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 September 30, 2018March 31, 2019
OR
☐ TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to ____.
Commission File Number: 001-38280
CBTX, INC.
(Exact name of registrant as specified in its charter)
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Texas |
| 20‑8339782 |
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(State or other jurisdiction of |
| (I.R.S. employer |
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incorporation or organization) |
| identification no.) |
9 Greenway Plaza, Suite 110
Houston, Texas 77046
(Address of principal executive offices)
(713) 210‑7600
(Registrant’s telephone number, including area code)
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, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b‑2 of the Exchange Act.
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Large accelerated filer ☐ |
| Accelerated filer |
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Non-accelerated filer |
| Smaller reporting company ☐ |
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| Emerging growth company ☒ |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒ |
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 October 26, 2018,April 24, 2019, there were 25,961,58425,999,297 shares of the registrant’s common stock, par value $0.01 per share outstanding, including 230,080221,253 shares of unvested restricted stock.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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CBTX, INC. AND SUBSIDIARY
Condensed Consolidated Balance Sheets
(Dollars in thousands, except par value and per share amounts)
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| September 30, |
| December 31, |
| March 31, |
| December 31, | ||||
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| 2018 |
| 2017 |
| 2019 |
| 2018 | ||||
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ASSETS |
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Cash and due from banks |
| $ | 51,980 |
| $ | 59,255 |
| $ | 54,110 |
| $ | 54,450 |
Interest-bearing deposits at other financial institutions |
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| 229,660 |
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| 266,944 |
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| 222,405 |
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| 327,620 |
Total cash and cash equivalents |
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| 281,640 |
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| 326,199 |
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| 276,515 |
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| 382,070 |
Time deposits in other banks |
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| — |
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| 600 | ||||||
Debt securities |
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| 222,493 |
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| 223,208 |
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| 228,684 |
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| 229,964 |
Equity investments |
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| 15,101 |
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| 12,226 |
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| 15,065 |
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| 13,026 |
Loans held for sale |
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| 384 |
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| 1,460 |
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| 852 |
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| — |
Loans, net of allowance for loan loss of $24,486 and $24,778 at September 30, 2018 and December 31, 2017, respectively |
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| 2,438,711 |
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| 2,286,766 | ||||||
Premises and equipment, net |
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| 52,032 |
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| 53,607 | ||||||
Loans, net of allowance for loan loss of $24,643 and $23,693 at March 31, 2019 and December 31, 2018, respectively |
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| 2,520,066 |
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| 2,423,130 | ||||||
Premises and equipment, net of accumulated depreciation of $30,674 and $29,867 at March 31, 2019 and December 31, 2018, respectively |
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| 51,453 |
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| 51,622 | ||||||
Goodwill |
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| 80,950 |
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| 80,950 |
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| 80,950 |
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| 80,950 |
Other intangible assets, net of accumulated amortization of $14,678 and $13,930 at September 30, 2018 and December 31, 2017, respectively |
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| 6,038 |
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| 6,770 | ||||||
Other intangible assets, net of accumulated amortization of $15,147 and $14,915 at March 31, 2019 and December 31, 2018, respectively |
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| 5,538 |
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| 5,775 | ||||||
Bank-owned life insurance |
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| 71,070 |
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| 68,010 |
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| 71,955 |
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| 71,525 |
Operating lease right-to-use asset |
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| 12,879 |
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| — | ||||||
Deferred tax asset, net |
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| 7,710 |
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| 5,780 |
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| 5,942 |
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| 7,201 |
Repossessed real estate and other assets |
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| 175 |
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| 705 | ||||||
Other assets |
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| 14,149 |
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| 14,802 |
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| 13,563 |
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| 13,833 |
Total assets |
| $ | 3,190,453 |
| $ | 3,081,083 |
| $ | 3,283,462 |
| $ | 3,279,096 |
LIABILITIES AND SHAREHOLDERS’ EQUITY |
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Liabilities |
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Noninterest-bearing deposits |
| $ | 1,144,985 |
| $ | 1,109,789 |
| $ | 1,229,172 |
| $ | 1,183,058 |
Interest-bearing deposits |
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| 1,545,095 |
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| 1,493,183 |
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| 1,521,827 |
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| 1,583,224 |
Total deposits |
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| 2,690,080 |
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| 2,602,972 |
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| 2,750,999 |
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| 2,766,282 |
Repurchase agreements |
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| 1,351 |
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| 1,525 |
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| 1,600 |
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| 2,498 |
Junior subordinated debt |
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| 6,726 |
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| 6,726 |
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| — |
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| 1,571 |
Operating lease liabilities |
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| 15,134 |
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| — | ||||||
Other liabilities |
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| 20,445 |
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| 23,646 |
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| 17,076 |
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| 21,120 |
Total liabilities |
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| 2,718,602 |
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| 2,634,869 |
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| 2,784,809 |
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| 2,791,471 |
Commitments and contingencies (Note 13) |
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Commitments and contingencies (Note 17) |
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Shareholders’ equity |
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Preferred stock, $0.01 par value, 10,000,000 shares authorized, no shares issued |
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| — |
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| — |
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| — |
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Common stock, $0.01 par value; 90,000,000 shares authorized, 25,731,504 shares issued at September 30, 2018 and December 31, 2017, 24,858,632 and 24,833,232 shares outstanding at September 30, 2018 and December 31, 2017, respectively |
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| 257 |
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| 257 | ||||||
Common stock, $0.01 par value, 90,000,000 shares authorized, 25,777,904 and 25,777,693 shares issued at March 31, 2019 and December 31, 2018, 24,918,476 and 24,907,421 shares outstanding at March 31, 2019 and December 31, 2018, respectively |
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| 258 |
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| 258 | ||||||
Additional paid-in capital |
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| 344,222 |
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| 343,249 |
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| 344,971 |
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| 344,497 |
Retained earnings |
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| 147,768 |
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| 118,353 |
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| 168,603 |
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| 160,626 |
Treasury stock, at cost (872,872 and 898,272 shares held at September 30, 2018 and December 31, 2017, respectively) |
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| (14,825) |
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| (15,256) | ||||||
Accumulated other comprehensive loss, net of tax of $1,482 and $104 at September 30, 2018 and December 31, 2017, respectively. |
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| (5,571) |
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| (389) | ||||||
Treasury stock, at cost, 859,428 and 870,272 shares held at March 31, 2019 and December 31, 2018, respectively |
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| (14,597) |
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| (14,781) | ||||||
Accumulated other comprehensive loss, net of tax of $155 and $791 at March 31, 2019 and December 31, 2018, respectively |
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| (582) |
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| (2,975) | ||||||
Total shareholders’ equity |
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| 471,851 |
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| 446,214 |
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| 498,653 |
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| 487,625 |
Total liabilities and shareholders’ equity |
| $ | 3,190,453 |
| $ | 3,081,083 |
| $ | 3,283,462 |
| $ | 3,279,096 |
See accompanying notes to condensed consolidated financial statements.
1
CBTX, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Income (Unaudited)
(Dollars in thousands, except per share amounts)
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| For the Three Months Ended September 30, |
| For the Nine Months Ended September 30, |
| Three Months Ended March 31, | ||||||||||||
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| 2018 |
| 2017 |
| 2018 |
| 2017 |
| 2019 |
| 2018 | ||||||
Interest income |
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Interest and fees on loans |
| $ | 31,513 |
| $ | 27,129 |
| $ | 90,468 |
| $ | 79,642 |
| $ | 33,793 |
| $ | 28,462 |
Debt securities |
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| 1,535 |
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| 1,334 |
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| 4,478 |
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| 3,990 |
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| 1,557 |
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| 1,436 |
Federal Funds and interest-bearing deposits |
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| 1,617 |
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| 1,106 |
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| 3,931 |
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| 2,661 | ||||||
Federal Funds and other interest-earning assets |
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| 1,483 |
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| 995 | ||||||||||||
Equity investments |
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| 152 |
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| 192 | ||||||||||||
Total interest income |
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| 34,665 |
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| 29,569 |
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| 98,877 |
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| 86,293 |
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| 36,985 |
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| 31,085 |
Interest expense |
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Deposits |
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| 2,961 |
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| 1,964 |
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| 7,035 |
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| 5,659 |
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| 3,584 |
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| 1,948 |
Repurchase agreements |
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| 1 |
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| 2 |
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| 3 |
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| 5 | ||||||
Federal Home Loan Bank advances |
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| 61 |
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| — |
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| 73 |
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| — | ||||||
Note payable |
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| 4 |
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| 269 |
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| 11 |
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| 784 | ||||||
Junior subordinated debt |
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| 112 |
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| 83 |
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| 314 |
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| 236 | ||||||
Federal Home Loan Bank advances and repurchase agreements |
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| 65 |
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| 1 | ||||||||||||
Note payable and junior subordinated debt |
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| 8 |
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| 97 | ||||||||||||
Total interest expense |
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| 3,139 |
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| 2,318 |
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| 7,436 |
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| 6,684 |
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| 3,657 |
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| 2,046 |
Net interest income |
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| 31,526 |
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| 27,251 |
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| 91,441 |
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| 79,609 |
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| 33,328 |
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| 29,039 |
Provision (recapture) for loan losses |
|
| (1,142) |
|
| (1,654) |
|
| 413 |
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| (1,388) | ||||||
Provision for loan losses |
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| 1,147 |
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| 865 | ||||||||||||
Net interest income after provision for loan losses |
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| 32,668 |
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| 28,905 |
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| 91,028 |
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| 80,997 |
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| 32,181 |
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| 28,174 |
Noninterest income |
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Deposit account service charges |
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| 1,597 |
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| 1,395 |
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| 4,572 |
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| 4,412 |
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| 1,629 |
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| 1,478 |
Net gain on sale of assets |
|
| 152 |
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| 828 |
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| 492 |
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| 1,531 |
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| 88 |
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| 130 |
Card interchange fees |
|
| 922 |
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| 803 |
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| 2,820 |
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| 2,512 |
|
| 864 |
|
| 927 |
Earnings on bank-owned life insurance |
|
| 443 |
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| 459 |
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| 1,359 |
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| 1,120 |
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| 430 |
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| 451 |
Other |
|
| 412 |
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| 601 |
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| 1,150 |
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| 1,485 |
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| 482 |
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| 375 |
Total noninterest Income |
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| 3,526 |
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| 4,086 |
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| 10,393 |
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| 11,060 | ||||||
Total noninterest income |
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| 3,493 |
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| 3,361 | ||||||||||||
Noninterest expense |
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Salaries and employee benefits |
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| 12,499 |
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| 11,829 |
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| 37,690 |
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| 34,552 |
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| 13,822 |
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| 12,695 |
Net occupancy expense |
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| 2,428 |
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| 2,221 |
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| 7,126 |
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| 6,805 |
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| 2,267 |
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| 2,265 |
Regulatory fees |
|
| 488 |
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| 458 |
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| 1,546 |
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| 1,689 |
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| 464 |
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| 545 |
Data processing |
|
| 664 |
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| 662 |
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| 2,013 |
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| 1,955 |
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| 714 |
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| 683 |
Software |
|
| 440 |
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| 365 | ||||||||||||
Printing, stationery and office |
|
| 503 |
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| 348 |
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| 1,394 |
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| 1,065 |
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| 353 |
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| 264 |
Amortization of intangibles |
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| 245 |
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| 267 |
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| 748 |
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| 816 |
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| 232 |
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| 255 |
Professional and director fees |
|
| 809 |
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| 606 |
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| 2,414 |
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| 1,937 |
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| 2,091 |
|
| 919 |
Correspondent bank and customer related transaction expenses |
|
| 66 |
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| 67 |
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| 201 |
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| 219 |
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| 65 |
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| 67 |
Loan processing costs |
|
| 102 |
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| 115 |
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| 295 |
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| 320 |
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| 95 |
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| 118 |
Advertising, marketing and business development |
|
| 437 |
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| 266 |
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| 1,418 |
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| 953 |
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| 440 |
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| 506 |
Repossessed real estate and other asset expense |
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| 3 |
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| 340 |
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| 65 |
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| 543 |
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| — |
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| 57 |
Security and protection expense |
|
| 346 |
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| 331 |
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| 959 |
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| 1,055 |
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| 323 |
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| 302 |
Telephone and communications |
|
| 342 |
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| 311 |
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| 1,122 |
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| 972 |
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| 378 |
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| 386 |
Other expenses |
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| 1,032 |
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| 1,196 |
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| 3,269 |
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| 3,422 |
|
| 901 |
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| 857 |
Total noninterest expense |
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| 19,964 |
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| 19,017 |
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| 60,260 |
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| 56,303 |
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| 22,585 |
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| 20,284 |
Net income before income tax expense |
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| 16,230 |
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| 13,974 |
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| 41,161 |
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| 35,754 |
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| 13,089 |
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| 11,251 |
Income tax expense |
|
| 3,207 |
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| 3,927 |
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| 7,984 |
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| 10,140 |
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| 2,599 |
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| 2,139 |
Net income |
| $ | 13,023 |
| $ | 10,047 |
| $ | 33,177 |
| $ | 25,614 |
| $ | 10,490 |
| $ | 9,112 |
Earnings per common share |
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Basic |
| $ | 0.52 |
| $ | 0.46 |
| $ | 1.34 |
| $ | 1.16 |
| $ | 0.42 |
| $ | 0.37 |
Diluted |
| $ | 0.52 |
| $ | 0.45 |
| $ | 1.33 |
| $ | 1.16 |
| $ | 0.42 |
| $ | 0.37 |
See accompanying notes to condensed consolidated financial statements.
2
CBTX, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
(Dollars in thousands)
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| For the Three Months Ended September 30, |
| For the Nine Months Ended September 30, |
| Three Months Ended March 31, |
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| 2018 |
| 2017 |
| 2018 |
| 2017 |
| 2019 |
| 2018 |
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Net income |
| $ | 13,023 |
| $ | 10,047 |
| $ | 33,177 |
| $ | 25,614 |
| $ | 10,490 |
| $ | 9,112 |
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Unrealized gains (losses) on debt securities available for sale arising during the period, net |
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| (1,957) |
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| 253 |
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| (6,583) |
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| 1,673 |
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| 3,027 |
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| (3,665) |
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Reclassification adjustments for net realized gains included in net income |
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| 23 |
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| 13 |
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| 23 |
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| 27 |
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| 3 |
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| — |
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Change in related deferred income tax |
|
| 407 |
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| (93) |
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| 1,378 |
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| (594) |
|
| (637) |
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| 770 |
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Other comprehensive income (loss), net of tax |
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| (1,527) |
|
| 173 |
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| (5,182) |
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| 1,106 |
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| 2,393 |
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| (2,895) |
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Total comprehensive income |
| $ | 11,496 |
| $ | 10,220 |
| $ | 27,995 |
| $ | 26,720 |
| $ | 12,883 |
| $ | 6,217 |
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See accompanying notes to condensed consolidated financial statements.
3
CBTX, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)
For the Nine Months Ended September 30, 2018 and 2017
(Dollars in thousands, except share amounts)
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| Accumulated |
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| Accumulated |
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| Additional |
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| Other |
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| Additional |
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| Other |
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| Common Stock |
| Paid-In |
| Retained |
| Treasury Stock |
| Comprehensive |
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| Common Stock |
| Paid-In |
| Retained |
| Treasury Stock |
| Comprehensive |
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| Shares |
| Amount |
| Capital |
| Earnings |
| Shares |
| Amount |
| Income (Loss) |
| Total |
| Shares |
| Amount |
| Capital |
| Earnings |
| Shares |
| Amount |
| Income (Loss) |
| Total | ||||||||||||
Balance at December 31, 2016 |
| 22,971,504 |
| $ | 230 |
| $ | 278,501 |
| $ | 95,274 |
| (909,432) |
| $ | (15,446) |
| $ | (922) |
| $ | 357,637 | ||||||||||||||||||||||
Net income |
| — |
|
| — |
|
| — |
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| 25,614 |
| — |
|
| — |
|
| — |
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| 25,614 | ||||||||||||||||||||||
Dividends on common stock, $0.15 per share |
| — |
|
| — |
|
| — |
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| (3,309) |
| — |
|
| — |
|
| — |
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| (3,309) | ||||||||||||||||||||||
Stock-based compensation expense |
| — |
|
| — |
|
| 56 |
|
| — |
| — |
|
| — |
|
| — |
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| 56 | ||||||||||||||||||||||
Exercise of stock options |
| — |
|
| — |
|
| — |
|
| — |
| 1,000 |
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| 17 |
|
| — |
|
| 17 | ||||||||||||||||||||||
Other comprehensive income, net of tax |
| — |
|
| — |
|
| — |
|
| — |
| — |
|
| — |
|
| 1,106 |
|
| 1,106 | ||||||||||||||||||||||
Balance at September 30, 2017 |
| 22,971,504 |
|
| 230 |
|
| 278,557 |
|
| 117,579 |
| (908,432) |
|
| (15,429) |
|
| 184 |
|
| 381,121 | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
Three Months Ended March 31, 2018: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
Balance at December 31, 2017 |
| 25,731,504 |
| $ | 257 |
| $ | 343,249 |
| $ | 118,353 |
| (898,272) |
| $ | (15,256) |
| $ | (389) |
| $ | 446,214 |
| 25,731,504 |
| $ | 257 |
| $ | 343,249 |
| $ | 118,353 |
| (898,272) |
| $ | (15,256) |
| $ | (389) |
| $ | 446,214 |
Net income |
| — |
|
| — |
|
| — |
|
| 33,177 |
| — |
|
| — |
|
| — |
|
| 33,177 |
| — |
|
| — |
|
| — |
|
| 9,112 |
| — |
|
| — |
|
| — |
|
| 9,112 |
Dividends on common stock, $0.15 per share |
| — |
|
| — |
|
| — |
|
| (3,762) |
| — |
|
| — |
|
| — |
|
| (3,762) | ||||||||||||||||||||||
Dividends on common stock, $0.05 per share |
| — |
|
| — |
|
| — |
|
| (1,252) |
| — |
|
| — |
|
| — |
|
| (1,252) | ||||||||||||||||||||||
Stock-based compensation expense |
| — |
|
| — |
|
| 1,154 |
|
| — |
| — |
|
| — |
|
| — |
|
| 1,154 |
| — |
|
| — |
|
| 392 |
|
| — |
| — |
|
| — |
|
| — |
|
| 392 |
Other comprehensive loss, net of tax |
| — |
|
| — |
|
| — |
|
| — |
| — |
|
| — |
|
| (2,895) |
|
| (2,895) | ||||||||||||||||||||||
Balance at March 31, 2018 |
| 25,731,504 |
| $ | 257 |
| $ | 343,641 |
| $ | 126,213 |
| (898,272) |
| $ | (15,256) |
| $ | (3,284) |
| $ | 451,571 | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
Three Months Ended March 31, 2019: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
Balance at December 31, 2018 |
| 25,777,693 |
| $ | 258 |
| $ | 344,497 |
| $ | 160,626 |
| (870,272) |
| $ | (14,781) |
| $ | (2,975) |
| $ | 487,625 | ||||||||||||||||||||||
Net income |
| — |
|
| — |
|
| — |
|
| 10,490 |
| — |
|
| — |
|
| — |
|
| 10,490 | ||||||||||||||||||||||
Dividends on common stock, $0.10 per share |
| — |
|
| — |
|
| — |
|
| (2,513) |
| — |
|
| — |
|
| — |
|
| (2,513) | ||||||||||||||||||||||
Vesting of restricted stock, net of shares withheld for employee tax liabilities |
| 211 |
|
| — |
|
| (2) |
|
| — |
| — |
|
| — |
|
| — |
|
| (2) | ||||||||||||||||||||||
Exercise of stock options |
| — |
|
| — |
|
| (181) |
|
| — |
| 25,400 |
|
| 431 |
|
| — |
|
| 250 |
| — |
|
| — |
|
| (69) |
|
| — |
| 10,844 |
|
| 184 |
|
| — |
|
| 115 |
Other comprehensive loss, net of tax |
| — |
|
| — |
|
| — |
|
| — |
| — |
|
| — |
|
| (5,182) |
|
| (5,182) | ||||||||||||||||||||||
Balance at September 30, 2018 |
| 25,731,504 |
| $ | 257 |
| $ | 344,222 |
| $ | 147,768 |
| (872,872) |
| $ | (14,825) |
| $ | (5,571) |
| $ | 471,851 | ||||||||||||||||||||||
Stock-based compensation expense |
| — |
|
| — |
|
| 545 |
|
| — |
| — |
|
| — |
|
| — |
|
| 545 | ||||||||||||||||||||||
Other comprehensive income, net of tax |
| — |
|
| — |
|
| — |
|
| — |
| — |
|
| — |
|
| 2,393 |
|
| 2,393 | ||||||||||||||||||||||
Balance at March 31, 2019 |
| 25,777,904 |
| $ | 258 |
| $ | 344,971 |
| $ | 168,603 |
| (859,428) |
| $ | (14,597) |
| $ | (582) |
| $ | 498,653 |
See accompanying notes to condensed consolidated financial statements.
