WASHINGTON,
FORM 10-Q
Commission File Number 0-15572
North Carolina56-1421916North Carolina 56-1421916 (State or Other Jurisdiction of (I.R.S. EmployerIncorporation or Organization) (I.R.S. Employer Identification Number) 300 SW Broad St., Southern Pines , North Carolina 28387 (Address of Principal Executive Offices) (Zip Code) (Registrant's telephone number, including area code) (910) 246-2500 Title of each class Trading Symbol Name of each exchange on which registered: Common Stock, No Par Value FBNC The Nasdaq Global Select Market xYESoNO☒ Yes ☐ Noand posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).xYESoNO☒ Yes ☐ Noor a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one)oLarge Accelerated Filer xAccelerated Filer oNon-Accelerated Filer oSmaller Reporting CompanyIndicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter.oEmerging growth companyLarge Accelerated Filer ☒ Accelerated Filer ☐ Non-Accelerated Filer ☐ Smaller Reporting Company ☐ Emerging Growth Company ☐ o☐oYESxNO☐ Yes ☒ NoOctoberJuly 31, 20172023 was 29,643,990.41,083,178.PagePage 894057595959Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds60606220162022 Annual Report on Form 10-K.10-K and Item 1A of Part II of this report.
($ in thousands-unaudited) | September 30, 2017 | December 31, 2016 (audited) | September 30, 2016 | |||||||||
ASSETS | ||||||||||||
Cash and due from banks, noninterest-bearing | $ | 82,758 | 71,645 | 64,145 | ||||||||
Due from banks, interest-bearing | 326,089 | 234,348 | 217,188 | |||||||||
Total cash and cash equivalents | 408,847 | 305,993 | 281,333 | |||||||||
Securities available for sale | 198,924 | 199,329 | 199,156 | |||||||||
Securities held to maturity (fair values of $124,878, $130,195, and $139,514) | 123,156 | 129,713 | 135,808 | |||||||||
Presold mortgages in process of settlement | 17,426 | 2,116 | 4,094 | |||||||||
Loans | 3,429,755 | 2,710,712 | 2,651,459 | |||||||||
Allowance for loan losses | (24,593 | ) | (23,781 | ) | (24,575 | ) | ||||||
Net loans | 3,405,162 | 2,686,931 | 2,626,884 | |||||||||
Premises and equipment | 95,762 | 75,351 | 76,731 | |||||||||
Accrued interest receivable | 11,445 | 9,286 | 8,785 | |||||||||
Goodwill | 144,667 | 75,042 | 75,392 | |||||||||
Other intangible assets | 15,634 | 4,433 | 4,603 | |||||||||
Foreclosed real estate | 9,356 | 9,532 | 10,103 | |||||||||
Bank-owned life insurance | 88,081 | 74,138 | 73,613 | |||||||||
Other assets | 72,687 | 42,998 | 40,978 | |||||||||
Total assets | $ | 4,591,147 | 3,614,862 | 3,537,480 | ||||||||
LIABILITIES | ||||||||||||
Deposits: Noninterest bearing checking accounts | $ | 1,016,947 | 756,003 | 749,256 | ||||||||
Interest bearing checking accounts | 683,113 | 635,431 | 593,065 | |||||||||
Money market accounts | 795,572 | 685,331 | 659,741 | |||||||||
Savings accounts | 396,192 | 209,074 | 207,494 | |||||||||
Time deposits of $100,000 or more | 517,770 | 422,687 | 451,622 | |||||||||
Other time deposits | 241,647 | 238,827 | 249,662 | |||||||||
Total deposits | 3,651,241 | 2,947,353 | 2,910,840 | |||||||||
Borrowings | 397,525 | 271,394 | 236,394 | |||||||||
Accrued interest payable | 1,143 | 539 | 523 | |||||||||
Other liabilities | 28,737 | 27,475 | 24,775 | |||||||||
Total liabilities | 4,078,646 | 3,246,761 | 3,172,532 | |||||||||
Commitments and contingencies | ||||||||||||
SHAREHOLDERS’ EQUITY | ||||||||||||
Preferred stock, no par value per share. Authorized: 5,000,000 shares | ||||||||||||
Series C, convertible, issued & outstanding: none, none, and 728,706 shares | — | — | 7,287 | |||||||||
Common stock, no par value per share. Authorized: 40,000,000 shares | ||||||||||||
Issued & outstanding: 24,723,929, 20,844,505, and 20,119,411 shares | 263,493 | 147,287 | 139,979 | |||||||||
Retained earnings | 251,790 | 225,921 | 219,233 | |||||||||
Stock in rabbi trust assumed in acquisition | (3,571 | ) | — | — | ||||||||
Rabbi trust obligation | 3,571 | — | — | |||||||||
Accumulated other comprehensive income (loss) | (2,782 | ) | (5,107 | ) | (1,551 | ) | ||||||
Total shareholders’ equity | 512,501 | 368,101 | 364,948 | |||||||||
Total liabilities and shareholders’ equity | $ | 4,591,147 | 3,614,862 | 3,537,480 |
($ in thousands) | June 30, 2023 (unaudited) | December 31, 2022 | |||||||||
ASSETS | |||||||||||
Cash and due from banks, noninterest-bearing | $ | 101,215 | 101,133 | ||||||||
Due from banks, interest-bearing | 259,460 | 169,185 | |||||||||
Total cash and cash equivalents | 360,675 | 270,318 | |||||||||
Securities available for sale | 2,219,786 | 2,314,493 | |||||||||
Securities held to maturity (fair values of $441,881 and $432,528) | 537,821 | 541,700 | |||||||||
Presold mortgages in process of settlement at fair value | 4,953 | 1,282 | |||||||||
Loans | 7,897,629 | 6,665,145 | |||||||||
Allowance for credit losses on loans | (109,230) | (90,967) | |||||||||
Net loans | 7,788,399 | 6,574,178 | |||||||||
Premises and equipment | 152,443 | 134,187 | |||||||||
Operating right-of-use lease assets | 18,375 | 18,733 | |||||||||
Accrued interest receivable | 33,446 | 29,710 | |||||||||
Goodwill | 478,750 | 364,263 | |||||||||
Other intangible assets | 37,097 | 12,675 | |||||||||
Bank-owned life insurance | 181,659 | 164,592 | |||||||||
Other assets | 219,594 | 198,918 | |||||||||
Total assets | $ | 12,032,998 | 10,625,049 | ||||||||
LIABILITIES | |||||||||||
Deposits: Noninterest-bearing deposits | $ | 3,639,930 | 3,566,003 | ||||||||
Interest-bearing deposits | 6,528,639 | 5,661,526 | |||||||||
Total deposits | 10,168,569 | 9,227,529 | |||||||||
Borrowings | 481,658 | 287,507 | |||||||||
Accrued interest payable | 4,845 | 2,738 | |||||||||
Operating lease liabilities | 19,109 | 19,391 | |||||||||
Other liabilities | 61,175 | 56,288 | |||||||||
Total liabilities | 10,735,356 | 9,593,453 | |||||||||
Commitments and contingencies | |||||||||||
SHAREHOLDERS’ EQUITY | |||||||||||
Preferred stock, no par value per share. Authorized: 5,000,000 shares | |||||||||||
Issued & outstanding: none as of June 30, 2023 and December 31, 2022 | — | — | |||||||||
Common stock, no par value per share. Authorized: 60,000,000 shares | |||||||||||
Issued & outstanding: 41,082,678 shares and 35,704,154 shares as of June 30, 2023 and December 31, 2022, respectively | 960,851 | 725,153 | |||||||||
Retained earnings | 674,933 | 648,418 | |||||||||
Stock in rabbi trust assumed in acquisition | (1,365) | (1,585) | |||||||||
Rabbi trust obligation | 1,365 | 1,585 | |||||||||
Accumulated other comprehensive loss | (338,142) | (341,975) | |||||||||
Total shareholders’ equity | 1,297,642 | 1,031,596 | |||||||||
Total liabilities and shareholders’ equity | $ | 12,032,998 | 10,625,049 |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
($ in thousands, except share data - unaudited) | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||
INTEREST INCOME | |||||||||||||||||||||||
Interest and fees on loans | $ | 102,963 | 65,077 | 202,343 | 129,279 | ||||||||||||||||||
Interest on investment securities: | |||||||||||||||||||||||
Taxable interest income | 13,063 | 13,385 | 26,479 | 26,595 | |||||||||||||||||||
Tax-exempt interest income | 1,120 | 1,104 | 2,250 | 2,152 | |||||||||||||||||||
Other, principally overnight investments | 4,015 | 881 | 7,263 | 1,530 | |||||||||||||||||||
Total interest income | 121,161 | 80,447 | 238,335 | 159,556 | |||||||||||||||||||
INTEREST EXPENSE | |||||||||||||||||||||||
Interest on deposits | 27,328 | 1,585 | 46,246 | 3,356 | |||||||||||||||||||
Interest on borrowings | 6,848 | 592 | 12,618 | 1,052 | |||||||||||||||||||
Total interest expense | 34,176 | 2,177 | 58,864 | 4,408 | |||||||||||||||||||
Net interest income | 86,985 | 78,270 | 179,471 | 155,148 | |||||||||||||||||||
Provision for credit losses | 3,700 | — | 15,151 | 3,500 | |||||||||||||||||||
Reversal of provision for unfunded commitments | (1,339) | — | (288) | (1,500) | |||||||||||||||||||
Total provision for credit losses | 2,361 | — | 14,863 | 2,000 | |||||||||||||||||||
Net interest income after provision for credit losses | 84,624 | 78,270 | 164,608 | 153,148 | |||||||||||||||||||
NONINTEREST INCOME | |||||||||||||||||||||||
Service charges on deposit accounts | 4,114 | 3,700 | 8,008 | 7,241 | |||||||||||||||||||
Other service charges and fees | 5,650 | 7,882 | 11,570 | 14,887 | |||||||||||||||||||
Fees from presold mortgage loans | 557 | 454 | 963 | 1,575 | |||||||||||||||||||
Commissions from sales of financial products | 1,413 | 1,151 | 2,719 | 2,096 | |||||||||||||||||||
SBA consulting fees | 409 | 704 | 930 | 1,484 | |||||||||||||||||||
SBA loan sale gains | 696 | 841 | 951 | 4,102 | |||||||||||||||||||
Bank-owned life insurance income | 1,066 | 942 | 2,112 | 1,918 | |||||||||||||||||||
Other gains, net | 330 | 1,590 | 518 | 3,212 | |||||||||||||||||||
Total noninterest income | 14,235 | 17,264 | 27,771 | 36,515 | |||||||||||||||||||
NONINTEREST EXPENSE | |||||||||||||||||||||||
Salaries expense | 28,676 | 23,799 | 57,997 | 47,253 | |||||||||||||||||||
Employee benefits expense | 6,165 | 6,310 | 12,558 | 11,888 | |||||||||||||||||||
Total personnel expense | 34,841 | 30,109 | 70,555 | 59,141 | |||||||||||||||||||
Occupancy expense | 3,547 | 3,122 | 7,235 | 6,506 | |||||||||||||||||||
Equipment related expenses | 1,425 | 1,514 | 2,804 | 2,818 | |||||||||||||||||||
Merger and acquisition expenses | 1,334 | 737 | 13,516 | 4,221 | |||||||||||||||||||
Intangibles amortization expense | 2,049 | 953 | 4,194 | 1,970 | |||||||||||||||||||
Other operating expenses | 18,397 | 12,963 | 37,464 | 26,207 | |||||||||||||||||||
Total noninterest expenses | 61,593 | 49,398 | 135,768 | 100,863 | |||||||||||||||||||
Income before income taxes | 37,266 | 46,136 | 56,611 | 88,800 | |||||||||||||||||||
Income tax expense | 7,863 | 9,551 | 12,047 | 18,246 | |||||||||||||||||||
Net income | $ | 29,403 | 36,585 | 44,564 | 70,554 | ||||||||||||||||||
Earnings per common share: | |||||||||||||||||||||||
Basic | $ | 0.72 | 1.03 | 1.09 | 1.98 | ||||||||||||||||||
Diluted | 0.71 | 1.03 | 1.08 | 1.98 | |||||||||||||||||||
Dividends declared per common share | $ | 0.22 | 0.22 | 0.44 | 0.44 | ||||||||||||||||||
Weighted average common shares outstanding: | |||||||||||||||||||||||
Basic | 40,721,840 | 35,474,664 | 40,665,172 | 35,476,902 | |||||||||||||||||||
Diluted | 41,129,100 | 35,642,471 | 41,123,869 | 35,641,728 |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
($ in thousands - unaudited) | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||
Net income | $ | 29,403 | 36,585 | 44,564 | 70,554 | ||||||||||||||||||
Other comprehensive income (loss): | |||||||||||||||||||||||
Unrealized (losses) gains on securities available for sale: | |||||||||||||||||||||||
Unrealized (losses) gains arising during the period | (31,415) | (109,623) | 3,918 | (291,418) | |||||||||||||||||||
Tax benefit (expense) | 7,273 | 25,192 | (152) | 66,968 | |||||||||||||||||||
Postretirement Plans: | |||||||||||||||||||||||
Amortization of unrecognized net actuarial loss | 44 | 44 | 88 | 88 | |||||||||||||||||||
Tax benefit | (10) | (10) | (21) | (20) | |||||||||||||||||||
Other comprehensive (loss) income | (24,108) | (84,397) | 3,833 | (224,382) | |||||||||||||||||||
Comprehensive income (loss) | $ | 5,295 | (47,812) | 48,397 | (153,828) |
($ in thousands, except share data - unaudited) | Common Stock | Retained Earnings | Stock in Rabbi Trust Assumed in Acquisition | Rabbi Trust Obligation | Accumulated Other Comprehensive Loss | Total Shareholders’ Equity | |||||||||||||||||||||||||||||||||||
Shares | Amount | ||||||||||||||||||||||||||||||||||||||||
Three Months Ended June 30, 2022 | |||||||||||||||||||||||||||||||||||||||||
Balances, April 1, 2022 | 35,640 | $ | 723,441 | 559,004 | (1,814) | 1,814 | (164,955) | 1,117,490 | |||||||||||||||||||||||||||||||||
Net income | 36,585 | 36,585 | |||||||||||||||||||||||||||||||||||||||
Cash dividends declared ($0.22 per common share) | (7,850) | (7,850) | |||||||||||||||||||||||||||||||||||||||
Change in Rabbi Trust Obligation | 241 | (241) | — | ||||||||||||||||||||||||||||||||||||||
Stock withheld for payment of taxes | (14) | (486) | (486) | ||||||||||||||||||||||||||||||||||||||
Stock-based compensation | 58 | 1,001 | 1,001 | ||||||||||||||||||||||||||||||||||||||
Other comprehensive loss | (84,397) | (84,397) | |||||||||||||||||||||||||||||||||||||||
Balances, June 30, 2022 | 35,684 | $ | 723,956 | 587,739 | (1,573) | 1,573 | (249,352) | 1,062,343 | |||||||||||||||||||||||||||||||||
Three Months Ended June 30, 2023 | |||||||||||||||||||||||||||||||||||||||||
Balances, April 1, 2023 | 40,987 | $ | 959,422 | 654,573 | (1,608) | 1,608 | (314,034) | 1,299,961 | |||||||||||||||||||||||||||||||||
Net income | 29,403 | 29,403 | |||||||||||||||||||||||||||||||||||||||
Cash dividends declared ($0.22 per common share) | (9,043) | (9,043) | |||||||||||||||||||||||||||||||||||||||
Change in Rabbi Trust Obligation | 243 | (243) | — | ||||||||||||||||||||||||||||||||||||||
Stock options exercised | 23 | 488 | 488 | ||||||||||||||||||||||||||||||||||||||
Stock withheld for payment of taxes | (6) | (186) | (186) | ||||||||||||||||||||||||||||||||||||||
Stock-based compensation | 79 | 1,127 | 1,127 | ||||||||||||||||||||||||||||||||||||||
Other comprehensive income | (24,108) | (24,108) | |||||||||||||||||||||||||||||||||||||||
Balances, June 30, 2023 | 41,083 | $ | 960,851 | 674,933 | (1,365) | 1,365 | (338,142) | 1,297,642 |
($ in thousands, except share data - unaudited) | Common Stock | Retained Earnings | Stock in Rabbi Trust Assumed in Acquisition | Rabbi Trust Obligation | Accumulated Other Comprehensive Loss | Total Shareholders’ Equity | |||||||||||||||||||||||||||||||||||
Shares | Amount | ||||||||||||||||||||||||||||||||||||||||
Six Months Ended June 30, 2022 | |||||||||||||||||||||||||||||||||||||||||
Balances, January 1, 2022 | 35,629 | $ | 722,671 | 532,874 | (1,803) | 1,803 | (24,970) | 1,230,575 | |||||||||||||||||||||||||||||||||
Net income | 70,554 | 70,554 | |||||||||||||||||||||||||||||||||||||||
Cash dividends declared ($0.44 per common share) | (15,689) | (15,689) | |||||||||||||||||||||||||||||||||||||||
Change in Rabbi Trust Obligation | 230 | (230) | — | ||||||||||||||||||||||||||||||||||||||
Stock withheld for payment of taxes | (17) | (603) | (603) | ||||||||||||||||||||||||||||||||||||||
Stock-based compensation | 72 | 1,888 | 1,888 | ||||||||||||||||||||||||||||||||||||||
Other comprehensive loss | (224,382) | (224,382) | |||||||||||||||||||||||||||||||||||||||
Balances, June 30, 2022 | 35,684 | $ | 723,956 | 587,739 | (1,573) | 1,573 | (249,352) | 1,062,343 | |||||||||||||||||||||||||||||||||
Six Months Ended June 30, 2023 | |||||||||||||||||||||||||||||||||||||||||
Balances, January 1, 2023 | 35,704 | 725,153 | 648,418 | (1,585) | 1,585 | (341,975) | 1,031,596 | ||||||||||||||||||||||||||||||||||
Net income | 44,564 | 44,564 | |||||||||||||||||||||||||||||||||||||||
Cash dividends declared ($0.44 per common share) | (18,049) | (18,049) | |||||||||||||||||||||||||||||||||||||||
Change in Rabbi Trust Obligation | 220 | (220) | — | ||||||||||||||||||||||||||||||||||||||
Equity issued pursuant to acquisition | 5,033 | 229,489 | 229,489 | ||||||||||||||||||||||||||||||||||||||
Stock options exercised | 193 | 3,703 | 3,703 | ||||||||||||||||||||||||||||||||||||||
Stock withheld for payment of taxes | (6) | (186) | (186) | ||||||||||||||||||||||||||||||||||||||
Stock-based compensation | 159 | 2,692 | 2,692 | ||||||||||||||||||||||||||||||||||||||
Other comprehensive income (loss) | 3,833 | 3,833 | |||||||||||||||||||||||||||||||||||||||
Balances, June 30, 2023 | 41,083 | $ | 960,851 | 674,933 | (1,365) | 1,365 | (338,142) | 1,297,642 |
Six Months Ended June 30, | |||||||||||
($ in thousands-unaudited) | 2023 | 2022 | |||||||||
Cash Flows From Operating Activities | |||||||||||
Net income | $ | 44,564 | 70,554 | ||||||||
Reconciliation of net income to net cash provided by operating activities: | |||||||||||
Provision for credit losses and unfunded commitments, net | 14,863 | 2,000 | |||||||||
Net security premium amortization | 4,731 | 6,579 | |||||||||
(Decrease) increase in net deferred tax asset | (2,324) | 26,341 | |||||||||
Loan discount accretion | (7,151) | (3,216) | |||||||||
Other purchase accounting amortization and accretion, net | 2,317 | (276) | |||||||||
Foreclosed property net gains | (35) | (372) | |||||||||
Other gains, net | (561) | (3,212) | |||||||||
Bank-owned life insurance income | (2,112) | (1,918) | |||||||||
Decrease in net deferred loan fees | (590) | (901) | |||||||||
Depreciation of premises and equipment | 3,778 | 3,436 | |||||||||
Amortization of operating lease right-of-use assets | 1,090 | 1,012 | |||||||||
Repayments of lease obligations | (1,014) | (912) | |||||||||
Stock-based compensation expense | 2,245 | 1,548 | |||||||||
Amortization of intangible assets | 4,194 | 1,970 | |||||||||
Amortization and impairment of SBA servicing assets | 494 | 1,531 | |||||||||
Fees/gains from sale of presold mortgages and SBA loans | (1,914) | (5,677) | |||||||||
Origination of presold mortgage loans in process of settlement | (44,954) | (78,141) | |||||||||
Proceeds from sales of presold mortgage loans in process of settlement | 42,316 | 94,052 | |||||||||
Origination of SBA loans for sale | (19,163) | (52,701) | |||||||||
Proceeds from sales of SBA and other loans | 15,053 | 101,801 | |||||||||
Increase (decrease) in accrued interest receivable | 2,001 | (604) | |||||||||
Decrease (increase) in other assets | 4,048 | (24,857) | |||||||||
Increase in accrued interest payable | 1,725 | 41 | |||||||||
Increase (decrease) in other liabilities | 1,553 | (7,561) | |||||||||
Net cash provided by operating activities | 65,154 | 130,517 | |||||||||
Cash Flows From Investing Activities | |||||||||||
Purchases of securities available for sale | — | (354,765) | |||||||||
Purchases of securities held to maturity | — | (39,004) | |||||||||
Proceeds from maturities/issuer calls of securities available for sale | 96,686 | 156,874 | |||||||||
Proceeds from maturities/issuer calls of securities held to maturity | 1,587 | 4,102 | |||||||||
Proceeds from sales of securities available for sale | 111,862 | — | |||||||||
Purchases of Federal Reserve and FHLB stock, net | (15,285) | (7,838) | |||||||||
Proceeds from bank owned life insurance death benefits | 137 | 5,827 | |||||||||
Net increase in loans | (226,193) | (143,223) | |||||||||
Proceeds from sales of foreclosed properties | 192 | 2,904 | |||||||||
Purchases of premises and equipment | (1,854) | (2,702) | |||||||||
Proceeds from sales of premises and equipment | 45 | 359 | |||||||||
Net cash received in acquisition activities | 22,610 | — | |||||||||
Net cash used by investing activities | (10,213) | (377,466) | |||||||||
Cash Flows From Financing Activities | |||||||||||
Net (decrease) increase in deposits | (106,165) | 235,521 | |||||||||
Net increase in short-term borrowings | 154,973 | — | |||||||||
Payments on long-term borrowings | (42) | (67) | |||||||||
Cash dividends paid – common stock | (16,867) | (14,961) | |||||||||
Proceeds from stock option exercises | 3,703 | — | |||||||||
Payment of taxes related to stock withheld | (186) | (603) | |||||||||
Net cash provided by financing activities | 35,416 | 219,890 | |||||||||
Increase in cash and cash equivalents | 90,357 | (27,059) | |||||||||
Cash and cash equivalents, beginning of period | 270,318 | 461,162 | |||||||||
Cash and cash equivalents, end of period | $ | 360,675 | 434,103 |
Six Months Ended June 30, | |||||||||||
($ in thousands-unaudited) | 2023 | 2022 | |||||||||
Supplemental Disclosures of Cash Flow Information: | |||||||||||
Cash paid during the period for interest | $ | 54,694 | 4,644 | ||||||||
Cash paid during the period for income taxes | 12,917 | 15,719 | |||||||||
Non-cash: Unrealized gain (loss) on securities available for sale, net of taxes | 3,765 | (224,450) | |||||||||
Non-cash: Foreclosed loans transferred to other real estate | 576 | 119 | |||||||||
Non-cash: Accrued dividends at end of period | 9,038 | 7,853 | |||||||||
Acquisition of GrandSouth Bancorporation | See Note 2 | — |
Consolidated Statements of Income
($ in thousands, except share data-unaudited) | Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
INTEREST INCOME | ||||||||||||||||
Interest and fees on loans | $ | 41,549 | 29,919 | 114,908 | 90,301 | |||||||||||
Interest on investment securities: | ||||||||||||||||
Taxable interest income | 2,004 | 1,688 | 5,830 | 5,472 | ||||||||||||
Tax-exempt interest income | 399 | 435 | 1,269 | 1,312 | ||||||||||||
Other, principally overnight investments | 1,059 | 213 | 2,299 | 612 | ||||||||||||
Total interest income | 45,011 | 32,255 | 124,306 | 97,697 | ||||||||||||
INTEREST EXPENSE | ||||||||||||||||
Savings, checking and money market accounts | 685 | 401 | 1,892 | 1,204 | ||||||||||||
Time deposits of $100,000 or more | 1,053 | 657 | 2,641 | 1,931 | ||||||||||||
Other time deposits | 172 | 196 | 511 | 725 | ||||||||||||
Borrowings | 1,462 | 647 | 3,411 | 1,750 | ||||||||||||
Total interest expense | 3,372 | 1,901 | 8,455 | 5,610 | ||||||||||||
Net interest income | 41,639 | 30,354 | 115,851 | 92,087 | ||||||||||||
Provision (reversal) for loan losses | — | — | 723 | (23 | ) | |||||||||||
Net interest income after provision (reversal) for loan losses | 41,639 | 30,354 | 115,128 | 92,110 | ||||||||||||
NONINTEREST INCOME | ||||||||||||||||
Service charges on deposit accounts | 2,945 | 2,710 | 8,525 | 7,960 | ||||||||||||
Other service charges, commissions and fees | 3,468 | 2,996 | 10,195 | 8,869 | ||||||||||||
Fees from presold mortgage loans | 1,842 | 710 | 4,121 | 1,491 | ||||||||||||
Commissions from sales of insurance and financial products | 1,426 | 969 | 3,304 | 2,844 | ||||||||||||
SBA consulting fees | 864 | 1,178 | 3,174 | 1,898 | ||||||||||||
SBA loan sale gains | 1,692 | 694 | 3,241 | 694 | ||||||||||||
Bank-owned life insurance income | 579 | 514 | 1,667 | 1,526 | ||||||||||||
Foreclosed property gains (losses), net | (216 | ) | (266 | ) | (439 | ) | (189 | ) | ||||||||
FDIC indemnification asset income (expense), net | — | (5,711 | ) | — | (10,255 | ) | ||||||||||
Securities gains (losses), net | — | — | (235 | ) | 3 | |||||||||||
Other gains (losses), net | (238 | ) | 1,363 | 493 | 1,237 | |||||||||||
Total noninterest income | 12,362 | 5,157 | 34,046 | 16,078 | ||||||||||||
NONINTEREST EXPENSES | ||||||||||||||||
Salaries | 16,550 | 13,430 | 46,799 | 37,465 | ||||||||||||
Employee benefits expense | 3,375 | 2,608 | 10,709 | 7,892 | ||||||||||||
Total personnel expense | 19,925 | 16,038 | 57,508 | 45,357 | ||||||||||||
Net occupancy expense | 2,439 | 2,005 | 6,981 | 5,791 | ||||||||||||
Equipment related expenses | 1,070 | 904 | 3,277 | 2,693 | ||||||||||||
Merger and acquisition expenses | 1,329 | 600 | 4,824 | 1,286 | ||||||||||||
Intangibles amortization expense | 902 | 387 | 2,509 | 834 | ||||||||||||
Other operating expenses | 8,719 | 7,784 | 26,441 | 22,677 | ||||||||||||
Total noninterest expenses | 34,384 | 27,718 | 101,540 | 78,638 | ||||||||||||
Income before income taxes | 19,617 | 7,793 | 47,634 | 29,550 | ||||||||||||
Income tax expense | 6,531 | 3,115 | 15,839 | 10,396 | ||||||||||||
Net income | 13,086 | 4,678 | 31,795 | 19,154 | ||||||||||||
Preferred stock dividends | — | (58 | ) | — | (175 | ) | ||||||||||
Net income available to common shareholders | $ | 13,086 | 4,620 | 31,795 | 18,979 | |||||||||||
Earnings per common share: | ||||||||||||||||
Basic | $ | 0.53 | 0.23 | 1.34 | 0.95 | |||||||||||
Diluted | 0.53 | 0.23 | 1.33 | 0.93 | ||||||||||||
Dividends declared per common share | $ | 0.08 | 0.08 | 0.24 | 0.24 | |||||||||||
Weighted average common shares outstanding: | ||||||||||||||||
Basic | 24,607,516 | 20,007,518 | 23,728,262 | 19,904,226 | ||||||||||||
Diluted | 24,695,295 | 20,785,689 | 23,827,011 | 20,697,125 |
See accompanying notes to consolidated financial statements.
Page 5
First Bancorp and Subsidiaries
Consolidated Statements of Comprehensive Income
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
($ in thousands-unaudited) | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Net income | $ | 13,086 | 4,678 | 31,795 | 19,154 | |||||||||||
Other comprehensive income (loss): | ||||||||||||||||
Unrealized gains (losses) on securities available for sale: | ||||||||||||||||
Unrealized holding gains (losses) arising during the period, pretax | 186 | 241 | 3,288 | 3,131 | ||||||||||||
Tax (expense) benefit | (69 | ) | (94 | ) | (1,213 | ) | (1,223 | ) | ||||||||
Reclassification to realized (gains) losses | — | — | 235 | (3 | ) | |||||||||||
Tax expense (benefit) | — | — | (87 | ) | 1 | |||||||||||
Postretirement Plans: | ||||||||||||||||
Amortization of unrecognized net actuarial (gain) loss | 53 | 50 | 158 | 152 | ||||||||||||
Tax expense (benefit) | (20 | ) | (20 | ) | (56 | ) | (59 | ) | ||||||||
Other comprehensive income (loss) | 150 | 177 | 2,325 | 1,999 | ||||||||||||
Comprehensive income | $ | 13,236 | 4,855 | 34,120 | 21,153 | |||||||||||
See accompanying notes to consolidated financial statements.
Page 6
First Bancorp and Subsidiaries
Consolidated Statements of Shareholders’ Equity
(In thousands, except per share - unaudited) | Preferred | Common Stock | Retained | Stock in Directors’ | Directors’ Deferred Fees | Accumulated Other Compre- hensive Income | Total Share- holders’ | |||||||||||||||||||||||||
Stock | Shares | Amount | Earnings | Rabbi Trust | Obligation | (Loss) | Equity | |||||||||||||||||||||||||
Balances, January 1, 2016 | $ | 7,287 | 19,748 | $ | 133,393 | 205,060 | — | — | (3,550 | ) | 342,190 | |||||||||||||||||||||
Net income | 19,154 | 19,154 | ||||||||||||||||||||||||||||||
Cash dividends declared ($0.24 per common share) | (4,806 | ) | (4,806 | ) | ||||||||||||||||||||||||||||
Preferred stock dividends | (175 | ) | (175 | ) | ||||||||||||||||||||||||||||
Equity issued pursuant to acquisitions | 279 | 5,509 | 5,509 | |||||||||||||||||||||||||||||
Stock option exercises | 23 | 375 | 375 | |||||||||||||||||||||||||||||
Stock-based compensation | 69 | 702 | 702 | |||||||||||||||||||||||||||||
Other comprehensive income (loss) | 1,999 | 1,999 | ||||||||||||||||||||||||||||||
Balances, September 30, 2016 | $ | 7,287 | 20,119 | $ | 139,979 | 219,233 | — | — | (1,551 | ) | 364,948 | |||||||||||||||||||||
Balances, January 1, 2017 | $ | — | 20,845 | $ | 147,287 | 225,921 | — | — | (5,107 | ) | 368,101 | |||||||||||||||||||||
Net income | 31,795 | 31,795 | ||||||||||||||||||||||||||||||
Cash dividends declared ($0.24 per common share) | (5,926 | ) | (5,926 | ) | ||||||||||||||||||||||||||||
Equity issued pursuant to acquisitions | 3,813 | 114,893 | (7,688 | ) | 7,688 | 114,893 | ||||||||||||||||||||||||||
Payment of deferred fees | 4,117 | (4,117 | ) | — | ||||||||||||||||||||||||||||
Stock option exercises | 16 | 287 | 287 | |||||||||||||||||||||||||||||
Stock-based compensation | 50 | 1,026 | 1,026 | |||||||||||||||||||||||||||||
Other comprehensive income (loss) | 2,325 | 2,325 | ||||||||||||||||||||||||||||||
Balances, September 30, 2017 | $ | — | 24,724 | $ | 263,493 | 251,790 | (3,571 | ) | 3,571 | (2,782 | ) | 512,501 |
See accompanying notes to consolidated financial statements.
