | 536,884 | 8.00 | % | 671,105 | 10.00 | % | |||||||||||||||
Tier 1 Capital to Average Assets: | ||||||||||||||||||||||||
Consolidated | 677,008 | 9.28 | % | 291,724 | 4.00 | % | N/A | N/A | ||||||||||||||||
ServisFirst Bank | 740,642 | 10.16 | % | 291,709 | 4.00 | % | 364,637 | 5.00 | % | |||||||||||||||
| To Be Well Capitalized | ||||||||||||||||||||||||
| For Capital Adequacy | Under Prompt Corrective | |||||||||||||||||||||||
| Actual | Purposes | Action Provisions | ||||||||||||||||||||||
| Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||||||||
| As of June 30, 2020: | (Dollars in Thousands) | |||||||||||||||||||||||
| CET 1 Capital to Risk-Weighted Assets: | ||||||||||||||||||||||||
| Consolidated | $ | 881,539 | 11.26 | % | $ | 352,327 | 4.50 | % | N/A | N/A | ||||||||||||||
| ServisFirst Bank | 943,578 | 12.06 | % | 352,219 | 4.50 | % | $ | 508,761 | 6.50 | % | ||||||||||||||
| Tier 1 Capital to Risk-Weighted Assets: | ||||||||||||||||||||||||
| Consolidated | 882,041 | 11.27 | % | 469,769 | 6.00 | % | N/A | N/A | ||||||||||||||||
| ServisFirst Bank | 944,080 | 12.06 | % | 469,625 | 6.00 | % | 626,167 | 8.00 | % | |||||||||||||||
| Total Capital to Risk-Weighted Assets: | ||||||||||||||||||||||||
| Consolidated | 1,038,763 | 13.27 | % | 626,359 | 8.00 | % | N/A | N/A | ||||||||||||||||
| ServisFirst Bank | 1,036,087 | 13.24 | % | 626,167 | 8.00 | % | 782,709 | 10.00 | ||||||||||||||||
| Tier 1 Capital to Average Assets: | ||||||||||||||||||||||||
| Consolidated | 882,041 | 8.46 | % | 417,188 | 4.00 | % | N/A | N/A | ||||||||||||||||
| ServisFirst Bank | 944,080 | 9.06 | % | 416,980 | 4.00 | % | 521,225 | 5.00 | % | |||||||||||||||
| As of December 31, 2019: | ||||||||||||||||||||||||
| CET 1 Capital to Risk-Weighted Assets: | ||||||||||||||||||||||||
| Consolidated | $ | 822,396 | 10.50 | % | $ | 342,283 | 4.50 | % | N/A | N/A | ||||||||||||||
| ServisFirst Bank | 885,172 | 11.30 | % | 342,269 | 4.50 | % | $ | 494,389 | 6.50 | % | ||||||||||||||
| Tier 1 Capital to Risk-Weighted Assets: | ||||||||||||||||||||||||
| Consolidated | 822,896 | 10.50 | % | 456,377 | 6.00 | % | N/A | N/A | ||||||||||||||||
| ServisFirst Bank | 885,674 | 11.31 | % | 456,359 | 6.00 | % | 608,479 | 8.00 | % | |||||||||||||||
| Total Capital to Risk-Weighted Assets: | ||||||||||||||||||||||||
| Consolidated | 964,683 | 12.31 | % | 608,502 | 8.00 | % | N/A | N/A | ||||||||||||||||
| ServisFirst Bank | 962,758 | 12.29 | % | 608,479 | 8.00 | % | 760,598 | 10.00 | % | |||||||||||||||
| Tier 1 Capital to Average Assets: | ||||||||||||||||||||||||
| Consolidated | 822,896 | 9.13 | % | 356,012 | 4.00 | % | N/A | N/A | ||||||||||||||||
| ServisFirst Bank | 885,674 | 9.83 | % | 355,998 | 4.00 | % | 444,997 | 5.00 | % | |||||||||||||||
| As of June 30, 2019: | ||||||||||||||||||||||||
| CET 1 Capital to Risk-Weighted Assets: | ||||||||||||||||||||||||
| Consolidated | $ | 759,998 | 10.18 | % | $ | 335,955 | 4.50 | % | N/A | N/A | ||||||||||||||
| ServisFirst Bank | 823,912 | 11.04 | % | 335,942 | 4.50 | % | $ | 485,249 | 6.50 | % | ||||||||||||||
| Tier 1 Capital to Risk-Weighted Assets: | ||||||||||||||||||||||||
| Consolidated | 760,500 | 10.19 | % | 447,940 | 6.00 | % | N/A | N/A | ||||||||||||||||
| ServisFirst Bank | 824,414 | 11.04 | % | 447,922 | 6.00 | % | 597,230 | 8.00 | % | |||||||||||||||
| Total Capital to Risk-Weighted Assets: | ||||||||||||||||||||||||
| Consolidated | 897,070 | 12.02 | % | 597,254 | 8.00 | % | N/A | N/A | ||||||||||||||||
| ServisFirst Bank | 896,300 | 12.01 | % | 597,230 | 8.00 | % | 746,537 | 10.00 | % | |||||||||||||||
| Tier 1 Capital to Average Assets: | ||||||||||||||||||||||||
| Consolidated | 760,500 | 9.00 | % | 338,030 | 4.00 | % | N/A | N/A | ||||||||||||||||
| ServisFirst Bank | 824,414 | 9.76 | % | 338,016 | 4.00 | % | 422,520 | 5.00 | % | |||||||||||||||
As part of our mortgage operations, we originate and sell certain loans to investors in the secondary market. We continue to experience a manageable level of investor repurchase demands. For loans sold, we have an obligation to either repurchase the outstanding principal balance of a loan or make the purchaser whole for the economic benefits of a loan if it is determined that the loans sold were in violation of representations and warranties made by the Bank at the time of the sale. Representations and warranties typically include those made regarding loans that had missing or insufficient file documentation or loans obtained through fraud by borrowers or other third parties such as appraisers. We had a reserve of $0.4 million$370,000 as of SeptemberJune 30, 20192020 and December 31, 20182019 for the settlement of any repurchase demands by investors.
