UNITED STATES | ||||||||||||
SECURITIES AND EXCHANGE COMMISSION | ||||||||||||
WASHINGTON, D.C. 20549 | ||||||||||||
FORM 10-Q | ||||||||||||
☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||||||||||
For the quarterly period ended | ||||||||||||
or | ||||||||||||
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||||||||||
Commission file number: 000-19297 |
| ||||||||||||||||||||
| ||||||||||||||||||||
(Exact name of registrant as specified in its charter) |
| 55-0694814 | |||||||||||
(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) | |||||||||||
P.O. Box 989 Bluefield, Virginia | 24605-0989 | |||||||||||
(Address of principal executive offices) |
| |||||||||||
| (Zip Code) |
(276) 326-9000 | ||||||||||||
( | ||||||||||||
Not Applicable |
(Former name, former address and former fiscal year, if changed since last report) | ||
Securities registered pursuant to Section 12 (b) of the Act: | ||
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock ($1.00 par value) | FCBC | NASDAQ Global Select |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. | ||||||||||||
☑ Yes ☐ No | ||||||||||||
Indicate by check mark whether the registrant has submitted electronically | ||||||||||||
☑ Yes ☐ No | ||||||||||||
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, | ||||||||||||
Large accelerated filer ☐ | Accelerated filer ☑ | |||||||||||
Non-accelerated filer ☐ | Smaller reporting company ☐ | |||||||||||
Emerging growth company ☐ | ||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ | ||||||||||||
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). | ||||||||||||
☐ Yes ☑ No | ||||||||||||
As of |
FORM 10-Q | |||
PART I. |
| ||
Item 1. | |||
| |||
Notes to Condensed Consolidated Financial Statements (Unaudited) |
| ||
Item 2. |
|
| |
Item 3. |
| ||
Item 4. |
| ||
PART II. | |||
Item 1. |
| ||
Item 1A. |
| ||
Item 2. |
| ||
Item 3. |
| ||
Item 4. |
| ||
Item 5. |
| ||
Item 6. |
| ||
|
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Forward-looking statements in filings with the Securities and Exchange Commission, including this Quarterly Report on Form 10-Q and the accompanying Exhibits, filings incorporated by reference, reports to shareholders, and other communications that represent the Company’sCompany’s beliefs, plans, objectives, goals, guidelines, expectations, anticipations, estimates, and intentions are made in good faith pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are not guarantees of future performance and involve certain risks, uncertainties, and assumptions that are difficult to predict. The words “may,” “could,” “should,” “would,” “believe,” “anticipate,” “estimate,” “expect,” “intend,” “plan,” and other similar expressions identify forward-looking statements. The following factors, among others, could cause financial performance to differ materially from that expressed in such forward-looking statements:
● | inflation, interest rate, market and monetary fluctuations; |
● | the effects of the COVID-19 pandemic, including the negative impacts and disruptions to the communities the Company serves, and the domestic and global economy, which may have an adverse effect on the Company’s business; | |
● | the strength of the U.S. economy in general and the strength of the local economies in which we conduct operations; |
● | the |
● |
|
|
|
| timely development of competitive new products and services and the acceptance of these products and services by new and |
● | the willingness of customers to substitute |
● | the impact of changes in financial services laws and regulations, including laws about taxes, banking, securities, and |
● | the impact of the U.S. Department of the Treasury and federal banking |
● |
|
|
|
● | the cost and effects of cyber incidents or other failures, interruptions, or security breaches of our systems or those of third-party providers; | |
● | the effect of |
● | the effect of acquisitions, including, without limitation, the failure to achieve the expected revenue growth |
|
|
|
|
● | the |
● | unanticipated regulatory or judicial proceedings; |
● | changes in consumer spending and saving habits; and |
● | the Company’s success at managing the risks mentioned above. |
This list of important factors is not exclusive. If one or more of the factors affecting these forward-looking statements proves incorrect, actual results, performance, or achievements could differ materially from those expressed in, or implied by, forward-looking statements contained in this Quarterly Report on Form 10-Q and other reports we file with the Securities and Exchange Commission. Therefore, the Company cautions you not to place undue reliance on forward-looking information and statements. The Company does not intend to update any forward-looking statements, whether written or oral, to reflect changes. These cautionary statements expressly qualify all forward-looking statements that apply to the Company including the risk factors presented in Part II, Item 1A, “Risk Factors,” of this reportQuarterly Report on Form 10-Q and Part I, Item 1A, “Risk Factors,” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.2021.
FINANCIAL INFORMATION |
Item 1.Financial StatementsStatements
| |||||
September 30, | December 31, | June 30, | December 31, | |||||||||||||
2017 | 2016(1) | 2022 | 2021(1) | |||||||||||||
(Amounts in thousands, except share and per share data) | (Unaudited) | (Unaudited) | ||||||||||||||
Assets | ||||||||||||||||
Cash and due from banks | $ | 37,050 | $ | 36,645 | $ | 53,556 | $ | 47,067 | ||||||||
Federal funds sold | 67,124 | 38,717 | 341,627 | 627,036 | ||||||||||||
Interest-bearing deposits in banks | 945 | 945 | 3,059 | 3,336 | ||||||||||||
Total cash and cash equivalents | 105,119 | 76,307 | 398,242 | 677,439 | ||||||||||||
Securities available for sale | 174,424 | 165,579 | ||||||||||||||
Securities held to maturity | 25,182 | 47,133 | ||||||||||||||
Debt securities available for sale | 287,767 | 76,292 | ||||||||||||||
Loans held for investment, net of unearned income | 2,299,798 | 2,165,569 | ||||||||||||||
Non-covered | 1,806,434 | 1,795,954 | ||||||||||||||
Covered | 31,287 | 56,994 | ||||||||||||||
Less: allowance for loan losses | (19,206 | ) | (17,948 | ) | ||||||||||||
Allowance for credit losses | (29,749 | ) | (27,858 | ) | ||||||||||||
Loans held for investment, net | 1,818,515 | 1,835,000 | 2,270,049 | 2,137,711 | ||||||||||||
FDIC indemnification asset | 7,465 | 12,173 | ||||||||||||||
Premises and equipment, net | 48,949 | 50,085 | 49,752 | 52,284 | ||||||||||||
Other real estate owned, non-covered | 3,543 | 5,109 | ||||||||||||||
Other real estate owned, covered | 54 | 276 | ||||||||||||||
Other real estate owned | 579 | 1,015 | ||||||||||||||
Interest receivable | 5,156 | 5,553 | 8,433 | 7,900 | ||||||||||||
Goodwill | 95,779 | 95,779 | 129,565 | 129,565 | ||||||||||||
Other intangible assets | 6,417 | 7,207 | 4,905 | 5,622 | ||||||||||||
Other assets | 84,177 | 86,197 | 109,085 | 106,691 | ||||||||||||
Total assets | $ | 2,374,780 | $ | 2,386,398 | $ | 3,258,377 | $ | 3,194,519 | ||||||||
Liabilities | ||||||||||||||||
Deposits | ||||||||||||||||
Noninterest-bearing | $ | 452,940 | $ | 427,705 | $ | 877,962 | $ | 842,783 | ||||||||
Interest-bearing | 1,410,880 | 1,413,633 | 1,920,577 | 1,886,608 | ||||||||||||
Total deposits | 1,863,820 | 1,841,338 | 2,798,539 | 2,729,391 | ||||||||||||
Securities sold under agreements to repurchase | 83,783 | 98,005 | 2,635 | 1,536 | ||||||||||||
FHLB borrowings | 50,000 | 65,000 | ||||||||||||||
Other borrowings | - | 15,708 | ||||||||||||||
Interest, taxes, and other liabilities | 24,540 | 27,290 | 39,157 | 35,817 | ||||||||||||
Total liabilities | 2,022,143 | 2,047,341 | 2,840,331 | 2,766,744 | ||||||||||||
Stockholders' equity | ||||||||||||||||
Preferred stock, undesignated par value; 1,000,000 shares authorized; Series A Noncumulative Convertible Preferred Stock, $0.01 par value; 25,000 shares authorized; none outstanding | - | - | ||||||||||||||
Common stock, $1 par value; 50,000,000 shares authorized; 21,381,779 shares issued at September 30, 2017, and December 31, 2016; 4,395,277 and 4,387,571 shares in treasury at September 30, 2017, and December 31, 2016, respectively | 21,382 | 21,382 | ||||||||||||||
Preferred stock, undesignated par value; 1,000,000 shares authorized; Series A Noncumulative Convertible Preferred Stock, $0.01 par value; 25,000 shares authorized; none outstanding | 0 | 0 | ||||||||||||||
Common stock, $1 par value; 50,000,000 shares authorized; 23,634,702 shares issued and 16,502,144 outstanding at June 30, 2022; 23,971,347 shares issued and 16,878,220 outstanding at December 31, 2021 | 16,502 | 16,878 | ||||||||||||||
Additional paid-in capital | 228,510 | 228,142 | 136,705 | 147,619 | ||||||||||||
Retained earnings | 182,145 | 170,377 | 276,499 | 264,824 | ||||||||||||
Treasury stock, at cost | (79,333 | ) | (78,833 | ) | ||||||||||||
Accumulated other comprehensive loss | (67 | ) | (2,011 | ) | (11,660 | ) | (1,546 | ) | ||||||||
Total stockholders' equity | 352,637 | 339,057 | 418,046 | 427,775 | ||||||||||||
Total liabilities and stockholders' equity | $ | 2,374,780 | $ | 2,386,398 | $ | 3,258,377 | $ | 3,194,519 | ||||||||
(1) Derived from audited financial statements |
(1) Derived from audited financial statements | |||||
See Notes to Condensed Consolidated Financial Statements. |
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
(Amounts in thousands, except share and per share data) | 2022 | 2021 | 2022 | 2021 | ||||||||||||
Interest income | ||||||||||||||||
Interest and fees on loans | $ | 25,651 | $ | 25,937 | $ | 50,292 | $ | 52,477 | ||||||||
Interest on securities -- taxable | 1,373 | 159 | 1,929 | 357 | ||||||||||||
Interest on securities -- tax-exempt | 178 | 276 | 372 | 573 | ||||||||||||
Interest on deposits in banks | 768 | 166 | 1,016 | 282 | ||||||||||||
Total interest income | 27,970 | 26,538 | 53,609 | 53,689 | ||||||||||||
Interest expense | ||||||||||||||||
Interest on deposits | 422 | 724 | 908 | 1,593 | ||||||||||||
Interest on short-term borrowings | 1 | 0 | 1 | 0 | ||||||||||||
Total interest expense | 423 | 724 | 909 | 1,593 | ||||||||||||
Net interest income | 27,547 | 25,814 | 52,700 | 52,096 | ||||||||||||
Provision for (recovery of) credit losses | 510 | (2,230 | ) | 2,471 | (6,231 | ) | ||||||||||
Net interest income after provision for loan losses | 27,037 | 28,044 | 50,229 | 58,327 | ||||||||||||
Noninterest income | ||||||||||||||||
Wealth management | 993 | 1,058 | 1,965 | 1,939 | ||||||||||||
Service charges on deposits | 3,672 | 3,098 | 7,170 | 6,129 | ||||||||||||
Other service charges and fees | 3,297 | 3,166 | 6,314 | 6,188 | ||||||||||||
Other operating income | 892 | 1,475 | 2,599 | 2,110 | ||||||||||||
Total noninterest income | 8,854 | 8,797 | 18,048 | 16,366 | ||||||||||||
Noninterest expense | ||||||||||||||||
Salaries and employee benefits | 11,518 | 10,216 | 23,189 | 21,100 | ||||||||||||
Occupancy expense | 1,165 | 1,115 | 2,434 | 2,390 | ||||||||||||
Furniture and equipment expense | 1,496 | 1,457 | 3,110 | 2,824 | ||||||||||||
Service fees | 2,563 | 1,513 | 4,066 | 2,848 | ||||||||||||
Advertising and public relations | 577 | 616 | 1,117 | 951 | ||||||||||||
Professional fees | 544 | 290 | 997 | 756 | ||||||||||||
Amortization of intangibles | 360 | 360 | 717 | 717 | ||||||||||||
FDIC premiums and assessments | 257 | 204 | 475 | 403 | ||||||||||||
Other operating expense | 2,775 | 3,590 | 5,136 | 6,192 | ||||||||||||
Total noninterest expense | 21,255 | 19,361 | 41,241 | 38,181 | ||||||||||||
Income before income taxes | 14,636 | 17,480 | 27,036 | 36,512 | ||||||||||||
Income tax expense | 3,423 | 4,077 | 6,308 | 8,507 | ||||||||||||
Net income | $ | 11,213 | $ | 13,403 | $ | 20,728 | $ | 28,005 | ||||||||
Earnings per common share | ||||||||||||||||
Basic | $ | 0.67 | $ | 0.77 | $ | 1.24 | $ | 1.59 | ||||||||
Diluted | 0.67 | 0.76 | 1.24 | 1.59 | ||||||||||||
Weighted average shares outstanding | ||||||||||||||||
Basic | 16,662,817 | 17,486,182 | 16,739,624 | 17,577,552 | ||||||||||||
Diluted | 16,682,615 | 17,536,144 | 16,772,847 | 17,631,330 |
|
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) |
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
(Amounts in thousands, except share and per share data) | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Interest income | ||||||||||||||||
Interest and fees on loans | $ | 22,694 | $ | 21,952 | $ | 67,435 | $ | 65,762 | ||||||||
Interest on securities -- taxable | 341 | 738 | 1,157 | 2,729 | ||||||||||||
Interest on securities -- tax-exempt | 739 | 905 | 2,299 | 2,762 | ||||||||||||
Interest on deposits in banks | 275 | 26 | 655 | 55 | ||||||||||||
Total interest income | 24,049 | 23,621 | 71,546 | 71,308 | ||||||||||||
Interest expense | ||||||||||||||||
Interest on deposits | 1,275 | 1,133 | 3,674 | 3,334 | ||||||||||||
Interest on short-term borrowings | 213 | 548 | 634 | 1,613 | ||||||||||||
Interest on long-term debt | 511 | 819 | 1,753 | 2,438 | ||||||||||||
Total interest expense | 1,999 | 2,500 | 6,061 | 7,385 | ||||||||||||
Net interest income | 22,050 | 21,121 | 65,485 | 63,923 | ||||||||||||
Provision for (recovery of) loan losses | 730 | (1,154 | ) | 2,156 | 755 | |||||||||||
Net interest income after provision for loan losses | 21,320 | 22,275 | 63,329 | 63,168 | ||||||||||||
Noninterest income | ||||||||||||||||
Wealth management | 758 | 653 | 2,339 | 2,147 | ||||||||||||
Service charges on deposits | 3,605 | 3,494 | 10,078 | 10,146 | ||||||||||||
Other service charges and fees | 2,141 | 2,024 | 6,387 | 6,088 | ||||||||||||
Insurance commissions | 306 | 1,592 | 1,004 | 5,383 | ||||||||||||
Impairment losses on securities | - | (4,635 | ) | - | (4,646 | ) | ||||||||||
Portion of loss recognized in other comprehensive income | - | - | - | - | ||||||||||||
Net impairment losses recognized in earnings | - | (4,635 | ) | - | (4,646 | ) | ||||||||||
Net loss on sale of securities | - | 25 | (657 | ) | (53 | ) | ||||||||||
Net FDIC indemnification asset amortization | (268 | ) | (1,369 | ) | (3,186 | ) | (3,856 | ) | ||||||||
Net gain on divestitures | - | 3,065 | - | 3,065 | ||||||||||||
Other operating income | 593 | 1,046 | 2,336 | 2,554 | ||||||||||||
Total noninterest income | 7,135 | 5,895 | 18,301 | 20,828 | ||||||||||||
Noninterest expense | ||||||||||||||||
Salaries and employee benefits | 9,137 | 9,828 | 27,178 | 30,501 | ||||||||||||
Occupancy expense | 1,082 | 1,249 | 3,671 | 4,139 | ||||||||||||
Furniture and equipment expense | 1,133 | 1,066 | 3,311 | 3,271 | ||||||||||||
Amortization of intangibles | 266 | 316 | 790 | 871 | ||||||||||||
FDIC premiums and assessments | 227 | 363 | 698 | 1,109 | ||||||||||||
Merger, acquisition, and divestiture expense | - | 226 | - | 675 | ||||||||||||
Other operating expense | 5,064 | 5,509 | 15,802 | 15,527 | ||||||||||||
Total noninterest expense | 16,909 | 18,557 | 51,450 | 56,093 | ||||||||||||
Income before income taxes | 11,546 | 9,613 | 30,180 | 27,903 | ||||||||||||
Income tax expense | 3,894 | 3,230 | 9,908 | 9,181 | ||||||||||||
Net income | 7,652 | 6,383 | 20,272 | 18,722 | ||||||||||||
Dividends on preferred stock | - | - | - | - | ||||||||||||
Net income available to common shareholders | $ | 7,652 | $ | 6,383 | $ | 20,272 | $ | 18,722 | ||||||||
Earnings per common share | ||||||||||||||||
Basic | $ | 0.45 | $ | 0.37 | $ | 1.19 | $ | 1.07 | ||||||||
Diluted | 0.45 | 0.37 | 1.19 | 1.07 | ||||||||||||
Cash dividends per common share | 0.18 | 0.16 | 0.50 | 0.44 | ||||||||||||
Weighted average shares outstanding | ||||||||||||||||
Basic | 17,005,654 | 17,031,074 | 17,005,350 | 17,433,406 | ||||||||||||
Diluted | 17,082,729 | 17,083,526 | 17,076,958 | 17,475,211 |
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
(Amounts in thousands) | ||||||||||||||||
Net income | $ | 11,213 | $ | 13,403 | $ | 20,728 | $ | 28,005 | ||||||||
Other comprehensive income, before tax | ||||||||||||||||
Available-for-sale debt securities: | ||||||||||||||||
Change in net unrealized (losses) gains on debt securities | (6,550 | ) | 17 | (12,447 | ) | (800 | ) | |||||||||
Net unrealized (losses) gains on available-for-sale debt securities | (6,550 | ) | 17 | (12,447 | ) | (800 | ) | |||||||||
Employee benefit plans: | ||||||||||||||||
Net actuarial loss | (1 | ) | 0 | (423 | ) | (206 | ) | |||||||||
Reclassification adjustment for amortization of prior service cost and net actuarial loss recognized in net income | 33 | 96 | 67 | 193 | ||||||||||||
Net unrealized (losses) gains on employee benefit plans | 32 | 96 | (356 | ) | (13 | ) | ||||||||||
Other comprehensive (loss) income, before tax | (6,518 | ) | 113 | (12,803 | ) | (813 | ) | |||||||||
Income tax (benefit) expense | (1,370 | ) | 23 | (2,689 | ) | (171 | ) | |||||||||
Other comprehensive (loss) income, net of tax | (5,148 | ) | 90 | (10,114 | ) | (642 | ) | |||||||||
Total comprehensive income | $ | 6,065 | $ | 13,493 | $ | 10,614 | $ | 27,363 |
See Notes to Condensed Consolidated Financial Statements. |
| ||||||||||
|
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
(Amounts in thousands) | ||||||||||||||||
Net income | $ | 7,652 | $ | 6,383 | $ | 20,272 | $ | 18,722 | ||||||||
Other comprehensive income, before tax | ||||||||||||||||
Available-for-sale securities: | ||||||||||||||||
Change in net unrealized (losses) gains on securities without other-than-temporary impairment | (169 | ) | 744 | 2,127 | 4,141 | |||||||||||
Reclassification adjustment for net losses recognized in net income | - | (25 | ) | 657 | 53 | |||||||||||
Reclassification adjustment for other-than-temporary impairment losses recognized in net income | - | 4,635 | - | 4,646 | ||||||||||||
Net unrealized (losses) gains on available-for-sale securities | (169 | ) | 5,354 | 2,784 | 8,840 | |||||||||||
Employee benefit plans: | ||||||||||||||||
Net actuarial (loss) gain | (1 | ) | (2 | ) | 133 | (56 | ) | |||||||||
Reclassification adjustment for amortization of prior service cost and net actuarial loss recognized in net income | 65 | 69 | 194 | 205 | ||||||||||||
Net unrealized gains on employee benefit plans | 64 | 67 | 327 | 149 | ||||||||||||
Other comprehensive (loss) income, before tax | (105 | ) | 5,421 | 3,111 | 8,989 | |||||||||||
Income tax (benefit) expense | (39 | ) | 2,034 | 1,167 | 3,372 | |||||||||||
Other comprehensive (loss) income, net of tax | (66 | ) | 3,387 | 1,944 | 5,617 | |||||||||||
Total comprehensive income | $ | 7,586 | $ | 9,770 | $ | 22,216 | $ | 24,339 |
|
| ||||||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED) | ||||||||||||||
THREE MONTHS ENDED | ||||||||||||||
June 30, 2022 and 2021 |
Accumulated | ||||||||||||||||||||||||||||
Additional | Other | |||||||||||||||||||||||||||
Preferred | Common | Paid-in | Retained | Treasury | Comprehensive | |||||||||||||||||||||||
(Amounts in thousands, | Stock | Stock | Capital | Earnings | Stock | Income (Loss) | Total | |||||||||||||||||||||
except share and per share data) | ||||||||||||||||||||||||||||
Balance January 1, 2016 | $ | - | $ | 21,382 | $ | 227,692 | $ | 155,647 | $ | (56,457 | ) | $ | (5,247 | ) | $ | 343,017 | ||||||||||||
Net income | - | - | - | 18,722 | - | - | 18,722 | |||||||||||||||||||||
Other comprehensive income | - | - | - | - | - | 5,617 | 5,617 | |||||||||||||||||||||
Common dividends declared -- $0.44 per share | - | - | - | (7,680 | ) | - | - | (7,680 | ) | |||||||||||||||||||
Equity-based compensation expense | - | - | 144 | - | - | - | 144 | |||||||||||||||||||||
Common stock options exercised -- 11,730 shares | - | - | (23 | ) | - | 205 | - | 182 | ||||||||||||||||||||
Restricted stock awards -- 15,587 shares | - | - | 26 | - | 270 | - | 296 | |||||||||||||||||||||
Issuance of treasury stock to 401(k) plan -- 16,290 shares | - | - | 45 | - | 287 | - | 332 | |||||||||||||||||||||
Purchase of treasury shares -- 1,152,776 shares at $20.00 per share | - | - | - | - | (23,094 | ) | - | (23,094 | ) | |||||||||||||||||||
Balance September 30, 2016 | $ | - | $ | 21,382 | $ | 227,884 | $ | 166,689 | $ | (78,789 | ) | $ | 370 | $ | 337,536 | |||||||||||||
�� | ||||||||||||||||||||||||||||
Balance January 1, 2017 | $ | - | $ | 21,382 | $ | 228,142 | $ | 170,377 | $ | (78,833 | ) | $ | (2,011 | ) | $ | 339,057 | ||||||||||||
Net income | - | - | - | 20,272 | - | - | 20,272 | |||||||||||||||||||||
Other comprehensive income | - | - | - | - | - | 1,944 | 1,944 | |||||||||||||||||||||
Common dividends declared -- $0.50 per share | - | - | - | (8,504 | ) | - | - | (8,504 | ) | |||||||||||||||||||
Equity-based compensation expense | - | - | 290 | - | - | - | 290 | |||||||||||||||||||||
Common stock options exercised -- 8,036 shares | - | - | 6 | - | 145 | - | 151 | |||||||||||||||||||||
Restricted stock awards -- 21,542 shares | - | - | (40 | ) | - | 387 | - | 347 | ||||||||||||||||||||
Issuance of treasury stock to 401(k) plan -- 12,834 shares | - | - | 112 | - | 231 | - | 343 | |||||||||||||||||||||
Purchase of treasury shares -- 50,118 shares at $25.16 per share | - | - | - | - | (1,263 | ) | - | (1,263 | ) | |||||||||||||||||||
Balance September 30, 2017 | $ | - | $ | 21,382 | $ | 228,510 | $ | 182,145 | $ | (79,333 | ) | $ | (67 | ) | $ | 352,637 |
Accumulated | ||||||||||||||||||||||||||||||||
Preferred | Common | Additional | Other | |||||||||||||||||||||||||||||
(Amounts in thousands, except share and per share data) | Stock Outstanding | Preferred Stock | Stock Outstanding | Common Stock | Paid-in Capital | Retained Earnings | Comprehensive Loss | Total | ||||||||||||||||||||||||
Balance April, 1 2021 | 0 | $ | 0 | 17,592,009 | $ | 17,592 | $ | 169,173 | $ | 241,889 | $ | (2,655 | ) | $ | 425,999 | |||||||||||||||||
Net income | - | 0 | - | 0 | 0 | 13,403 | 0 | 13,403 | ||||||||||||||||||||||||
Other comprehensive income | - | 0 | - | 0 | 0 | 0 | 90 | 90 | ||||||||||||||||||||||||
Common dividends declared -- $0.25 per share | - | 0 | - | 0 | 0 | (4,381 | ) | 0 | (4,381 | ) | ||||||||||||||||||||||
Equity-based compensation expense | 0 | 0 | 639 | 1 | 296 | 0 | 0 | 297 | ||||||||||||||||||||||||
Issuance of common stock to 401(k) plan | 0 | 0 | 3,499 | 3 | 103 | 0 | 0 | 106 | ||||||||||||||||||||||||
Repurchase of common shares at $30.51 per share | 0 | 0 | (261,600 | ) | (261 | ) | (7,719 | ) | 0 | 0 | (7,980 | ) | ||||||||||||||||||||
Balance June 30, 2021 | 0 | $ | 0 | 17,334,547 | $ | 17,335 | $ | 161,853 | $ | 250,911 | $ | (2,565 | ) | $ | 427,534 | |||||||||||||||||
Balance April, 1 2022 | 0 | $ | 0 | 16,781,975 | $ | 16,782 | $ | 144,088 | $ | 269,798 | $ | (6,512 | ) | $ | 424,156 | |||||||||||||||||
Net income | - | 0 | - | 0 | 0 | 11,213 | 0 | 11,213 | ||||||||||||||||||||||||
Other comprehensive loss | - | 0 | - | 0 | 0 | 0 | (5,148 | ) | (5,148 | ) | ||||||||||||||||||||||
Common dividends declared -- $0.27 per share | - | 0 | - | 0 | 0 | (4,512 | ) | 0 | (4,512 | ) | ||||||||||||||||||||||
Equity-based compensation expense | - | 0 | - | 0 | 181 | 0 | 0 | 181 | ||||||||||||||||||||||||
Issuance of common stock to 401(k) plan | 0 | 0 | 3,676 | 4 | 100 | 0 | 0 | 104 | ||||||||||||||||||||||||
Repurchase of common shares at $28.03 per share | 0 | 0 | (283,507 | ) | (284 | ) | (7,664 | ) | 0 | 0 | (7,948 | ) | ||||||||||||||||||||
Balance June 30, 2022 | 0 | $ | 0 | 16,502,144 | $ | 16,502 | $ | 136,705 | $ | 276,499 | $ | (11,660 | ) | $ | 418,046 |
See Notes to Condensed Consolidated Financial Statements. |
| ||||
CONDENSED CONSOLIDATED STATEMENTS OF | ||||
Six MONTHS ENDED | ||||
June 30, 2022 and 2021 |
Nine Months Ended | ||||||||
September 30, | ||||||||
(Amounts in thousands) | 2017 | 2016 | ||||||
Operating activities | ||||||||
Net income | $ | 20,272 | $ | 18,722 | ||||
Adjustments to reconcile net income to net cash provided by operating activities | ||||||||
Provision for loan losses | 2,156 | 755 | ||||||
Depreciation and amortization of property, plant, and equipment | 2,688 | 2,707 | ||||||
Amortization of premiums on investments, net | 63 | 2,758 | ||||||
Amortization of FDIC indemnification asset, net | 3,186 | 3,856 | ||||||
Amortization of intangible assets | 790 | 871 | ||||||
Accretion on acquired loans | (4,257 | ) | (3,893 | ) | ||||
Gain on divestiture, net | - | (3,065 | ) | |||||
Equity-based compensation expense | 290 | 144 | ||||||
Restricted stock awards | 347 | 296 | ||||||
Issuance of treasury stock to 401(k) plan | 343 | 332 | ||||||
Loss on sale of property, plant, and equipment, net | 13 | 271 | ||||||
Loss on sale of other real estate | 940 | 1,487 | ||||||
Loss on sale of securities | 657 | 53 | ||||||
Net impairment losses recognized in earnings | - | 4,646 | ||||||
Decrease in accrued interest receivable | 397 | 509 | ||||||
(Increase) decrease in other operating activities | (2,008 | ) | 4,341 | |||||
Net cash provided by operating activities | 25,877 | 34,790 | ||||||
Investing activities | ||||||||
Proceeds from sale of securities available for sale | 12,273 | 70,530 | ||||||
Proceeds from maturities, prepayments, and calls of securities available for sale | 18,022 | 77,395 | ||||||
Proceeds from maturities and calls of securities held to maturity | 21,840 | 190 | ||||||
Payments to acquire securities available for sale | (36,966 | ) | (1,174 | ) | ||||
Proceeds from (originations of) loans, net | 17,304 | (138,984 | ) | |||||
Proceeds from (payments for) FHLB stock, net | 694 | (933 | ) | |||||
Cash proceeds from mergers, acquisitions, and divestitures, net | - | 24,816 | ||||||
Proceeds from the FDIC | 1,701 | 3,639 | ||||||
Payments to acquire property, plant, and equipment, net | (1,999 | ) | (448 | ) | ||||
Proceeds from sale of other real estate | 2,130 | 4,541 | ||||||
Net cash provided by investing activities | 34,999 | 39,572 | ||||||
Financing activities | ||||||||
Increase in noninterest-bearing deposits, net | 25,235 | 28,322 | ||||||
Decrease in interest-bearing deposits, net | (2,753 | ) | (62,819 | ) | ||||
Repayments of securities sold under agreements to repurchase, net | (14,222 | ) | (20,082 | ) | ||||
(Repayments of) proceeds from FHLB and other borrowings, net | (30,708 | ) | 24,951 | |||||
Proceeds from stock options exercised | 151 | 182 | ||||||
Payments for repurchase of treasury stock | (1,263 | ) | (23,094 | ) | ||||
Payments of common dividends | (8,504 | ) | (7,680 | ) | ||||
Net cash used in financing activities | (32,064 | ) | (60,220 | ) | ||||
Net increase in cash and cash equivalents | 28,812 | 14,142 | ||||||
Cash and cash equivalents at beginning of period | 76,307 | 51,787 | ||||||
Cash and cash equivalents at end of period | $ | 105,119 | $ | 65,929 | ||||
Supplemental disclosure -- cash flow information | ||||||||
Cash paid for interest | $ | 6,257 | $ | 7,394 | ||||
Cash paid for income taxes | 12,942 | 6,488 | ||||||
Supplemental transactions -- noncash items | ||||||||
Transfer of loans to other real estate | 1,282 | 3,652 | ||||||
Loans originated to finance other real estate | - | 42 |
Accumulated | ||||||||||||||||||||||||||||||||
Preferred | Common | Additional | Other | |||||||||||||||||||||||||||||
(Amounts in thousands, except share and per share data) | Stock Outstanding | Preferred Stock | Stock Outstanding | Common Stock | Paid-in Capital | Retained Earnings | Comprehensive Loss | Total | ||||||||||||||||||||||||
Balance January 1, 2021 | 0 | $ | 0 | 17,722,507 | $ | 17,723 | $ | 173,345 | $ | 237,585 | $ | (1,923 | ) | $ | 426,730 | |||||||||||||||||
Cumulative effect of adoption of ASU 2016-13 | 0 | 0 | 0 | (5,870 | ) | 0 | (5,870 | ) | ||||||||||||||||||||||||
Net income | - | 0 | - | 0 | 0 | 28,005 | 0 | 28,005 | ||||||||||||||||||||||||
Other comprehensive loss | - | 0 | - | 0 | 0 | 0 | (642 | ) | (642 | ) | ||||||||||||||||||||||
Common dividends declared -- $0.25 per share | - | 0 | - | 0 | 0 | (8,809 | ) | 0 | (8,809 | ) | ||||||||||||||||||||||
Equity-based compensation expense | 0 | 0 | 52,189 | 52 | 779 | 0 | 0 | 831 | ||||||||||||||||||||||||
Issuance of common stock to 401(k) plan | 0 | 0 | 9,151 | 9 | 244 | 0 | 0 | 253 | ||||||||||||||||||||||||
Repurchase of common shares at $28.86 per share | 0 | 0 | (449,300 | ) | (449 | ) | (12,515 | ) | 0 | 0 | (12,964 | ) | ||||||||||||||||||||
Balance June 30, 2021 | 0 | $ | 0 | 17,334,547 | $ | 17,335 | $ | 161,853 | $ | 250,911 | $ | (2,565 | ) | $ | 427,534 | |||||||||||||||||
Balance January 1, 2022 | 0 | $ | 0 | 16,878,220 | $ | 16,878 | $ | 147,619 | $ | 264,824 | $ | (1,546 | ) | $ | 427,775 | |||||||||||||||||
Net income | - | 0 | - | 0 | 0 | 20,728 | 0 | 20,728 | ||||||||||||||||||||||||
Other comprehensive loss | - | 0 | - | 0 | 0 | 0 | (10,114 | ) | (10,114 | ) | ||||||||||||||||||||||
Common dividends declared -- $0.54 per share | - | 0 | - | 0 | 0 | (9,053 | ) | 0 | (9,053 | ) | ||||||||||||||||||||||
Equity-based compensation expense | 0 | 0 | 25,137 | 25 | 328 | 0 | 0 | 353 | ||||||||||||||||||||||||
Common stock options exercised | 0 | 0 | 4,536 | 5 | 98 | 0 | 0 | 103 | ||||||||||||||||||||||||
Issuance of common stock to 401(k) plan | 0 | 0 | 9,758 | 10 | 279 | 0 | 0 | 289 | ||||||||||||||||||||||||
Repurchase of common shares at $28.96 per share | 0 | 0 | (415,507 | ) | (416 | ) | (11,619 | ) | 0 | 0 | (12,035 | ) | ||||||||||||||||||||
Balance June 30, 2022 | 0 | $ | 0 | 16,502,144 | $ | 16,502 | $ | 136,705 | $ | 276,499 | $ | (11,660 | ) | $ | 418,046 |
See Notes to Condensed Consolidated Financial Statements.
Six Months Ended | ||||||||
June 30, | ||||||||
(Amounts in thousands) | 2022 | 2021 | ||||||
Operating activities | ||||||||
Net income | $ | 20,728 | $ | 28,005 | ||||
Adjustments to reconcile net income to net cash provided by operating activities | ||||||||
Provision for (recovery of) credit losses | 2,471 | (6,231 | ) | |||||
Depreciation and amortization of premises and equipment | 2,168 | 2,240 | ||||||
Amortization of premiums on investments, net | 117 | 217 | ||||||
Amortization of FDIC indemnification asset, net | 0 | 1,226 | ||||||
Amortization of intangible assets | 717 | 717 | ||||||
Accretion on acquired loans | (1,736 | ) | (2,442 | ) | ||||
Equity-based compensation expense | 353 | 699 | ||||||
Issuance of common stock to 401(k) plan | 289 | 253 | ||||||
(Gain) loss on sale of premises and equipment, net | (381 | ) | 524 | |||||
Loss on sale of other real estate owned | 420 | 251 | ||||||
(Increase) decrease in accrued interest receivable | (533 | ) | 572 | |||||
Decrease (increase) in other operating activities | 3,587 | (6,322 | ) | |||||
Net cash provided by operating activities | 28,200 | 19,709 | ||||||
Investing activities | ||||||||
Proceeds from maturities, prepayments, and calls of securities available for sale | 12,812 | 14,174 | ||||||
Payments to acquire securities available for sale | (236,850 | ) | (11,675 | ) | ||||
Net (increase) decrease in loans | (133,395 | ) | 39,323 | |||||
(Purchase of) proceeds from FHLB stock, net | (240 | ) | 1,012 | |||||
Proceeds from sale of premises and equipment | 1,145 | 2,208 | ||||||
Payments to acquire premises and equipment | (469 | ) | (1,669 | ) | ||||
Proceeds from sale of other real estate owned | 338 | 1,259 | ||||||
Net cash (used) provided by investing activities | (356,659 | ) | 44,632 | |||||
Financing activities | ||||||||
Increase in noninterest-bearing deposits, net | 35,179 | 46,343 | ||||||
Increase in interest-bearing deposits, net | 33,969 | 73,104 | ||||||
Proceeds from securities sold under agreements to repurchase, net | 1,099 | 30 | ||||||
Proceeds from stock options exercised | 103 | 132 | ||||||
Payments for repurchase of common stock | (12,035 | ) | (12,964 | ) | ||||
Payments of common dividends | (9,053 | ) | (8,809 | ) | ||||
Net cash provided by financing activities | 49,262 | 97,836 | ||||||
Net (decrease) increase in cash and cash equivalents | (279,197 | ) | 162,177 | |||||
Cash and cash equivalents at beginning of period | 677,439 | 456,561 | ||||||
Cash and cash equivalents at end of period | $ | 398,242 | $ | 618,738 | ||||
Supplemental disclosure -- cash flow information | ||||||||
Cash paid for interest | $ | 1,330 | $ | 1,846 | ||||
Cash paid for income taxes | 490 | 11,704 | ||||||
Supplemental transactions -- noncash items | ||||||||
Transfer of loans to other real estate owned | 322 | 810 | ||||||
Loans originated to finance other real estate owned | 0 | 59 | ||||||
Increase in accumulated other comprehensive loss, net of taxes | (10,114 | ) | 642 |
See Notes to Condensed Consolidated Financial Statements. |
NOTES TO CONDENSEDCONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1. Basis of Presentation
General
First Community Bancshares,Bankshares, Inc. (the “Company”), is a financial holding company was founded in 1989 and incorporated under the laws of Nevada in 1997.the Commonwealth of Virginia. The Company’sCompany’s principal executive office is located at One Community Place,in Bluefield, Virginia. The Company provides banking products and services to individual and commercial customers through its wholly owned subsidiary First Community Bank (the “Bank”), a Virginia-chartered banking institution founded in 1874. The Bank operates as First Community Bank in Virginia, West Virginia, and North Carolina and People’s Community Bank, a Division of First Community Bank, in Tennessee. The Bank provides insurance services through its wholly owned subsidiary First Community Insurance Services (“FCIS”) and offers wealth management and investment advice through its Trust Division and wholly owned subsidiary First Community Wealth Management, Inc. (“FCWM”). Unless the context suggests otherwise, the terms “First Community,” “Company,” “we,” “our,” and “us” refer to First Community Bancshares,Bankshares, Inc. and its subsidiaries as a consolidated entity.
Principles of Consolidation
The Company’sCompany’s accounting and reporting policies conform with U.S. generally accepted accounting principles (“GAAP”) and prevailing practices in the banking industry. The consolidated financial statements include all accounts of the Company and its wholly owned subsidiaries and eliminate all intercompany balances and transactions. The Company operates in one business segment, Community Banking, which consists of all operations, including commercial and consumer banking, lending activities, and wealth management, and insurance services.management. Operating results for interim periods are not necessarily indicative of results that may be expected for other interim periods or for the full year. In management’s opinion, the accompanying unaudited interim condensed consolidated financial statements contain all necessary adjustments, including normal recurring accruals, and disclosures for a fair presentation.
The condensed consolidated balance sheet as of December 31, 2016, has been derived from the audited consolidated financial statements. These unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K10-K for the year ended December 31, 20162021 (the “2016“2021 Form 10-K”10-K”), as filed with the Securities and Exchange Commission (the “SEC”) on March 3, 2017.2022. The condensed consolidated balance sheet as of December 31, 2021, has been derived from the audited consolidated financial statements.
Reclassifications
Certain amounts reported in prior years have been reclassified to conform to the current year’syear’s presentation. These reclassifications had no effect on the Company’s results of operations, financial position, or net cash flow.
Use of Estimates
Preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that require the most subjective or complex judgments relate to fair value measurements, investment securities, the allowance for loan losses, the Federal Deposit Insurance Corporation (“FDIC”) indemnification asset, goodwill and other intangible assets, and income taxes. A discussion of the Company’s application of critical accounting estimates is included in “Critical Accounting Estimates” in Item 2 of this report.
Significant Accounting Policies
A complete and detailed description of the Company’sThe Company’s significant accounting policies isare included in Note 1, “Basis of Presentation and Significant Accounting Policies,” of the Notes to Consolidated Financial Statements in Part II, Item 8 of the Company’s 20162021 Form 10-K.10-K.
Recent Accounting Standards
Allowance for Credit Losses (“ACL”)
Standards Adopted
In On January 2017,1, 2021, the FASB issued Accounting Standards Update (“ASU”) 2017-04, “Intangibles – Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment.” This ASU removes the requirement to perform a hypothetical purchase price allocation to measure goodwill impairment. A 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. ASU 2017-04 is effective for fiscal years beginning after December 15, 2019, with early adoption permitted. The update should be applied prospectively. The Company early adopted ASU 2017-04 in the first quarter of 2017. The adoption of the standard did not have an effect on the Company’s financial statements.
In January 2017, the FASB issued ASU 2017-03, “Accounting Changes and Error Corrections (Topic 250) and Investments – Equity Method and Joint Ventures (Topic 323): Amendments to SEC Paragraphs Pursuant to Staff Announcements at the September 22, 2016 and November 17, 2016 EITF Meetings.” This ASU requires registrants to disclose the effect that recently issued accounting standards will have on their financial statements when adopted in a future period. In cases where a registrant cannot reasonably estimate the impact of the adoption, additional qualitative disclosures should be considered to assist the reader in assessing the significance of the standard's impact on its financial statements. The Company adopted ASU 2017-03 in the first quarter of 2017. The adoption of the standard resulted in enhanced disclosures regarding the impact that recently issued accounting standards adopted in a future period will have on the Company’s financial statements and disclosures. See “Standards Not Yet Adopted” below.