Page 7
First Bancorp and Subsidiaries
Consolidated Statements of Cash Flows
Nine Months Ended September 30, | ||||||||
($ in thousands-unaudited) | 2017 | 2016 | ||||||
Cash Flows From Operating Activities | ||||||||
Net income | $ | 31,795 | 19,154 | |||||
Reconciliation of net income to net cash provided (used) by operating activities: | ||||||||
Provision (reversal) for loan losses | 723 | (23 | ) | |||||
Net security premium amortization | 2,165 | 2,418 | ||||||
Loan discount accretion | (5,073 | ) | (3,553 | ) | ||||
Purchase accounting accretion and amortization, net | (142 | ) | 9,993 | |||||
Foreclosed property losses and write-downs (gains), net | 439 | 189 | ||||||
Loss (gain) on securities available for sale, net | 235 | (3 | ) | |||||
Other losses (gains), net | (493 | ) | 126 | |||||
Decrease (increase) in net deferred loan costs | 388 | 675 | ||||||
Depreciation of premises and equipment | 4,023 | 3,405 | ||||||
Stock-based compensation expense | 860 | 527 | ||||||
Amortization of intangible assets | 2,509 | 834 | ||||||
Fees/gains from sale of presold mortgage and SBA loans | (7,362 | ) | (2,185 | ) | ||||
Origination of presold mortgages in process of settlement | (169,021 | ) | (56,260 | ) | ||||
Proceeds from sales of presold mortgages in process of settlement | 165,341 | 58,015 | ||||||
Origination of SBA loans | (54,714 | ) | (8,471 | ) | ||||
Proceeds from sales of SBA loans | 44,259 | 9,165 | ||||||
Gain on sale of branches | — | (1,356 | ) | |||||
Decrease (increase) in accrued interest receivable | (642 | ) | 381 | |||||
Increase in other assets | (13,112 | ) | (1,530 | ) | ||||
Increase (decrease) in accrued interest payable | 340 | (20 | ) | |||||
Increase (decrease) in other liabilities | (12,377 | ) | 185 | |||||
Net cash provided (used) by operating activities | (9,859 | ) | 31,666 | |||||
Cash Flows From Investing Activities | ||||||||
Purchases of securities available for sale | (35,034 | ) | (99,896 | ) | ||||
Purchases of securities held to maturity | (291 | ) | — | |||||
Proceeds from maturities/issuer calls of securities available for sale | 29,156 | 68,206 | ||||||
Proceeds from maturities/issuer calls of securities held to maturity | 18,021 | 17,652 | ||||||
Proceeds from sales of securities available for sale | 45,601 | 8 | ||||||
Purchases of Federal Reserve and Federal Home Loan Bank stock, net | (10,372 | ) | (2,263 | ) | ||||
Net increase in loans | (206,948 | ) | (138,044 | ) | ||||
Payments related to FDIC loss share agreements | — | (1,554 | ) | |||||
Payment to FDIC for termination of loss share agreements | — | (2,012 | ) | |||||
Proceeds from sales of foreclosed real estate | 6,468 | 6,670 | ||||||
Purchases of premises and equipment | (3,040 | ) | (6,876 | ) | ||||
Proceeds from sales of premises and equipment | 114 | 21 | ||||||
Proceeds from branch sale | — | 26,211 | ||||||
Net cash received (paid) in acquisitions | 48,636 | (53,640 | ) | |||||
Net cash used by investing activities | (107,689 | ) | (185,517 | ) | ||||
Cash Flows From Financing Activities | ||||||||
Net increase in deposits | 118,752 | 122,476 | ||||||
Net increase in borrowings | 106,980 | 50,000 | ||||||
Cash dividends paid – common stock | (5,617 | ) | (4,760 | ) | ||||
Cash dividends paid – preferred stock | — | (175 | ) | |||||
Proceeds from stock option exercises | 287 | 375 | ||||||
Net cash provided by financing activities | 220,402 | 167,916 | ||||||
Increase in cash and cash equivalents | 102,854 | 14,065 | ||||||
Cash and cash equivalents, beginning of period | 305,993 | 267,268 | ||||||
Cash and cash equivalents, end of period | $ | 408,847 | 281,333 | |||||
Supplemental Disclosures of Cash Flow Information: | ||||||||
Cash paid during the period for: | ||||||||
Interest | $ | 8,115 | 5,672 | |||||
Income taxes | 15,275 | 10,511 | ||||||
Non-cash transactions: | ||||||||
Unrealized gain (loss) on securities available for sale, net of taxes | 2,223 | 1,906 | ||||||
Foreclosed loans transferred to other real estate | 3,897 | 6,968 |
See accompanying notes to consolidated financial statements.
Page 8
First Bancorp and Subsidiaries
Notes to Consolidated Financial Statements
Note 2 –
Note 1 to the 2016 Annual Report on Form 10-K filed with the SEC contains a description ofStandards Adopted in 2023
In May 2014, the Financial Accounting Standards Board (“FASB”) issued guidance to change the recognition of revenue from contracts with customers. The core principle of the new guidance is that an entity should recognize revenue to reflect the transfer of goods and services to customers in an amount equal to the consideration the entity receives or expects to receive.origination for financing receivables. The Company can apply the guidanceadopted ASU 2022-02 effective January 1, 2023 using a full retrospective approach or a modified retrospective approach.transition approach for the amendments related to the recognition and measurement of TDRs. The Company’s revenueimpact of the adoption resulted in an immaterial change to the allowance for credit losses ("ACL"), thus no adjustment to retained earnings was recorded. Disclosures have been updated to reflect information on loan modifications given to borrowers experiencing financial difficulty as presented in Note 4. TDR disclosures are presented for comparative periods only and are not required to be updated in current periods. Additionally, the current year vintage disclosure included in Note 4 has been updated to reflect gross charge-offs by year of origination for the six months ended June 30, 2023.
In January 2016,
In February 2016, the FASB issued new guidance on accounting for leases, which generally requires all leases to be recognized in the statement of financial position by recording an asset representing its right to use the underlying asset and recording a liability, which represents the Company’s obligation to make lease payments. The provisions of this guidance are effective for reporting periods beginning after December 15, 2018; early adoption is permitted. The Company does not expect these amendments to have a material effect on its financial statements.
Page 9
In March 2016, the FASB amended the Liabilities topic of the Accounting Standards Codification to address the current and potential future diversity in practice related to the derecognition of a prepaid stored-value product liability. The amendments will be effective for financial statements issued for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company will apply the guidance using a modified retrospective transition method by means of a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year in which the guidance is effective to each period presented. The Company does not expect these amendments to have a material effect on its financial statements.
In March 2016, the FASB amended the Investments—Equity Method and Joint Ventures topic of the Accounting Standards Codification to eliminate the requirement to retroactively adopt the equity method of accounting and instead apply the equity method of accounting starting with the date it qualifies for that method. The amendments were effective for the Company on January 1, 2017. The Company will apply the guidance prospectively to any increases in the level of ownership interest or degree of influence that result in the adoption of the equity method. The Company’s adoption of this amendment did not have a material effect on its financial statements.
In March 2016, the FASB issued guidance to simplify several aspects of the accounting for share-based payment award transactions including the income tax consequences, the classification of awards as either equity or liabilities, and the classificationsignificant impact on the statement of cash flows. Additionally, the guidance simplifies two areas specific to entities other than public business entities allowing them apply a practical expedient to estimate the expected term for all awards with performance or service conditions that have certain characteristics and also allowing them to make a one-time election to switch from measuring all liability-classified awards at fair value to measuring them at intrinsic value. The amendments were effective for the Company on January 1, 2017 and the adoption of this amendment did not have a material effect on itsCompany's consolidated financial statements.
In June 2016, the FASB issued guidance to change the accounting for credit losses. The guidance requires an entity to utilize a new impairment model known as the current expected credit loss ("CECL") model to estimate its lifetime "expected credit loss" and record an allowance that, when deducted from the amortized cost basis of the financial asset, presents the net amount expected to be collected on the financial asset. The CECL model is expected to result in earlier recognition of credit losses. The guidance also requires new disclosures for financial assets measured at amortized cost, loans and available-for-sale debt securities. The Company will apply the amendments through a cumulative-effect adjustment to retained earnings as of the beginning of the year of adoption. While early adoption is permitted beginning in first quarter 2019, the Company does not expect to elect that option. The updated guidance is effective for interim and annual reporting periods beginning after December 15, 2019. The Company is currently evaluating the impact of this guidance on its consolidated financial statements, however, the Company expects the adoption of this guidance to result in an increase in the recorded allowance for loan losses.
In August 2016, the FASB amended the Statement of Cash Flows topic of the Accounting Standards Codification to clarify how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments will be effective for the Company for fiscal years beginning after December 15, 2017, including interim periods within those years. The Company does not expect these amendments to have a material effect on its financial statements.
In October 2016, the FASB amended the Consolidation topic of the Accounting Standards Codification to revise the consolidation guidance on how a reporting entity that is the single decision maker of a variable interest entity (VIE) should treat indirect interests in the entity held through related parties that are under common control with the reporting entity when determining whether it is the primary beneficiary of that VIE. The amendments were effective for the Company on January 1, 2017 and the Company’s adoption of this amendment did not have a material effect on its financial statements.
In November 2016, the FASB amended the Statement of Cash Flows topic of the Accounting Standards Codification to clarify how restricted cash is presented and classified in the statement of cash flows. The amendments will be effective for the Company for fiscal years beginning after December 15, 2017 including interim periods within those fiscal years. Early adoption is permitted. The Company does not expect these amendments to have a material effect on its financial statements.
In January 2017, the FASB issued guidance to clarify the definition of a business in the Business Combinations topic of the Accounting Standards Codification with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The amendment is intended to address concerns that the existing definition of a business has been applied too broadly and has resulted in many transactions being recorded as business acquisitions that in substance are more akin to asset acquisitions. The guidance will be effective for the Company for reporting periods beginning after December 15, 2017.Early adoption is permitted. The Company does not expect this amendment to have a material effect on its financial statements.
Page 10
In January 2017, the FASB issued amended the Goodwill and Other Intangibles topic of the Accounting Standards Codification to simplify the accounting for goodwill impairment for public business entities and other entities that have goodwill reported in their financial statements and have not elected the private company alternative for the subsequent measurement of goodwill. The amendment removes Step 2 of the goodwill impairment test. The amount of goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The effective date and transition requirements for the technical corrections will be effective for the Company for reporting periods beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company does not expect this amendment to have a material effect on its financial statements.
In March 2017, the FASB amended the requirements in the Compensation—Retirement Benefits topic of the Accounting Standards Codification related to the income statement presentation of the components of net periodic benefit cost for an entity’s sponsored defined benefit pension and other postretirement plans. The amendments require that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by pertinent employees during the period. The other components of net periodic benefit cost are required to be presented in the income statement separately from the service cost component. The amendments will be effective for the Company for interim and annual periods beginning after December 15, 2017. Early adoption is permitted. The Company does not expect these amendments to have a material effect on its financial statements.
In March 2017, the FASB amended the requirements in the Receivables—Nonrefundable Fees and Other Costs topic of the Accounting Standards Codification related to the amortization period for certain purchased callable debt securities held at a premium. The amendments shorten the amortization period for the premium to the earliest call date. The amendments will be effective for the Company for interim and annual periods beginning after December 15, 2018. Early adoption is permitted. The Company does not expect these amendments to have a material effect on its financial statements.
In May 2017, the FASB amended the requirements in the Compensation—Stock Compensation topic of the Accounting Standards Codification related to changes to the terms or conditions of a share-based payment award. The amendments provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. The amendments will be effective for the Company for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted. The Company does not expect these amendments to have a material effect on its financial statements.
Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies are not expected to have a material impact on the Company’s financial position, results of operations or cash flows.
Certain amounts reported in the period ended September 30, 2016 have been reclassified to conform to the presentation for September 30, 2017. These reclassifications had no effect on net income or shareholders’ equity for the periods presented, nor did they materially impact trends in financial information.
Note 42 – Acquisitions
Since
Page 11
Bankingport was an insurance agency based
GrandSouth.
This acquisition was accounted forsubject to change. Estimated fair values were based on management’s best estimates, using the purchase methodinformation available at the date of accounting for business combinations, and accordingly,acquisition, including the use of third-party valuation specialists. Management has finalized the valuations of all acquired assets and liabilities of SBA Complete were recorded based on estimates of fair values, which according to applicable accounting guidance, are subject to change for twelve monthsassumed in the GrandSouth acquisition.
In the second quarter of 2017, the Company recorded a measurement period adjustment to reduce the earn-out liability and goodwill by $1.2 million.
In connection with the sale, the Company sold $150.6 million in loans, $5.7 million in premises and equipment and $134.3 million in deposits to First Community Bank. In connection with the sale, the Company received a deposit premium of $3.8 million, removed $1.0 million of allowance for loan losses associated with the sold loans, allocated and wrote-off $3.5 million of previously recorded goodwill, and recorded a net gain of $1.5 million in this transaction.
In connection with the purchase transaction, the Company acquired assets with aestimated fair value of $157.2 million, including $152.2 million in loans and $3.4 million in premises and equipment. Additionally, the Company assumed $111.3 million in deposits and $0.2 million in other liabilities. In connection with the purchase, the Company recorded: i) a discount on acquired loans of $1.5 million, ii) a premium on deposits of $0.3 million, iii) a $1.2 million core depositassets, identified intangible and iv) $5.4 million in goodwill.
The branch acquisition was accounted for using the purchase method of accounting for business combinations, and accordingly, the assets, and liabilities assumed as of January 1, 2023. Following the acquired branches were recorded ontable is a discussion of valuation approaches utilized in
Page 12
Carolina Bank Holdings, Inc. was the parent company of Carolina Bank, a North Carolina state-chartered bank with eight bank branches located in the North Carolina cities of Greensboro, High Point, Burlington, Winston-Salem, and Asheboro, and mortgage offices in Burlington, Hillsborough, and Sanford. The acquisition complements the Company’s recent expansion into several of these high-growth markets and increases its market share in others with facilities, operations and experienced staff already in place. The Company was willing to record goodwill primarily due to the reasons just noted, as well as the positive earnings of Carolina Bank. The total merger consideration consisted of $25.3 million in cash and 3,799,471 million shares of the Company’s common stock, with each share of Carolina Bank common stock being exchanged for either $20.00 in cash or 1.002 shares of the Company’s stock, subject to the total consideration being 75% stock / 25% cash. The issuance of common stock was valued at $114,478,000 and was based on the Company’s closing stock price on March 3, 2017 of $30.13 per share.
This acquisition was accounted for using the purchase method of accounting for business combinations, and accordingly, the assets and liabilities of Carolina Bank were recorded based on estimates of fair values as of March 3, 2017. The Company may change its valuations of acquired Carolina Bank assets and liabilities for up to one year after the acquisition date. The table below is a condensed balance sheet disclosing the amount assigned to each major asset and liability category of Carolina Bank on March 3, 2017, and the related fair value adjustments recorded by the Company to reflect the acquisition. The $65.5$114.5 million in goodwill that resulted from this transaction is non-deductible for tax purposes.
($ in thousands)
| As Recorded by Carolina Bank | Initial Fair Value Adjustments | Measurement Period Adjustments | As Recorded by First Bancorp | ||||||||||||
Assets | ||||||||||||||||
Cash and cash equivalents | $ | 81,466 | (2 | ) | (a) | — | 81,464 | |||||||||
Securities | 49,629 | (261 | ) | (b) | — | 49,368 | ||||||||||
Loans, gross | 505,560 | (5,469 | ) | (c) | 146 | (l) | 497,522 | |||||||||
(2,715 | ) | (d) | — | |||||||||||||
Allowance for loan losses | (5,746 | ) | 5,746 | (e) | — | — | ||||||||||
Premises and equipment | 17,967 | 4,251 | (f) | (319 | ) | (m) | 21,899 | |||||||||
Core deposit intangible | — | 8,790 | (g) | — | 8,790 | |||||||||||
Other | 34,976 | (4,804 | ) | (h) | 2,225 | (n) | 32,397 | |||||||||
Total | 683,852 | 5,536 | 2,052 | 691,440 | ||||||||||||
Liabilities | ||||||||||||||||
Deposits | $ | 584,950 | 431 | (i) | — | 585,381 | ||||||||||
Borrowings | 21,855 | (2,855 | ) | (j) | (262 | ) | (o) | 18,738 | ||||||||
Other | 12,855 | 225 | (k) | — | 13,080 | |||||||||||
Total | 619,660 | (2,199 | ) | (262 | ) | 617,199 | ||||||||||
Net identifiable assets acquired | 74,241 | |||||||||||||||
Total cost of acquisition | ||||||||||||||||
Value of stock issued | $ | 114,478 | ||||||||||||||
Cash paid in the acquisition | 25,279 | |||||||||||||||
Total cost of acquisition | 139,757 | |||||||||||||||
Goodwill recorded related to acquisition of Carolina Bank | $ | 65,516 | ||||||||||||||
Explanation of Fair Value Adjustments
($ in thousands) | Fair Value Estimate | |||||||
Assets acquired: | ||||||||
Cash and cash equivalents | $ | 22,610 | ||||||
Securities available for sale | 112,363 | |||||||
Loans, gross | 996,833 | |||||||
Allowance for loan losses | (5,610) | |||||||
Premises and equipment | 20,268 | |||||||
Core deposit intangible | 28,840 | |||||||
Operating right-of-use lease assets | 732 | |||||||
Other assets | 27,163 | |||||||
Total | 1,203,199 | |||||||
Liabilities assumed: | ||||||||
Deposits | 1,045,308 | |||||||
Borrowings | 38,800 | |||||||
Other liabilities | 4,089 | |||||||
Total | 1,088,197 | |||||||
Net identifiable assets acquired | 115,002 | |||||||
Less: Total consideration | 229,489 | |||||||
Goodwill recorded related to | $ | 114,487 |
($ in thousands) | January 1, 2023 | |||||||
PCD Loans: | ||||||||
Par value | $ | 152,487 | ||||||
Allowance for credit losses | (5,610) | |||||||
Non-credit discount | (1,370) | |||||||
Purchase price | 145,507 | |||||||
Non-PCD Loans: | ||||||||
Fair Value | 845,716 | |||||||
Gross contractual amounts receivable | 865,132 | |||||||
Estimate of contractual cash flows not expected to | 22,542 |
Page 13
Premises: Land and buildings held for use were valued at appraised values, which reflected considerations of recent disposition values for similar property types with adjustments for characteristics of individual properties. Intangible assets: Core deposit intangible ("CDI") asset represents the value |
The following unaudited pro forma financial information presents the combined results of the Company and Carolina Bank as if the acquisition had occurred as of January 1, 2016, after giving effect to certain adjustments, including amortization ofrelationships with deposit customers. The fair value for the core deposit intangible asset was estimated based on a discounted cash flow methodology that gave appropriate consideration to expected customer attrition rates, cost of deposit base, net maintenance cost attributable to customer deposits and related income tax effects.an estimate of the cost associated with alternative funding sources. The discount rates used for CDI assets were based on market rates. The CDI is being amortized over 10 years utilizing the sum of the months digits accelerated method, which results in a weighted-average amortization period of approximately 41 months.
($ in thousands, except share data) | Pro Forma Combined Nine Months Ended September 30, 2017 | Pro Forma Combined Nine Months Ended September 30, 2016 | ||||||
Net interest income | $ | 119,899 | 109,787 | |||||
Noninterest income | 35,236 | 24,818 | ||||||
Total revenue | 155,135 | 134,605 | ||||||
Net income available to common shareholders | 35,176 | 16,584 | ||||||
Earnings per common share | ||||||||
Basic | $ | 1.43 | 0.70 | |||||
Diluted | 1.43 | 0.68 |
For purposes ofwere excluded from the supplemental pro forma information merger-related expensesbelow. In addition, no adjustments have been made to such pro forma information to eliminate the provision for loan losses recorded by GrandSouth in the amount of $4.4$0.1 million that wereand $0.4 million for the three and six months ended June 30, 2022.
Page 14
Bear Insurance, an insurance agency based in Albemarle, North Carolina, with four locations in Stanly, Cabarrus, and Montgomery counties and annual commission income of approximately $4 million, represented an opportunity to complement the insurance agency operations in these markets and the surrounding areas. Also, this acquisition provided the Company with a larger platform for leveraging insurance services throughout the Company’s bank branch network. The transaction value was $9.8 million and the transaction was completed on September 1, 2017 with the Company paying $7.9 million in cash and issuing 13,374 shares of its common stock, which had a value of approximately $0.4 million. Per the terms of the agreement, the Company also recorded an earn-out liability valued at $1.2 million, which will be paid as a cash distribution after a four-year period if pre-determined goals are met for the periods.
This acquisition was accounted for using the purchase method of accounting for business combinations, and accordingly, the assets and liabilities of Bear Insurance were recorded based on estimates of fair values as of September 1, 2017. In connection with this transaction, the Company recorded $5.3 million in goodwill, which is deductible for tax purposes, and $3.9 million in other amortizable intangible assets, which are also deductible for tax purposes.
Note 5 – Equity-Based Compensation Plans
The Company recorded total stock-based compensation expense of $204,000 and $146,000 for the three and six months ended SeptemberJune 30, 2017 and 2016, respectively, and $860,000 and $527,000 for the nine months ended September 30, 2017 and 2016, respectively. Of the $860,000 in expense that was recorded in 2017, approximately $320,000 related to the June 1, 2017 director grants, and is classified as “other operating expenses” in the Consolidated Statements of Income. The remaining $540,000 in expense relates to the employee grants discussed below and is recorded as “salaries expense.” Stock based compensation is reflected as an adjustment to cash flows2023. Merger-related costs have been excluded from operating activities on the Company’s Consolidated Statement of Cash Flows. The Company recognized $318,000 and $206,000 of income tax benefits related to stock based compensation expense in the income statement for the nine months ended September 30, 2017 and 2016, respectively.
At September 30, 2017, the Company had the following equity-based compensation plans: the First Bancorp 2014 Equity Planthese
The First Bancorp 2014 Equity Plan is intended to serve as a means to attract, retain and motivate key employees and directors and to associate the interests of the plans’ participants with those of the Company and its shareholders. The First Bancorp 2014 Equity Plan allows for both grants of stock options and other types of equity-based compensation, including stock appreciation rights, restricted stock, restricted performance stock, unrestricted stock, and performance units.
Recent equity grants to employees have either had performance vesting conditions, service vesting conditions, or both. Compensation expense for these grants is recorded over the various service periods based on the estimated number of equity grants that are probable to vest. No compensation cost is recognized for grants that do not vest and any previously recognized compensation cost will be reversed. The Company issues new shares of common stock when options are exercised.
Certain of the Company’s stock option grants contain terms that provide for a graded vesting schedule whereby portions of the award vest in increments over the requisite service period. The Company recognizes compensation expense for awards with graded vesting schedules on a straight-line basis over the requisite service period for each incremental award. Compensation expense is based on the estimated number of stock options and awards that will ultimately vest. Over the past five years, there have only been minimalcredit loss amounts of forfeitures, and therefore the Company assumes that all awards granted without performance conditions will become vested.
The Company typically grants shares of common stock to each non-employee director in June of each year. On June 1, 2017, the Company granted 11,190 shares of common stock to non-employee directors (1,119 shares per director), at a fair market value of $28.59 per share, which was the closing price of the Company’s common stock on that date, which resulted in $320,000 in expense. On June 1, 2016, the Company granted 6,584 shares of common stock to non-employee directors (823 shares per director), at a fair market value of $19.56 per share, which was the closing price of the Company’s common stock on that date, which resulted in $129,000 in expense.
Page 15
The Company’s senior officers receive their annual bonus earned under the Company’s annual incentive plan in a mix of 50% cash and 50% stock, with the stock being subject to a three year vesting term. In the last three years, a total of 55,648 shares of restricted stock have been granted related to performance in the preceding fiscal years. Total compensation expense associated with those grants was $758,000non-PCD loans and is being recognized over the respective vesting periods. The Company recorded $66,000 and $55,000 in compensation expense during the three months ended September 30, 2017 and 2016, respectively, and $216,000 and $165,000 for the nine months ended September 30, 2017 and 2016, respectively, related to these grants and expects to record $66,000 in compensation expense during the last remaining quarter of 2017.
In the last three years, the Compensation Committee of the Company’s Board of Directors also granted 130,059 shares of stock to various employees of the Company to promote retention. The total value associated with these grants amounted to $2.8 million, and is being recorded as an expense over their three year vesting periods. For the three months ended September 30, 2017 and 2016, total compensation expense related to these grants was $138,000 and $92,000, respectively, and for the nine months ended September 30, 2017 and 2016, total compensation expense was $324,000 and $234,000, respectively. The Company expects to record $167,000 in compensation expense during the fourth quarter of 2017. All grants were issued based on the closing price of the Company’s common stock on the date of the grant.
The following table presents information regarding the activity for the first nine months of 2017 related to the Company’s outstanding restricted stock:
Long-Term Restricted Stock | ||||||||
Number of Units | Weighted-Average Grant-Date Fair Value | |||||||
Nonvested at January 1, 2017 | 91,790 | $ | 18.65 | |||||
Granted during the period | 48,322 | 31.05 | ||||||
Vested during the period | (2,282 | ) | 18.27 | |||||
Forfeited or expired during the period | (8,535 | ) | 18.34 | |||||
Nonvested at September 30, 2017 | 129,295 | $ | 23.31 |
In years prior to 2009, stock options were the primary form of equity grant utilized by the Company. The stock options had a term of ten years. In a change in control (as defined in the plans), unless the awards remain outstanding or substitute equivalent awards are provided, the awards become immediately vested.
At September 30, 2017, there were 40,689 stock options outstanding related to the two First Bancorp plans, with exercise prices ranging from $14.35 to $16.81.
The following table presents information regarding the activity for the first nine months of 2017 related to the Company’s stock options outstanding:
Options Outstanding | ||||||||||||||||
Number of Shares | Weighted- Average Exercise Price | Weighted- Average Contractual Term (years) | Aggregate Intrinsic Value | |||||||||||||
Balance at January 1, 2017 | 59,948 | $ | 17.18 | |||||||||||||
Granted | — | — | ||||||||||||||
Exercised | (19,259 | ) | 19.44 | $ | 193,844 | |||||||||||
Forfeited | — | — | ||||||||||||||
Expired | — | — | ||||||||||||||
Outstanding at September 30, 2017 | 40,689 | $ | 16.11 | 0.9 | $ | 744,619 | ||||||||||
Exercisable at September 30, 2017 | 40,689 | $ | 16.11 | 0.9 | $ | 744,619 |
Page 16
During the three and nine months ended September 30, 2017, the Company received $0 and $287,000, respectively, as a result of stock option exercises. During the three and nine months ended September 30, 2016, the Company received $0 and $375,000, respectively, as a result of stock option exercises.
Note 6 – Earnings Per Common Share
Basic Earnings Per Common Share is calculated by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the period, excluding unvested shares of restricted stock. Diluted Earnings Per Common Share is computed by assuming the issuance of common shares for all potentially dilutive common shares outstanding during the reporting period. For the periods presented, the Company’s potentially dilutive common stock issuances related to unvested shares of restricted stock and stock option grants under the Company’s equity-based plans and the Company’s Series C Preferred stock, which was exchanged for common stock at a one-for-one ratio on December 22, 2016 - see Note 19 of the Company’s 2016 Annual Report on Form 10-K for additional detail.
In computing Diluted Earnings Per Common Share, adjustments are made to the computation of Basic Earnings Per Common shares, as follows. As it relates to unvested shares of restricted stock, the number of shares added to the denominator is equal to the number of unvested shares less the number of shares assumed to be bought back by the Company in the open market at the average market price with the amount of proceeds being equal to the average deferred compensation for the reporting period. As it relates to stock options, it is assumed that all dilutive stock options are exercised during the reporting period at their respective exercise prices, with the proceeds from the exercises used by the Company to buy back stock in the open market at the average market price in effect during the reporting period. The difference between the number of shares assumed to be exercised and the number of shares bought back is included in the calculation of dilutive securities. As it relates to the preferred stock that was outstanding during the periods in 2016, dividends on the preferred stock were added back to net income and the preferred shares assumed to be converted were included in the number of shares outstanding.
If any of the potentially dilutive common stock issuances have an anti-dilutive effect, the potentially dilutive common stock issuance is disregarded.
The following is a reconciliation of the numerators and denominators used in computing Basic and Diluted Earnings Per Common Share:
For the Three Months Ended September 30, | ||||||||||||||||||||||||
2017 | 2016 | |||||||||||||||||||||||
($ in thousands except per share amounts) | Income (Numer- ator) | Shares (Denom- inator) | Per Share Amount | Income (Numer- ator) | Shares (Denom- inator) | Per Share Amount | ||||||||||||||||||
Basic EPS | ||||||||||||||||||||||||
Net income available to common shareholders | $ | 13,086 | 24,607,516 | $ | 0.53 | $ | 4,620 | 20,007,518 | $ | 0.23 | ||||||||||||||
Effect of Dilutive Securities | — | 87,779 | 58 | 778,171 | ||||||||||||||||||||
Diluted EPS per common share | $ | 13,086 | 24,695,295 | $ | 0.53 | $ | 4,678 | 20,785,689 | $ | 0.23 |
For the Nine Months September 30, | ||||||||||||||||||||||||
2017 | 2016 | |||||||||||||||||||||||
($ in thousands except per share amounts) | Income (Numer- ator) | Shares (Denom- inator) | Per Share Amount | Income (Numer- ator) | Shares (Denom- inator) | Per Share Amount | ||||||||||||||||||
Basic EPS | ||||||||||||||||||||||||
Net income available to common shareholders | $ | 31,795 | 23,728,262 | $ | 1.34 | $ | 18,979 | 19,904,226 | $ | 0.95 | ||||||||||||||
Effect of Dilutive Securities | — | 98,749 | 175 | 792,899 | ||||||||||||||||||||
Diluted EPS per common share | $ | 31,795 | 23,827,011 | $ | 1.33 | $ | 19,154 | 20,697,125 | $ | 0.93 |
Page 17
For both the three and nine months ended September 30, 2017, there were no optionsunfunded commitments that were antidilutive. For both the three and nine months ended September 30, 2016, there were 16,250 options that were antidilutive because the exercise price exceeded the average market price for the period, and thus are not included in the calculation to determine the effect of dilutive securities.
discussed above have also been excluded.
($ in thousands) | For the three months ended | For the six months ended | ||||||||||||||||||||||||
June 30, 2023 | June 30, 2023 | |||||||||||||||||||||||||
Revenue | Net Income | Revenue | Net Income | |||||||||||||||||||||||
Actual GrandSouth results included in statement of income since acquisition date | $ | 13,767 | $ | 5,132 | $ | 29,307 | $ | 10,951 | ||||||||||||||||||
($ in thousands) | For the three months ended | For the six months ended | ||||||||||||||||||||||||
June 30, 2022 | June 30, 2022 | |||||||||||||||||||||||||
Revenue | Net Income | Revenue | Net Income | |||||||||||||||||||||||
Supplemental consolidated pro forma for the Company as if GrandSouth had been acquired on January 1, 2022 | 110,248 | 39,746 | 220,672 | 77,213 |
September 30, 2017 | December 31, 2016 | |||||||||||||||||||||||||||||||
Amortized | Fair | Unrealized | Amortized | Fair | Unrealized | |||||||||||||||||||||||||||
($ in thousands) | Cost | Value | Gains | (Losses) | Cost | Value | Gains | (Losses) | ||||||||||||||||||||||||
Securities available for sale: | ||||||||||||||||||||||||||||||||
Government-sponsored enterprise securities | $ | 9,000 | 8,992 | 1 | (9 | ) | 17,497 | 17,490 | — | (7 | ) | |||||||||||||||||||||
Mortgage-backed securities | 155,684 | 155,535 | 713 | (862 | ) | 151,001 | 148,065 | 155 | (3,091 | ) | ||||||||||||||||||||||
Corporate bonds | 33,802 | 34,397 | 660 | (65 | ) | 33,833 | 33,600 | 91 | (324 | ) | ||||||||||||||||||||||
Equity securities | — | — | — | — | 83 | 174 | 96 | (5 | ) | |||||||||||||||||||||||
Total available for sale | $ | 198,486 | 198,924 | 1,374 | (936 | ) | 202,414 | 199,329 | 342 | (3,427 | ) | |||||||||||||||||||||
Securities held to maturity: | ||||||||||||||||||||||||||||||||
Mortgage-backed securities | $ | 67,708 | 67,529 | 15 | (194 | ) | 80,585 | 79,283 | — | (1,302 | ) | |||||||||||||||||||||
State and local governments | 55,448 | 57,349 | 1,908 | (7 | ) | 49,128 | 50,912 | 1,815 | (31 | ) | ||||||||||||||||||||||
Total held to maturity | $ | 123,156 | 124,878 | 1,923 | (201 | ) | 129,713 | 130,195 | 1,815 | (1,333 | ) |
($ in thousands) | June 30, 2023 | December 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||
Amortized Cost | Fair Value | Unrealized | Amortized Cost | Fair Value | Unrealized | |||||||||||||||||||||||||||||||||||||||||||||
Gains | (Losses) | Gains | (Losses) | |||||||||||||||||||||||||||||||||||||||||||||||
Securities available for sale: | ||||||||||||||||||||||||||||||||||||||||||||||||||
U.S. Treasuries | $ | 174,601 | 169,613 | — | (4,988) | 174,420 | 168,758 | — | (5,662) | |||||||||||||||||||||||||||||||||||||||||
Government-sponsored enterprise securities | 71,960 | 58,511 | — | (13,449) | 71,957 | 57,456 | — | (14,501) | ||||||||||||||||||||||||||||||||||||||||||
Mortgage-backed securities | 2,393,696 | 1,973,539 | 1 | (420,158) | 2,467,839 | 2,045,000 | 4 | (422,843) | ||||||||||||||||||||||||||||||||||||||||||
Corporate bonds | 19,674 | 18,123 | — | (1,551) | 44,340 | 43,279 | — | (1,061) | ||||||||||||||||||||||||||||||||||||||||||
Total available for sale | $ | 2,659,931 | 2,219,786 | 1 | (440,146) | 2,758,556 | 2,314,493 | 4 | (444,067) | |||||||||||||||||||||||||||||||||||||||||
Securities held to maturity: | ||||||||||||||||||||||||||||||||||||||||||||||||||
Mortgage-backed securities | $ | 13,502 | 12,610 | — | (892) | 15,150 | 14,221 | — | (929) | |||||||||||||||||||||||||||||||||||||||||
State and local governments | 524,319 | 429,271 | 6 | (95,054) | 526,550 | 418,307 | 7 | (108,250) | ||||||||||||||||||||||||||||||||||||||||||
Total held to maturity | $ | 537,821 | 441,881 | 6 | (95,946) | 541,700 | 432,528 | 7 | (109,179) |
2023 and December 31, 2022, respectively.