September 30, 2019 | December 31, 2018 | |||||||
(In Thousands) | (In Thousands) | |||||||
Commitments to extend credit | $ | 2,222,363 | $ | 1,985,801 | ||||
Credit card arrangements | 235,340 | 173,613 | ||||||
Standby letters of credit | 54,799 | 40,590 | ||||||
| $ | 2,512,502 | $ | 2,200,004 | |||||
| June 30, 2020 | December 31, 2019 | |||||||
| (In Thousands) | (In Thousands) | |||||||
| Commitments to extend credit | $ | 2,505,241 | $ | 2,303,788 | ||||
| Credit card arrangements | 270,218 | 248,617 | ||||||
| Standby letters of credit | 65,585 | 48,394 | ||||||
| $ | 2,841,044 | $ | 2,600,799 | |||||
Net Interest Income and Net Interest Margin Analysis
2019.
| Average Balance Sheets and Net Interest Analysis | ||||||||||||||||||||||||
| On a Fully Taxable-Equivalent Basis | ||||||||||||||||||||||||
| For the Three Months Ended June 30, | ||||||||||||||||||||||||
| (In thousands, except Average Yields and Rates) | ||||||||||||||||||||||||
| 2020 | 2019 | |||||||||||||||||||||||
| Interest | Average | Interest | Average | |||||||||||||||||||||
| Average | Earned / | Yield / | Average | Earned / | Yield / | |||||||||||||||||||
| Balance | Paid | Rate | Balance | Paid | Rate | |||||||||||||||||||
| Assets: | ||||||||||||||||||||||||
| Interest-earning assets: | ||||||||||||||||||||||||
| Loans, net of unearned income (1)(2) | ||||||||||||||||||||||||
| Taxable | $ | 8,301,775 | $ | 89,042 | 4.31 | % | $ | 6,756,927 | $ | 88,280 | 5.24 | % | ||||||||||||
| Tax-exempt (3) | 31,929 | 327 | 4.12 | 32,124 | 307 | 3.83 | ||||||||||||||||||
| Total loans, net of unearned income | 8,333,704 | 89,369 | 4.31 | 6,789,051 | 88,587 | 5.23 | ||||||||||||||||||
| Mortgage loans held for sale | 13,278 | 69 | 2.09 | 5,208 | 50 | 3.85 | ||||||||||||||||||
| Investment securities: | ||||||||||||||||||||||||
| Taxable | 761,575 | 5,092 | 2.67 | 565,491 | 4,192 | 2.97 | ||||||||||||||||||
| Tax-exempt (3) | 38,201 | 250 | 2.62 | 77,364 | 406 | 2.10 | ||||||||||||||||||
| Total investment securities (4) | 799,776 | 5,342 | 2.67 | 642,855 | 4,598 | 2.86 | ||||||||||||||||||
| Federal funds sold | 83,274 | 33 | 0.16 | 323,714 | 1,998 | 2.48 | ||||||||||||||||||
| Interest-bearing balances with banks | 849,549 | 360 | 0.17 | 411,481 | 2,593 | 2.53 | ||||||||||||||||||
| Total interest-earning assets | $ | 10,079,581 | $ | 95,173 | 3.80 | $ | 8,172,309 | $ | 97,826 | 4.80 | ||||||||||||||
| Non-interest-earning assets: | ||||||||||||||||||||||||
| Cash and due from banks | 76,212 | 76,988 | ||||||||||||||||||||||
| Net fixed assets and equipment | 57,446 | 58,607 | ||||||||||||||||||||||
| Allowance for loan losses, accrued interest and other assets | 248,702 | 156,264 | ||||||||||||||||||||||
| Total assets | $ | 10,461,941 | $ | 8,464,168 | ||||||||||||||||||||
| Liabilities and stockholders' equity: | ||||||||||||||||||||||||
| Interest-bearing liabilities: | ||||||||||||||||||||||||
| Interest-bearing demand deposits | $ | 992,848 | $ | 875 | 0.35 | % | $ | 909,847 | $ | 2,004 | 0.88 | % | ||||||||||||
| Savings deposits | 72,139 | 75 | 0.42 | 54,391 | 77 | 0.57 | ||||||||||||||||||
| Money market accounts | 4,285,907 | 5,555 | 0.52 | 3,932,459 | 18,418 | 1.88 | ||||||||||||||||||
| Time deposits | 877,448 | 4,251 | 1.95 | 694,414 | 3,741 | 2.16 | ||||||||||||||||||
| Total interest-bearing deposits | 6,228,342 | 10,756 | 0.69 | 5,591,111 | 24,240 | 1.74 | ||||||||||||||||||
| Federal funds purchased | 572,990 | 310 | 0.22 | 418,486 | 2,681 | 2.57 | ||||||||||||||||||
| Other borrowings | 64,711 | 781 | 4.85 | 64,680 | 781 | 4.84 | ||||||||||||||||||
| Total interest-bearing liabilities | $ | 6,866,043 | $ | 11,847 | 0.69 | % | $ | 6,074,277 | $ | 27,702 | 1.83 | % | ||||||||||||
| Non-interest-bearing liabilities: | ||||||||||||||||||||||||
| Non-interest-bearing demand deposits | 2,646,030 | 1,591,722 | ||||||||||||||||||||||
| Other liabilities | 69,061 | 35,161 | ||||||||||||||||||||||
| Stockholders' equity | 862,500 | 763,742 | ||||||||||||||||||||||
| Accumulated other comprehensive loss | 18,307 | (734 | ) | |||||||||||||||||||||
| Total liabilities and stockholders' equity | $ | 10,461,941 | $ | 8,464,168 | ||||||||||||||||||||
| Net interest income | $ | 83,326 | $ | 70,124 | ||||||||||||||||||||
| Net interest spread | 3.11 | % | 2.97 | % | ||||||||||||||||||||
| Net interest margin | 3.32 | % | 3.44 | % | ||||||||||||||||||||
Average Balance Sheets and Net Interest Analysis | ||||||||||||||||||||||||