In March 2016 the FASB issued ASU 2016-09, “Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.” This ASU simplifies several aspects of the accounting for share-based payment award transactions including income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The guidance eliminates additional paid-in capital pools for equity-based awards and requires that the related income tax effects of awards be recognized in the income statement. The guidance also allows an employer to repurchase more of an employee’s shares for tax withholding purposes without triggering liability accounting and to make a policy election to account for forfeitures as they occur. The Company adopted ASU 2016-09 in the first quarter of 2017 on a prospective basis and elected to account for forfeitures of share-based awards as they occur. Excess tax benefits on share-based awards in the statements of cash flows in prior periods have not been adjusted. The adoption of the standard did not have a material effect on the Company’s financial statements.
Standards Not Yet Adopted
In August 2017, the FASB issued ASU 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.” This ASU intends to improve the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements and simplify the application of hedge accounting guidance. ASU 2017-12 will be effective for the Company for fiscal years beginning after December 15, 2018.The Company expects to adopt ASU 2017-12 in the first quarter of 2019. The Company is evaluating the impact of the standard and does not expect the guidance to have a material effect on its financial statements.
In May 2017, the FASB issued ASU 2017-09, “Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting.” This ASU clarifies when to account for a change to the terms or conditions of a share-based payment award as a modification. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions. ASU 2017-09 will be effective for the Company for fiscal years beginning after December 15, 2017. The Company expects to adopt ASU 2017-09 in the first quarter of 2018. The Company is evaluating the impact of the standard and does not expect the guidance to have a material effect on its financial statements.
In March 2017, the FASB issued ASU 2017-08, “Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Securities.” This ASU amends the amortization period for certain purchased callable debt securities held at a premium. ASU 2017-08 will be effective for the Company for fiscal years beginning after December 15, 2018. The Company expects to adopt ASU 2017-08 in the first quarter of 2019. The Company is evaluating the impact of the standard and does not expect the guidance to have a material effect on its financial statements.
In March 2017, the FASB issued ASU 2017-07, “Compensation – Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.” This ASU intends to improve the presentation of net periodic pension cost and net periodic postretirement benefit costs in the income statement and to narrow the amounts eligible for capitalization in assets. ASU 2017-07 will be effective for the Company for fiscal years beginning after December 15, 2017. The Company expects to adopt ASU 2017-07 in the first quarter of 2018. The Company is evaluating the impact of the standard and does not expect the guidance to have a material effect on its financial statements.
In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash.” This ASU requires that a statement of cash flows explains the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. ASU 2016-18 will be effective for the Company for fiscal years beginning after December 15, 2017. The Company expects to adopt ASU 2016-18 in the first quarter of 2018. The Company is evaluating the impact of the standard and does not expect the guidance to have a material effect on its financial statements.
In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.” This ASU makes eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. ASU 2016-15 will be effective for the Company for fiscal years beginning after December 15, 2017, with early adoption permitted. The update should be applied on a retrospective basis, if practicable. The Company expects to adopt ASU 2016-15 in the first quarter of 2018. The Company is evaluating the impact of the standard and does not expect the guidance to have a material effect on its financial statements.
In June 2016, the FASB issued ASU 2016-13,-13, “Financial Instruments – Credit Losses (Topic 326)326): Measurement of Credit Losses on Financial Instruments.” This ASU intendsapplies to improveall financial reportingassets measured at amortized cost and off balance sheet credit exposures, including loans, investment securities, and unfunded commitments. The Company applied the ASU’s provisions using the modified retrospective method as a cumulative-effect adjustment to retained earnings as of January 1, 2021. The cumulative-effect adjustment was a decrease to retained earnings net of tax of $5.87 million. This adoption method is considered a change in accounting principle requiring additional disclosure of the nature of and reason for the change, which is solely a result of the adoption of the required standard.
ACL – Investment Securities
The Company no longer evaluates securities for other-than-temporary impairment (“OTTI”), as ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” changes the accounting for recognizing impairment on available-for-sale debt securities. Each quarter, the Company evaluates impairment where there has been a decline in fair value below the amortized cost basis of a security to determine whether there is a credit loss associated with the decline in fair value. The nature of the collateral is considered along with potential future changes in collateral values, default rates, delinquency rates, third-party guarantees, credit ratings, interest rate changes since purchase, volatility of the security’s fair value and historical loss information for financial assets secured with similar collateral among other factors. Credit losses are calculated individually, rather than collectively, using a discounted cash flow method, whereby management compares the present value of expected cash flows with the amortized cost basis of the security. The credit loss component would be recognized through the provision for credit losses in the Statement of Income and establish an allowance for credit losses on the Balance Sheet.
The Company excludes the accrued interest receivable from the amortized cost basis in measuring expected credit losses on the investment securities. Nor does the Company record an allowance for credit losses on accrued interest receivable. As of June 30, 2022, the accrued interest receivable for investment securities available for sale was $1.32 million.
ACL – Loans
The ACL is an estimate of losses that will result from the inability of borrowers to make required loan payments. The Company established the incremental increase in the ACL at the adoption of ASU 2016-13, through retained earnings and subsequent adjustments are made through a provision for credit losses charged to earnings. Loans charged off are recorded against the ACL and subsequent recoveries increase the ACL when they are recognized.
A systematic methodology is used to determine ACL for loans held for investment and certain off-balance sheet credit exposures. The ACL is a valuation account that is deducted from the amortized cost basis to present the net amount expected to be collected on the loan portfolio. Management considers the effects of past events, current conditions, and reasonable and supportable forecasts on the collectability of the loan portfolio. The Company’s estimate of its ACL involves a high degree of judgement and reflects management’s best estimate within the range of expected credit losses. The Company recognizes in net income the amount needed to adjust the ACL for management’s current estimate of expected credit losses. The Company’s ACL is calculated using collectively evaluated and individually evaluated loans.
The Company collectively evaluates loans that share similar risk characteristics. In general, loans are segmented by requiring timelierloan purpose. The Company collectively evaluates loans within the following consumer and commercial segments: Loans secured by 1-4 Family Properties, Home Equity Lines of Credit (“HELOC”), Owner Occupied Construction Loans, Consumer Loans, Commercial and Industrial, Multi-family, Non-farm/Non-residential Property, Commercial Construction/A&D/other Land Loans, Agricultural Loans, Credit Card Loans, Loans Secured by Farmland, and Other Consumer Loans (Overdrafts).
For collectively evaluated loans, the Company uses a combination of discounted cash flow and remaining life to estimate expected credit losses.
In addition to its own loss experience, management also includes peer bank historical loss experience in its assessment of expected credit losses to determine the ACL. The Company utilizes call report data to measure its and its peers' historical credit losses experience with similar risk characteristics within the segments over an economic cycle. Management reviews the historical loss information to appropriately adjust for differences in current asset specific risk characteristics. Also considered are further adjustments to historical loss information for current conditions and reasonable and supportable forecasts that differ from the conditions that existed for the period over which historical information is evaluated. For the majority of the segments of collectively evaluated loans, the Company incorporates at least one macroeconomic driver either using a statistical regression modeling methodology.
Management considers forward-looking information in estimated expected credit losses. The Company subscribes to a third-party service which provides summary detail of dozens of economic forecasts. Using that information and other publicly available economic forecasts, management determines the economic variables to use for the one-year reasonable and supportable forecast period. Management has determined that the forecast period is consistent with how the Company has historically forecasted for its profitability planning and capital management. Management has evaluated the appropriateness of the reasonable and supportable forecast for the current period along with the inputs used in the estimation of expected credit losses. For the contractual term that extends beyond the reasonable and supportable forecast period, the Company reverts to historical loss information over eight quarters using a straight-line approach. Management may apply different reversion techniques depending on the economic environment for the financial asset portfolio and as of the current period has utilized a linear reversion technique.
Included in its systematic methodology to determine its ACL for loans held for investment and certain off-balance sheet credit exposures, Management considers the need to qualitatively adjust expected credit losses for information not already captured in the loss estimation process. These qualitative adjustments either increase or decrease the quantitative model estimation. Each period the Company considers qualitative factors that are relevant within the qualitative framework that includes the following: 1) changes in lending polices and procedures, 2) changes in economic conditions, 3) changes in portfolio nature and volume, 4) changes in management, 5) changes in past due loans, 6) changes in the quality of the Company’s credit review system, 7) changes in the value of underlying collateral, 8) the effect of concentrations of credit, and 9) the effect of other external factors.
When a loan no longer shares similar risk characteristics with its segment, the asset is assessed to determine whether it should be included in another pool or should be individually evaluated. The Company currently maintains a net book balance threshold of $500,000 for individually-evaluated loans . Generally, individually-evaluated loans other than Troubled Debt Restructurings, otherwise referred to herein as “TDRs,” are on nonaccrual status. Based on the threshold above, consumer loans will generally remain in pools unless they meet the dollar threshold and foreclosure is probable. The expected credit losses on individually-evaluated loans will be estimated based on discounted cash flow analysis unless the loan meets the criteria for use of the fair value of collateral, either by virtue of an expected foreclosure or through meeting the definition of collateral-dependent. Financial assets that have been individually evaluated can be returned to a pool for purposes of estimating the expected credit loss insofar as their credit profile improves and that the repayment terms were not considered to be unique to the asset.
Management measures expected credit losses over the contractual term of the loans. When determining the contractual term, the Company considers expected prepayments but is precluded from considering expected extensions, renewals, or modifications, unless the Company reasonably expects it will execute a TDR with a borrower. In the event of a reasonably-expected TDR, the Company factors the reasonably-expected TDR into the current expected credit losses estimate. The effects of a TDR are recorded when an individual asset is specifically identified as a reasonably-expected TDR. For consumer loans, the point at which a TDR is reasonably expected is when the Company approves the borrower’s application for a modification (i.e. the borrower qualifies for the TDR) or when the Credit Administration department approves loan concessions. For commercial loans, the point at which a TDR is reasonably expected is when the Company approves the loan for modification or when the Credit Administration department approves loan concessions. The Company uses a discounted cash flow methodology to calculate the effect of the concession provided to the borrower in TDR within the ACL.
Purchased credit-deteriorated, otherwise referred to herein as PCD, assets are defined as acquired individual financial assets (or acquired groups of financial assets with similar risk characteristics) that, as of the date of acquisition, have experienced a more-than-insignificant deterioration in credit quality since origination, as determined by the Company’s assessment. The Company records acquired PCD loans by adding the expected credit losses (i.e. allowance for credit losses) to the purchase price of the financial assets rather than recording through the provision for credit losses in the income statement. The expected credit loss, as of the acquisition date, of a PCD loan is added to the allowance for credit losses. The non-credit discount or premium is the difference between the fair value and the amortized cost basis as of the acquisition date. Subsequent to the acquisition date, the change in the ACL on PCD loans is recognized through the provision for credit losses. The non-credit discount or premium is accreted or amortized, respectively, into interest income over the remaining life of the PCD loan on a level-yield basis. In accordance with the transition requirements within the standard, the Company’s acquired purchased credit impaired loans were treated as PCD loans.
The Company follows its nonaccrual policy by reversing contractual interest income in the income statement when the Company places a loan on nonaccrual status. Therefore, Management excludes the accrued interest receivable balance from the amortized cost basis in measuring expected credit losses on the portfolio and does not record an allowance for credit losses on accrued interest receivable. As of June 30, 2022, the accrued interest receivable for loans was $7.11 million.
The Company has a variety of assets that have a component that qualifies as an off-balance sheet exposure. These primarily include undrawn portions of revolving lines of credit and standby letters of credit. The expected losses associated with these exposures within the unfunded portion of the loans will be recorded as a liability on the balance sheet with an offsetting income statement expense. Management has determined that a majority of the Company’s off-balance-sheet credit exposures are not unconditionally cancellable. As of June 30, 2022, the liability recorded for expected credit losses on unfunded commitments in Other Liabilities was $956 thousand.
Risks and Uncertainties
COVID-19 Virus Developments
During the last two-and-a-half years, government reaction to the novel coronavirus (“COVID-19”) pandemic significantly disrupted local, national, and global economies and adversely impacted a broad range of industries, including banking and other financial services. As COVID-19 events unfolded, the Company implemented various plans, strategies and protocols to protect its employees, maintain services for customers, assure the functional continuity of its operating systems, controls and processes, and mitigate financial risks posed by changing market conditions.
Recent Accounting Standards
Standards Adopted in 2021
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” This ASU requires earlier recording of credit losses on loans and other financial instrumentsassets held by financial institutions and other organizations. This ASU also requires an organization to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts andforecasts. It further requires enhanced disclosures related to the significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’sorganization’s portfolio. In addition, the updateASU amends the accounting for credit losses on available-for-salein investments in debt securities and purchased financial assets with credit deterioration. ASU 2016-13 will be effective for the Company for fiscal years beginning after December 15, 2019, with early adoption permitted for fiscal years beginning after December 15, 2018. The Company expects to adopt ASU 2016-13 inadopted the first quarternew standard as of 2020 and recognizeJanuary 1, 2021. The standard was applied using the modified retrospective method as a cumulativecumulative-effect adjustment to retained earnings as of January 1, 2021. Under this method, comparative periods will not be required to be restated for financial statements related to Topic 326. Comparative prior period disclosures will be presented using the beginningguidance for the allowance for loan losses. This adoption method is considered a change in accounting principle requiring additional disclosure of the yearnature of adoption. Theand the reasons for the change, which is solely a result of the adoption of the required standard. This standard did not have a material impact on our investment securities portfolio at implementation. Related to the implementation of the standard, the Company is evaluatingrecorded an additional ACL for loans of $13.11 million, deferred tax assets of $1.81 million, and additional reserve for unfunded commitments of $509 thousand and an adjustment to retained earnings, net of tax, of $5.87 million. See the table below for the impact of ASU 2016-13 on the standard.Company’s consolidated balance sheet.
January 1, 2021 | |||||||||||||
As Reported | Pre- | Impact of | |||||||||||
Under | ASU 2016-13 | ASU 2016-13 | |||||||||||
ASU 2016-13 | Adoption | Adoption | |||||||||||
Assets: | |||||||||||||
Non-covered loans held for investment | |||||||||||||
Allowance for credit losses on debt securities | |||||||||||||
Investment securities - available for sale | $ | 83,358 | $ | 83,358 | $ | 0 | A | ||||||
Loans | |||||||||||||
Non-acquired loans and acquired performing loans | 2,146,972 | 2,146,972 | 0 | ||||||||||
Acquired purchased deteriorated loans | 45,535 | 39,660 | 5,875 | B | |||||||||
Allowance for credit losses on loans | (39,289 | ) | (26,182 | ) | (13,107 | ) | C | ||||||
Deferred tax asset | 19,306 | 17,493 | 1,813 | D | |||||||||
Accrued interest receivable - loans | 9,109 | 9,052 | 57 | B | |||||||||
Liabilities | |||||||||||||
Allowance for credit losses on off-balance sheet | |||||||||||||
credit exposures | 575 | 66 | 509 | E | |||||||||
Equity: | |||||||||||||
Retained earnings | 231,714 | 237,585 | (5,871 | ) | F |
A. | Per our analysis no ACL was necessary for investment securities available-for-sale. |
B. | Accrued interest receivable from acquired credit impaired loans of $57 thousand was reclassed to other assets and was offset by the reclass of the grossed up credit discount on acquired credit impaired loans of $57 thousand that was moved to the ACL for the purchased credit deteriorated loans. |
C. | Calculated adjustment to the ACL related to the adoption of ASU 2016-13. Includes additional reserve related to purchased deteriorated loans of $5.88 million. |
D. | Effect of deferred tax assets related to the adjustment to the ACL form the adoption of ASU 2016-13 using a 23.37% tax rate. |
E. | Adjustment to the reserve for unfunded commitments related to the adoption of ASU 2016-13. |
F. | Net adjustment to retained earnings related to the adoption of ASU 2016-13. |
In February 2016, December 2019, the FASB issued ASU 2016-02, “Leases2019-12, “Income Taxes (Topic 842)740), Simplifying the Accounting for Income Taxes”.” This ASU increases transparencysimplifies the accounting for income taxes by removing certain exceptions to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and comparability among organizations by recognizing lease assets and leasethe recognition for deferred tax liabilities on the balance sheet and requiring more disclosures related to leasing transactions. ASU 2016-02 will be effective for the Company for fiscal years beginning after December 15, 2018, with early adoption permitted.outside basis differences. The Company expects to adoptadopted this ASU 2016-02 in the first quarteras of 2019. The Company leases certain banking offices under lease agreementsJanuary 1, 2021, and it classifies as operating leases. The Company is evaluating the impact of the standard and expects an increase in assets and liabilities; however, the Company does did not expect the guidance to have a material effect on itsthe Company's financial statements.
In January 2016, the FASB issued ASU 2016-01, “Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.” This ASU significantly revises an entity’s accounting related to (1) the classification and measurement of investments in equity securities and (2) the presentation of certain fair value changes for financial liabilities measured at fair value. The new guidance also amends certain disclosure requirements associated with the fair value of financial instruments. ASU 2016-01 will be effective for the Company for fiscal years beginning after December 15, 2017, with early adoption permitted for the instrument-specific credit risk provision. The Company expects to adopt ASU 2016-01 in the first quarter of 2018. The Company is evaluating the impact of the standard and does not expect to recognize a significant cumulative effect adjustment to retained earnings at the beginning of the year of adoption or expect the guidance to have a material effect on its financial statements. The cumulative-effect adjustment will be dependent on the composition and fair value of the Company’s equity securities portfolio at the adoption date.
In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers.” This ASU’s core principle is that an entity will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In doing so, companies will need to use more judgment and make more estimates than under existing guidance. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. In August 2015, the FASB issued ASU 2015-14, “Revenue from Contracts with Customers” deferring the effective date of ASU 2014-09 for the Company until fiscal years beginning after December 15, 2017, with early adoption permitted for fiscal years beginning after December 15, 2016. Additional revenue related standards to be adopted concurrently with ASU 2014-09 include ASU 2017-10, ASU 2017-05, ASU 2016-20, ASU 2016-12, ASU 2016-10, and ASU 2016-08. The Company expects to adopt ASU 2014-09, and related updates, in the first quarter of 2018 and recognize a cumulative adjustment to retained earnings as of the beginning of the year of adoption, if necessary. The Company’s primary source of revenue is interest income, which is excluded from the scope of this guidance; however, the Company is evaluating the impact of the standard on other income, which includes fees for services, commissions on sales, and various deposit service charges. The Company does not expect the guidance to have a material effect on its financial statements.
The Company does not expect other recent accounting standards issued by the FASB or other standards-setting bodies to have a material impact on the consolidated financial statements.
Standards Not Yet Adopted
In March 2022, the Financial Accounting Standards Board issued ASU 2022-02, Financial Instruments-Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures. This new accounting topic provides accounting guidance for troubled debt restructuring (TDR) and write-offs, effective January 1, 2023, with early adoption permitted. The amendments eliminate TDR accounting guidance for issuers that have adopted ASU 2016-13, create a single loan modification accounting model, and clarify disclosure requirments for loan modifications and write-offs. We are currently reviewing the impact of the updated guidance on our Consolidated Financial Statements, but do no anticipate a material impact. At this time, the Company has no plans to early adopt this guidance.
Note 2. Investment Debt Securities
There was 0 allowance for credit losses for investments as of June 30, 2022; therefore, it is not presented in the table below. The following tables present the amortized cost and fair value of available-for-sale debt securities, including gross unrealized gains and losses, as of the dates indicated:
September 30, 2017 | ||||||||||||||||
Amortized | Unrealized | Unrealized | Fair | |||||||||||||
Cost | Gains | Losses | Value | |||||||||||||
(Amounts in thousands) | ||||||||||||||||
U.S. Treasury securities | $ | 36,973 | $ | - | $ | (9 | ) | $ | 36,964 | |||||||
U.S. Agency securities | 1,254 | 21 | - | 1,275 | ||||||||||||
Municipal securities | 102,347 | 2,648 | (88 | ) | 104,907 | |||||||||||
Single issue trust preferred securities | 9,363 | - | (401 | ) | 8,962 | |||||||||||
Mortgage-backed Agency securities | 22,518 | 72 | (347 | ) | 22,243 | |||||||||||
Equity securities | 55 | 18 | - | 73 | ||||||||||||
Total securities available for sale | $ | 172,510 | $ | 2,759 | $ | (845 | ) | $ | 174,424 |
June 30, 2022 | ||||||||||||||||
Amortized | Unrealized | Unrealized | Fair | |||||||||||||
Cost | Gains | Losses | Value | |||||||||||||
(Amounts in thousands) | ||||||||||||||||
U.S. Agency securities | $ | 425 | $ | 0 | $ | (2 | ) | $ | 423 | |||||||
U.S. Treasury Notes | 136,419 | 0 | (2,176 | ) | 134,243 | |||||||||||
Municipal securities | 24,461 | 51 | (58 | ) | 24,454 | |||||||||||
Corporate notes | 40,625 | 0 | (1,520 | ) | 39,105 | |||||||||||
Agency mortgage-backed securities | 98,265 | 13 | (8,736 | ) | 89,542 | |||||||||||
Total | $ | 300,195 | $ | 64 | $ | (12,492 | ) | $ | 287,767 |
December 31, 2016 | ||||||||||||||||
Amortized | Unrealized | Unrealized | Fair | |||||||||||||
Cost | Gains | Losses | Value | |||||||||||||
(Amounts in thousands) | ||||||||||||||||
U.S. Agency securities | $ | 1,342 | $ | 3 | $ | - | $ | 1,345 | ||||||||
Municipal securities | 111,659 | 2,258 | (586 | ) | 113,331 | |||||||||||
Single issue trust preferred securities | 22,104 | - | (2,165 | ) | 19,939 | |||||||||||
Mortgage-backed Agency securities | 31,290 | 66 | (465 | ) | 30,891 | |||||||||||
Equity securities | 55 | 18 | - | 73 | ||||||||||||
Total securities available for sale | $ | 166,450 | $ | 2,345 | $ | (3,216 | ) | $ | 165,579 |
December 31, 2021 | ||||||||||||||||
Amortized | Unrealized | Unrealized | Fair | |||||||||||||
Cost | Gains | Losses | Value | |||||||||||||
(Amounts in thousands) | ||||||||||||||||
U.S. Agency securities | $ | 469 | $ | 0 | $ | (3 | ) | $ | 466 | |||||||
Municipal securities | 28,596 | 198 | 0 | 28,794 | ||||||||||||
Corporate notes | 9,935 | 0 | (16 | ) | 9,919 | |||||||||||
Agency mortgage-backed securities | 37,273 | 513 | (673 | ) | 37,113 | |||||||||||
Total | $ | 76,273 | $ | 711 | $ | (692 | ) | $ | 76,292 |
The following tables present the amortized cost and fair value of held-to-maturity securities, including gross unrealized gains and losses, as of the dates indicated:
September 30, 2017 | ||||||||||||||||
Amortized | Unrealized | Unrealized | Fair | |||||||||||||
Cost | Gains | Losses | Value | |||||||||||||
(Amounts in thousands) | ||||||||||||||||
U.S. Agency securities | $ | 17,949 | $ | 31 | $ | - | $ | 17,980 | ||||||||
Corporate securities | 7,233 | 13 | - | 7,246 | ||||||||||||
Total securities held to maturity | $ | 25,182 | $ | 44 | $ | - | $ | 25,226 |
December 31, 2016 | ||||||||||||||||
Amortized | Unrealized | Unrealized | Fair | |||||||||||||
Cost | Gains | Losses | Value | |||||||||||||
(Amounts in thousands) | ||||||||||||||||
U.S. Agency securities | $ | 36,741 | $ | 124 | $ | - | $ | 36,865 | ||||||||
Corporate securities | 10,392 | 11 | (2 | ) | 10,401 | |||||||||||
Total securities held to maturity | $ | 47,133 | $ | 135 | $ | (2 | ) | $ | 47,266 |
The following table presents the amortized cost and aggregate fair value of available-for-sale securities and held-to-maturitydebt securities by contractual maturity, as of the date indicated. Actual maturities could differ from contractual maturities because issuers may have the right to call or prepay obligations with or without penalties.
September 30, 2017 | ||||||||
Amortized | ||||||||
(Amounts in thousands) | Cost | Fair Value | ||||||
Available-for-sale securities | ||||||||
Due within one year | $ | 37,288 | $ | 37,279 | ||||
Due after one year but within five years | 5,617 | 5,734 | ||||||
Due after five years but within ten years | 96,693 | 98,602 | ||||||
Due after ten years | 10,339 | 10,493 | ||||||
149,937 | 152,108 | |||||||
Mortgage-backed securities | 22,518 | 22,243 | ||||||
Equity securities | 55 | 73 | ||||||
Total securities available for sale | $ | 172,510 | $ | 174,424 | ||||
Held-to-maturity securities | ||||||||
Due within one year | $ | - | $ | - | ||||
Due after one year but within five years | 25,182 | 25,226 | ||||||
Due after five years but within ten years | - | - | ||||||
Due after ten years | - | - | ||||||
Total securities held to maturity | $ | 25,182 | $ | 25,226 |
June 30, 2022 | ||||||||
Amortized | ||||||||
(Amounts in thousands) | Cost | Fair Value | ||||||
Available-for-sale debt securities | ||||||||
Due within one year | $ | 19,637 | $ | 19,499 | ||||
Due after one year but within five years | 177,850 | 174,311 | ||||||
Due after five years but within ten years | 4,443 | 4,415 | ||||||
201,930 | 198,225 | |||||||
Agency mortgage-backed securities | 98,265 | 89,542 | ||||||
Total debt securities available for sale | $ | 300,195 | $ | 287,767 |
The following tables present the fair values and unrealized losses for available-for-sale debt securities in a continuous unrealized loss position for less than 12 months and for 12 months or longer as of the dates indicated:
September 30, 2017 | June 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||
Less than 12 Months | 12 Months or Longer | Total | Less than 12 Months | 12 Months or Longer | Total | |||||||||||||||||||||||||||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||||||||||||||||||||
Value | Losses | Value | Losses | Value | Losses | Value | Losses | Value | Losses | Value | Losses | |||||||||||||||||||||||||||||||||||||
(Amounts in thousands) | ||||||||||||||||||||||||||||||||||||||||||||||||
U.S. Treasury securities | $ | 36,963 | $ | (9 | ) | $ | - | $ | - | $ | 36,963 | $ | (9 | ) | ||||||||||||||||||||||||||||||||||
U.S. Agency securities | $ | 0 | $ | 0 | $ | 416 | $ | (2 | ) | $ | 416 | $ | (2 | ) | ||||||||||||||||||||||||||||||||||
U.S. Treasury Notes | 134,243 | (2,176 | ) | 0 | 0 | 134,243 | (2,176 | ) | ||||||||||||||||||||||||||||||||||||||||
Municipal securities | 9,421 | (52 | ) | 1,427 | (36 | ) | 10,848 | (88 | ) | 5,178 | (58 | ) | 0 | 0 | 5,178 | (58 | ) | |||||||||||||||||||||||||||||||
Single issue trust preferred securities | - | - | 8,962 | (401 | ) | 8,962 | (401 | ) | ||||||||||||||||||||||||||||||||||||||||
Mortgage-backed Agency securities | 7,898 | (59 | ) | 8,281 | (288 | ) | 16,179 | (347 | ) | |||||||||||||||||||||||||||||||||||||||
Corporate notes | 38,119 | (1,520 | ) | 0 | 0 | 38,119 | (1,520 | ) | ||||||||||||||||||||||||||||||||||||||||
Agency mortgage-backed securities | 76,334 | (6,381 | ) | 12,009 | (2,355 | ) | 88,343 | (8,736 | ) | |||||||||||||||||||||||||||||||||||||||
Total | $ | 54,282 | $ | (120 | ) | $ | 18,670 | $ | (725 | ) | $ | 72,952 | $ | (845 | ) | $ | 253,874 | $ | (10,135 | ) | $ | 12,425 | $ | (2,357 | ) | $ | 266,299 | $ | (12,492 | ) |
December 31, 2016 | ||||||||||||||||||||||||
Less than 12 Months | 12 Months or Longer | Total | ||||||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||
Value | Losses | Value | Losses | Value | Losses | |||||||||||||||||||
(Amounts in thousands) | ||||||||||||||||||||||||
Municipal securities | $ | 24,252 | $ | (527 | ) | $ | 715 | $ | (59 | ) | $ | 24,967 | $ | (586 | ) | |||||||||
Single issue trust preferred securities | - | - | 19,939 | (2,165 | ) | 19,939 | (2,165 | ) | ||||||||||||||||
Mortgage-backed Agency securities | 12,834 | (166 | ) | 11,851 | (299 | ) | 24,685 | (465 | ) | |||||||||||||||
Total | $ | 37,086 | $ | (693 | ) | $ | 32,505 | $ | (2,523 | ) | $ | 69,591 | $ | (3,216 | ) |
December 31, 2021 | ||||||||||||||||||||||||
Less than 12 Months | 12 Months or Longer | Total | ||||||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||
Value | Losses | Value | Losses | Value | Losses | |||||||||||||||||||
(Amounts in thousands) | ||||||||||||||||||||||||
U.S. Agency securities | $ | 0 | $ | 0 | $ | 459 | $ | (3 | ) | $ | 459 | $ | (3 | ) | ||||||||||
Corporate notes | 9,919 | (16 | ) | 0 | 0 | 9,919 | (16 | ) | ||||||||||||||||
Agency mortgage-backed securities | 14,092 | (253 | ) | 8,384 | (420 | ) | 22,476 | (673 | ) | |||||||||||||||
Total | $ | 24,011 | $ | (269 | ) | $ | 8,843 | $ | (423 | ) | $ | 32,854 | $ | (692 | ) |
There were no unrealized losses for held-to-maturity securities as of September 30, 2017. The following table presents the fair values and unrealized losses for held-to-maturity securities in a continuous unrealized loss position for less than 12 months and for 12 months or longer as of the date indicated:
December 31, 2016 | ||||||||||||||||||||||||
Less than 12 Months | 12 Months or Longer | Total | ||||||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||
Value | Losses | Value | Losses | Value | Losses | |||||||||||||||||||
(Amounts in thousands) | ||||||||||||||||||||||||
Corporate securities | $ | 3,533 | $ | (2 | ) | $ | - | $ | - | $ | 3,533 | $ | (2 | ) | ||||||||||
Total | $ | 3,533 | $ | (2 | ) | $ | - | $ | - | $ | 3,533 | $ | (2 | ) |
There were 4590 individual debt securities in an unrealized loss position as of SeptemberJune 30, 2017,2022, and theirthe combined depreciation in value represented 0.42%4.34% of the investmentdebt securities portfolio. There were 8223 individual debt securities in an unrealized loss position as of December 31, 2016,2021, and their combined depreciation in value represented 1.51%0.91% of the investmentdebt securities portfolio.
The Company reviews its investment portfolio quarterlyManagement evaluates securities for indications of other-than-temporary impairment (“OTTI”). The initial indicator of OTTI for both debt and equity securities iswhere there has been a decline in fair value below bookthe amortized cost basis of a security to determine whether there is a credit loss associated with the decline in fair value on at least a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Credit losses are calculated individually, rather than collectively, using a discounted cash flow method, whereby Management compares the present value of expected cash flows with the amortized cost basis of the security. The credit loss component would be recognized through the provision for credit losses and the severitycreation of an allowance for credit losses. Consideration is given to (1) the financial condition and durationnear-term prospects of the decline. Forissuer including looking at default and delinquency rates, (2) the outlook for receiving the contractual cash flows of the investments, (3) the length of time and the extent to which the fair value has been less than cost, (4) our intent and ability to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value or for a debt security whether it is more-likely-than-not that we will be required to sell the debt security prior to recovering its fair value, (5) the anticipated outlook for changes in the general level of interest rates, (6) credit ratings, (7) third party guarantees, and (8) collateral values. In analyzing an issuer’s financial condition, management considers whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, the results of reviews of the issuer’s financial condition, and the issuer’s anticipated ability to pay the contractual cash flows of the investments. All of the U.S. Treasury and Agency-Backed Securities have the full faith and credit backing of the United State Government or one of its agencies. Municipal securities and all other securities that do not have a zero expected credit loss are evaluated quarterly to determine whether there is a credit loss associated with a decline in fair value. All debt securities available for sale in an unrealized loss position as of June 30, 2022, continue to perform as scheduled and we do not believe that there is a credit loss or that a provision for credit losses is necessary. Also, as part of our evaluation of our intent and ability to hold investments for a period of time sufficient to allow for any anticipated recovery in the credit-related OTTImarket, we consider our investment strategy, cash flow needs, liquidity position, capital adequacy and interest rate risk position. We do not currently intend to sell the securities within the portfolio and it is recognized asnot more-likely-than-not that we will be required to sell the debt securities. See Note 1 – Basis of Presentation for further discussion.
Management continues to monitor all of our securities with a high degree of scrutiny. There can be no assurance that we will not conclude in future periods that conditions existing at that time indicate some or all of its securities may be sold or would require a charge to noninterest income and the noncredit-related OTTI is recognized in other comprehensive income (“OCI”). During the three and nine months ended September 30, 2017, the Company incurred no OTTI charges on debt securities. During the three and nine months ended September 30, 2016, the Company incurred OTTI charges on debt securities owned of $4.64 million related to the Company’s change in intent to hold certain securities to recovery. The intent was changed to sell specific trust preferred securities in the Company’s investment portfolio primarily to reduce credit concentrations with two issuers. Temporary impairment on debt securities is primarily related to changes in benchmark interest rates, changes in pricing in the credit markets, and other current economic factors. For equity securities, the OTTI is recognizedearnings as a charge to noninterest income. During the three and nine months ended September 30, 2017, the Company incurred no OTTI charges related to equity securities. During the three months ended September 30, 2016, the Company incurred no OTTI charges related to equity holdings. During the nine months ended September 30, 2016, the Company incurred OTTI charges related to certain equity holdings of $11 thousand.provision for credit losses in such periods.
The following table presentsThere were 0 gross realized gains and losses from the sale of available-for-sale debt securities for the periods indicated:three and six months ended June 30, 2022 and 2021.
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
(Amounts in thousands) | ||||||||||||||||
Gross realized gains | $ | - | $ | 203 | $ | - | $ | 344 | ||||||||
Gross realized losses | - | (178 | ) | (657 | ) | (397 | ) | |||||||||
Net gain (loss) on sale of securities | $ | - | $ | 25 | $ | (657 | ) | $ | (53 | ) |
The carrying amount of securities pledged for various purposes totaled $99.69$34.22 million as of SeptemberJune 30, 2017,2022, and $139.75$22.15 million as of December 31, 2016.2021.
Note 3. Loans
The Company groups loans held for investment into three segments (commercial loans, consumer real estate loans, and consumer and other loans) with each segment divided into various classes. Covered loans are those loans acquired in Federal Deposit Insurance Corporation (“FDIC”) assisted transactions that are covered by loss share agreements. Customer overdrafts reclassified as loans totaled $1.45$1.94 million as of SeptemberJune 30, 2017,2022, and $1.41$1.65 million as of December 31, 2016.2021. Deferred loan fees, net of loan costs, totaled $4.48$3.90 million as of SeptemberJune 30, 2017,2022, and $5.34$5.06 million as of December 31, 2016.2021. For information about off-balance sheet financing, see Note 14, “Litigation, Commitments, and Contingencies,” to the Condensed Consolidated Financial Statements of this report.
In accordance with the adoption of ASU 2016-13, the table below reflects the loan portfolio at the amortized cost basis to include net deferred loan fees of $3.90 million and $5.06 million and unamortized discount related to loans acquired of $4.50 million and $5.41 million million for June 30, 2022, and December 31, 2021, respectively. Accrued interest receivable (AIR) of $7.11 million as of June 30, 2022, and $7.54 million as of December 31, 2021, is accounted for separately and reported in Interest Receivable on the Consolidated Balance Sheet.
June 30, 2022 | December 31, 2021 | |||||||||||||||
(Amounts in thousands) | Amount | Percent | Amount | Percent | ||||||||||||
Loans held for investment | ||||||||||||||||
Commercial loans | ||||||||||||||||
Construction, development, and other land | $ | 92,840 | 4.04 | % | $ | 65,806 | 3.04 | % | ||||||||
Commercial and industrial | 139,792 | 6.08 | % | 133,630 | 6.17 | % | ||||||||||
Multi-family residential | 124,274 | 5.40 | % | 100,402 | 4.64 | % | ||||||||||
Single family non-owner occupied | 195,113 | 8.48 | % | 198,778 | 9.18 | % | ||||||||||
Non-farm, non-residential | 752,369 | 32.72 | % | 707,506 | 32.67 | % | ||||||||||
Agricultural | 9,987 | 0.43 | % | 9,341 | 0.43 | % | ||||||||||
Farmland | 12,833 | 0.56 | % | 15,013 | 0.69 | % | ||||||||||
Total commercial loans | 1,327,208 | 57.71 | % | 1,230,476 | 56.82 | % | ||||||||||
Consumer real estate loans | ||||||||||||||||
Home equity lines | 78,999 | 3.44 | % | 79,857 | 3.69 | % | ||||||||||
Single family owner occupied | 722,370 | 31.41 | % | 703,864 | 32.50 | % | ||||||||||
Owner occupied construction | 17,331 | 0.75 | % | 16,910 | 0.78 | % | ||||||||||
Total consumer real estate loans | 818,700 | 35.60 | % | 800,631 | 36.97 | % | ||||||||||
Consumer and other loans | ||||||||||||||||
Consumer loans | 148,741 | 6.47 | % | 129,794 | 5.99 | % | ||||||||||
Other | 5,149 | 0.22 | % | 4,668 | 0.22 | % | ||||||||||
Total consumer and other loans | 153,890 | 6.69 | % | 134,462 | 6.21 | % | ||||||||||
Total loans held for investment, net of unearned income | $ | 2,299,798 | 100.00 | % | $ | 2,165,569 | 100.00 | % |
The following table presentsCompany began participating as a Small Business Administration Paycheck Protection Program lender during the second quarter of 2020. At June 30, 2022, the PPP loans had a current balance of $2.07 million, compared to $20.64 million at December 31, 2021, and were included in commercial and industrial loans, balances. Deferred remaining loan origination fees related to the PPP loans, net of unearned income, withdeferred loan origination costs, totaled $80 thousand at June 30, 2022, and $733 thousand at December 31, 2021. During the non-covered portfolio bysecond quarter of 2022, the Company recorded amortization of net deferred loan class, asorigination fees of $319 thousand on PPP loans and recorded $654 thousand in amortization for the six month period of 2022 . The Company recorded amortization of net deferred loan origination fees on PPP loans of $608 thousand and $1.53 million in amortization for the same periods, respectively, of 2021. The remaining net deferred loan origination fees will be amortized over the expected life of the dates indicated:
September 30, 2017 | December 31, 2016 | |||||||||||||||
(Amounts in thousands) | Amount | Percent | Amount | Percent | ||||||||||||
Non-covered loans held for investment | ||||||||||||||||
Commercial loans | ||||||||||||||||
Construction, development, and other land | $ | 72,952 | 3.97 | % | $ | 56,948 | 3.07 | % | ||||||||
Commercial and industrial | 90,184 | 4.91 | % | 92,204 | 4.98 | % | ||||||||||
Multi-family residential | 125,997 | 6.86 | % | 134,228 | 7.24 | % | ||||||||||
Single family non-owner occupied | 143,213 | 7.79 | % | 142,965 | 7.72 | % | ||||||||||
Non-farm, non-residential | 613,380 | 33.38 | % | 598,674 | 32.31 | % | ||||||||||
Agricultural | 6,096 | 0.33 | % | 6,003 | 0.32 | % | ||||||||||
Farmland | 27,897 | 1.52 | % | 31,729 | 1.71 | % | ||||||||||
Total commercial loans | 1,079,719 | 58.76 | % | 1,062,751 | 57.35 | % | ||||||||||
Consumer real estate loans | ||||||||||||||||
Home equity lines | 102,888 | 5.60 | % | 106,361 | 5.74 | % | ||||||||||
Single family owner occupied | 501,242 | 27.27 | % | 500,891 | 27.03 | % | ||||||||||
Owner occupied construction | 47,034 | 2.56 | % | 44,535 | 2.41 | % | ||||||||||
Total consumer real estate loans | 651,164 | 35.43 | % | 651,787 | 35.18 | % | ||||||||||
Consumer and other loans | ||||||||||||||||
Consumer loans | 70,695 | 3.85 | % | 77,445 | 4.18 | % | ||||||||||
Other | 4,856 | 0.26 | % | 3,971 | 0.21 | % | ||||||||||
Total consumer and other loans | 75,551 | 4.11 | % | 81,416 | 4.39 | % | ||||||||||
Total non-covered loans | 1,806,434 | 98.30 | % | 1,795,954 | 96.92 | % | ||||||||||
Total covered loans | 31,287 | 1.70 | % | 56,994 | 3.08 | % | ||||||||||
Total loans held for investment, net of unearned income | $ | 1,837,721 | 100.00 | % | $ | 1,852,948 | 100.00 | % |
The following table presentsrespective loans, or until forgiven by the covered loan portfolio, by loan class, as of the dates indicated:
September 30, 2017 | December 31, 2016 | |||||||
(Amounts in thousands) | ||||||||
Covered loans | ||||||||
Commercial loans | ||||||||
Construction, development, and other land | $ | 40 | $ | 4,570 | ||||
Commercial and industrial | - | 895 | ||||||
Multi-family residential | - | 8 | ||||||
Single family non-owner occupied | 292 | 962 | ||||||
Non-farm, non-residential | 10 | 7,512 | ||||||
Agricultural | - | 25 | ||||||
Farmland | - | 397 | ||||||
Total commercial loans | 342 | 14,369 | ||||||
Consumer real estate loans | ||||||||
Home equity lines | 26,850 | 35,817 | ||||||
Single family owner occupied | 4,095 | 6,729 | ||||||
Total consumer real estate loans | 30,945 | 42,546 | ||||||
Consumer and other loans | ||||||||
Consumer loans | - | 79 | ||||||
Total covered loans | $ | 31,287 | $ | 56,994 |
The Company identifies certain purchased loans as impaired when fair values are established at acquisitionSBA, and groups those purchased credit impaired (“PCI”) loans into loan pools with common risk characteristics. The Company estimates cash flows towill be collected on PCI loans and discounts those cash flows at a market rate of interest.recognized in net interest income.