($ in thousands) | Securities in an Unrealized Loss Position for Less than 12 Months | Securities in an Unrealized Loss Position for More than 12 Months | Total | |||||||||||||||||||||
Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | |||||||||||||||||||
Government-sponsored enterprise securities | $ | 6,491 | 9 | — | — | 6,491 | 9 | |||||||||||||||||
Mortgage-backed securities | 110,437 | 555 | 24,250 | 501 | 134,687 | 1,056 | ||||||||||||||||||
Corporate bonds | — | — | 935 | 65 | 935 | 65 | ||||||||||||||||||
State and local governments | — | — | 813 | 7 | 813 | 7 | ||||||||||||||||||
Total temporarily impaired securities | $ | 116,928 | 564 | 25,998 | 573 | 142,926 | 1,137 |
2023:
Securities in an Unrealized Loss Position for Less than 12 Months | Securities in an Unrealized Loss Position for More than 12 Months | Total | ||||||||||||||||||||||||||||||||||||
($ in thousands) | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | ||||||||||||||||||||||||||||||||
U.S. Treasuries | $ | — | — | 169,613 | 4,988 | 169,613 | 4,988 | |||||||||||||||||||||||||||||||
Government-sponsored enterprise securities | — | — | 58,511 | 13,449 | 58,511 | 13,449 | ||||||||||||||||||||||||||||||||
Mortgage-backed securities | 39,491 | 1,836 | 1,945,483 | 419,214 | 1,984,974 | 421,050 | ||||||||||||||||||||||||||||||||
Corporate bonds | 2,618 | 306 | 13,754 | 1,245 | 16,372 | 1,551 | ||||||||||||||||||||||||||||||||
State and local governments | 5,240 | 38 | 423,008 | 95,016 | 428,248 | 95,054 | ||||||||||||||||||||||||||||||||
Total unrealized loss position | $ | 47,349 | 2,180 | 2,610,369 | 533,912 | 2,657,718 | 536,092 |
($ in thousands) | Securities in an Unrealized Loss Position for Less than 12 Months | Securities in an Unrealized Loss Position for More than 12 Months | Total | |||||||||||||||||||||
Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | |||||||||||||||||||
Government-sponsored enterprise securities | $ | 7,990 | 7 | — | — | 7,990 | 7 | |||||||||||||||||
Mortgage-backed securities | 196,999 | 3,841 | 19,001 | 552 | 216,000 | 4,393 | ||||||||||||||||||
Corporate bonds | 27,027 | 259 | 935 | 65 | 27,962 | 324 | ||||||||||||||||||
Equity securities | — | — | 7 | 5 | 7 | 5 | ||||||||||||||||||
State and local governments | 801 | 31 | — | — | 801 | 31 | ||||||||||||||||||
Total temporarily impaired securities | $ | 232,817 | 4,138 | 19,943 | 622 | 252,760 | 4,760 |
Page 18
Securities in an Unrealized Loss Position for Less than 12 Months | Securities in an Unrealized Loss Position for More than 12 Months | Total | ||||||||||||||||||||||||||||||||||||
($ in thousands) | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | ||||||||||||||||||||||||||||||||
US Treasury securities | $ | 168,758 | 5,662 | — | — | 168,758 | 5,662 | |||||||||||||||||||||||||||||||
Government-sponsored enterprise securities | — | — | 57,456 | 14,501 | 57,456 | 14,501 | ||||||||||||||||||||||||||||||||
Mortgage-backed securities | 221,006 | 18,215 | 1,835,958 | 405,557 | 2,056,964 | 423,772 | ||||||||||||||||||||||||||||||||
Corporate bonds | 40,644 | 947 | 886 | 114 | 41,530 | 1,061 | ||||||||||||||||||||||||||||||||
State and local governments | 48,385 | 8,323 | 368,897 | 99,927 | 417,282 | 108,250 | ||||||||||||||||||||||||||||||||
Total unrealized loss position | $ | 478,793 | 33,147 | 2,263,197 | 520,099 | 2,741,990 | 553,246 |
The Company has also concluded that each of the equity securities in an unrealized loss position at
Securities Available for Sale | Securities Held to Maturity | |||||||||||||||
Amortized | Fair | Amortized | Fair | |||||||||||||
($ in thousands) | Cost | Value | Cost | Value | ||||||||||||
Debt securities | ||||||||||||||||
Due within one year | $ | — | — | 1,872 | 1,883 | |||||||||||
Due after one year but within five years | 10,008 | 10,037 | 23,907 | 24,681 | ||||||||||||
Due after five years but within ten years | 27,794 | 28,242 | 23,979 | 25,040 | ||||||||||||
Due after ten years | 5,000 | 5,110 | 5,690 | 5,745 | ||||||||||||
Mortgage-backed securities | 155,684 | 155,535 | 67,708 | 67,529 | ||||||||||||
Total securities | $ | 198,486 | 198,924 | 123,156 | 124,878 |
Securities Available for Sale | Securities Held to Maturity | |||||||||||||||||||||||||
($ in thousands) | Amortized Cost | Fair Value | Amortized Cost | Fair Value | ||||||||||||||||||||||
Due within one year | $ | 99,944 | 97,508 | — | — | |||||||||||||||||||||
Due after one year but within five years | 77,166 | 74,338 | 996 | 887 | ||||||||||||||||||||||
Due after five years but within ten years | 88,125 | 73,458 | 92,917 | 77,987 | ||||||||||||||||||||||
Due after ten years | 1,000 | 943 | 430,406 | 350,397 | ||||||||||||||||||||||
Mortgage-backed securities | 2,393,696 | 1,973,539 | 13,502 | 12,610 | ||||||||||||||||||||||
Total securities | $ | 2,659,931 | 2,219,786 | 537,821 | 441,881 |
Indeposits or at the first nine monthsFederal Reserve Bank of 2017, the Company received proceeds from salesRichmond ("Federal Reserve") as security on lines of credit.
three or six months ended June 30, 2023.
Prior to September 22, 2016, the Company’s banking subsidiary, First Bank, had certain loans and foreclosed real estate that were covered by loss share agreements between the FDIC and First Bank which afforded First Bank significant loss protection - see Note 2 to the financial statements included in the Company’s 2011 Annual Report on Form 10-K for detailed information regarding FDIC-assisted purchase transactions. On September 22, 2016, the Company terminated all of the loss share agreements with the FDIC, such that all future losses and recoveries on loans and foreclosed real estate associated with the failed banks acquired through FDIC-assisted transactions will be borne solely by First Bank.
In the information presented below, the term “covered” is used to describe assets that were subject to FDIC loss share agreements, while the term “non-covered” refers to the Company’s legacy assets, which were not included in any type of loss share arrangement. As discussed previously, all loss share agreements were terminated during 2016 and thus the entire loan portfolio is now classified as non-covered. Certain prior period disclosures will continue to present the breakout of the loan portfolio between covered and non-covered.
Page 19
On March 3, 2017, the Company acquired Carolina Bank (see Note 4 for more information). As a result of this acquisition, the Company recorded loans with a fair value of $497.5 million. Of those loans, $19.3 million were considered to be purchased credit impaired (“PCI”) loans, which are loans for which it is probable at acquisition date that all contractually required payments will not be collected. The remaining loans are considered to be purchased non-impaired loans and their related fair value discount or premium is recognized as an adjustment to yield over the remaining life of each loan.
The following table relates to Carolina Bank acquired PCI loans and summarizes the contractually required payments, which includes principal and interest, expected cash flows to be collected, and the fair value of acquired PCI loans at the acquisition date.
($ in thousands)
| Carolina Bank Acquisition on March 3, 2017 | |||
Contractually required payments | $ | 27,108 | ||
Nonaccretable difference | (4,237 | ) | ||
Cash flows expected to be collected at acquisition | 22,871 | |||
Accretable yield | (3,617 | ) | ||
Fair value of PCI loans at acquisition date | $ | 19,254 |
The following table relates to acquired Carolina Bank purchased non-impaired loans and provides the contractually required payments, fair value, and estimate of contractual cash flows not expected to be collected at the acquisition date.
($ in thousands)
| Carolina Bank Acquisition on March 3, 2017 | |||
Contractually required payments | $ | 569,980 | ||
Fair value of acquired loans at acquisition date | 478,515 | |||
Contractual cash flows not expected to be collected | 3,650 |
Page 20
The following is a summary of the major categories of total loans outstanding:
($ in thousands) | September 30, 2017 | December 31, 2016 | September 30, 2016 | |||||||||||||||||||||
Amount | Percentage | Amount | Percentage | Amount | Percentage | |||||||||||||||||||
All loans: | ||||||||||||||||||||||||
Commercial, financial, and agricultural | $ | 376,940 | 11% | $ | 261,813 | 9% | $ | 248,877 | 9% | |||||||||||||||
Real estate – construction, land development & other land loans | 450,746 | 13% | 354,667 | 13% | 327,863 | 12% | ||||||||||||||||||
Real estate – mortgage – residential (1-4 family) first mortgages | 796,222 | 23% | 750,679 | 28% | 756,880 | 29% | ||||||||||||||||||
Real estate – mortgage – home equity loans / lines of credit | 315,322 | 9% | 239,105 | 9% | 239,049 | 9% | ||||||||||||||||||
Real estate – mortgage – commercial and other | 1,431,934 | 42% | 1,049,460 | 39% | 1,026,328 | 39% | ||||||||||||||||||
Installment loans to individuals | 59,028 | 2% | 55,037 | 2% | 52,264 | 2% | ||||||||||||||||||
Subtotal | 3,430,192 | 100% | 2,710,761 | 100% | 2,651,261 | 100% | ||||||||||||||||||
Unamortized net deferred loan costs (fees) | (437 | ) | (49 | ) | 198 | |||||||||||||||||||
Total loans | $ | 3,429,755 | $ | 2,710,712 | $ | 2,651,459 |
The following
($ in thousands) | June 30, 2023 | December 31, 2022 | ||||||||||||||||||||||||
Amount | Percentage | Amount | Percentage | |||||||||||||||||||||||
Commercial and industrial | $ | 888,391 | 11 | % | $ | 641,941 | 9 | % | ||||||||||||||||||
Construction, development & other land loans | 1,109,769 | 14 | % | 934,176 | 14 | % | ||||||||||||||||||||
Commercial real estate - owner occupied | 1,222,189 | 16 | % | 1,036,270 | 16 | % | ||||||||||||||||||||
Commercial real estate - non owner occupied | 2,423,262 | 31 | % | 2,123,811 | 32 | % | ||||||||||||||||||||
Multi-family real estate | 392,120 | 5 | % | 350,180 | 5 | % | ||||||||||||||||||||
Residential 1-4 family real estate | 1,461,068 | 18 | % | 1,195,785 | 18 | % | ||||||||||||||||||||
Home equity loans/lines of credit | 334,566 | 4 | % | 323,726 | 5 | % | ||||||||||||||||||||
Consumer loans | 67,077 | 1 | % | 60,659 | 1 | % | ||||||||||||||||||||
Subtotal | 7,898,442 | 100 | % | 6,666,548 | 100 | % | ||||||||||||||||||||
Unamortized net deferred loan fees | (813) | (1,403) | ||||||||||||||||||||||||
Total loans | $ | 7,897,629 | $ | 6,665,145 |
($ in thousands) | June 30, 2023 | December 31, 2022 | ||||||||||||
Guaranteed portions of SBA loans included in table above | $ | 39,339 | 31,893 | |||||||||||
Unguaranteed portions of SBA loans included in table above | 114,643 | 116,910 | ||||||||||||
Total SBA loans included in the table above | $ | 153,982 | 148,803 | |||||||||||
Sold portions of SBA loans with servicing retained - not included in tables above | $ | 371,943 | 392,370 |
($ in thousands)
| ||||
Carrying amount of nonimpaired covered loans at January 1, 2016 | $ | 101,252 | ||
Principal repayments | (7,997 | ) | ||
Transfers to foreclosed real estate | (1,036 | ) | ||
Net loan recoveries | 1,784 | |||
Accretion of loan discount | 1,908 | |||
Transfer to non-covered loans due to expiration of loss-share agreement, April 1, 2016 | (17,530 | ) | ||
Transfer to non-covered loans due to termination of loss-share agreements, September 22, 2016 | (78,381 | ) | ||
Carrying amount of nonimpaired covered loans at September 30, 2016 | $ | — |
The following table presents information regarding all PCI loans since January 1, 2016.
($ in thousands)
Purchased Credit Impaired Loans | Accretable Yield | Carrying Amount | ||||||
Balance at January 1, 2016 | $ | — | 1,970 | |||||
Change due to payments received | — | (1,386 | ) | |||||
Change due to loan charge-off | — | (70 | ) | |||||
Balance at December 31, 2016 | — | 514 | ||||||
Additions due to acquisition of Carolina Bank | 3,617 | 19,254 | ||||||
Accretion | (1,326 | ) | 1,326 | |||||
Change due to payments received | — | (5,585 | ) | |||||
Transfer to foreclosed real estate | — | (69 | ) | |||||
Other | — | (406 | ) | |||||
Balance at September 30, 2017 | $ | 2,291 | 15,034 |
During the first nine months of 2017, the Company received $848,000 in payments that exceeded the carrying amount of the related PCI loans, of which $775,000 was recognized as loan discount accretion income and $73,000 was recorded as additional loan interest income. During the first nine months of 2016, the Company received $1,108,000 in payments that exceeded the carrying amount of the related PCI loans, of which $780,000 was recognized as loan discount accretion income, $295,000 was recorded as additional loan interest income, and $33,000 was recorded as a recovery.
Page 21
Nonperforming assets ("NPA") are defined as nonaccrual loans, restructured loans,modifications to borrowers in financial distress, loans past due 90 or more days and still accruing interest, nonperforming loans held for sale, and foreclosed real estate. Nonperforming assets are summarized as follows:
ASSET QUALITY DATA($ in thousands) | September 30, 2017 | December 31, 2016 | September 30, 2016 | |||||||||
Nonperforming assets | ||||||||||||
Nonaccrual loans | $ | 23,350 | 27,468 | 32,796 | ||||||||
Restructured loans - accruing | 20,330 | 22,138 | 27,273 | |||||||||
Accruing loans > 90 days past due | — | — | — | |||||||||
Total nonperforming loans | 43,680 | 49,606 | 60,069 | |||||||||
Foreclosed real estate | 9,356 | 9,532 | 10,103 | |||||||||
Total nonperforming assets | $ | 53,036 | 59,138 | 70,172 | ||||||||
Purchased credit impaired loans not included above (1) | $ | 15,034 | — | — |
(1) Inestate, and prior to the March 3, 2017 acquisitionadoption of Carolina Bank Holdings, Inc.,ASU 2022-02 on January 1, 2023, TDRs.
($ in thousands) | June 30, 2023 | December 31, 2022 | ||||||||||||
Nonaccrual loans | $ | 29,876 | 28,514 | |||||||||||
Modifications to borrowers in financial distress | 4,862 | — | ||||||||||||
TDRs - accruing | — | 9,121 | ||||||||||||
Total nonperforming loans | 34,738 | 37,635 | ||||||||||||
Foreclosed real estate | 1,077 | 658 | ||||||||||||
Total nonperforming assets | $ | 35,815 | 38,293 |
At September 30, 20172023 and December 31, 2016,2022, the Company had $0.9$2.7 million and $1.7$0.8 million, respectively, in residential mortgage loans in the process of foreclosure, respectively.
foreclosure.
($ in thousands) | September 30, 2017 | December 31, 2016 | ||||||
Commercial, financial, and agricultural | $ | 996 | 1,842 | |||||
Real estate – construction, land development & other land loans | 1,565 | 2,945 | ||||||
Real estate – mortgage – residential (1-4 family) first mortgages | 14,878 | 16,017 | ||||||
Real estate – mortgage – home equity loans / lines of credit | 2,250 | 2,355 | ||||||
Real estate – mortgage – commercial and other | 3,534 | 4,208 | ||||||
Installment loans to individuals | 127 | 101 | ||||||
Total | $ | 23,350 | 27,468 | |||||
($ in thousands) Nonaccrual Loans with No Allowance Nonaccrual Loans with an Allowance Total Nonaccrual Loans Commercial and industrial $ — 11,299 11,299 Construction, development & other land loans — 265 265 Commercial real estate - owner occupied 3,277 7,988 11,265 Commercial real estate - non owner occupied 673 1,153 1,826 Multi-family real estate — — — Residential 1-4 family real estate — 3,198 3,198 Home equity loans/lines of credit — 1,867 1,867 Consumer loans — 156 156 Total $ 3,950 25,926 29,876
($ in thousands) | Nonaccrual Loans with No Allowance | Nonaccrual Loans with an Allowance | Total Nonaccrual Loans | |||||||||||||||||
Commercial and industrial | $ | 3,855 | 6,374 | 10,229 | ||||||||||||||||
Construction, development & other land loans | — | 1,009 | 1,009 | |||||||||||||||||
Commercial real estate - owner occupied | 3,903 | 5,770 | 9,673 | |||||||||||||||||
Commercial real estate - non owner occupied | 1,107 | 1,725 | 2,832 | |||||||||||||||||
Multi-family real estate | — | — | — | |||||||||||||||||
Residential 1-4 family real estate | 157 | 3,132 | 3,289 | |||||||||||||||||
Home equity loans/lines of credit | — | 1,397 | 1,397 | |||||||||||||||||
Consumer loans | — | 85 | 85 | |||||||||||||||||
Total | $ | 9,022 | 19,492 | 28,514 |
($ in thousands) | Six Months Ended June 30, 2023 | For the Year Ended December 31, 2022 | Six Months Ended June 30, 2022 | |||||||||||||||||
Commercial and industrial | $ | 162 | 102 | 33 | ||||||||||||||||
Construction, development & other land loans | 2 | 16 | 16 | |||||||||||||||||
Commercial real estate - owner occupied | 64 | 123 | 100 | |||||||||||||||||
Commercial real estate - non owner occupied | 7 | 15 | 2 | |||||||||||||||||
Multi-family real estate | — | 1 | — | |||||||||||||||||
Residential 1-4 family real estate | 20 | 45 | 25 | |||||||||||||||||
Home equity loans/lines of credit | 16 | 20 | 6 | |||||||||||||||||
Consumer loans | 1 | 2 | 2 | |||||||||||||||||
Total | $ | 272 | 324 | 184 |
($ in thousands) | Accruing 30-59 Days Past Due | Accruing 60-89 Days Past Due | Accruing 90 Days or More Past Due | Nonaccrual Loans | Accruing Current | Total Loans Receivable | ||||||||||||||||||
Commercial, financial, and agricultural | $ | 325 | — | — | 996 | 375,364 | 376,685 | |||||||||||||||||
Real estate – construction, land development & other land loans | 432 | — | — | 1,565 | 447,873 | 449,870 | ||||||||||||||||||
Real estate – mortgage – residential (1-4 family) first mortgages | 4,911 | 472 | — | 14,878 | 772,651 | 792,912 | ||||||||||||||||||
Real estate – mortgage – home equity loans / lines of credit | 2,455 | — | — | 2,250 | 309,906 | 314,611 | ||||||||||||||||||
Real estate – mortgage – commercial and other | 1,094 | 469 | — | 3,534 | 1,417,012 | 1,422,109 | ||||||||||||||||||
Installment loans to individuals | 145 | 79 | — | 127 | 58,620 | 58,971 | ||||||||||||||||||
Purchased credit impaired | 611 | — | 449 | — | 13,974 | 15,034 | ||||||||||||||||||
Total | $ | 9,973 | 1,020 | 449 | 23,350 | 3,395,400 | 3,430,192 | |||||||||||||||||
Unamortized net deferred loan fees | (437 | ) | ||||||||||||||||||||||
Total loans | $ | 3,429,755 |
2023:
($ in thousands) | Accruing 30-59 Days Past Due | Accruing 60-89 Days Past Due | Accruing 90 Days or More Past Due | Nonaccrual Loans | Accruing Current | Total Loans Receivable | |||||||||||||||||||||||||||||
Commercial and industrial | $ | 702 | 1,127 | — | 11,299 | 875,263 | 888,391 | ||||||||||||||||||||||||||||
Construction, development & other land loans | 585 | 22 | — | 265 | 1,108,897 | 1,109,769 | |||||||||||||||||||||||||||||
Commercial real estate - owner occupied | 525 | 400 | — | 11,265 | 1,209,999 | 1,222,189 | |||||||||||||||||||||||||||||
Commercial real estate - non owner occupied | 61 | 634 | — | 1,826 | 2,420,741 | 2,423,262 | |||||||||||||||||||||||||||||
Multi-family real estate | — | — | — | — | 392,120 | 392,120 | |||||||||||||||||||||||||||||
Residential 1-4 family real estate | 1,027 | 1,814 | — | 3,198 | 1,455,029 | 1,461,068 | |||||||||||||||||||||||||||||
Home equity loans/lines of credit | 550 | 673 | — | 1,867 | 331,476 | 334,566 | |||||||||||||||||||||||||||||
Consumer loans | 229 | 56 | — | 156 | 66,636 | 67,077 | |||||||||||||||||||||||||||||
Total | $ | 3,679 | 4,726 | — | 29,876 | 7,860,161 | 7,898,442 | ||||||||||||||||||||||||||||
Unamortized net deferred loan fees | (813) | ||||||||||||||||||||||||||||||||||
Total loans | 7,897,629 |
($ in thousands) | Accruing 30-59 Days Past Due | Accruing 60-89 Days Past Due | Accruing 90 Days or More Past Due | Nonaccrual Loans | Accruing Current | Total Loans Receivable | ||||||||||||||||||
Commercial, financial, and agricultural | $ | 92 | — | — | 1,842 | 259,879 | 261,813 | |||||||||||||||||
Real estate – construction, land development & other land loans | 473 | 168 | — | 2,945 | 351,081 | 354,667 | ||||||||||||||||||
Real estate – mortgage – residential (1-4 family) first mortgages | 4,487 | 443 | — | 16,017 | 729,732 | 750,679 | ||||||||||||||||||
Real estate – mortgage – home equity loans / lines of credit | 1,751 | 178 | — | 2,355 | 234,821 | 239,105 | ||||||||||||||||||
Real estate – mortgage – commercial and other | 1,482 | 449 | — | 4,208 | 1,042,807 | 1,048,946 | ||||||||||||||||||
Installment loans to individuals | 186 | 193 | — | �� | 101 | 54,557 | 55,037 | |||||||||||||||||
Purchased credit impaired | — | — | — | — | 514 | 514 | ||||||||||||||||||
Total | $ | 8,471 | 1,431 | — | 27,468 | 2,673,391 | 2,710,761 | |||||||||||||||||
Unamortized net deferred loan fees | (49 | ) | ||||||||||||||||||||||
Total loans | $ | 2,710,712 |
Page 23
($ in thousands) | Accruing 30-59 Days Past Due | Accruing 60-89 Days Past Due | Accruing 90 Days or More Past Due | Nonaccrual Loans | Accruing Current | Total Loans Receivable | |||||||||||||||||||||||||||||
Commercial and industrial | $ | 438 | 565 | — | 10,229 | 630,709 | 641,941 | ||||||||||||||||||||||||||||
Construction, development & other land loans | 238 | 1,687 | — | 1,009 | 931,242 | 934,176 | |||||||||||||||||||||||||||||
Commercial real estate - owner occupied | 124 | 48 | — | 9,673 | 1,026,425 | 1,036,270 | |||||||||||||||||||||||||||||
Commercial real estate - non owner occupied | 496 | 49 | — | 2,832 | 2,120,434 | 2,123,811 | |||||||||||||||||||||||||||||
Multi-family real estate | — | — | — | — | 350,180 | 350,180 | |||||||||||||||||||||||||||||
Residential 1-4 family real estate | 3,415 | 25 | — | 3,289 | 1,189,056 | 1,195,785 | |||||||||||||||||||||||||||||
Home equity loans/lines of credit | 457 | 371 | — | 1,397 | 321,501 | 323,726 | |||||||||||||||||||||||||||||
Consumer loans | 249 | 66 | — | 85 | 60,259 | 60,659 | |||||||||||||||||||||||||||||
Total | $ | 5,417 | 2,811 | — | 28,514 | 6,629,806 | 6,666,548 | ||||||||||||||||||||||||||||
Unamortized net deferred loan fees | (1,403) | ||||||||||||||||||||||||||||||||||
Total loans | $ | 6,665,145 |
($ in thousands) | Residential Property | Business Assets | Land | Commercial Property | Total Collateral-Dependent Loans | ||||||||||||||||||||||||||||||
Commercial and industrial | $ | — | 1,626 | — | — | 1,626 | |||||||||||||||||||||||||||||
Commercial real estate - owner occupied | — | — | — | 5,830 | 5,830 | ||||||||||||||||||||||||||||||
Commercial real estate - non owner occupied | — | — | — | 673 | 673 | ||||||||||||||||||||||||||||||
Total | $ | — | 1,626 | — | 6,503 | 8,129 |
($ in thousands) | Residential Property | Business Assets | Land | Commercial Property | Total Collateral-Dependent Loans | ||||||||||||||||||||||||||||||
Commercial and industrial | $ | — | 6,394 | — | — | 6,394 | |||||||||||||||||||||||||||||
Commercial real estate - owner occupied | — | — | — | 4,578 | 4,578 | ||||||||||||||||||||||||||||||
Commercial real estate - non owner occupied | — | — | — | 2,145 | 2,145 | ||||||||||||||||||||||||||||||
Residential 1-4 family real estate | 157 | — | — | — | 157 | ||||||||||||||||||||||||||||||
Total | $ | 157 | 6,394 | — | 6,723 | 13,274 |
($ in thousands) | Commercial, Financial, and Agricultural | Real Estate – Construction, Land Development & Other Land Loans | Real Estate – Residential (1-4 Family) First Mortgages | Real Estate – Mortgage – Home Equity Lines of Credit | Real Estate – Mortgage – Commercial and Other | Installment Loans to Individuals | Unallo -cated | Total | ||||||||||||||||||||||||
As of and for the three months ended September 30, 2017 | ||||||||||||||||||||||||||||||||
Beginning balance | $ | 3,430 | 2,676 | 7,085 | 2,057 | 6,153 | 1,074 | 1,550 | 24,025 | |||||||||||||||||||||||
Charge-offs | (131 | ) | (43 | ) | (499 | ) | (213 | ) | (159 | ) | (162 | ) | — | (1,207 | ) | |||||||||||||||||
Recoveries | 330 | 809 | 170 | 120 | 275 | 71 | — | 1,775 | ||||||||||||||||||||||||
Provisions | (314 | ) | (973 | ) | (281 | ) | (49 | ) | (271 | ) | 45 | 1,843 | — | |||||||||||||||||||
Ending balance | $ | 3,315 | 2,469 | 6,475 | 1,915 | 5,998 | 1,028 | 3,393 | 24,593 | |||||||||||||||||||||||
As of and for the nine months ended September 30, 2017 | ||||||||||||||||||||||||||||||||
Beginning balance | $ | 3,829 | 2,691 | 7,704 | 2,420 | 5,098 | 1,145 | 894 | 23,781 | |||||||||||||||||||||||
Charge-offs | (1,335 | ) | (312 | ) | (1,746 | ) | (791 | ) | (573 | ) | (521 | ) | — | (5,278 | ) | |||||||||||||||||
Recoveries | 848 | 2,280 | 806 | 250 | 973 | 210 | — | 5,367 | ||||||||||||||||||||||||
Provisions | (27 | ) | (2,190 | ) | (289 | ) | 36 | 500 | 194 | 2,499 | 723 | |||||||||||||||||||||
Ending balance | $ | 3,315 | 2,469 | 6,475 | 1,915 | 5,998 | 1,028 | 3,393 | 24,593 | |||||||||||||||||||||||
Ending balances as of September 30, 2017: Allowance for loan losses | ||||||||||||||||||||||||||||||||
Individually evaluated for impairment | $ | 144 | 23 | 929 | — | 487 | — | — | 1,583 | |||||||||||||||||||||||
Collectively evaluated for impairment | $ | 3,171 | 2,446 | 5,546 | 1,915 | 5,511 | 1,028 | 3,393 | 23,010 | |||||||||||||||||||||||
Purchased credit impaired | $ | — | — | — | — | — | — | — | — | |||||||||||||||||||||||
Loans receivable as of September 30, 2017: | ||||||||||||||||||||||||||||||||
Ending balance – total | $ | 376,940 | 450,746 | 796,222 | 315,322 | 1,431,934 | 59,028 | — | 3,430,192 | |||||||||||||||||||||||
Unamortized net deferred loan fees | (437 | ) | ||||||||||||||||||||||||||||||
Total loans | $ | 3,429,755 | ||||||||||||||||||||||||||||||
Ending balances as of September 30, 2017: Loans | ||||||||||||||||||||||||||||||||
Individually evaluated for impairment | $ | 490 | 3,072 | 14,987 | 52 | 9,443 | — | — | 28,044 | |||||||||||||||||||||||
Collectively evaluated for impairment | $ | 376,195 | 446,798 | 777,925 | 314,559 | 1,412,666 | 58,971 | — | 3,387,114 | |||||||||||||||||||||||
Purchased credit impaired | $ | 255 | 876 | 3,310 | 711 | 9,825 | 57 | — | 15,034 |
Page 24
The following table presents2023 is attributed to the activityacquisition of GrandSouth. In addition to the "Day 1" allowance recorded for PCD loans of $5.6 million, the Company recorded a "Day 2" initial provision of $12.2 million related to the non-PCD loans in the allowance for loan losses forGrandSouth portfolio. The balance of the year ended December 31, 2016. There were no covered loans at December 31, 2016 and all reserves associated with previously covered loans have been transferredchange was a result of updated economic forecast inputs to the non-covered allowance.
($ in thousands) | Commercial, Financial, and Agricultural | Real Estate – Construction, Land Development & Other Land Loans | Real Estate – Residential (1-4 Family) First Mortgages | Real Estate – Mortgage – Home Equity Lines of Credit | Real Estate – Mortgage – Commercial and Other | Installment Loans to Individuals | Unallo -cated | Covered | Total | |||||||||||||||||||||||||||
As of and for the year ended December 31, 2016 | ||||||||||||||||||||||||||||||||||||
Beginning balance | $ | 4,742 | 3,754 | 7,832 | 2,893 | 5,816 | 1,051 | 696 | 1,799 | 28,583 | ||||||||||||||||||||||||||
Charge-offs | (2,271 | ) | (1,101 | ) | (3,815 | ) | (969 | ) | (1,005 | ) | (1,008 | ) | (1 | ) | (244 | ) | (10,414 | ) | ||||||||||||||||||
Recoveries | 805 | 1,422 | 1,060 | 250 | 836 | 354 | — | 1,958 | 6,685 | |||||||||||||||||||||||||||
Transfer from covered status | 56 | 65 | 839 | 293 | 127 | — | 1 | (1,381 | ) | — | ||||||||||||||||||||||||||
Removed due to branch loan sale | (263 | ) | (39 | ) | (347 | ) | (110 | ) | (228 | ) | (63 | ) | — | — | (1,050 | ) | ||||||||||||||||||||
Provisions | 760 | (1,410 | ) | 2,135 | 63 | (448 | ) | 811 | 198 | (2,132 | ) | (23 | ) | |||||||||||||||||||||||
Ending balance | $ | 3,829 | 2,691 | 7,704 | 2,420 | 5,098 | 1,145 | 894 | — | 23,781 | ||||||||||||||||||||||||||
Ending balances as of December 31, 2016: Allowance for loan losses | ||||||||||||||||||||||||||||||||||||
Individually evaluated for impairment | $ | 7 | 184 | 1,339 | 5 | 105 | — | — | — | 1,640 | ||||||||||||||||||||||||||
Collectively evaluated for impairment | $ | 3,822 | 2,507 | 6,365 | 2,415 | 4,993 | 1,145 | 894 | — | 22,141 | ||||||||||||||||||||||||||
Purchased credit impaired | $ | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||
Loans receivable as of December 31, 2016: | ||||||||||||||||||||||||||||||||||||
Ending balance – total | $ | 261,813 | 354,667 | 750,679 | 239,105 | 1,049,460 | 55,037 | — | — | 2,710,761 | ||||||||||||||||||||||||||
Unamortized net deferred loan fees | (49 | ) | ||||||||||||||||||||||||||||||||||
Total loans | $ | 2,710,712 | ||||||||||||||||||||||||||||||||||
Ending balances as of December 31, 2016: Loans | ||||||||||||||||||||||||||||||||||||
Individually evaluated for impairment | $ | 644 | 4,001 | 20,807 | 280 | 6,494 | — | — | — | 32,226 | ||||||||||||||||||||||||||
Collectively evaluated for impairment | $ | 261,169 | 350,666 | 729,872 | 238,825 | 1,042,452 | 55,037 | — | — | 2,678,021 | ||||||||||||||||||||||||||
Purchased credit impaired | $ | — | — | — | — | 514 | — | — | — | 514 |
Page 25
The following table presents the activityour CECL model driving higher loss rate assumptions, primarily due to some deterioration in the allowance for loan losses for the three and nine months ended September 30, 2016. There were no covered loans at September 30, 2016 and all reserves associated with previously covered loans have been transferred to the non-covered allowance.