On a Fully Taxable-Equivalent Basis | ||||||||||||||||||||||||
For the Three Months Ended September 30, | ||||||||||||||||||||||||
(In thousands, except Average Yields and Rates) | ||||||||||||||||||||||||
2019 | 2018 | |||||||||||||||||||||||
Interest | Average | Interest | Average | |||||||||||||||||||||
Average | Earned / | Yield / | Average | Earned / | Yield / | |||||||||||||||||||
Balance | Paid | Rate | Balance | Paid | Rate | |||||||||||||||||||
Assets: | ||||||||||||||||||||||||
Interest-earning assets: | ||||||||||||||||||||||||
Loans, net of unearned income (1)(2) | ||||||||||||||||||||||||
Taxable | $ | 6,927,075 | $ | 90,426 | 5.18 | % | $ | 6,203,372 | $ | 78,702 | 5.03 | % | ||||||||||||
Tax-exempt (3) | 34,195 | 343 | 3.98 | 30,005 | 298 | 3.94 | ||||||||||||||||||
Total loans, net of unearned income | 6,961,270 | 90,769 | 5.17 | 6,233,377 | 79,000 | 5.03 | ||||||||||||||||||
Mortgage loans held for sale | 6,482 | 40 | 2.45 | 3,538 | 37 | 4.15 | ||||||||||||||||||
Investment securities: | ||||||||||||||||||||||||
Taxable | 595,405 | 4,367 | 2.93 | 482,571 | 3,276 | �� | 2.72 | |||||||||||||||||
Tax-exempt (3) | 59,992 | 332 | 2.21 | 105,592 | 646 | 2.45 | ||||||||||||||||||
Total investment securities (4) | 655,397 | 4,699 | 2.87 | 588,163 | 3,922 | 2.67 | ||||||||||||||||||
Federal funds sold | 312,968 | 1,768 | 2.24 | 163,453 | 892 | 2.17 | ||||||||||||||||||
Interest-bearing balances with banks | 690,973 | 3,912 | 2.25 | 61,867 | 316 | 2.03 | ||||||||||||||||||
Total interest-earning assets | $ | 8,627,090 | $ | 101,188 | 4.65 | $ | 7,050,398 | $ | 84,167 | 4.74 | ||||||||||||||
Non-interest-earning assets: | ||||||||||||||||||||||||
Cash and due from banks | 71,418 | 76,800 | ||||||||||||||||||||||
Net fixed assets and equipment | 58,243 | 58,873 | ||||||||||||||||||||||
Allowance for loan losses, accrued interest and other assets | 162,654 | 128,843 | ||||||||||||||||||||||
Total assets | $ | 8,919,405 | $ | 7,314,914 | ||||||||||||||||||||
Liabilities and stockholders' equity: | ||||||||||||||||||||||||
Interest-bearing liabilities: | ||||||||||||||||||||||||
Interest-bearing demand deposits | $ | 900,754 | $ | 1,904 | 0.84 | % | $ | 819,807 | $ | 1,378 | 0.67 | % | ||||||||||||
Savings deposits | 57,431 | 87 | 0.60 | 53,835 | 70 | 0.52 | ||||||||||||||||||
Money market accounts | 4,265,435 | 18,900 | 1.76 | 3,305,293 | 11,087 | 1.33 | ||||||||||||||||||
Time deposits | 703,278 | 3,897 | 2.20 | 643,260 | 2,675 | 1.65 | ||||||||||||||||||
Total interest-bearing deposits | 5,926,898 | 24,788 | 1.66 | 4,822,195 | 15,210 | 1.25 | ||||||||||||||||||
Federal funds purchased | 441,526 | 2,557 | 2.30 | 229,016 | 1,204 | 2.09 | ||||||||||||||||||
Other borrowings | 64,689 | 781 | 4.79 | 64,652 | 781 | 4.79 | ||||||||||||||||||
Total interest-bearing liabilities | $ | 6,433,113 | $ | 28,126 | 1.73 | % | $ | 5,115,863 | $ | 17,195 | 1.33 | % | ||||||||||||
Non-interest-bearing liabilities: | ||||||||||||||||||||||||
Non-interest-bearing demand deposits | 1,654,928 | 1,511,410 | ||||||||||||||||||||||
Other liabilities | 34,070 | 16,333 | ||||||||||||||||||||||
Stockholders' equity | 792,284 | 678,839 | ||||||||||||||||||||||
Accumulated other comprehensive loss | 5,010 | (7,531 | ) | |||||||||||||||||||||
Total liabilities and stockholders' equity | $ | 8,919,405 | $ | 7,314,914 | ||||||||||||||||||||
Net interest income | $ | 73,062 | $ | 66,972 | ||||||||||||||||||||
Net interest spread | 2.92 | % | 3.41 | % | ||||||||||||||||||||
Net interest margin | 3.36 | % | 3.77 | % | ||||||||||||||||||||
| (1) | |
| Non-accrual loans are included in average loan balances in all periods. Loan fees of |
(2) | Net accretion on acquired loan discounts of |
(3) | Interest income and yields are presented on a fully taxable equivalent basis using a tax rate of 21%. |
(4) | Unrealized gains (losses) of |
For the Three Months Ended September 30, | ||||||||||||
2019 Compared to 2018 Increase (Decrease) in Interest Income and Expense Due to Changes in: | ||||||||||||
Volume | Rate | Total | ||||||||||
(In Thousands) | ||||||||||||
Interest-earning assets: | ||||||||||||
Loans, net of unearned income | ||||||||||||
Taxable | $ | 9,394 | $ | 2,330 | $ | 11,724 | ||||||
Tax-exempt | 42 | 3 | 45 | |||||||||
Total loans, net of unearned income | 9,436 | 2,333 | 11,769 | |||||||||
Mortgages held for sale | 22 | (19 | ) | 3 | ||||||||
Debt securities: | ||||||||||||
Taxable | 812 | 279 | 1,091 | |||||||||
Tax-exempt | (257 | ) | (57 | ) | (314 | ) | ||||||