4
CBTX, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Cash Flows (Unaudited)
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the Nine Months Ended September 30, |
| Three Months Ended March 31, | ||||||||
|
| 2018 |
| 2017 |
| 2019 |
| 2018 | ||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | 33,177 |
| $ | 25,614 |
| $ | 10,490 |
| $ | 9,112 |
Adjustments to reconcile consolidated net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Provision (recapture) for loan losses |
|
| 413 |
|
| (1,388) | ||||||
Provision for loan losses |
|
| 1,147 |
|
| 865 | ||||||
Depreciation |
|
| 2,483 |
|
| 2,538 |
|
| 824 |
|
| 825 |
Deferred income tax provision (benefit) |
|
| (553) |
|
| 535 | ||||||
Amortization of intangibles |
|
| 748 |
|
| 816 |
|
| 232 |
|
| 255 |
Valuation adjustments on repossessed real estate and other assets |
|
| — |
|
| 341 | ||||||
Net realized gains on debt securities |
|
| (42) |
|
| (44) | ||||||
Amortization of premiums on securities |
|
| 256 |
|
| 291 | ||||||
Amortization of lease right-to-use assets |
|
| 329 |
|
| — | ||||||
Accretion of lease liabilities |
|
| 131 |
|
| — | ||||||
Earnings on bank-owned life insurance |
|
| (430) |
|
| (451) | ||||||
Stock-based compensation expense |
|
| 545 |
|
| 392 | ||||||
Deferred income tax provision |
|
| 622 |
|
| 499 | ||||||
Net realized gains on sales of debt securities |
|
| (9) |
|
| (6) | ||||||
Net gains on sales of assets |
|
| (492) |
|
| (1,531) |
|
| (88) |
|
| (130) |
Earnings on bank-owned life insurance |
|
| (1,359) |
|
| (1,120) | ||||||
Amortization of premiums on securities |
|
| 841 |
|
| 965 | ||||||
Stock-based compensation expense |
|
| 1,154 |
|
| 56 | ||||||
Change in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Loans held for sale |
|
| 1,398 |
|
| 516 |
|
| (820) |
|
| 1,464 |
Other assets |
|
| 641 |
|
| (4,372) |
|
| 303 |
|
| 2,312 |
Operating lease liabilities |
|
| (448) |
|
| — | ||||||
Other liabilities |
|
| (3,236) |
|
| 4,088 |
|
| (3,069) |
|
| (7,726) |
Total adjustments |
|
| 1,996 |
|
| 1,400 |
|
| (475) |
|
| (1,410) |
Net cash provided by operating activities |
|
| 35,173 |
|
| 27,014 |
|
| 10,015 |
|
| 7,702 |
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of debt securities |
|
| (336,204) |
|
| (267,970) |
|
| (153,962) |
|
| (85,675) |
Proceeds from sales, calls and maturities of debt securities |
|
| 312,840 |
|
| 240,802 |
|
| 153,056 |
|
| 78,890 |
Principal repayments of debt securities |
|
| 16,720 |
|
| 15,208 |
|
| 4,969 |
|
| 4,861 |
Net contributions to equity investments |
|
| (2,875) |
|
| (28) | ||||||
Net decrease in time deposits in other banks |
|
| 600 |
|
| — | ||||||
Net increase in loans |
|
| (163,908) |
|
| (73,796) |
|
| (97,639) |
|
| (45,514) |
Sales of loan participations |
|
| 40,871 |
|
| 30,826 |
|
| — |
|
| 7,500 |
Purchases of loan participations |
|
| (31,453) |
|
| (4,091) |
|
| (1,256) |
|
| (7,000) |
Net contributions to equity investments |
|
| (2,039) |
|
| (449) | ||||||
Proceeds from sales of U.S. Small Business Administration loans |
|
| 1,972 |
|
| 2,173 |
|
| 818 |
|
| 237 |
Purchases of bank-owned life insurance |
|
| (1,700) |
|
| (15,000) | ||||||
Redemption (purchases) of bank-owned life insurance |
|
| — |
|
| (1,700) | ||||||
Proceeds from sales of repossessed real estate and other assets |
|
| 856 |
|
| 1,910 |
|
| 20 |
|
| 393 |
Purchases of premises and equipment |
|
| (909) |
|
| (699) | ||||||
Proceeds from sales of premises and equipment |
|
| — |
|
| 2,977 | ||||||
Net sales (purchases) of premises and equipment |
|
| (653) |
|
| (354) | ||||||
Net cash used in investing activities |
|
| (163,190) |
|
| (67,688) |
|
| (96,686) |
|
| (48,811) |
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in noninterest-bearing deposits |
|
| 35,196 |
|
| 26,330 | ||||||
Net increase (decrease) in noninterest-bearing deposits |
|
| 46,114 |
|
| 10,732 | ||||||
Net increase (decrease) in interest-bearing deposits |
|
| 51,912 |
|
| (12,463) |
|
| (61,397) |
|
| (14,002) |
Net decrease in securities sold under agreements to repurchase |
|
| (174) |
|
| (104) | ||||||
Net increase (decrease) in securities sold under agreements to repurchase |
|
| (898) |
|
| (664) | ||||||
Proceeds from exercise of stock options |
|
| 250 |
|
| 17 |
|
| 115 |
|
| — |
Repayments of note payable |
|
| — |
|
| (3,322) | ||||||
Payments to tax authorities for stock-based compensation |
|
| (2) |
|
| — | ||||||
Redemption of trust preferred securities |
|
| (1,571) |
|
| — | ||||||
Dividends paid on common stock |
|
| (3,726) |
|
| (3,309) |
|
| (1,245) |
|
| (1,241) |
Net cash provided by financing activities |
|
| 83,458 |
|
| 7,149 |
|
| (18,884) |
|
| (5,175) |
Net decrease in cash, cash equivalents and restricted cash |
|
| (44,559) |
|
| (33,525) |
|
| (105,555) |
|
| (46,284) |
Cash, cash equivalents and restricted cash, beginning |
|
| 326,199 |
|
| 382,103 |
|
| 382,070 |
|
| 326,199 |
Cash, cash equivalents and restricted cash, ending |
| $ | 281,640 |
| $ | 348,578 |
| $ | 276,515 |
| $ | 279,915 |
See accompanying notes to condensed consolidated financial statements.
5
CBTX, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements
NOTE 1: BASIS OF PRESENTATION, NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
Nature of Operations
CBTX, Inc., or the Company, was formed on January 26, 2007,or CBTX, operates 35 branches, 19 in the Houston market area, 15 in the Beaumont/East Texas market area and one in Dallas, through its wholly-owned subsidiary, CommunityBank of Texas, N.A., or the Bank. The Bank operates 33 locations inprovides relationship-driven commercial banking products and services primarily to small and mid-sized businesses and professionals with operations within the Houston and Beaumont/East Texas market areas. The Company’s primary sources of revenue are from investing funds received from depositors and from providing loan and other financial services to its customers.Bank’s markets. The Bank operates under a national charter and therefore is subject to regulation by the Office of the Comptroller of the Currency, or OCC, and the Federal Deposit Insurance Corporation, or FDIC. The Company is subject to regulation by the Board of Governors of the Federal Reserve Board.Reserve.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and the Bank, a wholly owned subsidiary of the Company.Bank. All material intercompany balances and transactions have been eliminated in consolidation.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States, or U.S. GAAP, but do not include all the information and footnotes required for complete consolidated financial statements. In management’s opinion, these interim unaudited condensed consolidated financial statements include all adjustments of a normal recurring nature necessary for a fair statement of the Company’s consolidated financial position at September 30, 2018March 31, 2019 and December 31, 2017,2018, consolidated results of operations for the three and nine months ended September 30,March 31, 2019 and 2018, and 2017, consolidated shareholders’ equity for the ninethree months ended September 30,March 31, 2019 and 2018 and 2017 and consolidated cash flows for the ninethree months ended September 30, 2018March 31, 2019 and 2017.2018.
Accounting measurements at interim dates inherently involve greater reliance on estimates than at year end and the results for the interim periods shown in this report are not necessarily indicative of results to be expected for the full year due in part to global economic and financial market conditions, interest rates, access to sources of liquidity, market competition and interruptions of business processes. These interim unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto for the year ended December 31, 20172018 included within our Annual Report on Form 10-K.
Reclassification— Within interest income, equity investment income for 2018 has been reclassified from federal funds and other interest-earning assets to a separate line and within interest expense, repurchase agreements and FHLB advance expense have been combined and notes payable and junior subordinated debt have also been combined. These reclassifications were made to conform to the 2019 financial statement presentation in the consolidated statements of income.
Accounting Standards Recently Adopted
The Company adopted Accounting Standards Update, or ASU 2014‑09, Revenue from Contracts with Customers2016-02, Leases (Topic 606): ASU 2014‑09 requires entities to recognize revenue in a way that depicts842) on January 1, 2019, using the transfereffective date as the date of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.initial adoption. The Company adoptedelected to apply certain practical expedients for transition, and under those expedients the Company did not reassess prior accounting decisions regarding the identification, classification and initial direct costs for leases existing at the effective date. The Company also elected to use hindsight in determining lease term when considering options to extend the lease and excluded short-term leases (defined as lease terms of 12 months or less). The Company elected to separate non-lease components from lease components in its application of ASU 2014-09 effective January 1, 2018 with no significant impact to2016-02. At adoption, the Company recorded right-of-use assets totaling $13.2 million, which represented the Company’s consolidated financial statements asright to use, or control the use of, a specified assets for their lease terms and the Company recorded lease liabilities totaling $15.5 million, which represented the Company’s revenue is primarily comprisedliability to make lease payments under these leases. Accrued lease obligations and lease incentive liabilities totaling $2.3 million that were in other liabilities at December 31, 2018 were reversed as part of net interest income on financial assets and financial liabilities, which is explicitly excluded from the scopeadoption. The ASU 2016-02 standard applied to all leases existing at the date of ASU 2014‑09 and noninterest income. The Company’s revenue recognition for revenue streams within the scope of ASU 2014-09, including but not limited to service charges on deposits accounts, did not materially change from previous practice.
ASU, 2016‑01, Financial Instruments‑Overall (Subtopic 825‑10): Recognition and Measurement of Financial Assets and Financial Liabilities. The amendments in this update address certain aspects of recognition, measurement, presentation and disclosure of financial instruments. ASU 2016‑01, among other things, (i) requires equity investments, with certain exceptions, to be measured at fair value with changes in fair value recognized in net income, (ii) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment, (iii) eliminates the requirement for public business entities to disclose the methods and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measuredinitial
6
at amortized cost on the balance sheet, (iv) clarifies that entities use the exit price notion when measuring the fair value of loans for disclosure purposes and not use a practicability exception, (v) requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument‑specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments, (vi) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to theadoption. The Company’s financial statements and (vii) clarifies that an entity should evaluaterelated footnotes were not updated for ASU 2016-02 for dates and periods before the need for a valuation allowance on a deferred tax asset related to available‑for‑sale investments. ASU 2018-03, Technical Corrections and Improvements to Financial Instruments—Overall (Subtopic 825-10) clarifies certain aspectsdate of ASU 2016-01. The Company implemented ASU 2016-01 and ASU 2018-03 effective January 1, 2018 with no significant impact to the Company’s consolidated financial statements.adoption. See Note 12 – Fair Value Disclosures.
ASU 2016‑15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. ASU 2016‑15 provides guidance related to certain cash flow issues in order to reduce the current and potential future diversity in practice. The Company implemented ASU 2016‑15 effective January 1, 2018. The Company has elected to use the nature of distribution approach to determine whether income received from equity investments is operating or investing on the cash flow statement. Based on the nature of previous income streams from our equity investments, we expect these amounts will continue to be reported in cash provided by operating activities on the cash flow statement and the other items in ASU 2016-15 will be considered if such items arise.
ASU 2016‑16, Income Taxes (Topic 740): Intra‑Entity Transfers of Assets Other Than Inventory. ASU 2016‑16 provides guidance stating that an entity should recognize the income tax consequences of an intra‑entity transfer of an asset other than inventory when the transfer occurs. The Company implemented ASU 2016‑16 effective January 1, 2018. As we have not historically transferred assets between entities, we expect no material impact on the consolidated financial statements and will follow this guidance for any future intra-entity transfers of assets other than inventory.
ASU 2016‑18, Statement of Cash Flows (Topic 230): Restricted Cash. ASU 2016‑18 requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. Therefore, 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. The Company implemented ASU 2016‑18 effective January 1, 2018. The Company considers its Federal Bank reserves and collateral for its interest rate swaps to be restricted and these amounts were already included in cash and equivalents in the consolidated financial statements.
ASU 2017‑01, Business Combinations (Topic 805): Clarifying the Definition of a Business. ASU 2017‑01 clarifies the definition and provides a more robust framework to use in determining when a set of assets and activities constitutes a business. ASU 2017‑01 is intended to provide guidance when evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The Company implemented ASU 2017‑01 effective January 1, 2018 and will follow this guidance for any future acquisitions or dispositions.
ASU 2017‑09, Compensation—Stock Compensation (Topic 718): ASU 2017-09 provides guidance about which changes in terms or conditions of a share‑based award require application of modification accounting. The Company implemented ASU 2017‑09 effective January 1, 2018 and will follow this guidance for any future modifications of share-based awards.16.
Accounting Standards Not Yet Adopted
ASU 2016‑02, Leases (Topic 842): ASU 2016‑02 will, among other things, require lessees to recognize a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis and a right‑of‑use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. ASU 2018-10, Codification Improvements to Topic 842, Leases was issued in July 2018 to clarify narrow aspects of ASU 2016-02. In addition, ASU 2018-11, Leases (Topic 842) was also issued in July 2018 and allows application of ASU 2016-02 at the date of the adoption date and recognize a cumulative-effect adjustment to retained earnings. Prior to the issuance of ASU 2018-11, transition to the new lease accounting under ASU 2016-02 required using a modified retrospective approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. ASU 2016‑02 will be effective for the Company on January 1, 2019. The Company will use the modified retrospective approach and intends to elect the available practical expedients on adoption.
7
This standard is anticipated to have a material impact on the Company’s consolidated balance sheets, but is not expected to have a material impact on the Company’s consolidated income statements. The Company is nearing completion of the assessment of the impacts of the standard and currently expects that the most significant impact will be an increase in assets due to the addition of right-of-use assets for assets underlying its operating leases and an increase in liabilities reflecting its liability to make the lease payments under these operating leases.
ASU 2016‑13, 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.Instruments. ASU 2016‑132016-13 requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts and 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’s portfolio. In addition, ASU 2016‑132016-13 amends the accounting for credit losses on available‑for‑available for sale debt securities and purchased financial assets with credit deterioration. ASU 2016‑132016-13 will be effective on January 1, 2020.
The Company is currently evaluatingin the potential impactprocess of developing its process and methodology for implementing ASU 2016-13, with the assistance of an outside consultant. Existing technology is being adapted to conform to the requirements of ASU 2016‑132016-13. The adoption of ASU 2016-13 will require changes to the Company’s accounting policies and disclosures for credit losses on the consolidated financial statements.
ASU 2017‑04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. ASU 2017-04 eliminates Step 2 from the goodwill impairment test. In addition, the amendment eliminates the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. For public companies, ASU 2017‑04 is effective for fiscal years beginning after December 15, 2019, with early adoption permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017.instruments. The Company is currently evaluatingcontinuing to evaluate the potential impact of this pronouncement.
Revenue Recognition
The Company records revenue from contracts with customers in accordance with ASC 606, as applicable. A majority ofpronouncement on the Company’s revenue-generating transactions are not subject to ASC 606, such as interestallowance for credit losses and fees on loans, income from debt securities, income from federal funds and interest-bearing deposits. Our revenue-generating activities that are within the scope of ASC 606, are included in our condensed consolidated income statements in noninterest income. See table below. The Company generally fully satisfies its performance obligations on its contracts with customers as services are rendered and the transaction prices are typically fixed and charged either on a periodic basis or based on activity.
|
|
|
|
|
|
|
|
| Nine Months Ended September 30, | ||||
(Dollars in thousands) |
| 2018 |
| 2017 | ||
Deposit account service charges |
| $ | 4,572 |
| $ | 4,412 |
Net gain on sale of assets |
|
| 492 |
|
| 1,531 |
Card interchange fees |
|
| 2,820 |
|
| 2,512 |
Deposit account service charges—– this is comprised of fees from our customers for deposit related services, such as monthly account maintenance and activity or transaction-based fees. Revenue is recognized when our performance obligation is completed which is generally monthly for account maintenance services or when a transaction is completed. Payment for such performance obligations are generally received at the time the performance obligation is satisfied.
Net gain on sale of assets—–this is comprised of gains on sales of fixed assets, gains on sales of loans and gains on sales of other real estate owned, or OREO. Gains on sales of loans are excluded from ASC 606. The performance obligation in the sale of OREO or fixed assets is delivery of control over the property to the buyer. The Company does not typically provide financing and the transaction price is identified in the purchase and sale agreement. If the Company provides financing, the Company must determine a transaction price depending on if the sales contract is at market terms and taking into account the credit risk inherent in the sale agreement.
Card interchange fees—– this is comprised of fees generated from debit card transactions. Revenue is recognized when our performance obligation is completed generally when a transaction is completed. Payment for such performance obligations are generally received at the time the performance obligation is satisfied.
8
future provisions.
Cash Flow Reporting
Cash, cash equivalents and restricted cash include cash, interest‑bearing and noninterest‑bearing transaction accounts with other banks and federal funds sold. The Bank is required to maintain regulatory reserves with the Federal Reserve Bank and the reserve requirements for the Bank were $20.0$16.2 million and $15.8$18.5 million at September 30, 2018March 31, 2019 and December 31, 2017,2018, respectively. Additionally, as of September 30, 2018March 31, 2019 and December 31, 2017,2018, the Company had $1.6 million in cash collateral used in our interest rate swap transactions.
Supplemental disclosures of cash flow information are as follows for the periods indicated below:
|
|
|
|
|
|
|
|
|
|
| ||
|
| Nine Months Ended September 30, |
| Three Months Ended March 31, | ||||||||
(Dollars in thousands) |
| 2018 |
| 2017 |
| 2019 |
| 2018 | ||||
Supplemental disclosures of cash flow information: |
|
|
|
|
|
|
|
|
|
|
| |
Cash paid for taxes |
| $ | 7,827 |
| $ | 9,515 |
| $ | — |
| $ | — |
Cash paid for interest on deposits and repurchase agreements |
|
| 6,943 |
|
| 5,718 |
|
| 3,536 |
| 1,960 | |
Cash paid for interest on notes payable |
|
| — |
|
| 780 | ||||||
Cash paid for interest on junior subordinated debt |
|
| 300 |
|
| 230 |
|
| 63 |
| 87 | |
|
|
|
|
|
| |||||||
Supplemental disclosures of non-cash flow information: |
|
|
|
|
|
|
|
|
|
|
| |
Dividends accrued for restricted stock |
|
| 44 |
|
| — | ||||||
Dividends accrued |
|
| 1,268 |
| 10 | |||||||
Operating lease right-to-use asset obtained in exchange for lease liabilities |
|
| 13,208 |
| — | |||||||
Repossessed real estate and other assets |
|
| 312 |
|
| 583 |
|
| 41 |
| — |
7
NOTE 2: DEBT SECURITIES
The amortized cost and fair values of investments in debt securities as of the dates shown below were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Gross |
| Gross |
|
|
|
|
|
|
| Gross |
| Gross |
|
|
| ||||
|
| Amortized |
| Unrealized |
| Unrealized |
|
|
| Amortized |
| Unrealized |
| Unrealized |
|
| ||||||||
(Dollars in thousands) |
| Cost |
| Gains |
| Losses |
| Fair Value |
| Cost |
| Gains |
| Losses |
| Fair Value | ||||||||
September 30, 2018 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
March 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Debt securities available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and municipal securities |
| $ | 56,155 |
| $ | 119 |
| $ | (1,150) |
| $ | 55,124 |
| $ | 54,854 |
| $ | 811 |
| $ | (194) |
| $ | 55,471 |
U.S. agency securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities |
|
| 17,315 |
|
| — |
|
| (628) |
|
| 16,687 |
|
| 17,315 |
|
| — |
|
| (255) |
|
| 17,060 |
Collateralized mortgage obligations |
|
| 66,737 |
|
| 8 |
|
| (2,206) |
|
| 64,539 |
|
| 66,230 |
|
| 158 |
|
| (603) |
|
| 65,785 |
Mortgage-backed securities |
|
| 88,185 |
|
| 95 |
|
| (3,239) |
|
| 85,041 |
|
| 89,856 |
|
| 490 |
|
| (1,116) |
|
| 89,230 |
Other securities |
|
| 1,123 |
|
| — |
|
| (52) |
|
| 1,071 |
|
| 1,135 |
|
| — |
|
| (27) |
|
| 1,108 |
Total |
| $ | 229,515 |
| $ | 222 |
| $ | (7,275) |
| $ | 222,462 |
| $ | 229,390 |
| $ | 1,459 |
| $ | (2,195) |
| $ | 228,654 |
Debt securities held to maturity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities |
| $ | 31 |
| $ | 2 |
| $ | — |
| $ | 33 |
| $ | 30 |
| $ | 2 |
| $ | — |
| $ | 32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
|
|
|
|
| Gross |
| Gross |
|
|
| ||||||||||||||
|
| Amortized |
| Unrealized |
| Unrealized |
|
| ||||||||||||||||
(Dollars in thousands) |
| Cost |
| Gains |
| Losses |
| Fair Value | ||||||||||||||||
December 31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Debt securities available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and municipal securities |
| $ | 60,861 |
| $ | 1,173 |
| $ | (118) |
| $ | 61,916 |
| $ | 57,972 |
| $ | 345 |
| $ | (626) |
| $ | 57,691 |
U.S. agency securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities |
|
| 17,315 |
|
| — |
|
| (370) |
|
| 16,945 |
|
| 17,315 |
|
| — |
|
| (434) |
|
| 16,881 |
Collateralized mortgage obligations |
|
| 61,878 |
|
| 50 |
|
| (675) |
|
| 61,253 |
|
| 66,438 |
|
| 98 |
|
| (1,122) |
|
| 65,414 |
Mortgage-backed securities |
|
| 82,510 |
|
| 330 |
|
| (866) |
|
| 81,974 |
|
| 90,845 |
|
| 230 |
|
| (2,216) |
|
| 88,859 |
Other securities |
|
| 1,104 |
|
| — |
|
| (17) |
|
| 1,087 |
|
| 1,129 |
|
| — |
|
| (41) |
|
| 1,088 |
Total |
| $ | 223,668 |
| $ | 1,553 |
| $ | (2,046) |
| $ | 223,175 |
| $ | 233,699 |
| $ | 673 |
| $ | (4,439) |
| $ | 229,933 |
Debt securities held to maturity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities |
| $ | 33 |
| $ | 2 |
| $ | — |
| $ | 35 |
| $ | 31 |
| $ | 1 |
| $ | — |
| $ | 32 |
9
The amortized cost and estimated fair value of debt securities, by contractual maturity,maturities, as of the dates shown below arewere as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Debt Securities Available for Sale |
| Debt Securities Held to Maturity |
| Debt Securities Available for Sale |
| Debt Securities Held to Maturity | ||||||||||||||||
|
| Amortized |
| Fair |
| Amortized |
| Fair |
| Amortized |
| Fair |
| Amortized |
| Fair | ||||||||
(Dollars in thousands) |
| Cost |
| Value |
| Cost |
| Value |
| Cost |
| Value |
| Cost |
| Value | ||||||||
September 30, 2018 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
March 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Amounts maturing in: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 year or less |
| $ | 3,232 |
| $ | 3,186 |
| $ | — |
| $ | — |
| $ | 3,338 |
| $ | 3,326 |
| $ | — |
| $ | — |
1 year through 5 years |
|
| 22,692 |
|
| 22,081 |
|
| — |
|
| — |
|
| 20,086 |
|
| 19,846 |
|
| — |
|
| — |
5 years through 10 years |
|
| 8,266 |
|
| 8,285 |
|
| — |
|
| — |
|
| 13,958 |
|
| 14,061 |
|
| — |
|
| — |
After 10 years |
|
| 195,325 |
|
| 188,910 |
|
| 31 |
|
| 33 |
|
| 192,008 |
|
| 191,421 |
|
| 30 |
|
| 32 |
|
| $ | 229,515 |
| $ | 222,462 |
| $ | 31 |
| $ | 33 |
| $ | 229,390 |
| $ | 228,654 |
| $ | 30 |
| $ | 32 |
December 31, 2017 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
December 31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Amounts maturing in: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 year or less |
| $ | 6,203 |
| $ | 6,194 |
| $ | — |
| $ | — |
| $ | 3,224 |
| $ | 3,188 |
| $ | — |
| $ | — |
1 year through 5 years |
|
| 26,811 |
|
| 26,635 |
|
| — |
|
| — |
|
| 22,784 |
|
| 22,370 |
|
| — |
|
| — |
5 years through 10 years |
|
| 9,215 |
|
| 9,348 |
|
| — |
|
| — |
|
| 13,127 |
|
| 13,062 |
|
| — |
|
| — |
After 10 years |
|
| 181,439 |
|
| 180,998 |
|
| 33 |
|
| 35 |
|
| 194,564 |
|
| 191,313 |
|
| 31 |
|
| 32 |
|
| $ | 223,668 |
| $ | 223,175 |
| $ | 33 |
| $ | 35 |
| $ | 233,699 |
| $ | 229,933 |
| $ | 31 |
| $ | 32 |
Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
Securities
8
Debt securities with a carrying amount of $6.6 million and $6.1 million$358,000 were sold in the ninethree months ended September 30, 2018 and 2017, respectively.March 31, 2019. There were no securities sold in the three months ended March 31, 2018. At September 30, 2018March 31, 2019 and December 31, 2017,2018, debt securities with a carrying amount of approximately $43.5$57.5 million and $58.7$49.9 million, respectively, were pledged to secure public deposits, repurchase agreements and for other purposes required or permitted by law.