($ in thousands) | Commercial, Financial, and Agricultural | Real Estate – Construction, Land Development, & Other Land Loans | Real Estate – Residential (1-4 Family) First Mortgages | Real Estate – Mortgage – Home Equity Lines of Credit | Real Estate – Mortgage – Commercial and Other | Installment Loans to Individuals | Unallo -cated | Covered | Total | |||||||||||||||||||||||||||
As of and for the three months ended September 30, 2016 | ||||||||||||||||||||||||||||||||||||
Beginning balance | $ | 4,282 | 2,899 | 7,860 | 2,285 | 5,571 | 1,480 | 572 | 1,074 | 26,023 | ||||||||||||||||||||||||||
Charge-offs | (495 | ) | (161 | ) | (692 | ) | (196 | ) | (288 | ) | (223 | ) | — | — | (2,055 | ) | ||||||||||||||||||||
Recoveries | 252 | 588 | 377 | 69 | 317 | 55 | — | — | 1,658 | |||||||||||||||||||||||||||
Transfer from covered status | — | 3 | 788 | 281 | 1 | — | 1 | (1,074 | ) | — | ||||||||||||||||||||||||||
Removed due to branch loan sale | (263 | ) | (39 | ) | (347 | ) | (110 | ) | (228 | ) | (63 | ) | (1 | ) | — | (1,051 | ) | |||||||||||||||||||
Provisions | 755 | (612 | ) | (492 | ) | 54 | (165 | ) | (38 | ) | 498 | — | — | |||||||||||||||||||||||
Ending balance | $ | 4,531 | 2,678 | 7,494 | 2,383 | 5,208 | 1,211 | 1,070 | — | 24,575 | ||||||||||||||||||||||||||
As of and for the nine months ended September 30, 2016 | ||||||||||||||||||||||||||||||||||||
Beginning balance | $ | 4,742 | 3,754 | 7,832 | 2,893 | 5,816 | 1,051 | 696 | 1,799 | 28,583 | ||||||||||||||||||||||||||
Charge-offs | (1,229 | ) | (638 | ) | (3,383 | ) | (930 | ) | (850 | ) | (741 | ) | — | (244 | ) | (8,015 | ) | |||||||||||||||||||
Recoveries | 554 | 799 | 672 | 188 | 602 | 308 | — | 1,958 | 5,081 | |||||||||||||||||||||||||||
Transfer from covered status | 56 | 65 | 839 | 293 | 127 | — | 1 | (1,381 | ) | — | ||||||||||||||||||||||||||
Removed due to branch loan sale | (263 | ) | (39 | ) | (347 | ) | (110 | ) | (228 | ) | (63 | ) | (1 | ) | — | (1,051 | ) | |||||||||||||||||||
Provisions | 671 | (1,263 | ) | 1,881 | 49 | (259 | ) | 656 | 374 | (2,132 | ) | (23 | ) | |||||||||||||||||||||||
Ending balance | $ | 4,531 | 2,678 | 7,494 | 2,383 | 5,208 | 1,211 | 1,070 | — | 24,575 | ||||||||||||||||||||||||||
Ending balances as of September 30, 2016: Allowance for loan losses | ||||||||||||||||||||||||||||||||||||
Individually evaluated for impairment | $ | 9 | 169 | 1,306 | 5 | 444 | — | — | — | 1,933 | ||||||||||||||||||||||||||
Collectively evaluated for impairment | $ | 4,522 | 2,509 | 6,188 | 2,372 | �� | 4,764 | 1,211 | 1,070 | — | 22,636 | |||||||||||||||||||||||||
Loans acquired with deteriorated credit quality | $ | — | — | — | 6 | — | — | — | — | 6 | ||||||||||||||||||||||||||
Loans receivable as of September 30, 2016: | ||||||||||||||||||||||||||||||||||||
Ending balance – total | $ | 248,877 | 327,863 | 756,880 | 239,049 | 1,026,328 | 52,264 | — | — | 2,651,261 | ||||||||||||||||||||||||||
Unamortized net deferred loan costs | 198 | |||||||||||||||||||||||||||||||||||
Total loans | $ | 2,651,459 | ||||||||||||||||||||||||||||||||||
Ending balances as of September 30, 2016: Loans | ||||||||||||||||||||||||||||||||||||
Individually evaluated for impairment | $ | 1,732 | 4,181 | 21,611 | 310 | 11,291 | 1 | — | — | 39,126 | ||||||||||||||||||||||||||
Collectively evaluated for impairment | $ | 247,145 | 323,682 | 735,062 | 238,733 | 1,014,506 | 52,263 | — | — | 2,611,391 | ||||||||||||||||||||||||||
Loans acquired with deteriorated credit quality | $ | — | — | 207 | 6 | 531 | — | — | — | 744 |
($ in thousands) | Beginning balance | "Day 1" ACL for acquired PCD loans | Charge-offs | Recoveries | Provisions / (Reversals) | Ending balance | ||||||||||||||||||||||||||||||||
As of and for the three months ended June 30, 2023 | ||||||||||||||||||||||||||||||||||||||
Commercial and industrial | $ | 23,073 | — | (1,534) | 492 | 1,411 | 23,442 | |||||||||||||||||||||||||||||||
Construction, development & other land loans | 18,986 | — | — | 158 | (667) | 18,477 | ||||||||||||||||||||||||||||||||
Commercial real estate - owner occupied | 16,082 | — | — | 34 | 265 | 16,381 | ||||||||||||||||||||||||||||||||
Commercial real estate - non owner occupied | 25,990 | — | — | 38 | 246 | 26,274 | ||||||||||||||||||||||||||||||||
Multi-family real estate | 3,204 | — | — | 3 | 739 | 3,946 | ||||||||||||||||||||||||||||||||
Residential 1-4 family real estate | 12,285 | — | — | 79 | 1,941 | 14,305 | ||||||||||||||||||||||||||||||||
Home equity loans/lines of credit | 3,481 | — | — | 40 | 196 | 3,717 | ||||||||||||||||||||||||||||||||
Consumer loans | 3,295 | — | (217) | 41 | (431) | 2,688 | ||||||||||||||||||||||||||||||||
Total | $ | 106,396 | — | (1,751) | 885 | 3,700 | 109,230 | |||||||||||||||||||||||||||||||
As of and for the six months ended June 30, 2023 | ||||||||||||||||||||||||||||||||||||||
Commercial and industrial | $ | 17,718 | 5,197 | (3,711) | 766 | 3,472 | 23,442 | |||||||||||||||||||||||||||||||
Construction, development & other land loans | 15,128 | 49 | — | 223 | 3,077 | 18,477 | ||||||||||||||||||||||||||||||||
Commercial real estate - owner occupied | 14,972 | 191 | — | 70 | 1,148 | 16,381 | ||||||||||||||||||||||||||||||||
Commercial real estate - non owner occupied | 22,780 | 51 | (235) | 432 | 3,246 | 26,274 | ||||||||||||||||||||||||||||||||
Multi-family real estate | 2,957 | — | — | 7 | 982 | 3,946 | ||||||||||||||||||||||||||||||||
Residential 1-4 family real estate | 11,354 | 113 | — | 225 | 2,613 | 14,305 | ||||||||||||||||||||||||||||||||
Home equity loans/lines of credit | 3,158 | 8 | (2) | 74 | 479 | 3,717 | ||||||||||||||||||||||||||||||||
Consumer loans | 2,900 | 1 | (424) | 77 | 134 | 2,688 | ||||||||||||||||||||||||||||||||
Total | $ | 90,967 | 5,610 | (4,372) | 1,874 | 15,151 | 109,230 |
The following table presents loans individually evaluated for impairment by class of loans, excluding PCI loans, as of September 30, 2017.
($ in thousands) | Recorded Investment | Unpaid Principal Balance | Related Allowance | Average Recorded Investment | ||||||||||||
Impaired loans with no related allowance recorded: | ||||||||||||||||
Commercial, financial, and agricultural | $ | 185 | 425 | — | 299 | |||||||||||
Real estate – mortgage – construction, land development & other land loans | 2,838 | 4,023 | — | 2,871 | ||||||||||||
Real estate – mortgage – residential (1-4 family) first mortgages | 6,461 | 7,029 | — | 7,533 | ||||||||||||
Real estate – mortgage –home equity loans / lines of credit | 52 | 79 | — | 70 | ||||||||||||
Real estate – mortgage –commercial and other | 2,158 | 2,394 | — | 3,162 | ||||||||||||
Installment loans to individuals | — | — | — | 1 | ||||||||||||
Total impaired loans with no allowance | $ | 11,694 | 13,950 | — | 13,936 | |||||||||||
Impaired loans with an allowance recorded: | ||||||||||||||||
Commercial, financial, and agricultural | $ | 305 | 305 | 144 | 169 | |||||||||||
Real estate – mortgage – construction, land development & other land loans | 234 | 243 | 23 | 570 | ||||||||||||
Real estate – mortgage – residential (1-4 family) first mortgages | 8,526 | 8,721 | 929 | 10,198 | ||||||||||||
Real estate – mortgage –home equity loans / lines of credit | — | — | — | 83 | ||||||||||||
Real estate – mortgage –commercial and other | 7,285 | 7,392 | 487 | 5,354 | ||||||||||||
Installment loans to individuals | — | — | — | — | ||||||||||||
Total impaired loans with allowance | $ | 16,350 | 16,661 | 1,583 | 16,374 |
Interest income on impaired loans recognized during the nine months ended September 30, 2017 was insignificant.
The following table presents loans individually evaluated for impairment by class of loans, excluding PCI loans, as of December 31, 2016.
($ in thousands) | Recorded Investment | Unpaid Principal Balance | Related Allowance | Average Recorded Investment | ||||||||||||
Impaired loans with no related allowance recorded: | ||||||||||||||||
Commercial, financial, and agricultural | $ | 593 | 706 | — | 816 | |||||||||||
Real estate – mortgage – construction, land development & other land loans | 3,221 | 4,558 | — | 3,641 | ||||||||||||
Real estate – mortgage – residential (1-4 family) first mortgages | 10,035 | 12,220 | — | 11,008 | ||||||||||||
Real estate – mortgage –home equity loans / lines of credit | 114 | 146 | — | 139 | ||||||||||||
Real estate – mortgage –commercial and other | 4,598 | 5,112 | — | 8,165 | ||||||||||||
Installment loans to individuals | — | 2 | — | 1 | ||||||||||||
Total impaired loans with no allowance | $ | 18,561 | 22,744 | — | 23,770 | |||||||||||
Impaired loans with an allowance recorded: | ||||||||||||||||
Commercial, financial, and agricultural | $ | 51 | 51 | 7 | 202 | |||||||||||
Real estate – mortgage – construction, land development & other land loans | 780 | 798 | 184 | 844 | ||||||||||||
Real estate – mortgage – residential (1-4 family) first mortgages | 10,772 | 11,007 | 1,339 | 13,314 | ||||||||||||
Real estate – mortgage –home equity loans / lines of credit | 166 | 166 | 5 | 324 | ||||||||||||
Real estate – mortgage –commercial and other | 1,896 | 1,929 | 105 | 4,912 | ||||||||||||
Installment loans to individuals | — | — | — | 49 | ||||||||||||
Total impaired loans with allowance | $ | 13,665 | 13,951 | 1,640 | 19,645 |
Interest income on impaired loans recognized during the year ended December 31, 2016 was insignificant.
($ in thousands) Beginning balance Charge-offs Recoveries Provisions / (Reversals) Ending balance As of and for the year ended December 31, 2022 Commercial and industrial $ 16,249 (2,519) 756 3,232 17,718 Construction, development & other land loans 16,519 — 480 (1,871) 15,128 Commercial real estate - owner occupied 12,317 (214) 691 2,178 14,972 Commercial real estate - non owner occupied 16,789 (849) 1,281 5,559 22,780 Multi-family real estate 1,236 — 11 1,710 2,957 Residential 1-4 family real estate 8,686 — 17 2,651 11,354 Home equity loans/lines of credit 4,337 (43) 600 (1,736) 3,158 Consumer loans 2,656 (840) 207 877 2,900 Total $ 78,789 (4,465) 4,043 12,600 90,967
($ in thousands) | Beginning balance | Charge-offs | Recoveries | Provisions / (Reversals) | Ending balance | |||||||||||||||||||||||||||
As of and for the three months ended June 30, 2022 | ||||||||||||||||||||||||||||||||
Commercial and industrial | $ | 16,013 | (728) | 223 | (58) | 15,450 | ||||||||||||||||||||||||||
Construction, development & other land loans | 16,057 | — | 130 | (16) | 16,171 | |||||||||||||||||||||||||||
Commercial real estate - owner occupied | 15,274 | (18) | 529 | (864) | 14,921 | |||||||||||||||||||||||||||
Commercial real estate - non owner occupied | 19,440 | (800) | 768 | 716 | 20,124 | |||||||||||||||||||||||||||
Multi-family real estate | 2,613 | — | 3 | (467) | 2,149 | |||||||||||||||||||||||||||
Residential 1-4 family real estate | 8,159 | — | 11 | 480 | 8,650 | |||||||||||||||||||||||||||
Home equity loans/lines of credit | 2,074 | — | 128 | (116) | 2,086 | |||||||||||||||||||||||||||
Consumer loans | 2,439 | (214) | 80 | 325 | 2,630 | |||||||||||||||||||||||||||
Total | $ | 82,069 | (1,760) | 1,872 | — | 82,181 | ||||||||||||||||||||||||||
As of and for the six months ended June 30, 2022 | ||||||||||||||||||||||||||||||||
Commercial and industrial | $ | 16,249 | (1,518) | 470 | 249 | 15,450 | ||||||||||||||||||||||||||
Construction, development & other land loans | 16,519 | — | 267 | (615) | 16,171 | |||||||||||||||||||||||||||
Commercial real estate - owner occupied | 12,317 | (18) | 560 | 2,062 | 14,921 | |||||||||||||||||||||||||||
Commercial real estate - non owner occupied | 16,789 | (845) | 889 | 3,291 | 20,124 | |||||||||||||||||||||||||||
Multi-family real estate | 1,236 | — | 6 | 907 | 2,149 | |||||||||||||||||||||||||||
Residential 1-4 family real estate | 8,686 | — | 15 | (51) | 8,650 | |||||||||||||||||||||||||||
Home equity loans/lines of credit | 4,337 | (41) | 361 | (2,571) | 2,086 | |||||||||||||||||||||||||||
Consumer loans | 2,656 | (381) | 127 | 228 | 2,630 | |||||||||||||||||||||||||||
Total | $ | 78,789 | (2,803) | 2,695 | 3,500 | 82,181 |
Risk Grade | Description | |||||||
Pass: | ||||||||
1 | Loans with virtually no risk, including cash secured loans. | |||||||
2 | Loans with documented significant overall financial strength. These loans have minimum chance of loss due to the presence of multiple sources of repayment – each clearly sufficient to satisfy the obligation. | |||||||
3 | Loans with documented satisfactory overall financial strength. These loans have a low loss potential due to presence of at least two clearly identified sources of repayment – each of which is sufficient to satisfy the obligation under the present circumstances. | |||||||
4 | Loans to borrowers with acceptable financial condition. These loans could have signs of minor operational weaknesses, lack of adequate financial information, or loans supported by collateral with questionable value or marketability. | |||||||
5 | Loans that represent above average risk due to minor weaknesses and warrant closer scrutiny by management. Collateral is generally required and felt to provide reasonable coverage with realizable liquidation values in normal circumstances. Repayment performance is satisfactory. | |||||||
P
| Consumer loans | |||||||
Special Mention: | ||||||||
6 | Existing loans with defined weaknesses in primary source of repayment that, if not corrected, could cause a loss to the Bank. | |||||||
Classified: | ||||||||
7 | An existing loan inadequately protected by the current sound net worth and paying capacity of the obligor or the collateral pledged, if any. These loans have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. | |||||||
8 | Loans that have a well-defined weakness that make the collection or liquidation in full highly questionable and improbable. Loss appears imminent, but the exact amount and timing is uncertain. | |||||||
9 | Loans that are considered uncollectible and are in the process of being charged-off. This grade is a temporary grade assigned for administrative purposes until the charge-off is completed. | |||||||
F
| Consumer loans |
Page 28
Term Loans by Year of Origination | |||||||||||||||||||||||||||||||||||||||||||||||
($ in thousands) | 2023 | 2022 | 2021 | 2020 | 2019 | Prior | Revolving | Total | |||||||||||||||||||||||||||||||||||||||
As of June 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||
Commercial and industrial | |||||||||||||||||||||||||||||||||||||||||||||||
Pass | $ | 74,660 | 181,469 | 115,551 | 84,957 | 48,034 | 67,670 | 298,082 | 870,423 | ||||||||||||||||||||||||||||||||||||||
Special Mention | 347 | 486 | 335 | 502 | 1,094 | 889 | 1,068 | 4,721 | |||||||||||||||||||||||||||||||||||||||
Classified | 297 | 1,244 | 1,991 | 1,601 | 1,252 | 5,274 | 1,588 | 13,247 | |||||||||||||||||||||||||||||||||||||||
Total commercial and industrial | 75,304 | 183,199 | 117,877 | 87,060 | 50,380 | 73,833 | 300,738 | 888,391 | |||||||||||||||||||||||||||||||||||||||
Gross charge-offs, YTD | — | 146 | 696 | 32 | 556 | 764 | 1,517 | 3,711 | |||||||||||||||||||||||||||||||||||||||
Construction, development & other land loans | |||||||||||||||||||||||||||||||||||||||||||||||
Pass | 310,613 | 466,562 | 214,178 | 22,440 | 15,743 | 9,253 | 67,372 | 1,106,161 | |||||||||||||||||||||||||||||||||||||||
Special Mention | 387 | 2,212 | — | 22 | — | 99 | 23 | 2,743 | |||||||||||||||||||||||||||||||||||||||
Classified | 404 | 104 | 81 | 8 | 16 | 228 | 24 | 865 | |||||||||||||||||||||||||||||||||||||||
Total construction, development & other land loans | 311,404 | 468,878 | 214,259 | 22,470 | 15,759 | 9,580 | 67,419 | 1,109,769 | |||||||||||||||||||||||||||||||||||||||
Gross charge-offs, YTD | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
Commercial real estate - owner occupied | |||||||||||||||||||||||||||||||||||||||||||||||
Pass | 93,809 | 316,395 | 325,281 | 210,414 | 101,728 | 123,372 | 17,491 | 1,188,490 | |||||||||||||||||||||||||||||||||||||||
Special Mention | 730 | 279 | 720 | 3,798 | 5,949 | 5,850 | 635 | 17,961 | |||||||||||||||||||||||||||||||||||||||
Classified | 425 | 3,128 | 1,749 | 267 | 2,443 | 7,636 | 90 | 15,738 | |||||||||||||||||||||||||||||||||||||||
Total commercial real estate - owner occupied | 94,964 | 319,802 | 327,750 | 214,479 | 110,120 | 136,858 | 18,216 | 1,222,189 | |||||||||||||||||||||||||||||||||||||||
Gross charge-offs, YTD | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
Commercial real estate - non owner occupied | |||||||||||||||||||||||||||||||||||||||||||||||
Pass | 263,968 | 750,657 | 781,011 | 326,322 | 144,933 | 115,805 | 23,895 | 2,406,591 | |||||||||||||||||||||||||||||||||||||||
Special Mention | 373 | 218 | 40 | 4,604 | 1,348 | 6,087 | — | 12,670 | |||||||||||||||||||||||||||||||||||||||
Classified | 96 | 1,090 | 16 | — | 1,425 | 1,374 | — | 4,001 | |||||||||||||||||||||||||||||||||||||||
Total commercial real estate - non owner occupied | 264,437 | 751,965 | 781,067 | 330,926 | 147,706 | 123,266 | 23,895 | 2,423,262 | |||||||||||||||||||||||||||||||||||||||
Gross charge-offs, YTD | — | — | 235 | — | — | — | — | 235 | |||||||||||||||||||||||||||||||||||||||
Multi-family real estate | |||||||||||||||||||||||||||||||||||||||||||||||
Pass | 35,169 | 146,618 | 135,882 | 45,914 | 12,650 | 11,561 | 4,326 | 392,120 | |||||||||||||||||||||||||||||||||||||||
Special Mention | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
Classified | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
Total multi-family real estate | 35,169 | 146,618 | 135,882 | 45,914 | 12,650 | 11,561 | 4,326 | 392,120 | |||||||||||||||||||||||||||||||||||||||
Gross charge-offs, YTD | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
Residential 1-4 family real estate | |||||||||||||||||||||||||||||||||||||||||||||||
Pass | 153,127 | 393,590 | 318,229 | 198,500 | 98,969 | 281,467 | 1,715 | 1,445,597 | |||||||||||||||||||||||||||||||||||||||
Special Mention | 697 | 44 | 196 | 151 | 607 | 2,036 | 19 | 3,750 | |||||||||||||||||||||||||||||||||||||||
Classified | 312 | 245 | 374 | 811 | 436 | 8,928 | 615 | 11,721 | |||||||||||||||||||||||||||||||||||||||
Total residential 1-4 family real estate | 154,136 | 393,879 | 318,799 | 199,462 | 100,012 | 292,431 | 2,349 | 1,461,068 | |||||||||||||||||||||||||||||||||||||||
Gross charge-offs, YTD | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
Home equity loans/lines of credit | |||||||||||||||||||||||||||||||||||||||||||||||
Pass | 1,770 | 3,404 | 1,275 | 298 | 606 | 1,752 | 315,797 | 324,902 | |||||||||||||||||||||||||||||||||||||||
Special Mention | 223 | — | 120 | — | — | 17 | 77 | 437 | |||||||||||||||||||||||||||||||||||||||
Classified | 107 | 66 | 151 | 93 | 98 | 125 | 8,587 | 9,227 | |||||||||||||||||||||||||||||||||||||||
Total home equity loans/lines of credit | 2,100 | 3,470 | 1,546 | 391 | 704 | 1,894 | 324,461 | 334,566 | |||||||||||||||||||||||||||||||||||||||
Gross charge-offs, YTD | — | — | — | — | — | — | 2 | 2 | |||||||||||||||||||||||||||||||||||||||
Consumer loans | |||||||||||||||||||||||||||||||||||||||||||||||
Pass | 9,298 | 16,548 | 6,956 | 3,097 | 808 | 826 | 28,963 | 66,496 | |||||||||||||||||||||||||||||||||||||||
Special Mention | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
Classified | 233 | 146 | 77 | 13 | 5 | 12 | 95 | 581 | |||||||||||||||||||||||||||||||||||||||
Total consumer loans | 9,531 | 16,694 | 7,033 | 3,110 | 813 | 838 | 29,058 | 67,077 | |||||||||||||||||||||||||||||||||||||||
Gross charge-offs, YTD | 5 | 8 | 22 | 3 | — | — | 386 | 424 | |||||||||||||||||||||||||||||||||||||||
Total loans | $ | 947,045 | 2,284,505 | 1,904,213 | 903,812 | 438,144 | 650,261 | 770,462 | 7,898,442 | ||||||||||||||||||||||||||||||||||||||
Unamortized net deferred loan fees | (813) | ||||||||||||||||||||||||||||||||||||||||||||||
Total loans, net of deferred loan fees | 7,897,629 | ||||||||||||||||||||||||||||||||||||||||||||||
Total gross charge-offs, year to date | $ | 5 | 154 | 953 | 35 | 556 | 764 | 1,905 | 4,372 |
Term Loans by Year of Origination | |||||||||||||||||||||||||||||||||||||||||||||||
($ in thousands) | 2022 | 2021 | 2020 | 2019 | 2018 | Prior | Revolving | Total | |||||||||||||||||||||||||||||||||||||||
As of December 31, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||
Commercial and industrial | |||||||||||||||||||||||||||||||||||||||||||||||
Pass | $ | 185,167 | 107,747 | 85,110 | 51,274 | 590 | 76,588 | 120,590 | 627,066 | ||||||||||||||||||||||||||||||||||||||
Special Mention | 342 | 166 | 648 | 1,312 | — | 990 | 332 | 3,790 | |||||||||||||||||||||||||||||||||||||||
Classified | 734 | 1,909 | 808 | 1,384 | — | 5,762 | 488 | 11,085 | |||||||||||||||||||||||||||||||||||||||
Total commercial and industrial | 186,243 | 109,822 | 86,566 | 53,970 | 590 | 83,340 | 121,410 | 641,941 | |||||||||||||||||||||||||||||||||||||||
Construction, development & other land loans | |||||||||||||||||||||||||||||||||||||||||||||||
Pass | 550,752 | 267,096 | 42,421 | 30,973 | — | 12,722 | 19,519 | 923,483 | |||||||||||||||||||||||||||||||||||||||
Special Mention | 5,128 | 5 | 3,679 | — | — | 100 | 13 | 8,925 | |||||||||||||||||||||||||||||||||||||||
Classified | 656 | 107 | 38 | 899 | — | 44 | 24 | 1,768 | |||||||||||||||||||||||||||||||||||||||
Total construction, development & other land loans | 556,536 | 267,208 | 46,138 | 31,872 | — | 12,866 | 19,556 | 934,176 | |||||||||||||||||||||||||||||||||||||||
Commercial real estate - owner occupied | |||||||||||||||||||||||||||||||||||||||||||||||
Pass | 258,025 | 305,324 | 190,464 | 96,495 | 179 | 141,053 | 15,499 | 1,007,039 | |||||||||||||||||||||||||||||||||||||||
Special Mention | 1,170 | 1,070 | 4,042 | 6,926 | — | 3,277 | 665 | 17,150 | |||||||||||||||||||||||||||||||||||||||
Classified | 3,060 | 208 | 84 | 1,572 | — | 6,790 | 367 | 12,081 | |||||||||||||||||||||||||||||||||||||||
Total commercial real estate - owner occupied | 262,255 | 306,602 | 194,590 | 104,993 | 179 | 151,120 | 16,531 | 1,036,270 | |||||||||||||||||||||||||||||||||||||||
Commercial real estate - non owner occupied | |||||||||||||||||||||||||||||||||||||||||||||||
Pass | 718,696 | 747,653 | 319,708 | 141,284 | — | 168,096 | 21,159 | 2,116,596 | |||||||||||||||||||||||||||||||||||||||
Special Mention | 545 | 44 | 394 | 1,363 | — | 1,180 | — | 3,526 | |||||||||||||||||||||||||||||||||||||||
Classified | 420 | 1,057 | — | 884 | — | 1,328 | — | 3,689 | |||||||||||||||||||||||||||||||||||||||
Total commercial real estate - non owner occupied | 719,661 | 748,754 | 320,102 | 143,531 | — | 170,604 | 21,159 | 2,123,811 | |||||||||||||||||||||||||||||||||||||||
Multi-family real estate | |||||||||||||||||||||||||||||||||||||||||||||||
Pass | 119,922 | 133,701 | 59,452 | 9,669 | — | 15,212 | 12,224 | 350,180 | |||||||||||||||||||||||||||||||||||||||
Special Mention | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
Classified | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
Total multi-family real estate | 119,922 | 133,701 | 59,452 | 9,669 | — | 15,212 | 12,224 | 350,180 | |||||||||||||||||||||||||||||||||||||||
Residential 1-4 family real estate | |||||||||||||||||||||||||||||||||||||||||||||||
Pass | 317,282 | 274,756 | 186,102 | 98,559 | 185 | 301,885 | 1,379 | 1,180,148 | |||||||||||||||||||||||||||||||||||||||
Special Mention | 1,189 | 127 | 110 | 470 | — | 2,416 | — | 4,312 | |||||||||||||||||||||||||||||||||||||||
Classified | 763 | 251 | 221 | 359 | — | 9,072 | 659 | 11,325 | |||||||||||||||||||||||||||||||||||||||
Total residential 1-4 family real estate | 319,234 | 275,134 | 186,433 | 99,388 | 185 | 313,373 | 2,038 | 1,195,785 | |||||||||||||||||||||||||||||||||||||||
Home equity loans/lines of credit | |||||||||||||||||||||||||||||||||||||||||||||||
Pass | 869 | 1,091 | 349 | 237 | — | 2,020 | 309,786 | 314,352 | |||||||||||||||||||||||||||||||||||||||
Special Mention | 175 | — | — | — | — | 18 | 1,072 | 1,265 | |||||||||||||||||||||||||||||||||||||||
Classified | 106 | 156 | 94 | 87 | — | 213 | 7,453 | 8,109 | |||||||||||||||||||||||||||||||||||||||
Total home equity loans/lines of credit | 1,150 | 1,247 | 443 | 324 | — | 2,251 | 318,311 | 323,726 | |||||||||||||||||||||||||||||||||||||||
Consumer loans | |||||||||||||||||||||||||||||||||||||||||||||||
Pass | 35,406 | 7,946 | 3,610 | 1,056 | 3 | 1,250 | 10,953 | 60,224 | |||||||||||||||||||||||||||||||||||||||
Special Mention | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
Classified | 320 | 31 | 3 | 1 | — | 25 | 55 | 435 | |||||||||||||||||||||||||||||||||||||||
Total consumer loans | 35,726 | 7,977 | 3,613 | 1,057 | 3 | 1,275 | 11,008 | 60,659 | |||||||||||||||||||||||||||||||||||||||
Total loans | $ | 2,200,727 | 1,850,445 | 897,337 | 444,804 | 957 | 750,041 | 522,237 | 6,666,548 | ||||||||||||||||||||||||||||||||||||||
Unamortized net deferred loan fees | (1,403) | ||||||||||||||||||||||||||||||||||||||||||||||
Total loans, net of deferred loan fees | 6,665,145 |
($ in thousands) | ||||||||||||||||||||
Pass | Special Mention Loans | Classified Accruing Loans | Classified Nonaccrual Loans | Total | ||||||||||||||||
Commercial, financial, and agricultural | $ | 365,505 | 8,974 | 1,210 | 996 | 376,685 | ||||||||||||||
Real estate – construction, land development & other land loans | 435,960 | 6,009 | 6,336 | 1,565 | 449,870 | |||||||||||||||
Real estate – mortgage – residential (1-4 family) first mortgages | 729,341 | 15,298 | 33,395 | 14,878 | 792,912 | |||||||||||||||
Real estate – mortgage – home equity loans / lines of credit | 304,114 | 1,262 | 6,985 | 2,250 | 314,611 | |||||||||||||||
Real estate – mortgage – commercial and other | 1,384,255 | 23,736 | 10,584 | 3,534 | 1,422,109 | |||||||||||||||
Installment loans to individuals | 58,444 | 224 | 176 | 127 | 58,971 | |||||||||||||||
Purchased credit impaired | 6,748 | 5,002 | 3,284 | — | 15,034 | |||||||||||||||
Total | $ | 3,284,367 | 60,505 | 61,970 | 23,350 | 3,430,192 | ||||||||||||||
Unamortized net deferred loan fees | (437 | ) | ||||||||||||||||||
Total loans | 3,429,755 |
2023 of the loans modified during the three and six months then ended for borrowers experiencing financial difficulty, by loan category and type of concession granted. Percentages labeled as "NM" are not measurable to the class of financing receivable, as they are less than 0.1% of the total class.
($ in thousands) | Payment Delay | Term Extension | Combination - Interest Rate Reduction and Term Extension | Total | Percent of Total Class of Loans | |||||||||||||||||||||||||||||||||||||||||||||||||||
As of and for the three months ended June 30, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Commercial and industrial | $ | 1,363 | 30 | — | 1,393 | 0.16 | % | |||||||||||||||||||||||||||||||||||||||||||||||||
Commercial real estate - owner occupied | 188 | 287 | — | 475 | 0.04 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||
Residential 1-4 family real estate | — | 469 | — | 469 | 0.03 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||
Home equity loans/lines of credit | — | 1,317 | — | 1,317 | 0.39 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||
Total | $ | 1,551 | 2,103 | — | 3,654 | 0.05 | % | |||||||||||||||||||||||||||||||||||||||||||||||||
As of and for the six months ended June 30, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Commercial and industrial | $ | 1,513 | 105 | — | 1,618 | 0.18 | % | |||||||||||||||||||||||||||||||||||||||||||||||||
Construction, development & other land loans | — | 502 | 12 | 514 | 0.05 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||
Commercial real estate - owner occupied | 188 | 287 | — | 475 | 0.04 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||
Commercial real estate - non owner occupied | — | 96 | — | 96 | NM | |||||||||||||||||||||||||||||||||||||||||||||||||||
Residential 1-4 family real estate | — | 515 | — | 515 | 0.04 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||
Home equity loans/lines of credit | — | 1,416 | — | 1,416 | 0.42 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||
Consumer loans | — | 228 | — | 228 | 0.34 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||
Total | $ | 1,701 | 3,149 | 12 | 4,862 | 0.06 | % |
Financial Effect of Modification to Borrowers Experiencing Financial Difficulty | ||||||||||||||||||||||||||
Weighted Average Interest Rate Reduction | Weighted Average Payment Delay (in months) | Weighted Average Term Extension (in months) | ||||||||||||||||||||||||
For the three months ended June 30, 2023 | ||||||||||||||||||||||||||
Commercial and industrial | —% | 2 | 25 | |||||||||||||||||||||||
Commercial real estate - owner occupied | —% | 12 | 49 | |||||||||||||||||||||||
Residential 1-4 family real estate | —% | 0 | 25 | |||||||||||||||||||||||
Home equity loans/lines of credit | —% | 0 | 42 | |||||||||||||||||||||||
For the six months ended June 30, 2023 | ||||||||||||||||||||||||||
Commercial and industrial | —% | 2 | 13 | |||||||||||||||||||||||
Construction, development & other land loans | 1.50% | 0 | 7 | |||||||||||||||||||||||
Commercial real estate - owner occupied | —% | 12 | 49 | |||||||||||||||||||||||
Commercial real estate - non owner occupied | —% | 0 | 15 | |||||||||||||||||||||||
Residential 1-4 family real estate | —% | 0 | 24 | |||||||||||||||||||||||
Home equity loans/lines of credit | —% | 0 | 40 | |||||||||||||||||||||||
Consumer loans | —% | 0 | 6 |
Payment Status (Amortized Cost Basis) | ||||||||||||||||||||||||||
($ in thousands) | Current | 30-59 Days Past Due | 60-89 Days Past Due | 90+ Days Past Due | ||||||||||||||||||||||
Commercial and industrial | $ | 1,618 | — | — | — | |||||||||||||||||||||
Construction, development & other land loans | 514 | — | — | — | ||||||||||||||||||||||
Commercial real estate - owner occupied | 475 | — | — | — | ||||||||||||||||||||||
Commercial real estate - non owner occupied | 96 | — | — | — | ||||||||||||||||||||||
Multi-family real estate | — | — | — | — | ||||||||||||||||||||||
Residential 1-4 family real estate | 345 | — | 170 | — | ||||||||||||||||||||||
Home equity loans/lines of credit | 1,416 | — | — | — | ||||||||||||||||||||||
Consumer loans | 228 | — | — | — | ||||||||||||||||||||||
$ | 4,692 | — | 170 | — |
($ in thousands) | ||||||||||||||||||||
Pass | Special Mention Loans | Classified Accruing Loans | Classified Nonaccrual Loans | Total | ||||||||||||||||
Commercial, financial, and agricultural | $ | 247,451 | 10,560 | 1,960 | 1,842 | 261,813 | ||||||||||||||
Real estate – construction, land development & other land loans | 335,068 | 8,762 | 7,892 | 2,945 | 354,667 | |||||||||||||||
Real estate – mortgage – residential (1-4 family) first mortgages | 678,878 | 16,998 | 38,786 | 16,017 | 750,679 | |||||||||||||||
Real estate – mortgage – home equity loans / lines of credit | 226,159 | 1,436 | 9,155 | 2,355 | 239,105 | |||||||||||||||
Real estate – mortgage – commercial and other | 1,005,687 | 26,032 | 13,019 | 4,208 | 1,048,946 | |||||||||||||||
Installment loans to individuals | 54,421 | 256 | 259 | 101 | 55,037 | |||||||||||||||
Purchased credit impaired | — | 514 | — | — | 514 | |||||||||||||||
Total | $ | 2,547,664 | 64,558 | 71,071 | 27,468 | 2,710,761 | ||||||||||||||
Unamortized net deferred loan fees | (49 | ) | ||||||||||||||||||
Total loans | 2,710,712 |
Troubled Debt Restructurings
ASU 2022-02
All loans classified as troubled debt restructurings are considered to be impaired and are evaluated as such for determination of the allowance for loan losses.