The following table presents the recorded investment and contractual unpaid principal balance of PCI loans, by acquisition, as of the dates indicated:
September 30, 2017 | December 31, 2016 | |||||||||||||||
(Amounts in thousands) | Recorded Investment | Unpaid Principal Balance | Recorded Investment | Unpaid Principal Balance | ||||||||||||
PCI Loans, by acquisition | ||||||||||||||||
Peoples | $ | 5,179 | $ | 8,328 | $ | 5,576 | $ | 9,397 | ||||||||
Waccamaw | 14,903 | 34,420 | 21,758 | 45,030 | ||||||||||||
Other acquired | 1,011 | 1,037 | 1,095 | 1,121 | ||||||||||||
Total PCI Loans | $ | 21,093 | $ | 43,785 | $ | 28,429 | $ | 55,548 |
The following table presents the changes in the accretable yield on PCI loans, by acquisition, during the periods indicated:
Peoples | Waccamaw | Total | ||||||||||
(Amounts in thousands) | ||||||||||||
Balance January 1, 2016 | $ | 3,589 | $ | 26,109 | $ | 29,698 | ||||||
Accretion | (982 | ) | (4,408 | ) | (5,390 | ) | ||||||
Reclassifications from nonaccretable difference(1) | 231 | 848 | 1,079 | |||||||||
Other changes, net | 1,774 | 4 | 1,778 | |||||||||
Balance September 30, 2016 | $ | 4,612 | $ | 22,553 | $ | 27,165 | ||||||
Balance January 1, 2017 | $ | 4,392 | $ | 21,834 | $ | 26,226 | ||||||
Accretion | (969 | ) | (4,690 | ) | (5,659 | ) | ||||||
Reclassifications from nonaccretable difference(1) | 782 | 2,525 | 3,307 | |||||||||
Other changes, net | (375 | ) | (311 | ) | (686 | ) | ||||||
Balance September 30, 2017 | $ | 3,830 | $ | 19,358 | $ | 23,188 | ||||||
(1) Represents changes attributable to expected loss assumptions |
Note 4. Credit Quality
The Company uses a risk grading matrix to assign a risk grade to each loan in its portfolio. Loan risk ratings may be upgraded or downgraded to reflect current information identified during the loan review process. The general characteristics of each risk grade are as follows:
● |
|
|
● | Special Mention -- This grade is assigned to loans that require an above average degree of supervision and attention. These loans have the characteristics of an asset with acceptable credit quality and risk; however, adverse economic or financial conditions exist that create potential weaknesses deserving of |
● | Substandard -- This grade is assigned to loans that have well defined weaknesses that may make payment default, or principal exposure, possible. These loans will likely be dependent on collateral liquidation, secondary repayment sources, or |
● | Doubtful -- This grade is assigned to loans that have the weaknesses inherent in substandard loans; however, the weaknesses |
● | Loss -- This grade is assigned to loans that will be charged off or charged down when payments, including the timing and value of payments, are uncertain. This risk grade does not imply that the asset has no recovery or salvage value, but simply means that it is not practical or desirable to defer writing off, either all or a portion of, the loan balance even though partial recovery may be realized in the future. |
The following tables presenttable presents the recorded investment of the loan portfolio, by loan class and credit quality, as of the dates indicated. Losses on covered loans are generally reimbursable by the FDIC at the applicable loss share percentage, 80%; therefore, covered loans are disclosed separately.indicated:
September 30, 2017 | June 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||
Special | Special | |||||||||||||||||||||||||||||||||||||||||||||||
(Amounts in thousands) | Pass | Mention | Substandard | Doubtful | Loss | Total | Pass | Mention | Substandard | Doubtful | Loss | Total | ||||||||||||||||||||||||||||||||||||
Non-covered loans | ||||||||||||||||||||||||||||||||||||||||||||||||
Commercial loans | ||||||||||||||||||||||||||||||||||||||||||||||||
Construction, development, and other land | $ | 69,257 | $ | 2,791 | $ | 904 | $ | - | $ | - | $ | 72,952 | $ | 91,872 | $ | 417 | $ | 551 | $ | 0 | $ | 0 | $ | 92,840 | ||||||||||||||||||||||||
Commercial and industrial | 85,368 | 1,844 | 2,972 | - | - | 90,184 | 136,353 | 982 | 2,457 | 0 | 0 | 139,792 | ||||||||||||||||||||||||||||||||||||
Multi-family residential | 119,399 | 5,882 | 716 | - | - | 125,997 | 123,403 | 649 | 222 | 0 | 0 | 124,274 | ||||||||||||||||||||||||||||||||||||
Single family non-owner occupied | 132,000 | 6,839 | 4,374 | - | - | 143,213 | 184,275 | 2,287 | 8,551 | 0 | 0 | 195,113 | ||||||||||||||||||||||||||||||||||||
Non-farm, non-residential | 593,809 | 11,126 | 8,243 | 202 | - | 613,380 | 723,467 | 16,794 | 12,108 | 0 | 0 | 752,369 | ||||||||||||||||||||||||||||||||||||
Agricultural | 5,743 | 235 | 118 | - | - | 6,096 | 9,754 | 54 | 179 | 0 | 0 | 9,987 | ||||||||||||||||||||||||||||||||||||
Farmland | 25,097 | 153 | 2,647 | - | - | 27,897 | 10,584 | 603 | 1,646 | 0 | 0 | 12,833 | ||||||||||||||||||||||||||||||||||||
Consumer real estate loans | ||||||||||||||||||||||||||||||||||||||||||||||||
Home equity lines | 100,375 | 850 | 1,663 | - | - | 102,888 | 75,540 | 430 | 3,029 | 0 | 0 | 78,999 | ||||||||||||||||||||||||||||||||||||
Single family owner occupied | 471,378 | 5,705 | 24,159 | - | - | 501,242 | 692,766 | 2,041 | 27,563 | 0 | 0 | 722,370 | ||||||||||||||||||||||||||||||||||||
Owner occupied construction | 46,802 | - | 232 | - | - | 47,034 | 17,167 | 0 | 164 | 0 | 0 | 17,331 | ||||||||||||||||||||||||||||||||||||
Consumer and other loans | ||||||||||||||||||||||||||||||||||||||||||||||||
Consumer loans | 70,459 | 27 | 209 | - | - | 70,695 | 145,934 | 11 | 2,796 | 0 | 0 | 148,741 | ||||||||||||||||||||||||||||||||||||
Other | 4,856 | - | - | - | - | 4,856 | 5,149 | 0 | 0 | 0 | 0 | 5,149 | ||||||||||||||||||||||||||||||||||||
Total non-covered loans | 1,724,543 | 35,452 | 46,237 | 202 | - | 1,806,434 | ||||||||||||||||||||||||||||||||||||||||||
Covered loans | ||||||||||||||||||||||||||||||||||||||||||||||||
Commercial loans | ||||||||||||||||||||||||||||||||||||||||||||||||
Construction, development, and other land | - | 39 | 1 | - | - | 40 | ||||||||||||||||||||||||||||||||||||||||||
Single family non-owner occupied | 271 | - | 21 | - | - | 292 | ||||||||||||||||||||||||||||||||||||||||||
Non-farm, non-residential | - | - | 10 | - | - | 10 | ||||||||||||||||||||||||||||||||||||||||||
Consumer real estate loans | ||||||||||||||||||||||||||||||||||||||||||||||||
Home equity lines | 12,242 | 13,840 | 768 | - | - | 26,850 | ||||||||||||||||||||||||||||||||||||||||||
Single family owner occupied | 3,136 | 425 | 534 | - | - | 4,095 | ||||||||||||||||||||||||||||||||||||||||||
Total covered loans | 15,649 | 14,304 | 1,334 | - | - | 31,287 | ||||||||||||||||||||||||||||||||||||||||||
Total loans | $ | 1,740,192 | $ | 49,756 | $ | 47,571 | $ | 202 | $ | - | $ | 1,837,721 | $ | 2,216,264 | $ | 24,268 | $ | 59,266 | $ | 0 | $ | 0 | $ | 2,299,798 |
December 31, 2021 | ||||||||||||||||||||||||
Special | ||||||||||||||||||||||||
(Amounts in thousands) | Pass | Mention | Substandard | Doubtful | Loss | Total | ||||||||||||||||||
Commercial loans | ||||||||||||||||||||||||
Construction, development, and other land | $ | 64,498 | $ | 451 | $ | 857 | $ | 0 | $ | 0 | $ | 65,806 | ||||||||||||
Commercial and industrial | 128,770 | 1,005 | 3,855 | 0 | 0 | 133,630 | ||||||||||||||||||
Multi-family residential | 98,457 | 1,090 | 855 | 0 | 0 | 100,402 | ||||||||||||||||||
Single family non-owner occupied | 186,184 | 3,607 | 8,977 | 10 | 0 | 198,778 | �� | |||||||||||||||||
Non-farm, non-residential | 665,559 | 25,624 | 16,323 | 0 | 0 | 707,506 | ||||||||||||||||||
Agricultural | 8,758 | 70 | 513 | 0 | 0 | 9,341 | ||||||||||||||||||
Farmland | 11,939 | 633 | 2,441 | 0 | 0 | 15,013 | ||||||||||||||||||
Consumer real estate loans | ||||||||||||||||||||||||
Home equity lines | 76,259 | 426 | 3,172 | 0 | 0 | 79,857 | ||||||||||||||||||
Single family owner occupied | 671,459 | 2,420 | 29,985 | 0 | 0 | 703,864 | ||||||||||||||||||
Owner occupied construction | 16,629 | 0 | 281 | 0 | 0 | 16,910 | ||||||||||||||||||
Consumer and other loans | ||||||||||||||||||||||||
Consumer loans | 127,514 | 16 | 2,264 | 0 | 0 | 129,794 | ||||||||||||||||||
Other | 4,668 | 0 | 0 | 0 | 0 | 4,668 | ||||||||||||||||||
Total loans | $ | 2,060,694 | $ | 35,342 | $ | 69,523 | $ | 10 | $ | 0 | $ | 2,165,569 |
December 31, 2016 | ||||||||||||||||||||||||
Special | ||||||||||||||||||||||||
(Amounts in thousands) | Pass | Mention | Substandard | Doubtful | Loss | Total | ||||||||||||||||||
Non-covered loans | ||||||||||||||||||||||||
Commercial loans | ||||||||||||||||||||||||
Construction, development, and other land | $ | 55,188 | $ | 980 | $ | 780 | $ | - | $ | - | $ | 56,948 | ||||||||||||
Commercial and industrial | 87,581 | 3,483 | 1,137 | - | 3 | 92,204 | ||||||||||||||||||
Multi-family residential | 126,468 | 6,992 | 768 | - | - | 134,228 | ||||||||||||||||||
Single family non-owner occupied | 131,934 | 5,466 | 5,565 | - | - | 142,965 | ||||||||||||||||||
Non-farm, non-residential | 579,134 | 10,236 | 9,102 | 202 | - | 598,674 | ||||||||||||||||||
Agricultural | 5,839 | 164 | - | - | - | 6,003 | ||||||||||||||||||
Farmland | 28,887 | 1,223 | 1,619 | - | - | 31,729 | ||||||||||||||||||
Consumer real estate loans | ||||||||||||||||||||||||
Home equity lines | 104,033 | 871 | 1,457 | - | - | 106,361 | ||||||||||||||||||
Single family owner occupied | 475,402 | 4,636 | 20,381 | 472 | - | 500,891 | ||||||||||||||||||
Owner occupied construction | 43,833 | - | 702 | - | - | 44,535 | ||||||||||||||||||
Consumer and other loans | ||||||||||||||||||||||||
Consumer loans | 77,218 | 11 | 216 | - | - | 77,445 | ||||||||||||||||||
Other | 3,971 | - | - | - | - | 3,971 | ||||||||||||||||||
Total non-covered loans | 1,719,488 | 34,062 | 41,727 | 674 | 3 | 1,795,954 | ||||||||||||||||||
Covered loans | ||||||||||||||||||||||||
Commercial loans | ||||||||||||||||||||||||
Construction, development, and other land | 2,768 | 803 | 999 | - | - | 4,570 | ||||||||||||||||||
Commercial and industrial | 882 | - | 13 | - | - | 895 | ||||||||||||||||||
Multi-family residential | - | - | 8 | - | - | 8 | ||||||||||||||||||
Single family non-owner occupied | 796 | 63 | 103 | - | - | 962 | ||||||||||||||||||
Non-farm, non-residential | 6,423 | 537 | 552 | - | - | 7,512 | ||||||||||||||||||
Agricultural | 25 | - | - | - | - | 25 | ||||||||||||||||||
Farmland | 132 | - | 265 | - | - | 397 | ||||||||||||||||||
Consumer real estate loans | ||||||||||||||||||||||||
Home equity lines | 14,283 | 20,763 | 771 | - | - | 35,817 | ||||||||||||||||||
Single family owner occupied | 4,601 | 928 | 1,200 | - | - | 6,729 | ||||||||||||||||||
Consumer and other loans | ||||||||||||||||||||||||
Consumer loans | 79 | - | - | - | - | 79 | ||||||||||||||||||
Total covered loans | 29,989 | 23,094 | 3,911 | - | - | 56,994 | ||||||||||||||||||
Total loans | $ | 1,749,477 | $ | 57,156 | $ | 45,638 | $ | 674 | $ | 3 | $ | 1,852,948 |
The Company identifies loans for potential impairment through a varietyfollowing tables present the amortized cost basis of means, including, but not limited to, ongoing loan review, renewal processes, delinquency data, market communications, and public information. If the Company determines that it is probable all principal and interest amounts contractually due will not be collected, the loan is generally deemed impaired.portfolio, by year of origination, loan class, and credit quality, as of the date indicated:
(Amounts in thousands) | Term Loans Amortized Cost Basis by Origination Year | |||||||||||||||||||||||||||||||
Balance at June 30, 2022 | 2022 | 2021 | 2020 | 2019 | 2018 | Prior | Revolving | Total | ||||||||||||||||||||||||
Construction, development | ||||||||||||||||||||||||||||||||
and other land | ||||||||||||||||||||||||||||||||
Pass | $ | 19,079 | $ | 49,774 | $ | 10,616 | $ | 2,732 | $ | 3,037 | $ | 6,280 | $ | 354 | $ | 91,872 | ||||||||||||||||
Special Mention | 0 | 0 | 0 | 0 | 111 | 270 | 36 | 417 | ||||||||||||||||||||||||
Substandard | 0 | 0 | 255 | 36 | 12 | 248 | 0 | 551 | ||||||||||||||||||||||||
Doubtful | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Loss | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Total construction, development, and other land | $ | 19,079 | $ | 49,774 | $ | 10,871 | $ | 2,768 | $ | 3,160 | $ | 6,798 | $ | 390 | $ | 92,840 | ||||||||||||||||
Commercial and industrial | ||||||||||||||||||||||||||||||||
Pass | $ | 44,408 | $ | 28,875 | $ | 15,160 | $ | 10,273 | $ | 11,012 | $ | 8,013 | $ | 16,545 | $ | 134,286 | ||||||||||||||||
Special Mention | 0 | 25 | 35 | 601 | 226 | 0 | 95 | 982 | ||||||||||||||||||||||||
Substandard | 145 | 176 | 222 | 588 | 231 | 578 | 517 | 2,457 | ||||||||||||||||||||||||
Doubtful | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Loss | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Total commercial and industrial | $ | 44,553 | $ | 29,076 | $ | 15,417 | $ | 11,462 | $ | 11,469 | $ | 8,591 | $ | 17,157 | $ | 137,725 | ||||||||||||||||
Paycheck Protection Loans | ||||||||||||||||||||||||||||||||
Pass | $ | 0 | $ | 2,038 | $ | 29 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 2,067 | ||||||||||||||||
Special Mention | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Substandard | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Doubtful | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Loss | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Total Paycheck Protection Loans | $ | 0 | $ | 2,038 | $ | 29 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 2,067 | ||||||||||||||||
Multi-family residential | ||||||||||||||||||||||||||||||||
Pass | $ | 33,938 | $ | 10,932 | $ | 23,800 | $ | 4,354 | $ | 1,807 | $ | 47,638 | $ | 934 | $ | 123,403 | ||||||||||||||||
Special Mention | 0 | 0 | 0 | 0 | 0 | 649 | 0 | 649 | ||||||||||||||||||||||||
Substandard | 0 | 0 | 0 | 0 | 0 | 222 | 0 | 222 | ||||||||||||||||||||||||
Doubtful | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Loss | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Total multi-family residential | $ | 33,938 | $ | 10,932 | $ | 23,800 | $ | 4,354 | $ | 1,807 | $ | 48,509 | $ | 934 | $ | 124,274 | ||||||||||||||||
Non-farm, non-residential | ||||||||||||||||||||||||||||||||
Pass | $ | 134,331 | $ | 139,073 | $ | 129,979 | $ | 57,546 | $ | 39,902 | $ | 208,618 | $ | 14,018 | $ | 723,467 | ||||||||||||||||
Special Mention | 0 | 1,969 | 868 | 1,216 | 2,571 | 10,020 | 150 | 16,794 | ||||||||||||||||||||||||
Substandard | 0 | 1,144 | 692 | 2,471 | 722 | 6,851 | 228 | 12,108 | ||||||||||||||||||||||||
Doubtful | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Loss | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Total non-farm, non-residential | $ | 134,331 | $ | 142,186 | $ | 131,539 | $ | 61,233 | $ | 43,195 | $ | 225,489 | $ | 14,396 | $ | 752,369 | ||||||||||||||||
Agricultural | ||||||||||||||||||||||||||||||||
Pass | $ | 2,560 | $ | 3,779 | $ | 1,258 | $ | 601 | $ | 407 | $ | 715 | $ | 434 | $ | 9,754 | ||||||||||||||||
Special Mention | 0 | 37 | 17 | 0 | 0 | 0 | 0 | 54 | ||||||||||||||||||||||||
Substandard | 0 | 40 | 7 | 84 | 36 | 12 | 0 | 179 | ||||||||||||||||||||||||
Doubtful | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Loss | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Total agricultural | $ | 2,560 | $ | 3,856 | $ | 1,282 | $ | 685 | $ | 443 | $ | 727 | $ | 434 | $ | 9,987 | ||||||||||||||||
Farmland | ||||||||||||||||||||||||||||||||
Pass | $ | 166 | $ | 727 | $ | 1,002 | $ | 77 | $ | 903 | $ | 6,176 | $ | 1,533 | $ | 10,584 | ||||||||||||||||
Special Mention | 0 | 110 | 0 | 0 | 232 | 261 | 0 | 603 | ||||||||||||||||||||||||
Substandard | 0 | 0 | 13 | 0 | 257 | 1,376 | 0 | 1,646 | ||||||||||||||||||||||||
Doubtful | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Loss | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Total farmland | $ | 166 | $ | 837 | $ | 1,015 | $ | 77 | $ | 1,392 | $ | 7,813 | $ | 1,533 | $ | 12,833 |
(Amounts in thousands) | Term Loans Amortized Cost Basis by Origination Year | |||||||||||||||||||||||||||||||
Balance at June 30, 2022 | 2022 | 2021 | 2020 | 2019 | 2018 | Prior | Revolving | Total | ||||||||||||||||||||||||
Home equity lines | ||||||||||||||||||||||||||||||||
Pass | $ | 1,026 | $ | 102 | $ | 0 | $ | 0 | $ | 62 | $ | 861 | $ | 73,489 | $ | 75,540 | ||||||||||||||||
Special Mention | 0 | 0 | 0 | 0 | 0 | 0 | 430 | 430 | ||||||||||||||||||||||||
Substandard | 0 | 0 | 85 | 36 | 205 | 1,253 | 1,450 | 3,029 | ||||||||||||||||||||||||
Doubtful | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Loss | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Total home equity lines | $ | 1,026 | $ | 102 | $ | 85 | $ | 36 | $ | 267 | $ | 2,114 | $ | 75,369 | $ | 78,999 | ||||||||||||||||
Single family Mortgage | ||||||||||||||||||||||||||||||||
Pass | $ | 92,181 | $ | 235,009 | $ | 213,126 | $ | 54,675 | $ | 39,796 | $ | 241,066 | $ | 1,188 | $ | 877,041 | ||||||||||||||||
Special Mention | 0 | 387 | 85 | 372 | 266 | 3,218 | 0 | 4,328 | ||||||||||||||||||||||||
Substandard | 382 | 1,041 | 715 | 1,082 | 2,172 | 30,722 | 0 | 36,114 | ||||||||||||||||||||||||
Doubtful | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Loss | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Total single family owner and non-owner occupied | $ | 92,563 | $ | 236,437 | $ | 213,926 | $ | 56,129 | $ | 42,234 | $ | 275,006 | $ | 1,188 | $ | 917,483 | ||||||||||||||||
Owner occupied construction | ||||||||||||||||||||||||||||||||
Pass | $ | 2,591 | $ | 11,768 | $ | 2,005 | $ | 32 | $ | 16 | $ | 755 | $ | 0 | $ | 17,167 | ||||||||||||||||
Special Mention | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Substandard | 0 | 0 | 163 | 0 | 0 | 1 | 0 | 164 | ||||||||||||||||||||||||
Doubtful | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Loss | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Total owner occupied construction | $ | 2,591 | $ | 11,768 | $ | 2,168 | $ | 32 | $ | 16 | $ | 756 | $ | 0 | $ | 17,331 | ||||||||||||||||
Consumer loans | ||||||||||||||||||||||||||||||||
Pass | $ | 53,360 | $ | 49,325 | $ | 22,059 | $ | 11,474 | $ | 3,844 | $ | 8,796 | $ | 2,225 | $ | 151,083 | ||||||||||||||||
Special Mention | 0 | 3 | 0 | 7 | 0 | 0 | 1 | 11 | ||||||||||||||||||||||||
Substandard | 55 | 1,049 | 730 | 645 | 52 | 189 | 76 | 2,796 | ||||||||||||||||||||||||
Doubtful | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Loss | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Total consumer loans | $ | 53,415 | $ | 50,377 | $ | 22,789 | $ | 12,126 | $ | 3,896 | $ | 8,985 | $ | 2,302 | $ | 153,890 |
The following table presents the recorded investment, unpaid principal balance, and related allowance for loan losses for impaired loans, excluding PCI loans, as of the dates indicated:
September 30, 2017 | December 31, 2016 | |||||||||||||||||||||||
Unpaid | Unpaid | |||||||||||||||||||||||
Recorded | Principal | Related | Recorded | Principal | Related | |||||||||||||||||||
(Amounts in thousands) | Investment | Balance | Allowance | Investment | Balance | Allowance | ||||||||||||||||||
Impaired loans with no related allowance | ||||||||||||||||||||||||
Commercial loans | ||||||||||||||||||||||||
Construction, development, and other land | $ | 662 | $ | 999 | $ | - | $ | 33 | $ | 35 | $ | - | ||||||||||||
Commercial and industrial | 146 | 1,093 | - | 346 | 383 | - | ||||||||||||||||||
Multi-family residential | 381 | 836 | - | 294 | 369 | - | ||||||||||||||||||
Single family non-owner occupied | 2,485 | 3,891 | - | 3,084 | 3,334 | - | ||||||||||||||||||
Non-farm, non-residential | 3,905 | 6,239 | - | 3,829 | 4,534 | - | ||||||||||||||||||
Agricultural | 118 | 122 | - | - | - | - | ||||||||||||||||||
Farmland | 990 | 1,037 | - | 1,161 | 1,188 | - | ||||||||||||||||||
Consumer real estate loans | ||||||||||||||||||||||||
Home equity lines | 1,624 | 1,766 | - | 913 | 968 | - | ||||||||||||||||||
Single family owner occupied | 16,768 | 18,932 | - | 11,779 | 12,630 | - | ||||||||||||||||||
Owner occupied construction | 233 | 233 | - | 573 | 589 | - | ||||||||||||||||||
Consumer and other loans | ||||||||||||||||||||||||
Consumer loans | 61 | 63 | - | 62 | 103 | - | ||||||||||||||||||
Total impaired loans with no allowance | 27,373 | 35,211 | - | 22,074 | 24,133 | - | ||||||||||||||||||
Impaired loans with a related allowance | ||||||||||||||||||||||||
Commercial loans | ||||||||||||||||||||||||
Construction, development, and other land | - | - | - | - | - | - | ||||||||||||||||||
Commercial and industrial | 2,400 | 2,400 | 262 | - | - | - | ||||||||||||||||||
Single family non-owner occupied | 771 | 772 | 69 | 351 | 351 | 31 | ||||||||||||||||||
Non-farm, non-residential | 865 | 874 | 325 | - | - | - | ||||||||||||||||||
Farmland | 410 | 418 | 50 | 430 | 430 | 18 | ||||||||||||||||||
Consumer real estate loans | ||||||||||||||||||||||||
Home equity lines | - | - | - | - | - | - | ||||||||||||||||||
Single family owner occupied | 3,771 | 3,779 | 754 | 4,118 | 4,174 | 770 | ||||||||||||||||||
Total impaired loans with an allowance | 8,217 | 8,243 | 1,460 | 4,899 | 4,955 | 819 | ||||||||||||||||||
Total impaired loans(1) | $ | 35,590 | $ | 43,454 | $ | 1,460 | $ | 26,973 | $ | 29,088 | $ | 819 |
|
|
(Amounts in thousands) | Term Loans Amortized Cost Basis by Origination Year | |||||||||||||||||||||||||||||||
Balance at June 30, 2022 | 2022 | 2021 | 2020 | 2019 | 2018 | Prior | Revolving | Total | ||||||||||||||||||||||||
Total Loans | ||||||||||||||||||||||||||||||||
Pass | $ | 383,640 | $ | 531,402 | $ | 419,034 | $ | 141,764 | $ | 100,786 | $ | 528,918 | $ | 110,720 | $ | 2,216,264 | ||||||||||||||||
Special Mention | 0 | 2,531 | 1,005 | 2,196 | 3,406 | 14,418 | 712 | 24,268 | ||||||||||||||||||||||||
Substandard | 582 | 3,450 | 2,882 | 4,942 | 3,687 | 41,452 | 2,271 | 59,266 | ||||||||||||||||||||||||
Doubtful | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Loss | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Total loans | $ | 384,222 | $ | 537,383 | $ | 422,921 | $ | 148,902 | $ | 107,879 | $ | 584,788 | $ | 113,703 | $ | 2,299,798 |
The following table presents the average recorded investment and interest income recognized on impaired loans, excluding PCI loans, for the periods indicated:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||||||||||||||||||
(Amounts in thousands) | Interest Income Recognized | Average Recorded Investment | Interest Income Recognized | Average Recorded Investment | Interest Income Recognized | Average Recorded Investment | Interest Income Recognized | Average Recorded Investment | ||||||||||||||||||||||||
Impaired loans with no related allowance: | ||||||||||||||||||||||||||||||||
Commercial loans | ||||||||||||||||||||||||||||||||
Construction, development, and other land | $ | 32 | $ | 907 | $ | 22 | $ | 600 | $ | 32 | $ | 309 | $ | 22 | $ | 447 | ||||||||||||||||
Commercial and industrial | 5 | 754 | 6 | 1,029 | 8 | 468 | 10 | 738 | ||||||||||||||||||||||||
Multi-family residential | - | 509 | 15 | 562 | 3 | 474 | 15 | 309 | ||||||||||||||||||||||||
Single family non-owner occupied | 11 | 3,304 | 91 | 3,498 | 88 | 3,313 | 107 | 3,035 | ||||||||||||||||||||||||
Non-farm, non-residential | 68 | 5,244 | 65 | 8,930 | 93 | 3,766 | 307 | 10,186 | ||||||||||||||||||||||||
Agricultural | 4 | 127 | - | - | 4 | 127 | - | - | ||||||||||||||||||||||||
Farmland | 17 | 1,003 | 5 | 204 | 17 | 1,004 | 9 | 186 | ||||||||||||||||||||||||
Consumer real estate loans | ||||||||||||||||||||||||||||||||
Home equity lines | 15 | 1,683 | 6 | 1,157 | 35 | 1,259 | 21 | 1,318 | ||||||||||||||||||||||||
Single family owner occupied | 137 | 17,478 | 91 | 13,175 | 317 | 15,209 | 254 | 12,436 | ||||||||||||||||||||||||
Owner occupied construction | 1 | 235 | 2 | 585 | 6 | 234 | 7 | 470 | ||||||||||||||||||||||||
Consumer and other loans | ||||||||||||||||||||||||||||||||
Consumer loans | 1 | 62 | 2 | 63 | 3 | 52 | 2 | 45 | ||||||||||||||||||||||||
Total impaired loans with no related allowance | 291 | 31,306 | 305 | 29,803 | 606 | 26,215 | 754 | 29,170 | ||||||||||||||||||||||||
Impaired loans with a related allowance: | ||||||||||||||||||||||||||||||||
Commercial loans | ||||||||||||||||||||||||||||||||
Construction, development, and other land | - | - | - | - | - | 143 | - | - | ||||||||||||||||||||||||
Commercial and industrial | 50 | 2,516 | - | - | 103 | 1,727 | - | - | ||||||||||||||||||||||||
Single family non-owner occupied | 8 | 778 | 5 | 682 | 21 | 488 | 18 | 572 | ||||||||||||||||||||||||
Non-farm, non-residential | - | 872 | 45 | 4,658 | 15 | 964 | 215 | 5,108 | ||||||||||||||||||||||||
Farmland | - | 413 | - | - | - | 275 | - | - | ||||||||||||||||||||||||
Consumer real estate loans | ||||||||||||||||||||||||||||||||
Home equity lines | - | - | - | - | - | 139 | - | - | ||||||||||||||||||||||||
Single family owner occupied | 24 | 3,814 | 24 | 4,130 | 92 | 4,527 | 91 | 4,547 | ||||||||||||||||||||||||
Owner occupied construction | - | - | - | - | - | 1 | - | 115 | ||||||||||||||||||||||||
Total impaired loans with a related allowance | 82 | 8,393 | 74 | 9,470 | 231 | 8,264 | 324 | 10,342 | ||||||||||||||||||||||||
Total impaired loans | $ | 373 | $ | 39,699 | $ | 379 | $ | 39,273 | $ | 837 | $ | 34,479 | $ | 1,078 | $ | 39,512 |
The following tables provide information on impaired PCI loan pools as of and for the dates indicated:
September 30, 2017 | December 31, 2016 | |||||||
(Amounts in thousands, except impaired loan pools) | ||||||||
Unpaid principal balance | $ | - | $ | 1,086 | ||||
Recorded investment | - | 1,085 | ||||||
Allowance for loan losses related to PCI loan pools | - | 12 | ||||||
Impaired PCI loan pools | - | 1 |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
(Amounts in thousands) | ||||||||||||||||
Interest income recognized | $ | - | $ | 12 | $ | 20 | $ | 130 | ||||||||
Average recorded investment | - | 1,139 | 705 | 2,195 |
(Amounts in thousands) | Term Loans Amortized Cost Basis by Origination Year | |||||||||||||||||||||||||||||||
Balance at December 31, 2021 | 2021 | 2020 | 2019 | 2018 | 2017 | Prior | Revolving | Total | ||||||||||||||||||||||||
Construction, development | ||||||||||||||||||||||||||||||||
and other land | ||||||||||||||||||||||||||||||||
Pass | $ | 40,207 | $ | 10,127 | $ | 3,081 | $ | 3,704 | $ | 1,308 | $ | 5,717 | $ | 354 | $ | 64,498 | ||||||||||||||||
Special Mention | 0 | 266 | 0 | 128 | 0 | 21 | 36 | 451 | ||||||||||||||||||||||||
Substandard | 0 | 0 | 128 | 11 | 291 | 427 | 0 | 857 | ||||||||||||||||||||||||
Doubtful | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Loss | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Total construction, development, and other land | $ | 40,207 | $ | 10,393 | $ | 3,209 | $ | 3,843 | $ | 1,599 | $ | 6,165 | $ | 390 | $ | 65,806 | ||||||||||||||||
Commercial and industrial | ||||||||||||||||||||||||||||||||
Pass | $ | 34,539 | $ | 18,887 | $ | 13,679 | $ | 13,772 | $ | 4,817 | $ | 5,890 | $ | 16,544 | $ | 108,128 | ||||||||||||||||
Special Mention | 32 | 60 | 597 | 192 | 28 | 0 | 96 | 1,005 | ||||||||||||||||||||||||
Substandard | 184 | 355 | 706 | 384 | 842 | 866 | 518 | 3,855 | ||||||||||||||||||||||||
Doubtful | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Loss | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Total commercial and industrial | $ | 34,755 | $ | 19,302 | $ | 14,982 | $ | 14,348 | $ | 5,687 | $ | 6,756 | $ | 17,158 | $ | 112,988 | ||||||||||||||||
Paycheck Protection Loans | ||||||||||||||||||||||||||||||||
Pass | $ | 16,482 | $ | 4,160 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 20,642 | ||||||||||||||||
Special Mention | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Substandard | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Doubtful | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Loss | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Total Paycheck Protection Loans | $ | 16,482 | $ | 4,160 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 20,642 | ||||||||||||||||
Multi-family residential | ||||||||||||||||||||||||||||||||
Pass | $ | 11,307 | $ | 24,299 | $ | 4,644 | $ | 1,897 | $ | 8,413 | $ | 46,962 | $ | 935 | $ | 98,457 | ||||||||||||||||
Special Mention | 0 | 0 | 0 | 0 | 0 | 1,090 | 0 | 1,090 | ||||||||||||||||||||||||
Substandard | 0 | 0 | 0 | 0 | 0 | 855 | 0 | 855 | ||||||||||||||||||||||||
Doubtful | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Loss | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Total multi-family residential | $ | 11,307 | $ | 24,299 | $ | 4,644 | $ | 1,897 | $ | 8,413 | $ | 48,907 | $ | 935 | $ | 100,402 | ||||||||||||||||
Non-farm, non-residential | ||||||||||||||||||||||||||||||||
Pass | $ | 147,978 | $ | 146,381 | $ | 62,651 | $ | 50,943 | $ | 43,776 | $ | 199,812 | $ | 14,018 | $ | 665,559 | ||||||||||||||||
Special Mention | 397 | 3,334 | 823 | 2,595 | 9,190 | 9,135 | 150 | 25,624 | ||||||||||||||||||||||||
Substandard | 1,161 | 711 | 2,508 | 2,531 | 3,232 | 5,953 | 227 | 16,323 | ||||||||||||||||||||||||
Doubtful | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Loss | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Total non-farm, non-residential | $ | 149,536 | $ | 150,426 | $ | 65,982 | $ | 56,069 | $ | 56,198 | $ | 214,900 | $ | 14,395 | $ | 707,506 | ||||||||||||||||
Agricultural | ||||||||||||||||||||||||||||||||
Pass | $ | 4,564 | $ | 1,548 | $ | 998 | $ | 534 | $ | 346 | $ | 335 | $ | 433 | $ | 8,758 | ||||||||||||||||
Special Mention | 43 | 27 | 0 | 0 | 0 | 0 | 0 | 70 | ||||||||||||||||||||||||
Substandard | 44 | 11 | 282 | 39 | 17 | 120 | 0 | 513 | ||||||||||||||||||||||||
Doubtful | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Loss | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Total agricultural | $ | 4,651 | $ | 1,586 | $ | 1,280 | $ | 573 | $ | 363 | $ | 455 | $ | 433 | $ | 9,341 | ||||||||||||||||
Farmland | ||||||||||||||||||||||||||||||||
Pass | $ | 428 | $ | 1,047 | $ | 82 | $ | 1,125 | $ | 887 | $ | 6,835 | $ | 1,535 | $ | 11,939 | ||||||||||||||||
Special Mention | 189 | 0 | 0 | 240 | 5 | 199 | 0 | 633 | ||||||||||||||||||||||||
Substandard | 0 | 14 | 519 | 249 | 264 | 1,395 | 0 | 2,441 | ||||||||||||||||||||||||
Doubtful | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Loss | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Total farmland | $ | 617 | $ | 1,061 | $ | 601 | $ | 1,614 | $ | 1,156 | $ | 8,429 | $ | 1,535 | $ | 15,013 |
(Amounts in thousands) | Term Loans Amortized Cost Basis by Origination Year | �� | ||||||||||||||||||||||||||||||
Balance at December 31, 2021 | 2021 | 2020 | 2019 | 2018 | 2017 | Prior | Revolving | Total | ||||||||||||||||||||||||
Home equity lines | ||||||||||||||||||||||||||||||||
Pass | $ | 115 | $ | 59 | $ | 0 | $ | 25 | $ | 2 | $ | 2,168 | $ | 73,890 | $ | 76,259 | ||||||||||||||||
Special Mention | 0 | 0 | 0 | 0 | 0 | 0 | 426 | 426 | ||||||||||||||||||||||||
Substandard | 0 | 0 | 28 | 249 | 128 | 1,316 | 1,451 | 3,172 | ||||||||||||||||||||||||
Doubtful | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Loss | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Total home equity lines | $ | 115 | $ | 59 | $ | 28 | $ | 274 | $ | 130 | $ | 3,484 | $ | 75,767 | $ | 79,857 | ||||||||||||||||
Single family Mortgage | ||||||||||||||||||||||||||||||||
Pass | $ | 239,917 | $ | 225,294 | $ | 61,925 | $ | 46,716 | $ | 41,757 | $ | 240,845 | $ | 1,189 | $ | 857,643 | ||||||||||||||||
Special Mention | 399 | 510 | 937 | 269 | 137 | 3,775 | 0 | 6,027 | ||||||||||||||||||||||||
Substandard | 1,213 | 799 | 1,475 | 1,668 | 1,878 | 31,929 | 0 | 38,962 | ||||||||||||||||||||||||
Doubtful | 0 | 0 | 0 | 0 | 0 | 10 | 0 | 10 | ||||||||||||||||||||||||
Loss | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Total single family owner and non-owner occupied | $ | 241,529 | $ | 226,603 | $ | 64,337 | $ | 48,653 | $ | 43,772 | $ | 276,559 | $ | 1,189 | $ | 902,642 | ||||||||||||||||
Owner occupied construction | ||||||||||||||||||||||||||||||||
Pass | $ | 9,689 | $ | 4,729 | $ | 178 | $ | 22 | $ | 428 | $ | 1,583 | $ | 0 | $ | 16,629 | ||||||||||||||||
Special Mention | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Substandard | 0 | 0 | 0 | 0 | 0 | 281 | 0 | 281 | ||||||||||||||||||||||||
Doubtful | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Loss | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Total owner occupied construction | $ | 9,689 | $ | 4,729 | $ | 178 | $ | 22 | $ | 428 | $ | 1,864 | $ | 0 | $ | 16,910 | ||||||||||||||||
Consumer loans | ||||||||||||||||||||||||||||||||
Pass | $ | 65,018 | $ | 31,065 | $ | 16,548 | $ | 4,980 | $ | 2,306 | $ | 10,040 | $ | 2,225 | $ | 132,182 | ||||||||||||||||
Special Mention | 0 | 0 | 16 | 0 | 0 | 0 | 0 | 16 | ||||||||||||||||||||||||
Substandard | 328 | 663 | 824 | 107 | 78 | 186 | 78 | 2,264 | ||||||||||||||||||||||||
Doubtful | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Loss | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Total consumer loans | $ | 65,346 | $ | 31,728 | $ | 17,388 | $ | 5,087 | $ | 2,384 | $ | 10,226 | $ | 2,303 | $ | 134,462 |
(Amounts in thousands) | Term Loans Amortized Cost Basis by Origination Year | |||||||||||||||||||||||||||||||
Balance at December 31, 2021 | 2021 | 2020 | 2019 | 2018 | 2017 | Prior | Revolving | Total | ||||||||||||||||||||||||
Total Loans | ||||||||||||||||||||||||||||||||
Pass | $ | 570,244 | $ | 467,596 | $ | 163,786 | $ | 123,718 | $ | 104,040 | $ | 520,187 | $ | 111,123 | $ | 2,060,694 | ||||||||||||||||
Special Mention | 1,060 | 4,197 | 2,373 | 3,424 | 9,360 | 14,220 | 708 | 35,342 | ||||||||||||||||||||||||
Substandard | 2,930 | 2,553 | 6,470 | 5,238 | 6,730 | 43,328 | 2,274 | 69,523 | ||||||||||||||||||||||||
Doubtful | 0 | 0 | 0 | 0 | 0 | 10 | 0 | 10 | ||||||||||||||||||||||||
Loss | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Total loans | $ | 574,234 | $ | 474,346 | $ | 172,629 | $ | 132,380 | $ | 120,130 | $ | 577,745 | $ | 114,105 | $ | 2,165,569 |
The Company generally places a loan on nonaccrual status when it is 90 days or more past due. PCI loans are generally not classified as nonaccrual due to the accrual of interest income under the accretion method of accounting. The following table presents nonaccrual loans, by loan class, as of the dates indicated:
September 30, 2017 | December 31, 2016 | June 30, 2022 | December 31, 2021 | |||||||||||||||||||||||||||||||||||||||||||||
(Amounts in thousands) | Non-covered | Covered | Total | Non-covered | Covered | Total | No Allowance | With an Allowance | Total | No Allowance | With an Allowance | Total | ||||||||||||||||||||||||||||||||||||
Commercial loans | ||||||||||||||||||||||||||||||||||||||||||||||||
Construction, development, and other land | $ | 126 | $ | - | $ | 126 | $ | 72 | $ | 32 | $ | 104 | $ | 277 | $ | 0 | $ | 277 | $ | 409 | $ | 0 | $ | 409 | ||||||||||||||||||||||||
Commercial and industrial | 118 | - | 118 | 332 | 13 | 345 | 435 | 0 | 435 | 1,734 | 0 | 1,734 | ||||||||||||||||||||||||||||||||||||
Multi-family residential | 330 | - | 330 | 294 | - | 294 | 266 | 0 | 266 | 208 | 0 | 208 | ||||||||||||||||||||||||||||||||||||
Single family non-owner occupied | 1,626 | 20 | 1,646 | 1,242 | 24 | 1,266 | 2,132 | 0 | 2,132 | 2,304 | 0 | 2,304 | ||||||||||||||||||||||||||||||||||||
Non-farm, non-residential | 3,352 | - | 3,352 | 3,295 | 30 | 3,325 | 2,815 | 0 | 2,815 | 3,439 | 1,100 | 4,539 | ||||||||||||||||||||||||||||||||||||
Agricultural | 118 | - | 118 | - | - | - | 22 | 0 | 22 | 136 | 0 | 136 | ||||||||||||||||||||||||||||||||||||
Farmland | 870 | - | 870 | 1,591 | - | 1,591 | 133 | 0 | 133 | 222 | 0 | 222 | ||||||||||||||||||||||||||||||||||||
Consumer real estate loans | ||||||||||||||||||||||||||||||||||||||||||||||||
Home equity lines | 828 | 350 | 1,178 | 705 | 400 | 1,105 | 775 | 0 | 775 | 767 | 0 | 767 | ||||||||||||||||||||||||||||||||||||
Single family owner occupied | 11,517 | 50 | 11,567 | 7,924 | 109 | 8,033 | 8,816 | 0 | 8,816 | 8,957 | 0 | 8,957 | ||||||||||||||||||||||||||||||||||||
Owner occupied construction | - | - | - | 336 | - | 336 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||||||
Consumer and other loans | ||||||||||||||||||||||||||||||||||||||||||||||||
Consumer loans | 57 | - | 57 | 63 | - | 63 | 2,155 | 0 | 2,155 | 1,492 | 0 | 1,492 | ||||||||||||||||||||||||||||||||||||
Total nonaccrual loans | $ | 18,942 | $ | 420 | $ | 19,362 | $ | 15,854 | $ | 608 | $ | 16,462 | $ | 17,826 | $ | 0 | $ | 17,826 | $ | 19,668 | $ | 1,100 | $ | 20,768 |
2022, $1 thousand in nonaccrual loan interest was recognized compared to $15 thousand for the same period of 2021. During the firstsix months of 2022 $3 thousand in nonaccrual loan interest was recognized compared to $24 thousand for the same period of 2021 .