The Company held 74187 debt securities at September 30, 2018March 31, 2019 and 52167 debt securities at December 31, 2017,2018, respectively, that were in a gross unrealized loss position for 12 months or more as illustrated in the table below. The unrealized losses are attributable primarily to changes in market interest rates relative to those available when the debt securities were acquired. The fair value of these debt securities is expected to recover as the debt securities reach their maturity or re‑pricing date, or if changes in market rates for such investments decline. Management does not believe that any of the debt securities are impaired due to reasons of credit quality. Accordingly, as of September 30, 2018March 31, 2019 and December 31, 2017,2018, management believes the unrealized losses detailed in the table below are temporary and no impairment loss has been recorded in the Company’s condensed consolidated statements of income for the ninethree months ended September 30, 2018March 31, 2019 and 2017.
10
2018.
Debt securities with unrealized losses as of the dates shown below, aggregated by category and the length of time were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Less Than Twelve Months |
| Twelve Months or More |
| Less Than Twelve Months |
| Twelve Months or More | ||||||||||||||||
|
|
|
| Gross |
|
|
| Gross |
|
|
| Gross |
|
|
| Gross | ||||||||
|
| Fair |
| Unrealized |
| Fair |
| Unrealized |
| Fair |
| Unrealized |
| Fair |
| Unrealized | ||||||||
(Dollars in thousands) |
| Value |
| Losses |
| Value |
| Losses |
| Value |
| Losses |
| Value |
| Losses | ||||||||
September 30, 2018 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
March 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Debt securities available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and municipal securities |
| $ | 33,882 |
| $ | (745) |
| $ | 6,498 |
| $ | (405) |
| $ | 674 |
| $ | (3) |
| $ | 11,792 |
| $ | (191) |
U.S. agency securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities |
|
| — |
|
| — |
|
| 16,687 |
|
| (628) |
|
| — |
|
| — |
|
| 17,060 |
|
| (255) |
Collateralized mortgage obligations |
|
| 41,123 |
|
| (1,219) |
|
| 20,718 |
|
| (987) |
|
| — |
|
| — |
|
| 50,194 |
|
| (603) |
Mortgage-backed securities |
|
| 39,505 |
|
| (994) |
|
| 39,222 |
|
| (2,245) |
|
| 196 |
|
| — |
|
| 56,261 |
|
| (1,116) |
Other securities |
|
| — |
|
| — |
|
| 1,071 |
|
| (52) |
|
| — |
|
| — |
|
| 1,108 |
|
| (27) |
|
| $ | 114,510 |
| $ | (2,958) |
| $ | 84,196 |
| $ | (4,317) |
| $ | 870 |
| $ | (3) |
| $ | 136,415 |
| $ | (2,192) |
December 31, 2017 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
December 31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Debt securities available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and municipal securities |
| $ | 2,494 |
| $ | (3) |
| $ | 6,516 |
| $ | (115) |
| $ | 20,892 |
| $ | (324) |
| $ | 6,584 |
| $ | (302) |
U.S. agency securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities |
|
| 4,464 |
|
| (55) |
|
| 12,481 |
|
| (315) |
|
| — |
|
| — |
|
| 16,882 |
|
| (434) |
Collateralized mortgage obligations |
|
| 44,116 |
|
| (380) |
|
| 9,938 |
|
| (295) |
|
| 8,854 |
|
| (81) |
|
| 46,157 |
|
| (1,041) |
Mortgage-backed securities |
|
| 22,079 |
|
| (123) |
|
| 32,538 |
|
| (743) |
|
| 21,745 |
|
| (368) |
|
| 46,183 |
|
| (1,848) |
Other securities |
|
| — |
|
| — |
|
| 1,087 |
|
| (17) |
|
| — |
|
| — |
|
| 1,088 |
|
| (41) |
|
| $ | 73,153 |
| $ | (561) |
| $ | 62,560 |
| $ | (1,485) |
| $ | 51,491 |
| $ | (773) |
| $ | 116,894 |
| $ | (3,666) |
NOTE 3: EQUITY INVESTMENTS
The Company’s unconsolidated investments that are considered equity securities as they represent ownership interests such as common or preferred stock were as follows for the dates indicated below.
|
|
|
|
|
|
|
|
|
|
|
| ||
(Dollars in thousands) |
| March 31, 2019 |
| December 31, 2018 | ||
Federal Reserve stock |
| $ | 9,271 |
| $ | 9,271 |
Federal Home Loan Bank stock |
|
| 3,289 |
|
| 1,250 |
The Independent Bankers Financial Corporation stock |
|
| 141 |
|
| 141 |
Community Reinvestment Act investments |
|
| 2,364 |
|
| 2,364 |
|
| $ | 15,065 |
| $ | 13,026 |
9
Banks that are members of the Federal Home Loan Bank System, or FHLB, are required to maintain a stock investment in the FHLB calculated as a percentage of aggregate outstanding mortgages, outstanding FHLB advances and other financial instruments. Banks that are members of the Federal Reserve System are required to annually subscribe to Federal Reserve Bank stock in specific ratios to the Bank’s equity. Although FHLB and Federal Reserve Bank Stock are considered equity securities, they do not have readily determinable fair values because ownership is restricted and they lack a market. These investments can be sold back only at their par value of $100 per share and can only be sold to the Federal Home Loan Banks or Federal Reserve Banks or to another member institution. In addition, the equity ownership rights are more limited than would be the case for a public company, because of the oversight role exercised by regulators in the process of budgeting and approving dividends. As a result, these investments are carried at cost and evaluated for impairment.
The Company also holds an investment in the stock of The Independent Bankers Financial Corporation, or TIB. This investment has limited marketability. As a result, these investments are carried at cost and evaluated for impairment. The Company has investments in two private investment funds and a limited partnership. These investments are qualified Community Reinvestment Act, or CRA, investments under the Small Business Investment Company program of the Small Business Administration, or SBA. There are limited to no observable price changes in orderly transactions for identical investments or similar investments from the same issuers that are actively traded and as a result, these investments are stated at cost. At March 31, 2019 and December 31, 2018, the Company had $3.0 million and $3.0 million, respectively, in outstanding unfunded commitments to these funds, which are subject to call.
The Company’s equity investments are evaluated for impairment based on an assessment of qualitative indicators. Impairment indicators to be considered include, but are not limited to (i) a significant deterioration in the earnings, performance, credit rating, asset quality or business prospects of the investee, (ii) a significant adverse change in the regulatory, economic or technological environment of the investee, (iii) a significant adverse change in the general market conditions of either the geographical area or the industry in which the investee operates, (iv) a bona fide offer to purchase, an offer by the investee to sell, or completed auction process for the same or similar investment for an amount less than the carrying amount of that investment. There were no such qualitative indicators as of March 31, 2019.
NOTE 4: LOANS
Loans by loan class as of the dates shown below were as follows:
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
(Dollars in thousands) |
| September 30, 2018 |
| December 31, 2017 |
| March 31, 2019 |
| December 31, 2018 | ||||||||||||||
Commercial and industrial |
| $ | 569,334 |
| 23.1 | % |
| $ | 559,363 |
| 24.1 | % |
| $ | 559,882 |
| 21.9% |
| $ | 519,779 |
| 21.2% |
Real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Commercial real estate |
|
| 776,439 |
| 31.4 | % |
| 738,293 |
| 31.9 | % |
|
| 811,742 |
| 31.8% |
|
| 795,733 |
| 32.4% | |
Construction and development |
|
| 487,289 |
| 19.7 | % |
| 449,211 |
| 19.4 | % |
|
| 572,861 |
| 22.5% |
|
| 515,533 |
| 21.0% | |
1-4 family residential |
|
| 288,737 |
| 11.7 | % |
| 258,584 |
| 11.2 | % |
|
| 281,502 |
| 11.0% |
|
| 282,011 |
| 11.5% | |
Multi-family residential |
|
| 236,907 |
| 9.6 | % |
| 220,305 |
| 9.5 | % |
|
| 213,582 |
| 8.4% |
|
| 221,194 |
| 9.0% | |
Consumer |
|
| 39,807 |
| 1.6 | % |
| 40,433 |
| 1.7 | % |
|
| 39,072 |
| 1.5% |
|
| 39,421 |
| 1.6% | |
Agriculture |
|
| 11,609 |
| 0.5 | % |
| 11,256 |
| 0.5 | % |
|
| 8,915 |
| 0.4% |
|
| 11,076 |
| 0.5% | |
Other |
|
| 59,484 |
| 2.4 | % |
|
| 40,344 |
| 1.7 | % |
|
| 64,215 |
| 2.5% |
|
| 68,382 |
| 2.8% |
Total gross loans |
|
| 2,469,606 |
| 100.0 | % |
| 2,317,789 |
| 100.0 | % |
|
| 2,551,771 |
| 100.0% |
|
| 2,453,129 |
| 100.0% | |
Less deferred loan fees and unearned discounts |
|
| (6,025) |
|
|
|
| (4,785) |
|
|
|
|
| (6,210) |
|
|
|
| (6,306) |
|
| |
Less allowance for loan loss |
|
| (24,486) |
|
|
|
| (24,778) |
|
|
|
|
| (24,643) |
|
|
|
| (23,693) |
|
| |
Less loans held for sale |
|
| (384) |
|
|
|
|
| (1,460) |
|
|
|
|
| (852) |
|
|
|
| — |
|
|
Loans, net |
| $ | 2,438,711 |
|
|
|
| $ | 2,286,766 |
|
|
|
| $ | 2,520,066 |
|
|
| $ | 2,423,130 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued interest receivable for loans is $7.4$7.9 million and $6.1$6.8 million at September 30, 2018March 31, 2019 and December 31, 2017,2018, respectively, and is included in other assets in the condensed consolidated balance sheets.
1110
Loan Participations Purchased and Sold
From time to time, the Company will acquire and dispose of interests in loans under participation agreements with other financial institutions. Loan participations purchased and sold during the ninethree months ending September 30,March 31, 2019 and 2018, and 2017, by loan class, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Participations |
| Participations |
| Participations |
| Participations | ||||
|
| Purchased |
| Sold |
| Purchased |
| Sold | ||||
|
| During the |
| During the |
| During the |
| During the | ||||
(Dollars in thousands) |
| Period |
| Period |
| Period |
| Period | ||||
September 30, 2018 |
|
|
|
|
|
| ||||||
March 31, 2019 |
|
|
|
|
|
| ||||||
Commercial real estate |
| $ | 1,256 |
| $ | — | ||||||
|
|
|
|
|
|
| ||||||
March 31, 2018 |
|
|
|
|
|
| ||||||
Commercial and industrial |
| $ | 7,000 |
| $ | — |
| $ | 7,000 |
| $ | — |
Commercial real estate |
|
| 24,453 |
|
| 35,000 |
|
| — |
|
| 7,500 |
Construction and development |
|
| — |
|
| 5,871 | ||||||
|
| $ | 31,453 |
| $ | 40,871 |
| $ | 7,000 |
| $ | 7,500 |
September 30, 2017 |
|
|
|
|
|
| ||||||
Commercial and industrial |
| $ | — |
| $ | 12,317 | ||||||
Commercial real estate |
|
| — |
|
| 16,016 | ||||||
Construction and development |
|
| 4,091 |
|
| 2,493 | ||||||
|
| $ | 4,091 |
| $ | 30,826 |
|
|
|
|
|
|
Loans Guaranteed by the Small Business Administration
The Company participates in the Small Business Administration, or SBA loan program. When advantageous, the Company will sell the guaranteed portions of these loans with servicing retained. SBA loans that were sold with servicing retained during the ninethree months ended September 30,March 31, 2019 and 2018 totaled $818,000 and 2017 totaled $2.0 million and $2.2 million,$237,000, respectively.
NOTE 4:5: LOAN PERFORMANCE
Nonaccrual loans, segregated by loan class, as of the dates shown below were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| September 30, |
| December 31, |
| March 31, |
| December 31, | ||||
(Dollars in thousands) |
| 2018 |
| 2017 |
| 2019 |
| 2018 | ||||
Commercial and industrial |
| $ | 2,161 |
| $ | 3,280 |
| $ | 1,390 |
| $ | 1,317 |
Real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate |
|
| 2,751 |
|
| 3,216 |
|
| 862 |
|
| 1,517 |
Construction and development |
|
| 13 |
|
| 252 | ||||||
1-4 family residential |
|
| 677 |
|
| 898 |
|
| 635 |
|
| 656 |
Consumer |
|
| — |
|
| — | ||||||
Other |
|
| 47 |
|
| — | ||||||
Total |
| $ | 5,602 |
| $ | 7,646 |
| $ | 2,934 |
| $ | 3,490 |
|
|
|
|
|
|
|
|
|
|
|
|
|
1211
Interest income that would have been earned under the original terms of the nonaccrual loans was $220,000$48,000 and $314,000$99,000 for the ninethree months ended September 30,March 31, 2019 and 2018, and 2017, respectively.
The following is an aging analysis of the Company’s past due loans, segregated by loan class, as of the dates shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 90 days or |
|
|
|
|
|
|
|
|
|
| 90 days |
|
|
|
|
|
|
| 90 days or |
|
|
|
|
|
|
|
|
|
| 90 days | ||||
|
| 30 to 59 days |
| 60 to 89 days |
| greater |
| Total past |
| Total current |
|
|
|
| past due and |
| 30 to 59 days |
| 60 to 89 days |
| greater |
| Total past |
| Total current |
|
|
|
| past due and | ||||||||||||
(Dollars in thousands) |
| past due |
| past due |
| past due |
| due |
| loans |
| Total loans |
| still accruing |
| past due |
| past due |
| past due |
| due |
| loans |
| Total loans |
| still accruing | ||||||||||||||
September 30, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Commercial and industrial |
| $ | 351 |
| $ | 22 |
| $ | 1,263 |
| $ | 1,636 |
| $ | 567,698 |
| $ | 569,334 |
| $ | — | |||||||||||||||||||||
Real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Commercial real estate |
|
| 523 |
|
| 154 |
|
| 1,866 |
|
| 2,543 |
|
| 773,896 |
|
| 776,439 |
|
| — | |||||||||||||||||||||
Construction and development |
|
| 87 |
|
| 13 |
|
| — |
|
| 100 |
|
| 487,189 |
|
| 487,289 |
|
| — | |||||||||||||||||||||
1-4 family residential |
|
| 98 |
|
| 114 |
|
| 35 |
|
| 247 |
|
| 288,490 |
|
| 288,737 |
|
| — | |||||||||||||||||||||
Multi-family residential |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 236,907 |
|
| 236,907 |
|
| — | |||||||||||||||||||||
Consumer |
|
| 13 |
|
| — |
|
| — |
|
| 13 |
|
| 39,794 |
|
| 39,807 |
|
| — | |||||||||||||||||||||
Agriculture |
|
| 25 |
|
| — |
|
| — |
|
| 25 |
|
| 11,584 |
|
| 11,609 |
|
| — | |||||||||||||||||||||
Other |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 59,484 |
|
| 59,484 |
|
| — | |||||||||||||||||||||
Total loans |
| $ | 1,097 |
| $ | 303 |
| $ | 3,164 |
| $ | 4,564 |
| $ | 2,465,042 |
| $ | 2,469,606 |
| $ | — | |||||||||||||||||||||
December 31, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
March 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Commercial and industrial |
| $ | 943 |
| $ | 1,071 |
| $ | 2,535 |
| $ | 4,549 |
| $ | 554,814 |
| $ | 559,363 |
| $ | — |
| $ | 468 |
| $ | 25 |
| $ | 1,011 |
| $ | 1,504 |
| $ | 558,378 |
| $ | 559,882 |
| $ | — |
Real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate |
|
| 337 |
|
| 841 |
|
| 1,866 |
|
| 3,044 |
|
| 735,249 |
|
| 738,293 |
|
| — |
|
| — |
|
| ��� |
|
| 692 |
|
| 692 |
|
| 811,050 |
|
| 811,742 |
|
| — |
Construction and development |
|
| 400 |
|
| — |
|
| — |
|
| 400 |
|
| 448,811 |
|
| 449,211 |
|
| — |
|
| 1,613 |
|
| — |
|
| — |
|
| 1,613 |
|
| 571,248 |
|
| 572,861 |
|
| — |
1-4 family residential |
|
| 807 |
|
| — |
|
| 143 |
|
| 950 |
|
| 257,634 |
|
| 258,584 |
|
| — |
|
| 193 |
|
| 124 |
|
| 147 |
|
| 464 |
|
| 281,038 |
|
| 281,502 |
|
| — |
Multi-family residential |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 220,305 |
|
| 220,305 |
|
| — |
|
| 1,570 |
|
| — |
|
| — |
|
| 1,570 |
|
| 212,012 |
|
| 213,582 |
|
| — |
Consumer |
|
| 3 |
|
| 25 |
|
| — |
|
| 28 |
|
| 40,405 |
|
| 40,433 |
|
| — |
|
| — |
|
| 7 |
|
| — |
|
| 7 |
|
| 39,065 |
|
| 39,072 |
|
| — |
Agriculture |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 11,256 |
|
| 11,256 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 8,915 |
|
| 8,915 |
|
| — |
Other |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 40,344 |
|
| 40,344 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 64,215 |
|
| 64,215 |
|
| — |
Total loans |
| $ | 2,490 |
| $ | 1,937 |
| $ | 4,544 |
| $ | 8,971 |
| $ | 2,308,818 |
| $ | 2,317,789 |
| $ | — |
| $ | 3,844 |
| $ | 156 |
| $ | 1,850 |
| $ | 5,850 |
| $ | 2,545,921 |
| $ | 2,551,771 |
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Commercial and industrial |
| $ | 178 |
| $ | 881 |
| $ | 154 |
| $ | 1,213 |
| $ | 518,566 |
| $ | 519,779 |
| $ | — | |||||||||||||||||||||
Real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Commercial real estate |
|
| 68 |
|
| 1,089 |
|
| 605 |
|
| 1,762 |
|
| 793,971 |
|
| 795,733 |
|
| — | |||||||||||||||||||||
Construction and development |
|
| 359 |
|
| 4,204 |
|
| — |
|
| 4,563 |
|
| 510,970 |
|
| 515,533 |
|
| — | |||||||||||||||||||||
1-4 family residential |
|
| 395 |
|
| 111 |
|
| 36 |
|
| 542 |
|
| 281,469 |
|
| 282,011 |
|
| — | |||||||||||||||||||||
Multi-family residential |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 221,194 |
|
| 221,194 |
|
| — | |||||||||||||||||||||
Consumer |
|
| 28 |
|
| — |
|
| — |
|
| 28 |
|
| 39,393 |
|
| 39,421 |
|
| — | |||||||||||||||||||||
Agriculture |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 11,076 |
|
| 11,076 |
|
| — | |||||||||||||||||||||
Other |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 68,382 |
|
| 68,382 |
|
| — | |||||||||||||||||||||
Total loans |
| $ | 1,028 |
| $ | 6,285 |
| $ | 795 |
| $ | 8,108 |
| $ | 2,445,021 |
| $ | 2,453,129 |
| $ | — | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, segregated by loan class, whichThere were no loans restructured due to the borrower’s financial difficulties during the ninethree months ended September 30,March 31, 2019. Loans restructured due to the borrower’s financial difficulties during the three months ended March 31, 2018, and 2017, which remainremained outstanding at the end of those periodsthat period were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
|
|
|
|
|
|
| Post-modification recorded investment |
|
| |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Extended |
|
|
|
|
|
| Post-modification recorded investment | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Maturity, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Extended Maturity, | ||
|
|
|
| Pre-modification |
|
|
|
|
|
|
| Extended |
| Restructured |
|
|
| Pre-modification |
|
|
|
|
|
|
| Extended |
| Restructured | ||||||
|
|
|
| Outstanding |
|
|
|
|
|
|
| Maturity and |
| Payments and |
|
|
| Outstanding |
|
|
|
|
|
|
| Maturity and |
| Payments and | ||||||
|
| Number |
| Recorded |
| Restructured |
| Extended |
| Restructured |
| Adjusted |
| Number |
| Recorded |
| Restructured |
| Extended |
| Restructured |
| Adjusted | ||||||||||
(Dollars in thousands) |
| of Loans |
| Investment |
| Payments |
| Maturity |
| Payments |
| Interest Rate |
| of Loans |
| Investment |
| Payments |
| Maturity |
| Payments |
| Interest Rate | ||||||||||
September 30, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Commercial and industrial |
| 4 |
| $ | 967 |
| $ | 921 |
| $ | — |
| $ | 46 |
| $ | — | |||||||||||||||||
Commercial real estate |
| 4 |
|
| 2,184 |
|
| 2,184 |
|
| — |
|
| — |
|
| — | |||||||||||||||||
Total |
| 8 |
| $ | 3,151 |
| $ | 3,105 |
| $ | — |
| $ | 46 |
| $ | — | |||||||||||||||||
September 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
March 31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Commercial and industrial |
| 5 |
| $ | 3,028 |
| $ | 2,019 |
| $ | — |
| $ | 1,009 |
| $ | — |
| 3 |
| $ | 983 |
| $ | 983 |
| $ | — |
| $ | — |
| $ | — |
Commercial real estate |
| 5 |
|
| 1,303 |
|
| 422 |
|
| 718 |
|
| 163 |
|
| — |
| 4 |
|
| 2,434 |
|
| 2,434 |
|
| — |
|
| — |
|
| — |
Total |
| 10 |
| $ | 4,331 |
| $ | 2,441 |
| $ | 718 |
| $ | 1,172 |
| $ | — |
| 7 |
| $ | 3,417 |
| $ | 3,417 |
| $ | — |
| $ | — |
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Typical modifications primarily relate to extending the amortization periods of the loans, converting the loans to interest only, or adjusting payment amounts for principal and interest. A significant portion of the loans modified as troubled debt restructurings by the Company were previously on nonaccrual status and reported as impaired loans prior to restructuring and as a result, the modifications did not impact the Company’s determination of the allowance for loan losses.