($ in thousands) | For three months ended September 30, 2017 | For the three months ended September 30, 2016 | ||||||||||||||||||||||
Number of Contracts | Pre- Modification Restructured Balances | Post- Modification Restructured Balances | Number of Contracts | Pre- Modification Restructured Balances | Post- Modification Restructured Balances | |||||||||||||||||||
TDRs – Accruing | ||||||||||||||||||||||||
Commercial, financial, and agricultural | — | $ | — | $ | — | 1 | $ | 1,071 | $ | 1,071 | ||||||||||||||
Real estate – construction, land development & other land loans | — | — | — | — | — | — | ||||||||||||||||||
Real estate – mortgage – residential (1-4 family) first mortgages | — | — | — | — | — | — | ||||||||||||||||||
Real estate – mortgage – home equity loans / lines of credit | — | — | — | — | — | — | ||||||||||||||||||
Real estate – mortgage – commercial and other | — | — | — | — | — | — | ||||||||||||||||||
Installment loans to individuals | — | — | — | — | — | — | ||||||||||||||||||
TDRs – Nonaccrual | ||||||||||||||||||||||||
Commercial, financial, and agricultural | — | — | — | — | — | — | ||||||||||||||||||
Real estate – construction, land development & other land loans | — | — | — | — | — | — | ||||||||||||||||||
Real estate – mortgage – residential (1-4 family) first mortgages | — | — | — | — | — | — | ||||||||||||||||||
Real estate – mortgage – home equity loans / lines of credit | — | — | — | — | — | — | ||||||||||||||||||
Real estate – mortgage – commercial and other | — | — | — | — | — | — | ||||||||||||||||||
Installment loans to individuals | — | — | — | — | — | — | ||||||||||||||||||
Total TDRs arising during period | — | $ | — | $ | — | 1 | $ | 1,071 | $ | 1,071 | ||||||||||||||
Total covered TDRs arising during period included above | — | $ | — | $ | — | — | $ | — | $ | — |
Page 30
For the three months ended June 30, 2022 | For the six months ended June 30, 2022 | |||||||||||||||||||||||||||||||||||||
($ in thousands) | Number of Contracts | Pre-Modification Restructured Balances | Post-Modification Restructured Balances | Number of Contracts | Pre-Modification Restructured Balances | Post-Modification Restructured Balances | ||||||||||||||||||||||||||||||||
TDRs - Accruing | ||||||||||||||||||||||||||||||||||||||
Commercial and industrial | 1 | $ | 161 | 161 | 1 | $ | 161 | 161 | ||||||||||||||||||||||||||||||
Construction, development & other land loans | 1 | 131 | 131 | 1 | 131 | 131 | ||||||||||||||||||||||||||||||||
Residential 1-4 family real estate | — | — | — | 1 | 36 | 36 | ||||||||||||||||||||||||||||||||
Home equity loans/lines of credit | 2 | 203 | 203 | 2 | 203 | 203 | ||||||||||||||||||||||||||||||||
TDRs - Nonaccrual | ||||||||||||||||||||||||||||||||||||||
Commercial and industrial | 2 | 259 | 259 | 3 | 300 | 300 | ||||||||||||||||||||||||||||||||
Commercial real estate - owner occupied | 1 | 244 | 244 | 2 | 784 | 784 | ||||||||||||||||||||||||||||||||
Residential 1-4 family real estate | — | — | — | 1 | 36 | 36 | ||||||||||||||||||||||||||||||||
Total TDRs arising during period | 7 | $ | 998 | 998 | 11 | $ | 1,651 | 1,651 |
The following table presents information related to loans modified in a troubled debt restructuring during the nine months ended September 30, 2017 and 2016.
($ in thousands) | For nine months ended September 30, 2017 | For the nine months ended September 30, 2016 | ||||||||||||||||||||||
Number of Contracts | Pre- Modification Restructured Balances | Post- Modification Restructured Balances | Number of Contracts | Pre- Modification Restructured Balances | Post- Modification Restructured Balances | |||||||||||||||||||
TDRs – Accruing | ||||||||||||||||||||||||
Commercial, financial, and agricultural | — | $ | — | $ | — | 1 | $ | 1,071 | $ | 1,071 | ||||||||||||||
Real estate – construction, land development & other land loans | — | — | — | — | — | — | ||||||||||||||||||
Real estate – mortgage – residential (1-4 family) first mortgages | — | — | — | — | — | — | ||||||||||||||||||
Real estate – mortgage – home equity loans / lines of credit | — | — | — | — | — | — | ||||||||||||||||||
Real estate – mortgage – commercial and other | 5 | 3,550 | 3,525 | — | — | — | ||||||||||||||||||
Installment loans to individuals | — | — | — | — | — | — | ||||||||||||||||||
TDRs – Nonaccrual | ||||||||||||||||||||||||
Commercial, financial, and agricultural | — | — | — | — | — | — | ||||||||||||||||||
Real estate – construction, land development & other land loans | 1 | 32 | 32 | — | — | — | ||||||||||||||||||
Real estate – mortgage – residential (1-4 family) first mortgages | 1 | 215 | 215 | — | — | — | ||||||||||||||||||
Real estate – mortgage – home equity loans / lines of credit | — | — | — | — | — | — | ||||||||||||||||||
Real estate – mortgage – commercial and other | — | — | — | — | — | — | ||||||||||||||||||
Installment loans to individuals | — | — | — | — | — | — | ||||||||||||||||||
Total TDRs arising during period | 7 | $ | 3,797 | $ | 3,772 | 1 | $ | 1,071 | $ | 1,071 | ||||||||||||||
Total covered TDRs arising during period included above | — | $ | — | $ | — | — | $ | — | $ | — |
Accruing restructured loans that were modified in the previous 12 months and that defaulted during the three months ended September 30, 2017 and 2016 are presented in the table below.
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Accruing restructured loans that were modified in the previous 12twelve months and that defaulted during the ninethree and six months ended SeptemberJune 30, 2017 and 2016 are presented2022.
($ in thousands) | For the nine months ended September 30, 2017 | For the nine months ended September 30, 2016 | ||||||||||||||
Number of Contracts | Recorded Investment | Number of Contracts | Recorded Investment | |||||||||||||
Accruing TDRs that subsequently defaulted | ||||||||||||||||
Commercial, financial, and agricultural | — | $ | — | 1 | $ | 44 | ||||||||||
Real estate – mortgage – residential (1-4 family) first mortgages | 2 | 880 | — | — | ||||||||||||
Real estate – mortgage – commercial and other | — | — | 1 | 21 | ||||||||||||
Total accruing TDRs that subsequently defaulted | 2 | $ | 880 | 2 | $ | 65 | ||||||||||
Total covered accruing TDRs that subsequently defaulted included above | — | $ | — | 1 | $ | 44 |
Note 9 – Deferredeconomy within its markets. Approximately 88% of the Company's loan portfolio is secured by real estate and is therefore susceptible to changes in real estate valuations.
Commitments
($ in thousands) | June 30, 2023 | December 31, 2022 | June 30, 2022 | |||||||||||||||||
Beginning balance | $ | 13,306 | 13,506 | 13,506 | ||||||||||||||||
"Day 2" provision for credit losses on unfunded commitments acquired from GrandSouth | 1,921 | — | — | |||||||||||||||||
Charge-offs | — | — | — | |||||||||||||||||
Recoveries | — | — | — | |||||||||||||||||
Reversal of provision for unfunded commitments | (2,209) | (200) | (1,500) | |||||||||||||||||
Ending balance | $ | 13,018 | 13,306 | 12,006 |
Note 10 – FDIC Indemnification Asset
The Company terminated all loss share agreements with the FDIC effective September 22, 2016. As a result, the remaining balance in the FDIC Indemnification Asset, which represented the estimated amount to be received from the FDIC under the loss share agreements, was written off as indemnification asset expense as of the termination date.
The following presents a rollforward of the FDIC indemnification asset from January 1, 2016 through the date of termination.
($ in thousands) | ||||
Balance at January 1, 2016 | $ | 8,439 | ||
Decrease related to favorable changes in loss estimates | (2,246 | ) | ||
Increase related to reimbursable expenses | 205 | |||
Cash paid (received) | 1,554 | |||
Related to accretion of loan discount | (2,005 | ) | ||
Other | (236 | ) | ||
Write off of asset balance upon termination of FDIC loss share agreements effective September 22, 2016 | (5,711 | ) | ||
Balance at September 30, 2016 | $ | — |
September 30, 2017 | December 31, 2016 | September 30, 2016 | ||||||||||||||||||||||
($ in thousands) | Gross Carrying Amount | Accumulated Amortization | Gross Carrying Amount | Accumulated Amortization | Gross Carrying Amount | Accumulated Amortization | ||||||||||||||||||
Amortizable intangible assets: | ||||||||||||||||||||||||
Customer lists | $ | 6,013 | 953 | 2,369 | 746 | 2,369 | 668 | |||||||||||||||||
Core deposit premiums | 18,520 | 10,084 | 9,730 | 8,143 | 9,730 | 7,902 | ||||||||||||||||||
Other | 1,303 | 471 | 1,032 | 224 | 1,032 | 166 | ||||||||||||||||||
Total | $ | 25,836 | 11,508 | 13,131 | 9,113 | 13,131 | 8,736 | |||||||||||||||||
SBA servicing asset | $ | 1,306 | 415 | 208 | ||||||||||||||||||||
Unamortizable intangible assets: | ||||||||||||||||||||||||
Goodwill | $ | 144,667 | 75,042 | 75,392 |
Page 32
June 30, 2023 | December 31, 2022 | |||||||||||||||||||||||||
($ in thousands) | Gross Carrying Amount | Accumulated Amortization | Gross Carrying Amount | Accumulated Amortization | ||||||||||||||||||||||
Amortizable intangible assets: | ||||||||||||||||||||||||||
Customer lists | $ | 2,700 | 2,007 | 2,700 | 1,847 | |||||||||||||||||||||
Core deposit intangibles | 57,890 | 25,296 | 29,050 | 21,274 | ||||||||||||||||||||||
Other intangibles | 100 | 71 | 100 | 58 | ||||||||||||||||||||||
Intangibles before servicing assets | 60,690 | 27,374 | 31,850 | 23,179 | ||||||||||||||||||||||
SBA servicing assets | 13,536 | 9,755 | 13,264 | 9,260 | ||||||||||||||||||||||
Total amortizable intangible assets | $ | 74,226 | 37,129 | 45,114 | 32,439 | |||||||||||||||||||||
Unamortizable intangible assets: | ||||||||||||||||||||||||||
Goodwill | $ | 478,750 | 364,263 |
Activity related to transactions during
In addition to the above acquisition related activity, the Company recorded $415,000 in net servicing assets, associated withtotaled $2.0 million and $1.0 million for the guaranteed portionthree months ended June 30, 2023 and 2022, respectively, and $4.2 million and $2.0 million for the six months ended June 30, 2023 and 2022, respectively.
Amortizationloans and are tested for impairment on a quarterly basis. SBA servicing asset amortization expense of all intangibleis recorded within noninterest income as an offset to SBA servicing fees within the line item "Other service charges, commissions, and fees."
Three months ended June 30, | Six months ended June 30, | |||||||||||||||||||||||||
($ in thousands) | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||
Beginning balance, net | $ | 3,897 | 5,591 | 4,004 | 5,472 | |||||||||||||||||||||
Add: New servicing assets | 195 | 281 | 271 | 1,026 | ||||||||||||||||||||||
Less: Amortization and impairment expense | 311 | 905 | 494 | 1,531 | ||||||||||||||||||||||
Ending balance, net | $ | 3,781 | 4,967 | 3,781 | 4,967 | |||||||||||||||||||||
SBA guaranteed servicing income | $ | 863 | 992 | 1,847 | 1,781 |
periods presented, including the most recent October 2022 evaluation, indicated that there was no goodwill impairment.
($ in thousands) | Total Goodwill | |||||||
Balance at December 31, 2021 | $ | 364,263 | ||||||
Net activity during 2022 | — | |||||||
Balance at December 31, 2022 | 364,263 | |||||||
Additions from acquisition of GrandSouth | 114,487 | |||||||
Balance at June 30, 2023 | $ | 478,750 |
($ in thousands)
| Estimated Amortization Expense | |||
October 1 to December 31, 2017 | $ | 902 | ||
2018 | 3,262 | |||
2019 | 2,654 | |||
2020 | 2,090 | |||
2021 | 1,628 | |||
Thereafter | 3,792 | |||
Total | $ | 14,328 | ||
($ in thousands) Estimated Amortization
ExpenseJuly 1, 2023 to December 31, 2023 $ 3,808 2024 6,604 2025 5,672 2026 4,705 2027 3,951 Thereafter 8,576 Total $ 33,316
Description | Due date | Call Feature | June 30, 2023 | Interest Rate | ||||||||||||||||||||||
FHLB Principal Reducing Credit | 7/24/2023 | None | $ | 8 | 1.00% fixed | |||||||||||||||||||||
FHLB Principal Reducing Credit | 12/22/2023 | None | 891 | 1.25% fixed | ||||||||||||||||||||||
FHLB Principal Reducing Credit | 6/26/2028 | None | 208 | 0.25% fixed | ||||||||||||||||||||||
FHLB Principal Reducing Credit | 7/17/2028 | None | 34 | 0.00% fixed | ||||||||||||||||||||||
FHLB Principal Reducing Credit | 8/18/2028 | None | 155 | 1.00% fixed | ||||||||||||||||||||||
FHLB Principal Reducing Credit | 8/22/2028 | None | 155 | 1.00% fixed | ||||||||||||||||||||||
FHLB Principal Reducing Credit | 12/20/2028 | None | 322 | 0.50% fixed | ||||||||||||||||||||||
FHLB Daily Rate Credit | 7/13/2023 | None | 75,000 | 5.24% fixed | ||||||||||||||||||||||
FHLB Fixed Rate Credit | 9/13/2023 | None | 300,000 | 5.17% fixed | ||||||||||||||||||||||
FHLB Fixed Rate Hybrid | 9/29/2023 | None | 5,000 | 0.40% fixed | ||||||||||||||||||||||
Trust Preferred Securities | 1/23/2034 | Quarterly by Company beginning 1/23/2009 | 10,310 | 7.95% at 6/30/23 adjustable rate 3 month LIBOR + 2.65% | ||||||||||||||||||||||
Trust Preferred Securities | 1/23/2034 | Quarterly by Company beginning 1/23/2009 | 10,310 | 8.05% at 6/30/23 adjustable rate 3 month LIBOR + 2.75% | ||||||||||||||||||||||
Trust Preferred Securities | 9/20/2034 | Quarterly by Company beginning 9/20/2009 | 12,372 | 7.66% at 6/30/23 adjustable rate 3 month LIBOR + 2.15% | ||||||||||||||||||||||
Trust Preferred Securities | 1/7/2035 | Quarterly by Company beginning 1/7/2010 | 10,310 | 7.26% at 6/30/23 adjustable rate 3 month LIBOR + 2.00% | ||||||||||||||||||||||
Trust Preferred Securities | 6/15/2036 | Quarterly by Company beginning 6/15/2011 | 25,774 | 6.26% at 6/30/23 adjustable rate 3 month LIBOR + 1.39% | ||||||||||||||||||||||
Trust Preferred Securities | 6/23/2036 | Quarterly by the Company beginning 6/23/2011 | 8,248 | 7.39% at 6/30/23 adjustable rate 3 month LIBOR + 1.85% | ||||||||||||||||||||||
Subordinated Debentures | 11/30/2028 | Semi-annually by Company beginning 11/30/2023 | 10,000 | 6.50% fixed | ||||||||||||||||||||||
Subordinated Debentures | 11/15/2030 | Semi-annually by Company beginning 11/15/2025 | 18,000 | 4.38% fixed | ||||||||||||||||||||||
Total borrowings / weighted average rate as of June 30, 2023 | 487,097 | 5.44% | ||||||||||||||||||||||||
Unamortized discount on acquired borrowings | (5,439) | |||||||||||||||||||||||||
Total borrowings | $ | 481,658 |
Description | Due date | Call Feature | December 31, 2022 | Interest Rate | ||||||||||||||||||||||
FHLB Principal Reducing Credit | 7/24/2023 | None | $ | 32 | 1.00% fixed | |||||||||||||||||||||
FHLB Principal Reducing Credit | 12/22/2023 | None | 912 | 1.25% fixed | ||||||||||||||||||||||
FHLB Principal Reducing Credit | 6/26/2028 | None | 214 | 0.25% fixed | ||||||||||||||||||||||
FHLB Principal Reducing Credit | 7/17/2028 | None | 38 | 0.00% fixed | ||||||||||||||||||||||
FHLB Principal Reducing Credit | 8/18/2028 | None | 158 | 1.00% fixed | ||||||||||||||||||||||
FHLB Principal Reducing Credit | 8/22/2028 | None | 159 | 1.00% fixed | ||||||||||||||||||||||
FHLB Principal Reducing Credit | 12/20/2028 | None | 329 | 0.50% fixed | ||||||||||||||||||||||
FHLB Daily Rate Credit | 8/23/2023 | None | 40,000 | 4.57% fixed | ||||||||||||||||||||||
FHLB Fixed Rate Credit | 1/9/2023 | None | 50,000 | 4.15% fixed | ||||||||||||||||||||||
FHLB Fixed Rate Credit | 2/1/2023 | None | 80,000 | 4.25% fixed | ||||||||||||||||||||||
FHLB Fixed Rate Credit | 2/9/2023 | None | 50,000 | 4.35% fixed | ||||||||||||||||||||||
Trust Preferred Securities | 1/23/2034 | Quarterly by Company beginning 1/23/2009 | 10,310 | 7.06% at 12/31/22 adjustable rate 3 month LIBOR + 2.65% | ||||||||||||||||||||||
Trust Preferred Securities | 1/23/2034 | Quarterly by Company beginning 1/23/2009 | 10,310 | 7.16% at 12/31/22 adjustable rate 3 month LIBOR + 2.75% | ||||||||||||||||||||||
Trust Preferred Securities | 6/15/2036 | Quarterly by Company beginning 6/15/2011 | 25,774 | 6.16% at 12/31/22 adjustable rate 3 month LIBOR + 1.39% | ||||||||||||||||||||||
Trust Preferred Securities | 9/20/2034 | Quarterly by Company beginning 9/20/2009 | 12,372 | 6.90% at 12/31/22 adjustable rate 3 month LIBOR + 2.15% | ||||||||||||||||||||||
Trust Preferred Securities | 1/7/2035 | Quarterly by Company beginning 1/7/2010 | 10,310 | 6.08% at 12/31/22 adjustable rate 3 month LIBOR + 2.00% | ||||||||||||||||||||||
Total borrowings / weighted average rate as of December 31, 2022 | 290,918 | 4.82% | ||||||||||||||||||||||||
Unamortized discount on acquired borrowings | (3,411) | |||||||||||||||||||||||||
Total borrowings | $ | 287,507 |
($ in thousands) | ||||||||
July 1, 2023 to December 31, 2023 | $ | 1,180 | ||||||
2024 | 2,163 | |||||||
2025 | 1,706 | |||||||
2026 | 1,685 | |||||||
2027 | 1,547 | |||||||
Thereafter | 18,441 | |||||||
Total undiscounted lease payments | 26,722 | |||||||
Less effect of discounting | (7,613) | |||||||
Present value of estimated lease payments (lease liability) | $ | 19,109 |
2012 have been made.
For the Three Months Ended September 30, | ||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2017 Total | 2016 Total | |||||||||||||||||||
($ in thousands) | Pension Plan | Pension Plan | SERP | SERP | Both Plans | Both Plans | ||||||||||||||||||
Service cost | $ | — | — | 29 | 27 | 29 | 27 | |||||||||||||||||
Interest cost | 361 | 375 | 57 | 60 | 418 | 435 | ||||||||||||||||||
Expected return on plan assets | (702 | ) | (675 | ) | — | — | (702 | ) | (675 | ) | ||||||||||||||
Amortization of transition obligation | — | — | — | — | — | — | ||||||||||||||||||
Amortization of net (gain)/loss | 61 | 59 | (8 | ) | (9 | ) | 53 | 50 | ||||||||||||||||
Amortization of prior service cost | — | — | — | — | — | — | ||||||||||||||||||
Net periodic pension (income)/cost | $ | (280 | ) | (241 | ) | 78 | 78 | (202 | ) | (163 | ) |
cost:
For the Three Months Ended June 30, | |||||||||||||||||||||||||||||||||||
2023 | 2022 | ||||||||||||||||||||||||||||||||||
($ in thousands) | Pension Plan | SERP | Total Both Plans | Pension Plan | SERP | Total Both Plans | |||||||||||||||||||||||||||||
Service cost | $ | — | — | — | — | — | — | ||||||||||||||||||||||||||||
Interest cost | 266 | 28 | 294 | 267 | 28 | 295 | |||||||||||||||||||||||||||||
Expected return on plan assets | (288) | — | (288) | (288) | — | (288) | |||||||||||||||||||||||||||||
Amortization of net loss (gain) | 180 | (136) | 44 | 180 | (136) | 44 | |||||||||||||||||||||||||||||
Net periodic pension cost | $ | 158 | (108) | 50 | 159 | (108) | 51 | ||||||||||||||||||||||||||||
For the Six Months Ended June 30, | |||||||||||||||||||||||||||||||||||
2023 | 2022 | ||||||||||||||||||||||||||||||||||
($ in thousands) | Pension Plan | SERP | Total Both Plans | Pension Plan | SERP | Total Both Plans | |||||||||||||||||||||||||||||
Service cost | $ | — | — | — | — | — | — | ||||||||||||||||||||||||||||
Interest cost | 533 | 56 | 589 | 534 | 56 | 590 | |||||||||||||||||||||||||||||
Expected return on plan assets | (576) | — | (576) | (576) | — | (576) | |||||||||||||||||||||||||||||
Amortization of net (gain)/loss | 360 | (272) | 88 | 360 | (272) | 88 | |||||||||||||||||||||||||||||
Net periodic pension cost | $ | 317 | (216) | 101 | 318 | (216) | 102 |
For the Nine Months Ended September 30, | ||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2017 Total | 2016 Total | |||||||||||||||||||
($ in thousands) | Pension Plan | Pension Plan | SERP | SERP | Both Plans | Both Plans | ||||||||||||||||||
Service cost – benefits earned during the period | $ | — | — | 88 | 80 | 88 | 80 | |||||||||||||||||
Interest cost | 1,086 | 1,127 | 170 | 178 | 1,256 | 1,305 | ||||||||||||||||||
Expected return on plan assets | (2,107 | ) | (2,025 | ) | — | — | (2,107 | ) | (2,025 | ) | ||||||||||||||
Amortization of transition obligation | — | — | — | — | — | — | ||||||||||||||||||
Amortization of net (gain)/loss | 183 | 179 | (25 | ) | (27 | ) | 158 | 152 | ||||||||||||||||
Amortization of prior service cost | — | — | — | — | — | — | ||||||||||||||||||
Net periodic pension (income)/cost | $ | (838 | ) | (719 | ) | 233 | 231 | (605 | ) | (488 | ) |
cost are included in other noninterest expense.
the remainder of 2023. Effective March 31, 2023, the Company determined that the Pension Plan will be terminated during 2023 and a termination cost estimate of $2.4 million is included in the accompanying consolidated income statement.
Page 34
Comprehensive income (loss)Fair Value
($ in thousands)
| September 30, 2017 | December 31, 2016 | September 30, 2016 | |||||||||
Unrealized gain (loss) on securities available for sale | $ | 438 | (3,085 | ) | 1,964 | |||||||
Deferred tax asset (liability) | (162 | ) | 1,138 | (767 | ) | |||||||
Net unrealized gain (loss) on securities available for sale | 276 | (1,947 | ) | 1,197 | ||||||||
Additional pension asset (liability) | (4,854 | ) | (5,012 | ) | (4,505 | ) | ||||||
Deferred tax asset (liability) | 1,796 | 1,852 | 1,757 | |||||||||
Net additional pension asset (liability) | (3,058 | ) | (3,160 | ) | (2,748 | ) | ||||||
Total accumulated other comprehensive income (loss) | $ | (2,782 | ) | (5,107 | ) | (1,551 | ) |
The following table discloses the changes in accumulated other comprehensive income (loss) for the nine months ended September 30, 2017 (all amounts are net of tax).
($ in thousands)
| Unrealized Gain (Loss) on Securities Available for Sale | Additional Pension Asset (Liability) | Total | |||||||||
Beginning balance at January 1, 2017 | $ | (1,947 | ) | (3,160 | ) | (5,107 | ) | |||||
Other comprehensive income (loss) before reclassifications | 2,075 | — | 2,075 | |||||||||
Amounts reclassified from accumulated other comprehensive income | 148 | 102 | 250 | |||||||||
Net current-period other comprehensive income (loss) | 2,223 | 102 | 2,325 | |||||||||
Ending balance at September 30, 2017 | $ | 276 | (3,058 | ) | (2,782 | ) |
The following table discloses the changes in accumulated other comprehensive income (loss) for the nine months ended September 30, 2016 (all amounts are net of tax).
($ in thousands)
| Unrealized Gain (Loss) on Securities Available for Sale | Additional Pension Asset (Liability) | Total | |||||||||
Beginning balance at January 1, 2016 | $ | (709 | ) | (2,841 | ) | (3,550 | ) | |||||
Other comprehensive income before reclassifications | 1,908 | — | 1,908 | |||||||||
Amounts reclassified from accumulated other comprehensive income | (2 | ) | 93 | 91 | ||||||||
Net current-period other comprehensive income | 1,906 | 93 | 1,999 | |||||||||
Ending balance at September 30, 2016 | $ | 1,197 | (2,748 | ) | (1,551 | ) |
Note 14 – Fair Value
Relevant accounting guidance establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The guidance describes three levels of inputs that may be used to measure fair value:
Page 35
The following table summarizes the Company’s financial instruments that were measured at fair value on a recurring and nonrecurring basis at SeptemberJune 30, 2017.
($ in thousands) | ||||||||||||||||
Description of Financial Instruments | Fair Value at September 30, 2017 | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||
Recurring | ||||||||||||||||
Securities available for sale: | ||||||||||||||||
Government-sponsored enterprise securities | $ | 8,992 | — | 8,992 | — | |||||||||||
Mortgage-backed securities | 155,535 | — | 155,535 | — | ||||||||||||
Corporate bonds | 34,397 | — | 34,397 | — | ||||||||||||
Total available for sale securities | $ | 198,924 | — | 198,924 | — | |||||||||||
Nonrecurring | ||||||||||||||||
Impaired loans | $ | 14,932 | — | — | 14,932 | |||||||||||
Foreclosed real estate | 9,356 | — | — | 9,356 |
2023:
($ in thousands) Description of Financial Instruments | Fair Value at June 30, 2023 | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||||||||||||
Recurring | ||||||||||||||||||||||||||
Securities available for sale: | ||||||||||||||||||||||||||
U.S. Treasury | $ | 169,613 | — | 169,613 | — | |||||||||||||||||||||
Government-sponsored enterprise securities | 58,511 | — | 58,511 | — | ||||||||||||||||||||||
Mortgage-backed securities | 1,973,539 | — | 1,973,539 | — | ||||||||||||||||||||||
Corporate bonds | 18,123 | — | 18,123 | — | ||||||||||||||||||||||
Total available for sale securities | $ | 2,219,786 | — | 2,219,786 | — | |||||||||||||||||||||
Presold mortgages in process of settlement | $ | 4,953 | 4,953 | — | — | |||||||||||||||||||||
Nonrecurring | ||||||||||||||||||||||||||
Individually evaluated loans | $ | 2,399 | — | — | 2,399 | |||||||||||||||||||||
($ in thousands) | ||||||||||||||||
Description of Financial Instruments | Fair Value at December 31, 2016 | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||
Recurring | ||||||||||||||||
Securities available for sale: | ||||||||||||||||
Government-sponsored enterprise securities | $ | 17,490 | — | 17,490 | — | |||||||||||
Mortgage-backed securities | 148,065 | — | 148,065 | — | ||||||||||||
Corporate bonds | 33,600 | — | 33,600 | — | ||||||||||||
Equity securities | 174 | — | 174 | — | ||||||||||||
Total available for sale securities | $ | 199,329 | — | 199,329 | — | |||||||||||
Nonrecurring | ||||||||||||||||
Impaired loans | $ | 12,284 | — | — | 12,284 | |||||||||||
Foreclosed real estate | 9,532 | — | — | 9,532 |
2022:
($ in thousands) Description of Financial Instruments | Fair Value at December 31, 2022 | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||||||||||||
Recurring | ||||||||||||||||||||||||||
Securities available for sale: | ||||||||||||||||||||||||||
US Treasury securities | $ | 168,758 | — | 168,758 | — | |||||||||||||||||||||
Government-sponsored enterprise securities | 57,456 | — | 57,456 | — | ||||||||||||||||||||||
Mortgage-backed securities | 2,045,000 | — | 2,045,000 | — | ||||||||||||||||||||||
Corporate bonds | 43,279 | — | 43,279 | — | ||||||||||||||||||||||
Total available for sale securities | $ | 2,314,493 | — | 2,314,493 | — | |||||||||||||||||||||
Presold mortgages in process of settlement | $ | 1,282 | 1,282 | — | — | |||||||||||||||||||||
Nonrecurring | ||||||||||||||||||||||||||
Individually evaluated loans | $ | 9,590 | — | — | 9,590 | |||||||||||||||||||||
Foreclosed real estate | 38 | — | — | 38 |
The Company reviews the pricing methodologies utilized by the bond accounting provider to ensure the fair value determination is consistent with the applicable accounting guidance and that the investments are properly classified in the fair value hierarchy. Further, the Company validates the fair values for a sample of securities in the portfolio by comparing the fair values provided by the bond accounting provider to prices from other independent sources for the same or similar securities. The Company analyzes unusual or significant variances and conducts additional research with the portfolio manager, if necessary, and takes appropriate action based on its findings.
Page 36
ImpairedIndividually evaluated loans — Fair values for impairedindividually evaluated loans in the above table are measured on a non-recurring basis and are based on (1) the underlying collateral values securing the loans, adjusted for estimated selling costs, or (2) the net present value of the cash flows expected to be received for such loans. Collateral may be in the form of real estate or business assets including equipment, inventory and accounts receivable. The vast majority of the collateral is real estate. The value of real estate collateral is generally determined by third-party appraisers using an income or market valuation approach based on an appraisal conducted by an independent, licensed third party appraiser (Level 3). The value of business equipment is based upon an outside appraisal if deemed significant, or the net book value on the applicable borrower’s financial statements if not considered significant. Likewise, values for inventory and accounts receivable collateral are based on borrower financial statement balances or aging reports on a discounted basis as appropriate (Level 3). Appraisals used in this analysis are generally obtained at least annually based on when the loans first became impaired, and thus the appraisals are not necessarily as of the period ends presented. Any fair value adjustments are recorded in the period incurred as provision for loancredit losses on the Consolidated Statements of Income.
($ in thousands) | ||||||||||
Description | Fair Value at September 30, 2017 | Valuation Technique | Significant Unobservable Inputs | General Range of Significant Unobservable Input Values | ||||||
Impaired loans | $ | 14,932 | Appraised value; PV of expected cash flows | Discounts to reflect current market conditions, ultimate collectability, and estimated costs to sell | 0-10% | |||||
Foreclosed real estate | 9,356 | Appraised value; List or contract price | Discounts to reflect current market conditions, abbreviated holding period and estimated costs to sell | 0-10% | ||||||
($ in thousands) | Fair Value at June 30, 2023 | Valuation Technique | Significant Unobservable Inputs | Range (Weighted Average) | ||||||||||||||||||||||
Individually evaluated loans - collateral-dependent | $ | 2,399 | Appraised value | Discounts applied for estimated costs to sell | 10% | |||||||||||||||||||||
($ in thousands) | ||||||||||
Description | Fair Value at December 31, 2016 | Valuation Technique | Significant Unobservable Inputs | General Range of Significant Unobservable Input Values | ||||||
Impaired loans | $ | 12,284 | Appraised value; PV of expected cash flows | Discounts to reflect current market conditions, ultimate collectability, and estimated costs to sell | 0-10% | |||||
Foreclosed real estate | 9,532 | Appraised value; List or contract price | Discounts to reflect current market conditions, abbreviated holding period and estimated costs to sell | 0-10% | ||||||
Transfers of assets or liabilities between levels within the fair value hierarchy are recognized when an event or change in circumstances occurs. There were no transfers between Level 1 and Level 2 for assets or liabilities measured on a recurring basis during the three or nine months ended September 30, 2017 or 2016.