The following tables presentpresents the aging of past due loans, by loan class, as of the dates indicated. Nonaccrual loans 30 days or more past due are included in the applicable delinquency category. Loans acquired with credit deterioration, with a discount, continue to accrue interest based on expected cash flows; therefore, PCI loans are not generally considered nonaccrual. There were no non-covered accruing loans contractually past due 90 days or more as of September 30, 2017, or December 31, 2016.category:
June 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
September 30, 2017 | Amortized Cost of | |||||||||||||||||||||||||||||||||||||||||||||||||||
30 - 59 Days | 60 - 89 Days | 90+ Days | Total | Current | Total | 30 - 59 Days | 60 - 89 Days | 90+ Days | Total | Current | Total | > 90 Days Accruing | ||||||||||||||||||||||||||||||||||||||||
(Amounts in thousands) | Past Due | Past Due | Past Due | Past Due | Loans | Loans | Past Due | Past Due | Past Due | Past Due | Loans | Loans | No Allowance | |||||||||||||||||||||||||||||||||||||||
Non-covered loans | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Commercial loans | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Construction, development, and other land | $ | 25 | $ | - | $ | - | $ | 25 | $ | 72,927 | $ | 72,952 | $ | 231 | $ | 252 | $ | 25 | $ | 508 | $ | 92,332 | $ | 92,840 | $ | 0 | ||||||||||||||||||||||||||
Commercial and industrial | 226 | 36 | 47 | 309 | 89,875 | 90,184 | 346 | 84 | 192 | 622 | 139,170 | 139,792 | 0 | |||||||||||||||||||||||||||||||||||||||
Multi-family residential | 341 | 185 | - | 526 | 125,471 | 125,997 | 148 | 0 | 0 | 148 | 124,126 | 124,274 | 0 | |||||||||||||||||||||||||||||||||||||||
Single family non-owner occupied | 405 | 186 | 861 | 1,452 | 141,761 | 143,213 | 180 | 327 | 502 | 1,009 | 194,104 | 195,113 | 0 | |||||||||||||||||||||||||||||||||||||||
Non-farm, non-residential | 523 | 17 | 2,623 | 3,163 | 610,217 | 613,380 | 90 | 16 | 2,050 | 2,156 | 750,213 | 752,369 | 0 | |||||||||||||||||||||||||||||||||||||||
Agricultural | 6 | - | - | 6 | 6,090 | 6,096 | 16 | 0 | 13 | 29 | 9,958 | 9,987 | 0 | |||||||||||||||||||||||||||||||||||||||
Farmland | 849 | 410 | 343 | 1,602 | 26,295 | 27,897 | 0 | 0 | 133 | 133 | 12,700 | 12,833 | 0 | |||||||||||||||||||||||||||||||||||||||
Consumer real estate loans | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Home equity lines | 242 | 105 | 298 | 645 | 102,243 | 102,888 | 405 | 123 | 469 | 997 | 78,002 | 78,999 | 0 | |||||||||||||||||||||||||||||||||||||||
Single family owner occupied | 3,133 | 1,414 | 6,199 | 10,746 | 490,496 | 501,242 | 3,977 | 2,471 | 3,017 | 9,465 | 712,905 | 722,370 | 0 | |||||||||||||||||||||||||||||||||||||||
Owner occupied construction | 330 | - | - | 330 | 46,704 | 47,034 | 0 | 0 | - | 0 | 17,331 | 17,331 | 0 | |||||||||||||||||||||||||||||||||||||||
Consumer and other loans | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Consumer loans | 360 | 62 | 38 | 460 | 70,235 | 70,695 | 3,002 | 1,035 | 1,176 | 5,213 | 143,528 | 148,741 | 0 | |||||||||||||||||||||||||||||||||||||||
Other | - | - | - | - | 4,856 | 4,856 | 0 | 0 | 0 | 0 | 5,149 | 5,149 | 0 | |||||||||||||||||||||||||||||||||||||||
Total non-covered loans | 6,440 | 2,415 | 10,409 | 19,264 | 1,787,170 | 1,806,434 | ||||||||||||||||||||||||||||||||||||||||||||||
Covered loans | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Commercial loans | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Construction, development, and other land | - | - | - | - | 40 | 40 | ||||||||||||||||||||||||||||||||||||||||||||||
Single family non-owner occupied | 72 | - | - | 72 | 220 | 292 | ||||||||||||||||||||||||||||||||||||||||||||||
Non-farm, non-residential | - | - | - | - | 10 | 10 | ||||||||||||||||||||||||||||||||||||||||||||||
Consumer real estate loans | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Home equity lines | 291 | - | 118 | 409 | 26,441 | 26,850 | ||||||||||||||||||||||||||||||||||||||||||||||
Single family owner occupied | - | - | 28 | 28 | 4,067 | 4,095 | ||||||||||||||||||||||||||||||||||||||||||||||
Total covered loans | 363 | - | 146 | 509 | 30,778 | 31,287 | ||||||||||||||||||||||||||||||||||||||||||||||
Total loans | $ | 6,803 | $ | 2,415 | $ | 10,555 | $ | 19,773 | $ | 1,817,948 | $ | 1,837,721 | $ | 8,395 | $ | 4,308 | $ | 7,577 | $ | 20,280 | $ | 2,279,518 | $ | 2,299,798 | $ | 0 |
December 31, 2021 | ||||||||||||||||||||||||||||
Amortized Cost of | ||||||||||||||||||||||||||||
30 - 59 Days | 60 - 89 Days | 90+ Days | Total | Current | Total | > 90 Days Accruing | ||||||||||||||||||||||
(Amounts in thousands) | Past Due | Past Due | Past Due | Past Due | Loans | Loans | No Allowance | |||||||||||||||||||||
Commercial loans | ||||||||||||||||||||||||||||
Construction, development, and other land | $ | 52 | $ | 0 | $ | 120 | $ | 172 | $ | 65,634 | $ | 65,806 | $ | 0 | ||||||||||||||
Commercial and industrial | 325 | 35 | 1,394 | 1,754 | 131,876 | 133,630 | 0 | |||||||||||||||||||||
Multi-family residential | 97 | 0 | 0 | 97 | 100,305 | 100,402 | 0 | |||||||||||||||||||||
Single family non-owner occupied | 1,210 | 583 | 795 | 2,588 | 196,190 | 198,778 | 0 | |||||||||||||||||||||
Non-farm, non-residential | 1,002 | 441 | 2,333 | 3,776 | 703,730 | 707,506 | 0 | |||||||||||||||||||||
Agricultural | 73 | 7 | 101 | 181 | 9,160 | 9,341 | 0 | |||||||||||||||||||||
Farmland | 52 | 0 | 222 | 274 | 14,739 | 15,013 | 0 | |||||||||||||||||||||
Consumer real estate loans | ||||||||||||||||||||||||||||
Home equity lines | 275 | 388 | 333 | 996 | 78,861 | 79,857 | 0 | |||||||||||||||||||||
Single family owner occupied | 4,740 | 2,584 | 3,880 | 11,204 | 692,660 | 703,864 | 0 | |||||||||||||||||||||
Owner occupied construction | 139 | 0 | 0 | 139 | 16,771 | 16,910 | 0 | |||||||||||||||||||||
Consumer and other loans | ||||||||||||||||||||||||||||
Consumer loans | 3,469 | 1,182 | 1,049 | 5,700 | 124,094 | 129,794 | 0 | |||||||||||||||||||||
Other | 0 | 0 | 0 | 0 | 4,668 | 4,668 | 0 | |||||||||||||||||||||
Total loans | $ | 11,434 | $ | 5,220 | $ | 10,227 | $ | 26,881 | $ | 2,138,688 | $ | 2,165,569 | $ | 0 |
ASC 326 prescribes that when an entity determines foreclosure is probable, the expected credit loss is required to be measured based on the fair value of the collateral. As a practical expedient, an entity may use the fair value as of the reporting date when recording the net carrying amount of the asset. For the collateral dependent asset ("CDA") a credit loss expense is recorded for loan amounts in excess of fair value of the collateral. The table below summarizes collateral dependent loans, where foreclosure is probable, by type of collateral, and the extent to which they are collateralized during the period.
December 31, 2016 | ||||||||||||||||||||||||
30 - 59 Days | 60 - 89 Days | 90+ Days | Total | Current | Total | |||||||||||||||||||
(Amounts in thousands) | Past Due | Past Due | Past Due | Past Due | Loans | Loans | ||||||||||||||||||
Non-covered loans | ||||||||||||||||||||||||
Commercial loans | ||||||||||||||||||||||||
Construction, development, and other land | $ | 33 | $ | 5 | $ | 17 | $ | 55 | $ | 56,893 | $ | 56,948 | ||||||||||||
Commercial and industrial | 174 | 30 | 149 | 353 | 91,851 | 92,204 | ||||||||||||||||||
Multi-family residential | 163 | - | 281 | 444 | 133,784 | 134,228 | ||||||||||||||||||
Single family non-owner occupied | 1,302 | 159 | 835 | 2,296 | 140,669 | 142,965 | ||||||||||||||||||
Non-farm, non-residential | 1,235 | 332 | 2,169 | 3,736 | 594,938 | 598,674 | ||||||||||||||||||
Agricultural | - | 5 | - | 5 | 5,998 | 6,003 | ||||||||||||||||||
Farmland | 224 | 343 | 565 | 1,132 | 30,597 | 31,729 | ||||||||||||||||||
Consumer real estate loans | ||||||||||||||||||||||||
Home equity lines | 78 | 136 | 658 | 872 | 105,489 | 106,361 | ||||||||||||||||||
Single family owner occupied | 4,777 | 2,408 | 3,311 | 10,496 | 490,395 | 500,891 | ||||||||||||||||||
Owner occupied construction | 342 | 336 | - | 678 | 43,857 | 44,535 | ||||||||||||||||||
Consumer and other loans | ||||||||||||||||||||||||
Consumer loans | 371 | 90 | 15 | 476 | 76,969 | 77,445 | ||||||||||||||||||
Other | - | - | - | - | 3,971 | 3,971 | ||||||||||||||||||
Total non-covered loans | 8,699 | 3,844 | 8,000 | 20,543 | 1,775,411 | 1,795,954 | ||||||||||||||||||
Covered loans | ||||||||||||||||||||||||
Commercial loans | ||||||||||||||||||||||||
Construction, development, and other land | 434 | - | 32 | 466 | 4,104 | 4,570 | ||||||||||||||||||
Commercial and industrial | - | - | - | - | 895 | 895 | ||||||||||||||||||
Multi-family residential | - | - | - | - | 8 | 8 | ||||||||||||||||||
Single family non-owner occupied | 24 | - | - | 24 | 938 | 962 | ||||||||||||||||||
Non-farm, non-residential | 32 | - | - | 32 | 7,480 | 7,512 | ||||||||||||||||||
Agricultural | - | - | - | - | 25 | 25 | ||||||||||||||||||
Farmland | - | - | - | - | 397 | 397 | ||||||||||||||||||
Consumer real estate loans | ||||||||||||||||||||||||
Home equity lines | 108 | 146 | 62 | 316 | 35,501 | 35,817 | ||||||||||||||||||
Single family owner occupied | 58 | - | 39 | 97 | 6,632 | 6,729 | ||||||||||||||||||
Owner occupied construction | - | - | - | - | - | - | ||||||||||||||||||
Consumer and other loans | ||||||||||||||||||||||||
Consumer loans | - | - | - | - | 79 | 79 | ||||||||||||||||||
Total covered loans | 656 | 146 | 133 | 935 | 56,059 | 56,994 | ||||||||||||||||||
Total loans | $ | 9,355 | $ | 3,990 | $ | 8,133 | $ | 21,478 | $ | 1,831,470 | $ | 1,852,948 |
June 30, 2022 | December 31, 2021 | |||||||||||||||||||||||
(Amounts in thousands) | Balance | Collateral Coverage | % | Balance | Collateral Coverage | % | ||||||||||||||||||
Commercial Real Estate | ||||||||||||||||||||||||
Hotel | $ | 0 | $ | 0 | 0 | $ | 0 | $ | 0 | 0 | ||||||||||||||
Office | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Other | 766 | 972 | 126.89 | % | 2,216 | 2,312 | 104.33 | % | ||||||||||||||||
Retail | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Multi-Family | ||||||||||||||||||||||||
Industrial | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Office | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Other | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Commercial and industrial | ||||||||||||||||||||||||
Industrial | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Other | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Home equity loans | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Consumer owner occupied | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Consumer | - | - | - | - | - | - | ||||||||||||||||||
Total collateral dependent loans | $ | 766 | $ | 972 | 126.89 | % | $ | 2,216 | $ | 2,312 | 104.33 | % |
The Company may make concessions in interest rates, loan terms and/or amortization terms when restructuring loans for borrowers experiencing financial difficulty. Restructured loans in excess of $250 thousand are evaluated for a specific reserve based on either the collateral or net present value method, whichever is most applicable. Restructured loans under $250 thousand are subject to the reserve calculation at the historical loss rate for classified loans. Certain troubled debt restructurings (“TDRs”)TDRs are classified as nonperforming at the time of restructuring and are returned to performing status after six months of satisfactory payment performance; however, these loans remain identified as impaired until full payment or other satisfaction of the obligation occurs. PCI loans are generally
The CARES Act included a provision allowing banks to not considered TDRs apply the guidance on accounting for troubled debt restructurings to loan modifications, such as long asextensions or deferrals, related to COVID-19 made between March 1, 2020, and the loans remain inearlier of (i) December 31, 2021, or (ii) 60 days after the assigned loan pool. No covered loansend of the COVID-19 national emergency. The relief can only be applied to modifications for borrowers that were recorded as TDRsnot more than 30 days past due as of September 30, 2017, or December 31, 2016.2019. The Company elected to adopt this provision of the CARES Act.
The following table presents loans modified as TDRs, by loan class and accrual status, as of the dates indicated:
September 30, 2017 | December 31, 2016 | June 30, 2022 | December 31, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||
(Amounts in thousands) | (Amounts in thousands) | Nonaccrual(1) | Accruing | Total | Nonaccrual(1) | Accruing | Total | Nonaccrual(1) | Accruing | Total | Nonaccrual(1) | Accruing | Total | |||||||||||||||||||||||||||||||||||||
Commercial loans | Commercial loans | |||||||||||||||||||||||||||||||||||||||||||||||||
Commercial and industrial | $ | 0 | $ | 432 | $ | 432 | $ | 396 | $ | 470 | $ | 866 | ||||||||||||||||||||||||||||||||||||||
Single family non-owner occupied | Single family non-owner occupied | $ | 33 | $ | 875 | $ | 908 | $ | 38 | $ | 892 | $ | 930 | 150 | 853 | 1,003 | 857 | 1,100 | 1,957 | |||||||||||||||||||||||||||||||
Non-farm, non-residential | Non-farm, non-residential | - | 295 | 295 | - | 4,160 | 4,160 | 0 | 1,963 | 1,963 | 0 | 2,021 | 2,021 | |||||||||||||||||||||||||||||||||||||
Consumer real estate loans | Consumer real estate loans | |||||||||||||||||||||||||||||||||||||||||||||||||
Home equity lines | Home equity lines | - | 148 | 148 | - | 158 | 158 | 0 | 61 | 61 | 0 | 67 | 67 | |||||||||||||||||||||||||||||||||||||
Single family owner occupied | Single family owner occupied | 1,484 | 6,690 | 8,174 | 905 | 7,503 | 8,408 | 1,284 | 4,978 | 6,262 | 1,266 | 4,755 | 6,021 | |||||||||||||||||||||||||||||||||||||
Owner occupied construction | Owner occupied construction | - | 234 | 234 | 341 | 239 | 580 | 0 | 0 | 0 | 0 | 212 | 212 | |||||||||||||||||||||||||||||||||||||
Consumer and other loans | ||||||||||||||||||||||||||||||||||||||||||||||||||
Consumer loans | 0 | 26 | 26 | 0 | 27 | 27 | ||||||||||||||||||||||||||||||||||||||||||||
Total TDRs | Total TDRs | $ | 1,517 | $ | 8,242 | $ | 9,759 | $ | 1,284 | $ | 12,952 | $ | 14,236 | $ | 1,434 | $ | 8,313 | $ | 9,747 | $ | 2,519 | $ | 8,652 | $ | 11,171 | |||||||||||||||||||||||||
Allowance for loan losses related to TDRs | $ | 707 | $ | 670 | ||||||||||||||||||||||||||||||||||||||||||||||
Allowance for credit losses related to TDRs | $ | 0 | $ | 0 |
| Nonaccrual TDRs are included in total nonaccrual loans disclosed in the nonaccrual table above. |
The following table presents interest income recognized on TDRs for the periods indicated:
Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||||||
(Amounts in thousands) | (Amounts in thousands) | ||||||||||||||||||||||||||||||||
Interest income recognized | Interest income recognized | $ | 74 | $ | 143 | $ | 159 | $ | 296 | $ | 97 | $ | 94 | $ | 202 | $ | 198 |
The following tables present loans modified as TDRs, by type of concession made and loan class, that were restructured during the periods indicated. The post-modification recorded investment represents the loan balance immediately following modification.indicated:
Three Months Ended September 30, | Three Months Ended June 30, | |||||||||||||||||||||||||||||||||||||||||||||||
2017 | 2016 | 2022 | 2021 | |||||||||||||||||||||||||||||||||||||||||||||
(Amounts in thousands) | Total Contracts | Pre-modification Recorded Investment | Post-modification Recorded Investment | Total Contracts | Pre-modification Recorded Investment | Post-modification Recorded Investment | Total Contracts | Pre-modification Recorded Investment | Post-modification Recorded Investment(1) | Total Contracts | Pre-modification Recorded Investment | Post-modification Recorded Investment(1) | ||||||||||||||||||||||||||||||||||||
Below market interest rate and extended payment term | ||||||||||||||||||||||||||||||||||||||||||||||||
Extended term | ||||||||||||||||||||||||||||||||||||||||||||||||
Single family owner occupied | 1 | $ | 42 | $ | 42 | - | $ | - | $ | - | 2 | $ | 238 | $ | 245 | 0 | $ | 0 | $ | 0 | ||||||||||||||||||||||||||||
Total extended term | 2 | 238 | 245 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||||||||||||
Total | 1 | $ | 42 | $ | 42 | - | $ | - | $ | - | 2 | $ | 238 | $ | 245 | 0 | $ | 0 | $ | 0 |
Nine Months Ended September 30, | ||||||||||||||||||||||||
2017 | 2016 | |||||||||||||||||||||||
(Amounts in thousands) | Total Contracts | Pre-modification Recorded Investment | Post-modification Recorded Investment | Total Contracts | Pre-modification Recorded Investment | Post-modification Recorded Investment | ||||||||||||||||||
Below market interest rate and extended payment term | ||||||||||||||||||||||||
Single family owner occupied | 3 | $ | 141 | $ | 141 | 1 | $ | 115 | $ | 115 | ||||||||||||||
Total | 3 | $ | 141 | $ | 141 | 1 | $ | 115 | $ | 115 |
(1) | Represents the loan balance immediately following modification |
Six Months Ended June 30, | ||||||||||||||||||||||||
2022 | 2021 | |||||||||||||||||||||||
(Amounts in thousands) | Total Contracts | Pre-modification Recorded Investment | Post-modification Recorded Investment(1) | Total Contracts | Pre-modification Recorded Investment | Post-modification Recorded Investment(1) | ||||||||||||||||||
Below market interest rate | ||||||||||||||||||||||||
Single family owner occupied | 1 | $ | 31 | $ | 31 | 0 | $ | 0 | $ | 0 | ||||||||||||||
Total below market interest rate | 1 | $ | 31 | $ | 31 | 0 | 0 | 0 | ||||||||||||||||
Extended payment term | ||||||||||||||||||||||||
Single family owner occupied | 2 | 238 | 245 | 0 | 0 | 0 | ||||||||||||||||||
Total extended payment term | 2 | 238 | 245 | 0 | 0 | 0 | ||||||||||||||||||
Payment deferral | ||||||||||||||||||||||||
Non-farm, non-residential | 0 | 0 | 0 | 1 | 1,390 | 1,374 | ||||||||||||||||||
Total principal deferral | 0 | 0 | 0 | 1 | 1,390 | 1,374 | ||||||||||||||||||
Total | 3 | $ | 269 | $ | 276 | 1 | $ | 1,390 | $ | 1,374 |
(1) | Represents the loan balance immediately following modification |
There were nowas one payment defaults ondefault in the amount of $39 thousand for loans modified as TDRs that were restructured within the previous 12 months as of SeptemberJune 30, 2017 or 2016.2022, and none as of June 30, 2021.
The following table provides information about other real estate owned (“OREO”), which consists of properties acquired through foreclosure, as of the dates indicated:
September 30, 2017 | December 31, 2016 | |||||||||
(Amounts in thousands) | ||||||||||
Non-covered OREO | $ | 3,543 | $ | 5,109 | ||||||
Covered OREO | 54 | 276 | ||||||||
Total OREO | $ | 3,597 | $ | 5,385 | ||||||
Non-covered OREO secured by residential real estate | $ | 971 | $ | 1,746 | ||||||
Residential real estate loans in the foreclosure process(1) | 10,025 | 2,539 |
June 30, 2022 | December 31, 2021 | |||||||
(Amounts in thousands) | ||||||||
OREO | $ | 579 | $ | 1,015 | ||||
OREO secured by residential real estate | $ | 221 | $ | 337 | ||||
Residential real estate loans in the foreclosure process(1) | $ | 2,741 | $ | 2,210 |
(1) | ||||||
| The recorded investment in consumer mortgage loans collateralized by residential real estate that are in the process of foreclosure according to local requirements of the applicable jurisdiction |
Note 5. Allowance for LoanCredit Losses
The following tables present the changes in the allowance for loancredit losses, by loan segment, during the periods indicated:
Three Months Ended September 30, 2017 | ||||||||||||||||
(Amounts in thousands) | Commercial | Consumer Real Estate | Consumer and Other | Total Allowance | ||||||||||||
Allowance, excluding PCI | ||||||||||||||||
Beginning balance | $ | 12,283 | $ | 5,802 | $ | 793 | $ | 18,878 | ||||||||
Provision for loan losses charged to operations | 358 | 75 | 305 | 738 | ||||||||||||
Charge-offs | (207 | ) | (137 | ) | (373 | ) | (717 | ) | ||||||||
Recoveries | 170 | 67 | 70 | 307 | ||||||||||||
Net charge-offs | (37 | ) | (70 | ) | (303 | ) | (410 | ) | ||||||||
Ending balance | $ | 12,604 | $ | 5,807 | $ | 795 | $ | 19,206 | ||||||||
PCI allowance | ||||||||||||||||
Beginning balance | $ | - | $ | 8 | $ | - | $ | 8 | ||||||||
Recovery of loan losses | - | (8 | ) | - | (8 | ) | ||||||||||
Benefit attributable to the FDIC indemnification asset | - | - | - | - | ||||||||||||
Recovery of loan losses charged to operations | - | (8 | ) | - | (8 | ) | ||||||||||
Recovery of loan losses recorded through the FDIC indemnification asset | - | - | - | - | ||||||||||||
Ending balance | $ | - | $ | - | $ | - | $ | - | ||||||||
Total allowance | ||||||||||||||||
Beginning balance | $ | 12,283 | $ | 5,810 | $ | 793 | $ | 18,886 | ||||||||
Provision for loan losses | 358 | 67 | 305 | 730 | ||||||||||||
Benefit attributable to the FDIC indemnification asset | - | - | - | - | ||||||||||||
Provision for loan losses charged to operations | 358 | 67 | 305 | 730 | ||||||||||||
Recovery of loan losses recorded through the FDIC indemnification asset | - | - | - | - | ||||||||||||
Charge-offs | (207 | ) | (137 | ) | (373 | ) | (717 | ) | ||||||||
Recoveries | 170 | 67 | 70 | 307 | ||||||||||||
Net charge-offs | (37 | ) | (70 | ) | (303 | ) | (410 | ) | ||||||||
Ending balance | $ | 12,604 | $ | 5,807 | $ | 795 | $ | 19,206 |
Three Months Ended June 30, 2022 | ||||||||||||||||
Consumer Real | Consumer and | Total | ||||||||||||||
(Amounts in thousands) | Commercial | Estate | Other | Allowance | ||||||||||||
Total allowance | ||||||||||||||||
Beginning balance | $ | 15,896 | $ | 9,764 | $ | 3,321 | $ | 28,981 | ||||||||
Provision for (recovery of) loan losses charged to operations | (808 | ) | 48 | 1,270 | 510 | |||||||||||
Charge-offs | (151 | ) | (88 | ) | (1,230 | ) | (1,469 | ) | ||||||||
Recoveries | 1,182 | 325 | 220 | 1,727 | ||||||||||||
Net recoveries (charge-offs) | 1,031 | 237 | (1,010 | ) | 258 | |||||||||||
Ending balance | $ | 16,119 | $ | 10,049 | $ | 3,581 | $ | 29,749 |
Three Months Ended June 30, 2021 | ||||||||||||||||
Consumer Real | Consumer and | Total | ||||||||||||||
(Amounts in thousands) | Commercial | Estate | Other | Allowance | ||||||||||||
Total allowance | ||||||||||||||||
Beginning balance | $ | 19,586 | $ | 11,887 | $ | 3,090 | $ | 34,563 | ||||||||
(Recovery of) provision for credit losses charged to operations | (1,712 | ) | (986 | ) | 468 | (2,230 | ) | |||||||||
Charge-offs | (1,202 | ) | (48 | ) | (652 | ) | (1,902 | ) | ||||||||
Recoveries | 1,032 | 202 | 192 | 1,426 | ||||||||||||
Net (charge-offs) recoveries | (170 | ) | 154 | (460 | ) | (476 | ) | |||||||||
Ending balance | $ | 17,704 | $ | 11,055 | $ | 3,098 | $ | 31,857 |
Six Months Ended June 30, 2022 | ||||||||||||||||
Consumer Real | Consumer and | Total | ||||||||||||||
(Amounts in thousands) | Commercial | Estate | Other | Allowance | ||||||||||||
Total allowance | ||||||||||||||||
Beginning balance | $ | 14,775 | $ | 9,972 | $ | 3,111 | $ | 27,858 | ||||||||
Provision for (recovery of) loan losses charged to operations | 300 | (193 | ) | 2,364 | 2,471 | |||||||||||
Charge-offs | (408 | ) | (94 | ) | (2,269 | ) | (2,771 | ) | ||||||||
Recoveries | 1,452 | 364 | 375 | 2,191 | ||||||||||||
Net recoveries (charge-offs) | 1,044 | 270 | (1,894 | ) | (580 | ) | ||||||||||
Ending balance | $ | 16,119 | $ | 10,049 | $ | 3,581 | $ | 29,749 |
Six Months Ended June 30, 2021 | ||||||||||||||||
Consumer Real | Consumer and | Total | ||||||||||||||
(Amounts in thousands) | Commercial | Estate | Other | Allowance | ||||||||||||
Total allowance | ||||||||||||||||
Beginning balance | $ | 14,661 | $ | 8,951 | $ | 2,570 | $ | 26,182 | ||||||||
Cumulative effect of adoption of ASU 2016-13 | 8,360 | 4,145 | 602 | 13,107 | ||||||||||||
Provision for loan losses charged to operations | (4,782 | ) | (2,528 | ) | 1,079 | (6,231 | ) | |||||||||
Charge-offs | (1,959 | ) | (58 | ) | (1,615 | ) | (3,632 | ) | ||||||||
Recoveries | 1,424 | 545 | 462 | 2,431 | ||||||||||||
Net (charge-offs) recoveries | (535 | ) | 487 | (1,153 | ) | (1,201 | ) | |||||||||
Ending balance | $ | 17,704 | $ | 11,055 | $ | 3,098 | $ | 31,857 |
Three Months Ended September 30, 2016 | ||||||||||||||||
(Amounts in thousands) | Commercial | Consumer Real Estate | Consumer and Other | Total Allowance | ||||||||||||
Allowance, excluding PCI | ||||||||||||||||
Beginning balance | $ | 13,689 | $ | 6,625 | $ | 773 | $ | 21,087 | ||||||||
(Recovery of) provision for loan losses charged to operations | (726 | ) | (575 | ) | 147 | (1,154 | ) | |||||||||
Charge-offs | (272 | ) | (207 | ) | (293 | ) | (772 | ) | ||||||||
Recoveries | 295 | 89 | 76 | 460 | ||||||||||||
Net recoveries (charge-offs) | 23 | (118 | ) | (217 | ) | (312 | ) | |||||||||
Ending balance | $ | 12,986 | $ | 5,932 | $ | 703 | $ | 19,621 | ||||||||
PCI allowance | ||||||||||||||||
Beginning balance | $ | - | $ | 12 | $ | - | $ | 12 | ||||||||
Recovery of loan losses | - | - | - | - | ||||||||||||
Benefit attributable to the FDIC indemnification asset | - | - | - | - | ||||||||||||
Recovery of loan losses charged to operations | - | - | - | - | ||||||||||||
Recovery of loan losses recorded through the FDIC indemnification asset | - | - | - | - | ||||||||||||
Ending balance | $ | - | $ | 12 | $ | - | $ | 12 | ||||||||
Total allowance | ||||||||||||||||
Beginning balance | $ | 13,689 | $ | 6,637 | $ | 773 | $ | 21,099 | ||||||||
(Recovery of) provision for loan losses | (726 | ) | (575 | ) | 147 | (1,154 | ) | |||||||||
Benefit attributable to the FDIC indemnification asset | - | - | - | - | ||||||||||||
(Recovery of) provision for loan losses charged to operations | (726 | ) | (575 | ) | 147 | (1,154 | ) | |||||||||
Recovery of loan losses recorded through the FDIC indemnification asset | - | - | - | - | ||||||||||||
Charge-offs | (272 | ) | (207 | ) | (293 | ) | (772 | ) | ||||||||
Recoveries | 295 | 89 | 76 | 460 | ||||||||||||
Net recoveries (charge-offs) | 23 | (118 | ) | (217 | ) | (312 | ) | |||||||||
Ending balance | $ | 12,986 | $ | 5,944 | $ | 703 | $ | 19,633 |
Nine Months Ended September 30, 2017 | ||||||||||||||||
(Amounts in thousands) | Commercial | Consumer Real Estate | Consumer and Other | Total Allowance | ||||||||||||
Allowance, excluding PCI | ||||||||||||||||
Beginning balance | $ | 11,690 | $ | 5,487 | $ | 759 | $ | 17,936 | ||||||||
Provision for loan losses charged to operations | 822 | 561 | 785 | 2,168 | ||||||||||||
Charge-offs | (493 | ) | (535 | ) | (948 | ) | (1,976 | ) | ||||||||
Recoveries | 585 | 294 | 199 | 1,078 | ||||||||||||
Net recoveries (charge-offs) | 92 | (241 | ) | (749 | ) | (898 | ) | |||||||||
Ending balance | $ | 12,604 | $ | 5,807 | $ | 795 | $ | 19,206 | ||||||||
PCI allowance | ||||||||||||||||
Beginning balance | $ | - | $ | 12 | $ | - | $ | 12 | ||||||||
Recovery of loan losses | - | (12 | ) | - | (12 | ) | ||||||||||
Benefit attributable to the FDIC indemnification asset | - | - | - | - | ||||||||||||
Recovery of loan losses charged to operations | - | (12 | ) | - | (12 | ) | ||||||||||
Recovery of loan losses recorded through the FDIC indemnification asset | - | - | - | - | ||||||||||||
Ending balance | $ | - | $ | - | $ | - | $ | - | ||||||||
Total allowance | ||||||||||||||||
Beginning balance | $ | 11,690 | $ | 5,499 | $ | 759 | $ | 17,948 | ||||||||
Provision for loan losses | 822 | 549 | 785 | 2,156 | ||||||||||||
Benefit attributable to the FDIC indemnification asset | - | - | - | - | ||||||||||||
Provision for loan losses charged to operations | 822 | 549 | 785 | 2,156 | ||||||||||||
Recovery of loan losses recorded through the FDIC indemnification asset | - | - | - | - | ||||||||||||
Charge-offs | (493 | ) | (535 | ) | (948 | ) | (1,976 | ) | ||||||||
Recoveries | 585 | 294 | 199 | 1,078 | ||||||||||||
Net recoveries (charge-offs) | 92 | (241 | ) | (749 | ) | (898 | ) | |||||||||
Ending balance | $ | 12,604 | $ | 5,807 | $ | 795 | $ | 19,206 |
Nine Months Ended September 30, 2016 | ||||||||||||||||
(Amounts in thousands) | Commercial | Consumer Real Estate | Consumer and Other | Total Allowance | ||||||||||||
Allowance, excluding PCI | ||||||||||||||||
Beginning balance | $ | 13,133 | $ | 6,356 | $ | 690 | $ | 20,179 | ||||||||
(Recovery of) provision for loan losses charged to operations | (200 | ) | 436 | 560 | 796 | |||||||||||
Charge-offs | (747 | ) | (1,135 | ) | (809 | ) | (2,691 | ) | ||||||||
Recoveries | 800 | 275 | 262 | 1,337 | ||||||||||||
Net recoveries (charge-offs) | 53 | (860 | ) | (547 | ) | (1,354 | ) | |||||||||
Ending balance | $ | 12,986 | $ | 5,932 | $ | 703 | $ | 19,621 | ||||||||
PCI allowance | ||||||||||||||||
Beginning balance | $ | - | $ | 54 | $ | - | $ | 54 | ||||||||
Recovery of loan losses | - | (42 | ) | - | (42 | ) | ||||||||||
Benefit attributable to the FDIC indemnification asset | - | 1 | - | 1 | ||||||||||||
Recovery of loan losses charged to operations | - | (41 | ) | - | (41 | ) | ||||||||||
Recovery of loan losses recorded through the FDIC indemnification asset | - | (1 | ) | - | (1 | ) | ||||||||||
Ending balance | $ | - | $ | 12 | $ | - | $ | 12 | ||||||||
Total allowance | ||||||||||||||||
Beginning balance | $ | 13,133 | $ | 6,410 | $ | 690 | $ | 20,233 | ||||||||
(Recovery of) provision for loan losses | (200 | ) | 394 | 560 | 754 | |||||||||||
Benefit attributable to the FDIC indemnification asset | - | 1 | - | 1 | ||||||||||||
(Recovery of) provision for loan losses charged to operations | (200 | ) | 395 | 560 | 755 | |||||||||||
Recovery of loan losses recorded through the FDIC indemnification asset | - | (1 | ) | - | (1 | ) | ||||||||||
Charge-offs | (747 | ) | (1,135 | ) | (809 | ) | (2,691 | ) | ||||||||
Recoveries | 800 | 275 | 262 | 1,337 | ||||||||||||
Net recoveries (charge-offs) | 53 | (860 | ) | (547 | ) | (1,354 | ) | |||||||||
Ending balance | $ | 12,986 | $ | 5,944 | $ | 703 | $ | 19,633 |
The following tables present the allowance for loan losses and recorded investment in loans evaluated for impairment, excluding PCI loans, by loan class, as of the dates indicated:
September 30, 2017 | ||||||||||||||||
(Amounts in thousands) | Loans Individually Evaluated for Impairment | Allowance for Loans Individually Evaluated | Loans Collectively Evaluated for Impairment | Allowance for Loans Collectively Evaluated | ||||||||||||
Commercial loans | ||||||||||||||||
Construction, development, and other land | $ | - | $ | - | $ | 72,293 | $ | 1,099 | ||||||||
Commercial and industrial | 2,400 | 262 | 87,782 | 478 | ||||||||||||
Multi-family residential | 254 | - | 125,743 | 1,133 | ||||||||||||
Single family non-owner occupied | 1,103 | 69 | 140,150 | 2,308 | ||||||||||||
Non-farm, non-residential | 2,561 | 325 | 606,773 | 6,706 | ||||||||||||
Agricultural | - | - | 6,096 | 44 | ||||||||||||
Farmland | 940 | 50 | 26,957 | 130 | ||||||||||||
Total commercial loans | 7,258 | 706 | 1,065,794 | 11,898 | ||||||||||||
Consumer real estate loans | ||||||||||||||||
Home equity lines | - | - | 116,468 | 825 | ||||||||||||
Single family owner occupied | 8,259 | 754 | 496,264 | 3,852 | ||||||||||||
Owner occupied construction | - | - | 47,034 | 376 | ||||||||||||
Total consumer real estate loans | 8,259 | 754 | 659,766 | 5,053 | ||||||||||||
Consumer and other loans | ||||||||||||||||
Consumer loans | - | - | 70,695 | 795 | ||||||||||||
Other | - | - | 4,856 | - | ||||||||||||
Total consumer and other loans | - | - | 75,551 | 795 | ||||||||||||
Total loans, excluding PCI loans | $ | 15,517 | $ | 1,460 | $ | 1,801,111 | $ | 17,746 |
December 31, 2016 | ||||||||||||||||
(Amounts in thousands) | Loans Individually Evaluated for Impairment | Allowance for Loans Individually Evaluated | Loans Collectively Evaluated for Impairment | Allowance for Loans Collectively Evaluated | ||||||||||||
Commercial loans | ||||||||||||||||
Construction, development, and other land | $ | - | $ | - | $ | 60,281 | $ | 889 | ||||||||
Commercial and industrial | - | - | 93,099 | 495 | ||||||||||||
Multi-family residential | 281 | - | 133,947 | 1,157 | ||||||||||||
Single family non-owner occupied | 1,910 | 31 | 139,711 | 2,721 | ||||||||||||
Non-farm, non-residential | 1,454 | - | 600,915 | 6,185 | ||||||||||||
Agricultural | - | - | 6,028 | 43 | ||||||||||||
Farmland | 981 | 18 | 31,145 | 151 | ||||||||||||
Total commercial loans | 4,626 | 49 | 1,065,126 | 11,641 | ||||||||||||
Consumer real estate loans | ||||||||||||||||
Home equity lines | - | - | 122,000 | 895 | ||||||||||||
Single family owner occupied | 5,120 | 770 | 501,617 | 3,594 | ||||||||||||
Owner occupied construction | 336 | - | 44,199 | 228 | ||||||||||||
Total consumer real estate loans | 5,456 | 770 | 667,816 | 4,717 | ||||||||||||
Consumer and other loans | ||||||||||||||||
Consumer loans | - | - | 77,524 | 759 | ||||||||||||
Other | - | - | 3,971 | - | ||||||||||||
Total consumer and other loans | - | - | 81,495 | 759 | ||||||||||||
Total loans, excluding PCI loans | $ | 10,082 | $ | 819 | $ | 1,814,437 | $ | 17,117 |
The following table presents the allowance for loan losses on PCI loans and recorded investment in PCI loans, by loan pool, as of the dates indicated:
September 30, 2017 | December 31, 2016 | ||||||||||||||||
(Amounts in thousands) | Recorded Investment | Allowance for Loan Pools With Impairment | Recorded Investment | Allowance for Loan Pools With Impairment | |||||||||||||
Commercial loans | |||||||||||||||||
Waccamaw commercial | $ | 452 | $ | - | $ | 260 | $ | - | |||||||||
Peoples commercial | 4,159 | - | 4,491 | - | |||||||||||||
Other | 1,011 | - | 1,095 | - | |||||||||||||
Total commercial loans | 5,622 | - | 5,846 | - | |||||||||||||
Consumer real estate loans | |||||||||||||||||
Waccamaw serviced home equity lines | 13,270 | - | 20,178 | - | |||||||||||||
Waccamaw residential | 1,181 | - | 1,320 | - | |||||||||||||
Peoples residential | 1,020 | - | 1,085 | 12 | |||||||||||||
Total consumer real estate loans | 15,471 | - | 22,583 | 12 | |||||||||||||
Total PCI loans | $ | 21,093 | $ | - | $ | 28,429 | $ | 12 |
Management believed the allowance was adequate to absorb probable loan losses inherent in the loan portfolio as of September 30, 2017.