Total debt securities | 555 | 222 | 777 | |||||||||
Federal funds sold | 844 | 32 | 876 | |||||||||
Interest-bearing balances with banks | 3,558 | 38 | 3,596 | |||||||||
Total interest-earning assets | 14,415 | 2,606 | 17,021 | |||||||||
Interest-bearing liabilities: | ||||||||||||
Interest-bearing demand deposits | 146 | 380 | 526 | |||||||||
Savings | 5 | 12 | 17 | |||||||||
Money market accounts | 3,712 | 4,101 | 7,813 | |||||||||
Time deposits | 268 | 954 | 1,222 | |||||||||
Total interest-bearing deposits | 4,131 | 5,447 | 9,578 | |||||||||
Federal funds purchased | 1,220 | 133 | 1,353 | |||||||||
Other borrowed funds | - | - | - | |||||||||
Total interest-bearing liabilities | 5,351 | 5,580 | 10,931 | |||||||||
Increase in net interest income | $ | 9,064 | $ | (2,974 | ) | $ | 6,090 | |||||
Increases
| For the Three Months Ended June 30, | ||||||||||||
| 2020 Compared to 2019 Increase (Decrease) in Interest Income and Expense Due to Changes in: | ||||||||||||
| Volume | Rate | Total | ||||||||||
| (In Thousands) | ||||||||||||
| Interest-earning assets: | ||||||||||||
| Loans, net of unearned income | ||||||||||||
| Taxable | $ | 17,985 | $ | (17,223 | ) | $ | 762 | |||||
| Tax-exempt | (2 | ) | 22 | 20 | ||||||||
| Total loans, net of unearned income | 17,983 | (17,201 | ) | 782 | ||||||||
| Mortgages held for sale | 50 | (31 | ) | 19 | ||||||||
| Debt securities: | ||||||||||||
| Taxable | 1,332 | (432 | ) | 900 | ||||||||
| Tax-exempt | (240 | ) | 84 | (156 | ) | |||||||
| Total debt securities | 1,092 | (348 | ) | 744 | ||||||||
| Federal funds sold | (870 | ) | (1,095 | ) | (1,965 | ) | ||||||
| Interest-bearing balances with banks | 1,381 | (3,614 | ) | (2,233 | ) | |||||||
| Total interest-earning assets | 19,636 | (22,289 | ) | (2,653 | ) | |||||||
| Interest-bearing liabilities: | ||||||||||||
| Interest-bearing demand deposits | 167 | (1,296 | ) | (1,129 | ) | |||||||
| Savings | 21 | (23 | ) | (2 | ) | |||||||
| Money market accounts | 1,513 | (14,376 | ) | (12,863 | ) | |||||||
| Time deposits | 906 | (396 | ) | 510 | ||||||||
| Total interest-bearing deposits | 2,607 | (16,091 | ) | (13,484 | ) | |||||||
| Federal funds purchased | 725 | (3,096 | ) | (2,371 | ) | |||||||
| Other borrowed funds | - | - | - | |||||||||
| Total interest-bearing liabilities | 3,332 | (19,187 | ) | (15,855 | ) | |||||||
| Increase in net interest income | $ | 16,304 | $ | (3,102 | ) | $ | 13,202 | |||||
Average Balance Sheets and Net Interest Analysis | ||||||||||||||||||||||||
On a Fully Taxable-Equivalent Basis | ||||||||||||||||||||||||
For the Nine Months Ended September 30, | ||||||||||||||||||||||||
(In thousands, except Average Yields and Rates) | ||||||||||||||||||||||||
2019 | 2018 | |||||||||||||||||||||||
Interest | Interest | |||||||||||||||||||||||
Average | Earned / | Average | Average | Earned / | Average | |||||||||||||||||||
Balance | Paid | Yield / Rate | Balance | Paid | Yield / Rate | |||||||||||||||||||
Assets: | ||||||||||||||||||||||||
Interest-earning assets: | ||||||||||||||||||||||||
Loans, net of unearned income (1)(2) | ||||||||||||||||||||||||
Taxable | $ | 6,752,945 | $ | 263,942 | 5.23 | % | $ | 6,004,367 | $ | 221,350 | 4.93 | % | ||||||||||||
Tax-exempt (3) | 32,312 | 934 | 3.85 | 32,180 | 960 | 3.98 | ||||||||||||||||||
Total loans, net of unearned income | 6,785,257 | 264,876 | 5.22 | 6,036,547 | 222,310 | 4.92 | ||||||||||||||||||
Mortgage loans held for sale | 4,452 | 116 | 3.48 | 3,668 | 118 | 4.30 | ||||||||||||||||||
Investment securities: | ||||||||||||||||||||||||
Taxable | 560,230 | 12,306 | 2.93 | 464,870 | 9,146 | 2.62 | ||||||||||||||||||
Tax-exempt (3) | 74,864 | 1,201 | 2.14 | 112,615 | 2,148 | 2.54 | ||||||||||||||||||
Total investment securities (4) | 635,094 | 13,507 | 2.84 | 577,485 | 11,294 | 2.61 | ||||||||||||||||||
Federal funds sold | 276,898 | 4,985 | 2.41 | 145,730 | 2,137 | 1.96 | ||||||||||||||||||
Interest-bearing balances with banks | 514,527 | 9,269 | 2.41 | 77,073 | 1,032 | 1.79 | ||||||||||||||||||
Total interest-earning assets | $ | 8,216,228 | $ | 292,753 | 4.76 | % | $ | 6,840,503 | $ | 236,891 | 4.63 | % | ||||||||||||
Non-interest-earning assets: | ||||||||||||||||||||||||
Cash and due from banks | 74,185 | 71,131 | ||||||||||||||||||||||
Net fixed assets and equipment | 58,565 | 59,278 | ||||||||||||||||||||||
Allowance for loan losses, accrued interest and other assets | 156,332 | 133,671 | ||||||||||||||||||||||
Total assets | $ | 8,505,310 | $ | 7,104,583 | ||||||||||||||||||||