Page 37
($ in thousands) | Fair Value at December 31, 2022 | Valuation Technique | Significant Unobservable Inputs | Range (Weighted Average) | ||||||||||||||||||||||
Individually evaluated loans - collateral-dependent | $ | 5,680 | Appraised value | Discounts applied for estimated costs to sell | 10% | |||||||||||||||||||||
Individually evaluated loans - cash-flow dependent | 3,910 | PV of expected cash flows | Discount rates used in the calculation of PV of expected cash flows | 5.5%-11.1% (6.76%) | ||||||||||||||||||||||
Foreclosed real estate | 38 | Appraised value | Discounts applied for estimated costs to sell | 10% |
For the nine months ended September 30, 2017 and 2016, the increase in the fair value of securities available for sale was $3,523,000 and $3,128,000, respectively, which is included in other comprehensive income (net of tax expense of $1,300,000 and $1,222,000, respectively). Fair value measurement methods at September 30, 2017 and 2016 are consistent with those used in prior reporting periods.
September 30, 2017 | December 31, 2016 | |||||||||||||||||
($ in thousands) | Level in Fair Value Hierarchy | Carrying Amount | Estimated Fair Value | Carrying Amount | Estimated Fair Value | |||||||||||||
Cash and due from banks, noninterest-bearing | Level 1 | $ | 82,758 | 82,758 | 71,645 | 71,645 | ||||||||||||
Due from banks, interest-bearing | Level 1 | 326,089 | 326,089 | 234,348 | 234,348 | |||||||||||||
Securities available for sale | Level 2 | 198,924 | 198,924 | 199,329 | 199,329 | |||||||||||||
Securities held to maturity | Level 2 | 123,156 | 124,878 | 129,713 | 130,195 | |||||||||||||
Presold mortgages in process of settlement | Level 1 | 17,426 | 17,426 | 2,116 | 2,116 | |||||||||||||
Total loans, net of allowance | Level 3 | 3,405,162 | 3,396,635 | 2,686,931 | 2,650,820 | |||||||||||||
Accrued interest receivable | Level 1 | 11,445 | 11,445 | 9,286 | 9,286 | |||||||||||||
Bank-owned life insurance | Level 1 | 88,081 | 88,081 | 74,138 | 74,138 | |||||||||||||
Deposits | Level 2 | 3,651,241 | 3,647,532 | 2,947,353 | 2,944,968 | |||||||||||||
Borrowings | Level 2 | 397,525 | 388,477 | 271,394 | 263,255 | |||||||||||||
Accrued interest payable | Level 2 | 1,143 | 1,143 | 539 | 539 |
Fair value methods and assumptions are set forth below for the Company’s financial instruments.
Cash and Amounts Due from Banks, Presold Mortgages in Process of Settlement, Accrued Interest Receivable, and Accrued Interest Payable-The carrying amounts approximate their fair value because of the short maturity of these financial instruments.
Available for Sale and Held to Maturity Securities-Fair values are provided by a third-party and are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments or matrix pricing.
Loans-For nonimpaired loans, fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type such as commercial, financial and agricultural, real estate construction, real estate mortgages and installment loans to individuals. Each loan category is further segmented into fixed and variable interest rate terms. The fair value for each category is determined by discounting scheduled future cash flows using current interest rates offered on loans with similar risk characteristics. Fair values for impaired loans are primarily based on estimated proceeds expected upon liquidation of the collateral or the present value of expected cash flows.
Bank-Owned Life Insurance – The carrying value of life insurance approximates fair value because this investment is carried at cash surrender value, as determined by the issuer.
Deposits-The fair value of deposits with no stated maturity, such as noninterest-bearing checking accounts, savings accounts, interest-bearing checking accounts, and money market accounts, is equal to the amount payable on demand as of the valuation date. The fair value of certificates of deposit is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered in the marketplace for deposits of similar remaining maturities.
Borrowings-The fair value of borrowings is based on the discounted value of the contractual cash flows. The discount rate is estimated using the rates currently offered by the Company’s lenders for debt of similar maturities.
June 30, 2023 | December 31, 2022 | ||||||||||||||||||||||||||||
($ in thousands) | Level in Fair Value Hierarchy | Carrying Amount | Estimated Fair Value | Carrying Amount | Estimated Fair Value | ||||||||||||||||||||||||
Cash and due from banks, noninterest-bearing | Level 1 | $ | 101,215 | 101,215 | 101,133 | 101,133 | |||||||||||||||||||||||
Due from banks, interest-bearing | Level 1 | 259,460 | 259,460 | 169,185 | 169,185 | ||||||||||||||||||||||||
Securities held to maturity | Level 2 | 537,821 | 441,881 | 541,700 | 432,528 | ||||||||||||||||||||||||
Total loans, net of allowance | Level 3 | 7,788,399 | 7,339,310 | 6,574,178 | 6,240,870 | ||||||||||||||||||||||||
Accrued interest receivable | Level 1 | 33,446 | 33,446 | 29,710 | 29,710 | ||||||||||||||||||||||||
Bank-owned life insurance | Level 1 | 181,659 | 181,659 | 164,592 | 164,592 | ||||||||||||||||||||||||
SBA Servicing Asset | Level 3 | 3,781 | 4,664 | 4,004 | 4,721 | ||||||||||||||||||||||||
Deposits | Level 2 | 10,168,569 | 10,156,818 | 9,227,529 | 9,218,945 | ||||||||||||||||||||||||
Borrowings | Level 2 | 481,658 | 467,096 | 287,507 | 277,146 | ||||||||||||||||||||||||
Accrued interest payable | Level 1 | 4,845 | 4,845 | 2,738 | 2,738 |
Page 38
Fair value estimates are based on existing on- and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. Significant assets and liabilities that are not considered financial assets or liabilities include net premises and equipment, intangible and other assets such as deferred income taxes, prepaid expense accounts, income taxes currently payable and other various accrued expenses. In addition, the income tax
On December 21, 2012,Stock-Based Compensation
Long-Term Restricted Stock Awards | ||||||||||||||
Number of Units | Weighted-Average Grant-Date Fair Value | |||||||||||||
Nonvested at January 1, 2023 | 223,012 | $ | 36.14 | |||||||||||
Granted during the period | 143,380 | 37.08 | ||||||||||||
Vested during the period | (25,811) | 24.52 | ||||||||||||
Forfeited or expired during the period | (791) | 37.88 | ||||||||||||
Nonvested at June 30, 2023 | 339,790 | $ | 37.15 |
Options Outstanding | ||||||||||||||||||||||||||
Number of Shares | Weighted-Average Exercise Price | Weighted-Average Remaining Contractual Life (years) | Aggregate Intrinsic Value ($ in thousands) | |||||||||||||||||||||||
Balance at January 1, 2023 | — | $ | — | |||||||||||||||||||||||
Replacement options issued in conjunction with acquisition of GrandSouth | 542,345 | 20.14 | ||||||||||||||||||||||||
Exercised during the period | (192,178) | 19.27 | ||||||||||||||||||||||||
Forfeited or expired during the period | — | — | ||||||||||||||||||||||||
Outstanding at June 30, 2023 | 350,167 | 20.62 | 6.27 | $ | 3,270 | |||||||||||||||||||||
Exercisable at June 30, 2023 | 350,167 | $ | 20.62 | 6.27 | $ | 3,270 |
Shares | Range | Weighted Average Price | Weighted Average Remaining Life in Years | |||||||||||||||||
112,822 | $13.79 - 18.18 | 15.63 | 4.65 | |||||||||||||||||
121,320 | $18.19 | 18.19 | 5.98 | |||||||||||||||||
116,025 | $18.20 - 31.32 | 28.00 | 8.16 | |||||||||||||||||
350,167 | 20.62 | 6.27 |
For the Six Months Ended | ||||||||
June 30, 2023 | ||||||||
Fair value per option, weighted average | $ | 24.85 | ||||||
Expected life (years) | 1.4 - 4.7 | |||||||
Expected stock price volatility, weighted average | 46.39 | % | ||||||
Expected dividend yield | 2.05 | % | ||||||
Risk-free interest rate, weighted average | 4.18 | % | ||||||
Expected forfeiture rate | — | % |
For the Three Months Ended June 30, | ||||||||||||||||||||||||||||||||||||||
2023 | 2022 | |||||||||||||||||||||||||||||||||||||
($ in thousands except per share amounts) | Income (Numerator) | Shares (Denominator) | Per Share Amount | Income (Numerator) | Shares (Denominator) | Per Share Amount | ||||||||||||||||||||||||||||||||
Basic EPS: | ||||||||||||||||||||||||||||||||||||||
Net income | $ | 29,403 | $ | 36,585 | ||||||||||||||||||||||||||||||||||
Less: income allocated to restricted stock | (201) | (172) | ||||||||||||||||||||||||||||||||||||
Basic EPS per common share | $ | 29,202 | 40,721,840 | $ | 0.72 | $ | 36,413 | 35,474,664 | $ | 1.03 | ||||||||||||||||||||||||||||
Diluted EPS: | ||||||||||||||||||||||||||||||||||||||
Net income | $ | 29,403 | 40,721,840 | $ | 36,585 | 35,474,664 | ||||||||||||||||||||||||||||||||
Effect of dilutive securities | — | 407,260 | — | 167,807 | ||||||||||||||||||||||||||||||||||
Diluted EPS per common share | $ | 29,403 | 41,129,100 | $ | 0.71 | $ | 36,585 | 35,642,471 | $ | 1.03 | ||||||||||||||||||||||||||||
Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||||||
2023 | 2022 | |||||||||||||||||||||||||||||||||||||
($ in thousands except per share amounts) | Income (Numerator) | Shares (Denominator) | Per Share Amount | Income (Numerator) | Shares (Denominator) | Per Share Amount | ||||||||||||||||||||||||||||||||
Basic EPS: | ||||||||||||||||||||||||||||||||||||||
Net income | $ | 44,564 | $ | 70,554 | ||||||||||||||||||||||||||||||||||
Less: income allocated to restricted stock | (299) | (326) | ||||||||||||||||||||||||||||||||||||
Basic EPS per common share | $ | 44,265 | 40,665,172 | $ | 1.09 | $ | 70,228 | 35,476,902 | $ | 1.98 | ||||||||||||||||||||||||||||
Diluted EPS: | ||||||||||||||||||||||||||||||||||||||
Net income | $ | 44,564 | 40,665,172 | $ | 70,554 | 35,476,902 | ||||||||||||||||||||||||||||||||
Effect of dilutive securities | — | 458,697 | — | 164,826 | ||||||||||||||||||||||||||||||||||
Diluted EPS per common share | $ | 44,564 | 41,123,869 | $ | 1.08 | $ | 70,554 | 35,641,728 | $ | 1.98 |
($ in thousands) | June 30, 2023 | December 31, 2022 | ||||||||||||
Unrealized loss on securities available for sale | $ | (440,145) | (444,063) | |||||||||||
Deferred tax asset | 101,894 | 102,046 | ||||||||||||
Net unrealized loss on securities available for sale | (338,251) | (342,017) | ||||||||||||
Postretirement plans liability | 143 | 54 | ||||||||||||
Deferred tax asset | (34) | (12) | ||||||||||||
Net postretirement plans liability | 109 | 42 | ||||||||||||
Total accumulated other comprehensive loss | $ | (338,142) | (341,975) |
For the Three Months Ended June 30, 2023 | ||||||||||||||||||||
($ in thousands) | Unrealized Loss on Securities Available for Sale | Postretirement Plans Asset (Liability) | Total | |||||||||||||||||
Beginning balance | $ | (314,109) | 75 | (314,034) | ||||||||||||||||
Other comprehensive loss before reclassifications | (24,142) | — | (24,142) | |||||||||||||||||
Amounts reclassified from accumulated other comprehensive income | — | 34 | 34 | |||||||||||||||||
Net current period other comprehensive (loss) income | (24,142) | 34 | (24,108) | |||||||||||||||||
Ending balance | $ | (338,251) | 109 | (338,142) | ||||||||||||||||
For the Three Months Ended June 30, 2022 | ||||||||||||||||||||
($ in thousands) | Unrealized Loss on Securities Available for Sale | Postretirement Plans Asset (Liability) | Total | |||||||||||||||||
Beginning balance | $ | (164,717) | (238) | (164,955) | ||||||||||||||||
Other comprehensive loss before reclassifications | (84,431) | — | (84,431) | |||||||||||||||||
Amounts reclassified from accumulated other comprehensive income | — | 34 | 34 | |||||||||||||||||
Net current period other comprehensive (loss) income | (84,431) | 34 | (84,397) | |||||||||||||||||
Ending balance | $ | (249,148) | (204) | (249,352) |
For the Six Months Ended June 30, 2023 | ||||||||||||||||||||
($ in thousands) | Unrealized Loss on Securities Available for Sale | Postretirement Plans Asset (Liability) | Total | |||||||||||||||||
Beginning balance | $ | (342,017) | 42 | (341,975) | ||||||||||||||||
Other comprehensive gain before reclassifications | 3,766 | — | 3,766 | |||||||||||||||||
Amounts reclassified from accumulated other comprehensive income | — | 67 | 67 | |||||||||||||||||
Net current-period other comprehensive income | 3,766 | 67 | 3,833 | |||||||||||||||||
Ending balance | $ | (338,251) | 109 | (338,142) | ||||||||||||||||
For the Six Months Ended June 30, 2022 | ||||||||||||||||||||
($ in thousands) | Unrealized Loss on Securities Available for Sale | Postretirement Plans Asset (Liability) | Total | |||||||||||||||||
Beginning balance | $ | (24,698) | (272) | (24,970) | ||||||||||||||||
Other comprehensive loss before reclassifications | (224,450) | — | (224,450) | |||||||||||||||||
Amounts reclassified from accumulated other comprehensive income | — | 68 | 68 | |||||||||||||||||
Net current-period other comprehensive (loss) income | (224,450) | 68 | (224,382) | |||||||||||||||||
Ending balance | $ | (249,148) | (204) | (249,352) |
For the Three Months Ended | For the Six Months Ended | |||||||||||||||||||||||||
($ in thousands) | June 30, 2023 | June 30, 2022 | June 30, 2023 | June 30, 2022 | ||||||||||||||||||||||
Noninterest Income: In-scope of ASC 606: | ||||||||||||||||||||||||||
Service charges on deposit accounts | $ | 4,114 | 3,700 | 8,008 | 7,241 | |||||||||||||||||||||
Other service charges and fees: | ||||||||||||||||||||||||||
Bankcard interchange income, net | 2,368 | 4,812 | 4,950 | 9,523 | ||||||||||||||||||||||
Other service charges and fees | 3,255 | 1,490 | 6,572 | 2,753 | ||||||||||||||||||||||
Commissions from sales of financial products | 1,413 | 1,151 | 2,719 | 2,096 | ||||||||||||||||||||||
SBA consulting fees | 409 | 704 | 930 | 1,484 | ||||||||||||||||||||||
Noninterest income (in-scope of ASC 606) | 11,559 | 11,857 | 23,179 | 23,097 | ||||||||||||||||||||||
Noninterest income (out-of-scope of ASC 606) | 2,676 | 5,407 | 4,592 | 13,418 | ||||||||||||||||||||||
Total noninterest income | $ | 14,235 | 17,264 | 27,771 | 36,515 |
On December 22, 2016, the Company, and the holderCompany recognizes the revenue. The Company also earns some fees from asset management, which is billed quarterly for services rendered in the most recent period, for which the performance obligation has been satisfied.
The Series C Preferred Stock qualified as Tier 1 capital and was Convertible Perpetual Preferred Stock,above-described contracts with dividend rights equal to the Company’s Common Stock. The Series C Preferred Stock was non-voting, except in limited circumstances.
The Series C Preferred Stock paid a dividend per share equal to that of the Company’s common stock. During the three and nine months ended September 30, 2016, the Company accrued approximately $58,000 and $175,000, respectively, in preferred dividend payments for the Series C Preferred Stock.
Note 16 – Subsequent Event
On October 1, 2017, the Company completed its acquisition of ASB Bancorp, Inc. (“ASB Bancorp”), the parent company of Asheville Savings Bank, SSB, headquartered in Asheville, North Carolina, pursuant to an Agreement and Plan of Merger and Reorganization dated May 1, 2017. Asheville Savings Bank, SSB, operated 13 banking locations in the Asheville, Marion and Brevard markets. The acquisition complements the Company’s existing three branches in the Asheville market.
The total merger consideration consisted of $17.9 million in cash and 4.9 million shares of the Company’s common stock. As of the acquisition date, ASB Bancorp had assets of $793 million, gross loans of $617 million and deposits of $679 million. As of the filing of this report, the Company has not completed the fair value measurements of the assets, liabilities, and identifiable intangible assets of ASB Bancorp.
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and Estimates
Due on Loans and Unfunded Commitments
Our determination of the adequacy of the allowance is based primarily on a mathematical modelperiod incurred. Specified items such as acquired operating lease assets and liabilities as lessee, employee benefit plans, and income-tax related balances are recognized in accordance with accounting guidance that estimates the appropriate allowance for loan losses. This model has two components. The first component involves the estimation of losses on individually evaluated “impaired loans.” A loan is considered to be impaired when, based on current information and events, it is probable we will be unable to collect all amounts due according to the contractual terms of the loan agreement. A loan is specifically evaluated for an appropriate valuation allowance if the loan balance is above a prescribed evaluation threshold (which varies based on credit quality, accruing status, troubled debt restructured status, and type of collateral) and the loan is determined to be impaired. The estimated valuation allowance is the difference, if any, between the loan balance outstanding and the value of the impaired loan as determined by either 1) an estimate of the cash flowsresults in measurements that we expect to receivemay differ from the borrower discounted at the loan’s effective rate, or 2) in the case of a collateral-dependent loan,fair value. Determining the fair value of the collateral.
The second component of the allowance model is an estimate of losses for all loans not considered to be impaired loans (“general reserve loans”). General reserve loans are segregated into pools by loan typeassets acquired and risk grade and estimated loss percentages are assigned to each loan poolliabilities assumed often involves estimates based on historical losses.internal or third-party valuations which include appraisals, discounted cash flow analysis, or other valuation techniques that may include estimates of attrition, inflation, asset growth rates, discount rates, credit risk, multiples of earnings, or other relevant factors. The historical loss percentages are then adjusted for any environmental factors used to reflect changes in the collectabilitydetermination of the portfolio not captured by historical data.
The reserves estimated for individually evaluated impaired loans are then added to the reserve estimated for general reserve loans. This becomes our “allocated allowance.” The allocated allowance is compared to the actual allowance for loan losses recorded on our books and any adjustment necessary for the recorded allowance to absorb losses inherent in the portfolio is recorded as a provision for loan losses. The provision for loan losses is a direct charge to earnings in the period recorded. Any remaining difference between the allocated allowance and the actual allowance for loan losses recorded on our books is our “unallocated allowance.”
Purchased loans are recorded at fair value atmay require us to make point-in-time estimates about discount rates, future expected cash flows, market conditions, and other future events that can be volatile in nature and challenging to assess. While we use the acquisition date. Therefore, amounts deemed uncollectiblebest estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date, represent a discountthe estimates are inherently uncertain and subject to the loan value and become a part of the fair value calculation and are excluded from the allowance for loan losses. Subsequent decreases in the amount expected to be collected result in a provision for loan losses with a corresponding increase in the allowance for loan losses. Subsequent increases in the amount expected to be collected are accreted into income over the life of the loan and this accretion is referred to as “loan discount accretion.”
Although we use the best information available to make evaluations, future material adjustments may be necessary if economic, operational, or other conditions change. In addition, various regulatory agencies, as an integral part of their examination process, periodically review our allowance for loan losses. Such agencies may require us to recognize additions to the allowance based on the examiners’ judgment about information available to them at the time of their examinations.
For further discussion, see “Nonperforming Assets” and “Summary of Loan Loss Experience” below.
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Intangible Assets
Due to the estimation process and the potential materiality of the amounts involved, we have also identified the accounting for intangible assets as an accounting policy critical to our consolidated financial statements.
When we complete an acquisition transaction, the excess of the purchase price over the amount by which the fair market value of assets acquired exceeds the fair market value of liabilities assumed represents an intangible asset. We must then determine the identifiable portions of the intangible asset, with any remaining amount classified as goodwill. Identifiable intangible assets associated with these acquisitions are generally amortized over the estimated life of the related asset, whereas goodwill is tested annually for impairment, but not systematically amortized. Assuming no goodwill impairment, it is beneficial to our future earnings to have a lower amount assigned to identifiable intangible assets and higher amount of goodwill as opposed to having a higher amount considered to be identifiable intangible assets and a lower amount classified as goodwill.
The primary identifiable intangible asset we typically record in connection with a whole bank or bank branch acquisition is the value of the core deposit intangible, whereas when we acquire an insurance agency or a consulting firm, as we did in 2016 and 2017,intangibles which represents the primary identifiable intangible asset is theestimated value of the long-term deposit relationships acquired customer list.in the transaction. Determining the amount of identifiable intangible assets and their average lives involves multiple assumptions and estimates and is typically determined by performing a discounted cash flow analysis, which involves a combination of any or all of the following assumptions: customer attrition/runoff, alternative funding costs, deposit servicing costs, and discount rates. We typically engage a third party consultant to assist in each analysis. For the whole bank and bank branch transactions recorded to date, theThe core deposit intangibles are amortized over the estimated useful lives of the deposit accounts based on a method that we believe reasonably approximates the anticipated benefit stream from this intangible. The estimated useful lives are periodically reviewed for reasonableness and have generally been estimated to have a life ranging from seven to ten years, with an accelerated rate of amortization. For insurance agency acquisitions, the identifiable intangible assets related to the customer lists were determined to have a life of ten to fifteen years, with amortization occurring on a straight-line basis. For the SBA consulting firm we acquired in 2016, the identifiable intangible asset related to the customer list was determined to have a life of approximately seven years, with amortization occurring on a straight-line basis.
Subsequent to the initial recording of the identifiable intangible assets and goodwill, we amortize the identifiable intangible assets over their estimated average lives, as discussed above. In addition, on at least an annual basis, goodwill is evaluated for impairment by comparing the fair value of our reporting units to their related carrying value, including goodwill. If the carrying value of a reporting unit were ever to exceed its fair value, we would determine whether the implied fair value of the goodwill, using a discounted cash flow analysis, exceeded the carrying value of the goodwill. If the carrying value of the goodwill exceeded the implied fair value of the goodwill, an impairment loss would be recorded in an amount equal to that excess. Performing such a discounted cash flow analysis would involve the significant use of estimates and assumptions.
In our 2016 goodwill impairment evaluation, we concluded that our goodwill was not impaired.
We review identifiable intangible assets for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Our policy is that an impairment loss is recognized, equal to the difference between the asset’s carrying amount and its fair value, if the sum of the expected undiscounted future cash flows is less than the carrying amount of the asset. Estimating future cash flows involves the use of multiple estimates and assumptions, such as those listed above.
Fair Value
We considerapplying estimates and assumptions that were described previously in the determination of the initial"Allowance for Credit Losses on Loans" foregoing section.
We determine fair value accounting estimates of newly assumed assets and liabilities in accordance with relevant accounting guidance. However, the amount that we realizeloss given default. The actual cash flows on these assetsloans could differ materially from the carryingfair value reflected in our financial statements, based upon the timing of collections on the acquired loans in future periods. Because of inherent credit losses and interest rate marks associated with acquired loans, theestimates. The amount that we record as the fair values for the loans is generally less than the contractual unpaid principal balance due from the borrowers, with the difference being referred to as the “discount” on the acquired loans. For non-impaired purchasedDiscounts on acquired non-PCD loans we accrete the discountare accreted to interest income over thetheir estimated remaining lives, which may include prepayment estimates in certain circumstances.
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For purchased credit-impaired (“PCI”) loans,Goodwill arising from business combinations represents the excess of the cash flows initially expected to be collectedpurchase price over the sum of the estimated fair values of the tangible and identifiable intangible assets acquired less the estimated fair value of the loans at the acquisition date (i.e., the accretable yield)liabilities assumed. Goodwill has an indefinite useful life and is accreted into interest income over the estimated remaining life of the loans using the effective yield method, providedevaluated for impairment annually or more frequently if events and circumstances indicate that the timing and the amount of future cash flows is reasonably estimable. Accordingly, such loans are not classified as nonaccrual and they are considered toasset might be accruing because their interest income relates to the accretable yield recognized under accounting for PCI loans and not to contractual interest payments. The difference between the contractually required payments and the cash flows expected to be collected at acquisition, considering the impact of prepayments, is referred to as the nonaccretable difference.
Subsequent to an acquisition, estimates of cash flows expected to be collected are updated periodically based on updated assumptions regarding default rates,impaired. An impairment loss severities, and other factors that are reflective of current market conditions. If there is a decrease in cash flows expected to be collected, the provision for loan losses is charged, resulting in an increase to the allowance for loan losses. If the Company has a probable increase in cash flows expected to be collected, we will first reverse any previously established allowance for loan losses and then increase interest income as a prospective yield adjustment over the remaining life of the loan. The impact of changes in variable interest rates is recognized prospectively as adjustments to interest income.
the
standards.
Overview
Net income available to common shareholders was $13.1 million, or $0.53 per diluted common share, for the three months ended September 30, 2017, an increase of 130% in earnings per share from the $4.6 million, or $0.23 per diluted common share, recorded in the third quarter of 2016. For the nine months ended September 30, 2017, we recorded net income available to common shareholders of $31.8 million, or $1.33 per diluted common share, an increase of 43.0% in earnings per share from the $19.0 million, or $0.93 per diluted common share, for the nine months ended September 30, 2016.
The third quarter of 2016 results included two non-recurring items that impacted diluted earnings per share negatively by a net of approximately $0.17 per diluted common share: 1) the termination of our loss share agreements with the FDIC, which resulted in the Company recording additional indemnification asset expense of $5.7 million during the three months ended September 30, 2016, and 2) the exchange of branches with First Community Bank that resulted in a gain of $1.4 million.
Comparisons for the financial periods presented are significantly impacted by our March 3, 2017 acquisition of Carolina Bank, which operated eight branches and three mortgage loan offices, primarily in the Triad region of North Carolina (consists of Greensboro, Winston-Salem, and High Point and the surrounding areas). See Note 4 to the consolidated financial statements for more information on this transaction
As discussed at Note 16 to the consolidated financial statements, on October 1, 2017, the Company acquired ASB Bancorp, Inc., the parent company of Asheville Savings Bank, SSB, headquartered in Asheville, North Carolina (“Asheville Savings Bank”), which operated through 13 branches in the Asheville area. As of the acquisition date, Asheville Savings Bank reported total assets of approximately $793 million, including $617 million in loans and $679 million in deposits. Because this transaction closed in the fourth quarter, the financial position and earnings for Asheville Savings Bank are not included in the Company’s results for the third quarter.
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Also contributingnet interest spread which affects NIM. Volume refers to the increase in netaverage dollar levels of interest-earning assets and interest-bearing liabilities. Net interest income was a higher net interest margin forspread refers to the period. Our net interest margin (tax-equivalentdifference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities. NIM refers to net interest income divided by average earning assets) increased for the fourth consecutive quarterinterest-earning assets and amounted to 4.16% for the third quarter of 2017 compared to 3.93% for the third quarter of 2016. For the nine month period ended September 30, 2017, our net interest margin was 4.11% compared to 4.07% for the same period in 2016. Asset yields have increased primarily as a result of three Federal Reserve interest rate increases during the past year. Funding costs have also increased, but to a lesser degree.
The net interest margins for both periods were also impacted by higher amounts of loan discount accretion associated with acquired loan portfolios. The Company recorded loan discount accretion amounting to $1.7 million in the third quarter of 2017, compared to $0.8 million in the third quarter of 2016. For the first nine months of 2017 and 2016, loan discount accretion amounted to $5.1 million and $3.6 million, respectively. The increase in loan discount accretion is primarily due to the loan discounts recorded in the acquisition of Carolina Bank.
Provision for Loan Losses and Asset Quality
We recorded no provision for loan losses in the third quarters of 2017 or 2016. For the nine months ended September 30, 2017, we recorded total provision for loan losses of $0.7 million compared to a total negative provision for loan losses of $23,000 in the same period of 2016. We have experienced low levels of charge-offs and asset quality indicators have steadily improved.
Noninterest Income
Total noninterest income was $12.4 million and $5.2 million for the three months ended September 30, 2017 and September 30, 2016, respectively. For the nine months ended September 30, 2017, noninterest income amounted to $34.0 million compared to $16.1 million for the same period of 2016.
Core noninterest income for the third quarter of 2017 was $12.8 million, an increase of 31.2% from the $9.8 million reported for the third quarter of 2016. For the first nine months of 2017, core noninterest income amounted to $34.2 million, a 35.4% increase from the $25.3 million recorded in the comparable period of 2016. Core noninterest income includes i) service charges on deposit accounts, ii) other service charges, commissions, and fees, iii) fees from presold mortgage loans, iv) commissions from sales of insurance and financial products, v) SBA consulting fees, vi) SBA loan sale gains, and vii) bank-owned life insurance income.
The primary reason for the increase in core noninterest income in 2017 was the acquisition of Carolina Bank, as well as income derived from the Company’s SBA consulting fees and SBA loan sale gains, which began in the second and third quarters of 2016.
Noninterest Expenses
Noninterest expenses amounted to $34.4 million in the third quarter of 2017 compared to $27.7 million recorded in the third quarter of 2016. Noninterest expenses for the nine months ended September 30, 2017 amounted to $101.5 million compared to $78.6 million in 2016. The majority of the increase in noninterest expenses in 2017 relates to the Company’s acquisition of Carolina Bank.
Balance Sheet and Capital
Total assets at September 30, 2017 amounted to $4.6 billion, a 29.8% increase from a year earlier. Total loans at September 30, 2017 amounted to $3.4 billion, a 29.4% increase from a year earlier, and total deposits amounted to $3.7 billion at September 30, 2017, a 25.4% increase from a year earlier.
In addition to the growth realized from the acquisition of Carolina Bank in March 2017, we have experienced strong organic loan and deposit growth during 2017. For the first nine months of 2017, organic loan growth (i.e. excluding loan balances assumed from Carolina Bank) amounted to $221.5 million, or 10.9% annualized. For the first nine months of 2017, organic deposit growth amounted to $118.5 million, or 5.4% annualized. The strong growth was a result of ongoing internal initiatives to drive loan and deposit growth, including our recent expansion into higher growth markets, including Charlotte, Raleigh, and the Triad.
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We remain well-capitalized by all regulatory standards, with an estimated Total Risk-Based Capital Ratio at September 30, 2017 of 12.44%, a decline from 13.49% at September 30, 2016, but significantly in excess of the 10.00% minimum to be considered well-capitalized. Our tangible common equity to tangible assets ratio was 7.95% at September 30, 2017, a decrease of eight basis points from a year earlier. The decreases in the capital ratios are primarily due to the acquisition of Carolina Bank.
Note Regarding Components of Earnings
For the periods in 2016 presented, our results of operations were significantly affectedinfluenced by the accounting for two FDIC-assisted failed bank acquisitions. In the discussion abovelevel and in the accompanying tables, the term “covered” is used to describerelative mix of interest-earning assets that were included in FDIC loss share agreements, while the term “non-covered” refers to our legacy assets, which are not included in any type of loss share arrangement. As previously discussed, all loss share agreements were terminated in the third quarter of 2016 and thus the entire loan portfolio is now classified as non-covered. Certain prior period disclosures will continue to present the breakout of the loan portfolio between covered and non-covered. See the Company’s 2016 Annual Report on Form 10-K filed with the Securities and Exchange Commission for additional discussion regarding the accounting and presentation related to the Company’s two FDIC-assisted failed bank acquisitions.
Components of Earnings
interest-bearing liabilities. Net interest income is the largest component of earnings, representing the difference between interestalso influenced by external factors such as local economic conditions, competition for loans and fees generated from earning assets and the interest costs of deposits, and other funds needed to support those assets. Netmarket interest income for the three month period ended September 30, 2017 amounted to $41.6 million, an increase of $11.3 million, or 37.2%, from the $30.4 million recorded in the third quarter of 2016. Net interest incomerates.