Note 6. FDIC Indemnification Asset
In connection with the FDIC-assisted acquisition of Waccamaw in 2012, the Company entered into loss share agreements with the FDIC that covered $31.29 million of loans and $54 thousand of OREO as of September 30, 2017, compared to $56.99 million of loans and $276 thousand of OREO as of December 31, 2016. Under the loss share agreements, the FDIC agrees to cover 80% of most loan and foreclosed real estate losses and reimburse certain expenses incurred in relation to these covered assets. Loss share coverage expired June 30, 2017, for commercial loans, with recoveries continuing until June 30, 2019. Loss share coverage will expire June 30, 2022, for single family loans. The Company’s condensed consolidated statements of income include the expense on covered assets net of estimated reimbursements. The following table presents the changes in the FDIC indemnification asset during the periods indicated:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
(Amounts in thousands) | ||||||||||||||||
Beginning balance | $ | 8,159 | $ | 16,431 | $ | 12,173 | $ | 20,844 | ||||||||
Decrease in estimated losses on covered loans | - | - | - | (1 | ) | |||||||||||
Increase in estimated losses on covered OREO | 4 | 277 | 71 | 851 | ||||||||||||
Reimbursable expenses from the FDIC | 47 | 60 | 108 | 134 | ||||||||||||
Net amortization | (268 | ) | (1,369 | ) | (3,186 | ) | (3,856 | ) | ||||||||
Reimbursements from the FDIC | (477 | ) | (1,067 | ) | (1,701 | ) | (3,640 | ) | ||||||||
Ending balance | $ | 7,465 | $ | 14,332 | $ | 7,465 | $ | 14,332 |
Note 7. Deposits
The following table presents the components of deposits as of the dates indicated:
September 30, 2017 | December 31, 2016 | June 30, 2022 | December 31, 2021 | |||||||||||||
(Amounts in thousands) | ||||||||||||||||
Noninterest-bearing demand deposits | $ | 452,940 | $ | 427,705 | $ | 877,962 | $ | 842,783 | ||||||||
Interest-bearing deposits: | ||||||||||||||||
Interest-bearing demand deposits | 393,244 | 378,339 | 702,925 | 676,254 | ||||||||||||
Money market accounts | 172,266 | 196,997 | 302,452 | 293,915 | ||||||||||||
Savings deposits | 337,934 | 326,263 | 589,927 | 561,576 | ||||||||||||
Certificates of deposit | 381,625 | 382,503 | 212,968 | 237,919 | ||||||||||||
Individual retirement accounts | 125,811 | 129,531 | 112,305 | 116,944 | ||||||||||||
Total interest-bearing deposits | 1,410,880 | 1,413,633 | 1,920,577 | 1,886,608 | ||||||||||||
Total deposits | $ | 1,863,820 | $ | 1,841,338 | $ | 2,798,539 | $ | 2,729,391 |
Note 7. Leases
Operating leases are recorded as a right of use (“ROU”) asset and operating lease liability. The ROU asset is recorded in other assets, while the lease liability is recorded in other liabilities on the condensed balance sheet beginning January 1, 2019, when the Company adopted ASU 2016-02, on a prospective basis. The ROU asset represents the right to use an underlying asset during the lease term and the lease liability represents the obligation to make lease payments arising from the lease. The ROU asset and lease liability have been recognized based on the present value of the lease payments using a discount rate that represented our incremental borrowing rate at the lease commencement date or the date of adoption of ASU 2016-02. The lease expense, which is comprised of the amortization of the ROU asset and the implicit interest accreted on the lease liability, is recognized on a straight-line basis over the lease term, and is recorded in occupancy expense in the condensed statements of income.
The Company’s current operating leases relate to one existing bank branch and one operating lease acquired in a prior bank acquisition. The acquired operating lease was for vacant land and will terminate in July of 2029. The Company’s ROU asset was $695 thousand as of June 30, 2022 compared to $741 thousand as of December 31, 2021. The operating lease liability as of June 30, 2022, was $714 thousand compared to $770 thousand as of December 31, 2021. The Company’s total operating leases have remaining terms of 2 - 7 years; compared with 4 months to 7.5 years as of December 31, 2021. The June 30, 2022 weighted average discount rate of 3.22% did not change from December 31, 2021.
Future minimum lease payments as of the dates indicated are as follows:
Year | June 30, 2022 | |||
(Amounts in thousands) | ||||
2023 | $ | 117 | ||
2024 | 121 | |||
2025 | 108 | |||
2026 | 101 | |||
2027 and thereafter | 311 | |||
Total lease payments | 758 | |||
Less: Interest | (44 | ) | ||
Present value of lease liabilities | $ | 714 |
Year | December 31, 2021 | |||
(Amounts in thousands) | ||||
2022 | $ | 131 | ||
2023 | 119 | |||
2024 | 117 | |||
2025 | 101 | |||
2026 and thereafter | 362 | |||
Total lease payments | 830 | |||
Less: Interest | (60 | ) | ||
Present value of lease liabilities | $ | 770 |
Note 8. Borrowings
The following table presents the components of borrowings as of the dates indicated:
September 30, 2017 | December 31, 2016 | |||||||||||||||
(Amounts in thousands) | Balance | Weighted Average Rate | Balance | Weighted Average Rate | ||||||||||||
Short-term borrowings | ||||||||||||||||
Retail repurchase agreements | $ | 58,783 | 0.07 | % | $ | 73,005 | 0.07 | % | ||||||||
Long-term borrowings | ||||||||||||||||
Wholesale repurchase agreements | 25,000 | 3.18 | % | 25,000 | 3.18 | % | ||||||||||
Long-term FHLB advances | 50,000 | 4.00 | % | 65,000 | 4.04 | % | ||||||||||
Other borrowings | ||||||||||||||||
Subordinated debt | - | - | 15,464 | 3.65 | % | |||||||||||
Other debt | - | 244 | ||||||||||||||
Total borrowings | $ | 133,783 | $ | 178,713 |
June 30, 2022 | December 31, 2021 | |||||||||||||||
Weighted | Weighted | |||||||||||||||
(Amounts in thousands) | Balance | Average Rate | Balance | Average Rate | ||||||||||||
Retail repurchase agreements | $ | 2,635 | 0.08 | % | $ | 1,536 | 0.07 | % |
The following schedule presentsRepurchase agreements are secured by certain securities that remain under the contractual and weighted average maturitiesCompany’s control during the terms of long-term borrowings, by year, as of September 30, 2017:the agreements.
Wholesale Repurchase Agreements | FHLB Borrowings | Total | ||||||||||
(Amounts in thousands) | ||||||||||||
2017 | $ | - | $ | - | $ | - | ||||||
2018 | - | - | - | |||||||||
2019 | 25,000 | - | 25,000 | |||||||||
2020 | - | - | - | |||||||||
2021 | - | 50,000 | 50,000 | |||||||||
2022 and thereafter | - | - | - | |||||||||
Total long-term borrowings | $ | 25,000 | $ | 50,000 | $ | 75,000 | ||||||
Weighted average maturity (in years) | 1.41 | 3.27 | 2.65 |
As of June 30, 2022, the Company had 0 long-term borrowings.
The FHLB may redeem callable advances at quarterly intervals, which could substantially shorten the advances’ lives. If called, the advance may be paid in full or converted into another FHLB credit product. Prepayment of an advance may result in substantial penalties based on the differential between the contractual note and current advance rate for similar maturities. The Company pledged certain loans to secure FHLB advances and letters of credit totaling $934.90 million as of September 30, 2017. Unused borrowing capacity with the FHLB totaled $446.30$427.55 million, net of FHLB letters of credit of $113.71$123.65 million, as of SeptemberJune 30, 2017. The2022. As of June 30, 2022, the Company pledged $734.26 million in qualifying loans to secure the FHLB letters of credit provide an attractive alternative to pledging securities for public unit deposits.borrowing capacity.
Investment securities pledged to secure repurchase agreements remain under the Company’s control during the agreements’ terms. The counterparties may redeem callable repurchase agreements, which could substantially shorten the borrowings’ lives. The prepayment or early termination of a repurchase agreement may result in substantial penalties based on market conditions. The following schedule presents the contractual maturities of repurchase agreements, by type of collateral pledged, as of September 30, 2017:
U.S. Treasury Securities | U.S. Agency Securities | Municipal Securities | Mortgage-backed Agency Securities | Total | ||||||||||||||||
(Amounts in thousands) | ||||||||||||||||||||
Overnight and continuous | $ | 5,240 | $ | 12,874 | $ | 37,953 | $ | 2,639 | $ | 58,706 | ||||||||||
Up to 30 days | - | - | - | - | - | |||||||||||||||
30 - 90 days | - | - | - | - | - | |||||||||||||||
Greater than 90 days | 9,000 | 3,400 | - | 12,677 | 25,077 | |||||||||||||||
$ | 14,240 | $ | 16,274 | $ | 37,953 | $ | 15,316 | $ | 83,783 |
The Company issued $15.46 million of junior subordinated debentures (“Debentures”) to FCBI Capital Trust (the “Trust”), an unconsolidated subsidiary, in October 2003 with an interest rate of three-month London InterBank Offered Rate (“LIBOR”) plus 2.95% and a 30-year term ending in October 2033. The Trust purchased the Debentures through the issuance of trust preferred securities, which had substantially identical terms as the Debentures. Net proceeds from the offering were contributed as capital to the Bank to support further growth. During the first quarter of 2017, the Company redeemed all $15.46 million of its trust preferred securities issued through the Trust.
In addition, the Company maintains a $15.00 million unsecured, committed line of credit with an unrelated financial institution with an interest rate of one-month LIBOR plus 2.00% that matures in April 2018. There was no outstanding balance on the line as of September 30, 2017, or December 31, 2016.
Note 9. Derivative Instruments and Hedging Activities
As of September 30, 2017, the Company’s derivative instruments consisted of interest rate swaps. Generally, derivative instruments help the Company manage exposure to market risk and meet customer financing needs. Market risk represents the possibility that fluctuations in external factors such as interest rates, market-driven loan rates, prices, or other economic factors will adversely affect economic value or net interest income.
The Company uses interest rate swap contracts to modify its exposure to interest rate risk caused by changes in the LIBOR curve in relation to certain designated fixed rate loans. These instruments are used to convert these fixed rate loans to an effective floating rate. If the LIBOR rate falls below the loan’sloan’s stated fixed rate for a given period, the Company will owe the floating rate payer the notional amount times the difference between LIBOR and the stated fixed rate. If LIBOR is above the stated rate for a given period, the Company will receive payments based on the notional amount times the difference between LIBOR and the stated fixed rate. In March 2020, the Company adopted ASU 2020-04, "Reference Rate Reform" which provided temporary guidance to ease the potential burden in accounting for reference rate reform. With global capital markets moving away from LIBOR, the guidance provided optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships that reference LIBOR. The Company’smigration from LIBOR is not expected to have any material effect on the Company's financial statements when and as changes are made to migrate from the reference rate.
Certain of the Company's interest rate swaps qualify as fair value hedging instruments; therefore, fair value changes in the derivative and hedged item attributable to the hedged risk are recognized in earnings in the same period.
The Company’s interest rate swap agreements include a ten-year, $1.28 million notional swap entered into in August 2017; a fourteen-year, $1.20 million notional swap entered into in March 2015; and a fifteen-year, $4.37 million notional swap entered into in February 2014. The swap agreements, which are accounted for as fair value hedges, and the loans hedged by the agreements are recorded at fair value. The fair value hedges were effective as of SeptemberJune 30, 2017. 2022. The remaining interest rate swaps do not qualify as fair value hedges and the fair value changes in the derivative are recognized in earnings each period.
The following table presents the notional, or contractual, amounts and fair values of derivative instruments as of the dates indicated:
June 30, 2022 | December 31, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||
September 30, 2017 | December 31, 2016 | Notional or | Fair Value | Notional or | Fair Value | |||||||||||||||||||||||||||||||||||||||||||
Notional or | Fair Value | Notional or | Fair Value | Contractual | Derivative | Derivative | Contractual | Derivative | Derivative | |||||||||||||||||||||||||||||||||||||||
(Amounts in thousands) | Contractual Amount | Derivative Assets | Derivative Liabilities | Contractual Amount | Derivative Assets | Derivative Liabilities | Amount | Assets | Liabilities | Amount | Assets | Liabilities | ||||||||||||||||||||||||||||||||||||
Derivatives designated as hedges | ||||||||||||||||||||||||||||||||||||||||||||||||
Interest rate swaps | $ | 5,892 | $ | - | $ | 151 | $ | 4,835 | $ | - | $ | 167 | $ | 4,188 | $ | 67 | $ | 0 | $ | 4,388 | $ | 0 | $ | 229 | ||||||||||||||||||||||||
Derivatives not designated as hedges | ||||||||||||||||||||||||||||||||||||||||||||||||
Interest rate swaps | $ | 7,759 | $ | 59 | $ | 0 | $ | 7,890 | $ | 0 | $ | 608 | ||||||||||||||||||||||||||||||||||||
Total derivatives | $ | 5,892 | $ | - | $ | 151 | $ | 4,835 | $ | - | $ | 167 | $ | 11,947 | $ | 126 | $ | 0 | $ | 12,278 | $ | 0 | $ | 837 |
The following table presents the effect of derivative and hedging activity, if applicable, on the consolidated statements of income for the periods indicated:
Three Months Ended September 30, | Nine Months Ended September 30, |
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||
(Amounts in thousands) | 2017 | 2016 | 2017 | 2016 | Income Statement Location | 2022 | 2021 | 2022 | 2021 | Income Statement Location | ||||||||||||||||||||||||
Derivatives designated as hedges | ||||||||||||||||||||||||||||||||||
Interest rate swaps | $ | 23 | $ | 31 | $ | 64 | $ | 86 | Interest and fees on loans | $ | 19 | $ | 28 | $ | 44 | $ | 56 | Interest and fees on loans | ||||||||||||||||
Derivatives not designated as hedges | ||||||||||||||||||||||||||||||||||
Interest rate swaps | $ | 32 | $ | 50 | $ | 83 | $ | 118 | Interest and fees on loans | |||||||||||||||||||||||||
Total derivative expense | $ | 23 | $ | 31 | $ | 64 | $ | 86 | $ | 51 | $ | 78 | $ | 127 | $ | 174 |
Note 1010. Employee Benefit Plans
The Company maintains two nonqualified domestic, noncontributory defined benefit plans (the “Benefit Plans”) for key members of senior management and non-management directors. The Company’sCompany’s unfunded Benefit Plans include the Supplemental Executive Retention Plan ("SERP") and the Directors’ Supplemental Retirement Plan. The SERP was frozen near the end of 2021; the Director's Plan was fundamentally frozen at that time as well. The following table presents the components of net periodic pension cost and the effect on the consolidated statements of income for the periods indicated:
Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2022 | 2021 | 2022 | 2021 | Income Statement Location | |||||||||||||||||||||||||
(Amounts in thousands) | |||||||||||||||||||||||||||||||||
Service cost | $ | 57 | $ | 46 | $ | 173 | $ | 138 | $ | 0 | $ | 88 | $ | 0 | $ | 176 | Salaries and employee benefits | ||||||||||||||||
Interest cost | 93 | 95 | 279 | 286 | 83 | 79 | 166 | 158 | Other expense | ||||||||||||||||||||||||
Amortization of prior service cost | 57 | 57 | 171 | 170 | 0 | 30 | 0 | 61 | Other expense | ||||||||||||||||||||||||
Amortization of losses | 8 | 12 | 23 | 35 | 33 | 66 | 67 | 132 | Other expense | ||||||||||||||||||||||||
Net periodic cost | $ | 215 | $ | 210 | $ | 646 | $ | 629 | $ | 116 | $ | 263 | $ | 233 | $ | 527 |
Note 11. Earnings per Share
The following table presents the calculation of basic and diluted earnings per common share for the periods indicated:
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
(Amounts in thousands, except share and per share data) | ||||||||||||||||
Net income | $ | 11,213 | $ | 13,403 | $ | 20,728 | $ | 28,005 | ||||||||
Weighted average common shares outstanding, basic | 16,662,817 | 17,486,182 | 16,739,624 | 17,577,552 | ||||||||||||
Dilutive effect of potential common shares | ||||||||||||||||
Stock options | 13,068 | 34,277 | 15,266 | 29,969 | ||||||||||||
Unvested stock awards | 6,169 | 0 | 17,123 | 0 | ||||||||||||
Performance restricted stock units | 561 | 15,685 | 834 | 23,809 | ||||||||||||
Total dilutive effect of potential common shares | 19,798 | 49,962 | 33,223 | 53,778 | ||||||||||||
Weighted average common shares outstanding, diluted | 16,682,615 | 17,536,144 | 16,772,847 | 17,631,330 | ||||||||||||
Basic earnings per common share | $ | 0.67 | $ | 0.77 | $ | 1.24 | $ | 1.59 | ||||||||
Diluted earnings per common share | 0.67 | 0.76 | 1.24 | 1.59 | ||||||||||||
Antidilutive potential common shares | ||||||||||||||||
Stock options | 143,676 | 0 | 131,198 | 13,990 | ||||||||||||
Unvested stock awards | 0 | 0 | 0 | 22,311 | ||||||||||||
Total potential antidilutive shares | 143,676 | 0 | 131,198 | 36,301 |
Note 1112. Accumulated Other Comprehensive Income (Loss)
The following tablestables present the activitychanges in accumulated other comprehensive income (loss) (“AOCI”), net of tax and by component, during the periods indicated:
Three Months Ended June 30, 2022 | ||||||||||||||||||||||||
Unrealized Gains | ||||||||||||||||||||||||
Three Months Ended September 30, 2017 | (Losses) on Available- | |||||||||||||||||||||||
Unrealized Gains (Losses) on Available-for-Sale Securities | Employee Benefit Plans | Total | for-Sale Securities | Employee Benefit Plans | Total | |||||||||||||||||||
(Amounts in thousands) | ||||||||||||||||||||||||
Beginning balance | $ | 1,302 | $ | (1,303 | ) | $ | (1 | ) | $ | (4,643 | ) | $ | (1,869 | ) | $ | (6,512 | ) | |||||||
Other comprehensive loss before reclassifications | (106 | ) | (1 | ) | (107 | ) | (5,174 | ) | 0 | (5,174 | ) | |||||||||||||
Reclassified from AOCI | - | 41 | 41 | 0 | 26 | 26 | ||||||||||||||||||
Other comprehensive (loss) income, net | (106 | ) | 40 | (66 | ) | |||||||||||||||||||
Other comprehensive loss, net | (5,174 | ) | 26 | (5,148 | ) | |||||||||||||||||||
Ending balance | $ | 1,196 | $ | (1,263 | ) | $ | (67 | ) | $ | (9,817 | ) | $ | (1,843 | ) | $ | (11,660 | ) |
Three Months Ended June 30, 2021 | ||||||||||||||||||||||||
Unrealized Gains | ||||||||||||||||||||||||
Three Months Ended September 30, 2016 | (Losses) on Available- | |||||||||||||||||||||||
Unrealized Gains (Losses) on Available-for-Sale Securities | Employee Benefit Plans | Total | for-Sale Securities | Employee Benefit Plans | Total | |||||||||||||||||||
(Amounts in thousands) | ||||||||||||||||||||||||
Beginning balance | $ | (1,706 | ) | $ | (1,311 | ) | $ | (3,017 | ) | $ | 460 | $ | (3,115 | ) | $ | (2,655 | ) | |||||||
Other comprehensive income (loss) before reclassifications | 465 | (2 | ) | 463 | ||||||||||||||||||||
Other comprehensive income before reclassifications | 14 | 0 | 14 | |||||||||||||||||||||
Reclassified from AOCI | 2,881 | 43 | 2,924 | 0 | 76 | 76 | ||||||||||||||||||
Other comprehensive income, net | 3,346 | 41 | 3,387 | 14 | 76 | 90 | ||||||||||||||||||
Ending balance | $ | 1,640 | $ | (1,270 | ) | $ | 370 | $ | 474 | $ | (3,039 | ) | $ | (2,565 | ) |
Six Months Ended June 30, 2022 | ||||||||||||
Unrealized Gains | ||||||||||||
(Losses) on Available- | ||||||||||||
for-Sale Securities | Employee Benefit Plans | Total | ||||||||||
(Amounts in thousands) | ||||||||||||
Beginning balance | $ | 15 | $ | (1,561 | ) | $ | (1,546 | ) | ||||
Other comprehensive loss before reclassifications | (9,832 | ) | (335 | ) | (10,167 | ) | ||||||
Reclassified from AOCI | 0 | 53 | 53 | |||||||||
Other comprehensive loss, net | (9,832 | ) | (282 | ) | (10,114 | ) | ||||||
Ending balance | $ | (9,817 | ) | $ | (1,843 | ) | $ | (11,660 | ) |
Six Months Ended June 30, 2021 | ||||||||||||
Unrealized Gains | ||||||||||||
(Losses) on Available- | ||||||||||||
for-Sale Securities | Employee Benefit Plans | Total | ||||||||||
(Amounts in thousands) | ||||||||||||
Beginning balance | $ | 1,106 | $ | (3,029 | ) | $ | (1,923 | ) | ||||
Other comprehensive loss before reclassifications | (632 | ) | (162 | ) | (794 | ) | ||||||
Reclassified from AOCI | 0 | 152 | 152 | |||||||||
Other comprehensive loss, net | (632 | ) | (10 | ) | (642 | ) | ||||||
Ending balance | $ | 474 | $ | (3,039 | ) | $ | (2,565 | ) |
Nine Months Ended September 30, 2017 | ||||||||||||
Unrealized Gains (Losses) on Available-for-Sale Securities | Employee Benefit Plans | Total | ||||||||||
(Amounts in thousands) | ||||||||||||
Beginning balance | $ | (544 | ) | $ | (1,467 | ) | $ | (2,011 | ) | |||
Other comprehensive income before reclassifications | 1,329 | 83 | 1,412 | |||||||||
Reclassified from AOCI | 411 | 121 | 532 | |||||||||
Other comprehensive income, net | 1,740 | 204 | 1,944 | |||||||||
Ending balance | $ | 1,196 | $ | (1,263 | ) | $ | (67 | ) |
Nine Months Ended September 30, 2016 | ||||||||||||
Unrealized Gains (Losses) on Available-for-Sale Securities | Employee Benefit Plans | Total | ||||||||||
(Amounts in thousands) | ||||||||||||
Beginning balance | $ | (3,885 | ) | $ | (1,362 | ) | $ | (5,247 | ) | |||
Other comprehensive income (loss) before reclassifications | 2,588 | (36 | ) | 2,552 | ||||||||
Reclassified from AOCI | 2,937 | 128 | 3,065 | |||||||||
Other comprehensive income, net | 5,525 | 92 | 5,617 | |||||||||
Ending balance | $ | 1,640 | $ | (1,270 | ) | $ | 370 |
The following table presents reclassifications out of AOCI,, by component, during the periods indicated:
Three Months Ended | Nine Months Ended | Three Months Ended | Six Months Ended | ||||||||||||||||||||||||||||||||||
September 30, | September 30, | Income Statement | June 30, | June 30, | Income Statement | ||||||||||||||||||||||||||||||||
(Amounts in thousands) | 2017 | 2016 | 2017 | 2016 | Line Item Affected | 2022 | 2021 | 2022 | 2021 | Line Item Affected | |||||||||||||||||||||||||||
Available-for-sale securities | |||||||||||||||||||||||||||||||||||||
Loss (gain) recognized | $ | - | $ | (25 | ) | $ | 657 | $ | 53 | Net gain (loss) on sale of securities | |||||||||||||||||||||||||||
Credit-related OTTI recognized | - | 4,635 | - | 4,646 | Net impairment losses recognized in earnings | ||||||||||||||||||||||||||||||||
Gain recognized | $ | 0 | $ | 0 | $ | 0 | $ | 0 | Net loss on sale of securities | ||||||||||||||||||||||||||||
Reclassified out of AOCI, before tax | - | 4,610 | 657 | 4,699 | Income before income taxes | 0 | 0 | 0 | 0 | Income before income taxes | |||||||||||||||||||||||||||
Income tax expense | - | 1,729 | 246 | 1,762 | Income tax expense | 0 | 0 | 0 | 0 | Income tax expense | |||||||||||||||||||||||||||
Reclassified out of AOCI, net of tax | - | 2,881 | 411 | 2,937 | Net income | 0 | 0 | 0 | 0 | Net income | |||||||||||||||||||||||||||
Employee benefit plans | |||||||||||||||||||||||||||||||||||||
Amortization of prior service cost | 57 | 57 | 171 | 170 | (1) | $ | 0 | $ | 31 | $ | 0 | $ | 61 | Salaries and employee benefits | |||||||||||||||||||||||
Amortization of net actuarial benefit cost | 8 | 12 | 23 | 35 | (1) | 33 | 66 | 67 | 132 | Salaries and employee benefits | |||||||||||||||||||||||||||
Reclassified out of AOCI, before tax | 65 | 69 | 194 | 205 | Income before income taxes | 33 | 97 | 67 | 193 | Income before income taxes | |||||||||||||||||||||||||||
Income tax expense | 24 | 26 | 73 | 77 | Income tax expense | 7 | 21 | 14 | 41 | Income tax expense | |||||||||||||||||||||||||||
Reclassified out of AOCI, net of tax | 41 | 43 | 121 | 128 | Net income | 26 | 76 | 53 | 152 | Net income | |||||||||||||||||||||||||||
Total reclassified out of AOCI, net of tax | $ | 41 | $ | 2,924 | $ | 532 | $ | 3,065 | Net income | $ | 26 | $ | 76 | $ | 53 | $ | 152 | Net income |
| Amortization is included in net periodic pension cost. See Note 10, "Employee Benefit Plans." |
Note 1213. Fair Value
Financial Instruments Measured at Fair Value
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. The fair value hierarchy ranks the inputs used in measuring fair value as follows:
● | Level 1– Observable, unadjusted quoted prices in active markets |
● | Level 2– Inputs other than quoted prices included in Level 1 that are directly or indirectly observable for the asset or liability |
● | Level 3– Unobservable inputs with little or no market activity that require the Company to use reasonable inputs and assumptions |
The Company uses fair value measurements to record adjustments to certain financial assets and liabilities on a recurring basis. The Company may be required to record certain assets at fair value on a nonrecurring basis in specific circumstances, such as evidence of impairment. Methodologies used to determine fair value might be highly subjective and judgmental in nature; therefore, valuations may not be precise. If the Company determines that a valuation technique change is necessary, the change is assumed to have occurred at the end of the respective reporting period. The following discussion describes the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments under the valuation hierarchy.
Assets and Liabilities Reported at Fair Value on a Recurring Basis
Available-for-Sale Debt Securities. Securities
Fair value models may be required when trading activity has declined significantly or does not exist, prices are not current, or pricing variations are significant. For Level 3 securities, the Company obtains the cash flow of specific securities from third parties that use modeling software to determine cash flows based on market participant data and knowledge of the structures of each individual security. The fair values of Level 3 securities are determined by applying proper market observable discount rates to the cash flow derived from third-partythird-party models. Discount rates are developed by determining credit spreads above a benchmark rate, such as LIBOR, and adding premiums for illiquidity, which are based on a comparison of initial issuance spread to LIBOR versus a financial sector curve for recently issued debt to LIBOR. Securities with increased uncertainty about the receipt of cash flows are discounted at higher rates due to the addition of a deal specific credit premium based on assumptions about the performance of the underlying collateral. Finally, internal fair value model pricing and external pricing observations are combined by assigning weights to each pricing observation. Pricing is reviewed for reasonableness based on the direction of specific markets and the general economic indicators.
Equity Securities. Equity securities are recorded at fair value on a recurring basis and included in other assets in the consolidated balance sheets. The Company uses Level 1 inputs to value equity securities that are traded in active markets. Equity securities that are not actively traded are classified in Level 2.
Loans Held for Investment. Loans held for investment that are subject to a fair value hedge are reported at fair value using discounted future cash flows that apply current interest rates for loans with similar terms and borrower credit quality.derived from third-party models. Loans related todesignated in fair value hedges are recorded at fair value on a recurring basis.
Deferred Compensation Assets and Liabilities. Securities held for trading purposes are recorded at fair value on a recurring basis and included in other assets in the consolidated balance sheets. These securities include assets related to employee deferred compensation plans, which are generally invested in Level 1 equity securities. The liability associated with these deferred compensation plans is carried at the fair value of the obligation to the employee, which corresponds to the fair value of the invested assets.
Derivative Assets and Liabilities. Derivatives are recorded at fair value on a recurring basis. The Company obtains dealer quotes, Level 2 inputs, based on observable data to value derivatives.
The following tables summarize financial assets and liabilities recorded at fair value on a recurring basis, by the level of valuation inputs in the fair value hierarchy, as of the dates indicated:
September 30, 2017 | June 30, 2022 | |||||||||||||||||||||||||||||||
Total | Fair Value Measurements Using | Total | Fair Value Measurements Using | |||||||||||||||||||||||||||||
(Amounts in thousands) | Fair Value | Level 1 | Level 2 | Level 3 | Fair Value | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||||||
Available-for-sale securities | ||||||||||||||||||||||||||||||||
U.S. Treasury securities | $ | 36,964 | $ | - | $ | 36,964 | $ | - | ||||||||||||||||||||||||
Available-for-sale debt securities | ||||||||||||||||||||||||||||||||
U.S. Agency securities | 1,275 | - | 1,275 | - | $ | 423 | $ | 0 | $ | 423 | $ | 0 | ||||||||||||||||||||
U.S. Treasury Notes | 134,243 | 0 | 134,243 | 0 | ||||||||||||||||||||||||||||
Municipal securities | 104,907 | - | 104,907 | - | 24,454 | 0 | 24,454 | 0 | ||||||||||||||||||||||||
Single issue trust preferred securities | 8,962 | - | 8,962 | - | ||||||||||||||||||||||||||||
Mortgage-backed Agency securities | 22,243 | - | 22,243 | - | ||||||||||||||||||||||||||||
Corporate Notes | 39,105 | 0 | 39,105 | 0 | ||||||||||||||||||||||||||||
Agency mortgage-backed securities | 89,542 | 0 | 89,542 | 0 | ||||||||||||||||||||||||||||
Total available-for-sale debt securities | 287,767 | 0 | 287,767 | 0 | ||||||||||||||||||||||||||||
Equity securities | 73 | 55 | 18 | - | 55 | 0 | 55 | 0 | ||||||||||||||||||||||||
Total available-for-sale securities | 174,424 | 55 | 174,369 | - | ||||||||||||||||||||||||||||
Fair value loans | 5,758 | - | 5,758 | - | 12,480 | 0 | 0 | 12,480 | ||||||||||||||||||||||||
Deferred compensation assets | 3,330 | 3,330 | - | - | 4,803 | 4,803 | 0 | 0 | ||||||||||||||||||||||||
Deferred compensation liabilities | 3,330 | 3,330 | - | - | 4,803 | 4,803 | 0 | 0 | ||||||||||||||||||||||||
IRLCs | - | - | - | - | ||||||||||||||||||||||||||||
Derivative liabilities | 151 | - | 151 | - |
December 31, 2016 | December 31, 2021 | |||||||||||||||||||||||||||||||
Total | Fair Value Measurements Using | Total | Fair Value Measurements Using | |||||||||||||||||||||||||||||
(Amounts in thousands) | Fair Value | Level 1 | Level 2 | Level 3 | Fair Value | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||||||
Available-for-sale securities | ||||||||||||||||||||||||||||||||
Available-for-sale debt securities | ||||||||||||||||||||||||||||||||
U.S. Agency securities | $ | 1,345 | $ | - | $ | 1,345 | $ | - | $ | 466 | $ | 0 | $ | 466 | $ | 0 | ||||||||||||||||
Municipal securities | 113,331 | - | 113,331 | - | 28,794 | 0 | 28,794 | 0 | ||||||||||||||||||||||||
Single issue trust preferred securities | 19,939 | - | 19,939 | - | ||||||||||||||||||||||||||||
Mortgage-backed Agency securities | 30,891 | - | 30,891 | - | ||||||||||||||||||||||||||||
Corporate notes | 9,919 | 0 | 9,919 | 0 | ||||||||||||||||||||||||||||
Agency mortgage-backed securities | 37,113 | 0 | 37,113 | 0 | ||||||||||||||||||||||||||||
Total available-for-sale debt securities | 76,292 | 0 | 76,292 | 0 | ||||||||||||||||||||||||||||
Equity securities | 73 | 55 | 18 | - | 55 | 0 | 55 | 0 | ||||||||||||||||||||||||
Total available-for-sale securities | 165,579 | 55 | 165,524 | - | ||||||||||||||||||||||||||||
Fair value loans | 4,701 | - | 4,701 | - | 13,106 | 0 | 0 | 13,106 | ||||||||||||||||||||||||
Deferred compensation assets | 3,224 | 3,224 | - | - | 5,245 | 5,245 | 0 | 0 | ||||||||||||||||||||||||
Deferred compensation liabilities | 3,224 | 3,224 | - | - | 5,245 | 5,245 | 0 | 0 | ||||||||||||||||||||||||
Derivative liabilities | 167 | - | 167 | - | 837 | 0 | 837 | 0 |
No changes in valuation techniques or transfers into or out
Assets Measured at Fair Value on a Nonrecurring Basis
Impaired Loans. ImpairedPrior to the adoption of ASU 2016-13, impaired loans arewere recorded at fair value on a nonrecurring basis when repayment is expected solely from the sale of the loan’s collateral. Fair value is based on appraised value adjusted for customized discounting criteria, Level 3 inputs.
The Company maintains an active and robust problem credit identification system. The impairment review includes obtaining third-partythird-party collateral valuations to help management identify potential credit impairment and determine the amount of impairment to record. The Company’sCompany’s Special Assets staff manages and monitors all impaired loans. Internal collateral valuations are generally performed within two to four weeks of identifying the initial potential impairment. The internal valuation compares the original appraisal to current local real estate market conditions and considers experience and expected liquidation costs. The Company typically receives a third-partythird-party valuation within thirty to forty-five days of completing the internal valuation. When a third-partythird-party valuation is received, it is reviewed for reasonableness. Once the valuation is reviewed and accepted, discounts are applied to fair market value, based on, but not limited to, our historical liquidation experience for like collateral, resulting in an estimated net realizable value. The estimated net realizable value is compared to the outstanding loan balance to determine the appropriate amount of specific impairment reserve.
Specific reserves are generally recorded for impaired loans while third-party valuations are in process and for impaired loans that continue to make some form of payment. While waiting to receive the third-party appraisal, the Company regularly reviews the relationship to identify any potential adverse developments and begins the tasks necessary to gain control of the collateral and prepare it for liquidation, including, but not limited to, engagement of counsel, inspection of collateral, and continued communication with the borrower. Generally, the only difference between the current appraised value, less liquidation costs, and the carrying amount of the loan, less the specific reserve, is any downward adjustment to the appraised value that the Company deems appropriate, such as the costs to sell the property. Impaired loans that do not meet certain criteria and do not have a specific reserve have typically been written down through partial charge-offs to net realizable value. Based on prior experience, the Company rarely returns loans to performing status after they have been partially charged off. Credits identified as impaired move quickly through the process towards ultimate resolution, except in cases involving bankruptcy and various state judicial processes that may extend the time for ultimate resolution.
OREO. OREO is recorded at fair value on a nonrecurring basis using Level 3 inputs. The Company calculates the fair value of OREO from current or prior appraisals that have been adjusted for valuation declines, estimated selling costs, and other proprietary qualitative adjustments that are deemed necessary.
The following tables present assets measured at fair value on a nonrecurring basis, by the level of valuation inputs in the fair value hierarchy, as of the dates indicated:
September 30, 2017 | ||||||||||||||||
Total | Fair Value Measurements Using | |||||||||||||||
Fair Value | Level 1 | Level 2 | Level 3 | |||||||||||||
(Amounts in thousands) | ||||||||||||||||
Impaired loans, non-covered | $ | 6,757 | $ | - | $ | - | $ | 6,757 | ||||||||
OREO, non-covered | 2,293 | - | - | 2,293 | ||||||||||||
OREO, covered | 54 | - | - | 54 |
June 30, 2022 | ||||||||||||||||
Total | Fair Value Measurements Using | |||||||||||||||
Fair Value | Level 1 | Level 2 | Level 3 | |||||||||||||
(Amounts in thousands) | ||||||||||||||||
Collateral dependent assets with specific reserves | $ | 766 | $ | 0 | $ | 0 | $ | 766 | ||||||||
OREO | $ | 579 | $ | 0 | $ | 0 | $ | 579 |
December 31, 2016 | ||||||||||||||||
Total | Fair Value Measurements Using | |||||||||||||||
Fair Value | Level 1 | Level 2 | Level 3 | |||||||||||||
(Amounts in thousands) | ||||||||||||||||
Impaired loans, non-covered | $ | 4,078 | $ | - | $ | - | $ | 4,078 | ||||||||
OREO, non-covered | 5,109 | - | - | 5,109 | ||||||||||||
OREO, covered | 265 | - | - | 265 |
December 31, 2021 | ||||||||||||||||
Total | Fair Value Measurements Using | |||||||||||||||
Fair Value | Level 1 | Level 2 | Level 3 | |||||||||||||
(Amounts in thousands) | ||||||||||||||||
Collateral dependent assets with specific reserves | $ | 2,312 | $ | 0 | $ | 0 | $ | 2,312 | ||||||||
OREO | 1,015 | 0 | 0 | 1,015 |
Quantitative Information about Level 3 Fair Value Measurements
The following tabletables provides quantitative information for assets measured at fair value on a nonrecurring basis using Level 3 valuation inputs as of the dates indicated:
Valuation | Unobservable | Discount Range (Weighted Average) | |||||||||||||||||
Technique | Input | September 30, 2017 | December 31, 2016 | ||||||||||||||||
Impaired loans, non-covered | Discounted appraisals(1) | Appraisal adjustments(2) | 2% | to | 63% | (18%) | 3% | to | 39% | (17%) | |||||||||
OREO, non-covered | Discounted appraisals(1) | Appraisal adjustments(2) | 10% | to | 62% | (28%) | 0% | to | 88% | (30%) | |||||||||
OREO, covered | Discounted appraisals(1) | Appraisal adjustments(2) | 0% | to | 65% | (56%) | 0% | to | 44% | (40%) |
Discount Range | |||||||
Valuation | Unobservable | (Weighted Average) | |||||
Technique | Input | June 30, 2022 | |||||
| Discounted appraisals(1) | Appraisal adjustments(2) | 0% to 0% (0%) | ||||
OREO | Discounted appraisals(1) | Appraisal adjustments(2) | 10% to 95% (71%) |
(1) | Fair value is generally based on appraisals of the underlying collateral. | |
| Appraisals may be adjusted by management for customized discounting criteria, estimated sales costs, and proprietary qualitative adjustments. |
Discount Range | ||||||
Valuation | Unobservable | (Weighted Average) | ||||
Technique | Input | December 31, 2021 | ||||
Collateral dependent assets with specific reserves | Discounted appraisals(1) | Appraisal adjustments(2) | 0% to 11% (6%) | |||
OREO | Discounted appraisals(1) | Appraisal adjustments(2) | 0% to 87% (32%) |
(1) | Fair value is generally based on appraisals of the underlying collateral. |
(2) | Appraisals may be adjusted by management for customized discounting criteria, estimated sales costs, and proprietary qualitative adjustments. |
Fair Value of Financial Instruments
The Company uses various methodologies and assumptions to estimate the fair value of certain financial instruments. A description of valuation methodologies used for instruments not previously discussed is as follows:
Cash and Cash Equivalents. Cash and cash equivalents are reportedfair value is estimated at their carrying amount, which is considered a reasonable estimate due to the short-term nature of these instruments.
Held-to-Maturity Securities. Securities held to maturity are reported at fair value using quoted market prices or dealer quotes.
FDIC Indemnification Asset. The FDIC indemnification asset is reported at fair value using discounted future cash flows that apply current discount rates.
Accrued Interest Receivable/Payable. Accrued interest receivable/payable fair value is reportedestimated at theirits carrying amount, which is considered a reasonable estimate due to the short-term nature of these instruments.
Deposits and Securities Sold Under Agreements to Repurchase. Deposits without a stated maturity, such as demand, interest-bearing demand, and savings, are reported at their carrying amount, the amount payable on demand as of the reporting date, which is considered a reasonable estimate of fair value. Deposits and repurchase agreements with fixed maturities and rates are reportedestimated at fair value using discounted future cash flows that apply interest rates available in the market for instruments with similar characteristics and maturities.
FHLB and Other Borrowings. FHLB and other borrowings are reportedestimated at fair value using discounted future cash flows that apply interest rates available to the Company for borrowings with similar characteristics and maturities. Trust preferred obligations are reported at fair value using current credit spreads in the market for similar issues.
Off-Balance Sheet Instruments. The Company believes that fair values of unfunded commitments to extend credit, standby letters of credit, and financial guarantees are not meaningful; therefore, off-balance sheet instruments are not addressed in the fair value disclosures. The Company believes it is not feasible or practical to accurately disclose the fair values of off-balance sheet instruments due to the uncertainty and difficulty in assessing the likelihood and timing of advancing available proceeds, the lack of an established market for these instruments, and the diversity in fee structures. For additional information about the unfunded, contractual value of off-balance sheet financial instruments, see Note 14, “Litigation, Commitments, and Contingencies,” to the Condensed Consolidated Financial Statements of this report.