The recorded investment in troubled debt restructurings was $16.2$11.0 million and $18.2$11.4 million as of September 30, 2018March 31, 2019 and December 31, 2017,2018, respectively. As of September 30, 2018March 31, 2019 and December 31, 2017, $4.72018, $1.6 million and $4.8
13
$1.8 million of restructured loans were nonaccrual loans and $11.5$9.4 million and $13.4$9.6 million of restructured loans were accruing interest as of those periods. At September 30, 2018,March 31, 2019, the Company hashad an outstanding commitment to potentially fund $103,000$1.5 million on a line of credit restructured prior to 2018. At December 31, 2017,2018, the Company had no commitmentsan outstanding commitment to loan additional fundspotentially fund $2.1 million on a line of credit restructured prior to borrowers with loans that were restructured.2018.
There were no loans modified as a troubled debt restructured loan within the previous 12 months and for which there was a payment default. For purposes of this disclosure, a default is a loan modified as a troubled debt restructuring where the borrower is 90 days past due or results in the foreclosure and repossession of the applicable collateral.
12
NOTE 5:6: ALLOWANCE FOR LOAN LOSSES
For purposes of determining the allowance for loan losses, the Company considers the loans in its portfolio by segment, class and risk grade. Management uses judgment to determine the estimation method that fits the credit risk characteristics of each portfolio segment or class. To facilitate the assessment of risk, management reviews reports related to loan production, loan quality, concentrations of credit, loan delinquencies and nonperforming and potential problem loans. The Company utilizes an independent third-party loan review service to review the credit risk assigned to loans on a periodic basis and the results are presented to management for review.
Activity in the allowance for loan losses segregated by loan class for the nine months ended September 30, 2018 and 2017 andperiods indicated in the year ended December 31, 2017tables below was as follows:
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| Real Estate |
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| Real Estate |
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| ||||||||||||||||||||
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| Commercial |
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| Construction |
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| Commercial |
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| Construction |
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| and |
| Commercial |
| and |
| 1-4 family |
| Multi-family |
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| and |
| Commercial |
| and |
| 1-4 family |
| Multi-family |
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(Dollars in thousands) |
| industrial |
| real estate |
| development |
| residential |
| residential |
| Consumer |
| Agriculture |
| Other |
| Total |
| industrial |
| real estate |
| development |
| residential |
| residential |
| Consumer |
| Agriculture |
| Other |
| Total | ||||||||||||||||||
September 30, 2018 |
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March 31, 2019 |
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Beginning balance |
| $ | 7,257 |
| $ | 10,375 |
| $ | 3,482 |
| $ | 1,326 |
| $ | 1,419 |
| $ | 566 |
| $ | 68 |
| $ | 285 |
| $ | 24,778 |
| $ | 7,719 |
| $ | 6,730 |
| $ | 4,298 |
| $ | 2,281 |
| $ | 1,511 |
| $ | 387 |
| $ | 62 |
| $ | 705 |
| $ | 23,693 |
Provision (recapture) for loan loss |
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| 2,218 |
|
| (3,467) |
|
| 124 |
|
| 1,126 |
|
| 211 |
|
| (173) |
|
| 3 |
|
| 371 |
|
| 413 |
|
| 903 |
|
| 52 |
| 402 |
|
| (33) |
|
| (54) |
|
| (36) |
|
| (12) |
|
| (75) |
|
| 1,147 | |
Charge-offs |
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| (1,136) |
|
| (9) |
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| — |
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| (3) |
|
| — |
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| (1) |
|
| — |
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| (3) |
|
| (1,152) |
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| (280) |
|
| — |
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|
|
|
|
|
|
|
|
| (4) |
|
| — |
|
| — |
|
| (284) | |
Recoveries |
|
| 424 |
|
| 14 |
|
| — |
|
| 5 |
|
| — |
|
| 2 |
|
| — |
|
| 2 |
|
| 447 |
|
| 74 |
|
| 2 |
|
|
|
|
| 1 |
|
|
|
|
| 10 |
|
| — |
|
| — |
|
| 87 |
Net (charge-offs) recoveries |
|
| (712) |
|
| 5 |
|
| — |
|
| 2 |
|
| — |
|
| 1 |
|
| — |
|
| (1) |
|
| (705) |
|
| (206) |
|
| 2 |
|
| — |
|
| 1 |
|
| — |
|
| 6 |
|
| — |
|
| — |
|
| (197) |
Ending balance |
| $ | 8,763 |
| $ | 6,913 |
| $ | 3,606 |
| $ | 2,454 |
| $ | 1,630 |
| $ | 394 |
| $ | 71 |
| $ | 655 |
| $ | 24,486 |
| $ | 8,416 |
| $ | 6,784 |
| $ | 4,700 |
| $ | 2,249 |
| $ | 1,457 |
| $ | 357 |
| $ | 50 |
| $ | 630 |
| $ | 24,643 |
Period-end amount allocated to: |
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| |
Specific reserve |
| $ | 542 |
| $ | 1 |
| $ | — |
| $ | 115 |
| $ | — |
| $ | — |
| $ | — |
| $ | 127 |
| $ | 785 |
| $ | 582 |
| $ | 33 |
| $ | — |
| $ | 77 |
| $ | — |
| $ | — |
| $ | — |
| $ | 96 |
| $ | 788 |
General reserve |
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| 8,221 |
|
| 6,912 |
|
| 3,606 |
|
| 2,339 |
|
| 1,630 |
|
| 394 |
|
| 71 |
|
| 528 |
|
| 23,701 |
|
| 7,834 |
|
| 6,751 |
|
| 4,700 |
|
| 2,172 |
|
| 1,457 |
|
| 357 |
|
| 50 |
|
| 534 |
|
| 23,855 |
Total |
| $ | 8,763 |
| $ | 6,913 |
| $ | 3,606 |
| $ | 2,454 |
| $ | 1,630 |
| $ | 394 |
| $ | 71 |
| $ | 655 |
| $ | 24,486 |
| $ | 8,416 |
| $ | 6,784 |
| $ | 4,700 |
| $ | 2,249 |
| $ | 1,457 |
| $ | 357 |
| $ | 50 |
| $ | 630 |
| $ | 24,643 |
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| Real Estate |
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| Real Estate |
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| Commercial |
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| Construction |
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| Commercial |
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| Construction |
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| and |
| Commercial |
| and |
| 1-4 family |
| Multi-family |
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|
|
| and |
| Commercial |
| and |
| 1-4 family |
| Multi-family |
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| ||||||||||
(Dollars in thousands) |
| industrial |
| real estate |
| development |
| residential |
| residential |
| Consumer |
| Agriculture |
| Other |
| Total |
| industrial |
| real estate |
| development |
| residential |
| residential |
| Consumer |
| Agriculture |
| Other |
| Total | ||||||||||||||||||
December 31, 2017 |
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March 31, 2018 |
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Beginning balance |
| $ | 6,409 |
| $ | 10,770 |
| $ | 4,598 |
| $ | 1,286 |
| $ | 916 |
| $ | 353 |
| $ | 79 |
| $ | 595 |
| $ | 25,006 |
| $ | 7,257 |
| $ | 10,375 |
| $ | 3,482 |
| $ | 1,326 |
| $ | 1,419 |
| $ | 566 |
| $ | 68 |
| $ | 285 |
| $ | 24,778 |
Provision (recapture) for loan loss |
|
| 642 |
|
| (284) |
| (1,116) |
|
| 35 |
|
| 503 |
|
| 263 |
|
| (63) |
|
| (318) |
|
| (338) |
|
| 479 |
|
| 364 |
|
| (126) |
|
| 5 |
|
| 101 |
|
| (51) |
|
| (15) |
|
| 108 |
|
| 865 | |
Charge-offs |
|
| (904) |
|
| (120) |
| — |
|
| (8) |
|
| — |
|
| (93) |
|
| — |
|
| — |
|
| (1,125) |
|
| (469) |
|
| — |
|
| — |
|
| (3) |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (472) | |
Recoveries |
|
| 1,110 |
|
| 9 |
|
| — |
|
| 13 |
|
| — |
|
| 43 |
|
| 52 |
|
| 8 |
|
| 1,235 |
|
| 172 |
|
| 3 |
|
| — |
|
| 1 |
|
| — |
|
| 2 |
|
| — |
|
| — |
|
| 178 |
Net (charge-offs) recoveries |
|
| 206 |
|
| (111) |
|
| — |
|
| 5 |
|
| — |
|
| (50) |
|
| 52 |
|
| 8 |
|
| 110 |
|
| (297) |
|
| 3 |
|
| — |
|
| (2) |
|
| — |
|
| 2 |
|
| — |
|
| — |
|
| (294) |
Ending balance |
| $ | 7,257 |
| $ | 10,375 |
| $ | 3,482 |
| $ | 1,326 |
| $ | 1,419 |
| $ | 566 |
| $ | 68 |
| $ | 285 |
| $ | 24,778 |
| $ | 7,439 |
| $ | 10,742 |
| $ | 3,356 |
| $ | 1,329 |
| $ | 1,520 |
| $ | 517 |
| $ | 53 |
| $ | 393 |
| $ | 25,349 |
Period-end amount allocated to: |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Specific reserve |
| $ | 852 |
| $ | 64 |
| $ | — |
| $ | 119 |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | 1,035 |
| $ | 845 |
| $ | 55 |
| $ | — |
| $ | 107 |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | 1,007 |
General reserve |
|
| 6,405 |
|
| 10,311 |
|
| 3,482 |
|
| 1,207 |
|
| 1,419 |
|
| 566 |
|
| 68 |
|
| 285 |
|
| 23,743 |
|
| 6,594 |
|
| 10,687 |
|
| 3,356 |
|
| 1,222 |
|
| 1,520 |
|
| 517 |
|
| 53 |
|
| 393 |
|
| 24,342 |
Total |
| $ | 7,257 |
| $ | 10,375 |
| $ | 3,482 |
| $ | 1,326 |
| $ | 1,419 |
| $ | 566 |
| $ | 68 |
| $ | 285 |
| $ | 24,778 |
| $ | 7,439 |
| $ | 10,742 |
| $ | 3,356 |
| $ | 1,329 |
| $ | 1,520 |
| $ | 517 |
| $ | 53 |
| $ | 393 |
| $ | 25,349 |
14
TableThe allowance for loan losses by loan category as of Contentsthe periods indicated was as follows:
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|
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|
|
|
|
|
|
|
|
|
|
|
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|
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| Real Estate |
|
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|
|
|
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|
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| ||||||||||
|
| Commercial |
|
|
| Construction |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
|
| and |
| Commercial |
| and |
| 1-4 family |
| Multi-family |
|
|
|
|
|
|
|
|
|
|
|
| |||||
(Dollars in thousands) |
| industrial |
| real estate |
| development |
| residential |
| residential |
| Consumer |
| Agriculture |
| Other |
| Total | |||||||||
September 30, 2017 |
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|
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|
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
| $ | 6,409 |
| $ | 10,770 |
| $ | 4,598 |
| $ | 1,286 |
| $ | 916 |
| $ | 353 |
| $ | 79 |
| $ | 595 |
| $ | 25,006 |
Provision (recapture) for loan loss |
|
| 631 |
|
| (1,137) |
|
| (1,234) |
|
| (16) |
|
| 444 |
|
| 332 |
|
| (27) |
|
| (381) |
|
| (1,388) |
Charge-offs |
|
| (791) |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (83) |
|
| — |
|
| — |
|
| (874) |
Recoveries |
|
| 945 |
|
| 7 |
|
| — |
|
| 12 |
|
| — |
|
| 24 |
|
| 17 |
|
| 8 |
|
| 1,013 |
Net (charge-offs) recoveries |
|
| 154 |
|
| 7 |
|
| — |
|
| 12 |
|
| — |
|
| (59) |
|
| 17 |
|
| 8 |
|
| 139 |
Ending balance |
| $ | 7,194 |
| $ | 9,640 |
| $ | 3,364 |
| $ | 1,282 |
| $ | 1,360 |
| $ | 626 |
| $ | 69 |
| $ | 222 |
| $ | 23,757 |
Period-end amount allocated to: |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specific reserve |
| $ | 424 |
| $ | — |
| $ | — |
| $ | 132 |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | 556 |
General reserve |
|
| 6,770 |
|
| 9,640 |
|
| 3,364 |
|
| 1,150 |
|
| 1,360 |
|
| 626 |
|
| 69 |
|
| 222 |
|
| 23,201 |
Total |
| $ | 7,194 |
| $ | 9,640 |
| $ | 3,364 |
| $ | 1,282 |
| $ | 1,360 |
| $ | 626 |
| $ | 69 |
| $ | 222 |
| $ | 23,757 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
| March 31, 2019 |
| December 31, 2018 | ||||||||
(Dollars in thousands) |
| Amount |
| Percent |
| Amount |
| Percent | ||||
Commercial and industrial |
| $ | 8,416 |
| 34.1 | % |
| $ | 7,719 |
| 32.6 | % |
Real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate |
|
| 6,784 |
| 27.5 | % |
|
| 6,730 |
| 28.4 | % |
Construction and development |
|
| 4,700 |
| 19.1 | % |
|
| 4,298 |
| 18.1 | % |
1-4 family residential |
|
| 2,249 |
| 9.1 | % |
|
| 2,281 |
| 9.6 | % |
Multi-family residential |
|
| 1,457 |
| 5.9 | % |
|
| 1,511 |
| 6.4 | % |
Consumer |
|
| 357 |
| 1.5 | % |
|
| 387 |
| 1.6 | % |
Agricultural |
|
| 50 |
| 0.2 | % |
|
| 62 |
| 0.3 | % |
Other |
|
| 630 |
| 2.6 | % |
|
| 705 |
| 3.0 | % |
Total allowance for loan losses |
| $ | 24,643 |
| 100.0 | % |
| $ | 23,693 |
| 100 | % |
Allocation of a portion of the allowance to one category of loans in the tables above does not preclude its availability to absorb losses in other categories. In addition to the amounts indicated in the tables above, the Company has an accumulated reserve for loan losses on unfunded commitments of $378,000 and $378,000 recorded in other liabilities as of September 30, 2018March 31, 2019 and December 31, 2017,2018, respectively.
13
Risk Grading
As part of the on‑going monitoring of the credit quality of the Company’s loan portfolio and methodology for calculating the allowance for loan losses, management assigns and tracks loan grades to beas described below are used as credit quality indicators. The following is a general description of the loan grades the Company used as of September 30, 2018 and December 31, 2017:
Pass—Credits in this category are considered “pass” which indicates prudent underwriting and a normalcontain an acceptable amount of risk. The range of risk within these credits can vary from little to no risk with cash securing a credit, to a level of risk that requires a strong secondary source of repayment on the debt. Pass credits with a higher level of risk may be to borrowers that are higher leveraged, less well capitalized or in an industry or economic area that is known to carry a higher level of risk, volatility, or susceptibility to weaknesses in the economy. This higher risk grade may be assigned due to out of date credit information, as well as collateral information which may need to be updated for current market value in order to allow a credit quality analysis of the credit.
Special Mention—Credits in this category contain more than the normal amount of risk and are referred to as “special mention” in accordance with regulatory guidelines. These credits possess clearly identifiable temporary weaknesses or trends that, if not corrected or revised, may result in a condition that exposes the Company to higher level of risk of loss.
Substandard—Credits in this category are “substandard” in accordance with regulatory guidelines and of unsatisfactory credit quality with well‑defined weaknesses or weaknesses that jeopardize the liquidation of the debt. Credits in this category are inadequately protected by the current sound worth and paying capacity of the obligor or the collateral pledged, if any. These credits are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. Often, the assets in this category will have a valuation allowance representative of management’s estimated loss that is probable to be incurred. Substandard loans may also be placed on nonaccrual status asLoans deemed appropriate by management. Loans substandard and on nonaccrual status are considered impaired and are evaluated for impairment.
Doubtful—Credits in this category are considered “doubtful” in accordance with regulatory guidelines, are placed on nonaccrual status and may be dependent upon collateral having a value that is difficult to determine or upon some near‑term event which lacks certainty. Generally, these credits will have a valuation allowance based upon management’s best estimate of the losses probable to occur in the liquidation of the debt.
Loss—Credits in this category are considered “loss” in accordance with regulatory guidelines and are considered uncollectible and of such little value as to question their continued existence as assets on the Company’s financial statements. Such credits are to be charged off or charged down when payment is acknowledged to be uncertain or when
15
the timing or value of payments cannot be determined. This category does not intend to imply that the debt or some portion of it will never be paid, nor does it in any way imply that the debt will be forgiven.
The Company had no loans graded Loss“loss” or Doubtful“doubtful” at September 30, 2018March 31, 2019 and December 31, 2017.2018.