Three Months Ended September 30, | ||||||||
($ in thousands) | 2017 | 2016 | ||||||
Net interest income, as reported | $ | 41,639 | 30,354 | |||||
Tax-equivalent adjustment | 702 | 534 | ||||||
Net interest income, tax-equivalent | $ | 42,341 | 30,888 |
For the Three Months Ended June 30, 2023 | ||||||||||||||
($ in thousands) | 2023 | 2022 | ||||||||||||
Net interest income, as reported | $ | 86,985 | 78,270 | |||||||||||
Tax-equivalent adjustment | 699 | 669 | ||||||||||||
Net interest income, tax-equivalent | $ | 87,684 | 78,939 | |||||||||||
Net interest margin, as reported | 3.05 | % | 3.16 | % | ||||||||||
Net interest margin, tax-equivalent | 3.08 | % | 3.18 | % |
Nine Months Ended September 30, | ||||||||
($ in thousands) | 2017 | 2016 | ||||||
Net interest income, as reported | $ | 115,851 | 92,087 | |||||
Tax-equivalent adjustment | 1,979 | 1,510 | ||||||
Net interest income, tax-equivalent | $ | 117,830 | 93,597 |
There are two primary factors that cause changes in the amountanalysis of net interest income for the three months ended June 30, 2023 and 2022:
Average Balances and Net Interest Income Analysis | |||||||||||||||||||||||||||||||||||
Three Months Ended June 30, | |||||||||||||||||||||||||||||||||||
2023 | 2022 | ||||||||||||||||||||||||||||||||||
($ in thousands) | Average Volume | Average Rate | Interest Earned or Paid | Average Volume | Average Rate | Interest Earned or Paid | |||||||||||||||||||||||||||||
Assets | |||||||||||||||||||||||||||||||||||
Loans (1) (2) | $ | 7,850,522 | 5.26 | % | $ | 102,963 | $ | 6,149,174 | 4.24 | % | $ | 65,077 | |||||||||||||||||||||||
Taxable securities | 2,925,060 | 1.79 | % | 13,063 | 3,137,383 | 1.71 | % | 13,385 | |||||||||||||||||||||||||||
Non-taxable securities | 296,747 | 1.51 | % | 1,120 | 299,982 | 1.48 | % | 1,104 | |||||||||||||||||||||||||||
Short-term investments, primarily interest-bearing cash | 350,338 | 4.60 | % | 4,015 | 363,119 | 0.97 | % | 881 | |||||||||||||||||||||||||||
Total interest-earning assets | 11,422,667 | 4.25 | % | 121,161 | 9,949,658 | 3.24 | % | 80,447 | |||||||||||||||||||||||||||
Cash and due from banks | 93,421 | 125,545 | |||||||||||||||||||||||||||||||||
Premises and equipment | 152,534 | 135,553 | |||||||||||||||||||||||||||||||||
Other assets | 389,714 | 305,992 | |||||||||||||||||||||||||||||||||
Total assets | $ | 12,058,336 | $ | 10,516,748 | |||||||||||||||||||||||||||||||
Liabilities | |||||||||||||||||||||||||||||||||||
Interest-bearing checking | $ | 1,456,540 | 0.37 | % | $ | 1,333 | $ | 1,541,768 | 0.05 | % | $ | 210 | |||||||||||||||||||||||
Money market deposits | 3,250,399 | 2.23 | % | 18,053 | 2,567,138 | 0.11 | % | 731 | |||||||||||||||||||||||||||
Savings deposits | 676,427 | 0.16 | % | 269 | 745,496 | 0.06 | % | 106 | |||||||||||||||||||||||||||
Other time deposits | 791,980 | 2.64 | % | 5,216 | 522,239 | 0.19 | % | 242 | |||||||||||||||||||||||||||
Time deposits >$250,000 | 343,054 | 2.87 | % | 2,457 | 296,210 | 0.40 | % | 296 | |||||||||||||||||||||||||||
Total interest-bearing deposits | 6,518,400 | 1.68 | % | 27,328 | 5,672,851 | 0.11 | % | 1,585 | |||||||||||||||||||||||||||
Borrowings | 483,439 | 5.68 | % | 6,848 | 67,418 | 3.52 | % | 592 | |||||||||||||||||||||||||||
Total interest-bearing liabilities | 7,001,839 | 1.96 | % | 34,176 | 5,740,269 | 0.15 | % | 2,177 | |||||||||||||||||||||||||||
Noninterest-bearing checking | 3,662,641 | 3,664,764 | |||||||||||||||||||||||||||||||||
Other liabilities | 79,236 | 20,638 | |||||||||||||||||||||||||||||||||
Shareholders’ equity | 1,314,620 | 1,091,077 | |||||||||||||||||||||||||||||||||
Total liabilities and shareholders’ equity | $ | 12,058,336 | $ | 10,516,748 | |||||||||||||||||||||||||||||||
Net yield on interest-earning assets and net interest income | 3.05 | % | $ | 86,985 | 3.16 | % | $ | 78,270 | |||||||||||||||||||||||||||
Net yield on interest-earning assets and net interest income – tax-equivalent (3) | 3.08 | % | $ | 87,684 | 3.18 | % | $ | 78,939 | |||||||||||||||||||||||||||
Interest rate spread | 2.29 | % | 3.09 | % | |||||||||||||||||||||||||||||||
Average prime rate | 8.16 | % | 3.94 | % |
Forbalances related in large part to the GrandSouth acquisition, deposit interest expense for the three and nine months ended SeptemberJune 30, 2017, the higher net interest income2023 increased $25.7 million compared to the same period in 2022. Average interest-bearing deposit balances increased $845.5 million while rates on those deposits increased 157 basis points as compared to the same period in the prior year.
The following is a reconciliation of reported net interest income to tax-equivalent net interest income and the resulting NIM as reported and on a tax-equivalent basis.
For the Six Months Ended June 30, 2023 | ||||||||||||||
($ in thousands) | 2023 | 2022 | ||||||||||||
Net interest income, as reported | $ | 179,471 | 155,148 | |||||||||||
Tax-equivalent adjustment | 1,399 | 1,366 | ||||||||||||
Net interest income, tax-equivalent | $ | 180,870 | 156,514 | |||||||||||
Net interest margin, as reported | 3.17 | % | 3.17 | % | ||||||||||
Net interest margin, tax-equivalent | 3.19 | % | 3.19 | % |
For the Three Months Ended September 30, | ||||||||||||||||||||||||
2017 | 2016 | |||||||||||||||||||||||
($ in thousands) | Average Volume | Average Rate | Interest Earned or Paid | Average Volume | Average Rate | Interest Earned or Paid | ||||||||||||||||||
Assets | ||||||||||||||||||||||||
Loans (1) | $ | 3,404,862 | 4.84% | $ | 41,549 | $ | 2,635,707 | 4.52% | $ | 29,919 | ||||||||||||||
Taxable securities | 275,544 | 2.89% | 2,004 | 296,873 | 2.26% | 1,688 | ||||||||||||||||||
Non-taxable securities (2) | 54,606 | 8.00% | 1,101 | 49,371 | 7.81% | 969 | ||||||||||||||||||
Short-term investments | 305,245 | 1.38% | 1,059 | 145,268 | 0.58% | 213 | ||||||||||||||||||
Total interest-earning assets | 4,040,257 | 4.49% | 45,713 | 3,127,219 | 4.17% | 32,789 | ||||||||||||||||||
Cash and due from banks | 80,191 | 60,951 | ||||||||||||||||||||||
Premises and equipment | 96,596 | 77,117 | ||||||||||||||||||||||
Other assets | 297,365 | 178,450 | ||||||||||||||||||||||
Total assets | $ | 4,514,409 | $ | 3,443,737 | ||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||
Interest bearing checking | $ | 688,739 | 0.06% | $ | 105 | $ | 584,232 | 0.06% | $ | 92 | ||||||||||||||
Money market deposits | 794,788 | 0.19% | 372 | 642,201 | 0.18% | 283 | ||||||||||||||||||
Savings deposits | 402,330 | 0.21% | 208 | 205,044 | 0.05% | 26 | ||||||||||||||||||
Time deposits >$100,000 | 494,680 | 0.84% | 1,053 | 400,043 | 0.65% | 657 | ||||||||||||||||||
Other time deposits | 246,475 | 0.28% | 172 | 259,215 | 0.30% | 196 | ||||||||||||||||||
Total interest-bearing deposits | 2,627,012 | 0.29% | 1,910 | 2,090,735 | 0.24% | 1,254 | ||||||||||||||||||
Borrowings | 331,122 | 1.75% | 1,462 | 228,273 | 1.13% | 647 | ||||||||||||||||||
Total interest-bearing liabilities | 2,958,134 | 0.45% | 3,372 | 2,319,008 | 0.33% | 1,901 | ||||||||||||||||||
Noninterest bearing checking | 1,005,307 | 732,520 | ||||||||||||||||||||||
Other liabilities | 30,536 | 26,456 | ||||||||||||||||||||||
Shareholders’ equity | 520,432 | 365,753 | ||||||||||||||||||||||
Total liabilities and shareholders’ equity | $ | 4,514,409 | $ | 3,443,737 | ||||||||||||||||||||
Net yield on interest-earning assets and net interest income | 4.16% | $ | 42,341 | 3.93% | $ | 30,888 | ||||||||||||||||||
Interest rate spread | 4.04% | 3.84% | ||||||||||||||||||||||
Average prime rate | 4.25% | 3.50% |
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Average Balances and Net Interest Income Analysis | |||||||||||||||||||||||||||||||||||
Six Months Ended June 30, | |||||||||||||||||||||||||||||||||||
2023 | 2022 | ||||||||||||||||||||||||||||||||||
($ in thousands) | Average Volume | Average Rate | Interest Earned or Paid | Average Volume | Average Rate | Interest Earned or Paid | |||||||||||||||||||||||||||||
Assets | |||||||||||||||||||||||||||||||||||
Loans (1) (2) | $ | 7,789,800 | 5.24 | % | $ | 202,343 | $ | 6,100,246 | 4.27 | % | $ | 129,279 | |||||||||||||||||||||||
Taxable securities | 2,973,460 | 1.80 | % | 26,479 | 3,066,772 | 1.75 | % | 26,595 | |||||||||||||||||||||||||||
Non-taxable securities | 297,789 | 1.52 | % | 2,250 | 294,257 | 1.47 | % | 2,152 | |||||||||||||||||||||||||||
Short-term investments, primarily interest-bearing cash | 364,651 | 4.02 | % | 7,263 | 420,671 | 0.73 | % | 1,530 | |||||||||||||||||||||||||||
Total interest-earning assets | 11,425,700 | 4.21 | % | $ | 238,335 | 9,881,946 | 3.26 | % | 159,556 | ||||||||||||||||||||||||||
Cash and due from banks | 94,239 | 120,691 | |||||||||||||||||||||||||||||||||
Premises and equipment | 151,877 | 135,768 | |||||||||||||||||||||||||||||||||
Other assets | 378,546 | 401,660 | |||||||||||||||||||||||||||||||||
Total assets | $ | 12,050,362 | $ | 10,540,065 | |||||||||||||||||||||||||||||||
Liabilities | |||||||||||||||||||||||||||||||||||
Interest bearing checking | $ | 1,491,401 | 0.30 | % | $ | 2,199 | $ | 1,558,950 | 0.06 | % | $ | 434 | |||||||||||||||||||||||
Money market deposits | 3,113,201 | 1.87 | % | 28,867 | 2,586,527 | 0.12 | % | 1,584 | |||||||||||||||||||||||||||
Savings deposits | 702,527 | 0.11 | % | 397 | 733,769 | 0.06 | % | 214 | |||||||||||||||||||||||||||
Time deposits >$100,000 | 838,287 | 2.59 | % | 10,770 | 534,300 | 0.18 | % | 487 | |||||||||||||||||||||||||||
Other time deposits | 328,079 | 2.47 | % | 4,013 | 315,027 | 0.41 | % | 637 | |||||||||||||||||||||||||||
Total interest-bearing deposits | 6,473,495 | 1.44 | % | 46,246 | 5,728,573 | 0.12 | % | 3,356 | |||||||||||||||||||||||||||
Borrowings | 461,260 | 5.52 | % | 12,618 | 67,400 | 3.15 | % | 1,052 | |||||||||||||||||||||||||||
Total interest-bearing liabilities | 6,934,755 | 1.71 | % | 58,864 | 5,795,973 | 0.15 | % | 4,408 | |||||||||||||||||||||||||||
Noninterest bearing checking | 3,725,222 | 3,550,741 | |||||||||||||||||||||||||||||||||
Other liabilities | 96,228 | 43,098 | |||||||||||||||||||||||||||||||||
Shareholders’ equity | 1,294,157 | 1,150,253 | |||||||||||||||||||||||||||||||||
Total liabilities and shareholders’ equity | $ | 12,050,362 | $ | 10,540,065 | |||||||||||||||||||||||||||||||
Net yield on interest-earning assets and net interest income | 3.17 | % | $ | 179,471 | 3.17 | % | $ | 155,148 | |||||||||||||||||||||||||||
Net yield on interest-earning assets and net interest income – tax-equivalent (3) | 3.19 | % | $ | 180,870 | 3.19 | % | $ | 156,514 | |||||||||||||||||||||||||||
Interest rate spread | 2.50 | % | 3.11 | % | |||||||||||||||||||||||||||||||
Average prime rate | 7.92 | % | 3.62 | % |
For the Nine Months Ended September 30, | ||||||||||||||||||||||||
2017 | 2016 | |||||||||||||||||||||||
($ in thousands) | Average Volume | Average Rate | Interest Earned or Paid | Average Volume | Average Rate | Interest Earned or Paid | ||||||||||||||||||
Assets | ||||||||||||||||||||||||
Loans (1) | $ | 3,211,844 | 4.78% | $ | 114,908 | $ | 2,576,605 | 4.68% | $ | 90,301 | ||||||||||||||
Taxable securities | 284,588 | 2.74% | 5,830 | 304,669 | 2.40% | 5,472 | ||||||||||||||||||
Non-taxable securities (2) | 56,092 | 7.74% | 3,249 | 50,221 | 7.51% | 2,822 | ||||||||||||||||||
Short-term investments, principally federal funds | 283,601 | 1.08% | 2,299 | 142,156 | 0.58% | 612 | ||||||||||||||||||
Total interest-earning assets | 3,836,125 | 4.40% | 126,286 | 3,073,651 | 4.31% | 99,207 | ||||||||||||||||||
Cash and due from banks | 74,135 | 57,943 | ||||||||||||||||||||||
Premises and equipment | 92,042 | 76,339 | ||||||||||||||||||||||
Other assets | 267,231 | 175,302 | ||||||||||||||||||||||
Total assets | $ | 4,269,533 | $ | 3,383,235 | ||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||
Interest bearing checking | $ | 676,939 | 0.06% | $ | 320 | $ | 585,052 | 0.06% | $ | 284 | ||||||||||||||
Money market deposits | 771,826 | 0.18% | 1,067 | 652,017 | 0.17% | 846 | ||||||||||||||||||
Savings deposits | 362,164 | 0.19% | 505 | 197,204 | 0.05% | 74 | ||||||||||||||||||
Time deposits >$100,000 | 473,200 | 0.75% | 2,641 | 394,403 | 0.65% | 1,931 | ||||||||||||||||||
Other time deposits | 248,985 | 0.27% | 511 | 277,123 | 0.35% | 725 | ||||||||||||||||||
Total interest-bearing deposits | 2,533,114 | 0.27% | 5,044 | 2,105,799 | 0.24% | 3,860 | ||||||||||||||||||
Borrowings | 294,650 | 1.55% | 3,411 | 200,427 | 1.17% | 1,750 | ||||||||||||||||||
Total interest-bearing liabilities | 2,827,764 | 0.40% | 8,455 | 2,306,226 | 0.32% | 5,610 | ||||||||||||||||||
Noninterest bearing checking | 932,233 | 695,718 | ||||||||||||||||||||||
Other liabilities | 31,782 | 23,350 | ||||||||||||||||||||||
Shareholders’ equity | 477,754 | 357,941 | ||||||||||||||||||||||
Total liabilities and shareholders’ equity | $ | 4,269,533 | $ | 3,383,235 | ||||||||||||||||||||
Net yield on interest-earning assets and net interest income | 4.11% | $ | 117,831 | 4.07% | $ | 93,597 | ||||||||||||||||||
Interest rate spread | 4.00% | 3.99% | ||||||||||||||||||||||
Average prime rate | 4.03% | 3.50% |
For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||||||||||||
($ in thousands) | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||
Accretion of loan discount on acquired loans | $ | 3,159 | 1,545 | 6,277 | 3,216 | |||||||||||||||||||||
Accretion of loan discount on retained SBA loans | 426 | 730 | 874 | 1,397 | ||||||||||||||||||||||
Total interest income impact | 3,585 | 2,275 | 7,151 | 4,613 | ||||||||||||||||||||||
(Discount accretion) premium amortization of acquired deposits | (878) | 168 | (1,897) | 402 | ||||||||||||||||||||||
Discount accretion of acquired borrowings | (212) | (53) | (420) | (126) | ||||||||||||||||||||||
Total net interest expense impact | (1,090) | 115 | (2,317) | 276 | ||||||||||||||||||||||
Total impact on net interest income | $ | 2,495 | 2,390 | 4,834 | 4,889 |
For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||||||||||||
($ in thousands) | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||
Service charges on deposit accounts | $ | 4,114 | 3,700 | 8,008 | 7,241 | |||||||||||||||||||||
Other service charges and fees - bankcard interchange income, net | 2,368 | 4,812 | 4,950 | 9,523 | ||||||||||||||||||||||
Other service charges and fees - other | 3,282 | 3,070 | 6,620 | 5,364 | ||||||||||||||||||||||
Fees from presold mortgage loans | 557 | 454 | 963 | 1,575 | ||||||||||||||||||||||
Commissions from sales of financial products | 1,413 | 1,151 | 2,719 | 2,096 | ||||||||||||||||||||||
SBA consulting fees | 409 | 704 | 930 | 1,484 | ||||||||||||||||||||||
SBA loan sale gains | 696 | 841 | 951 | 4,102 | ||||||||||||||||||||||
Bank-owned life insurance ("BOLI") income | 1,066 | 942 | 2,112 | 1,918 | ||||||||||||||||||||||
Core noninterest income | 13,905 | 15,674 | 27,253 | 33,303 | ||||||||||||||||||||||
Other gains, net | 330 | 1,590 | 518 | 3,212 | ||||||||||||||||||||||
Total noninterest income | $ | 14,235 | $ | 17,264 | $ | 27,771 | $ | 36,515 |
For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||||||||||||
($ in thousands) | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||
Salaries | $ | 28,676 | 23,799 | 57,997 | 47,253 | |||||||||||||||||||||
Employee benefits | 6,165 | 6,310 | 12,558 | 11,888 | ||||||||||||||||||||||
Total personnel expense | 34,841 | 30,109 | 70,555 | 59,141 | ||||||||||||||||||||||
Occupancy expense | 3,547 | 3,122 | 7,235 | 6,506 | ||||||||||||||||||||||
Equipment related expenses | 1,425 | 1,514 | 2,804 | 2,818 | ||||||||||||||||||||||
Credit card rewards and other bankcard expenses | 1,324 | 970 | 2,443 | 2,213 | ||||||||||||||||||||||
Telephone and data lines | 982 | 855 | 1,978 | 1,790 | ||||||||||||||||||||||
Software costs | 2,133 | 1,288 | 4,303 | 2,862 | ||||||||||||||||||||||
Data processing expense | 1,860 | 1,920 | 4,272 | 4,022 | ||||||||||||||||||||||
Professional fees | 1,416 | 1,307 | 2,865 | 2,178 | ||||||||||||||||||||||
Advertising and marketing expense | 1,090 | 884 | 2,209 | 1,795 | ||||||||||||||||||||||
Non-credit losses | 1,550 | 488 | 2,415 | 1,090 | ||||||||||||||||||||||
Deposit related expenses | 720 | 257 | 1,434 | 667 | ||||||||||||||||||||||
Other operating expenses | 7,322 | 5,286 | 15,580 | 9,962 | ||||||||||||||||||||||
Core noninterest expense | 58,210 | 48,000 | 118,093 | 95,044 | ||||||||||||||||||||||
Merger and acquisition expenses | 1,334 | 737 | 13,516 | 4,221 | ||||||||||||||||||||||
Amortization of intangible assets | 2,049 | 953 | 4,194 | 1,970 | ||||||||||||||||||||||
Foreclosed property losses (gains), net | — | (292) | (35) | (372) | ||||||||||||||||||||||
Total noninterest expense | $ | 61,593 | $ | 49,398 | $ | 135,768 | $ | 100,863 |
Average total deposits outstanding for the third quarter of 2017 were $3.632 billion, which was $809 million, or 28.7%, higher than the average deposits outstanding for the third quarter of 2016 ($2.823 billion). Average deposits outstanding for the nine months ended September 30, 2017 were $3.465 billion, which was 23.7% higher than the average deposits outstanding for the nine months ended September 30, 2016 ($2.802 billion). As discussed previously, we acquired Carolina Bank during the first quarter of 2017, which had $585 million in deposits on the acquisition date. Including the acquisition, average transaction deposit accounts (noninterest bearing checking, interest bearing checking, money market and savings accounts) increased from $2.130 billion for the nine months ended September 30, 2016 to $2.743 billion for the nine months ended September 30, 2017, representing growth of $613 million, or 28.8%. Average time deposits also increased for the first nine months of 2017 in comparison to the first nine months of 2016, from $672 million to $722 million, an increase of $50 million, or 7.5%.
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Average borrowings increased for the nine months ended September 30, 2017 to $294.7 million from the $200.4 million for the same period of 2016. Carolina Bank had approximately $19 million in borrowings on the date of acquisition. Our cost of funds, which includes noninterest bearing checking accounts at a zero percent cost, was 0.30% in the first nine months of 2017 compared to 0.25% in the first nine months of 2016, with the increase being due to the increased costs associated with our higher levels of borrowings.
See additional information regarding changes in our loans and deposits in the section below entitled “Financial Condition.”
Our net interest margin (tax-equivalent net interest income divided by average earning assets) for the third quarter of 2017 was 4.16% compared to 3.93% for the third quarter of 2016. For the nine month period ended September 30, 2017, our net interest margin was 4.11% compared to 4.07% for the same period in 2016. The increases in 2017 were due to both increased asset yields and higher amounts of discount accretion. Asset yields have increased primarily as a result of three Federal Reserve interest rate increases during the past year. Funding costs have also increased, but to a lesser degree.
Our net interest margin benefits from the net accretion of purchase accounting premiums/discounts associated with acquired loans and deposits. We recorded loan discount accretion amounting to $1.7 million in the third quarter of 2017, compared to $0.8 million in the third quarter of 2016. For the first nine months of 2017 and 2016, loan discount accretion amounted to $5.1 million and $3.6 million, respectively. The increase in loan discount accretion is primarily due to the loan discounts recorded in the acquisition of Carolina Bank. Unaccreted loan discount has increased from $13.2 million at September 30, 2016 to $16.9 million at September 30, 2017 primarily as a result of the Carolina Bank acquisition.
See additional information regarding net interest income in the section entitled “Interest Rate Risk.”
We recorded no provision for loan losses in the third quarters of 2017 or 2016. For the nine months ended September 30, 2017, we recorded total provision for loan losses of $0.7 million compared to a total negative provision for loan losses of $23,000 in the same period of 2016.
Our provision for loan loss levels have been impacted by continued improvement in asset quality. Nonperforming assets amounted to $53.0 million at September 30, 2017, a decrease of 24.4% from the $70.2 million one year earlier. Our nonperforming assets to total assets ratio was 1.16% at September 30, 2017 compared to 1.98% at September 30, 2016. Also, our provision for loan loss levels were impacted by lower net loan charge-offs in 2017. We experienced net loan recoveries of $0.1 million for the first nine months of 2017, compared to net loan charge-offs of $2.9 million for the first nine months of 2016. The ratio of annualized net charge-offs to average loans for the nine months ended September 30, 2017 was 0.00%, compared to 0.15% for the same period of 2016.
Total noninterest income was $12.4 million and $5.2 million for the three months ended September 30, 2017 and September 30, 2016, respectively. For the nine months ended September 30, 2017, noninterest income amounted to $34.0 million compared to $16.1 million for the same period of 2016.
As shown in the table below, core noninterest income for the third quarter of 2017 was $12.8 million, an increase of 31.2% from the $9.8 million reported for the third quarter of 2016. For the first nine months of 2017, core noninterest income amounted to $34.2 million, a 35.4% increase from the $25.3 million recorded in the comparable period of 2016. Core noninterest income includes i) service charges on deposit accounts, ii) other service charges, commissions, and fees, iii) fees from presold mortgage loans, iv) commissions from sales of insurance and financial products, v) SBA consulting fees, vi) SBA loan sale gains, and vii) bank-owned life insurance income.
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The following table presents our core noninterest income for the three and nine month periods ending September 30, 2017 and 2016, respectively.
For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
$ in thousands | September 30, 2017 | September 30, 2016 | September 30, 2017 | September 30, 2016 | ||||||||||||
Service charges on deposit accounts | $ | 2,945 | 2,710 | 8,525 | 7,960 | |||||||||||
Other service charges, commissions, and fees | 3,468 | 2,996 | 10,195 | 8,869 | ||||||||||||
Fees from presold mortgage loans | 1,842 | 710 | 4,121 | 1,491 | ||||||||||||
Commissions from sales of insurance and financial products | 1,426 | 969 | 3,304 | 2,844 | ||||||||||||
SBA consulting fees | 864 | 1,178 | 3,174 | 1,898 | ||||||||||||
SBA loan sale gains | 1,692 | 694 | 3,241 | 694 | ||||||||||||
Bank-owned life insurance income | 579 | 514 | 1,667 | 1,526 | ||||||||||||
Core noninterest income | $ | 12,816 | 9,771 | 34,227 | 25,282 | |||||||||||
As shown in the table above, service charges on deposit accounts increased from $2.7 million in the third quarter of 2016 to $2.9 million in the third quarter of 2017. For the nine months ended September 30, 2017, service charges on deposit accounts amounted to $8.5 million, which is a $0.5 million increase from the $8.0 million recorded in the comparable period of 2016. The increases for both periods are primarily due to the service charges from accounts assumed in the Carolina Bank acquisition.
Other service charges, commissions, and fees increased from $3.0 million in the third quarter of 2016 to $3.5 million in the third quarter of 2017. For the nine months ended September 30, 2017, this revenue amounted to $10.2 million, which was a $1.3 million increase from the $8.9 million recorded in the comparable period of 2016. The increase in this line item was due to a combination of the Carolina Bank acquisition, as well as growth in interchange fees from debit and credit cards. We earn a small fee each time a customer uses a debit or credit card to make a purchase. Due to the growth in checking accounts and increased customer usage of debit cards, we have experienced increases in this line item. Interchange income from credit cards has also increased due to growth in the number and usage of credit cards, which we believe is a result of increased promotion of this product.
Fees from presold mortgage loans increased to $1.8 million for the third quarter of 2017 from $0.7 million in the third quarter of 2016. For the first nine months of 2017, fees from presold mortgage loans increased to $4.1 million from the $1.5 million recorded in the comparable period of 2016. The increases were primarily due to the acquisition of Carolina Bank in March 2017, which had a significant mortgage loan operation.
Commissions from sales of insurance and financial products amounted to approximately $1.4 million and $1.0 million for the third quarters of 2017 and 2016, respectively. For the nine months ended September 30, 2017 and 2016, commissions from sales of insurance and financial products amounted to $3.3 million and $2.8 million, respectively. The increase was primarily due to the acquisition of an insurance agency during the third quarter of 2017 – see additional discussion at Note 4 to the Consolidated Financial Statements.
Oneconsolidated financial statements presents additional detailed information regarding our mix of loans. We have no notable concentrations in geographies or industries, including in office or hospitality categories. The Company's exposure to non-owner occupied commercial office loans represents approximately 5.7% of the primary reasons fortotal portfolio and the increases in core noninterest income for the three and nine months ended September 30, 2017 was the addition of SBA consulting fees and SBA loan sale gains beginning in 2016. On May 5, 2016, we completed the acquisition of a firm that specializes in consulting with financial institutions across the country related to SBA loan origination and servicing. We recorded $0.9 million and $3.2 million in SBA consulting fees related to this business during the three and nine months ended September 30, 2017, respectively, in comparison to $1.2 million and $1.9 million for the three and nine months ended September 30, 2016, respectively. In the third quarter of 2016, we launched a national SBA lending division offering SBA loans to small business owners throughout the United States. The SBA division earned $1.7 million and $3.2 million from gains on the sales of the guaranteed portionsaverage size of these loans duringis $1.3 million. Non-owner occupied office loans are generally in non-metro markets and the threetop 10 loans in this category represent less than 2% of the total loan portfolio.
Bank-owned life insurance income was relatively unchangedbalance sheet while providing a vehicle for the periods presented, amountinginvestment of available funds, furnishing liquidity, and supplying securities to $0.6pledge as required collateral for certain deposits. Total investment securities decreased $98.6 million from December 31, 2022 to $2.8 billion at June 30, 2023 due in the third quarter of 2017 compared to $0.5 million in the third quarter of 2016, and $1.7 million to $1.5 million for the first nine months of 2017 and 2016, respectively.
Page 48
Within the noncore components of noninterest income, the largest variance for the periods presented related to indemnification asset expense. As discussed previously, in the third quarter of 2016, we terminated our FDIC loss share agreements, and thus there was no indemnification asset income or expense in 2017. In 2016, we recorded indemnification asset expense of $5.7 million and $10.3 million for the three and nine months ended September 30, 2016, respectively.
During the nine months ended September 30, 2017, we recorded $0.2 million in losses from sales of securities. For the comparable period of 2016, we recorded an insignificant amount of gain.
Other gains and losses for the 2017 periods presented represent the net effects of miscellaneous gains and losses that are non-routine in nature. In the third quarter of 2016, the Company recorded a net gain of $1.4 million as a result of a branch exchange transaction.
Noninterest expenses amounted to $34.4 million in the third quarter of 2017 compared to $27.7 million recorded in the third quarter of 2016. Noninterest expenses for the nine months ended September 30, 2017 amounted to $101.5 million compared to $78.6 million in 2016. The majority of the increase in noninterest expenses in 2017 relates to our acquisition of Carolina Bank.
Salaries expense increased to $16.6 million in the third quarter of 2017 from the $13.4 million recorded in the third quarter of 2016. Salaries expense for the first nine months of 2017 amounted to $46.8 million compared to $37.5 million in 2016. The primary reason for the increase in salaries expense in 2017 was the addition of personnel assumed in the Carolina Bank acquisition. Also impacting salaries expense is the 2016 acquisition and continued growth of the Company’s SBA consulting firm which was acquired in May 2016 and the SBA national lending division, which began operations in the third quarter of 2016.
Employee benefits expense was $3.4 million in the third quarter of 2017 compared to $2.6 million in the third quarter of 2016. For the first nine months of 2017, employee benefits expense amounted to $10.7 million compared to $7.9 million in 2016. This increase in 2017 was primarily duelarge part to the acquisition and growth initiatives discussed above.
Occupancy and equipment expense increased in 2017 primarily dueutilization of cash flows from amortizing securities to the acquisitions discussed above. For the three months ended September 30, 2017, occupancy and equipment expense totaled $3.5 million compared to $2.9 million in the third quarter of 2016. For the nine months ended September 30, 2017, occupancy and equipment expense totaled $10.3 million compared to $8.5 million in the first nine months of 2016.
Merger and acquisition expenses amounted to $1.3 million and $0.6 million for the three months ended September 30, 2017 and 2016, respectively. For the nine months ended September 30, 2017 and 2016, merger and acquisition expenses amounted to $4.8 million and $1.3 million, respectively. Merger and acquisition expenses represent transaction related costs associated primarily with the acquisitions of Carolina Bank and Asheville Savings Bank.
Intangibles amortization expense increased from $0.4 million in the third quarter of 2016 to $0.9 million in the third quarter of 2017 and from $0.8 million in the first nine months of 2016 to $2.5 million in the first nine months of 2017, primarily as a result of the amortization of intangible assets that were recorded in connection with our acquisitions.
Other operating expenses amounted to $8.7 million and $7.8 million for the third quarters of 2017 and 2016, respectively, and $26.4 million in the first nine months of 2017 compared to $22.7 million in the first nine months of 2016.fund loan growth. The increases were primarily due to the Company’s growth, including the acquisitions of the SBA consulting firm and Carolina Bank.
For the third quarter of 2017, the provision for income taxes was $6.5 million, an effective tax rate of 33.3%, compared to $3.1 million for the same period of 2016, which is an effective tax rate of 40.0%. For the first nine months of 2017, the provision for income taxes was $15.8 million, an effective tax rate of 33.3%, compared to $10.4 million for the same period of 2016, which was an effective tax rate of 35.2%. Tax matters associated with the branch exchange with First Community Bank during the third quarter of 2016 contributed to the increase in effective tax rate for the periods in 2016.
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The Consolidated Statements of Comprehensive Income reflect other comprehensive income of $0.2 million during each of the third quarters of 2017 and 2016. During the nine months ended September 30, 2017 and 2016, we recorded other comprehensive income of $2.3 million and $2.0 million, respectively. The primary component of other comprehensive income for the periods presented was changes in unrealized holding gains (losses) of our available for sale securities. Ourloss on available for sale securities portfolio is predominantlytotaled $440.1 million, representing an improvement of $3.9 million during the six months ended June 30, 2023. The Company has the intent and ability to hold investments with unrealized losses until maturity or recovery of the amortized cost as market conditions change. Note 3 to the consolidated financial statements presents additional detailed information regarding our mix of investments and the unrealized losses for each category.
FINANCIAL CONDITION
The following table presents information regarding the nature of changes in our levels of loans and deposits for the twelve months ended September 30, 2017 and for the first nine months of 2017.