The following tables present the carrying amounts and fair values of financial instruments, by the level of valuation inputs in the fair value hierarchy, as of the dates indicated:
September 30, 2017 | June 30, 2022 | |||||||||||||||||||||||||||||||||||||||
Carrying | Fair Value Measurements Using | Carrying | Fair Value Measurements Using | |||||||||||||||||||||||||||||||||||||
(Amounts in thousands) | Amount | Fair Value | Level 1 | Level 2 | Level 3 | Amount | Fair Value | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||||||||||
Cash and cash equivalents | $ | 105,119 | $ | 105,119 | $ | 105,119 | $ | - | $ | - | $ | 398,242 | $ | 398,242 | $ | 398,242 | $ | 0 | $ | 0 | ||||||||||||||||||||
Securities available for sale | 174,424 | 174,424 | 55 | 174,369 | - | |||||||||||||||||||||||||||||||||||
Securities held to maturity | 25,182 | 25,226 | - | 25,226 | - | |||||||||||||||||||||||||||||||||||
Debt securities available for sale | 287,767 | 287,767 | 0 | 287,767 | 0 | |||||||||||||||||||||||||||||||||||
Equity securities | 55 | 55 | 0 | 55 | 0 | |||||||||||||||||||||||||||||||||||
Loans held for investment, net of allowance | 1,818,515 | 1,792,719 | - | 5,758 | 1,786,961 | 2,299,798 | 2,163,191 | 0 | 0 | 2,163,191 | ||||||||||||||||||||||||||||||
FDIC indemnification asset | 7,465 | 4,548 | - | - | 4,548 | |||||||||||||||||||||||||||||||||||
Derivative financial assets | 126 | 126 | 0 | 126 | 0 | |||||||||||||||||||||||||||||||||||
Interest receivable | 5,156 | 5,156 | - | 5,156 | - | 8,433 | 8,433 | 0 | 8,433 | 0 | ||||||||||||||||||||||||||||||
Deferred compensation assets | 3,330 | 3,330 | 3,330 | - | - | 4,803 | 4,803 | 4,803 | 0 | 0 | ||||||||||||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||||||||||||||||||
Demand deposits | 452,940 | 452,940 | - | 452,940 | - | |||||||||||||||||||||||||||||||||||
Interest-bearing demand deposits | 393,244 | 393,244 | - | 393,244 | - | |||||||||||||||||||||||||||||||||||
Savings deposits | 510,200 | 510,200 | - | 510,200 | - | |||||||||||||||||||||||||||||||||||
Time deposits | 507,436 | 503,332 | - | 503,332 | - | 325,273 | 325,872 | 0 | 325,872 | 0 | ||||||||||||||||||||||||||||||
Securities sold under agreements to repurchase | 83,783 | 84,315 | - | 84,315 | - | 2,635 | 2,635 | 0 | 2,635 | 0 | ||||||||||||||||||||||||||||||
Interest payable | 1,085 | 1,085 | - | 1,085 | - | 197 | 197 | 0 | 197 | 0 | ||||||||||||||||||||||||||||||
FHLB and other borrowings | 50,000 | 53,402 | - | 53,402 | - | |||||||||||||||||||||||||||||||||||
Derivative financial liabilities | 151 | 151 | - | 151 | - | |||||||||||||||||||||||||||||||||||
Deferred compensation liabilities | 3,330 | 3,330 | 3,330 | - | - | 4,803 | 4,803 | 4,803 | 0 | 0 |
December 31, 2021 | ||||||||||||||||||||
Carrying | Fair Value Measurements Using | |||||||||||||||||||
(Amounts in thousands) | Amount | Fair Value | Level 1 | Level 2 | Level 3 | |||||||||||||||
Assets | ||||||||||||||||||||
Cash and cash equivalents | $ | 677,439 | $ | 677,439 | $ | 677,439 | $ | 0 | $ | 0 | ||||||||||
Debt securities available for sale | 76,292 | 76,292 | 0 | 76,292 | 0 | |||||||||||||||
Equity securities | 55 | 55 | 0 | 55 | 0 | |||||||||||||||
Loans held for investment, net of allowance | 2,137,711 | 2,108,513 | 0 | 0 | 2,108,513 | |||||||||||||||
Interest receivable | 7,900 | 7,900 | 0 | 7,900 | 0 | |||||||||||||||
Deferred compensation assets | 5,245 | 5,245 | 5,245 | 0 | 0 | |||||||||||||||
Liabilities | ||||||||||||||||||||
Time deposits | 354,863 | 352,000 | 0 | 352,000 | 0 | |||||||||||||||
Securities sold under agreements to repurchase | 1,536 | 1,536 | 0 | 1,536 | 0 | |||||||||||||||
Interest payable | 314 | 314 | 0 | 314 | 0 | |||||||||||||||
Deferred compensation liabilities | 5,245 | 5,245 | 5,245 | 0 | 0 | |||||||||||||||
Derivative liabilities | 837 | 837 | 0 | 837 | 0 |
December 31, 2016 | ||||||||||||||||||||
Carrying | Fair Value Measurements Using | |||||||||||||||||||
(Amounts in thousands) | Amount | Fair Value | Level 1 | Level 2 | Level 3 | |||||||||||||||
Assets | ||||||||||||||||||||
Cash and cash equivalents | $ | 76,307 | $ | 76,307 | $ | 76,307 | $ | - | $ | - | ||||||||||
Securities available for sale | 165,579 | 165,579 | 55 | 165,524 | - | |||||||||||||||
Securities held to maturity | 47,133 | 47,266 | - | 47,266 | - | |||||||||||||||
Loans held for investment, net of allowance | 1,835,000 | 1,805,999 | - | 4,701 | 1,801,298 | |||||||||||||||
FDIC indemnification asset | 12,173 | 8,112 | - | - | 8,112 | |||||||||||||||
Interest receivable | 5,553 | 5,553 | - | 5,553 | - | |||||||||||||||
Deferred compensation assets | 3,224 | 3,224 | 3,224 | - | - | |||||||||||||||
Liabilities | ||||||||||||||||||||
Demand deposits | 427,705 | 427,705 | - | 427,705 | - | |||||||||||||||
Interest-bearing demand deposits | 378,339 | 378,339 | - | 378,339 | - | |||||||||||||||
Savings deposits | 523,260 | 523,260 | - | 523,260 | - | |||||||||||||||
Time deposits | 512,034 | 507,917 | - | 507,917 | - | |||||||||||||||
Securities sold under agreements to repurchase | 98,005 | 98,879 | - | 98,879 | - | |||||||||||||||
Interest payable | 1,280 | 1,280 | - | 1,280 | - | |||||||||||||||
FHLB and other borrowings | 80,708 | 83,551 | - | 83,551 | - | |||||||||||||||
Derivative financial liabilities | 167 | 167 | - | 167 | - | |||||||||||||||
Deferred compensation liabilities | 3,224 | 3,224 | 3,224 | - | - |
The following table presents the calculation of basic and diluted earnings per common share for the periods indicated:
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
(Amounts in thousands, except share and per share data) | ||||||||||||||||
Net income | $ | 7,652 | $ | 6,383 | $ | 20,272 | $ | 18,722 | ||||||||
Dividends on preferred stock | - | - | - | - | ||||||||||||
Net income available to common shareholders | $ | 7,652 | $ | 6,383 | $ | 20,272 | $ | 18,722 | ||||||||
Weighted average common shares outstanding, basic | 17,005,654 | 17,031,074 | 17,005,350 | 17,433,406 | ||||||||||||
Dilutive effect of potential common shares | ||||||||||||||||
Stock options | 49,739 | 38,746 | 50,140 | 31,856 | ||||||||||||
Restricted stock | 27,336 | 13,706 | 21,468 | 9,949 | ||||||||||||
Total dilutive effect of potential common shares | 77,075 | 52,452 | 71,608 | 41,805 | ||||||||||||
Weighted average common shares outstanding, diluted | 17,082,729 | 17,083,526 | 17,076,958 | 17,475,211 | ||||||||||||
Basic earnings per common share | $ | 0.45 | $ | 0.37 | $ | 1.19 | $ | 1.07 | ||||||||
Diluted earnings per common share | 0.45 | 0.37 | 1.19 | 1.07 | ||||||||||||
Antidilutive potential common shares | ||||||||||||||||
Stock options | 71,592 | 127,789 | 75,868 | 127,789 | ||||||||||||
Total potential antidilutive shares | 71,592 | 127,789 | 75,868 | 127,789 |
Note 1414. Litigation, Commitments, and Contingencies
Litigation
In the normal course of business, the Company is a defendant in various legal actions and asserted claims. While the Company and its legal counsel are unable to assess the ultimate outcome of each of these matters with certainty, the Company believes the resolution of these actions, singly or in the aggregate, should not have a material adverse effect on its financial condition, results of operations, or cash flows.
Commitments and Contingencies
The Company is a party to financial instruments with off-balance balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, standby letters of credit, and financial guarantees. These instruments involve, to varying degrees, elements of credit and interest rate risk beyond the amount recognized in the consolidated balance sheets. The contractual amounts of these instruments reflect the extent of involvement the Company has in particular classes of financial instruments. If the other party to a financial instrument does not perform, the Company’s credit loss exposure is the same as the contractual amount of the instrument. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balanceon balance sheet instruments.
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many commitments are expected to expire without being drawn on, the total commitment amounts do not necessarily represent future cash requirements. The amount of collateral obtained, if deemed necessary, is based on management’s credit evaluation of each customer on a case-by-case basis. Collateral may include accounts receivable, inventory, property, plant and equipment, and income producing commercial properties. The Company maintains a reserve for the risk inherent in unfunded lending commitments, which is included in other liabilities in the consolidated balance sheets.
Standby letters of credit and financial guarantees are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending credit to customers. The amount of collateral obtained, if deemed necessary, to secure the customer’scustomer’s performance under certain letters of credit is based on management’s credit evaluation of the customer.
The following table presents the off-balance sheet financial instruments as of the dates indicated:
September 30, 2017 | December 31, 2016 | June 30, 2022 | December 31, 2021 | ||||||||||||||
(Amounts in thousands) | (Amounts in thousands) | ||||||||||||||||
Commitments to extend credit | Commitments to extend credit | $ | 245,978 | $ | 261,801 | $ | 299,637 | $ | 272,447 | ||||||||
Standby letters of credit and financial guarantees(1) | Standby letters of credit and financial guarantees(1) | 118,318 | 83,900 | 126,275 | 153,717 | ||||||||||||
Total off-balance sheet risk | Total off-balance sheet risk | 364,296 | 345,701 | $ | 425,912 | $ | 426,164 | ||||||||||
Reserve for unfunded commitments | $ | 66 | $ | 326 | |||||||||||||
Allowance for unfunded commitments | $ | 956 | $ | 678 |
(1) | |||||
|
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Unless the context suggests otherwise, the terms “First Community,” “Company,” “we,” “our,” and “us” refer to First Community Bancshares, Inc. and its subsidiaries as a consolidated entity. Management’sManagement’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help the reader understand our financial condition, changes in financial condition, and results of operations. MD&A contains forward-looking statements and should be read in conjunction with our consolidated financial statements, accompanying notes, and other financial information included in this report and our Annual Report on Form 10-K for the year ended December 31, 20162021 (the “2016“2021 Form 10-K”). Unless the context suggests otherwise, the terms “First Community,” “Company,” “we,” “our,” and “us” refer to First Community Bankshares, Inc. and its subsidiaries as a consolidated entity.
Executive Overview
First Community Bancshares,Bankshares, Inc. (the “Company”) is a financial holding company, headquartered in Bluefield, Virginia, that provides banking products and services through its wholly owned subsidiary First Community Bank (the “Bank”), a Virginia chartered bank institution. As of SeptemberJune 30, 2017,2022, the Bank operated 4449 branches as First Community Bank in Virginia, West Virginia, and North Carolina and as People’s Community Bank, a DivisionTennessee. As of First Community Bank, in Tennessee.June 30, 2022, full-time equivalent employees, calculated using the number of hours worked, totaled 622. Our primary source of earnings is net interest income, the difference between interest earned on assets and interest paid on liabilities, which is supplemented by fees for services, commissions on sales, and various deposit service charges. We fund our lending and investing activities primarily through the retail deposit operations of our branch banking network and, to a lesser extent, retail and wholesale repurchase agreements and Federal Home Loan Bank (“FHLB”) borrowings.network. We invest our funds primarily in loans to retail and commercial customers and various investment securities. Our common stock is traded on the NASDAQ Global Select Market under the symbol, FCBC.
The Bank offers trust management, estate administration, and investment advisory services through its Trust Division and wholly owned subsidiary First Community Wealth Management Inc. (“FCWM”). The Trust Division manages inter vivos trusts and trusts under will, develops and administers employee benefit and individual retirement plans, and manages and settles estates. Fiduciary fees for these services are charged on a schedule related to the size, nature, and complexity of the account. Revenues consist primarily of investment advisory fees and commissions on assets under management and The Bank offers commercial and personal insurance services through its wholly owned subsidiary First Community Insurance Services (“FCIS”). Revenues are primarily derived from commissions paid by issuing companies on the saleinvestment advisory fees.administration. As of SeptemberJune 30, 2017,2022, the Trust Division and FCWM managed $936 millionand administered $1.20 billion in combined assets under various fee-based arrangements as fiduciary or agent.
Our acquisitionOn March 29, 2022, the Bank entered into a Purchase and divestiture activity duringAssumption Agreement with Benchmark Community Bank, the nine months ended September 30, 2017,banking subsidiary of Benchmark Bankshares, Inc., to sell its Emporia, Virginia branch. The sale, which is expected to close in the third quarter of 2022, includes the branch real estate, certain personal property, and year ended December 31, 2016, includedall deposits associated with the sale of Greenpoint Insurance Agency Inc. on October 1, 2016, and the simultaneous sale of six branches to and purchase of seven branches from First Bank on July 15, 2016.branch.
Critical Accounting Estimates
We prepare our consolidated financial statements in accordance with generally accepted accounting principles (“GAAP”) in the U.S. and conform to general practices within the banking industry. Our financial position and results of operations may require management to make significant estimates and assumptions that have a material impact on our financial condition or operating performance. Due to the level of subjectivity and the susceptibility of such matters to change, actual results could differ significantly from management’s assumptions and estimates. Estimates, assumptions, and judgments, which are periodically evaluated, are based on historical experience and other factors, including expectations of future events believed reasonable under the circumstances. These estimates are generally necessary when assets and liabilities are required to be recorded at estimated fair value, when a decline in the value of an asset carried on the financial statements at fair value warrants an impairment write-down or a valuation reserve, or when an asset or liability needs recorded based on the probability of occurrence of a future event. Carrying assets and liabilities at fair value inherently results in more financial statement volatility. Fair values and information used to record valuation adjustments for certain assets and liabilities are based on quoted market prices, when available, or third-party sources. When quoted prices or third-party information is not available, management estimates valuation adjustments primarily through the use of financial modeling techniques and appraisal estimates.
Allowance for Credit Losses or "ACL"
The ACL reflects management’s estimate of losses that will result from the inability of our borrowers to make required loan payments. Management uses a systematic methodology to determine its ACL for loans held for investment and certain off-balance-sheet credit exposures. Management considers the effects of past events, current conditions, and reasonable and supportable forecasts on the collectability of the loan portfolio. The Company’s estimate of its ACL involves a high degree of judgment; therefore, management’s process for determining expected credit losses may result in a range of expected credit losses. It is possible that others, given the same information, may at any point in time reach a different reasonable conclusion. The Company’s ACL recorded in the balance sheet reflects management’s best estimate of expected credit losses. The Company recognizes in net income the amount needed to adjust the ACL for management’s current estimate of expected credit losses. See Note 1 – "Basis of Presentation - Significant Accounting Policies" in this Quarterly Report on Form 10-Q for further detailed descriptions of our estimation process and methodology related to the ACL. See also Note 5 — "Allowance for Credit Losses" in this Quarterly Report on Form 10-Q, “Provision for Loan Losses and Nonperforming Assets” in this MD&A. Periods prior to the January 1, 2021, adoption of ASU 2016-13 follow prior accounting guidance for estimated loan losses and may not be comparable.
Our accounting policies are fundamental in understanding MD&A and the disclosures presented in Item 1, “Financial Statements,” of this report.Quarterly Report on Form 10-Q. Our accounting policies are described in detail in Note 1, “Basis of Presentation,” of the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2022, and in Note 1,“Basis of Presentation and Significant Accounting Policies,” of the Notes to the Consolidated Financial Statements in Part II, Item 8 of our 20162021 Form 10-K and our10-K. Our critical accounting estimates are detailed in the “Critical Accounting Estimates” section in Part II, Item 7 of our 20162021 Form 10-K.
Performance Overview
Highlights of our results of operations for the three and ninesix months ended SeptemberJune 30, 2017,2022, and financial condition as of SeptemberJune 30, 2017,2022, include the following:
● | Net income |
● | Interest income from securities of $1.55 million was an increase of $1.12 million over the second quarter of 2021, as the Company added to its portfolio with a significant weighting toward 2-year treasury securities. Interest on fed funds also increased $602 thousand to $768 thousand for the second quarter as a result of the Federal Open Market Committee’s 150 basis point increase in overnight rates. |
● | Despite the significant increase in credit loss provision over 2021, annualized return on average assets was 1.38% for the second quarter and 1.29% for the first six months of 2022. Annualized return on average common equity was 10.61% for the second quarter and 9.80% for the first six months of 2022. | |
● | The total cost of funds remained very low at 0.06%, a decrease of 0.05% from the second quarter of 2021. |
● | Net interest margin for the second quarter was 3.78%, which was a 10 basis point increase from 3.68% reported for the second quarter of 2021. The yield on earning assets increased |
● | Salaries and employee benefits for the second quarter increased $1.30 million, or 12.74%, over the same quarter in 2021. Salaries and employee benefits for the first six months increased $2.09 million or 9.90%, over the first six months of 2021. During the first quarter of 2022, the Company implemented annualized wage increases of approximately $2.50 million as part of its ongoing strategic initiative to enhance Human Capital Management, which included an increased minimum wage. |
● | The Company's loan portfolio increased by $134.23 million, or an annualized growth rate of 12.50%, during the first six months of 2022. Loan demand and originations were strong in all categories, including construction, commercial real estate, residential mortgage, and consumer loans. | |
● | Non-performing loans to total loans remained very low at 0.80% of total loans and continues the declining trend experienced over the past four quarters. The Company | |
● | During the second quarter, the Company repurchased 283,507 of its common shares for $7.95 million. The Company repurchased 415,507 common shares for $12.03 million during the six months of 2022. | |
● | The allowance for credit losses to total loans remained at 1.29% of total loans. | |
● | Book value per |
|
|
Results of Operations
Net Income
The following table presents the changes in net income and related information for the periods indicated:
Three Months Ended | Three Months Ended | Nine Months Ended | Nine Months Ended | Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(Amounts in thousands, except per | June 30, | Increase | June 30, | Increase | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
share data) | 2022 | 2021 | (Decrease) | % Change | 2022 | 2021 | (Decrease) | % Change | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
September 30, | Increase |
| September 30, | Increase |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(Amounts in thousands, except | 2017 | 2016 | (Decrease) | % Change | 2017 | 2016 | (Decrease) | % Change | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
per share data) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income | $ | 7,652 | $ | 6,383 | $ | 1,269 | 19.88 | % | $ | 20,272 | $ | 18,722 | $ | 1,550 | 8.28 | % | $ | 11,213 | $ | 13,403 | $ | (2,190 | ) | -16.34 | % | $ | 20,728 | $ | 28,005 | $ | (7,277 | ) | -25.98 | % | ||||||||||||||||||||||||||||||
Net income available to common shareholders | 7,652 | 6,383 | 1,269 | 19.88 | % | 20,272 | 18,722 | 1,550 | 8.28 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Basic earnings per common share | 0.45 | 0.37 | 0.08 | 21.62 | % | 1.19 | 1.07 | 0.12 | 11.21 | % | 0.67 | 0.77 | (0.10 | ) | -12.99 | % | 1.24 | 1.59 | (0.35 | ) | -22.01 | % | ||||||||||||||||||||||||||||||||||||||||||
Diluted earnings per common share | 0.45 | 0.37 | 0.08 | 21.62 | % | 1.19 | 1.07 | 0.12 | 11.21 | % | 0.67 | 0.76 | (0.09 | ) | -11.84 | % | 1.24 | 1.59 | (0.35 | ) | -22.01 | % | ||||||||||||||||||||||||||||||||||||||||||
Return on average assets | 1.29 | % | 1.03 | % | 0.26 | % | 25.24 | % | 1.14 | % | 1.01 | % | 0.13 | % | 12.87 | % | 1.38 | % | 1.70 | % | -0.32 | % | -18.82 | % | 1.29 | % | 1.82 | % | -0.53 | % | -29.12 | % | ||||||||||||||||||||||||||||||||
Return on average common equity | 8.61 | % | 7.58 | % | 1.03 | % | 13.59 | % | 7.80 | % | 7.40 | % | 0.40 | % | 5.41 | % | 10.61 | % | 12.55 | % | -1.94 | % | -15.46 | % | 9.80 | % | 13.24 | % | -3.44 | % | -25.98 | % |
Three-Month Comparison. Net income increaseddecreased $2.19 million in the thirdsecond quarter of 20172022 largely due to a decrease in noninterest expense and increases in noninterest and net interest income. These changes were offset by increases$2.74 million increase in the provision for credit losses. Provision for credit losses totaled $510 thousand for the second quarter of 2022 compared to a reversal of provision of $2.23 million in the second quarter of 2021. The current year provision is largely due to the loan losses and income tax.growth, in particular commercial loan demand. The reversal of provision in the second quarter of 2021 was driven by significantly improved economic forecasts.
Nine-MonthSix- Comparison.Month Comparison. Net income increaseddecreased $7.28 million in the first ninesix months of 20172022 largely due to a decrease in noninterest expense and an$8.70 million increase in net interest income. These changes were offset by a decrease in noninterest income and increases in the provision for credit losses. Provision for credit losses totaled $2.47 million for the first six months of 2022 compared to a reversal of provision of $6.23 million in the same period of 2021. As noted for the quarter, the current year provision is largely due to loan losses and income tax.growth in the first six months, in particular commercial loan demand. The reversal of provision in 2021 was driven by significantly improved economic forecasts.
Net Interest Income
Net interest income, our largest contributor to earnings, is analyzed on a fully taxable equivalent (“FTE”) basis, a non-GAAP financial measure. For additional information, see “Non-GAAP Financial Measures” below.
The following tablestables present the consolidated average balance sheets and net interest analysis on a FTE basis for the dates indicated:
Three Months Ended September 30, | |||||||||||||||||||||||||
2017 | 2016 | ||||||||||||||||||||||||
Average | Average Yield/ | Average | Average Yield/ | ||||||||||||||||||||||
(Amounts in thousands) | Balance | Interest(1) | Rate(1) | Balance | Interest(1) | Rate(1) | |||||||||||||||||||
Assets | |||||||||||||||||||||||||
Earning assets | |||||||||||||||||||||||||
Loans(2) | $ | 1,843,612 | $ | 22,765 | 4.90 | % | $ | 1,820,899 | $ | 21,974 | 4.80 | % | |||||||||||||
Securities available for sale | 157,038 | 1,373 | 3.47 | % | 266,162 | 1,941 | 2.90 | % | |||||||||||||||||
Securities held to maturity | 25,199 | 106 | 1.67 | % | 72,210 | 189 | 1.04 | % | |||||||||||||||||
Interest-bearing deposits | 73,802 | 275 | 1.48 | % | 19,025 | 26 | 0.54 | % | |||||||||||||||||
Total earning assets | 2,099,651 | 24,519 | 4.63 | % | 2,178,296 | 24,130 | 4.41 | % | |||||||||||||||||
Other assets | 258,763 | 282,310 | |||||||||||||||||||||||
Total assets | $ | 2,358,414 | $ | 2,460,606 | |||||||||||||||||||||
Liabilities and stockholders' equity | |||||||||||||||||||||||||
Interest-bearing deposits | |||||||||||||||||||||||||
Demand deposits | $ | 384,594 | $ | 89 | 0.09 | % | $ | 337,893 | $ | 60 | 0.07 | % | |||||||||||||
Savings deposits | 518,355 | 43 | 0.03 | % | 523,503 | 62 | 0.05 | % | |||||||||||||||||
Time deposits | 509,251 | 1,143 | 0.89 | % | 529,344 | 1,011 | 0.76 | % | |||||||||||||||||
Total interest-bearing deposits | 1,412,200 | 1,275 | 0.36 | % | 1,390,740 | 1,133 | 0.32 | % | |||||||||||||||||
Borrowings | |||||||||||||||||||||||||
Federal funds purchased | - | - | - | 3,696 | 6 | 0.65 | % | ||||||||||||||||||
Retail repurchase agreements | 58,194 | 10 | 0.07 | % | 64,385 | 12 | 0.07 | % | |||||||||||||||||
Wholesale repurchase agreements | 25,000 | 203 | 3.22 | % | 50,000 | 473 | 3.76 | % | |||||||||||||||||
FHLB advances and other borrowings | 50,000 | 511 | 4.05 | % | 133,838 | 876 | 2.60 | % | |||||||||||||||||
Total borrowings | 133,194 | 724 | 2.16 | % | 251,919 | 1,367 | 2.16 | % | |||||||||||||||||
Total interest-bearing liabilities | 1,545,394 | 1,999 | 0.51 | % | 1,642,659 | 2,500 | 0.61 | % | |||||||||||||||||
Noninterest-bearing demand deposits | 440,227 | 462,588 | |||||||||||||||||||||||
Other liabilities | 20,101 | 20,462 | |||||||||||||||||||||||
Total liabilities | 2,005,722 | 2,125,709 | |||||||||||||||||||||||
Stockholders' equity | 352,692 | 334,897 | |||||||||||||||||||||||
Total liabilities and stockholders' equity | $ | 2,358,414 | $ | 2,460,606 | |||||||||||||||||||||
Net interest income, FTE | $ | 22,520 | $ | 21,630 | |||||||||||||||||||||
Net interest rate spread | 4.12 | % | 3.80 | % | |||||||||||||||||||||
Net interest margin | 4.25 | % | 3.95 | % |
AVERAGE BALANCE SHEETS AND NET INTEREST INCOME ANALYSIS (Unaudited) |
Three Months Ended June 30, | ||||||||||||||||||||||||
2022 | 2021 | |||||||||||||||||||||||
Average | Average Yield/ | Average | Average Yield/ | |||||||||||||||||||||
(Amounts in thousands) | Balance | Interest(1) | Rate(1) | Balance | Interest(1) | Rate(1) | ||||||||||||||||||
Assets | ||||||||||||||||||||||||
Earning assets | ||||||||||||||||||||||||
Loans(2)(3) | $ | 2,273,844 | $ | 25,714 | 4.54 | % | $ | 2,134,136 | $ | 25,979 | 4.88 | % | ||||||||||||
Securities available for sale | 280,823 | 1,597 | 2.28 | % | 84,099 | 508 | 2.42 | % | ||||||||||||||||
Interest-bearing deposits | 377,931 | 769 | 0.82 | % | 610,148 | 166 | 0.11 | % | ||||||||||||||||
Total earning assets | 2,932,598 | 28,080 | 3.84 | % | 2,828,383 | 26,653 | 3.78 | % | ||||||||||||||||
Other assets | 331,774 | 331,563 | ||||||||||||||||||||||
Total assets | $ | 3,264,372 | $ | 3,159,946 | ||||||||||||||||||||
Liabilities and stockholders' equity | ||||||||||||||||||||||||
Interest-bearing deposits | ||||||||||||||||||||||||
Demand deposits | $ | 698,978 | $ | 29 | 0.02 | % | $ | 654,767 | $ | 33 | 0.02 | % | ||||||||||||
Savings deposits | 895,370 | 67 | 0.03 | % | 818,490 | 63 | 0.03 | % | ||||||||||||||||
Time deposits | 331,555 | 326 | 0.39 | % | 394,889 | 628 | 0.64 | % | ||||||||||||||||
Total interest-bearing deposits | 1,925,903 | 422 | 0.09 | % | 1,868,146 | 724 | 0.19 | % | ||||||||||||||||
Borrowings | ||||||||||||||||||||||||
Retail repurchase agreements | 2,105 | 1 | 0.08 | % | 1,266 | - | N/M | |||||||||||||||||
Total borrowings | 2,105 | 1 | 0.08 | % | 1,266 | - | N/M | |||||||||||||||||
Total interest-bearing liabilities | 1,928,008 | 423 | 0.09 | % | 1,869,412 | 724 | 0.16 | % | ||||||||||||||||
Noninterest-bearing demand deposits | 874,507 | 824,888 | ||||||||||||||||||||||
Other liabilities | 38,106 | 37,306 | ||||||||||||||||||||||
Total liabilities | 2,840,621 | 2,731,606 | ||||||||||||||||||||||
Stockholders' equity | 423,751 | 428,340 | ||||||||||||||||||||||
Total liabilities and stockholders' equity | $ | 3,264,372 | $ | 3,159,946 | ||||||||||||||||||||
Net interest income, FTE(1) | $ | 27,657 | $ | 25,929 | ||||||||||||||||||||
Net interest rate spread | 3.75 | % | 3.62 | % | ||||||||||||||||||||
Net interest margin, FTE(1) | 3.78 | % | 3.68 | % |
(1) |
|
(2) | Nonaccrual loans are included in the average |
(3) | Interest on loans includes non-cash and accelerated purchase accounting accretion of $870 thousand and $1.25 million for the three months ended June 30, 2022 and 2021, respectively. |
Nine Months Ended September 30, | |||||||||||||||||||||||||
2017 | 2016 | ||||||||||||||||||||||||
Average | Average Yield/ | Average | Average Yield/ | ||||||||||||||||||||||
(Amounts in thousands) | Balance | Interest(1) | Rate(1) | Balance | Interest(1) | Rate(1) | |||||||||||||||||||
Assets | |||||||||||||||||||||||||
Earning assets | |||||||||||||||||||||||||
Loans(2) | $ | 1,841,981 | $ | 67,645 | 4.91 | % | $ | 1,775,744 | $ | 65,836 | 4.95 | % | |||||||||||||
Securities available for sale | 162,198 | 4,312 | 3.55 | % | 318,891 | 6,403 | 2.68 | % | |||||||||||||||||
Securities held to maturity | 35,578 | 382 | 1.44 | % | 72,350 | 575 | 1.06 | % | |||||||||||||||||
Interest-bearing deposits | 66,069 | 655 | 1.33 | % | 13,288 | 55 | 0.55 | % | |||||||||||||||||
Total earning assets | 2,105,826 | 72,994 | 4.63 | % | 2,180,273 | 72,869 | 4.47 | % | |||||||||||||||||
Other assets | 264,333 | 287,784 | |||||||||||||||||||||||
Total assets | $ | 2,370,159 | $ | 2,468,057 | |||||||||||||||||||||
Liabilities and stockholders' equity | |||||||||||||||||||||||||
Interest-bearing deposits | |||||||||||||||||||||||||
Demand deposits | $ | 384,265 | $ | 301 | 0.10 | % | $ | 339,920 | $ | 177 | 0.07 | % | |||||||||||||
Savings deposits | 523,219 | 114 | 0.03 | % | 533,799 | 191 | 0.05 | % | |||||||||||||||||
Time deposits | 513,072 | 3,259 | 0.85 | % | 527,056 | 2,966 | 0.75 | % | |||||||||||||||||
Total interest-bearing deposits | 1,420,556 | 3,674 | 0.35 | % | 1,400,775 | 3,334 | 0.32 | % | |||||||||||||||||
Borrowings | |||||||||||||||||||||||||
Federal funds purchased | 2 | - | 0.00 | % | 5,393 | 26 | 0.64 | % | |||||||||||||||||
Retail repurchase agreements | 61,951 | 31 | 0.07 | % | 69,347 | 37 | 0.07 | % | |||||||||||||||||
Wholesale repurchase agreements | 25,000 | 602 | 3.22 | % | 50,000 | 1,410 | 3.77 | % | |||||||||||||||||
FHLB advances and other borrowings | 57,357 | 1,754 | 4.09 | % | 124,803 | 2,578 | 2.76 | % | |||||||||||||||||
Total borrowings | 144,310 | 2,387 | 2.21 | % | 249,543 | 4,051 | 2.17 | % | |||||||||||||||||
Total interest-bearing liabilities | 1,564,866 | 6,061 | 0.52 | % | 1,650,318 | 7,385 | 0.60 | % | |||||||||||||||||
Noninterest-bearing demand deposits | 435,825 | 457,250 | |||||||||||||||||||||||
Other liabilities | 21,905 | 22,581 | |||||||||||||||||||||||
Total liabilities | 2,022,596 | 2,130,149 | |||||||||||||||||||||||
Stockholders' equity | 347,563 | 337,908 | |||||||||||||||||||||||
Total liabilities and stockholders' equity | $ | 2,370,159 | $ | 2,468,057 | |||||||||||||||||||||
Net interest income, FTE | $ | 66,933 | $ | 65,484 | |||||||||||||||||||||
Net interest rate spread | 4.11 | % | 3.87 | % | |||||||||||||||||||||
Net interest margin | 4.25 | % | 4.01 | % |
AVERAGE BALANCE SHEETS AND NET INTEREST INCOME ANALYSIS (Unaudited)
Six Months Ended June 30, | ||||||||||||||||||||||||
2022 | 2021 | |||||||||||||||||||||||
Average | Average Yield/ | Average | Average Yield/ | |||||||||||||||||||||
(Amounts in thousands) | Balance | Interest(1) | Rate(1) | Balance | Interest(1) | Rate(1) | ||||||||||||||||||
Assets | ||||||||||||||||||||||||
Earning assets | ||||||||||||||||||||||||
Loans(2)(3) | $ | 2,237,128 | $ | 50,412 | 4.54 | % | $ | 2,149,509 | $ | 52,561 | 4.93 | % | ||||||||||||
Securities available for sale | 211,285 | 2,397 | 2.29 | % | 83,868 | 1,081 | 2.60 | % | ||||||||||||||||
Interest-bearing deposits | 460,864 | 1,018 | 0.45 | % | 539,500 | 284 | 0.11 | % | ||||||||||||||||
Total earning assets | 2,909,277 | 53,827 | 3.73 | % | 2,772,877 | 53,926 | 3.92 | % | ||||||||||||||||
Other assets | 330,003 | 331,524 | ||||||||||||||||||||||
Total assets | $ | 3,239,280 | $ | 3,104,401 | ||||||||||||||||||||
Liabilities and stockholders' equity | ||||||||||||||||||||||||
Interest-bearing deposits | ||||||||||||||||||||||||
Demand deposits | $ | 689,149 | $ | 57 | 0.02 | % | $ | 634,000 | $ | 72 | 0.02 | % | ||||||||||||
Savings deposits | 888,371 | 133 | 0.03 | % | 798,571 | 154 | 0.04 | % | ||||||||||||||||
Time deposits | 339,186 | 718 | 0.43 | % | 403,888 | 1,367 | 0.68 | % | ||||||||||||||||
Total interest-bearing deposits | 1,916,706 | 908 | 0.10 | % | 1,836,459 | 1,593 | 0.16 | % | ||||||||||||||||
Borrowings | ||||||||||||||||||||||||
Retail repurchase agreements | 2,050 | 1 | 0.08 | % | 1,250 | - | N/M | |||||||||||||||||
Total borrowings | 2,050 | 1 | 0.08 | % | 1,250 | - | N/M | |||||||||||||||||
Total interest-bearing liabilities | 1,918,756 | 909 | 0.10 | % | 1,837,709 | 1,593 | 0.17 | % | ||||||||||||||||
Noninterest-bearing demand deposits | 855,321 | 801,512 | ||||||||||||||||||||||
Other liabilities | 38,529 | 38,609 | ||||||||||||||||||||||
Total liabilities | 2,812,606 | 2,677,830 | ||||||||||||||||||||||
Stockholders' equity | 426,674 | 426,571 | ||||||||||||||||||||||
Total liabilities and stockholders' equity | $ | 3,239,280 | $ | 3,104,401 | ||||||||||||||||||||
Net interest income, FTE(1) | $ | 52,918 | $ | 52,333 | ||||||||||||||||||||
Net interest rate spread | 3.64 | % | 3.75 | % | ||||||||||||||||||||
Net interest margin, FTE(1) | 3.67 | % | 3.81 | % |
(1) |
| ||||||||||||
(2) | Nonaccrual loans are included in the average | ||||||||||||
(3) | Interest on loans includes non-cash and accelerated purchase accounting accretion of $1.74 million and $2.44 million for the six months ended June 30, 2022 and 2021, respectively. |
The following table presents the impact to net interest income on a FTE basis due to changes in volume (average(change in average volume times the prior year’syear’s average rate), rate (average rate times the prior year’s average volume), and rate/volume (average volume times the change in average rate), for the periods indicated:
Three Months Ended | Nine Months Ended | Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
September 30, 2017 Compared to 2016 | September 30, 2017 Compared to 2016 | June 30, 2022 Compared to 2021 | June 30, 2022 Compared to 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Dollar Increase (Decrease) due to | Dollar Increase (Decrease) due to | Dollar Increase (Decrease) due to | Dollar Increase (Decrease) due to | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Rate/ | Rate/ | Rate/ | Rate/ | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(Amounts in thousands) | Volume | Rate | Volume | Total | Volume | Rate | Volume | Total | Volume | Rate | Volume | Total | Volume | Rate | Volume | Total | ||||||||||||||||||||||||||||||||||||||||||||||||
Interest earned on(1) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest earned on(1) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Loans | $ | 816 | $ | 1,336 | $ | (1,361 | ) | $ | 791 | $ | 2,456 | $ | (563 | ) | $ | (84 | ) | $ | 1,809 | $ | 3,383 | $ | (3,670 | ) | $ | 22 | $ | (265 | ) | $ | 2,143 | $ | (4,123 | ) | $ | (169 | ) | $ | (2,149 | ) | ||||||||||||||||||||||||
Securities available-for-sale | (2,368 | ) | 1,130 | 670 | (568 | ) | (3,146 | ) | 2,081 | (1,026 | ) | (2,091 | ) | 2,364 | (59 | ) | (1,216 | ) | 1,089 | 1,642 | (130 | ) | (196 | ) | 1,316 | |||||||||||||||||||||||||||||||||||||||
Securities held-to-maturity | (366 | ) | 339 | (56 | ) | (83 | ) | (292 | ) | 202 | (103 | ) | (193 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||
Interest-bearing deposits with other banks | 223 | 133 | (107 | ) | 249 | 218 | 77 | 305 | 600 | (126 | ) | 2,139 | (1,410 | ) | 603 | (37 | ) | 934 | (163 | ) | 734 | |||||||||||||||||||||||||||||||||||||||||||
Total interest earning assets | (1,695 | ) | 2,938 | (854 | ) | 389 | (764 | ) | 1,797 | (908 | ) | 125 | 5,621 | (1,590 | ) | (2,604 | ) | 1,427 | 3,748 | (3,319 | ) | (528 | ) | (99 | ) | |||||||||||||||||||||||||||||||||||||||
Interest paid on(1) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest paid on | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Demand deposits | 25 | 53 | (49 | ) | 29 | 23 | 89 | 12 | 124 | 4 | (12 | ) | 4 | (4 | ) | 6 | (20 | ) | (1 | ) | (15 | ) | ||||||||||||||||||||||||||||||||||||||||||
Savings deposits | (2 | ) | (56 | ) | 39 | (19 | ) | (4 | ) | (75 | ) | 2 | (77 | ) | 12 | (3 | ) | (5 | ) | 4 | 17 | (34 | ) | (4 | ) | (21 | ) | |||||||||||||||||||||||||||||||||||||
Time deposits | (114 | ) | 517 | (271 | ) | 132 | (79 | ) | 385 | (13 | ) | 293 | (200 | ) | (477 | ) | 375 | (302 | ) | (219 | ) | (512 | ) | 82 | (649 | ) | ||||||||||||||||||||||||||||||||||||||
Federal funds purchased | (18 | ) | (18 | ) | 30 | (6 | ) | (26 | ) | - | - | (26 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||
Retail repurchase agreements | (3 | ) | (3 | ) | 4 | (2 | ) | (4 | ) | (2 | ) | - | (6 | ) | - | 1 | - | 1 | - | 1 | - | 1 | ||||||||||||||||||||||||||||||||||||||||||
Wholesale repurchase agreements | (704 | ) | (203 | ) | 637 | (270 | ) | (705 | ) | (205 | ) | 102 | (808 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||
FHLB advances and other borrowings | (1,633 | ) | 1,452 | (184 | ) | (365 | ) | (1,393 | ) | 1,241 | (672 | ) | (824 | ) | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||
Total interest-bearing liabilities | (2,449 | ) | 1,742 | 206 | (501 | ) | (2,188 | ) | 1,433 | (569 | ) | (1,324 | ) | (184 | ) | (491 | ) | 374 | (301 | ) | (196 | ) | (565 | ) | 77 | (684 | ) | |||||||||||||||||||||||||||||||||||||
Change in net interest income(1) | $ | 754 | $ | 1,196 | $ | (1,060 | ) | $ | 890 | $ | 1,424 | $ | 364 | $ | (339 | ) | $ | 1,449 | ||||||||||||||||||||||||||||||||||||||||||||||
Change in net interest income(1) | $ | 5,805 | $ | (1,099 | ) | $ | (2,978 | ) | $ | 1,728 | $ | 3,944 | $ | (2,754 | ) | $ | (605 | ) | $ | 585 |
(1) | FTE basis based on the federal statutory rate of | ||||||||||||||||
|
|
The following tables present the net interest analysis on a FTE basis excluding the impact of non-cash purchase accounting accretion from acquired loan portfolios for the periods indicated:
Three Months Ended September 30, | ||||||||||||||||
2017 | 2016 | |||||||||||||||
(Amounts in thousands) | Interest(1) | Average Yield/ Rate(1) | Interest(1) | Average Yield/ Rate(1) | ||||||||||||
Earning assets | ||||||||||||||||
Loans(2) | $ | 22,765 | 4.90 | % | $ | 21,974 | 4.80 | % | ||||||||
Accretion income | 1,925 | 1,683 | ||||||||||||||
Less: cash accretion income | 548 | 699 | ||||||||||||||
Non-cash accretion income | 1,377 | 984 | ||||||||||||||
Loans, normalized(3) | 21,388 | 4.60 | % | 20,990 | 4.59 | % | ||||||||||
Other earning assets | 1,754 | 2.72 | % | 2,156 | 2.40 | % | ||||||||||
Total earning assets | 23,142 | 4.37 | % | 23,146 | 4.23 | % | ||||||||||
Total interest-bearing liabilities | 1,999 | 0.51 | % | 2,500 | 0.61 | % | ||||||||||
Net interest income, FTE(3) | $ | 21,143 | $ | 20,646 | ||||||||||||
Net interest rate spread, normalized(3) | 3.86 | % | 3.62 | % | ||||||||||||
Net interest margin, normalized(3) | 4.00 | % | 3.77 | % |
|
| ||||||||||||
|
| ||||||||||||
|
|
Nine Months Ended September 30, | ||||||||||||||||
2017 | 2016 | |||||||||||||||
(Amounts in thousands) | Interest(1) | Average Yield/ Rate(1) | Interest(1) | Average Yield/ Rate(1) | ||||||||||||
Earning assets | ||||||||||||||||
Loans(2) | $ | 67,645 | 4.91 | % | $ | 65,836 | 4.95 | % | ||||||||
Accretion income | 6,243 | 6,183 | ||||||||||||||
Less: cash accretion income | 1,986 | 2,290 | ||||||||||||||
Non-cash accretion income | 4,257 | 3,893 | ||||||||||||||
Loans, normalized(3) | 63,388 | 4.60 | % | 61,943 | 4.66 | % | ||||||||||
Other earning assets | 5,349 | 2.71 | % | 7,033 | 2.32 | % | ||||||||||
Total earning assets | 68,737 | 4.36 | % | 68,976 | 4.23 | % | ||||||||||
Total interest-bearing liabilities | 6,061 | 0.52 | % | 7,385 | 0.60 | % | ||||||||||
Net interest income, FTE(3) | $ | 62,676 | $ | 61,591 | ||||||||||||
Net interest rate spread, normalized(3) | 3.84 | % | 3.63 | % | ||||||||||||
Net interest margin, normalized(3) | 3.98 | % | 3.77 | % |
|
| ||||||||||||
|
| ||||||||||||
|
|
Three-Month Comparison. Net interest income comprised 75.55%75.68% of total net interest and noninterest income in the thirdsecond quarter of 20172022 compared to 78.18%74.58% in the same quarter of 2016.2021. Net interest income on a GAAP basis increased $929 thousand,$1.73 million, or 4.40%6.71%, andcompared to an increase of $1.73 million, or 6.66%, on a FTE basis. The net interest incomemargin on a FTE basis increased $890 thousand, or 4.11%. Normalized10 basis points and the net interest incomespread on a FTE basis is a non-GAAP measure that excludes non-cash loan accretion income related to PCI loans. For additional information, see “Non-GAAP Financial Measures” below. Normalized net interest margin increased 2313 basis points compared topoints. The increase was primarily driven by an increase in the yield on overnight funds and a decrease in the cost of 30 basis points on a FTE basis. Normalized net interest spread increased 24 basis points compared to an increase of 32 basis points on a FTE basis.time deposits.