Liabilities and stockholders' equity: | ||||||||||||||||||||||||
Interest-bearing liabilities: | ||||||||||||||||||||||||
Interest-bearing demand deposits | $ | 917,609 | $ | 5,911 | 0.86 | % | $ | 848,595 | $ | 3,668 | 0.58 | % | ||||||||||||
Savings deposits | 55,315 | 236 | 0.57 | 53,984 | 158 | 0.39 | ||||||||||||||||||
Money market accounts | 3,987,210 | 53,831 | 1.81 | 3,141,707 | 26,297 | 1.12 | ||||||||||||||||||
Time deposits | 698,905 | 11,194 | 2.14 | 605,765 | 6,422 | 1.42 | ||||||||||||||||||
Total interest-bearing deposits | 5,659,039 | 71,172 | 1.68 | 4,650,051 | 36,545 | 1.05 | ||||||||||||||||||
Federal funds purchased | 391,471 | 7,233 | 2.47 | 273,543 | 3,754 | 1.83 | ||||||||||||||||||
Other borrowings | 64,680 | 2,343 | 4.84 | 64,718 | 2,343 | 4.84 | ||||||||||||||||||
Total interest-bearing liabilities | $ | 6,115,190 | $ | 80,748 | 1.77 | % | $ | 4,988,312 | $ | 42,642 | 1.14 | % | ||||||||||||
Non-interest-bearing liabilities: | ||||||||||||||||||||||||
Non-interest-bearing demand deposits | 1,591,184 | 1,457,054 | ||||||||||||||||||||||
Other liabilities | 34,866 | 14,696 | ||||||||||||||||||||||
Stockholders' equity | 764,087 | 650,527 | ||||||||||||||||||||||
Accumulated other comprehensive (loss) | (17 | ) | (6,006 | ) | ||||||||||||||||||||
Total liabilities and stockholders' equity | $ | 8,505,310 | $ | 7,104,583 | ||||||||||||||||||||
Net interest income | $ | 212,005 | $ | 194,249 | ||||||||||||||||||||
Net interest spread | 3.00 | % | 3.49 | % | ||||||||||||||||||||
Net interest margin | 3.45 | % | 3.80 | % | ||||||||||||||||||||
| Average Balance Sheets and Net Interest Analysis | ||||||||||||||||||||||||
| On a Fully Taxable-Equivalent Basis | ||||||||||||||||||||||||
| For the Six Months Ended June 30, | ||||||||||||||||||||||||
| (In thousands, except Average Yields and Rates) | ||||||||||||||||||||||||
| 2020 | 2019 | |||||||||||||||||||||||
| Interest | Interest | |||||||||||||||||||||||
| Average | Earned / | Average | Average | Earned / | Average | |||||||||||||||||||
| Balance | Paid | Yield / Rate | Balance | Paid | Yield / Rate | |||||||||||||||||||
| Assets: | ||||||||||||||||||||||||
| Interest-earning assets: | ||||||||||||||||||||||||
| Loans, net of unearned income (1)(2) | ||||||||||||||||||||||||
| Taxable | $ | 7,815,184 | $ | 178,119 | 4.58 | % | $ | 6,664,437 | $ | 173,515 | 5.25 | % | ||||||||||||
| Tax-exempt (3) | 32,242 | 654 | 4.08 | 31,355 | 592 | 3.81 | ||||||||||||||||||
| Total loans, net of unearned income | 7,847,426 | 178,773 | 4.58 | 6,695,792 | 174,107 | 5.24 | ||||||||||||||||||
| Mortgage loans held for sale | 8,780 | 93 | 2.13 | 3,421 | 76 | 4.48 | ||||||||||||||||||
| Investment securities: | ||||||||||||||||||||||||
| Taxable | 755,994 | 10,246 | 2.73 | 542,351 | 7,939 | 2.95 | ||||||||||||||||||
| Tax-exempt (3) | 41,115 | 507 | 2.48 | 82,423 | 870 | 2.13 | ||||||||||||||||||
| Total investment securities (4) | 797,109 | 10,753 | 2.71 | 624,774 | 8,809 | 2.84 | ||||||||||||||||||
| Federal funds sold | 94,348 | 311 | 0.66 | 258,564 | 3,217 | 2.51 | ||||||||||||||||||
| Interest-bearing balances with banks | 659,374 | 2,078 | 0.63 | 424,841 | 5,357 | 2.54 | ||||||||||||||||||
| Total interest-earning assets | $ | 9,407,037 | $ | 192,008 | 4.10 | % | $ | 8,007,392 | $ | 191,566 | 4.82 | % | ||||||||||||
| Non-interest-earning assets: | ||||||||||||||||||||||||
| Cash and due from banks | 71,176 | 75,592 | ||||||||||||||||||||||
| Net fixed assets and equipment | 57,756 | 58,729 | ||||||||||||||||||||||
| Allowance for loan losses, accrued interest and other assets | 246,673 | 153,120 | ||||||||||||||||||||||
| Total assets | $ | 9,782,642 | $ | 8,294,833 | ||||||||||||||||||||
| Liabilities and stockholders' equity: | ||||||||||||||||||||||||
| Interest-bearing liabilities: | ||||||||||||||||||||||||
| Interest-bearing demand deposits | $ | 974,826 | $ | 2,220 | 0.46 | % | $ | 926,176 | $ | 4,007 | 0.87 | % | ||||||||||||
| Savings deposits | 69,759 | 159 | 0.46 | 54,239 | 149 | 0.55 | ||||||||||||||||||
| Money market accounts | 4,173,597 | 16,682 | 0.80 | 3,845,792 | 34,932 | 1.83 | ||||||||||||||||||
| Time deposits | 841,686 | 8,439 | 2.02 | 696,682 | 7,297 | 2.11 | ||||||||||||||||||
| Total interest-bearing deposits | 6,059,868 | 27,500 | 0.91 | 5,522,889 | 46,385 | 1.69 | ||||||||||||||||||
| Federal funds purchased | 532,814 | 1,910 | 0.72 | 366,029 | 4,676 | 2.58 | ||||||||||||||||||
| Other borrowings | 64,709 | 1,562 | 4.85 | 64,675 | 1,562 | 4.87 | ||||||||||||||||||