October 1, 2016 to September 30, 2017 | Balance at beginning of period | Internal Growth, net | Growth from Acquisitions (1) | Balance at end of period | Total percentage growth | Internal percentage growth | ||||||||||||||||||
Loans outstanding | $ | 2,651,459 | 280,774 | 497,522 | 3,429,755 | 29.4% | 10.6% | |||||||||||||||||
Deposits – Noninterest bearing checking | 749,256 | 120,782 | 146,909 | 1,016,947 | 35.7% | 16.1% | ||||||||||||||||||
Deposits – Interest bearing checking | 593,065 | 28,277 | 61,771 | 683,113 | 15.2% | 4.8% | ||||||||||||||||||
Deposits – Money market | 658,166 | 35,562 | 100,191 | 793,919 | 20.6% | 5.4% | ||||||||||||||||||
Deposits – Savings | 207,494 | 521 | 188,177 | 396,192 | 90.9% | 0.3% | ||||||||||||||||||
Deposits – Brokered | 147,406 | 56,732 | 11,477 | 215,615 | 46.3% | 38.5% | ||||||||||||||||||
Deposits – Internet time | — | (3,253 | ) | 11,248 | 7,995 | — | — | |||||||||||||||||
Deposits – Time>$100,000 | 306,041 | (46,818 | ) | 36,783 | 296,006 | -3.3% | -15.3% | |||||||||||||||||
Deposits – Time<$100,000 | 249,412 | (36,783 | ) | 28,825 | 241,454 | -3.2% | -14.7% | |||||||||||||||||
Total deposits | $ | 2,910,840 | 155,020 | 585,381 | 3,651,241 | 25.4% | 5.3% | |||||||||||||||||
January 1, 2017 to September 30, 2017 | ||||||||||||||||||||||||
Loans outstanding | $ | 2,710,712 | 221,521 | 497,522 | 3,429,755 | 26.5% | 8.2% | |||||||||||||||||
Deposits – Noninterest bearing checking | 756,003 | 114,035 | 146,909 | 1,016,947 | 34.5% | 15.1% | ||||||||||||||||||
Deposits – Interest bearing checking | 635,431 | (14,089 | ) | 61,771 | 683,113 | 7.5% | -2.2% | |||||||||||||||||
Deposits – Money market | 683,680 | 10,048 | 100,191 | 793,919 | 16.1% | 1.5% | ||||||||||||||||||
Deposits – Savings | 209,074 | (1,059 | ) | 188,177 | 396,192 | 89.5% | -0.5% | |||||||||||||||||
Deposits – Brokered | 136,466 | 67,672 | 11,477 | 215,615 | 58.0% | 49.6% | ||||||||||||||||||
Deposits – Internet time | — | (3,253 | ) | 11,248 | 7,995 | — | — | |||||||||||||||||
Deposits – Time>$100,000 | 287,939 | (28,716 | ) | 36,783 | 296,006 | 2.8% | -10.0% | |||||||||||||||||
Deposits – Time<$100,000 | 238,760 | (26,131 | ) | 28,825 | 241,454 | 1.1% | -10.9% | |||||||||||||||||
Total deposits | $ | 2,947,353 | 118,507 | 585,381 | 3,651,241 | 23.9% | 4.0% |
As derived from the table above, for the twelve months preceding September 30, 2017, our total loans increased $778$941.0 million, or 29.4%10.2%, from December 31, 2022. Deposits acquired from GrandSouth contributed $1.05 billion while organic market growth (excluding wholesale funding) totaled $154.0 million since year end for an annualized growth rate of 3.1%. The loan growthWholesale brokered deposits decreased $249.5 million from acquisitions is dueyear end. We continue to our acquisition of Carolina Bank in March 2017,have a diversified and granular deposit base which had $497.5 million in loans on the date of acquisition. Carolina Bank operated through eight branches predominately in the Triad region on North Carolina, and we expect these branches to enhance our recent expansion into this high-growth market. Internal loan growth was $280.8 million, or 10.6%, for the twelve months ended September 30, 2017 and was $221.5 million, or 8.2% (10.9% annualized), for the first nine months of 2017. Internal loan growth has been primarily driven by our recent expansion into high-growth markets and the hiring of experienced bankers in these areas. We expectremained stable with continued growth in our loan portfolio forcore deposits, primarily noninterest-bearing checking accounts and money market accounts. As of June 30, 2023, the remainderestimated insured deposits totaled $6.5 billion or 63.6% of 2017.
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The mixtotal deposits. In addition, we had collateralized deposits at that date of $774.8 million such that approximately 71.2% of our loan portfolio remains substantiallytotal deposits were insured or collateralized at June 30, 2023.
For both the nine and twelve month periods ended September 30, 2017, we experienced net internal growth in total deposits. For these periods, increases in transaction deposit account balances (checking, money market, and savings) offset declines in time deposits. Due to the low interest rate environment, some of our customers are shifting their funds from time deposits into transaction accounts, which do not pay a materially lower interest rate, while being more liquid. We also experienced growth from acquisitions due to the Carolina Bank acquisition. We acquired $585.4 milliontable below. There has been no notable shift in deposits from the Carolina Bank acquisition, and of that, $497.0 million were in the transaction deposit categories.
While retail deposits (non-brokered) have experienced growth over recent periods, the loan growth we have experienced has exceeded the retail deposit growth. This is largely associated with our recent growth and expansion into the larger markets of North Carolina – Charlotte, Raleigh, and the Triad. When initially entering markets such as these, our experience has been that we are ablenoninterest-bearing to capture loan market share fasterinterest-bearing during 2023 to date other than deposit market share. This imbalance has resulted in higher use of brokered deposits and borrowings to fund the loan growth. Total brokered deposits amounted to $215.6 million at September 30, 2017, which is a 46% increase from the $147.4 million outstandingacquired deposits driving a year earlier. Borrowings have increased from $236.4 million to $397.5 million over that same period.
moderate change in mix.
June 30, 2023 | December 31, 2022 | |||||||||||||||||||||||||
($ in thousands) | Amount | Percentage | Amount | Percentage | ||||||||||||||||||||||
Noninterest-bearing checking accounts | $ | 3,639,930 | 36 | % | 3,566,003 | 39 | % | |||||||||||||||||||
Interest-bearing checking accounts | 1,454,489 | 14 | % | 1,514,166 | 16 | % | ||||||||||||||||||||
Money market accounts | 3,411,072 | 34 | % | 2,416,146 | 26 | % | ||||||||||||||||||||
Savings accounts | 658,473 | 6 | % | 728,641 | 8 | % | ||||||||||||||||||||
Other time deposits | 638,751 | 6 | % | 464,343 | 5 | % | ||||||||||||||||||||
Time deposits >$250,000 | 353,473 | 4 | % | 276,319 | 3 | % | ||||||||||||||||||||
Total market deposits | 10,156,188 | 100 | % | 8,965,618 | 97 | % | ||||||||||||||||||||
Brokered deposits | 12,381 | — | % | 261,911 | 3 | % | ||||||||||||||||||||
Total deposits | $ | 10,168,569 | 100 | % | 9,227,529 | 100 | % |
Nonperforming assets include
ASSET QUALITY DATA($ in thousands) | As of/for the quarter ended September 30, 2017 | As of/for the quarter ended December 31, 2016 | As of/for the quarter ended September 30, 2016 | |||||||||
Nonperforming assets | ||||||||||||
Nonaccrual loans | $ | 23,350 | 27,468 | 32,796 | ||||||||
Restructured loans – accruing | 20,330 | 22,138 | 27,273 | |||||||||
Accruing loans >90 days past due | — | — | — | |||||||||
Total nonperforming loans | 43,680 | 49,606 | 60,069 | |||||||||
Foreclosed real estate | 9,356 | 9,532 | 10,103 | |||||||||
Total nonperforming assets | $ | 53,036 | 59,138 | 70,172 | ||||||||
Purchased credit impaired loans not included above (1) | $ | 15,034 | — | — | ||||||||
Asset Quality Ratios – All Assets | ||||||||||||
Net charge-offs to average loans - annualized | -0.07% | 0.12% | 0.06% | |||||||||
Nonperforming loans to total loans | 1.27% | 1.83% | 2.27% | |||||||||
Nonperforming assets to total assets | 1.16% | 1.64% | 1.98% | |||||||||
Allowance for loan losses to total loans | 0.72% | 0.88% | 0.93% | |||||||||
Allowance for loan losses to nonperforming loans | 56.30% | 47.94% | 40.91% |
($ in thousands) | June 30, 2023 | December 31, 2022 | ||||||||||||
Nonperforming assets | ||||||||||||||
Nonaccrual loans | $ | 29,876 | 28,514 | |||||||||||
Modifications to borrowers in financial distress | 4,862 | — | ||||||||||||
TDRs – accruing | — | 9,121 | ||||||||||||
Total nonperforming loans | 34,738 | 37,635 | ||||||||||||
Foreclosed real estate | 1,077 | 658 | ||||||||||||
Total nonperforming assets | $ | 35,815 | 38,293 | |||||||||||
Asset Quality Ratios | ||||||||||||||
Nonaccrual loans to total loans | 0.38 | % | 0.43 | % | ||||||||||
Nonperforming loans to total loans | 0.44 | % | 0.56 | % | ||||||||||
Nonperforming assets to total loans and foreclosed properties | 0.45 | % | 0.57 | % | ||||||||||
Nonperforming assets to total assets | 0.30 | % | 0.36 | % | ||||||||||
Allowance for credit losses to nonaccrual loans | 365.61 | % | 319.03 | % | ||||||||||
Allowance for credit losses to nonperforming loans | 314.44 | % | 241.71 | % |
Consistent with the weak economy experienced in much of our market associated with the onset of the recession in 2008, we experienced higher levels of loan losses, delinquencies and nonperforming assets compared to our historical averages. As the economic conditions have improved in our market area over the past several years, we have experienced steady declines in our levels of nonperforming assets.
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As noted in the table above, at September 30, 2017, total nonaccrual loans amounted to $23.4 million, compared to $27.5 million at December 31, 2016 and $32.8 million at September 30, 2016. “Restructured loans – accruing”, or troubled debt restructurings (“TDRs”), are accruing loans for which we have granted concessions to the borrower as a result of the borrower’s financial difficulties. At September 30, 2017, total accruing TDRs amounted to $20.3 million, compared to $22.1 million at December 31, 2016 and $27.3 million at September 30, 2016.
Foreclosed real estate includes primarily foreclosed properties. Total foreclosed real estate amounted to $9.4 million at September 30, 2017, $9.5 million at December 31, 2016, and $10.1 million at September 30, 2016. Our foreclosed property balances have generally been decreasing as a result of sales activity during the periods and the improvement in our overall asset quality. In the first quarter of 2017, we acquired Carolina Bank and assumed $3.1 million of foreclosed real estate in this transaction.
The following is the composition, by loan type, of all of our nonaccrual loans at each period end, as classified for regulatory purposes:
($ in thousands) | At September 30, 2017 | At December 31, 2016 | At September 30, 2016 | |||||||||
Commercial, financial, and agricultural | $ | 996 | 1,842 | 2,253 | ||||||||
Real estate – construction, land development, and other land loans | 1,565 | 2,945 | 3,858 | |||||||||
Real estate – mortgage – residential (1-4 family) first mortgages | 14,878 | 16,017 | 17,989 | |||||||||
Real estate – mortgage – home equity loans/lines of credit | 2,250 | 2,355 | 2,441 | |||||||||
Real estate – mortgage – commercial and other | 3,534 | 4,208 | 6,151 | |||||||||
Installment loans to individuals | 127 | 101 | 104 | |||||||||
Total nonaccrual loans | $ | 23,350 | 27,468 | 32,796 | ||||||||
The table above indicated decreases in most categories of nonaccrual loans. The decreases reflect stabilization in most of our market areas and our increased focus on the resolution of our nonperforming assets.
We believe that the fair values of the items of foreclosed real estate, less estimated costs to sell, equal or exceed their respective carrying values at the dates presented. The following table presents the detail of all of our foreclosed real estate at each period end:
($ in thousands) | At September 30, 2017 | At December 31, 2016 | At September 30, 2016 | |||||||||
Vacant land | $ | 3,617 | 3,221 | 3,324 | ||||||||
1-4 family residential properties | 3,257 | 4,345 | 4,538 | |||||||||
Commercial real estate | 2,482 | 1,966 | 2,241 | |||||||||
Total foreclosed real estate | $ | 9,356 | 9,532 | 10,103 |
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The following table presents geographical information regarding our nonperforming assets at September 30, 2017.
As of September 30, 2017 | ||||||||||||||||
($ in thousands) | Total Nonperforming Loans | Total Loans | Nonperforming Loans to Total Loans | Total Foreclosed Real Estate | ||||||||||||
Region (1) | ||||||||||||||||
Eastern Region (NC) | $ | 10,505 | 819,000 | 1.3% | $ | 1,024 | ||||||||||
Triangle Region (NC) | 11,489 | 873,000 | 1.3% | 1,650 | ||||||||||||
Triad Region (NC) | 8,954 | 906,000 | 1.0% | 2,289 | ||||||||||||
Charlotte Region (NC) | 1,276 | 273,000 | 0.5% | 334 | ||||||||||||
Southern Piedmont Region (NC) | 6,882 | 286,000 | 2.4% | 773 | ||||||||||||
Western Region (NC) | 125 | 91,000 | 0.1% | 912 | ||||||||||||
South Carolina Region | 2,413 | 153,000 | 1.6% | 528 | ||||||||||||
Virginia Region (2) | 1,969 | 9,000 | 21.9% | 1,846 | ||||||||||||
Other | 67 | 20,000 | 0.3% | — | ||||||||||||
Total | $ | 43,680 | 3,430,000 | 1.3% | $ | 9,356 | ||||||||||
Eastern North Carolina Region - New Hanover, Brunswick, Duplin, Dare, Beaufort, Pitt, Onslow, Carteret
Triangle North Carolina Region - Moore, Lee, Harnett, Chatham, Wake
Triad North Carolina Region - Montgomery, Randolph, Davidson, Rockingham, Guilford, Stanly, Forsyth, Alamance
Charlotte North Carolina Region - Iredell, Cabarrus, Rowan, Mecklenburg
Southern Piedmont North Carolina Region - Anson, Richmond, Scotland, Robeson, Bladen, Columbus, Cumberland
Western North Carolina Region – Buncombe
South Carolina Region - Chesterfield, Dillon, Florence
Virginia Region - Wythe, Washington, Montgomery, Roanoke
Summary of Loan Loss Experience
The allowance for loan losses is created by direct charges to operations (known as a “provision for loan losses” for the period in which the charge is taken). Losses on loans are charged against the allowance in the period in which such loans, in management’s opinion, become uncollectible. The recoveries realized during the period are credited to this allowance.
We have no foreign loans, few agricultural loans and do not engage in significant lease financing or highly leveraged transactions. Commercial loans are diversified among a variety of industries. The majority of our real estate loans are primarily personal and commercial loans where real estate provides additional security for the loan. Collateral for virtually all of these loans is located within our principal market area.
The weak economic environment that began
We"Provision for Credit Losses" section above and in Note 4 to the accompanying consolidated financial statements. Purchase accounting adjustments included a "Day 1" ACL of $5.6 million recorded no provision for loan losses in the third quarters of 2017 or 2016. For the nine months ended September 30, 2017, we recorded totalPCD loans and an initial "Day 2" provision for loan losses of $0.7$12.2 million comparedrelated to a total negative provision for loan losses of $23,000non-PCD loans in the same periodGrandSouth portfolio. The balance of 2016. The negative provisionthe change in 2016the ACL was primarily due to significant recoveries on covered loans.
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For the periods indicated, the following table summarizes our balances of loans outstanding, average loans outstanding, changes in the allowance for loan losses arising fromACL, charge-offs and recoveries, and additionskey ratios:
($ in thousands) | Six Months Ended June 30, 2023 | Twelve Months Ended December 31, 2022 | Six Months Ended June 30, 2022 | |||||||||||||||||
Loans outstanding at end of period | $ | 7,897,629 | 6,665,145 | 6,243,170 | ||||||||||||||||
Average amount of loans outstanding | 7,789,800 | 6,293,280 | 6,100,246 | |||||||||||||||||
Allowance for credit losses, at period end | 109,230 | 90,967 | 82,181 | |||||||||||||||||
Total charge-offs | (4,372) | (4,465) | (2,803) | |||||||||||||||||
Total recoveries | 1,874 | 4,043 | 2,695 | |||||||||||||||||
Net charge-offs | $ | (2,498) | (422) | (108) | ||||||||||||||||
Ratios: | ||||||||||||||||||||
Net charge-offs as a percent of average loans (annualized) | 0.06 | % | 0.01 | % | — | % | ||||||||||||||
Allowance for credit losses as a percent of loans at end of period | 1.38 | % | 1.36 | % | 1.32 | % | ||||||||||||||
Recoveries of loans previously charged-off as a percent of loans charged-off | 42.86 | % | 90.55 | % | 96.15 | % |
($ in thousands) | Nine Months Ended September 30, | Twelve Months Ended December 31, | Nine Months Ended September 30, | |||||||||
2017 | 2016 | 2016 | ||||||||||
Loans outstanding at end of period | $ | 3,429,755 | 2,710,712 | 2,651,459 | ||||||||
Average amount of loans outstanding | $ | 3,211,844 | 2,603,327 | 2,576,605 | ||||||||
Allowance for loan losses, at beginning of year | $ | 23,781 | 28,583 | 28,583 | ||||||||
Provision (reversal) for loan losses | 723 | (23 | ) | (23 | ) | |||||||
24,504 | 28,560 | 28,560 | ||||||||||
Loans charged off: | ||||||||||||
Commercial, financial, and agricultural | (1,335 | ) | (2,033 | ) | (1,273 | ) | ||||||
Real estate – construction, land development & other land loans | (312 | ) | (1,101 | ) | (638 | ) | ||||||
Real estate – mortgage – residential (1-4 family) first mortgages | (1,746 | ) | (3,894 | ) | (3,461 | ) | ||||||
Real estate – mortgage – home equity loans / lines of credit | (791 | ) | (1,010 | ) | (970 | ) | ||||||
Real estate – mortgage – commercial and other | (573 | ) | (1,088 | ) | (933 | ) | ||||||
Installment loans to individuals | (521 | ) | (1,288 | ) | (741 | ) | ||||||
Total charge-offs | (5,278 | ) | (10,414 | ) | (8,016 | ) | ||||||
Recoveries of loans previously charged-off: | ||||||||||||
Commercial, financial, and agricultural | 848 | 817 | 614 | |||||||||
Real estate – construction, land development & other land loans | 2,280 | 2,690 | 2,066 | |||||||||
Real estate – mortgage – residential (1-4 family) first mortgages | 806 | 1,207 | 820 | |||||||||
Real estate – mortgage – home equity loans / lines of credit | 250 | 279 | 217 | |||||||||
Real estate – mortgage – commercial and other | 973 | 1,286 | 1,052 | |||||||||
Installment loans to individuals | 210 | 406 | 312 | |||||||||
Total recoveries | 5,367 | 6,685 | 5,081 | |||||||||
Net (charge-offs)/recoveries | 89 | (3,729 | ) | (2,935 | ) | |||||||
Allowance removed related to sold loans | — | (1,050 | ) | (1,050 | ) | |||||||
Allowance for loan losses, at end of period | $ | 24,593 | 23,781 | 24,575 | ||||||||
Ratios: | ||||||||||||
Net charge-offs as a percent of average loans (annualized) | 0.00% | 0.14% | 0.15% | |||||||||
Allowance for loan losses as a percent of loans at end of period | 0.72% | 0.88% | 0.93% | |||||||||
The provision for loan losses thatACL on loans, we record is driven bymaintain an allowance for lending-related commitments such as unfunded loan loss mathematical model. The primary factors impacting this modelcommitments. We estimate expected credit losses associated with these commitments over the contractual period in which we are loan growth, net charge-off history, and asset quality trends. In 2017, the impact of strong organic loan growth, which would normally result in higher provisions for loan losses, was substantially offset by net loan recoveries in 2017 and improving asset quality trends.
exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable. The allowance for loan losses amounted to $24.6 million at September 30, 2017, compared to $23.8 million at December 31, 2016 and $24.6 million at September 30, 2016. The ratio of our allowance to total loans has declined from 0.93% at September 30, 2016 to 0.72% at September 30, 2017lending-related commitments on off-balance sheet credit exposures is adjusted as a resultprovision for unfunded commitments expense. The estimate includes consideration of the factors discussed above
2022, respectively, are classified on the balance sheet within "Other liabilities."
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In addition, various regulatory agencies, as an integral part of their examination process, periodically review our allowance for loan lossesACL and the value of other real estate.our collateral-dependent loans. Such agencies may require us to recognize adjustments to the allowance or the carrying value of other real estateACL based on their judgments about information available at the time of their examinations.
Based on the results of our loan analysis and grading program and our evaluation of the allowance for loan losses at September 30, 2017, there have been no material changes to the allocation of the allowance for loan losses among the various categories of loans since December 31, 2016.
In addition to internally generated liquidity sources, we have the ability to obtain borrowings We also maintain available lines of credit from the followingFHLB and the Federal Reserve, as well as federal funds lines from several correspondent banks which are summarized below.
Our overall liquidity has decreased slightly since September 30, 2016 but remains sufficient. Ournet liquid assets (cash, unpledged securities and securities)other marketable assets) as a percentage of our totalnet liabilities (unpledged deposits and borrowings decreased from 19.6%borrowings). The decrease in on-balance sheet liquidity is primarily related to the higher level of investment securities pledged during the year to date to increase our borrowing availability. Our total liquidity ratio, including the $1.6 billion in available lines of credit at Septemberquarter end was 29.0% as of June 30, 20162023. The increase in available lines during 2023 was a result of additional loan and security collateral being transferred to 18.1% at September 30, 2017.
the FHLB and the Federal Reserve to enhance the levels of off-balance sheet liquidity availability to meet demands, as necessary. We believe our liquidity sources, including unused lines of credit, are at an acceptable level and remain adequate to meet our operating needs in the foreseeable future. We will continue to monitor our liquidity position carefully and will explore and implement strategies to increase liquidity if deemed appropriate.
We In addition, we are not involved in any legal proceedings that, in our opinion, could have a material effect on our consolidated financial position. See Part II – Item 1 for additional information regarding legal proceedings.
2023.
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The Company is regulated by the Board of Governors of the Federal Reserve Board (“Federal Reserve”) and is subject to the securities registration and public reporting regulations of the Securities and Exchange Commission.SEC. Our banking subsidiary First Bank, is also regulated by the Federal Reserve and the North Carolina Office of the Commissioner of Banks.Banks ("NCCOB"). We must comply with regulatory capital requirements established by the Federal Reserve and the NCCOB. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on our financial statements. We are not aware of any recommendations of regulatory authorities or otherwise which, if they were to be implemented, would have a material effect on our liquidity, capital resources, or operations.
We must comply with regulatory capital requirements established by the Federal Reserve. Failure to meet minimum capital requirements can initiate certain mandatory,
The capital conservation buffer requirement began to be phased in on January 1, 2016, at 0.625% of risk weighted assets, and will increase each year until fully implemented at 2.5% in January 1, 2019.
September 30, 2017 | December 31, 2016 | September 30, 2016 | ||||||||||
Risk-based capital ratios: | ||||||||||||
Common equity Tier 1 to Tier 1 risk weighted assets | 10.30% | 10.92% | 10.67% | |||||||||
Minimum required Common equity Tier 1 capital | 4.50% | 4.50% | 4.50% | |||||||||
Tier I capital to Tier 1 risk weighted assets | 11.74% | 12.49% | 12.57% | |||||||||
Minimum required Tier 1 capital | 6.00% | 6.00% | 6.00% | |||||||||
Total risk-based capital to Tier II risk weighted assets | 12.44% | 13.36% | 13.49% | |||||||||
Minimum required total risk-based capital | 8.00% | 8.00% | 8.00% | |||||||||
Leverage capital ratios: | ||||||||||||
Tier 1 capital to quarterly average total assets | 9.72% | 10.17% | 10.22% | |||||||||
Minimum required Tier 1 leverage capital | 4.00% | 4.00% | 4.00% |
Firstindicated:
June 30, 2023 | December 31, 2022 | |||||||||||||
Risk-based capital ratios: | ||||||||||||||
Common equity Tier 1 to Tier 1 risk weighted assets | 12.75 | % | 13.02 | % | ||||||||||
Minimum required Common Equity Tier 1 capital | 7.00 | % | 7.00 | % | ||||||||||
Tier I capital to Tier 1 risk weighted assets | 13.54 | % | 13.83 | % | ||||||||||
Minimum required Tier 1 capital | 8.50 | % | 8.50 | % | ||||||||||
Total risk-based capital to Tier II risk weighted assets | 15.09 | % | 15.09 | % | ||||||||||
Minimum required total risk-based capital | 10.50 | % | 10.50 | % | ||||||||||
Leverage capital ratio: | ||||||||||||||
Tier 1 capital to quarterly average total assets | 10.47 | % | 10.51 | % | ||||||||||
Minimum required Tier 1 leverage capital | 4.00 | % | 4.00 | % |
Our capital ratios are generally lower at September 30, 2017 compared to prior periods due to the acquisition of Carolina Bank in March 2017 (see Note 4 to the Consolidated Financial Statements for more information on this transaction).
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In addition to the regulatory capital ratios,requirements, we also closely monitor ourthe Company's tangible common equity ratio which is a non-GAAP measurement calculated as total capital less intangible assets, as a percent of total assets net of intangible assets. AOCI is included in the Company’s tangible common equity to tangible assets (“TCE Ratio”). Our TCE ratio which was 7.95%6.79% at SeptemberJune 30, 2017 compared to 8.16% at2023, an increase of 40 basis points from December 31, 20162022 due to higher earnings and 8.03% at Septemberimprovement the level of AOCI.
BUSINESS DEVELOPMENT MATTERS
The following is a list of business development and other miscellaneous matters affecting2023, the Company and First Bank.
SHARE REPURCHASES
We did not maintain, adopt, modify or terminate a stock repurchase any sharesplan operated under the provisions of our common stock duringRules 10b-18 or Rule 10b5-1(c) of the first nine months of 2017. At September 30, 2017, we had approximately 214,000 shares available for repurchase under existing authority from our Board of Directors. We may repurchase these shares in open market and privately negotiated transactions, as market conditions and our liquidity warrants, subject to compliance with applicable regulations. See also Part II, Item 2 “Unregistered Sales of Equity Securities and Use of Proceeds.”
INTEREST RATE RISK (INCLUDING QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK)
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Using stated maturities for all fixed rate instruments except mortgage-backed securities (which are allocated in the periods of their expected payback) and securities and borrowings with call features that are expected to be called (which are shown in the period of their expected call). At September 30, 2017, we had $1.0 billion more in interest-bearing liabilities that are subject to interest rate changes within one year than earning assets. This generally would indicate that net interest income would experience downward pressure in a rising interest rate environment and would benefit from aor declining interest rate environment. However, this methodProfitability is affected by fluctuations in interest rates. A sudden and substantial change in interest rates may adversely impact our earnings because the interest rates of analyzingthe underlying assets and liabilities do not change at the same speed, to the same extent or on the same basis.
Overall, we believeCompany's estimated net interest income sensitivity position from December 31, 2022. From a net interest income perspective, the Company has been fairly neutral historically with no significant change in the short-term (within a 12-month period) and within the lower ranges (+ - 100-200 basis points) of interest rate changes. Starting in 2022, the Company's sensitivity position shifted somewhat such that, in the near term (twelve months),short-term it is projected that net interest income will not likely experience significant downward pressure frombe essentially flat or fall in both a rising interest rates. Similarly, we would not expect a significant increaseand falling rate environment. This position is due in near term net interest income from falling interest rates. Generally, when rates change, our interest-sensitive assets that are subject to adjustment reprice immediately at the full amount of the change, while our interest-sensitive liabilities that are subject to adjustment reprice at a lagpart to the rate changechanging market characteristics of certain loan and typically notdeposit products as well as to the full extent of the rate change. In the short-term (less than six months), this results in us being asset-sensitive, meaning that our net interest income benefits from an increase in interest rates and is negatively impacted by a decrease in interest rates. However,shift in the twelve-month horizon, the impact of having a higher level of interest-sensitive liabilities lessens the short-term effects of changesyield curve. The rapid rate increases in interest rates.
The general discussion in the foregoing paragraph applies most directly in a “normal” interest rate environment in which longer-term maturity instruments carry higher interest rates than short-term maturity instruments, and is less applicable in periods in which there is a “flat” interest rate curve. A “flat yield curve” means that short-term interest rates are substantially the same as long-term interest rates. As a result of the prolonged negative/fragile economic environment, the Federal Reserve took steps to suppress long-term interest rates in an effort to boost the housing market, increase employment, and stimulate the economy, which2022 resulted in a flat interest rate curve.steepening of the yield curve on the short end (within one year), while the longer end of the curve has inverted between one and 10 years, meaning that the yield on short-term instruments (less than one year) are higher than longer-term instruments (10 years). A flat or inverted interest rate curve is an unfavorable interest rate environment for many banks,financial institutions, including the Company,Bank, as short-term interest rates generally drive our deposit pricing and longer-term interest rates generally drive loan pricing. When these rates converge or invert, the profit spread we realize between loan yields and deposit rates and loan yields narrows, which pressures our net interest margin.
While there have been periodsNIM.
As noted earlier, the Federal Reserve made no changes to the short term interest rates it sets directly from 2008 until December 2015, and during that time we were able to reprice many of our maturing time deposits at lower interest rates. We were also able to generally decrease the rates we paid on other categories of deposits as a result of declining short-term interest rates in the marketplace and an increase in liquidity that lessened our need to offer premium interest rates. However, as our average funding rate approached zero several years ago, meaningful further declines were not possible. Thus far, the four interest rate increases initiated by the Federal Reserve over the past 18 months have not resultedshort-term (12-month horizon), we would expect to realize a decline in significant competitive pressure to increase deposit rates, but we expect the competitive pressures to increase.
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As previously discussed in the section “Net Interest Income,” our net interest income, has been impacted by certain purchase accounting adjustments related to acquired banks. The purchase accounting adjustments relatedalthough not to the premium amortization on loans, deposits and borrowings are based on amortization schedules and are thus systematic and predictable. The accretionextent projected in a declining rate environment. This is due in part to the composition of theour loan discount on acquiredportfolio which is comprised of 20% variable rate loans which amounted to $5.1 million and $3.6 million for the nine months ended September 30, 2017 and 2016, respectively, is less predictable and could be materially different among periods. This is because ofimmediately reprice, thus limiting the magnitude of the discounts that were initially recorded and the factimpact of rate increases given that the accretion being recordedmajority of our portfolio is dependent on bothat fixed rates. In addition, the credit qualitymodel includes an assumption of a quick repricing up of the acquired loansfunding base in a rising rate environment, and our recent shift to higher-cost brokered deposits and short-term borrowings in our funding mix has lead to a narrowing of the interest rate spread in the projection. As previously noted, these assumptions are inherently uncertain, and actual results may differ from simulated results. While we believe rates may increase again moderately in 2023, the consensus is that the market rates may begin to stabilize and there is a possibility that the Federal Reserve may start to reduce rates in 2024. We would expect net interest income to decline somewhat in a decreasing interest rate environment, as interest-earning assets reprice to lower rates and interest-bearing deposits repricing may lag given continued market competition for deposits.
Based on our most recent interest rate modeling, which assumes one interest rate increase for the remainder of 2017 (federal funds rate = 1.50%, prime = 4.50%), we project that our net interest margin will likely remain fairly stable over the next twelve months. We expect the yields we earn on excess cash and investment security yields to increase as a result of the recent and expected rate increases, while we expect loan yields to be stable, and deposit rates to gradually rise.
We have no market risk sensitive instruments held for trading purposes, nor do we maintain any foreign currency positions.
See additional discussion regarding net interest income,services, as well as discussionour controllable operating and labor costs in light of current and expected costs due to inflation, to mitigate the inflationary impact on financial performance to the extent possible.
From time to time,
In our Quarterly Report on Form 10-Q for theaccounting period ended June 30, 2017, we reported thatin which a purported shareholder of ASB Bancorp, Inc. filed a lawsuit in the United States District Court, Western District of North Carolina, naming the Company, ASB Bancorp, and members of ASB Bancorp’s board of directors as defendants. The lawsuit alleged inadequate disclosures in ASB Bancorp’s proxy statement/prospectus, violations of the Securities Exchange Act of 1934 and other state law claims. The lawsuit sought, among other remedies, to enjoin the merger or, in the event the merger was completed, rescission of the merger or rescissory damages; to direct defendants to account for unspecified damages; and costs of the lawsuit, including attorneys’ and experts’ fees. This lawsuit was dismissed prior to the October 1, 2017 completion of the Company’s acquisition of ASB Bancorp, Inc. andloss is not expecteddeemed to be refiled.
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Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds
Footnotes to There are no material changes from the Above Table
During the three months ended September 30, 2017, the Company issued 13,374 shares of unregistered common stockrisk factors set forth in completing the acquisition of Bear Insurance Service — see Note 4 to the consolidated financial statements for additional information. The Company relied upon the exemption from registration provided by Section 4(2) of the Securities Act of 1933 for transactions not involving any public offering due to the small number of shareholders of Bear Insurance Service, their level of financial sophistication and the absence of any general solicitation. There were no other unregistered sales of the Company’s securities duringAnnual Report on Form 10-K for the three monthsyear ended September 30, 2017.
2.a |
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3.a | Articles of Incorporation of the Company and amendments thereto were filed asExhibits 3.a.i through 3.a.v to the Company's Quarterly Report on Form 10-Q for the period ended June 30, 2002, and are incorporated herein by reference. Articles of Amendment to the Articles of Incorporation were filed asExhibits 3.1and3.2tothe Company’s Current Report on Form 8-K filed on January 13, 2009, and are incorporated herein by reference. Articles of Amendment to the Articles of Incorporation were filed asExhibit 3.1.b to the Company’s Registration Statement on Form S-3D filed on June 29, 2010 |
3.b |
4.a |
31.1 | |||||
31.2 |
32.1 |
32.2 |
101 | The following financial information from the Company’s Quarterly Report on Form 10-Q for the quarter ended |
FIRST BANCORP | |||||||
August 8, 2023 | BY:/s/ Richard H. Moore | ||||||
Richard H. Moore | |||||||
Chief Executive Officer | |||||||
(Principal Executive Officer), | and Director | ||||||
August 8, 2023 | BY:/s/ Elizabeth B. Bostian | ||||||
Elizabeth B. Bostian Executive Vice President | |||||||
and Chief Financial Officer | |||||||
August 8, 2023 | BY:/s/ Blaise B. Buczkowski | ||||||
Blaise B, Buczkowski Executive Vice President and Chief Accounting Officer |