Average earning assets decreased $78.65increased $104.22 million, or 3.61%3.68%, primarily due to a decrease in investment securities offset by loan growth and an increase in both the securities available for sale and loan portfolios. Securities available for sale increased $196.72 million, or 233.92% due to recent purchases of $236.85 million in the first six months of 2022. In addition, average loans increased $139.71 million, or 6.55%, primarily due to strong levels of loan demand in all categories. Average interest-bearing deposits.deposits increased $57.76 million, or 3.09%. The normalized yield on earning assets increased 146 basis points, comparedor 1.59%, primarily due to anthe increase in yield on overnight funds due to the Federal Open Market Committee's increase in the fed funds rate of 22150 basis points on a GAAP basis. Average loans increased $22.71 million, or 1.25%, and theduring 2022. The average loan to deposit ratio increased to 99.52%81.20% from 98.25%. The normalized yield on loans increased 1 basis point compared to an increase79.25% in the same quarter of 10 basis points on a GAAP basis.2021. Non-cash accretion income increased $393decreased $384 thousand, or 39.94%30.62%.
Average interest-bearing liabilities, which consist of interest-bearing deposits and borrowings, decreased $97.27 million, or 5.92%, primarily due to a decline in average borrowings. The yield on interest-bearing liabilities decreased 10 basis points, largely driven by a decrease in the average balance of borrowings. Average borrowings decreased $118.73 million, or 47.13%, largely due to an $83.84 million, or 62.64%, decrease in average FHLB advances and other borrowings, a $25.00 million, or 50.00%, decrease in average wholesale repurchase agreements, a $6.19 million, or 9.62%, decrease in average retail repurchase agreements, and a $3.70 million decrease in average federal funds purchased. Average interest-bearing deposits increased $21.46 million, or 1.54%, which was driven by a $46.70 million, or 13.82%, increase in average interest-bearing demand deposits offset by a $20.09 million, or 3.80%, decrease in average time deposits, and a $5.15 million, or 0.98%, decrease in average savings deposits, which include money market and savings accounts.
Nine-Month Comparison. Net interest income comprised 78.16% of total net interest and noninterest income in the first nine months of 2017 compared to 75.42% in the same period of 2016. Net interest income on a GAAP basis increased $1.56 million, or 2.44%, and net interest income on a FTE basis increased $1.45 million, or 2.21%. Normalized net interest margin increased 21 basis points compared to an increase of 24 basis points on a FTE basis. Normalized net interest spread increased 21 basis points compared to an increase of 24 basis points on a FTE basis.
Average earning assets decreased $74.45 million, or 3.41%, primarily due to a decrease in investment offset by loan growth and an increase in interest-bearing deposits. The normalized yield on earning assets increased 13 basis points compared to an increase of 16 basis points on a GAAP basis. Average loans increased $66.24 million, or 3.73%, and the average loan to deposit ratio increased to 99.22% from 95.57%. The normalized yield on loans decreased 6 basis points compared to a decrease of 4 basis points on a GAAP basis. Non-cash accretion income increased $364 thousand, or 9.35%, as the effect of accretion income continued to decline from acquired portfolio attrition.
Average interest-bearing liabilities, which consist of interest-bearing deposits and borrowings, decreased $85.45increased $58.60 million, or 5.18%3.13%, primarily due to a declinean increase in average borrowings.interest-bearing deposits. The yield on interest-bearing liabilities decreased 87 basis points. Average interest-bearing deposits increased $57.76 million, or 3.09%. Savings deposits increased $76.88 million, or 9.39%, and interest-bearing demand deposits increased $44.21 million, or 6.75%. These increases were offset by a decrease in time deposits of $63.33 million, or 16.04%.
Six-Month Comparison. Net interest income comprised 74.49% of total net interest and noninterest income in the six months ended June 30, 2022 compared to 76.09% in the same period of 2021. Net interest income on a GAAP basis increased $604 thousand, or 1.16%, compared to an increase of $585 thousand, or 1.12%, on a FTE basis. The net interest margin on a FTE basis decreased 14 basis points largelyand the net interest spread on a FTE basis decreased 11 basis points. The decrease was primarily driven by a decrease in the average balanceyields in both the securities available for sale and loan portfolios offset by an increase in the yield on overnight funds and a decrease in the cost of borrowings. time deposits.
Average borrowings decreased $105.23earning assets increased $136.40 million, or 42.17%4.92%, largelyprimarily due to a $67.45an increase in both the securities available for sale and loan portfolios. Securities available for sale increased $127.42 million, or 54.04%, decrease151.93% due to recent purchases of $236.85 million in the first six months of 2022. In addition, average FHLB advances and other borrowings, a $25.00loans increased $87.62 million, or 50.00%4.08%, decreaseprimarily due to strong levels of loan demand in average wholesale repurchase agreements, a $7.40 million, or 10.67%, decrease in average retail repurchase agreements, and a $5.39 million, or 99.96%, decrease in average federal funds purchased.all categories. Average interest-bearing deposits increased $19.78$80.25 million, or 1.41%4.37%. The yield on earning assets decreased 19 basis points, or 4.85%, primarily due to the decrease in yields in the securities available for sale and loan portfolios. The decrease in yields in these portfolios was offset by an increase in yield on overnight funds due to year-to-date increases in the fed funds rate of 150 basis points. The average loan to deposit ratio decreased to 80.70% from 81.48% in the same period of 2021. Non-cash accretion income decreased $705 thousand, or 28.88%.
Average interest-bearing liabilities, which was driven by a $44.35consist of interest-bearing deposits and borrowings, increased $81.05 million, or 13.05%4.41%, primarily due to an increase in averageinterest-bearing deposits. The yield on interest-bearing liabilities decreased 7 basis points. Average interest-bearing deposits increased $80.25 million, or 4.37%. Savings deposits increased $89.80 million, or 11.25%, and interest-bearing demand deposits increased $55.15 million, or 8.70%. These increases were offset by a $13.98decrease in time deposits of $64.70 million, or 2.65%, decrease in average time deposits, and a $10.58 million, or 1.98%, decrease in average savings deposits, which include money market and savings accounts.16.02%.
Provision for LoanCredit Losses
Three-Month Comparison. The provision charged to operations increased $1.88$2.74 million, to $730 thousand in the thirdsecond quarter of 20172022 compared to a recovery of $1.15 million in the same quarter of 2016, which2021. Provision for credit losses of $510 thousand was attributed to the reversal of $1.35 million in loan loss provisions related to loans divestedrecorded in the First Bank transaction during the thirdsecond quarter of 2016. For additional information, see “Allowance for Loan Losses”2022 and was primarily attributable to loan growth. A reversal in provision of $2.23 million was recorded in the “Financial Condition” section below.second quarter of 2021 and was due to significantly improved economic forecasts.
Nine-MonthSix-Month Comparison. The provision charged to operations increased $1.40$8.70 million, to $2.16 million infor the first ninesix months of 2017ended June 30, 2022 compared to the same period of 2016, which2021. Provision for credit losses of $2.47 million was attributedrecorded for the first six months of 2022 and was primarily attributable to theloan growth. A reversal in provision of $1.35$6.23 million in loan loss provisions related to loans divestedwas recorded in the First Bank transaction during the third quartersame period of 2016.2021 and was due to significantly improved economic forecasts.
Noninterest Income
The following table presents the components of, and changes in, noninterest income for the periods indicated:
Three Months Ended | Three Months Ended | Nine Months Ended | Nine Months Ended | Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
September 30, | Increase | September 30, | Increase | June 30, | Increase | % | June 30, | Increase | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
2017 | 2016 | (Decrease) | % Change | 2017 | 2016 | (Decrease) | % Change | 2022 | 2021 | (Decrease) | Change | 2022 | 2021 | (Decrease) | Change | |||||||||||||||||||||||||||||||||||||||||||||||||
(Amounts in thousands) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Wealth management | $ | 758 | $ | 653 | $ | 105 | 16.08 | % | $ | 2,339 | $ | 2,147 | $ | 192 | 8.94 | % | $ | 993 | $ | 1,058 | $ | (65 | ) | -6.14 | % | $ | 1,965 | $ | 1,939 | $ | 26 | 1.34 | % | |||||||||||||||||||||||||||||||
Service charges on deposits | 3,605 | 3,494 | 111 | 3.18 | % | 10,078 | 10,146 | (68 | ) | -0.67 | % | 3,672 | 3,098 | 574 | 18.53 | % | 7,170 | 6,129 | 1,041 | 16.98 | % | |||||||||||||||||||||||||||||||||||||||||||
Other service charges and fees | 2,141 | 2,024 | 117 | 5.78 | % | 6,387 | 6,088 | �� | 299 | 4.91 | % | 3,297 | 3,166 | 131 | 4.14 | % | 6,314 | 6,188 | 126 | 2.04 | % | |||||||||||||||||||||||||||||||||||||||||||
Insurance commissions | 306 | 1,592 | (1,286 | ) | -80.78 | % | 1,004 | 5,383 | (4,379 | ) | -81.35 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Net impairment losses recognized in earnings | - | (4,635 | ) | 4,635 | -100.00 | % | - | (4,646 | ) | 4,646 | -100.00 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Net loss on sale of securities | - | 25 | (25 | ) | -100.00 | % | (657 | ) | (53 | ) | (604 | ) | 1139.62 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||
Net FDIC indemnification asset amortization | (268 | ) | (1,369 | ) | 1,101 | -80.42 | % | (3,186 | ) | (3,856 | ) | 670 | -17.38 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||
Net gain on divestiture | - | 3,065 | (3,065 | ) | -100.00 | % | - | 3,065 | (3,065 | ) | -100.00 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Other operating income | 593 | 1,046 | (453 | ) | -43.31 | % | 2,336 | 2,554 | (218 | ) | -8.54 | % | 892 | 1,475 | (583 | ) | -39.53 | % | 2,599 | 2,110 | 489 | 23.18 | % | |||||||||||||||||||||||||||||||||||||||||
Total noninterest income | $ | 7,135 | $ | 5,895 | $ | 1,240 | 21.03 | % | $ | 18,301 | $ | 20,828 | $ | (2,527 | ) | -12.13 | % | $ | 8,854 | $ | 8,797 | $ | 57 | 0.65 | % | $ | 18,048 | $ | 16,366 | $ | 1,682 | 10.28 | % |
Three-Month Comparison. Noninterest income comprised 24.45%24.32% of total net interest and noninterest income in the thirdsecond quarter of 20172022 compared to 21.82%25.42% in the same quarter of 2016.2021. Noninterest income increased $1.24 million,$57 thousand or 21.03%0.65%. Service charges on deposits increased $574 thousand, or 18.53%, and other service charges and fees increased $131 thousand, or 4.14%, compared with the same quarter of 2021. The increases are primarily attributable to increased customer activity compared to the activity levels experienced during 2021.Other operating income decreased $583 thousand, or 39.53%. The decrease was primarily due to net impairment losses recognized ina recovery of $1.00 million during the thirdsecond quarter of 2016 and2021 of an acquired loan from a failed bank acquisition that had been written down prior to acquisition. In addition, 2021 included gains of approximately $626 thousand recorded during the decrease in net negativequarter for the sale of various bank-owned properties. These decreases were offset by the 2021 amortization related toof the FDIC indemnification asset as loss share coverage expired June 30, 2017, for commercial loans. See Note 2, “Investment Securities,” to the Condensed Consolidated Financial Statements in Item 1 of this report. These changes were offset by a decrease in insurance commissions resulting from the Greenpoint divestiture$945 thousand that was fully amortized in the fourthsecond quarter of 2016 and2021, as well as a net gain on the divestiture of six bank branches to First Bankfair value increase recognized in earnings in the thirdsecond quarter of 2016. Excluding the impact from impairment losses, sales of securities and branches, net FDIC indemnification asset amortization, and net gain on divestiture, noninterest income decreased $1.33 million, or 15.22%,2022 for $275 thousand related to $7.40 million in the third quarter of 2017, from $8.73 million in the same quarter of 2016. The decrease was due primarily tointerest rate swaps that do no qualify as a $1.29 million decrease in insurance commissions resulting from the Greenpoint divestiture.fair value hedge.
Nine-MonthSix-Month Comparison. Noninterest income comprised 21.84%25.51% of total net interest and noninterest income infor the first ninesix months of 20172022 compared to 24.58%23.91% in the same period of 2016.2021. Noninterest income decreased $2.53increased $1.68 million or 12.13%10.28%. Service charges on deposits increased $1.04 million, or 16.98%, and other service charges and fees increased $126 thousand, or 2.04%, compared with the same period of 2021. As noted for the quarter, the increases are primarily attributable to increased customer activity compared to the activity levels experienced during 2021.Other operating income increased $489 thousand, or 23.18%. The increase was primarily due to a decrease in insurance commissions resulting from the Greenpoint divestiture in the fourth quarter2021 amortization of 2016 and a net gain on the divestiture of six bank branches to First Bank in the third quarter of 2016 offset by net impairment losses recognized in the third quarter of 2016. See Note 2, “Investment Securities,” to the Condensed Consolidated Financial Statements in Item 1 of this report. Net negative amortization related to the FDIC indemnification asset decreased dueof $1.23 million that was fully amortized in the second quarter of 2021, as well as a fair value increase recognized in earnings in 2022 for $853 thousand related to additional reserve provisionsinterest rate swaps that do no qualify as loss share coverage expired June 30, 2017,a fair value hedge. The increases were offset by a recovery of $1.00 million during the second quarter of 2021 of an acquired loan from a failed bank acquisition that had been written down prior to acquisition. In addition, the income recognized for commercial loans. Excluding the impact from impairment losses, salesadjustment to cash surrender value of securities and branches, net FDIC indemnification asset amortization, net gain on divestiture, and bank ownedbank-owned life insurance proceeds, noninterest income decreased $4.19 million, or 16.20%, to $21.69 million in$547 thousand for the first nine months of 2017, from $25.88 million in the same period of 2016. The decrease was due primarily to a $4.38 million decrease in insurance commissions resulting from the Greenpoint divestiture.
The following table presents the components of, and changes in, noninterest expense for the periods indicated:
Three Months Ended | Three Months Ended | Nine Months Ended | Nine Months Ended | Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
September 30, | Increase | September 30, | Increase | % | June 30, | Increase | % | June 30, | Increase | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
2017 | 2016 | (Decrease) | % Change | 2017 | 2016 | (Decrease) | Change | 2022 | 2021 | (Decrease) | Change | 2022 | 2021 | (Decrease) | Change | |||||||||||||||||||||||||||||||||||||||||||||||||
(Amounts in thousands) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Salaries and employee benefits | $ | 9,137 | $ | 9,828 | $ | (691 | ) | -7.03 | % | $ | 27,178 | $ | 30,501 | $ | (3,323 | ) | -10.89 | % | $ | 11,518 | $ | 10,216 | $ | 1,302 | 12.74 | % | $ | 23,189 | $ | 21,100 | $ | 2,089 | 9.90 | % | ||||||||||||||||||||||||||||||
Occupancy expense | 1,082 | 1,249 | (167 | ) | -13.37 | % | 3,671 | 4,139 | (468 | ) | -11.31 | % | 1,165 | 1,115 | 50 | 4.48 | % | �� | 2,434 | 2,390 | 44 | 1.84 | % | |||||||||||||||||||||||||||||||||||||||||
Furniture and equipment expense | 1,133 | 1,066 | 67 | 6.29 | % | 3,311 | 3,271 | 40 | 1.22 | % | 1,496 | 1,457 | 39 | 2.68 | % | 3,110 | 2,824 | 286 | 10.13 | % | ||||||||||||||||||||||||||||||||||||||||||||
Service fees | 2,563 | 1,513 | 1,050 | 69.40 | % | 4,066 | 2,848 | 1,218 | 42.77 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Advertising and public relations | 577 | 616 | (39 | ) | -6.33 | % | 1,117 | 951 | 166 | 17.46 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Professional fees | 544 | 290 | 254 | 87.59 | % | 997 | 756 | 241 | 31.88 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Amortization of intangibles | 266 | 316 | (50 | ) | -15.82 | % | 790 | 871 | (81 | ) | -9.30 | % | 360 | 360 | - | 0.00 | % | 717 | 717 | - | 0.00 | % | ||||||||||||||||||||||||||||||||||||||||||
FDIC premiums and assessments | 227 | 363 | (136 | ) | -37.47 | % | 698 | 1,109 | (411 | ) | -37.06 | % | 257 | 204 | 53 | 25.98 | % | 475 | 403 | 72 | 17.87 | % | ||||||||||||||||||||||||||||||||||||||||||
Merger, acquisition, and divestiture expense | - | 226 | (226 | ) | -100.00 | % | - | 675 | (675 | ) | -100.00 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Other operating expense | 5,064 | 5,509 | (445 | ) | -8.08 | % | 15,802 | 15,527 | 275 | 1.77 | % | 2,775 | 3,590 | (815 | ) | -22.70 | % | 5,136 | 6,192 | (1,056 | ) | -17.05 | % | |||||||||||||||||||||||||||||||||||||||||
Total noninterest expense | $ | 16,909 | $ | 18,557 | $ | (1,648 | ) | -8.88 | % | $ | 51,450 | $ | 56,093 | $ | (4,643 | ) | -8.28 | % | $ | 21,255 | $ | 19,361 | $ | 1,894 | 9.78 | % | $ | 41,241 | $ | 38,181 | $ | 3,060 | 8.01 | % |
Three-Month Comparison. Noninterest expense decreased $1.65increased $1.89 million, or 8.88%9.78%, in the thirdsecond quarter of 20172022 compared to the same quarter of 2016, which2021. The increase was largely dueattributable to a decreasean increase in salaries and employee benefits. Salaries and employee benefits decreasedof $1.30 million or 12.74%. Early in the first quarter of 2022, the Company implemented annualized wage increases of approximately $2.5 million as full-time equivalent employees, calculated using the numberpart of hours worked, decreasedits strategic initiative to 569 as of September 30, 2017, from 624 as of September 30, 2016,enhance Human Capital Management, which included an increased minimum wage. In addition, service fees increased $1.05 million, or 69.40% primarily due to the First Bank and Greenpoint transactions that occurred during the second half of 2016. We incurred expenses totaling $226 thousand related to the branch exchange with First Bank during the third quarter of 2016. Occupancy, furniture, and equipment expense decreased $100 thousand, or 4.32%, due to branch closures and divestitures that occurred during the prior year. Other operating expense included a $421 thousandan increase in legal fees, a $146 thousand increase in property writedowns, and a $369 thousand increase in the net loss on sales and expenses related to other real estate owned (“OREO”) to $647 thousand from $278 thousand in the third quarter of 2016.core processing expense. These increases were offset by decreasesa decrease in office suppliesother operating expense other service fees, nonemployee compensation, and consulting fees.of $815 thousand or 22.70%. The decrease is primarily attributable to the 2021 write-down of bank property of $781 thousand.
Nine-MonthSix-Month Comparison. Noninterest expense decreased $4.64increased $3.06 million, or 8.28%8.01%, in the first ninesix months of 20172022 compared to the same period of 2016, which2021. As in the quarter, the increase was largely dueattributable to a decreasean increase in salaries and employee benefits. Salaries and employee benefits decreasedof $2.09 million or 9.90%. The increase is due to wage increases implemented in the first quarter as part of the Company's strategic initiative to enhance Human Capital Management, which included an increased minimum wage. In addition, service fees increased $1.22 million, or 42.77% primarily due to the First Bank and Greenpoint transactions that occurred during the second half of 2016. We incurred expenses totaling $675 thousand related to the First Bank branch exchange during the first nine months of 2016. Occupancy, furniture, and equipment expense decreased $428 thousand, or 5.78%, due to branch closures and divestitures that occurred during the prior year. Other operating expense included a $467 thousandan increase in legal fees whichcore processing expense. These increases were offset by a $48 thousand decrease in other operating expense of $1.06 million, or 17.05%. The decrease is primarily attributable to the net loss on sales and expenses related to OREO to $1.19 million from $1.24 million in the first nine months2021 write-down of 2016.bank property of $781 thousand.
IncomeIncome Tax Expense
The Company’s effective tax rate, income tax as a percent of pre-tax income, may vary significantly from the statutory rate due to permanent differences and available tax credits. Permanent differences are income and expense items excluded by law in the calculation of taxable income. The Company’s most significant permanent differences generally include interest income on municipal securities and increases in the cash surrender value of life insurance policies.
Three-Month Comparison. The Company’s effective tax rate, income tax as a percent of pre-tax income, may vary significantly from the statutory rate due to permanent differences and available tax credits. Permanent differences are income and expense items excluded by law in the calculation of taxable income. The Company’s most significant permanent differences generally include interest income on municipal securities and increases in the cash surrender value of life insurance policies. Income tax expense increased $664decreased $654 thousand, or 20.56%,16.04% and was primarily due to the decrease in pre-tax income. The effective tax rate increased 13 basis points to 33.73%23.39% in the thirdsecond quarter of 2017 compared to2022 from 23.32% in the same quarter of 2016.2021. The increase in the effective tax rate was largelyprimarily due to a decrease in tax-exempt revenue.permanent differences for officers life insurance quarter over quarter.
Nine-MonthSix-Month Comparison. Income tax expense increased $727 thousand,decreased $2.20 million, or 7.92%,25.85% and was primarily due to the decrease in pre-tax income. The effective tax rate decreased 7remained level for the first six months of 2022 and increased only three basis points to 32.83%23.33% from 23.30% in the first nine months of 2017 compared to the same period of 2016. The decrease in the effective tax rate was largely due to an increase in tax-exempt revenue.2021.
Non-GAAP Financial Measures
In addition to financial statements prepared in accordance with GAAP, we use certain non-GAAP financial measures that management believes provide investors with important information useful in understanding our operational performance and comparing our financial measures with other financial institutions. The non-GAAP financial measuresmeasure presented in this report include net interest income on a FTE basis and normalizedincludes net interest income on a FTE basis. While we believe these non-GAAP financial measures enhance understanding of our business and performance, they are supplemental and not a substitute for, or more important than, financial measures prepared on a GAAP basis. Our non-GAAP financial measures may not be comparable to those reported by other financial institutions. The reconciliations of these measures to GAAP measures are presented below.
We believe FTE basis is the preferred industry measurement of net interest income and provides better comparability between taxable and tax exempt amounts. We use this non-GAAP financial measure to monitor net interest income performance and to manage the composition of our balance sheet. The FTE basis adjusts for the tax benefits of income from certain tax exempt loans and investments using the federal statutory rate of 35%21%. Normalized net interest incomeWhile we believe certain non-GAAP financial measures enhance understanding of our business and performance, they are supplemental and not a substitute for, or more important than, financial measures prepared on a FTE basis is aGAAP basis. Our non-GAAP measure that excludes non-cash loan accretion income relatedfinancial measures may not be comparable to PCI loans.those reported by other financial institutions. The reconciliations of non-GAAP to GAAP measures are presented below.
The following table reconciles net interest income and margin, as presented in our consolidated statements of income, to net interest income on a FTE basis for the periods indicated:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
(Amounts in thousands) | ||||||||||||||||
Net interest income, GAAP | $ | 22,050 | $ | 21,121 | $ | 65,485 | $ | 63,923 | ||||||||
FTE adjustment(1) | 470 | 509 | 1,448 | 1,561 | ||||||||||||
Net interest income, FTE | 22,520 | 21,630 | 66,933 | 65,484 | ||||||||||||
Less: non-cash accretion income(2) | 1,377 | 984 | 4,257 | 3,893 | ||||||||||||
Net interest income, normalized | $ | 21,143 | $ | 20,646 | $ | 62,676 | $ | 61,591 | ||||||||
Net interest margin, GAAP | 4.17 | % | 3.85 | % | 4.15 | % | 3.91 | % | ||||||||
FTE adjustment(1) | 0.08 | % | 0.08 | % | 0.10 | % | 0.09 | % | ||||||||
Net interest margin, FTE | 4.25 | % | 3.95 | % | 4.25 | % | 4.01 | % | ||||||||
Less: non-cash accretion income(2) | 0.25 | % | 0.18 | % | 0.27 | % | 0.24 | % | ||||||||
Net interest margin, normalized | 4.00 | % | 3.77 | % | 3.98 | % | 3.77 | % |
(1) FTE basis of 21%. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
Financial Condition
Total assets as of SeptemberJune 30, 2017, decreased $11.622022, increased $63.86 million, or 0.49%2.00%, to $2.37 billion from $2.39 billionDecember 31, 2021. The increase in assets was primarily driven by an increase in securities available-for-sale of $211.48 million, or 277.19%. Loans increased $134.23 million, or 6.20%. These increases were offset by a decrease in overnight funds of $285.41 million, or 45.52%. In addition, total liabilities increased $73.59 million, or 2.66%, as of June 30, 2022, from December 31, 2016. Total2021. The increase in liabilities aswas primarily driven by an increase in total deposits of September 30, 2017, decreased $25.20$69.15 million, or 1.23%, to $2.02 billion from $2.05 billion as of December 31, 2016.2.53%.
Investment Securities
Our investment securities are used to generate interest income through the employment of excess funds, to provide liquidity, to fund loan demand or deposit liquidation, and to pledge as collateral where required. The composition of our investment portfolio changes from time to time as we consider our liquidity needs, interest rate expectations, asset/liability management strategies, and capital requirements.
Available-for-sale debt securities as of SeptemberJune 30, 2017,2022, increased $8.85$211.48 million, or 5.34%277.19%, compared to December 31, 2016, primarily2021. The increase is due to the purchase of U.S.$236.85 million in securities comprised of U. S. Treasury Notes, mortgage-backed securities, and corporate notes. The purchases were offset by the maturity$12.81 million in maturities, prepayments, and sale of municipal, single-issue trust preferred, and mortgage-backed Agency securities.calls. The market value of debt securities available for sale as a percentage of amortized cost was 101.11%95.86% as of SeptemberJune 30, 2017,2022, compared to 99.48%100.02% as of December 31, 2016. Held-to-maturity2021.
Management evaluates securities for impairment where there has been a decline in fair value below the amortized cost basis of a security to determine whether there is a credit loss associated with the decline in fair value on at least a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Credit losses are calculated individually, rather than collectively, using a discounted cash flow method, whereby Management compares the present value of expected cash flows with the amortized cost basis of the security. The credit loss component would be recognized through the provision for credit losses and the creation of an allowance for credit losses. Consideration is given to (1) the financial condition and near-term prospects of the issuer including looking at default and delinquency rates, (2) the outlook for receiving the contractual cash flows of the investments, (3) the length of time and the extent to which the fair value has been less than cost, (4) our intent and ability to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value or for a debt security whether it is more-likely-than-not that we will be required to sell the debt security prior to recovering its fair value, (5) the anticipated outlook for changes in the general level of interest rates, (6) credit ratings, (7) third party guarantees, and (8) collateral values. In analyzing an issuer’s financial condition, management considers whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, the results of reviews of the issuer’s financial condition, and the issuer’s anticipated ability to pay the contractual cash flows of the investments. U.S. Treasury Securities, Agency-Backed Securities including GNMA, FHLMC, FNMA, FHLB, FFCB and SBA. All of the U.S. Treasury and Agency-Backed Securities have the full faith and credit backing of the United State Government or one of its agencies. Municipal securities and all other securities that do not have a zero expected credit loss are evaluated quarterly to determine whether there is a credit loss associated with a decline in fair value. All debt securities available for sale in an unrealized loss position as of SeptemberJune 30, 2017, decreased $21.95 million, or 46.57%, compared2022 continue to December 31, 2016, primarily due to the maturity of U.S. Agency securities. The market value of securities held to maturityperform as scheduled and we do not believe that a percentage of amortized cost was 100.17% as of September 30, 2017, compared to 100.28% as of December 31, 2016.
Investment securities are reviewed quarterlyprovision for possible other-than-temporary impairment (“OTTI”) charges. We recognized no OTTI charges in earnings associated with debt securities for the three and nine months ended September 30, 2017. We recognized credit-related OTTI charges in earnings associated with debt securities of $4.64 million during the three and nine months ended September 30, 2016, due to our change in intent to hold certain trust preferred securities to recovery. We recognized no OTTI charges in earnings associated with equity securities for the three and nine months ended September 30, 2017, or the three months ended September 30, 2016. We recognized OTTI charges in earnings associated with certain equity securities of $11 thousand for the nine months ended September 30, 2016. For additional information, see Note 2, “Investment Securities,” to the Condensed Consolidated Financial Statements in Item 1 of this report.credit losses is necessary.
Loans Held for Investment
LoansLoans held for investment, ourwhich generates the largest component of interest income, are grouped into commercial, consumer real estate, and consumer and other loan segments. Each segment is divided into various loan classes based on collateral or purpose. Certain loans acquired in FDIC-assisted transactions are covered under loss share agreements (“covered loans”). Total loans held for investment, net
The following table presents loans, net of unearned income,, with non-covered loans by loan class as of the dates indicated:
September 30, 2017 | December 31, 2016 | September 30, 2016 | ||||||||||||||||||||||
(Amounts in thousands) | Amount | Percent | Amount | Percent | Amount | Percent | ||||||||||||||||||
Non-covered loans held for investment | ||||||||||||||||||||||||
Commercial loans | ||||||||||||||||||||||||
Construction, development, and other land | $ | 72,952 | 3.97 | % | $ | 56,948 | 3.07 | % | $ | 49,799 | 2.71 | % | ||||||||||||
Commercial and industrial | 90,184 | 4.91 | % | 92,204 | 4.98 | % | 90,362 | 4.92 | % | |||||||||||||||
Multi-family residential | 125,997 | 6.86 | % | 134,228 | 7.24 | % | 127,468 | 6.94 | % | |||||||||||||||
Single family non-owner occupied | 143,213 | 7.79 | % | 142,965 | 7.72 | % | 144,023 | 7.84 | % | |||||||||||||||
Non-farm, non-residential | 613,380 | 33.38 | % | 598,674 | 32.31 | % | 596,015 | 32.46 | % | |||||||||||||||
Agricultural | 6,096 | 0.33 | % | 6,003 | 0.32 | % | 5,786 | 0.32 | % | |||||||||||||||
Farmland | 27,897 | 1.52 | % | 31,729 | 1.71 | % | 31,974 | 1.74 | % | |||||||||||||||
Total commercial loans | 1,079,719 | 58.76 | % | 1,062,751 | 57.35 | % | 1,045,427 | 56.93 | % | |||||||||||||||
Consumer real estate loans | ||||||||||||||||||||||||
Home equity lines | 102,888 | 5.60 | % | 106,361 | 5.74 | % | 108,108 | 5.89 | % | |||||||||||||||
Single family owner occupied | 501,242 | 27.27 | % | 500,891 | 27.03 | % | 497,695 | 27.10 | % | |||||||||||||||
Owner occupied construction | 47,034 | 2.56 | % | 44,535 | 2.41 | % | 43,925 | 2.39 | % | |||||||||||||||
Total consumer real estate loans | 651,164 | 35.43 | % | 651,787 | 35.18 | % | 649,728 | 35.38 | % | |||||||||||||||
Consumer and other loans | ||||||||||||||||||||||||
Consumer loans | 70,695 | 3.85 | % | 77,445 | 4.18 | % | 76,363 | 4.16 | % | |||||||||||||||
Other | 4,856 | 0.26 | % | 3,971 | 0.21 | % | 3,029 | 0.16 | % | |||||||||||||||
Total consumer and other loans | 75,551 | 4.11 | % | 81,416 | 4.39 | % | 79,392 | 4.32 | % | |||||||||||||||
Total non-covered loans | 1,806,434 | 98.30 | % | 1,795,954 | 96.92 | % | 1,774,547 | 96.63 | % | |||||||||||||||
Total covered loans | 31,287 | 1.70 | % | 56,994 | 3.08 | % | 61,837 | 3.37 | % | |||||||||||||||
Total loans held for investment, net of unearned income | 1,837,721 | 100.00 | % | 1,852,948 | 100.00 | % | 1,836,384 | 100.00 | % | |||||||||||||||
Less: allowance for loan losses | 19,206 | 17,948 | 19,633 | |||||||||||||||||||||
Total loans held for investment, net of unearned income and allowance | $ | 1,818,515 | $ | 1,835,000 | $ | 1,816,751 |
June 30, 2022 | December 31, 2021 | June 30, 2021 | ||||||||||||||||||||||
(Amounts in thousands) | Amount | Percent | Amount | Percent | Amount | Percent | ||||||||||||||||||
Loans held for investment | ||||||||||||||||||||||||
Commercial loans | ||||||||||||||||||||||||
Construction, development, and other land | $ | 92,840 | 4.04 | % | $ | 65,806 | 3.04 | % | $ | 60,560 | 2.81 | % | ||||||||||||
Commercial and industrial | 139,792 | 6.08 | % | 133,630 | 6.17 | % | 147,768 | 6.86 | % | |||||||||||||||
Multi-family residential | 124,274 | 5.40 | % | 100,402 | 4.64 | % | 100,347 | 4.66 | % | |||||||||||||||
Single family non-owner occupied | 195,113 | 8.48 | % | 198,778 | 9.18 | % | 190,008 | 8.82 | % | |||||||||||||||
Non-farm, non-residential | 752,369 | 32.72 | % | 707,506 | 32.67 | % | 713,089 | 33.11 | % | |||||||||||||||
Agricultural | 9,987 | 0.43 | % | 9,341 | 0.43 | % | 8,665 | 0.40 | % | |||||||||||||||
Farmland | 12,833 | 0.56 | % | 15,013 | 0.69 | % | 18,285 | 0.85 | % | |||||||||||||||
Total commercial loans | 1,327,208 | 57.71 | % | 1,230,476 | 56.82 | % | 1,238,722 | 57.51 | % | |||||||||||||||
Consumer real estate loans | ||||||||||||||||||||||||
Home equity lines | 78,999 | 3.44 | % | 79,857 | 3.69 | % | 87,251 | 4.05 | % | |||||||||||||||
Single family owner occupied | 722,370 | 31.41 | % | 703,864 | 32.50 | % | 679,863 | 31.57 | % | |||||||||||||||
Owner occupied construction | 17,331 | 0.75 | % | 16,910 | 0.78 | % | 21,158 | 0.98 | % | |||||||||||||||
Total consumer real estate loans | 818,700 | 35.60 | % | 800,631 | 36.97 | % | 788,272 | 36.60 | % | |||||||||||||||
Consumer and other loans | ||||||||||||||||||||||||
Consumer loans | 148,741 | 6.47 | % | 129,794 | 5.99 | % | 122,067 | 5.67 | % | |||||||||||||||
Other | 5,149 | 0.22 | % | 4,668 | 0.22 | % | 4,670 | 0.22 | % | |||||||||||||||
Total consumer and other loans | 153,890 | 6.69 | % | 134,462 | 6.21 | % | 126,737 | 5.89 | % | |||||||||||||||
Total loans held for investment, net of unearned income | 2,299,798 | 100.00 | % | 2,165,569 | 100.00 | % | 2,153,731 | 100.00 | % | |||||||||||||||
Less: allowance for credit losses | 29,749 | 27,858 | 31,857 | |||||||||||||||||||||
Total loans held for investment, net of unearned income and allowance | $ | 2,270,049 | $ | 2,137,711 | $ | 2,121,874 |
The following table presents coveredTotal loans, by loan class, as of June 30, 2022, increased $134.23 million, or 6.20%, compared to December 31, 2021, with increases in all three loan segments. The largest increase, $96.73 million, occurred in the dates indicated:commercial loan segment. The increase was comprised of increases of $44.86 million in non-farm, non-residential real estate, $27.03 million in construction, development, and other land, and $23.87 million in multi-family categories. Consumer real estate loans increased $18.06 million with the increase concentrated in the single family owner occupied category. Consumer and other loans also increased with a total increase of $19.43 million,
September 30, 2017 | December 31, 2016 | September 30, 2016 | ||||||||||||||||||||||
(Amounts in thousands) | Amount | Percent | Amount | Percent | Amount | Percent | ||||||||||||||||||
Commercial loans | ||||||||||||||||||||||||
Construction, development, and other land | $ | 40 | 0.13 | % | $ | 4,570 | 8.02 | % | $ | 4,699 | 7.60 | % | ||||||||||||
Commercial and industrial | - | 0.00 | % | 895 | 1.57 | % | 941 | 1.52 | % | |||||||||||||||
Multi-family residential | - | 0.00 | % | 8 | 0.01 | % | 43 | 0.07 | % | |||||||||||||||
Single family non-owner occupied | 292 | 0.93 | % | 962 | 1.69 | % | 1,328 | 2.15 | % | |||||||||||||||
Non-farm, non-residential | 10 | 0.03 | % | 7,512 | 13.18 | % | 8,312 | 13.44 | % | |||||||||||||||
Agricultural | - | 0.00 | % | 25 | �� | 0.04 | % | 26 | 0.04 | % | ||||||||||||||
Farmland | - | 0.00 | % | 397 | 0.70 | % | 412 | 0.67 | % | |||||||||||||||
Total commercial loans | 342 | 1.09 | % | 14,369 | 25.21 | % | 15,761 | 25.49 | % | |||||||||||||||
Consumer real estate loans | ||||||||||||||||||||||||
Home equity lines | 26,850 | 85.82 | % | 35,817 | 62.84 | % | 38,737 | 62.64 | % | |||||||||||||||
Single family owner occupied | 4,095 | 13.09 | % | 6,729 | 11.81 | % | 7,058 | 11.41 | % | |||||||||||||||
Owner occupied construction | - | 0.00 | % | - | 0.00 | % | 201 | 0.33 | % | |||||||||||||||
Total consumer real estate loans | 30,945 | 98.91 | % | 42,546 | 74.65 | % | 45,996 | 74.38 | % | |||||||||||||||
Consumer and other loans | ||||||||||||||||||||||||
Consumer loans | - | 0.00 | % | 79 | 0.14 | % | 80 | 0.13 | % | |||||||||||||||
Total covered loans | $ | 31,287 | 100.00 | % | $ | 56,994 | 100.00 | % | $ | 61,837 | 100.00 | % |
RiskRisk Elements
We seek to mitigate credit risk by adhering tofollowing specific underwriting practices and by ongoing monitoring of our loan portfolio. Our underwriting practices include the analysis of borrowers’borrowers’ prior credit histories, financial statements, tax returns, and cash flow projections; valuation of collateral based on independent appraisers’ reports; and verification of liquid assets. We believe our underwriting criteria are appropriate for the various loan types we offer; however, losses may occur that exceed the reserves established in our allowance for loan losses. We track certain credit quality indicators that include: trends related to the risk rating of commercial loans, the level of classified commercial loans, net charge-offs, nonperforming loans, and general economic conditions. The Company’s loan review function generally analyzes all commercial loan relationships greater than $4.0$4.00 million annually and at various times during the year. Smaller commercial and retail loans are sampled for review during the year.
Nonperforming assets consist of nonaccrual loans, accrual loans contractually past due 90 days or more, unseasoned troubled debt restructurings (“TDRs”), and OREO. Ongoing activity in the classification and categories of nonperforming loans include collections on delinquencies, foreclosures, loan restructurings, and movements into or out of the nonperforming classification due to changing economic conditions, borrower financial capacity, or resolution efforts. Loans acquired with credit deterioration, with a discount, continue to accrue interest based on expected cash flows; therefore, PCI loans are not generally considered nonaccrual. For additional information, see Note 4, “Credit Quality,” to the Condensed Consolidated Financial Statements in Item 1 of this report.