Loans by risk grades and loan class as of the dates shown below were as follows:
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|
|
|
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|
| Special |
|
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|
|
|
|
|
| Special |
|
|
|
|
|
| ||
(Dollars in thousands) |
| Pass |
| Mention |
| Substandard |
| Total Loans |
| Pass |
| Mention |
| Substandard |
| Total Loans | ||||||||
September 30, 2018 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
March 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Commercial and industrial |
| $ | 553,492 |
|
| 5,041 |
|
| 10,801 |
| $ | 569,334 |
| $ | 544,799 |
|
| 5,816 |
|
| 9,267 |
| $ | 559,882 |
Real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate |
|
| 766,348 |
|
| 2,719 |
|
| 7,372 |
|
| 776,439 |
|
| 801,078 |
|
| 8,058 |
|
| 2,606 |
|
| 811,742 |
Construction and development |
|
| 483,067 |
|
| 4,204 |
|
| 18 |
|
| 487,289 |
|
| 571,301 |
|
| 1,560 |
|
| — |
|
| 572,861 |
1-4 family residential |
|
| 281,094 |
|
| 2,186 |
|
| 5,457 |
|
| 288,737 |
|
| 276,203 |
|
| — |
|
| 5,299 |
|
| 281,502 |
Multi-family residential |
|
| 229,698 |
|
| 7,209 |
|
| — |
|
| 236,907 |
|
| 213,582 |
|
| — |
|
| — |
|
| 213,582 |
Consumer |
|
| 39,539 |
|
| 246 |
|
| 22 |
|
| 39,807 |
|
| 38,816 |
|
| 242 |
|
| 14 |
|
| 39,072 |
Agriculture |
|
| 11,580 |
|
| — |
|
| 29 |
|
| 11,609 |
|
| 8,888 |
|
| — |
|
| 27 |
|
| 8,915 |
Other |
|
| 51,074 |
|
| — |
|
| 8,410 |
|
| 59,484 |
|
| 56,833 |
|
| — |
|
| 7,382 |
|
| 64,215 |
Total loans |
| $ | 2,415,892 |
| $ | 21,605 |
| $ | 32,109 |
| $ | 2,469,606 |
| $ | 2,511,500 |
| $ | 15,676 |
| $ | 24,595 |
| $ | 2,551,771 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Special |
|
|
|
|
|
| |
(Dollars in thousands) |
| Pass |
| Mention |
| Substandard |
| Total Loans | ||||
December 31, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial |
| $ | 535,589 |
| $ | 8,403 |
| $ | 15,371 |
| $ | 559,363 |
Real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate |
|
| 722,503 |
|
| 2,951 |
|
| 12,839 |
|
| 738,293 |
Construction and development |
|
| 448,124 |
|
| 565 |
|
| 522 |
|
| 449,211 |
1-4 family residential |
|
| 252,317 |
|
| — |
|
| 6,267 |
|
| 258,584 |
Multi-family residential |
|
| 212,899 |
|
| 7,406 |
|
| — |
|
| 220,305 |
Consumer |
|
| 40,144 |
|
| 246 |
|
| 43 |
|
| 40,433 |
Agriculture |
|
| 11,223 |
|
| — |
|
| 33 |
|
| 11,256 |
Other |
|
| 33,109 |
|
| — |
|
| 7,235 |
|
| 40,344 |
Total loans |
| $ | 2,255,908 |
| $ | 19,571 |
| $ | 42,310 |
| $ | 2,317,789 |
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Special |
|
|
|
|
|
| |
(Dollars in thousands) |
| Pass |
| Mention |
| Substandard |
| Total Loans | ||||
December 31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial |
| $ | 504,425 |
|
| 5,768 |
|
| 9,586 |
| $ | 519,779 |
Real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate |
|
| 781,035 |
|
| 10,370 |
|
| 4,328 |
|
| 795,733 |
Construction and development |
|
| 511,329 |
|
| 4,204 |
|
| — |
|
| 515,533 |
1-4 family residential |
|
| 274,781 |
|
| 2,175 |
|
| 5,055 |
|
| 282,011 |
Multi-family residential |
|
| 221,194 |
|
| — |
|
| — |
|
| 221,194 |
Consumer |
|
| 39,140 |
|
| 246 |
|
| 35 |
|
| 39,421 |
Agriculture |
|
| 11,048 |
|
| — |
|
| 28 |
|
| 11,076 |
Other |
|
| 61,569 |
|
| — |
|
| 6,813 |
|
| 68,382 |
Total loans |
| $ | 2,404,521 |
| $ | 22,763 |
| $ | 25,845 |
| $ | 2,453,129 |
Loan Impairment Assessment
The Company’s recorded investment in impaired loans, as of the dates shown below by loan class and disaggregated based on the Company’s impairment methodology was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Unpaid |
| Recorded |
|
|
|
|
|
|
|
|
|
| Average |
| Unpaid |
| Recorded |
|
|
|
|
|
|
|
|
|
| Average | ||||||
|
| contractual |
| investment |
| Recorded |
| Total |
|
|
|
| recorded |
| contractual |
| investment |
| Recorded |
| Total |
|
|
|
| recorded | ||||||||||
|
| principal |
| with no |
| investment |
| recorded |
| Related |
| investment |
| principal |
| with no |
| investment |
| recorded |
| Related |
| investment | ||||||||||||
(Dollars in thousands) |
| balance |
| allowance |
| with allowance |
| investment |
| allowance |
| year-to-date |
| balance |
| allowance |
| with allowance |
| investment |
| allowance |
| year-to-date | ||||||||||||
September 30, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
March 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
Commercial and industrial |
| $ | 5,508 |
| $ | 4,327 |
| $ | 542 |
| $ | 4,869 |
| $ | 542 |
| $ | 6,266 |
| $ | 4,333 |
| $ | 3,517 |
| $ | 700 |
| $ | 4,217 |
| $ | 582 |
| $ | 4,288 |
Real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate |
|
| 6,316 |
|
| 5,501 |
|
| 604 |
|
| 6,105 |
|
| 1 |
|
| 6,610 |
|
| 2,677 |
|
| 1,942 |
|
| 585 |
|
| 2,527 |
|
| 33 |
|
| 2,984 |
Construction and development |
|
| 13 |
|
| 13 |
|
| — |
|
| 13 |
|
| — |
|
| 182 | ||||||||||||||||||
1-4 family residential |
|
| 4,558 |
|
| 2,607 |
|
| 1,837 |
|
| 4,444 |
|
| 115 |
|
| 4,650 |
|
| 4,232 |
|
| 2,297 |
|
| 1,812 |
|
| 4,109 |
|
| 77 |
|
| 4,219 |
Consumer |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 9 | ||||||||||||||||||
Other |
|
| 8,332 |
|
| — |
|
| 8,332 |
|
| 8,332 |
|
| 127 |
|
| 8,101 |
|
| 7,382 |
|
| 6,093 |
|
| 1,288 |
|
| 7,381 |
|
| 96 |
|
| 7,492 |
Total loans |
| $ | 24,727 |
| $ | 12,448 |
| $ | 11,315 |
| $ | 23,763 |
| $ | 785 |
| $ | 25,818 |
| $ | 18,624 |
| $ | 13,849 |
| $ | 4,385 |
| $ | 18,234 |
| $ | 788 |
| $ | 18,983 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Unpaid |
| Recorded |
|
|
|
|
|
|
|
|
|
| Average | |||
|
| contractual |
| investment |
| Recorded |
| Total |
|
|
|
| recorded | |||||
|
| principal |
| with no |
| investment |
| recorded |
| Related |
| investment | ||||||
(Dollars in thousands) |
| balance |
| allowance |
| with allowance |
| investment |
| allowance |
| year-to-date | ||||||
December 31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial |
| $ | 4,378 |
| $ | 3,642 |
| $ | 635 |
| $ | 4,277 |
| $ | 525 |
| $ | 5,771 |
Real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate |
|
| 4,128 |
|
| 3,374 |
|
| 596 |
|
| 3,970 |
|
| 44 |
|
| 6,135 |
Construction and development |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 139 |
1-4 family residential |
|
| 4,551 |
|
| 2,612 |
|
| 1,824 |
|
| 4,436 |
|
| 89 |
|
| 4,597 |
Consumer |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 7 |
Other |
|
| 6,814 |
|
| 5,572 |
|
| 1,241 |
|
| 6,813 |
|
| 100 |
|
| 7,841 |
Total loans |
| $ | 19,871 |
| $ | 15,200 |
| $ | 4,296 |
| $ | 19,496 |
| $ | 758 |
| $ | 24,490 |
Interest income recognized on impaired loans was $215,000 and $254,000 for the three months ended March 31, 2019 and 2018, respectively.
1615
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Unpaid |
| Recorded |
|
|
|
|
|
|
|
|
|
| Average | |||
|
| contractual |
| investment |
| Recorded |
| Total |
|
|
|
| recorded | |||||
|
| principal |
| with no |
| investment |
| recorded |
| Related |
| investment | ||||||
(Dollars in thousands) |
| balance |
| allowance |
| with allowance |
| investment |
| allowance |
| year-to-date | ||||||
December 31, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial |
| $ | 11,921 |
| $ | 6,100 |
| $ | 1,192 |
| $ | 7,292 |
| $ | 852 |
| $ | 12,090 |
Real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate |
|
| 9,646 |
|
| 8,625 |
|
| 667 |
|
| 9,292 |
|
| 64 |
|
| 9,438 |
Construction and development |
|
| 296 |
|
| 252 |
|
| — |
|
| 252 |
|
| — |
|
| 323 |
1-4 family residential |
|
| 5,003 |
|
| 3,050 |
|
| 1,874 |
|
| 4,924 |
|
| 119 |
|
| 3,369 |
Multi-family residential |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 2 |
Consumer |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 21 |
Agriculture |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 1 |
Other |
|
| 7,152 |
|
| 7,152 |
|
| — |
|
| 7,152 |
|
| — |
|
| 7,616 |
Total loans |
| $ | 34,018 |
| $ | 25,179 |
| $ | 3,733 |
| $ | 28,912 |
| $ | 1,035 |
| $ | 32,860 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Unpaid |
| Recorded |
|
|
|
|
|
|
|
|
|
| Average | |||
|
| contractual |
| investment |
| Recorded |
| Total |
|
|
|
| recorded | |||||
|
| principal |
| with no |
| investment |
| recorded |
| Related |
| investment | ||||||
(Dollars in thousands) |
| balance |
| allowance |
| with allowance |
| investment |
| allowance |
| year-to-date | ||||||
September 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial |
| $ | 15,963 |
| $ | 10,673 |
| $ | 1,109 |
| $ | 11,782 |
| $ | 424 |
| $ | 13,626 |
Real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate |
|
| 11,575 |
|
| 11,350 |
|
| — |
|
| 11,350 |
|
| — |
|
| 9,313 |
Construction and development |
|
| 305 |
|
| 265 |
|
| — |
|
| 265 |
|
| — |
|
| 364 |
1-4 family residential |
|
| 5,000 |
|
| 3,036 |
|
| 1,887 |
|
| 4,923 |
|
| 132 |
|
| 2,536 |
Multi-family residential |
|
| 8 |
|
| 1 |
|
| — |
|
| 1 |
|
| — |
|
| 4 |
Consumer |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 37 |
Agriculture |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 35 |
Other |
|
| 5,176 |
|
| 5,176 |
|
| — |
|
| 5,176 |
|
| — |
|
| 7,439 |
Total loans |
| $ | 38,027 |
| $ | 30,501 |
| $ | 2,996 |
| $ | 33,497 |
| $ | 556 |
| $ | 33,354 |
Interest income earned on impaired loans was $808,000 and $946,000 for the nine months ended September 30, 2018 and 2017, respectively.
The Company’s recorded investment in loans as of the dates shown below related to the balance in the allowance forby loan lossesclass and based on the Company’s impairment methodology was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| September 30, 2018 |
| December 31, 2017 |
| March 31, 2019 |
| December 31, 2018 | ||||||||||||||||||||||||||||
|
| Individually |
| Collectively |
|
|
|
| Individually |
| Collectively |
|
|
|
| Individually |
| Collectively |
|
|
|
| Individually |
| Collectively |
|
|
| ||||||||
|
| Evaluated for |
| Evaluated for |
| Total |
| Evaluated for |
| Evaluated for |
| Total |
| Evaluated for |
| Evaluated for |
| Total |
| Evaluated for |
| Evaluated for |
| Total | ||||||||||||
(Dollars in thousands) |
| Impairment |
| Impairment |
| Loans |
| Impairment |
| Impairment |
| Loans |
| Impairment |
| Impairment |
| Loans |
| Impairment |
| Impairment |
| Loans | ||||||||||||
Commercial and industrial |
| $ | 4,869 |
| $ | 564,465 |
| $ | 569,334 |
| $ | 7,292 |
| $ | 552,071 |
| $ | 559,363 |
| $ | 4,217 |
| $ | 555,665 |
| $ | 559,882 |
| $ | 4,277 |
| $ | 515,502 |
| $ | 519,779 |
Real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate |
|
| 6,105 |
|
| 770,334 |
|
| 776,439 |
|
| 9,292 |
|
| 729,001 |
|
| 738,293 |
|
| 2,527 |
|
| 809,215 |
|
| 811,742 |
|
| 3,970 |
|
| 791,763 |
|
| 795,733 |
Construction and development |
|
| 13 |
|
| 487,276 |
|
| 487,289 |
|
| 252 |
|
| 448,959 |
|
| 449,211 |
|
| — |
|
| 572,861 |
|
| 572,861 |
|
| — |
|
| 515,533 |
|
| 515,533 |
1-4 family residential |
|
| 4,444 |
|
| 284,293 |
|
| 288,737 |
|
| 4,924 |
|
| 253,660 |
|
| 258,584 |
|
| 4,109 |
|
| 277,393 |
|
| 281,502 |
|
| 4,436 |
|
| 277,575 |
|
| 282,011 |
Multi-family residential |
|
| — |
|
| 236,907 |
|
| 236,907 |
|
| — |
|
| 220,305 |
|
| 220,305 |
|
| — |
|
| 213,582 |
|
| 213,582 |
|
| — |
|
| 221,194 |
|
| 221,194 |
Consumer |
|
| — |
|
| 39,807 |
|
| 39,807 |
|
| — |
|
| 40,433 |
|
| 40,433 |
|
| — |
|
| 39,072 |
|
| 39,072 |
|
| — |
|
| 39,421 |
|
| 39,421 |
Agriculture |
|
| — |
|
| 11,609 |
|
| 11,609 |
|
| — |
|
| 11,256 |
|
| 11,256 |
|
| — |
|
| 8,915 |
|
| 8,915 |
|
| — |
|
| 11,076 |
|
| 11,076 |
Other |
|
| 8,332 |
|
| 51,152 |
|
| 59,484 |
|
| 7,152 |
|
| 33,192 |
|
| 40,344 |
|
| 7,381 |
|
| 56,834 |
|
| 64,215 |
|
| 6,813 |
|
| 61,569 |
|
| 68,382 |
Total |
| $ | 23,763 |
| $ | 2,445,843 |
| $ | 2,469,606 |
| $ | 28,912 |
| $ | 2,288,877 |
| $ | 2,317,789 |
| $ | 18,234 |
| $ | 2,533,537 |
| $ | 2,551,771 |
| $ | 19,496 |
| $ | 2,433,633 |
| $ | 2,453,129 |
An impairment analysis is performed for all loans graded substandard and placed on nonaccrual status. If management determines a loan is impaired, the loan is written down to its estimated realizable value through a charge to the allowance for loan losses. At September 30, 2018March 31, 2019 and December 31, 2017,2018, the allowance allocated to specific reserves for loans individually evaluated for impairment was $785,000$788,000 and $1.0 million,$758,000, respectively.
17
NOTE 6:7: PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows as of the dates shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| September 30, |
|
| December 31, |
| March 31, |
| December 31, | |||
(Dollars in thousands) |
| 2018 |
| 2017 |
| 2019 |
| 2018 | ||||
Land |
| $ | 13,466 |
| $ | 13,466 |
| $ | 13,466 |
| $ | 13,466 |
Buildings and leasehold improvements |
|
| 52,216 |
|
| 51,664 |
|
| 52,740 |
|
| 52,188 |
Furniture and equipment |
|
| 15,237 |
|
| 14,887 |
|
| 15,685 |
|
| 15,426 |
Vehicles |
|
| 202 |
|
| 202 |
|
| 236 |
|
| 232 |
Construction in progress |
|
| — |
|
| 177 | ||||||
|
|
| 81,121 |
|
| 80,219 |
|
| 82,127 |
|
| 81,489 |
Less accumulated depreciation and amortization |
|
| (29,089) |
|
| (26,612) | ||||||
Less accumulated depreciation |
|
| (30,674) |
|
| (29,867) | ||||||
Premises and equipment, net |
| $ | 52,032 |
| $ | 53,607 |
| $ | 51,453 |
| $ | 51,622 |
Depreciation expense was $2.5 million$824,000 and $2.5 million$825,000 for the ninethree months ended September 30,March 31, 2019 and 2018, and 2017, respectively, which is included in net occupancy expense on the Company’s condensed consolidated statements of income. Net gains and losses on dispositions of premises and equipment of $742,000$1,700 and $63,000 for the ninethree months ended September 30, 2017,March 31, 2019 and 2018, were recognized and are included in net gain on sale of assets in the condensed consolidated statements of income. There were no dispositions
16
NOTE 7:8: GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill is not amortizedwas $81.0 million at March 31, 2019 and December 31, 2018 and there have been no changes in goodwill during the ninethree months ended September 30, 2018March 31, 2019 or the year ended December 31, 2017. The Company’s other intangibles are being amortized over their estimated useful lives of seven to 20 years.2018. Based on the results of the Company’s assessment, management does not believe any impairment of goodwill or other intangible assets existed at September 30, 2018March 31, 2019 or December 31, 2017.2018.
Other intangibles, net of accumulated amortization, were as follows as of the dates shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted |
| Gross |
|
|
|
| Net |
| Weighted |
| Gross |
|
|
|
| Net | ||||
|
| Amortization |
| Intangible |
| Accumulated |
| Intangible |
| Amortization |
| Intangible |
| Accumulated |
| Intangible | ||||||
(Dollars in thousands) |
| Period |
| Assets |
| Amortization |
| Assets |
| Period |
| Assets |
| Amortization |
| Assets | ||||||
September 30, 2018 |
|
|
|
|
|
|
|
|
|
|
| |||||||||||
March 31, 2019 |
|
|
|
|
|
|
|
|
|
|
| |||||||||||
Other intangible assets, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core deposits |
| 5.4 years |
| $ | 13,750 |
| $ | (12,442) |
| $ | 1,308 |
| 5.0 years |
| $ | 13,750 |
| $ | (12,674) |
| $ | 1,076 |
Customer relationships |
| 10.3 years |
|
| 6,629 |
|
| (2,099) |
|
| 4,530 |
| 9.8 years |
|
| 6,629 |
|
| (2,320) |
|
| 4,309 |
Servicing assets |
| 15.7 years |
|
| 337 |
|
| (137) |
|
| 200 |
| 12.3 years |
|
| 306 |
|
| (153) |
|
| 153 |
Total other intangible assets, net |
|
|
| $ | 20,716 |
| $ | (14,678) |
| $ | 6,038 |
|
|
| $ | 20,685 |
| $ | (15,147) |
| $ | 5,538 |
December 31, 2017 |
|
|
|
|
|
|
|
|
|
|
| |||||||||||
December 31, 2018 |
|
|
|
|
|
|
|
|
|
|
| |||||||||||
Other intangible assets, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core deposits |
| 6.2 years |
| $ | 13,750 |
| $ | (12,051) |
| $ | 1,699 |
| 5.2 years |
| $ | 13,750 |
| $ | (12,561) |
| $ | 1,189 |
Customer relationships |
| 11.0 years |
|
| 6,629 |
|
| (1,767) |
|
| 4,862 |
| 10.0 years |
|
| 6,629 |
|
| (2,209) |
|
| 4,420 |
Servicing assets |
| 17.3 years |
|
| 321 |
|
| (112) |
|
| 209 |
| 14.4 years |
|
| 311 |
|
| (145) |
|
| 166 |
Total other intangible assets, net |
|
|
| $ | 20,700 |
| $ | (13,930) |
| $ | 6,770 |
|
|
| $ | 20,690 |
| $ | (14,915) |
| $ | 5,775 |
Servicing Assets
Changes in the related servicing assets as of the dates indicated below were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Nine Months Ended |
|
| ||||||||
|
| September 30, |
| Three Months Ended March 31, | ||||||||
(Dollars in thousands) |
| 2018 |
| 2017 |
| 2019 |
| 2018 | ||||
Balance at beginning of year |
| $ | 209 |
| $ | 186 |
| $ | 166 |
| $ | 209 |
Increase from loan sales |
|
| 38 |
|
| 58 |
|
| 14 |
|
| 6 |
Decrease from serviced loans paid off or foreclosed |
|
| (22) |
|
| — |
|
| (19) |
|
| — |
Amortization |
|
| (25) |
|
| (26) |
|
| (8) |
|
| (8) |
Balance at end of period |
| $ | 200 |
| $ | 218 |
| $ | 153 |
| $ | 207 |
NOTE 9: BANK OWNED LIFE INSURANCE
The Company has purchased life insurance policies on covered individuals, which are recorded at their cash surrender value. Changes in the cash surrender value of the policies are recorded in noninterest income. Gains or losses and proceeds from maturities are recognized upon the death of a covered employee, on receipt of a death notice or other verified evidence. Bank-owned life insurance policies and the net change in cash surrender value during the periods shown below were as follows:
|
|
|
|
|
|
|
|
|
| March 31, |
| December 31, |
| ||
(Dollars in thousands) |
| 2019 |
| 2018 |
| ||
Balance at beginning of period |
| $ | 71,525 |
| $ | 68,010 |
|
Purchases |
|
| — |
|
| 1,700 |
|
Redemptions |
|
| — |
|
| — |
|
Earnings, net |
|
| 430 |
|
| 1,815 |
|
Balance at end of period |
| $ | 71,955 |
| $ | 71,525 |
|
1817
NOTE 8:10: DEPOSITS
Deposits as of the dates shown below were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| September 30, |
|
| December 31, |
| March 31, |
| December 31, | |||
(Dollars in thousands) |
| 2018 |
| 2017 |
| 2019 |
| 2018 | ||||
Interest-bearing demand accounts |
| $ | 367,120 |
| $ | 363,015 |
| $ | 352,623 |
| $ | 387,457 |
Money market accounts |
|
| 722,382 |
|
| 702,299 |
|
| 695,968 |
|
| 737,770 |
Saving accounts |
|
| 94,344 |
|
| 95,842 |
|
| 96,251 |
|
| 96,962 |
Certificates and other time deposits, $100,000 or greater |
|
| 182,552 |
|
| 172,469 |
|
| 181,507 |
|
| 189,007 |
Certificates and other time deposits, less than $100,000 |
|
| 178,697 |
|
| 159,558 |
|
| 195,478 |
|
| 172,028 |
Total interest-bearing deposits |
|
| 1,545,095 |
|
| 1,493,183 |
|
| 1,521,827 |
|
| 1,583,224 |
Noninterest-bearing deposits |
|
| 1,144,985 |
|
| 1,109,789 |
|
| 1,229,172 |
|
| 1,183,058 |
Total deposits |
| $ | 2,690,080 |
| $ | 2,602,972 |
| $ | 2,750,999 |
| $ | 2,766,282 |
At September 30, 2018March 31, 2019 and December 31, 2017,2018, the Company had $46.4$46.7 million and $45.3$51.5 million in deposits from public entities and brokered deposits of $109.8$129.2 million and $88.3$104.5 million, respectively. The Company had no major concentrations of deposits at September 30, 2018March 31, 2019 or December 31, 20172018 from any single or related groups of depositors.
NOTE 9: NOTES PAYABLE AND11: LINES OF CREDIT
Note Payable
In conjunction with an acquisition, the Company entered into a loan agreement on February 1, 2015 for $31.0 million. On November 13, 2017, the Company paid the then remaining outstanding balance in full.
Frost Line of Credit
On December 13, 2017, theThe Company has entered into a loan agreement, or the Loan Agreement, with Frost Bank, which provides for a $30.0 million revolving line of credit, or Line of Credit. The Loan Agreement was amended and restated on December 13, 2018 and, as amended, is referred to as the Amended Agreement. The Company can make draws on the Line of Credit for a period of 12 months beginningwhich began on the date of the Loan Agreement,December 13, 2018, after which the Company will not be permitted to make further draws and the outstanding balance will amortize over a period of 60 months. Interest accrues on outstanding borrowings at a rate equal to the maximum “Latest” U.S. prime rate of interest per annum and payable quarterly in the first 12 months and thereafter quarterly principal and interest payments are required over a term of 60 months. The entire outstanding balance and unpaid interest is payable in full on December 13, 2023.2024.
The Company may prepay the principal amount of any loan under the LoanAmended Agreement without premium or penalty. The obligations of the Company under the LoanAmended Agreement are secured by a valid and perfected first priority lien on all of the issued and outstanding shares of capital stock of the Bank.
Covenants made under the LoanAmended Agreement include, among other things, the Company maintaining tangible net worth of not less than $240$300 million, the Company maintaining a free cash flow coverage ratio of not less than 1.25 to 1.00, the Bank’s Texas Ratio (as defined under the LoanAmended Agreement) not to exceed 15%, the Bank’s Total Capital Ratio (as defined under the Amended Loan Agreement) of not less than 12% and restrictions on the ability of the Company and its subsidiaries to incur certain additional debt. The Company was in compliance with these covenants at September 30, 2018.March 31, 2019.
As of September 30, 2018,March 31, 2019, there were no outstanding borrowings on this line and the Company didhas not drawdrawn on this line during the period from December 13, 2017, whensince the Company entered the agreement, to September 30, 2018.agreement.
Additional Lines of Credit
The Federal Home Loan Bank System, or FHLB allows us to borrow on a blanket floating lien status collateralized by certain loans. As of September 30, 2018March 31, 2019 and December 31, 2017,2018, total borrowing capacity of $893.3$935.9 million and $793.3$919.9 million, respectively, was available under this arrangement. During the first quarter of 2019 and the second and third quarter of 2018, the Company borrowed under this agreement on a short-term basis and as of March 31, 2019 and December 31, 2018, there were no outstanding FHLB advances.