| Total interest-bearing liabilities | $ | 6,657,391 | $ | 30,972 | 0.94 | % | $ | 5,953,593 | $ | 52,623 | 1.78 | % | ||||||||||||
| Non-interest-bearing liabilities: | ||||||||||||||||||||||||
| Non-interest-bearing demand deposits | 2,197,850 | 1,558,783 | ||||||||||||||||||||||
| Other liabilities | 56,013 | 35,275 | ||||||||||||||||||||||
| Stockholders' equity | 858,150 | 749,754 | ||||||||||||||||||||||
| Accumulated other comprehensive (loss) | 13,238 | (2,572 | ) | |||||||||||||||||||||
| Total liabilities and stockholders' equity | $ | 9,782,642 | $ | 8,294,833 | ||||||||||||||||||||
| Net interest income | $ | 161,036 | $ | 138,943 | ||||||||||||||||||||
| Net interest spread | 3.16 | % | 3.04 | % | ||||||||||||||||||||
| Net interest margin | 3.44 | % | 3.50 | % | ||||||||||||||||||||
| (1) | |||||||||||||||||||||||||||||||||||||||||||
| Non-accrual loans are included in average loan balances in all periods. Loan fees of | ||||||||||||||||||||||||||||||||||||||||||
(2) | Accretion on acquired loan discounts of $91 | ||||||||||||||||||||||||||||||||||||||||||
(3) | Interest income and yields are presented on a fully taxable equivalent basis using a tax rate of 21%. | ||||||||||||||||||||||||||||||||||||||||||
(4) | Unrealized | ||||||||||||||||||||||||||||||||||||||||||
For the Nine Months Ended September 30, | ||||||||||||
2019 Compared to 2018 Increase (Decrease) in Interest Income and Expense Due to Changes in: | ||||||||||||
Volume | Rate | Total | ||||||||||
(In Thousands) | ||||||||||||
Interest-earning assets: | ||||||||||||
Loans, net of unearned income | ||||||||||||
Taxable | $ | 28,717 | $ | 13,875 | $ | 42,592 | ||||||
Tax-exempt | 4 | (30 | ) | (26 | ) | |||||||
Total loans, net of unearned income | 28,721 | 13,845 | 42,566 | |||||||||
Mortgages held for sale | 22 | (24 | ) | (2 | ) | |||||||
Debt securities: | ||||||||||||
Taxable | 2,016 | 1,144 | 3,160 | |||||||||
Tax-exempt | (643 | ) | (304 | ) | (947 | ) | ||||||
Total debt securities | 1,373 | 840 | 2,213 | |||||||||
Federal funds sold | 2,272 | 576 | 2,848 | |||||||||
Interest-bearing balances with banks | 7,765 | 472 | 8,237 | |||||||||
Total interest-earning assets | 40,153 | 15,709 | 55,862 | |||||||||
Interest-bearing liabilities: | ||||||||||||
Interest-bearing demand deposits | 319 | 1,924 | 2,243 | |||||||||
Savings | 4 | 74 | 78 | |||||||||
Money market accounts | 8,401 | 19,133 | 27,534 | |||||||||
Time deposits | 1,104 | 3,668 | 4,772 | |||||||||
Total interest-bearing deposits | 9,828 | 24,799 | 34,627 | |||||||||
Federal funds purchased | 1,929 | 1,550 | 3,479 | |||||||||
Other borrowed funds | (1 | ) | 1 | - | ||||||||
Total interest-bearing liabilities | 11,756 | 26,350 | 38,106 | |||||||||
Increase in net interest income | $ | 28,397 | $ | (10,641 | ) | $ | 17,756 | |||||
Increases
| For the Six Months Ended June 30, | ||||||||||||
| 2020 Compared to 2019 Increase (Decrease) in Interest Income and Expense Due to Changes in: | ||||||||||||
| Volume | Rate | Total | ||||||||||
| (In Thousands) | ||||||||||||
| Interest-earning assets: | ||||||||||||
| Loans, net of unearned income | ||||||||||||
| Taxable | $ | 28,123 | $ | (23,519 | ) | $ | 4,604 | |||||
| Tax-exempt | 18 | 44 | 62 | |||||||||
| Total loans, net of unearned income | 28,141 | (23,475 | ) | 4,666 | ||||||||
| Mortgages held for sale | 73 | (56 | ) | 17 | ||||||||
| Debt securities: | ||||||||||||
| Taxable | 2,954 | (647 | ) | 2,307 | ||||||||
| Tax-exempt | (490 | ) | 127 | (363 | ) | |||||||
| Total debt securities | 2,464 | (520 | ) | 1,944 | ||||||||
| Federal funds sold | (1,346 | ) | (1,560 | ) | (2,906 | ) | ||||||
| Interest-bearing balances with banks | 2,029 | (5,308 | ) | (3,279 | ) | |||||||
| Total interest-earning assets | 31,361 | (30,919 | ) | 442 | ||||||||
| Interest-bearing liabilities: | ||||||||||||
| Interest-bearing demand deposits | 202 | (1,989 | ) | (1,787 | ) | |||||||
| Savings | 39 | (29 | ) | 10 | ||||||||
| Money market accounts | 2,778 | (21,028 | ) | (18,250 | ) | |||||||
| Time deposits | 1,483 | (341 | ) | 1,142 | ||||||||
| Total interest-bearing deposits | 4,502 | (23,387 | ) | (18,885 | ) | |||||||
| Federal funds purchased | 1,546 | (4,312 | ) | (2,766 | ) | |||||||
| Other borrowed funds | 2 | (2 | ) | - | ||||||||
| Total interest-bearing liabilities | 6,050 | (27,701 | ) | (21,651 | ) | |||||||
| Increase in net interest income | $ | 25,311 | $ | (3,218 | ) | $ | 22,093 | |||||
2019.