The following table presents the components of nonperforming assets and related information as of the periods indicated:
September 30, 2017 | December 31, 2016 | September 30, 2016 | June 30, 2022 | December 31, 2021 | June 30, 2021 | |||||||||||||||||||
(Amounts in thousands) | ||||||||||||||||||||||||
Non-covered nonperforming | ||||||||||||||||||||||||
Nonperforming | ||||||||||||||||||||||||
Nonaccrual loans | $ | 18,942 | $ | 15,854 | $ | 17,487 | $ | 17,826 | $ | 20,768 | $ | 24,085 | ||||||||||||
Accruing loans past due 90 days or more | - | - | 62 | 131 | 87 | 327 | ||||||||||||||||||
TDRs(1) | 141 | 114 | 115 | |||||||||||||||||||||
Total nonperforming loans | 19,083 | 15,968 | 17,664 | |||||||||||||||||||||
Non-covered OREO | 3,543 | 5,109 | 4,052 | |||||||||||||||||||||
Total non-covered nonperforming assets | $ | 22,626 | $ | 21,077 | $ | 21,716 | ||||||||||||||||||
Covered nonperforming | ||||||||||||||||||||||||
Nonaccrual loans | $ | 420 | $ | 608 | $ | 688 | ||||||||||||||||||
Total nonperforming loans | 420 | 608 | 688 | |||||||||||||||||||||
Covered OREO | 54 | 276 | 2,437 | |||||||||||||||||||||
Total covered nonperforming assets | $ | 474 | $ | 884 | $ | 3,125 | ||||||||||||||||||
Total nonperforming | ||||||||||||||||||||||||
Nonaccrual loans | $ | 19,362 | $ | 16,462 | $ | 18,175 | ||||||||||||||||||
Accruing loans past due 90 days or more | - | - | 62 | |||||||||||||||||||||
TDRs(1) | 141 | 114 | 115 | |||||||||||||||||||||
TDRs(1) | 515 | 1,367 | 133 | |||||||||||||||||||||
Total nonperforming loans | 19,503 | 16,576 | 18,352 | 18,472 | 22,222 | 24,545 | ||||||||||||||||||
OREO | 3,597 | 5,385 | 6,489 | 579 | 1,015 | 1,324 | ||||||||||||||||||
Total nonperforming assets | $ | 23,100 | $ | 21,961 | $ | 24,841 | $ | 19,051 | $ | 23,237 | $ | 25,869 | ||||||||||||
Additional Information | ||||||||||||||||||||||||
Performing TDRs(2) | $ | 8,101 | $ | 12,838 | $ | 13,336 | ||||||||||||||||||
Total TDRs(3) | 8,242 | 12,952 | 13,451 | |||||||||||||||||||||
Total Accruing TDRs(2) | $ | 8,313 | $ | 8,652 | $ | 8,309 | ||||||||||||||||||
Non-covered ratios | ||||||||||||||||||||||||
Asset Quality Ratios: | ||||||||||||||||||||||||
Nonperforming loans to total loans | 1.06 | % | 0.89 | % | 1.00 | % | 0.80 | % | 1.03 | % | 1.14 | % | ||||||||||||
Nonperforming assets to total assets | 0.97 | % | 0.90 | % | 0.91 | % | 0.58 | % | 0.73 | % | 0.83 | % | ||||||||||||
Non-PCI allowance to nonperforming loans | 100.64 | % | 112.32 | % | 111.08 | % | ||||||||||||||||||
Non-PCI allowance to total loans | 1.06 | % | 1.00 | % | 1.11 | % | ||||||||||||||||||
Total ratios | ||||||||||||||||||||||||
Nonperforming loans to total loans | 1.06 | % | 0.89 | % | 1.00 | % | ||||||||||||||||||
Nonperforming assets to total assets | 0.97 | % | 0.92 | % | 1.01 | % | ||||||||||||||||||
Allowance for loan losses to nonperforming loans | 98.48 | % | 108.28 | % | 106.98 | % | ||||||||||||||||||
Allowance for loan losses to total loans | 1.05 | % | 0.97 | % | 1.07 | % | ||||||||||||||||||
Allowance for credit losses to nonperforming loans | 161.05 | % | 125.36 | % | 129.79 | % | ||||||||||||||||||
Allowance for credit losses to total loans | 1.29 | % | 1.29 | % | 1.48 | % |
(1) | TDRs restructured within the past six months and nonperforming TDRs exclude nonaccrual TDRs of | ||||||
(2) | Total accruing TDRs | ||||||
|
|
Non-covered nonperformingNonperforming assets as of SeptemberJune 30, 2017, increased $1.552022, decreased $4.19 million, or 7.35%18.01%, from December 31, 2016, primarily due to an increase in non-covered2021, with the largest decrease occurring on nonaccrual loans. Non-covered nonaccrualNonaccrual loans as of September 30, 2017, increased $3.09decreased $2.94 million, or 19.48%14.17%, from December 31, 2016.non-performing TDR's decreased $852 thousand, or 62.33%, and OREO decreased $436 thousand, or 42.96%. As of SeptemberJune 30, 2017, non-covered2022, nonaccrual loans were largely attributed to single family owner occupied (60.80%(49.46%) and, non-farm, non-residential (17.70%(15.79%) loans. As of September 30, 2017, approximately $833 thousand, or 4.40%, of non-covered nonaccrualand single family non-owner occupied loans were attributed to performing loans acquired in business combinations.(11.96%). Certain loans included in the nonaccrual category have been written down to estimated realizable value or assigned specific reserves in the allowance for loan losses based on management’s estimate of loss at ultimate resolution.
Non-covered delinquentDelinquent loans, comprised of loans 30 days or more past due and nonaccrual loans, totaled $25.10$26.56 million as of SeptemberJune 30, 2017, an increase2022, a decrease of $88 thousand,$6.54 million, or 0.35%19.76%, compared to $25.02$33.10 million as of December 31, 2016. Non-covered delinquent2021. Delinquent loans as a percent of total non-covered loans totaled 1.40%1.16% as of SeptemberJune 30, 2017,2022, which includes past due loans (0.34%(0.38%) and nonaccrual loans (1.06%(0.78%).
When restructuring loans for borrowers experiencing financial difficulty, we generally make concessions in interest rates, loan terms, or amortization terms. Certain TDRs are classified as nonperforming when modified and are returned to performing status after ninesix months of satisfactory payment performance; however, these loans remain identified as impaired until full payment or other satisfaction of the obligation occurs. Accruing TDRs as of SeptemberJune 30, 2017,2022, decreased $4.71 million,$339 thousand, or 36.37%3.92%, to $8.24$8.31 million from December 31, 2016. Nonperforming2021. Unseasoned, or loans restructured within the last six months, and nonperforming accruing TDRs as of SeptemberJune 30, 2017, increased $27 thousand, or 23.68%, to $1412022, decreased $852 thousand compared to December 31, 2016. Nonperforming2021. Unseasoned and nonperforming accruing TDRs as a percent of total accruing TDRs totaled 1.71%6.20% as of SeptemberJune 30, 2017,2022, compared to 0.88%15.81% as of December 31, 2016. Specific2021. There were no specific reserves onrelated to TDRs totaled $707 thousand as of SeptemberJune 30, 2017, compared2022, or December 31, 2021.
The CARES Act included a provision allowing banks to $670 thousandnot apply the guidance on accounting for troubled debt restructurings to loan modifications, such as extensions or deferrals, related to COVID-19 made between March 1, 2020, and the earlier of (i) December 31, 2021, or (ii) 60 days after the end of the COVID-19 national emergency. The relief can only be applied to modifications for borrowers that were not more than 30 days past due as of December 31, 2016.2019. The Company elected to adopt this provision of the CARES Act.
Non-covered OREO, which is carried at the lesser of estimated net realizable value or cost, decreased $1.57 million,$436 thousand, or 30.65%42.96%, as of SeptemberJune 30, 2017,2022, compared to December 31, 2016. Non-covered OREO2021, and consisted of 2610 properties with an average holding period of 13 months as of September 30, 2017.approximately 14 months. The net loss on the sale of OREO totaled $522$421 thousand for the threesix months ended SeptemberJune 30, 2017,2022, compared to $184$252 thousand for the same period of the prior year, and $943 thousand for the nine months ended September 30, 2017, compared to $1.00 million for the same period of the prior year. The following table presents the changes in OREO during the periods indicated:
Nine Months Ended September 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||||
2017 | 2016 | |||||||||||||||||||||||||||||||
Non-covered | Covered | Total | Non-covered | Covered | Total | 2022 | 2021 | |||||||||||||||||||||||||
(Amounts in thousands) | ||||||||||||||||||||||||||||||||
Beginning balance | $ | 5,109 | $ | 276 | $ | 5,385 | $ | 4,873 | $ | 4,034 | $ | 8,907 | $ | 1,015 | $ | 2,083 | ||||||||||||||||
Additions | 1,256 | 26 | 1,282 | 2,452 | 1,200 | 3,652 | 322 | 810 | ||||||||||||||||||||||||
Disposals | (2,169 | ) | (218 | ) | (2,387 | ) | (2,561 | ) | (2,131 | ) | (4,692 | ) | (325 | ) | (1,317 | ) | ||||||||||||||||
Valuation adjustments | (653 | ) | (30 | ) | (683 | ) | (712 | ) | (666 | ) | (1,378 | ) | (433 | ) | (252 | ) | ||||||||||||||||
Ending balance | $ | 3,543 | $ | 54 | $ | 3,597 | $ | 4,052 | $ | 2,437 | $ | 6,489 | $ | 579 | $ | 1,324 |
Allowance for LoanCredit Losses
The allowanceACL reflects management’s estimate of losses that will result from the inability of our borrowers to make required loan payments. Management uses a systematic methodology to determine its ACL for loans held for investment and certain off-balance-sheet credit exposures. The ACL is a valuation account that is deducted from the amortized cost basis to present the net amount expected to be collected on the loan losses is maintained at a level management deems sufficient to absorb probable loan losses inherent inportfolio. Management considers the effects of past events, current conditions, and reasonable and supportable forecasts on the collectability of the loan portfolio. The Company’s estimate of its ACL involves a high degree of judgment; therefore, management’s process for determining expected credit losses may result in a range of expected credit losses. It is possible that others, given the same information, may at any point in time reach a different reasonable conclusion. The Company’s ACL recorded in the balance sheet reflects management’s best estimate of expected credit losses. The Company recognizes in net income the amount needed to adjust the ACL for management’s current estimate of expected credit losses. The Company’s measurement of credit losses policy adheres to GAAP as well as interagency guidance. The Company's ACL is calculated using collectively evaluated and individually evaluated loans.
For collectively evaluated loans, the Company in general uses two modeling approaches to estimate expected credit losses. The Company projects the contractual run-off of its portfolio at the segment level and incorporates a prepayment assumption in order to estimate exposure at default. Financial assets that have been individually evaluated can be returned to a pool for purposes of estimating the expected credit loss insofar as their credit profile improves and that the repayment terms were not considered to be unique to the asset.
In addition to its own loss experience, management also includes peer bank historical loss experience in its assessment of expected credit losses to determine the ACL. The Company utilized call report data to measure historical credit loss experience with similar risk characteristics within the segments. For the majority of segment models for collectively evaluated loans, the Company incorporated at least one macroeconomic driver either using a statistical regression modeling methodology or simple loss rate modeling methodology.
Included in its systematic methodology to determine its ACL for loans held for investment and certain off-balance-sheet credit exposures. Management considers the need to qualitatively adjust expected credit losses for information not already captured in the loss estimation process. These qualitative adjustments either increase or decrease the quantitative model estimation (i.e. formulaic model results). Each period the Company considers qualitative factors that are relevant within the qualitative framework. For further discussion of our Allowance for Credit Losses - See Note 1 - "Basis of Presentation - Significant Accounting Policies".
With the adoption of ASU 2016-13 effective January 1, 2021, the Company changed its method for calculating it allowance isfor loans from an incurred loss method to a life of loan method. See Note 1 – "Basis of Presentation - Significant Accounting Policies" for further details. As of June 30, 2022, the balance of the ACL for loans was $29.75 million, or 1.29% of total loans. The ACL at June 30, 2022, increased $1.89 million from the balance of $27.86 million recorded at December 31, 2021. This increase included a $2.47 million provision offset by net charge-offs for the six months of $580 thousand. The provision was primarily driven by loan growth in the first half.
At June 30, 2022, the Company also had an allowance for unfunded commitments of $956 thousand which was recorded in Other Liabilities on the Balance Sheet. During the first six months of 2022, the provision for loancredit losses and recoveries of prior loan charge-offs and decreased by loans charged off. The provision for loan losses is calculated and charged to expense to bring the allowance to an appropriate level using a systematic process of measurement that requires significant judgments and estimates. As of December 31, 2016, our qualitative risk factors reflect a stable risk of loan losses due to consistent asset quality metrics and relatively stable business and economic conditions in our primary market areas. The loan portfolio is continually monitored for deterioration in credit, which may result in the need to increase the allowance for loan losses in future periods. Management considered the allowance adequate as of September 30, 2017; however, no assurance can be made that additions to the allowance will not be required in future periods. For additional information, see Note 5, “Allowance for Loan Losses,” to the Condensed Consolidated Financial Statements in Item 1 of this report.
The allowance for loan losses as of September 30, 2017, increased $1.26 million, or 7.01%, from December 31, 2016. The increaseon unfunded commitments was largely attributed to a $1.00 million increase in unallocated reserves combined with a $641$278 thousand increase in specific reserves on impaired loans. The non-PCI allowance as a percent of non-covered loans totaled 1.06% as of September 30, 2017, compared to 1.00% as of December 31, 2016. PCI loans were aggregated into five loan pools as of September 30, 2017, and December 31, 2016: Waccamaw commercial, Waccamaw serviced home equity lines, Waccamaw residential, Peoples Bank of Virginia (“Peoples”) commercial, and Peoples residential. The cash flow analysis identified no impaired PCI loan pools as of September 30, 2017, compared to one impaired PCI loan pool with a cumulative impairment of $12 thousand as of December 31, 2016. We recorded a net charge-off of $410 thousand for the three months ended September 30, 2017, compared to a net charge-offreversal of $312provision of $48 thousand recorded in the same period of the prior year, largely due to an increase in recoveries in the commercial loan segment in 2016. We recorded a net charge-off of $898 thousand for the nine months ended September 30, 2017, compared to a net charge-off of $1.35 million in the same period of the prior year, largely due to an overall reduction in charge-offs for commercial and consumer real estate loans offset by an increase in recoveries in the commercial loan segment in 2016.2021.
The following table presents the changes in the allowance for loancredit losses by loan class,for loans during the periods indicated:
Three Months Ended September 30, | ||||||||||||||||||||||||||||||||
2017 | 2016 | Three Months Ended June 30, | ||||||||||||||||||||||||||||||
Non-PCI Portfolio | PCI Portfolio | Total | Non-PCI Portfolio | PCI Portfolio | Total | 2022 | 2021 | |||||||||||||||||||||||||
(Amounts in thousands) | ||||||||||||||||||||||||||||||||
Beginning balance | $ | 18,878 | $ | 8 | $ | 18,886 | $ | 21,087 | $ | 12 | $ | 21,099 | $ | 28,981 | $ | 34,563 | ||||||||||||||||
Provision for (recovery of) loan losses | 738 | (8 | ) | 730 | (1,154 | ) | - | (1,154 | ) | |||||||||||||||||||||||
Benefit attributable to the FDIC indemnification asset | - | - | - | - | - | - | ||||||||||||||||||||||||||
Provision for (recovery of) loan losses charged to operations | 738 | (8 | ) | 730 | (1,154 | ) | - | (1,154 | ) | 510 | (2,230 | ) | ||||||||||||||||||||
Recovery of loan losses recorded through the FDIC indemnification asset | - | - | - | - | - | - | ||||||||||||||||||||||||||
Charge-offs | (717 | ) | - | (717 | ) | (772 | ) | - | (772 | ) | (1,469 | ) | (1,902 | ) | ||||||||||||||||||
Recoveries | 307 | - | 307 | 460 | - | 460 | 1,727 | 1,426 | ||||||||||||||||||||||||
Net charge-offs | (410 | ) | - | (410 | ) | (312 | ) | - | (312 | ) | 258 | (476 | ) | |||||||||||||||||||
Ending balance | $ | 19,206 | $ | - | $ | 19,206 | $ | 19,621 | $ | 12 | $ | 19,633 | $ | 29,749 | $ | 31,857 |
Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||
2017 | 2016 | Six Months Ended June 30, | ||||||||||||||||||||||||||||||
Non-PCI Portfolio | PCI Portfolio | Total | Non-PCI Portfolio | PCI Portfolio | Total | 2021 | 2021 | |||||||||||||||||||||||||
(Amounts in thousands) | ||||||||||||||||||||||||||||||||
Beginning balance | $ | 17,936 | $ | 12 | $ | 17,948 | $ | 20,179 | $ | 54 | $ | 20,233 | $ | 27,858 | $ | 26,182 | ||||||||||||||||
Provision for (recovery of) loan losses | 2,168 | (12 | ) | 2,156 | 796 | (42 | ) | 754 | ||||||||||||||||||||||||
Benefit attributable to the FDIC indemnification asset | - | - | - | - | 1 | 1 | ||||||||||||||||||||||||||
Cumulative effect of adoption of ASU 2016-13 | - | 13,107 | ||||||||||||||||||||||||||||||
Provision for (recovery of) loan losses charged to operations | 2,168 | (12 | ) | 2,156 | 796 | (41 | ) | 755 | 2,471 | (6,231 | ) | |||||||||||||||||||||
Recovery of loan losses recorded through the FDIC indemnification asset | - | - | - | - | (1 | ) | (1 | ) | ||||||||||||||||||||||||
Charge-offs | (1,976 | ) | - | (1,976 | ) | (2,691 | ) | - | (2,691 | ) | (2,771 | ) | (3,632 | ) | ||||||||||||||||||
Recoveries | 1,078 | - | 1,078 | 1,337 | - | 1,337 | 2,191 | 2,431 | ||||||||||||||||||||||||
Net charge-offs | (898 | ) | - | (898 | ) | (1,354 | ) | - | (1,354 | ) | (580 | ) | (1,201 | ) | ||||||||||||||||||
Ending balance | $ | 19,206 | $ | - | $ | 19,206 | $ | 19,621 | $ | 12 | $ | 19,633 | $ | 29,749 | $ | 31,857 |
Deposits
Total deposits as of SeptemberJune 30, 2017,2022, increased $22.48$69.15 million, or 1.22%2.53%, compared to December 31, 2016. Noninterest-bearing deposits increased $25.24 million2021. The increase was largely attributable to savings and interest-bearing deposits increased $14.91 million while savingsnoninterest-bearing demand deposits which include money market accountsincreased $36.89 million, or 4.31% and savings accounts, decreased $13.06 million; and$35.18 million, or 4.17%, respectively. Interest-bearing demand deposits also reflected growth with an increase of $26.67 million, or 3.94%. These increases were offset by a decrease in time deposits which include certificates of deposit and individual retirement accounts, decreased $4.60 as of September 30, 2017, compared to December 31, 2016.$29.59 million, or 8.34%.
Borrowings
Total borrowings in the form of retail repurchase agreements as of SeptemberJune 30, 2017, decreased $44.932022, increased $1.10 million, or 25.14%71.55%, compared to December 31, 2016. Short-term borrowings consisted of retail repurchase agreements, which decreased $14.22 million, or 19.48%, while the weighted average rate remained constant at 0.07%, as of September 30, 2017, and December 31, 2016.
Long-term borrowings consisted of wholesale repurchase agreements and FHLB borrowings, including convertible and callable advances as of September 30, 2017. Wholesale repurchase agreements totaled $25.00 million with a weighted average rate of 3.18% as of September 30, 2017, and December 31, 2016. Long-term FHLB borrowings decreased $15.00 million, or 23.08%, to $50.00 million and the weighted average rate decreased 4 basis points to 4.00% as of September 30, 2017, compared to December 31, 2016. The decrease was due to a $15.00 million convertible advance with a 4.15% rate that matured on May 4, 2017. The Company redeemed all of its trust preferred securities on January 9, 2017, resulting in a decrease of $15.46 million in subordinated debt.2021.
Liquidity and Capital Resources
Liquidity
Liquidity is a measure of our ability to convert assets to cash or raise cash to meet financial obligations. We believe that liquidity management should encompass an overall balance sheet approach that draws together all sources and uses of liquidity. Poor or inadequate liquidity risk management may result in a funding deficit that could have a material impact on our operations. We maintain a liquidity risk management policy and contingency funding policy (“Liquidity Plan”) to detect potential liquidity issues and protect our depositors, creditors, and shareholders. The Liquidity Plan includes various internal and external indicators that are reviewed on a recurring basis by our Asset/Liability Management Committee (“ALCO”) of the Board of Directors. ALCO reviews liquidity risk exposure and policies related to liquidity management; ensures that systems and internal controls are consistent with liquidity policies; and provides accurate reports about liquidity needs, sources, and compliance. The Liquidity Plan involves ongoing monitoring and estimation of potentially credit sensitive liabilities and the sources and amounts of balance sheet and external liquidity available to replace outflows during a funding crisis. The liquidity model incorporates various funding crisis scenarios and a specific action plan is formulated, and activated, when a financial shock that affects our normal funding activities is identified. Generally, the plan will reflect a strategy of replacing liability outflows with alternative liabilities, rather than balance sheet asset liquidity, to the extent that significant premiums can be avoided. If alternative liabilities are not available, outflows will be met through liquidation of balance sheet assets, including unpledged securities.
As a financial holding company, the Company’sCompany’s primary source of liquidity is dividends received from the Bank, which are subject to certain regulatory limitations. Other sources of liquidity include cash, investment securities, and borrowings. As of SeptemberJune 30, 2017,2022, the Company’s cash reserves and short-term investment securities totaled $13.84$9.28 million and availability on an unsecured, committed line of credit with an unrelated financial institution totaled $15.00 million. There was no outstanding balance on the line of credit as of September 30, 2017.$20.26 million, respectively. The Company’s cash reserves and investments provide adequate working capital to meet obligations projected dividends to shareholders, and anticipated debt repayments for the next twelve months.
In addition to cash on hand and deposits with other financial institutions, we rely on customer deposits, cash flows from loans and investment securities, and lines of credit from the FHLB and the Federal Reserve Bank (“FRB”) Discount Window to meet potential liquidity demands. These sources of liquidity are immediately available to satisfy deposit withdrawals, customer credit needs, and our operations. Secondary sources of liquidity include approved lines of credit with correspondent banks and unpledged available-for-sale securities. As of SeptemberJune 30, 2017,2022, our unencumbered cash totaled $105.12$398.24 million, unused borrowing capacity from the FHLB totaled $446.30$427.55 million, available credit from the FRB Discount Window totaled $6.15$6.08 million, available lines from correspondent banks totaled $90.00 million, and unpledged available-for-sale securities totaled $73.74$253.55 million.
Cash Flows
The following table summarizes the components of cash flow for the periods indicated:
Nine Months Ended September 30, | ||||||||
2017 | 2016 | |||||||
(Amounts in thousands) | ||||||||
Net cash provided by operating activities | $ | 25,877 | $ | 34,790 | ||||
Net cash provided by investing activities | 34,999 | 39,572 | ||||||
Net cash used in financing activities | (32,064 | ) | (60,220 | ) | ||||
Net increase in cash and cash equivalents | 28,812 | 14,142 | ||||||
Cash and cash equivalents at beginning of period | 76,307 | 51,787 | ||||||
Cash and cash equivalents at end of period | $ | 105,119 | $ | 65,929 |
Six Months Ended June 30, | ||||||||
2022 | 2021 | |||||||
(Amounts in thousands) | ||||||||
Net cash provided by operating activities | $ | 28,200 | $ | 19,709 | ||||
Net cash (used) provided by investing activities | (356,659 | ) | 44,632 | |||||
Net cash provided by financing activities | 49,262 | 97,836 | ||||||
Net increase in cash and cash equivalents | (279,197 | ) | 162,177 | |||||
Cash and cash equivalents, beginning balance | 677,439 | 456,561 | ||||||
Cash and cash equivalents, ending balance | $ | 398,242 | $ | 618,738 |
Cash and cash equivalents increased $28.81decreased $279.20 million for the ninesix months ended SeptemberJune 30, 2017,2022, compared to an increase of $14.14$162.18 million for the same period of the prior year primarily due to financing activities. Netyear. The decrease in cash used in financing activities decreased $28.16 millionand cash equivalents for the nine months ended September 30, 2017, comparedsix month period was due largely to the same periodpurchase of securities available for sale of $236.85 million and the prior year primarily due to a declinefunding of $133.40 million in interest-bearing deposit runoff and treasury stock repurchasesloan originations. The decreases were offset by the maturity and repaymentan net increase in deposits of FHLB and other borrowings. Net cash provided by operating activities decreased $8.91 million for the nine months ended September 30, 2017, compared to the same period of the prior year. Net cash provided by investing activities decreased $4.57 million for the nine months ended September 30, 2017, compared to the same period of the prior year, which was largely due to a decrease in loan originations offset by a decrease in proceeds from sales and maturities of available-for-sale securities.$69.15 million.
Capital Resources
We are committed to effectively managing our capital to protect our depositors, creditors, and shareholders. Failure to meet certain capital requirements may result in actions by regulatory agencies that could have a material impact on our operations. Total stockholders’stockholders’ equity as of SeptemberJune 30, 2017, increased $13.582022, decreased $9.73 million, or 4.01%2.27%, to $352.64$418.05 million from $339.06$427.78 million as of December 31, 2016.2021. The change in stockholders’ equity was largely due to net income of $20.27$20.73 million andoffset by other comprehensive income (“OCI”)loss of $1.94$10.11 million, offset bythe repurchase of 415,507 shares of our common stock totaling $12.04 million, and dividends declared on our common stock of $8.50 million and repurchased treasury shares of $1.26$9.05 million. OCI was primarily due to net unrealized gains on securities. In accordance with current regulatory guidelines, accumulated other comprehensive income/(loss) is largely excluded from stockholders'stockholders’ equity in the calculation of our capital ratios. We repurchased 50,118 shares of our common stock for $1.26 million in the first nine months of 2017. Our book value per common share increased $0.81,decreased $0.01, or 4.06%0.04%, to $20.76$25.33 as of SeptemberJune 30, 2017,2022, from $19.95$25.34 as of December 31, 2016.2021.
Capital Adequacy Requirements
Risk-based capital guidelines, issued by state and federal banking agencies, include balance sheet assets and off-balance sheet arrangements weighted by the risks inherent in the specific asset type. Our current risk-based capital requirements are based on the international capital standards known as Basel III, became effective on January 1, 2015, subject to a four-year phase-in period. Basel III’s capital conservation buffer became effective on January 1, 2016, at 0.625%, and will be phased in over a four-year period (increasing by an additional 0.625% each year until it reaches 2.5% on January 1, 2019).III. A description of the Basel III capital rules is included in Part I, Item 1 of the 20162021 Form 10-K. Our current required capital ratios are as follows:
● | 4.5% Common Equity Tier 1 capital to risk-weighted assets (effectively |
● | 6.0% Tier 1 capital to risk-weighted assets (effectively |
● | 8.0% Total capital to risk-weighted assets (effectively |
● | 4.0% Tier 1 capital to average consolidated assets (“Tier 1 leverage ratio”) |
The following table presents our capital ratios as of the dates indicated:
September 30, 2017 | December 31, 2016 | June 30, 2022 | December 31, 2021 | |||||||||||||
The Company | ||||||||||||||||
Company | Bank | Company | Bank | |||||||||||||
Common equity Tier 1 ratio | Common equity Tier 1 ratio | 13.90% | 13.88% | 13.37% | 11.93% | 14.39% | 13.37% | |||||||||
Tier 1 risk-based capital ratio | Tier 1 risk-based capital ratio | 13.90% | 14.74% | 13.37% | 11.93% | 14.39% | 13.37% | |||||||||
Total risk-based capital ratio | Total risk-based capital ratio | 14.96% | 15.79% | 14.62% | 13.18% | 15.65% | 14.62% | |||||||||
Tier 1 leverage ratio | Tier 1 leverage ratio | 11.18% | 11.07% | 9.53% | 8.40% | 9.65% | 8.94% | |||||||||
The Bank | ||||||||||||||||
Common equity Tier 1 ratio | 12.68% | 12.93% | ||||||||||||||
Tier 1 risk-based capital ratio | 12.68% | 12.93% | ||||||||||||||
Total risk-based capital ratio | 13.74% | 13.98% | ||||||||||||||
Tier 1 leverage ratio | 10.18% | 9.71% |
Our risk-based capital ratios as of June 30, 2022, decreased from December 31, 2021, due to an increase in our risk-weighted assets. The increase in risk-weighted assets was primarily due to the increase in total loans as well as an increase in available for sale debt securities from year-end 2021. As of SeptemberJune 30, 2017,2022, we continued to meet all capital adequacy requirements and were classified as well-capitalized under the regulatory framework for prompt corrective action. Management believes there have been no conditions or events since those notifications that would change the Bank’s classification. Additionally, our capital ratios were in excess of the minimum standards under the Basel III capital rules on a fully phased-in basis, if such requirements were in effect, as of SeptemberJune 30, 2017.2022.
Off-Balance Sheet Arrangements
We extend contractual commitments with off-balance sheet risk in the normal course of business to meet the financing needs of our customers. Our exposure to credit loss in the event of nonperformance by other parties to financial instruments is the same as the contractual amount of the instrument.
The following table presents our off-balance sheet arrangements as of the dates indicated:
September 30, 2017 | December 31, 2016 | June 30, 2022 | December 31, 2021 | |||||||||||||
(Amounts in thousands) | ||||||||||||||||
Commitments to extend credit | $ | 245,978 | $ | 261,801 | $ | 299,637 | $ | 272,447 | ||||||||
Financial letters of credit | 550 | 4,756 | ||||||||||||||
Performance letters of credit(1) | 117,768 | 79,144 | ||||||||||||||
Standby letters of credit and financial guarantees (1) | 126,275 | 153,717 | ||||||||||||||
Total off-balance sheet risk | $ | 364,296 | $ | 345,701 | $ | 425,912 | $ | 426,164 | ||||||||
Reserve for unfunded commitments | $ | 66 | $ | 326 | ||||||||||||
Allowance for unfunded commitments | $ | 956 | $ | 678 |
(1) | ||||
|
Market Risk and Interest Rate Sensitivity
Market risk represents the risk of loss due to adverse changes in current and future cash flows, fair values, earnings, or capital due to movements in interest rates and other factors. Our profitability is largely dependent upon net interest income, which is subject to variation due to changes in the interest rate environment and unbalanced repricing opportunities. We are subject to interest rate risk when interest-earning assets and interest-bearing liabilities reprice at differing times, when underlying rates change at different levels or in varying degrees, when there is an unequal change in the spread between two or more rates for different maturities, and when embedded options, if any, are exercised. ALCO reviews our mix of assets and liabilities with the goal of limiting exposure to interest rate risk, ensuring adequate liquidity, and coordinating sources and uses of funds while maintaining an acceptable level of net interest income given the current interest rate environment. ALCO is also responsible for overseeing the formulation and implementation of policies and strategies to improve balance sheet positioning and mitigate the effect of interest rate changes.
In order to manage our exposure to interest rate risk, we periodically review third-partyinternal simulation and internal simulationthird-party models that project net interest income at risk, which measures the impact of different interest rate scenarios on net interest income, and the economic value of equity at risk, which measures potential long-term risk in the balance sheet by valuing our assets and liabilities at fair value under different interest rate scenarios. Simulation results show the existence and severity of interest rate risk in each scenario based on our current balance sheet position, assumptions about changes in the volume and mix of interest-earning assets and interest-bearing liabilities, and estimated yields earned on assets and rates paid on liabilities. The simulation model provides the best tool available to us and the industry for managing interest rate risk; however, the model cannot precisely predict the impact of fluctuations in interest rates on net interest income due to the use of significant estimates and assumptions. Actual results will differ from simulated results due to the timing, magnitude, and frequency of interest rate changes; changes in market conditions and customer behavior; and changes in our strategies that management might undertake in response to a sudden and sustained rate shock.
TheAs of June 30, 2022, the Federal Open Market Committee maintainedhad set the benchmark federal funds rate atto a range of 100150 to 125175 basis points. The level of benchmark interest rates at year-end 2021, rendered a complete downward shock of 100 basis points meaningless; accordingly, a downward rate scenario is only presented for the current period. In the downward rate shock presented, benchmark interest rates were assumed at levels with floors near 0%. The following table presents the sensitivity of net interest income from immediate and sustained rate shocks in various interest rate scenarios over a twelve-month period for the periods indicated. Due to the current target rate, we do not reflect a decrease of more than 100 basis points from current rates in our analysis.
September 30, 2017 | December 31, 2016 | |||||||||||||||
Change in |
| Change in |
| |||||||||||||
Increase (Decrease) in Basis Points | Net Interest Income | Percent Change | Net Interest Income | Percent Change | ||||||||||||
(Dollars in thousands) | ||||||||||||||||
300 | $ | 1,655 | 1.9 | % | $ | 526 | 0.6 | % | ||||||||
200 | 1,294 | 1.5 | % | 438 | 0.5 | % | ||||||||||
100 | 775 | 0.9 | % | 183 | 0.2 | % | ||||||||||
(100) | (4,039 | ) | -4.8 | % | (2,616 | ) | -3.1 | % |
We have established policy limits for tolerance of interest rate risk in various interest rate scenarios and exposure limits to changes in the economic value of equity. As of September 30, 2017, exposure to interest rate risk is within our defined policy limits.
The Company primarily uses derivative instruments to manage exposure to market risk and meet customer financing needs. As of September 30, 2017, we maintained interest rate swap agreements with notional amounts totaling $5.89 million to modify our exposure to interest rate risk caused by changes in the LIBOR curve in relation to certain designated fixed rate loans. The fair value of the swap agreements, which are accounted for as fair value hedges and recorded as derivative liabilities, totaled $151 thousand as of September 30, 2017, and $167 thousand as of December 31, 2016. For additional information, see Note 9, “Derivative Instruments and Hedging Activities,” to the Condensed Consolidated Financial Statements in Item 1 of this report.
June 30, 2022 | December 31, 2021 | |||||||||||||||
Increase (Decrease) in Basis Points | Change in Net Interest Income | Percent Change | Change in Net Interest Income | Percent Change | ||||||||||||
(Dollars in thousands) | ||||||||||||||||
300 | $ | 6,500 | 5.84 | % | $ | 14,960 | 14.90 | % | ||||||||
200 | 4,662 | 4.19 | % | 10,303 | 10.30 | % | ||||||||||
100 | 2,620 | 2.36 | % | 5,502 | 5.50 | % | ||||||||||
(100) | (8,545 | ) | 7.68 | % | N/A | N/A |
Inflation and Changing Prices
Our consolidated financial statements and related notes are presented in accordance with GAAP, which requires the measurement of results of operations and financial position in historical dollars. Inflation may cause a rise in price levels and changes in the relative purchasing power of money. These inflationary effects are not reflected in historical dollar measurements. The primary effect of inflation on our operations is increased operating costs. In management’smanagement’s opinion, interest rates have a greater impact on our financial performance than inflation. Interest rates do not necessarily fluctuate in the same direction, or to the same extent, as the price of goods and services; therefore, the effect of inflation on businesses with large investments in property, plant, and inventory is generally more significant than the effect on financial institutions.
Astronomic federal government spending, growth in economic activity and demand for goods and services, alongside labor shortages and supply chain complications, have contributed to rising inflation. In response, the Central Bank has begun raising interest rates and signaled that it will continue to raise rates, taper its purchase of mortgage and other bonds and reduce the size of the balance sheet over time. The U.S.timing and impact of inflation and rising interest rates on our business and related financial results will depend on future developments, which are highly uncertain and difficult to predict.
In anticipation of the potential discontinuance of the London Interbank Offered Rate (LIBOR) in 2023, the Company has developed a LIBOR transition plan. In 2018, the Company discontinued the use of LIBOR as a reference rate continuesin new loan originations. Additionally, the Company has the ability to be relatively stable, and management believes that any changes in inflation will not be materialsubstitute an alternative referenced rate for most adjustable rate loans originated prior to our financial performance.2018.
Quantitative and Qualitative Disclosures about Market Risk |
The information required in this item is incorporated by reference to “Market Risk and Interest Rate Sensitivity” in Item 12 of this report.Quarterly Report on Form 10-Q.
Controls and Procedures |
Evaluation of Disclosure Controls and Procedures
In connection with this report, we conducted an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of our disclosure controls and procedures under the Exchange Act Rule 13a-15(b). Based upon that evaluation, the CEO and CFO concluded that, as of SeptemberJune 30, 2017,2022, our disclosure controls and procedures were effective.
Disclosure controls and procedures are our Company’sCompany’s controls and other procedures that are designed to ensure that information we are required to disclose in the reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information we are required to disclose in the reports that we file or submit under the Exchange Act is accumulated and communicated to management, including the CEO and CFO, as appropriate, to allow timely decisions about required disclosure.
Management, including the CEO and CFO, does not expect that our disclosure controls and internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our Company have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, collusion of two or more people, or management’smanagement’s override of the controls.
Changes in Internal Control over Financial Reporting
We assess the adequacy of our internal control over financial reporting quarterly and enhance our controls in response to internal control assessments and internal and external audit and regulatory recommendations. There were no changes in our internal control over financial reporting during the quarter ended SeptemberJune 30, 2017,2022, that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
OTHER INFORMATION |
Legal Proceedings |
We are currently a defendant in various legal actions and asserted claims in the normal course of business. Although we are unable to assess the ultimate outcome of each matter with certainty, we believe that the resolution of these actions should not have a material adverse effect on our financial position, results of operations, or cash flows.
Risk Factors |
OurThe risk factors set forth in our annual report on Form 10-K for the year ended December 31, 2021, discuss potential events, trends, or other circumstances that could adversely affect our business, financial condition, results of operations, cash flows, liquidity, access to capital resources, and, consequently, cause the market value of our common stock to decline. These risks could cause our future results to differ materially from historical results and expectations of future financial performance. If any of the risks occur and the market price of our common stock declines significantly, individuals may lose all, or part, of their investment in our company.Company. Individuals should carefully consider our risk factors and information included or incorporated by reference, in thisour annual report on Form 10-K for the year ended December 31, 2021 before making an investment decision. There may be risks and uncertainties that we have not identified or that we have deemed immaterial that could adversely affect our business; therefore, oursuch risk factors are not intended to be an exhaustive list of all risks we face. There have been no material changes to the risk factors included in Part I, Item 1A, “Risk Factors,” of our 2016annual report on Form 10-K.10-K for the year ended December 31, 2021.
Unregistered Sales of Equity Securities and Use of Proceeds |
(a) | Not Applicable |
(b) | Not Applicable |
(c) | Issuer Purchases of Equity Securities |
We repurchased 39,516283,507 shares of our common stock during the thirdsecond quarter of 20172022 compared to 171,225261,600 shares purchased during the same quarter of the prior year.2021.
The following table provides information about purchases of our common stock made by us or on our behalf by any affiliated purchaser, as defined in Rule 10b-18(a)(3) under the Exchange Act, during the periods indicated:
Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of a Publicly Announced Plan | Maximum Number of Shares that May Yet be Purchased Under the Plan(1) | |||||||||||||
July 1-31, 2017 | - | $ | - | - | 635,804 | |||||||||||
August 1-31, 2017 | 13,177 | 25.16 | 13,177 | 622,627 | ||||||||||||
September 1-30, 2017 | 26,339 | 25.57 | 26,339 | 604,723 | ||||||||||||
Total | 39,516 | $ | 25.43 | 39,516 |
|
|
Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of a Publicly Announced Plan | Maximum Number of Shares that May Yet be Purchased Under the Plan | |||||||||||||
April 1-30, 2022 | 46,600 | $ | 27.66 | 46,600 | 1,272,014 | |||||||||||
May 1-31, 2022 | 118,600 | 27.53 | 118,600 | 1,153,414 | ||||||||||||
June 1-30, 2022 | 118,307 | 28.68 | 118,307 | 1,035,107 | ||||||||||||
Total | 283,507 | $ | 28.03 | 283,507 |
Defaults Upon |
None.None.
Mine Safety Disclosures |
None.None.
Other Information |
None.
Exhibits |
| ||
2.2 | ||
3.1 | ||
3.2 | ||
4.1 | ||
4.2 | ||
|
| ||
10.1.1** | ||
10.1.2** | ||
10.2** | ||
10.3** | ||
| ||
|
10.6** | ||
10.7** | ||
| ||
10.9.1** | ||
10.9.2** | ||
10.9.3** |
10.9.4** | ||
10.9.5** | ||
10.9.6* | Amendment #5 to the First Community Bancshares, Inc. and Affiliates Executive Retention Plan. | |
10.9.7* | Amendment #6 to the First Community Bancshares, Inc. and Affiliates Executive Retention Plan. | |
10.10** | ||
10.11.1** | ||
10.11.2** | ||
10.12.1** | ||
10.12.2** | ||
10.13** |
101*** | Interactive data files pursuant to Rule 405 of Regulation | |
104* | The cover page of First Community Bankshares, Inc. Quarterly Report on Form 10-Q for the quarter ended June 30, 2022, formatted in Inline XBRL (included within the Exhibit 101 attachments). |
* | Filed herewith |
** | Indicates a management contract or compensation plan or |
*** | Submitted electronically herewith |
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned,, thereunto duly authorized, on the 3rd5th day of November, 2017.August, 2022.
First Community (Registrant) | ||
/s/ William P. Stafford, II | ||
William P. Stafford, II | ||
Chief Executive Officer | ||
(Principal Executive Officer) | ||
/s/ David D. Brown | ||
David D. Brown | ||
| ||
| ||
(Principal Accounting Officer) |
63