1918
As of 2018, we borrowed under this agreement on a short-term basis and as of September 30, 2018March 31, 2019 and December 31, 2017, there were no outstanding FHLB advances.
As of September 30, 2018, and December 31, 2017, we maintained four federal funds lines of credit with commercial banks that provide for the availability to borrow up to an aggregate of $75.0 million, in federal funds. There were no funds under these lines of credit outstanding as of September 30, 2018March 31, 2019 or December 31, 2017.2018.
NOTE 10:12: JUNIOR SUBORDINATED DEBT
Crosby Statutory Trust I
Prior to being acquired in 2008 by the Company, Crosby Bancshares, Inc. received proceeds of junior subordinated debt held by a trust that is funded by common securities purchased by Crosby Bancshares, Inc. and trust preferred securities in the amount of $5.0 million that are held by other investors. Funds raised by the trust totaling $5.2 million were loaned to Crosby Bancshares, Inc. in the form of junior subordinated debt. This debt was assumed by the Company at the date of acquisition. This debt is generally subordinated to other debt and deposits reflected on the consolidated balance sheets. The subordinated debt securities have a due date of December 15, 2035 and interest is payable quarterly.
The interest rate of the debt is equal to the London Interbank Offered Rate of U.S. Dollar deposits in Europe, or LIBOR, plus 1.44%, reset quarterly, which was 3.77% at September 30, 2018 and 3.03% at December 31, 2017. The Company has the right to redeem these debt securities in whole, or from time to time in part, provided that all accrued and unpaid interest has been paid.
County Bancshares Trust I
Prior to being acquired in 2007 by the Company, County Bancshares, Inc. received proceeds of junior subordinated debt held by a trust that is funded by common securities, all of which were purchased by County Bancshares, Inc. and trust preferred securities in the amount of $5.5 million that arewere held by other investors. Funds raised by the trust totaling $5.7 million were loaned to County Bancshares, Inc. in the form of junior subordinated debt. This debt was transferred to the Company at the date of acquisition. In 2015, the Company purchased approximately $4.1 million of the outstanding preferred securities, reducing the outstanding preferred securities to $1.6 million. This debt is generally subordinated
In November 2018, the County Bancshares Trust I, or County Trust, agreed to other debtredeem all of the County Trust’s issued and deposits reflected onoutstanding trust preferred securities upon concurrent redemption made by the consolidated balance sheets presented. TheCompany of its junior subordinated debt securities have a due date of Aprilheld by the County Trust on January 7, 2035 and interest is payable quarterly.
The interest rate of the debt is equal to LIBOR, plus 2% and is reset quarterly. The rate of interest was 4.34% at September 30, 2018 and 3.36% at December 31, 2017.2019. The Company haspaid $5.7 million to pay its obligation for the right to redeem thesejunior subordinated debt, securities in whole or from time to time in part, provided that allincluding accrued and unpaid interest has been paidinterest. The Company received $4.1 million from the redemption of the preferred securities.
NOTE 11:13: RELATED PARTY TRANSACTIONS
In the ordinary course of business, the Company, through the Bank, has and expects to continue to conduct routine banking business with related parties, including its executive officers and directors. Related parties also include stockholders, and their affiliates in which they directly or indirectly have 5% or more beneficial ownership in the Company.
Loans—In the opinion of management, loans to related parties were on substantially the same terms, including interest rates and collateral, as those prevailing at the time of comparable transactions with other persons and did not involve more than a normal risk of collectability or present any other unfavorable features to the Company. The Company had approximately $200.5$172.8 million and $205.8$169.0 million in loans to related parties at September 30, 2018March 31, 2019 and December 31, 2017,2018, respectively. As of September 30, 2018March 31, 2019 and December 31, 2017,2018, there were no loans made to related parties deemed nonaccrual, past due, restructured or classified as potential problem loans.
Unfunded Commitments—At September 30, 2018March 31, 2019 and December 31, 2017,2018, the Company had approximately $75.0$51.0 million and $69.7$55.7 million in unfunded loan commitments to related parties, respectively.
20
Deposits—The Company held related party deposits of approximately $236.2$250.2 million and $224.4$311.2 million at September 30, 2018March 31, 2019 and December 31, 2017,2018, respectively.
Advertising—The Company incurred advertising expenses of approximately $0 and $71,000 for the nine months ended September 30, 2018 and 2017, respectively, to a vendor that is solely owned by a director of the Company.
NOTE 12:14: FAIR VALUE DISCLOSURES
The Company uses fair value measurements to record fair value adjustments to certain assets and to determine fair value disclosures. 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 occurring in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability.
In estimating fair value, we use valuation techniques that are consistent with the market approach, the income approach and/or the cost approach. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities. The income approach uses valuation techniques to convert future amounts, such as cash flows or earnings, to a single present amount on a discounted basis. The cost approach is based on the amount that currently would be required to replace the service capacity of an asset (replacement costs). Such valuation techniques are consistently applied.
Inputs to valuation techniques refer to the assumptions that market participants would useused in pricing the asset or liability. Inputs may be observable, meaning those that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from independent sources, or unobservable, meaning those that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.
Valuation inputs are categorized in a three-level hierarchy, fromthat gives the highest priority to lowest level of observable inputs. The highest level of inputs arequoted prices in active markets for identical assets or liabilities and the lowest level of inputs arepriority to unobservable inputs. The fair value hierarchy is as follows:
Level 1 Inputs—Inputs are based upon unadjustedUnadjusted quoted prices in active markets for identical assets and liabilities that the reporting entity has the ability to access at the measurement date.
19
Level 2 Inputs—Inputs other than quoted prices included in Level 1Other inputs observable inputs that are observable for the asset or liability, either directly or indirectly. Thesemay include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active inputsor other than quoted pricesinputs that are observable for the asset or liability (for example,such as interest rates, volatilities, prepayment speeds, loss severities, credit risks and default rates)rates or inputs that are derived principally fromobservable or can be corroborated by observable market data by correlation or other means. Level 2 investments consist primarily of obligations of U.S. government sponsored enterprises and agencies, obligations of state and municipal subdivisions, corporate bonds and mortgage‑backed securities.data.
Level 3 Inputs—Significant unobservableUnobservable inputs that reflect an entity’s own assumptions that market participants would use in pricing the assets or liabilities.
During the ninethree months ending September 30, 2018ended March 31, 2019 and the year ended December 31, 2017,2018, there were no transfers of assets or liabilities within the levels of the fair value hierarchy.
In general, fair value is based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon internally developed models that primarily use observable market‑basedmarket-based parameters as inputs. Valuation adjustments may be made to ensure that assets and liabilities are recorded at fair value. These adjustments may include amounts to reflect counterparty credit quality and creditworthiness, among other things, as well as unobservable parameters. Any such valuation adjustments are applied consistently over time.
The Company’s valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. While management believes the Company’s valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to
21
determine the fair value of certain financial instruments could result in a different estimate of fair value. Fair value atestimates are based on judgements regarding current economic conditions, risk characteristics of the reporting date.various instruments and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgement and therefore cannot be determined with precision.
Financial Instruments RecordedMeasured at Fair Value on a Recurring Basis
AssetsThe Company’s assets and liabilities measured at fair value on a recurring basis include the following:
Debt Securities Available for Sale: Debt securities classified as available for sale are reportedrecorded at fair value utilizing Level 2 inputs.value. For those debt securities classified as Level 2, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayments speeds, credit information and the bond’s terms and conditions, among other things. The Company reviews the prices supplied by the independent pricing service, as well as their underlying pricing methodologies for reasonableness. The other securities in the table below are mutual funds and the fair value is determined by using unadjusted quoted market prices which are considered Level 1 inputs.
Interest Rate Swaps with Customers: For interest rate swaps with customers classified as Level 2, theSwaps: The Company obtains fair value measurements for its interest rate swaps from an independent pricing service which uses the income approach. The income approach calls for the utilization of valuation techniques to convert future cash flows as due to be exchanged per the terms of the financial instrument, into a single present value amount. Measurement is based on the value indicated by the market expectations about those future amounts
20
as of the measurement date. The proprietary curves of the independent pricing service utilize pricing models derived from industry standard analytic tools, considering both Level 1 and Level 2 inputs.
Interest Rate Swaps with Financial Institutions: For interest rate swaps with financial institutions classified as Level 2, the Company obtains fair value measurements from an independent pricing service which uses the income approach. The income approach calls for the utilization of valuation techniques to convert future cash flows as due to be exchanged per the terms of the financial instrument, into a single present value amount. Measurement is based on the value indicated by the market expectations about those future amounts as of the measurement date. The proprietary curves of the independent pricing service utilize pricing models derived from industry standard analytic tools, taking into account both Level 1 and Level 2 inputs.
The following table summarizes financialFinancial assets and financial liabilities measured at fair value on a recurring basis as of the dates shown below segregated by the levelwere as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| March 31, |
| December 31, | ||
(Dollars in thousands) |
| 2019 |
| 2018 | ||
Fair value of financial assets: |
|
|
|
|
|
|
Level 1 inputs: |
|
|
|
|
|
|
Debt securities available for sale - other securities |
| $ | 1,108 |
| $ | 1,088 |
Level 2 inputs: |
|
|
|
|
|
|
Debt securities available for sale |
|
|
|
|
|
|
State and municipal securities |
|
| 55,471 |
|
| 57,691 |
U.S. Agency Securities: |
|
|
|
|
|
|
Debt securities |
|
| 17,060 |
|
| 16,881 |
Collateralized mortgage obligations |
|
| 65,785 |
|
| 65,414 |
Mortgage-backed securities |
|
| 89,230 |
|
| 88,859 |
Interest rate swaps |
|
| 768 |
|
| 962 |
Total fair value of financial assets |
| $ | 229,422 |
| $ | 230,895 |
Fair value of financial liabilities: |
|
|
|
|
|
|
Level 2 inputs: |
|
|
|
|
|
|
Interest rate swaps |
| $ | 768 |
| $ | 962 |
Total fair value of financial liabilities |
| $ | 768 |
| $ | 962 |
Financial Instruments Measured at Fair Value on a Non-recurring Basis
A portion of financial instruments are measured at fair value on a non-recurring basis and are subject to fair value adjustments in certain circumstances. The Company’s financial assets measured at fair value on a non-recurring basis are certain impaired loans and as of the valuation inputs within thedates shown below were as follows:
|
|
|
|
|
|
|
|
|
| March 31, |
| December 31, |
| ||
(Dollars in thousands) |
| 2019 |
| 2018 |
| ||
Level 3 inputs |
|
|
|
|
|
|
|
Impaired loans: |
|
|
|
|
|
|
|
Commercial and industrial |
| $ | 118 |
| $ | 110 |
|
Commercial real estate |
|
| 552 |
|
| 552 |
|
1-4 family residential |
|
| 1,735 |
|
| 1,735 |
|
Other |
|
| 1,192 |
|
| 1,141 |
|
Total impaired loans |
| $ | 3,597 |
| $ | 3,538 |
|
Non-Financial Assets and Non-Financial Liabilities Measured on a Non-recurring Basis
The fair value hierarchy utilizedportion of non-financial assets or non-financial liabilities is measured on a non-recurring basis in certain circumstances, such as when there is evidence of impairment and may be subject to measureimpairment adjustments. The Company’s non-financial assets whose fair value.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| September 30, 2018 |
| December 31, 2017 | ||
(Dollars in thousands) |
| Fair Value |
| Fair Value | ||
Financial assets: |
|
|
|
|
|
|
Level 1 inputs: |
|
|
|
|
|
|
Debt securities available for sale |
|
|
|
|
|
|
Other securities |
| $ | 1,071 |
| $ | 1,087 |
Level 2 inputs: |
|
|
|
|
|
|
Debt securities available for sale |
|
|
|
|
|
|
State and municipal securities |
|
| 55,124 |
|
| 61,916 |
U.S. Agency Securities: |
|
|
|
|
|
|
Debt securities |
|
| 16,687 |
|
| 16,945 |
Collateralized mortgage obligations |
|
| 64,539 |
|
| 61,253 |
Mortgage-backed securities |
|
| 85,041 |
|
| 81,974 |
Interest rate swaps with customers |
|
| 7 |
|
| 340 |
Interest rate swaps with financial institutions |
|
| 1,708 |
|
| 426 |
Total financial assets |
| $ | 224,177 |
| $ | 223,941 |
Financial liabilities: |
|
|
|
|
|
|
Level 2 inputs: |
|
|
|
|
|
|
Interest rate swaps with customers |
| $ | 1,708 |
| $ | 426 |
Interest rate swaps with financial institutions |
|
| 7 |
|
| 340 |
Total financial liabilities |
| $ | 1,715 |
| $ | 766 |
value may be measured on a non-recurring basis include repossessed real estate, other foreclosed assets, goodwill and intangible assets, among other assets. There were no write-downs of foreclosed assets for fair value remeasurement subsequent to initial foreclosure during the three months ended March 31,
2221
Certain financial assets2019 and financial liabilities are measured at fair value on a nonrecurring basis as they are subject to fair value adjustments in certain circumstances, such as evidence of impairment. Financial assets measured at fair value on a non‑recurring basis during the reported periods include certain impaired loans reported at the2018. The fair value of the underlying collateral if repayment is expected solely from the collateral. Repossessedrepossessed real estate and other foreclosed assets as well as collateral values areis estimated using Level 2 inputs based on observable market data, typically in the case of real estate collateral, or Level 3 inputs based on customized discounting criteria, typically in the case of non‑real estate collateral such as inventory, accounts receivable, equipment or other business assets.
Certain assets measured at fair value on a non‑recurring basisand, as of the dates shown below, were as follows:
|
|
|
|
|
|
|
|
|
| September 30, 2018 |
| December 31, 2017 |
| ||
|
| Level 3 |
| Level 3 |
| ||
(Dollars in thousands) |
| Inputs |
| Inputs |
| ||
Impaired loans: |
|
|
|
|
|
|
|
Commercial and industrial |
| $ | — |
| $ | 340 |
|
Commercial real estate |
|
| 603 |
|
| 603 |
|
1-4 family residential |
|
| 1,722 |
|
| 1,755 |
|
Other |
|
| 8,205 |
|
| — |
|
Total impaired loans |
| $ | 10,530 |
| $ | 2,698 |
|
|
|
|
|
|
|
|
|
| March 31, |
| December 31, | ||
(Dollars in thousands) |
| 2019 |
| 2018 | ||
Foreclosed assets remeasured at initial recognition: |
|
|
|
|
|
|
Carrying value of foreclosed assets prior to measurement |
| $ | 41 |
| $ | 13 |
Charge-offs recognized in the allowance for loan losses |
|
| — |
|
| (1) |
Fair value |
| $ | 41 |
| $ | 12 |
Financial Instruments Reported at Amortized Cost
Non‑Financial AssetsFair market values and Non‑Financial Liabilities
The Company does not have any non‑carrying amounts of financial assets or non‑financial liabilities measured at fair value on a recurring basis. Certain non‑financial assets measured at fair value on a non‑recurring basis include foreclosed assets (upon initial recognition or subsequent impairment), non‑financial assets and non‑financial liabilities measured at fair value in the second step of a goodwill impairment test and intangible assets and other non‑financial long‑lived assets measured at fair value for impairment assessment. Non‑financial assets measured at fair value on a non‑recurring basis during the reported periods include certain foreclosed assets which, upon initial recognition, were remeasured andinstruments that are reported at fair value through a charge‑off to the allowance for loan losses and certain foreclosed assets which, subsequent to their initial recognition, were remeasured at fair value through a write‑down included in other non‑interest expense. The fair value of a foreclosed asset is estimated using Level 2 inputs based on observable market data or Level 3 inputs based on customized discounting criteria. During the nine months ended September 30, 2018 and during 2017, we used Level 2 inputs for our fair value measurements for foreclosed assets.
Foreclosed assets that were remeasured subsequent to initial recognition and reported at fair valuecost as of the dates shown below were as follows:
|
|
|
|
|
|
|
|
| September 30, |
| December 31, | ||
(Dollars in thousands) |
| 2018 |
| 2017 | ||
Foreclosed assets remeasured at initial recognition: |
|
|
|
|
|
|
Carrying value of foreclosed assets prior to measurement |
| $ | 175 |
| $ | 881 |
Charge-offs recognized in the allowance for loan losses |
|
| — |
|
| — |
Fair value |
| $ | 175 |
| $ | 881 |
Foreclosed assets remeasured subsequent to initial recognition: |
|
|
|
|
|
|
Carrying value of foreclosed assets prior to measurement |
| $ | — |
| $ | 227 |
Write-downs included in other noninterest expense |
|
| — |
|
| (51) |
Fair value |
| $ | — |
| $ | 176 |
23
Fair Value Disclosure for all Financial Instruments
The Company is required to disclose the fair value of all financial instruments, including those financial assets and financial liabilities not recorded at fair value in its consolidated balance sheets, for which it is practicable to estimate fair value. The table below summarizes the fair market values and carrying amount of all financial instruments of the Company as of the dates shown below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| September 30, 2018 |
| December 31, 2017 |
| March 31, 2019 |
| December 31, 2018 | ||||||||||||||||
|
|
|
| Carrying |
|
|
| Carrying |
|
|
| Carrying |
|
|
| Carrying | ||||||||
(Dollars in thousands) |
| Fair Value |
| Amount |
| Fair Value |
| Amount |
| Fair Value |
| Amount |
| Fair Value |
| Amount | ||||||||
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1 inputs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
| $ | 51,980 |
| $ | 51,980 |
| $ | 59,255 |
| $ | 59,255 |
| $ | 54,110 |
| $ | 54,110 |
| $ | 54,450 |
| $ | 54,450 |
Interest bearing deposits in banks |
|
| 229,660 |
|
| 229,660 |
|
| 266,944 |
|
| 266,944 |
|
| 222,405 |
|
| 222,405 |
|
| 327,620 |
|
| 327,620 |
Debt securities available for sale |
|
| 1,071 |
|
| 1,071 |
|
| 1,087 |
|
| 1,087 | ||||||||||||
Level 2 inputs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time deposits in other banks |
|
| — |
|
| — |
|
| 600 |
|
| 600 | ||||||||||||
Debt securities available for sale |
|
| 221,391 |
|
| 221,391 |
|
| 222,088 |
|
| 222,088 | ||||||||||||
Debt securities held to maturity |
|
| 33 |
|
| 31 |
|
| 35 |
|
| 33 |
|
| 32 |
|
| 30 |
|
| 32 |
|
| 31 |
Bank-owned life insurance |
|
| 71,070 |
|
| 71,070 |
|
| 68,010 |
|
| 68,010 |
|
| 71,955 |
|
| 71,955 |
|
| 71,525 |
|
| 71,525 |
Accrued interest receivable |
|
| 8,845 |
|
| 8,845 |
|
| 8,227 |
|
| 8,227 | ||||||||||||
Servicing asset |
|
| 200 |
|
| 200 |
|
| 209 |
|
| 209 |
|
| 153 |
|
| 153 |
|
| 166 |
|
| 166 |
Accrued interest receivable |
|
| 8,419 |
|
| 8,419 |
|
| 7,429 |
|
| 7,429 | ||||||||||||
Interest rate swaps with customers |
|
| 7 |
|
| 7 |
|
| 340 |
|
| 340 | ||||||||||||
Interest rate swaps with financial institutions |
|
| 1,708 |
|
| 1,708 |
|
| 426 |
|
| 426 | ||||||||||||
Level 3 inputs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, including held for sale, net |
|
| 2,582,037 |
|
| 2,520,918 |
|
| 2,432,753 |
|
| 2,423,130 | ||||||||||||
Equity investments |
|
| 15,101 |
|
| 15,101 |
|
| 12,226 |
|
| 12,226 |
|
| 15,065 |
|
| 15,065 |
|
| 13,026 |
|
| 13,026 |
Loans, including held for sale, net |
|
| 2,443,014 |
|
| 2,439,095 |
|
| 2,299,742 |
|
| 2,288,226 | ||||||||||||
Total financial assets |
| $ | 3,043,654 |
| $ | 3,039,733 |
| $ | 2,938,391 |
| $ | 2,926,873 |
| $ | 2,954,602 |
| $ | 2,893,481 |
| $ | 2,907,799 |
| $ | 2,898,175 |
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1 inputs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing deposits |
| $ | 1,144,985 |
| $ | 1,144,985 |
| $ | 1,109,789 |
| $ | 1,109,789 |
| $ | 1,229,172 |
| $ | 1,229,172 |
| $ | 1,183,058 |
| $ | 1,183,058 |
Level 2 inputs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits |
|
| 1,474,684 |
|
| 1,545,095 |
|
| 1,437,013 |
|
| 1,493,183 |
|
| 1,478,396 |
|
| 1,521,827 |
|
| 1,522,366 |
|
| 1,583,224 |
Repurchase agreements |
|
| 1,351 |
|
| 1,351 |
|
| 1,525 |
|
| 1,525 |
|
| 1,600 |
|
| 1,600 |
|
| 2,498 |
|
| 2,498 |
Federal Home Loan Bank advances |
|
| — |
|
| — |
|
| — |
|
| — | ||||||||||||
Junior subordinated debt |
|
| 6,726 |
|
| 6,726 |
|
| 6,726 |
|
| 6,726 |
|
| — |
|
| — |
|
| 1,571 |
|
| 1,571 |
Accrued interest payable |
|
| 555 |
|
| 555 |
|
| 374 |
|
| 374 |
|
| 708 |
|
| 708 |
|
| 653 |
|
| 653 |
Interest rate swaps with customers |
|
| 1,708 |
|
| 1,708 |
|
| 426 |
|
| 426 | ||||||||||||
Interest rate swaps with financial institutions |
|
| 7 |
|
| 7 |
|
| 340 |
|
| 340 | ||||||||||||
Total financial liabilities |
| $ | 2,630,016 |
| $ | 2,700,427 |
| $ | 2,556,193 |
| $ | 2,612,363 |
| $ | 2,709,876 |
| $ | 2,753,307 |
| $ | 2,710,146 |
| $ | 2,771,004 |
The estimated fair value amounts of financial instruments have been determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is required to interpret data to develop the estimates of fair value. Accordingly,value and as such the estimates presented hereinfair values shown above are not necessarily indicative of the amounts the Company could realize in a current market exchange.will realize. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.
The fair value of loans is determined using a discounted cash flow analyses and includes such factors as credit and prepayment risk and economic forecasts for interest rates in accordance with ASU 2016-01.