Noninterest Expense
2019.
● | Salary and benefit expense increased |
● | Equipment and occupancy expense increased |
● |
|
| ● | Professional services expense decreased $100,000, or 8.4%, to $1.1 million for the three months ended June 30, 2020 compared to the same period in |
● |
|
|
|
● |
|
| ● | Other operating expenses decreased $100,000, or 2.4%, to $4.1 million for the three months ended June 30, 2020 compared to the same period in 2019, and decreased $822,000, or 9.6%, to $7.7 million for the six months ended June 30, 2020 compared to the same period in 2019. |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||||
2019 | 2018 | $ change | % change | 2019 | 2018 | $ change | % change | |||||||||||||||||||||||||
Non-interest income: | ||||||||||||||||||||||||||||||||
Service charges on deposit accounts | $ | 1,735 | $ | 1,595 | $ | 140 | 8.8 | % | $ | 5,223 | $ | 4,833 | $ | 390 | 8.1 | % | ||||||||||||||||
Mortgage banking | 1,333 | 789 | 544 | 68.9 | % | 2,995 | 2,096 | 899 | 42.9 | % | ||||||||||||||||||||||
Credit card income | 1,868 | 1,414 | 454 | 32.1 | % | 5,185 | 4,030 | 1,155 | 28.7 | % | ||||||||||||||||||||||
Securities gains | 34 | 186 | (152 | ) | NM | 28 | 190 | (162 | ) | NM | ||||||||||||||||||||||
Increase in cash surrender value life insurance | 787 | 787 | - | - | % | 2,327 | 2,350 | (23 | ) | (1.0 | %) | |||||||||||||||||||||
Other operating income | 453 | 294 | 159 | 54.1 | % | 1,172 | 922 | 250 | 27.1 | % | ||||||||||||||||||||||
Total non-interest income | $ | 6,210 | $ | 5,065 | $ | 1,145 | 22.6 | % | $ | 16,930 | $ | 14,421 | $ | 2,509 | 17.4 | % | ||||||||||||||||
Non-interest expense: | ||||||||||||||||||||||||||||||||
Salaries and employee benefits | $ | 15,499 | $ | 13,070 | $ | 2,429 | 18.6 | % | $ | 44,103 | $ | 39,464 | $ | 4,639 | 11.8 | % | ||||||||||||||||
Equipment and occupancy expense | 2,387 | 2,193 | 194 | 8.8 | % | 6,933 | 6,260 | 673 | 10.8 | % | ||||||||||||||||||||||
Professional services | 887 | 853 | 34 | 4.0 | % | 3,072 | 2,582 | 490 | 19.0 | % | ||||||||||||||||||||||
FDIC and other regulatory assessments | (296 | ) | 675 | (971 | ) | (143.9 | %) | 1,804 | 2,967 | (1,163 | ) | (39.2 | %) | |||||||||||||||||||
OREO expense | 78 | 289 | (211 | ) | (73.0 | %) | 312 | 765 | (453 | ) | (59.2 | %) | ||||||||||||||||||||
Other operating expense | 6,606 | 5,544 | 1,062 | 19.2 | % | 20,285 | 17,136 | 3,149 | 18.4 | % | ||||||||||||||||||||||
Total non-interest expense | $ | 25,161 | $ | 22,624 | $ | 2,537 | 11.2 | % | $ | 76,509 | $ | 69,174 | $ | 7,335 | 10.6 | % | ||||||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||||
| 2020 | 2019 | $ change | % change | 2020 | 2019 | $ change | % change | |||||||||||||||||||||||||
| Non-interest income: | ||||||||||||||||||||||||||||||||
| Service charges on deposit accounts | $ | 1,823 | $ | 1,786 | $ | 37 | 2.1 | % | $ | 3,739 | $ | 3,488 | $ | 251 | 7.2 | % | ||||||||||||||||
| Mortgage banking | 2,107 | 1,087 | 1,020 | 93.8 | % | 3,178 | 1,662 | 1,516 | 91.2 | % | ||||||||||||||||||||||
| Credit card income | 1,398 | 1,741 | (343 | ) | (19.7 | %) | 3,163 | 3,317 | (154 | ) | (4.6 | %) | ||||||||||||||||||||
| Securities gains | - | (6 | ) | 6 | (100.0 | %) | - | (6 | ) | 6 | (100.0 | %) | ||||||||||||||||||||
| Increase in cash surrender value life insurance | 1,464 | 778 | 686 | 88.2 | % | 2,917 | 1,540 | 1,377 | 89.4 | % | ||||||||||||||||||||||
| Other operating income | 241 | 392 | (151 | ) | (38.5 | %) | 710 | 721 | (11 | ) | (1.5 | %) | ||||||||||||||||||||
| Total non-interest income | $ | 7,033 | $ | 5,778 | $ | 1,255 | 21.7 | % | $ | 13,707 | $ | 10,722 | $ | 2,985 | 27.8 | % | ||||||||||||||||
| Non-interest expense: | ||||||||||||||||||||||||||||||||
| Salaries and employee benefits | $ | 15,792 | $ | 14,339 | $ | 1,453 | 10.1 | % | $ | 31,450 | $ | 28,604 | $ | 2,846 | 9.9 | % | ||||||||||||||||
| Equipment and occupancy expense | 2,434 | 2,287 | 147 | 6.4 | % | 4,834 | 4,546 | 288 | 6.3 | % | ||||||||||||||||||||||
| Third party processing and other services | 3,513 | 2,724 | 789 | 29.0 | % | 6,858 | 5,135 | 1,723 | 33.6 | % | ||||||||||||||||||||||
| Professional services | 1,091 | 1,191 | (100 | ) | (8.4 | %) | 2,039 | 2,185 | (146 | ) | (6.7 | %) | ||||||||||||||||||||
| FDIC and other regulatory assessments | 595 | 1,081 | (486 | ) | (45.0 | %) | 1,927 | 2,100 | (173 | ) | (8.2 | %) | ||||||||||||||||||||
| OREO expense | 1,303 | 212 | 1,091 | 514.6 | % | 1,904 | 234 | 1,670 | 713.7 | % | ||||||||||||||||||||||
| Other operating expense | 4,088 | 4,188 | (100 | ) | (2.4 | %) | 7,724 | 8,546 | (822 | ) | (9.6 | %) | ||||||||||||||||||||
| Total non-interest expense | $ | 28,816 | $ | 26,022 | $ | 2,794 | 10.7 | % | $ | 56,736 | $ | 51,350 | $ | 5,386 | 10.5 | % | ||||||||||||||||
Like all financial institutions, we are subject to market risk from changes in interest rates. Interest rate risk is inherent in the balance sheet due to the mismatch between the maturities of rate-sensitive assets and rate-sensitive liabilities. If rates are rising, and the level of rate-sensitive liabilities exceeds the level of rate-sensitive assets, the net interest margin will be negatively impacted. Conversely, if rates are falling, and the level of rate-sensitive liabilities is greater than the level of rate-sensitive assets, the impact on the net interest margin will be favorable. Managing interest rate risk is further complicated by the fact that all rates do not change at the same pace; in other words, short-term rates may be rising while longer-term rates remain stable. In addition, different types of rate-sensitive assets and rate-sensitive liabilities react differently to changes in rates.