2422
Equity Investments— The Company has unconsolidated investments that are considered equity securities meaning they represent ownership interests (such as common or preferred stock). Our equity investments do not have readily determinable fair values and are shown in the table below for the dates indicated.
|
|
|
|
|
|
|
|
| September 30, |
| December 31, | ||
(Dollars in thousands) |
| 2018 |
| 2017 | ||
Federal Reserve stock |
| $ | 9,271 |
| $ | 9,271 |
Federal Home Loan Bank stock |
|
| 3,294 |
|
| 1,189 |
The Independent Bankers Financial Corporation stock |
|
| 141 |
|
| 141 |
Community Reinvestment Act investments |
|
| 2,395 |
|
| 1,625 |
Total |
| $ | 15,101 |
| $ | 12,226 |
Banks that are members of the FHLB, are required to maintain a stock investment in the FHLB calculated as a percentage of aggregate outstanding mortgages, outstanding FHLB advances and other financial instruments. Banks that are members of the Federal Reserve System are required to annually subscribe to Federal Reserve Bank stock in specific ratios to the Bank’s equity. Although FHLB and Federal Reserve Bank Stock are considered equity securities, they do not have readily determinable fair values because ownership is restricted and they lack a market. These investments can be sold back only at their par value of $100 per share and can only be sold to the Federal Home Loan Banks or Federal Reserve Banks or to another member institution. In addition, the equity ownership rights are more limited than would be the case for a public company, because of the oversight role exercised by regulators in the process of budgeting and approving dividends. As a result, these investments are carried at cost and evaluated for impairment.
The Company also holds an investment in the stock of The Independent Bankers Financial Corporation, or TIB. This investment has limited marketability. As a result, these investments are carried at cost and evaluated for impairment.
The Company has investments in two private investment funds and a limited partnership. These investments are qualified Community Reinvestment Act, or CRA, investments under the Small Business Investment Company program of the SBA. There are limited to no observable price changes in orderly transactions for identical investments or similar investments from the same issuers that are actively traded and as a result, these investments are stated at cost.
Our equity investments are evaluated for impairment based on an assessment of qualitative indicators. Impairment indicators to be considered include, but are not limited to (i) a significant deterioration in the earnings, performance, credit rating, asset quality or business prospects of the investee, (ii) a significant adverse change in the regulatory, economic or technological environment of the investee, (iii) a significant adverse change in the general market conditions of either the geographical area or the industry in which the investee operates, (iv) a bona fide offer to purchase, an offer by the investee to sell, or completed auction process for the same or similar investment for an amount less that the carrying amount of that investment. There were no such qualitative indicators as of September 30, 2018.
NOTE 13 COMMITMENTS AND CONTINGENCIES AND15: DERIVATIVE FINANCIAL INSTRUMENTS WITH OFF‑BALANCE‑SHEET RISK
Unfunded Loan Commitments
The Company is party to various financial instruments with off‑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 for loans in process, commercial lines of credit, overdraft protection lines, and standby letters of credit at both fixed and variable rates of interest. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the consolidated balance sheets. The contract or notional amounts of those instruments reflect the extent of the involvement the Company has in particular classes of financial instruments. The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual notional amount of those instruments.
The Company uses the same credit policies in making these commitments and conditional obligations as it does for on‑balance‑sheet instruments. The Company evaluates each customer’s credit worthiness on a case‑by‑case basis. The amount of collateral obtained, if considered necessary by the Company upon extension of credit, is based on management’s credit evaluation of the customer.
25
Commitments to extend credit and standby letters of credit as of the dates shown below were as follows:
|
|
|
|
|
|
|
|
|
| September 30, |
|
| December 31, |
(Dollars in thousands) |
| 2018 |
| 2017 | ||
Commitments to extend credit, variable |
| $ | 737,355 |
| $ | 626,441 |
Commitments to extend credit, fixed |
|
| 93,007 |
|
| 61,608 |
|
| $ | 830,362 |
| $ | 688,049 |
|
|
|
|
|
|
|
Standby letters of credit |
| $ | 26,485 |
| $ | 28,977 |
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 of the commitments are expected to expire without being fully drawn upon, the total commitment amounts disclosed above do not necessarily represent future cash requirements.
Standby letters of credit 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 loan facilities to our customers.
Derivative Financial Instruments
The Company has outstanding interest rate swap contracts in which the Bank entered into an interest rate swap with a customer and entered into an offsetting interest rate swap with another financial institution at the same time. These interest rate swap contracts are not designated as hedging instruments for mitigating interest rate risk of the Bank. The objective of the transactions is to allow the Bank’s customers to effectively convert a variable rate loan to a fixed rate.
In connection with each swap transaction, the Bank agrees to pay interest to the customer on a notional amount at a variable interest rate and receive interest from the customer on a similar notional amount at a fixed interest rate. At the same time, the Bank agrees to pay a third‑partythird-party financial institution the same fixed interest rate on the same notional amount and receive the same variable interest rate on the same notional amount. Because the Bank acts as an intermediary for its customer, changes in the fair value of the underlying derivative contracts are designed to offset each other and would not significantly impact the Company’s operating results except in certain situations where there is a significant deterioration in the customer’s credit worthiness or that of the counterparties. At September 30, 2018March 31, 2019 and December 31, 2017,2018, no such deterioration was determined by management.
At September 30, 2018both March 31, 2019 and December 31, 2017,2018, the Company had 12 and 1413 interest rate swap agreements outstanding with borrowers and financial institutions, respectively.institutions. These derivative instruments are not designated as accounting hedges and changes in the net fair value are recognized in noninterest income or expense. Fair value amounts are included in other assets and other liabilities. Interest rates on the Company’s swap agreements are based on the London Interbank Offered Rate of the U.S. Dollar deposits in Europe, or Libor. Derivative instruments outstanding as of as of the dates listed shown below were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted |
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted |
|
|
|
| Notional |
| Fair |
|
|
|
|
| Average |
|
|
| Notional |
| Fair |
|
|
|
|
| Average | ||||
(Dollars in thousands) |
| Classification |
| Amounts |
| Value |
| Fixed Rate |
| Floating Rate |
| Maturity |
| Classification |
| Amounts |
| Value |
| Fixed Rate |
| Floating Rate |
| Maturity | ||||
September 30, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
March 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Interest rate swaps with customers |
| Other Assets |
| $ | 3,296 |
| $ | 7 |
| 5.89% - 7.25% |
| LIBOR 1M + 3.00% - 3.20% |
| 2.96 years |
| Other Assets |
| $ | 26,013 |
| $ | 422 |
| 4.75% - 7.25% |
| LIBOR 1M + 2.50% - 3.20% |
| 7.39 years |
Interest rate swaps with financial institution |
| Other Assets |
|
| 35,556 |
|
| 1,708 |
| 4.00% - 5.65% |
| LIBOR 1M + 2.50% - 3.25% |
| 7.89 years |
| Other Assets |
|
| 15,365 |
|
| 346 |
| 4.00% - 5.15% |
| LIBOR 1M + 2.50% - 3.25% |
| 6.92 years |
Interest rate swaps with customers |
| Other Liabilities |
|
| 35,556 |
|
| (1,708) |
| 4.00% - 5.65% |
| LIBOR 1M + 2.50% - 3.25% |
| 7.89 years |
| Other Liabilities |
|
| 15,365 |
|
| (346) |
| 4.00% - 5.15% |
| LIBOR 1M + 2.50% - 3.25% |
| 6.92 years |
Interest rate swaps with financial institution |
| Other Liabilities |
|
| 3,296 |
|
| (7) |
| 5.89% - 7.25% |
| LIBOR 1M + 3.00% - 3.20% |
| 2.96 years |
| Other Liabilities |
|
| 26,013 |
|
| (422) |
| 4.75% - 7.25% |
| LIBOR 1M + 2.50% - 3.20% |
| 7.39 years |
Total derivatives not designated as hedging instruments |
|
|
| $ | 77,704 |
| $ | — |
|
|
|
|
|
|
|
|
| $ | 82,756 |
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted |
|
|
|
| Notional |
| Fair |
|
|
|
|
| Average | ||
(Dollars in thousands) |
| Classification |
| Amounts |
| Value |
| Fixed Rate |
| Floating Rate |
| Maturity | ||
December 31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps with customers |
| Other Assets |
| $ | 8,901 |
| $ | 169 |
| 5.45% - 7.25% |
| LIBOR 1M + 2.50% - 3.20% |
| 6.22 years |
Interest rate swaps with financial institution |
| Other Assets |
|
| 32,923 |
|
| 793 |
| 4.00% - 5.37% |
| LIBOR 1M + 2.50% - 3.25% |
| 7.78 years |
Interest rate swaps with customers |
| Other Liabilities |
|
| 32,923 |
|
| (793) |
| 4.00% - 5.37% |
| LIBOR 1M + 2.50% - 3.25% |
| 7.78 years |
Interest rate swaps with financial institution |
| Other Liabilities |
|
| 8,901 |
|
| (169) |
| 5.45% - 7.25% |
| LIBOR 1M + 2.50% - 3.20% |
| 6.22 years |
Total derivatives not designated as hedging instruments |
|
|
| $ | 83,648 |
| $ | — |
|
|
|
|
|
|
2623
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted |
|
|
|
| Notional |
| Fair |
|
|
|
|
| Average | ||
(Dollars in thousands) |
| Classification |
| Amounts |
| Value |
| Fixed Rate |
| Floating Rate |
| Maturity | ||
December 31, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps with customers |
| Other Assets |
| $ | 25,882 |
| $ | 340 |
| 4.75% - 7.25% |
| LIBOR 1M + 2.50% - 3.20% |
| 7.83 years |
Interest rate swaps with financial institution |
| Other Assets |
|
| 16,579 |
|
| 426 |
| 4.00% - 5.15% |
| LIBOR 1M + 2.50% - 3.25% |
| 8.12 years |
Interest rate swaps with customers |
| Other Liabilities |
|
| 16,579 |
|
| (426) |
| 4.00% - 5.15% |
| LIBOR 1M + 2.50% - 3.25% |
| 8.12 years |
Interest rate swaps with financial institution |
| Other Liabilities |
|
| 25,882 |
|
| (340) |
| 4.75% - 7.25% |
| LIBOR 1M + 2.50% - 3.20% |
| 7.83 years |
Total derivatives not designated as hedging instruments |
|
|
| $ | 84,922 |
| $ | — |
|
|
|
|
|
|
Repurchase Agreements
At September 30, 2018 and December 31, 2017, the Company had outstanding funds amounting to $1.4 million and $1.5 million respectively, received from the sale of securities that were sold under agreements to repurchase. Securities subject to the transfer of ownership under the repurchase agreements are included in pledged securities, and the carrying value of these securities is disclosed in Note 2. The Company transacts these repurchase agreements with its customers and pays interest rates on these funds according to the terms of each repurchase agreement.
Contingent LiabilitiesNOTE 16: OPERATING LEASES
The Company is committedadopted Accounting Standards Update, or ASU 2016-02, Leases (Topic 842) on January 1, 2019 and the Company’s leases within scope were operating leases of office space, stand-alone buildings and land. The Company’s leases have no variable costs. Right-of-use assets represent the Company’s right to contribute capital into two private investment fundsuse, or control the use of, leased assets for their lease term and at March 31, 2019, totaled $12.9 million. Lease liabilities represent the Company’s liability to make lease payments under these leases, on a limited partnership underdiscounted basis and at March 31, 2019, totaled $15.1 million. The weighted-average discount rate for the Small Business Investment Company programthree months ended March 31, 2019 was 3.58%. The weighted-average remaining lease term for operating leases outstanding at March 31, 2019 was 11.8 years. Cash paid for amounts included in the measurement of operating lease liabilities for the three months ended March 31, 2019 was $448,000.
Lease costs for the period shown below were as follows:
|
|
|
|
|
|
|
|
|
|
|
| For the Three |
| |
|
| Months Ended |
| |
(Dollars in thousands) |
| March 31, |
| |
Operating lease cost |
| $ | 461 |
|
Short-term lease cost |
|
| 19 |
|
Sublease income |
|
| (6) |
|
Total lease cost |
| $ | 474 |
|
A maturity analysis of operating lease liabilities as of the SBA. At September 30, 2018 and December 31, 2017,date shown below was as follows:
|
|
|
|
(Dollars in thousands) |
| March 31, 2019 | |
2020 |
| $ | 1,940 |
2021 |
|
| 2,070 |
2022 |
|
| 2,165 |
2023 |
|
| 2,207 |
2024 |
|
| 2,124 |
Thereafter |
|
| 10,347 |
Total undiscounted lease liability |
|
| 20,853 |
Discount |
|
| (5,719) |
Total lease liability |
| $ | 15,134 |
24
NOTE 17: COMMITMENTS AND CONTINGENCIES AND FINANCIAL INSTRUMENTS WITH OFF‑BALANCE‑SHEET RISK
Financial Instruments with Off-Balance-Sheet Risk
In the normal course of business, the Company had $3.0 million and $3.8 million, respectively,enters into various transactions, which in outstanding unfundedaccordance with GAAP are not included in its consolidated balance sheets. The Company enters into these transactions to meet the financing needs of its customers. These financial instruments include commitments to extend credit for loans in process and standby letters of credit. The Company uses the same credit policies in making these funds whichcommitments and conditional obligations as it does for on-balance-sheet instruments.
Commitments to extend credit and standby letters of credit as of the dates shown below were as follows:
|
|
|
|
|
|
|
|
| March 31, |
| December 31, | ||
(Dollars in thousands) |
| 2019 |
| 2018 | ||
Commitments to extend credit, variable interest rate |
| $ | 702,152 |
| $ | 726,277 |
Commitments to extend credit, fixed interest rate |
|
| 117,747 |
|
| 105,359 |
|
| $ | 819,899 |
| $ | 831,636 |
Standby letters of credit |
| $ | 28,072 |
| $ | 31,729 |
Commitments to extend credit are subjectagreements to call. Cumulative capital contributionslend to these fundsa customer as long as there is no violation of $2.4 million and $1.6 million are included in other investmentsany condition established in the Company’s condensed consolidated balance sheets at September 30, 2018contract. Commitments generally have fixed expiration dates or other termination clauses and December 31, 2017, respectively.may require payment of a fee. Since many of the commitments are expected to expire without being fully drawn upon, the total commitment amounts disclosed above do not necessarily represent future cash requirements.
Standby letters of credit 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 loan facilities to our customers.
Litigation
The Company is subject to claims and lawsuits which arise primarily in the ordinary course of business. Based on information presently available and advice received from legal counsel representing the Company, it is the opinion of management that the disposition or ultimate determination of such claims and lawsuits will not have a material adverse effect on the financial position or results of operations of the Company.
Lease CommitmentsNOTE 18: REVENUE RECOGNITION
ASU 606 requires entities to recognize revenue in a way that depicts the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. A majority of the Company’s revenue is derived from interest income on financial assets, which is not within the scope of ASC 606. Income from changes in the cash surrender value of bank-owned life is also not within the scope of ASC 606.
The Company’s revenue-generating activities that are within the scope of ASC 606 are included in its consolidated income statements in noninterest income. See table below. The Company’s revenue recognition for revenue streams within the scope of ASC 606 did not materially change from previous practice. The Company leases severalgenerally fully satisfies its performance obligations on its contracts with customers as services are rendered and the transaction prices are typically fixed and charged at a point in time based on activity.
|
|
|
|
|
|
|
|
|
| Three Months Ended March 31, |
| ||||
(Dollars in thousands) |
| 2019 |
| 2018 |
| ||
Deposit account service charges |
| $ | 1,629 |
| $ | 1,478 |
|
Net gain on sale of assets |
|
| 88 |
|
| 130 |
|
Card interchange fees |
|
| 864 |
|
| 927 |
|
Other noninterest income |
|
| 482 |
|
| 375 |
|
25
Deposit account service charges are fees from the Company’s customers for operating leasesdeposit related services, such as monthly account maintenance and activity or transaction-based fees. Revenue is recognized when the Company’s performance obligation is completed, which is generally monthly for account maintenance services or when a transaction is completed for activity or transaction-based fees. Payment for such performance obligations are received at the time the performance obligation is satisfied.
Net gain on sale of premisesassets includes gains on sales of fixed assets, gains on sales of loans and equipment was approximately $1.4 milliongains on sales of other real estate owned, or OREO. Gains on sales of loans are excluded from ASC 606. The performance obligation in the sale of OREO or fixed assets is delivery of control over the property to the buyer. The Company does not typically provide financing and $1.4 millionthe transaction price is identified in the purchase and sale agreement. If the Company provides financing, the Company must determine a transaction price depending on if the sales contract is at market terms and taking into account the credit risk inherent in the sale agreement.
Card interchange fees are fees generated from debit card transactions. Revenue is recognized when the Company’s performance obligation is completed, which is generally when a transaction is completed. Payment for such performance obligations are generally received at the nine months ended September 30, 2018time the performance obligation is satisfied.
Other noninterest income includes a variety of items including wire transfer fee income, ATM fee income, letters of credit fee income and 2017, respectively, andswap fee income. Revenue is reflected in net occupancy expense onrecognized when the condensed consolidated statements of income.Company’s performance obligation is completed, which is generally when a transaction is completed. Payment for such performance obligations are generally received at the time the performance obligation is satisfied.
NOTE 14:19: EMPLOYEE BENEFIT PLANS AND DEFERRED COMPENSATION ARRANGEMENTS
Employee Benefit Plans
The Company maintains a 401(k) employee benefit plan in whichand substantially all employees that complete three months of service may participate. The Company, at its discretion, may match a portion of each employee’s contribution. The Company, also at its discretion,contribution and may make additional contributions during the Plan year.contributions. For the ninethree months ended September 30,March 31, 2019 and 2018, and 2017, the Company contributed $1.4 million$683,000 and $1.3 million$659,000 to the plan, respectively.
27
Executive Deferred Compensation Arrangements
The Company established an executive incentive compensation arrangement with several officers of the Bank, in which these officers are eligible for performance basedperformance-based incentive bonus compensation. As part of this compensation arrangement, the Company will contributecontributes one‑fourth of the incentive bonus amount into a deferred compensation account. The deferred amounts accrue at a market rate of interest and are payable to the employees upon separation from the Bank provided the Plan’s vesting arrangements have been met. At September 30, 2018March 31, 2019 and December 31, 2017,2018, the amount payable, including interest, for this deferred plan was approximately $2.5 million and $2.4$2.5 million, respectively, andwhich is included in other liabilities in the condensed consolidated balance sheets.
Salary Continuation Agreements
The Company entered into a salary continuation arrangement in 2008 with the Company’s then President and CEO that calls for payments of $100,000 per year for a period of 10 years commencing at age 65. Payments under the plan began during 2014. The Company’s liability was approximately $441,000$399,000 and $503,000$421,000 at September 30, 2018March 31, 2019 and December 31, 2017,2018, respectively, determined using discounted cash flows andwhich is included in other liabilities in the condensed consolidated balance sheets.sheets and equals the present value of the benefits expected to be provided.
In October 2017, the Company entered into a salary continuation arrangement with the Company’s President and CEO that calls for payments of $200,000 per year payable for a period of 10 years commencing at age 70. Payments under the plan will begin in 2024. The Company’s liability was approximately $195,000$274,000 and $32,000$219,000 at September 30, 2018March 31, 2019 and December 31, 2017, determined using discounted cash flows and2018, respectively, which is included in other liabilities in the condensed consolidated balance sheets. The liability will continue to accrue over the remaining period until payments commence such that the accrued amount at the eligibility date will equal the present value of all the future benefits expected to be paid.
26
Change of Control Agreements
In 2017, the Company entered into employment agreements with certain executive officers. These agreements provide for severance benefits if we terminatethe Company terminates the executive without cause or the executive resigns with good reason, as defined in the agreements. In addition, upon a change of control, as that term is defined in the agreements, these employees will be entitled to an aggregate amount estimated to be $4.1$4.4 million at September 30, 2018,March 31, 2019, in accordance withto the terms of their respective agreements. No compensation has been recorded to date as a change of control condition is not deemed probable.
VB Texas, Inc. and Vista Bank Texas entered into change of control and non‑competition agreements with certain employees of VB Texas, Inc., who are now employees of the Bank. The Company’s initial public offering completed November 10, 2017 triggered the change of control provisions of these agreement and we paid these employees an aggregate amount of $2.5 million during the nine months ended September 30, 2018.
NOTE 15:20: STOCK-BASED COMPENSATION
The Company acquired a stock option plan which originated under VB Texas, Inc. as a part of a merger of the two companies. The options granted to employees must be exercised within 10 years from the date of grant and vesting schedules are determined on an individual basis. At the merger date, all outstanding options became fully vested and were converted to options of the Company’s common stock at an exchange ratio equal to the acquisition exchange rate for common shares. No options were granted under this plan after October 24, 2016.
The Company also acquired a stock option plan that originated in May 2011 under VB Texas, Inc., or the 2011 Plan. At the merger date, all outstanding options became fully vested and were converted to options of the Company’s common stock at an exchange ratio equal to the acquisition exchange rate for common shares. The 2011 Plan was terminated on August 7, 2017 and as of that date, there were no options outstanding under this plan.
In May 2014, the Company adopted the 2014 Stock Option Plan, or the 2014 Plan. The 2014 Plan was approved by the Company’s shareholders and limits the number of shares that may be optioned to 1,127,200. The 2014 Plan provides that no options may be granted after May 20, 2024. Options granted under the 2014 Plan expire 10 years from the date of grant and become exercisable in installments over a period of one to five years, beginning on the first anniversary of the date of grant. At September 30, 2018,March 31, 2019, 959,200 optionsshares were available for future grant under the 2014 Plan.
28
OnIn September 13, 2017, the Company’s shareholders approvedCompany adopted the Company’s 2017 Omnibus Incentive Plan, or the 2017 Plan. The 2017 Plan authorizes the Company to grant options and performance-based and non-performance based restricted stock awards as well as various other types of stock-based and other awards that are not stock-based to eligible employees, consultants and non‑employee directors up to an aggregate of 600,000 shares of common stock. At September 30, 2018, 368,920 share-based awardsMarch 31, 2019, 328,940 shares were available for future grant under the 2017 Plan.