To manage interest rate risk, we must take a position on the expected future trend of interest rates. Rates may rise, fall or remain the same. Our asset-liability committee develops its view of future rate trends and strives to manage rate risk within a targeted range by monitoring economic indicators, examining the views of economists and other experts, and understanding the current status of our balance sheet. Our annual budget reflects the anticipated rate environment for the next 12 months. The asset-liability committee conducts a quarterly analysis of the rate sensitivity position and reports its results to our board of directors.
The asset-liability committee thoroughly analyzes the maturities of rate-sensitive assets and liabilities. This analysis measures the “gap”, which is defined as the difference between the dollar amount of rate-sensitive assets repricing during a period and the volume of rate-sensitive liabilities repricing during the same period. The gap is also expressed as the ratio of rate-sensitive assets divided by rate-sensitive liabilities. If the ratio is greater than one, the dollar value of assets exceeds the dollar value of liabilities; the balance sheet is “asset-sensitive.” Conversely, if the value of liabilities exceeds the value of assets, the ratio is less than one and the balance sheet is “liability-sensitive.” Our internal policy requires management to maintain the gap such that net interest margins will not change more than 5% if interest rates change 100 basis points or more than 10% if interest rates change 200 basis points. These policy limits were dropped from 10% and 15%, respectively, in early 2019 primarily in response to the Bank’s lower net interest margin. There have been no material changes to our sensitivity to changes in interest rates since December 31, 2018, as disclosed in our Annual Report on Form 10-K.
ITEM 4. CONTROLS AND PROCEDURES
CEO and CFO Certification.
Appearing as exhibits to this report are Certifications of our Chief Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”). The Certifications are required to be made by Rule 13a-14 or Rule 15d-14 under the Securities Exchange Act of 1934. This item contains the information about the evaluation that is referred to in the Certifications, and the information set forth below in this Item 4 should be read in conjunction with the Certifications for a more complete understanding of the Certifications.
Evaluation of Disclosure Controls and Procedures.
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.
We conducted an evaluation (the "Evaluation") of the effectiveness of the design and operation of our disclosure controls and procedures under the supervision and with the participation of our management, including our CEO and CFO, as of September 30, 2019. Based upon the Evaluation, our CEO and CFO have concluded that, as of September 30, 2019, our disclosure controls and procedures are effective to ensure that material information relating to the Company and its subsidiaries is made known to management, including the CEO and CFO, particularly during the period when our periodic reports are being prepared.
Changes in Internal Control Over Financial Reporting
There have not been any changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
From time to time we may be a party to various legal proceedings arising in the ordinary course of business. Management does not believe the Company or the Bank is currently a party to any material legal proceedings.
Our business is influenced by many factors that are difficult to predict, involve uncertainties that may materially affect actual results and are often beyond our control. We have identified a number of these risk factors in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018, which should be taken into consideration when reviewing the information contained in this report. There have been no material changes with regard to the risk factors previously disclosed in the Form 10-K. For other factors that may cause actual results to differ materially from those indicated in any forward-looking statement or projection contained in this report, see “Forward-Looking Statements” under Part 1, Item 2 above.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
None.
| Exhibit: | Description | |||
| Certification of principal executive officer pursuant to Rule 13a-14(a). | ||||
| Certification of principal financial officer pursuant to Rule 13a-14(a). | ||||
| document) | ||||
SERVISFIRST BANCSHARES, INC. | ||||
| Date: | August 31, 2020 | By | /s/ Thomas A. Broughton III | |
| Thomas A. Broughton III | ||||
| President and Chief Executive Officer | ||||
| Date: | August 31, 2020 | By | /s/ William M. Foshee | |
| William M. Foshee | ||||
| Chief Financial Officer | ||||
43