Stock option activity for the periods shown below was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the Nine Months Ended September 30, |
| Three Months Ended March 31, | ||||||||||||||||
|
| 2018 |
| 2017 |
| 2019 |
| 2018 | ||||||||||||
|
| Number of |
| Weighted |
| Number of |
| Weighted |
| Number of |
| Weighted |
| Number of |
| Weighted | ||||
|
| Shares |
| Average |
| Shares |
| Average |
| Shares |
| Average |
| Shares |
| Average | ||||
|
| Underlying |
| Exercise |
| Underlying |
| Exercise |
| Underlying |
| Exercise |
| Underlying |
| Exercise | ||||
(Dollars in thousands, except per share data) |
| Options |
| Price |
| Options |
| Price | ||||||||||||
|
| Options |
| Price |
| Options |
| Price | ||||||||||||
Outstanding at beginning of period |
| 260,322 |
| $ | 16.00 |
| 248,314 |
| $ | 12.80 |
| 232,322 |
| $ | 16.66 |
| 260,322 |
| $ | 16.00 |
Granted |
| — |
| $ | — |
| 80,000 |
| $ | 21.00 |
| — |
|
| — |
| — |
|
| — |
Exercised |
| (10,844) |
|
| 10.68 |
| — |
|
| — | ||||||||||
Forfeited |
| — |
| $ | — |
| (12,160) |
| $ | 11.24 |
| — |
|
| — |
| — |
|
| — |
Exercised |
| (25,400) |
| $ | 9.85 |
| (1,000) |
| $ | 16.80 | ||||||||||
Outstanding at end of period |
| 234,922 |
| $ | 16.67 |
| 315,154 |
| $ | 14.93 |
| 221,478 |
|
| 16.96 |
| 260,322 |
|
| 16.00 |
Cash received due to exerciseA summary of stock options during the nine months ended September 30, 2018 and 2017 was $250,000 and $17,000, respectively.
The following tables summarizes our stock options as of the dates shown below.
|
|
|
|
|
|
|
|
|
|
|
| September 30, 2018 | |||||||
Stock Options |
|
| Exercisable |
|
| Unvested |
|
| Outstanding |
Number of shares underlying options |
|
| 134,723 |
|
| 100,199 |
|
| 234,922 |
Weighted-average exercise price per share |
| $ | 14.54 |
| $ | 19.53 |
| $ | 16.67 |
Aggregate intrinsic value (in thousands) |
| $ | 2,829 |
| $ | 1,605 |
| $ | 4,433 |
Weighted-average contractual term (years) |
|
| 5.5 |
|
| 8.0 |
|
| 6.6 |
Restricted stock activity for the periods shown below was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
| For the Nine Months Ended September 30, | ||||||||
|
| 2018 |
| 2017 | ||||||
|
|
|
| Weighted |
|
|
| Weighted | ||
|
|
|
| Average |
|
|
| Average | ||
|
| Number of |
| Grant Date |
| Number of |
| Grant Date | ||
(Dollars in thousands, except per share data) |
| Shares |
| Fair Value |
| Shares |
| Fair Value | ||
Outstanding at beginning of period |
| 212,580 |
| $ | 26.71 |
| — |
| $ | — |
Granted |
| 18,500 |
| $ | 29.71 |
| — |
| $ | — |
Forfeited |
| — |
| $ | — |
| — |
| $ | — |
Vested |
| — |
| $ | — |
| — |
| $ | — |
Outstanding at end of period |
| 231,080 |
| $ | 26.95 |
| — |
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
| March 31, 2019 | |||||||
Stock Options |
|
| Exercisable |
|
| Unvested |
|
| Outstanding |
Number of shares underlying options |
|
| 136,279 |
|
| 85,199 |
|
| 221,478 |
Weighted-average exercise price per share |
| $ | 15.06 |
| $ | 19.99 |
| $ | 16.96 |
Aggregate intrinsic value (in thousands) |
| $ | 2,373 |
| $ | 1,063 |
| $ | 3,436 |
Weighted-average remaining contractual term (years) |
|
| 5.3 |
|
| 7.7 |
|
| 6.2 |
Restricted stock grants will vest over the service period in equal increments over a period of two to five years, beginning on the first anniversaryThe fair value of the date of grant. TheCompany’s restricted stock awards is estimated based on the market value of the Company’s common stock at the date of grant is used as the estimate of fair value of restricted stock. Thegrant. Restricted stock shares of the restricted stock are considered fully issued at the time of the grant and the grantee becomes the record owner of the restricted stock and has voting, dividend and other shareholder rights. The shares of restricted stock are non-transferable and subject to forfeiture until the restricted stock vests and any dividends with respect to the restricted stock are subject to the same restrictions, including the risk of forfeiture. At September 30, 2018, $44,000 was accrued for dividends payable to restricted stock holders. These dividends will be paid upon vesting of the restricted stock.
2927
The following tables summarizes ourNon-performance based restricted stock grants vest over the service period in equal increments over a period of two to five years, beginning on the first anniversary of the date of grant.
The number of shares earned under the Company’s performance-based restricted stock award agreements is based on the achievement of certain branch production goals. Compensation expense for performance-based restricted stock is recognized for the probable award level over the period estimated to achieve the performance conditions and other goals, on a straight-line basis. If the probable award level and/or the period estimated to be achieved change, compensation expense will be adjusted via a cumulative catch-up adjustment to reflect these changes. The performance conditions goals must be achieved within five years or the awards expire. The number of performance-based shares granted presented in the table below is based upon the attainment of the maximum number of shares possible to be earned.
Restricted stock activity for the periods shown below was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
| Non-performance Based |
| Performance-based | ||||||
|
|
|
| Weighted |
|
|
| Weighted | ||
|
|
|
| Average |
|
|
| Average | ||
|
| Number of |
| Grant Date |
| Number of |
| Grant Date | ||
|
| Shares |
| Fair Value |
| Shares |
| Fair Value | ||
Outstanding at 12/31/2017 |
| 212,580 |
| $ | 26.71 |
| — |
| $ | — |
Granted |
| 1,500 |
|
| 29.27 |
| — |
|
| — |
Vested |
| — |
|
| — |
| — |
|
| — |
Forfeited |
| — |
|
| — |
| — |
|
| — |
Outstanding at 3/31/2018 |
| 214,080 |
| $ | 27.29 |
| — |
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
Outstanding at 12/31/2018 |
| 181,773 |
|
| 27.05 |
| 24,000 |
|
| 34.46 |
Granted |
| 19,187 |
|
| 32.25 |
| — |
|
| — |
Vested |
| (300) |
|
| 29.27 |
| — |
|
| — |
Forfeited |
| — |
|
| — |
| — |
|
| — |
Outstanding at 3/31/2019 |
| 200,660 |
| $ | 27.54 |
| 24,000 |
| $ | 34.46 |
The Company’s stock compensation plans allow the employee to elect to have shares withheld to satisfy their tax liability related to restricted stock vesting or stock option exercises.
The number of shares issued and withheld during the three months ended March 31, 2019 was as follows:
|
|
|
|
|
|
Shares |
|
| Shares |
| Total |
Issued |
|
| Withheld |
| Vested |
211 |
|
| 89 |
| 300 |
A summary of restricted stock as of the datedates shown below.below was as follows:
|
|
|
|
|
|
|
|
|
|
|
| September 30, 2018 | |||||||
Restricted stock |
|
| Exercisable |
|
| Unvested |
|
| Outstanding |
Number of shares underlying restricted stock |
|
| — |
|
| 231,080 |
|
| 231,080 |
Weighted-average grant date fair value per share |
| $ | — |
| $ | 26.95 |
| $ | 26.95 |
Aggregate intrinsic value (in thousands) |
| $ | — |
| $ | 8,213 |
| $ | 8,213 |
Weighted-average contractual term (years) |
|
| — |
|
| 3.9 |
|
| 3.9 |
|
|
|
|
|
|
|
|
| March 31, 2019 | ||||
Restricted Stock |
|
| Non-performance Based |
|
| Performance-based |
Number of shares underlying restricted stock |
|
| 200,660 |
|
| 24,000 |
Weighted-average grant date fair value per share |
| $ | 27.54 |
| $ | 34.46 |
Aggregate fair value (in thousands) |
| $ | 6,515 |
| $ | 779 |
Weighted-average remaining vesting period (years) |
|
| 3.4 |
|
| 2.9 |
Stock-based compensation expense is recognized in the condensed consolidated statements of income based on their fair values on the date of the grant. For the ninethree months ended September 30,March 31, 2019 and 2018, and 2017, stock compensation expense was $1.2 million$545,000 and $56,000,$392,000, respectively. As of September 30, 2018,March 31, 2019, there was approximately $5.4$6.0 million of total unrecognized compensation expense related to the stock‑based compensation arrangements, which is expected to be recognized in the Company’s consolidated statements of income over a weighted-average period of 3.83.3 years.
28
NOTE 16:21: REGULATORY MATTERS
Regulatory Capital
Banks and bank holding companies are subject to various regulatory capital requirements administered by state and federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off‑balance‑sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk weighting and other factors.
The Company and the Bank’s Common Equity Tier 1 capital includes common stock and related capital surplus, net of treasury stock, and retained earnings. In connection with the adoption of the Basel III Capital Rules, the Company and the Bank elected to opt‑out of the requirement to include most components of accumulated other comprehensive income in Common Equity Tier 1. Common Equity Tier 1 for both the Company and the Bank is reduced by goodwill and other intangible assets, net of associated deferred tax liabilities, and subject to transition provisions.
When fully phased in on January 1, 2019, theThe Basel III Capital Rules will require the Company and the Bank to maintain (i) a minimum ratio of Common Equity Tier 1 capital to risk‑weighted assets of at least 4.5%, plus a 2.5% “capital conservation buffer” (which is added to the 4.5% Common Equity Tier 1 capital ratio as that buffer is phased in, effectively resulting in a minimum ratio of Common Equity Tier 1 capital to risk‑weighted assets of at least 7.0% upon full implementation), (ii) a minimum ratio of Tier 1 capital to risk‑weighted assets of at least 6.0%, plus the capital conservation buffer (which is added to the 6.0% Tier 1 capital ratio as that buffer is phased in, effectively resulting in a minimum Tier 1 capital ratio of 8.5% upon full implementation), (iii) a minimum ratio of Total capital (that is, Tier 1 plus Tier 2) to risk‑weighted assets of at least 8.0%, plus the capital conservation buffer (which is added to the 8.0% total capital ratio as that buffer is phased in, effectively resulting in a minimum total capital ratio of 10.5% upon full implementation) and (iv) a minimum leverage ratio of 4.0%, calculated as the ratio of Tier 1 capital to average quarterly assets.
The implementation of the capital conservation buffer began on January 1, 2016 at the 0.625% level and will bewas phased in over a four‑year period (increasing by that amount on each subsequent January 1, until it reachesreached 2.5% on January 1, 2019). The Basel III Capital Rules also provide for a “countercyclical capital buffer” that is applicable to only certain covered institutions and does not have any current applicability to the Company and the Bank. The capital conservation buffer is designed to absorb losses during periods of economic stress and, as detailed above, effectively increases the minimum required risk‑weighted capital ratios. Banking institutions with a ratio of Common Equity Tier 1 capital to risk‑weighted assets below the effective minimum (4.5% plus the capital conservation buffer and, if applicable, the countercyclical capital buffer) will face constraints on dividends, equity repurchases, and compensation based on the amount of the shortfall.
30
The following table presents actual and required capital ratios as of the dates shown below for the Company and Bank.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Minimum |
| Minimum |
|
|
|
| ||||
|
|
|
|
|
| Capital Required |
| Capital Required |
| Required to be | ||||||
|
|
|
|
|
| for Capital Adequacy |
| Basel III |
| Considered Well | ||||||
|
| Actual |
| Purposes |
| Fully Phased-in |
| Capitalized | ||||||||
(Dollars in thousands) |
| Amount |
| Ratio |
| Amount |
| Ratio |
| Amount |
| Ratio |
| Amount |
| Ratio |
September 30, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Equity Tier I to Risk-Weighted Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
| $ 391,556 |
| 14.3% |
| $ 123,271 |
| 4.5% |
| $ 191,755 |
| 7.0% |
| N/A |
| N/A |
Bank Only |
| $ 350,337 |
| 12.8% |
| $ 123,259 |
| 4.5% |
| $ 182,549 |
| 7.0% |
| $ 178,040 |
| 6.5% |
Tier I Capital to Risk-Weighted Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
| $ 397,956 |
| 14.5% |
| $ 164,361 |
| 6.0% |
| $ 232,845 |
| 8.5% |
| N/A |
| N/A |
Bank Only |
| $ 350,337 |
| 12.8% |
| $ 164,345 |
| 6.0% |
| $ 232,822 |
| 8.5% |
| $ 219,126 |
| 8.0% |
Total Capital to Risk-Weighted Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
| $ 422,820 |
| 15.4% |
| $ 219,148 |
| 8.0% |
| $ 287,632 |
| 10.5% |
| N/A |
| N/A |
Bank Only |
| $ 375,202 |
| 13.7% |
| $ 219,216 |
| 8.0% |
| $ 287,604 |
| 10.5% |
| $ 273,908 |
| 10.0% |
Tier 1 Leverage Capital to Average Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
| $ 397,956 |
| 12.8% |
| $ 123,987 |
| 4.0% |
| $ 123,987 |
| 4.0% |
| N/A |
| N/A |
Bank Only |
| $ 350,336 |
| 11.3% |
| $ 123,987 |
| 4.0% |
| $ 123,987 |
| 4.0% |
| $ 154,983 |
| 5.0% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Equity Tier I to Risk-Weighted Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
| $ 361,322 |
| 14.2% |
| $ 114,628 |
| 4.5% |
| $ 178,310 |
| 7.0% |
| N/A |
| N/A |
Bank Only |
| $ 322,414 |
| 12.7% |
| $ 114,252 |
| 4.5% |
| $ 178,150 |
| 7.0% |
| $ 165,425 |
| 6.5% |
Tier I Capital to Risk-Weighted Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
| $ 367,722 |
| 14.4% |
| $ 152,837 |
| 6.0% |
| $ 216,519 |
| 8.5% |
| N/A |
| N/A |
Bank Only |
| $ 322,414 |
| 12.7% |
| $ 152,700 |
| 6.0% |
| $ 216,325 |
| 8.5% |
| $ 203,600 |
| 8.0% |
Total Capital to Risk-Weighted Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
| $ 392,878 |
| 15.4% |
| $ 203,782 |
| 8.0% |
| $ 267,464 |
| 10.5% |
| N/A |
| N/A |
Bank Only |
| $ 347,569 |
| 13.7% |
| $ 203,600 |
| 8.0% |
| $ 267,726 |
| 10.5% |
| $ 254,501 |
| 10.0% |
Tier 1 Leverage Capital to Average Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
| $ 367,722 |
| 12.3% |
| $ 119,769 |
| 4.0% |
| $ 119,769 |
| 4.0% |
| N/A |
| N/A |
Bank Only |
| $ 322,414 |
| 10.8% |
| $ 119,403 |
| 4.0% |
| $ 119,403 |
| 4.0% |
| $ 149,253 |
| 5.0% |
As of September 30, 2018 and December 31, 2017, the Company and its bank subsidiary, CommunityBank of Texas, National Association, were “well capitalized” based on the ratios presented above.
The Company and Bank are subject to the regulatory capital requirements administered by the Federal Reserve Board and, for the Bank, the OCC. Regulatory authorities can initiate certain mandatory actions if the Company or the Bank fail to meet the minimum capital requirements, which could have a direct material effect on ourthe Company’s financial statements. Management believes, as of September 30, 2018March 31, 2019 and December 31, 2017,2018, that the Company and the Bank meetmet all capital adequacy requirements to which they arewere subject.
Dividend Restrictions
In the ordinary course of business, the Company may be dependent upon dividends from the Bank to provide funds for the payment of dividends to shareholders and to provide for other cash requirements. Banking regulations may limit the amount of dividends that may be paid. Approval by regulatory authorities is required if the effect of dividends
31
declared would cause the regulatory capital of the Bank to fall below specified minimum levels. Approval is also required if dividends declared exceed the net profits for that year combined with the retained net profits for the preceding two years.
29
As of March 31, 2019 and December 31, 2018, the Company and the Bank, were “well capitalized” based on the ratios presented below. Actual and required capital ratios for the Company and the Bank were as follows for the dates presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Minimum |
| Minimum |
|
|
|
| ||||
|
|
|
|
|
| Capital Required |
| Capital Required |
| Required to be | ||||||
|
|
|
|
|
| for Capital Adequacy |
| Basel III |
| Considered Well | ||||||
|
| Actual |
| Purposes |
| Fully Phased-in |
| Capitalized | ||||||||
(Dollars in thousands) |
| Amount |
| Ratio |
| Amount |
| Ratio |
| Amount |
| Ratio |
| Amount |
| Ratio |
March 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Equity Tier I to Risk-Weighted Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
| $ 413,851 |
| 14.5% |
| $ 128,186 |
| 4.5% |
| $ 199,401 |
| 7.0% |
| N/A |
| N/A |
Bank Only |
| $ 372,226 |
| 13.1% |
| $ 128,176 |
| 4.5% |
| $ 199,385 |
| 7.0% |
| $ 185,143 |
| 6.5% |
Tier I Capital to Risk-Weighted Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
| $ 413,851 |
| 14.5% |
| $ 170,915 |
| 6.0% |
| $ 242,129 |
| 8.5% |
| N/A |
| N/A |
Bank Only |
| $ 372,226 |
| 13.1% |
| $ 170,901 |
| 6.0% |
| $ 242,110 |
| 8.5% |
| $ 227,869 |
| 8.0% |
Total Capital to Risk-Weighted Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
| $ 438,872 |
| 15.4% |
| $ 227,886 |
| 8.0% |
| $ 299,101 |
| 10.5% |
| N/A |
| N/A |
Bank Only |
| $ 397,246 |
| 14.0% |
| $ 227,869 |
| 8.0% |
| $ 299,077 |
| 10.5% |
| $ 284,836 |
| 10.0% |
Tier 1 Leverage Capital to Average Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
| $ 413,851 |
| 13.0% |
| $ 127,051 |
| 4.0% |
| $ 127,051 |
| 4.0% |
| N/A |
| N/A |
Bank Only |
| $ 372,224 |
| 11.7% |
| $ 127,051 |
| 4.0% |
| $ 127,051 |
| 4.0% |
| $ 158,814 |
| 5.0% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Equity Tier I to Risk-Weighted Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
| $ 405,012 |
| 14.7% |
| $ 123,885 |
| 4.5% |
| $ 192,710 |
| 7.0% |
| N/A |
| N/A |
Bank Only |
| $ 363,140 |
| 13.2% |
| $ 123,877 |
| 4.5% |
| $ 192,697 |
| 7.0% |
| $ 178,933 |
| 6.5% |
Tier I Capital to Risk-Weighted Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
| $ 406,257 |
| 14.8% |
| $ 165,180 |
| 6.0% |
| $ 234,005 |
| 8.5% |
| N/A |
| N/A |
Bank Only |
| $ 363,140 |
| 13.2% |
| $ 165,169 |
| 6.0% |
| $ 233,989 |
| 8.5% |
| $ 220,225 |
| 8.0% |
Total Capital to Risk-Weighted Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
| $ 430,238 |
| 15.6% |
| $ 220,240 |
| 8.0% |
| $ 289,065 |
| 10.5% |
| N/A |
| N/A |
Bank Only |
| $ 387,211 |
| 14.1% |
| $ 220,225 |
| 8.0% |
| $ 289,046 |
| 10.5% |
| $ 275,282 |
| 10.0% |
Tier 1 Leverage Capital to Average Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
| $ 406,257 |
| 12.8% |
| $ 127,350 |
| 4.0% |
| $ 127,350 |
| 4.0% |
| N/A |
| N/A |
Bank Only |
| $ 363,140 |
| 11.4% |
| $ 127,350 |
| 4.0% |
| $ 127,350 |
| 4.0% |
| $ 159,188 |
| 5.0% |
30
NOTE 17:22: INCOME TAXES
The provision for income tax expense and effective tax rates for the periods shown below were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| Three Months Ended September 30, |
| Nine Months Ended September 30, |
| Three Months Ended March 31, |
| ||||||||||
(Dollars in thousands) |
| 2018 |
| 2017 |
| 2018 |
| 2017 |
| 2019 |
| 2018 |
| ||||
Provision for income tax expense |
| $ 3,207 |
|
| $ 3,927 |
| $ 7,984 |
|
| $ 10,140 |
|
| $ 2,599 |
| $ 2,139 |
| |
Effective tax rate |
| 19.8 | % |
| 28.1 | % |
| 19.4 | % |
| 28.4 | % |
| 19.9% |
| 19.0% |
|
The Tax Cuts and Jobs Act of 2017 was enacted December 22, 2017 and lowered the corporate federal income tax rate in the U.S. from 35% to 21%. The differences between the federal statutory rate of 21% and the effective tax rates presented in the table above were primarilylargely attributable to permanent differences primarily related to tax exempt interest and bank‑owned life insurance.
NOTE 18:23: EARNINGS PER SHARE
Basic earnings per common share is computed as net income available to common shareholders divided by the weighted-average number of common shares outstanding during the period.
Diluted earnings per common share is computed using the weighted‑average number of shares determined for the basic earnings per common share computation plus the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock using the treasury stock method.
The following table illustrates the computation of basic and diluted earnings per share for the datesperiods shown below.was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
| Three Months Ended September 30, |
| Nine Months Ended September 30, |
| Three Months Ended March 31, |
| ||||||||||||
(Dollars in thousands, except per share data) |
| 2018 |
| 2017 |
| 2018 |
| 2017 |
| 2019 |
| 2018 |
| ||||||
Net income for common shareholders |
| $ | 13,023 |
| $ | 10,047 |
| $ | 33,177 |
| $ | 25,614 |
| $ | 10,490 |
| $ | 9,112 |
|
Weighted-average shares (thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Basic weighted-average shares outstanding |
|
| 24,859 |
|
| 22,063 |
|
| 24,850 |
| 22,062 |
|
| 24,910 |
| 24,833 |
| ||
Dilutive effect of outstanding stock options and unvested restricted stock awards |
|
| 201 |
|
| 75 |
|
| 157 |
|
| 82 |
|
| 144 |
|
| 121 |
|
Diluted weighted-average shares outstanding |
|
| 25,060 |
|
| 22,138 |
|
| 25,007 |
|
| 22,144 |
|
| 25,054 |
|
| 24,954 |
|
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Basic |
| $ | 0.52 |
| $ | 0.46 |
| $ | 1.34 |
| $ | 1.16 |
| $ | 0.42 |
| $ | 0.37 |
|
Diluted |
| $ | 0.52 |
| $ | 0.45 |
| $ | 1.33 |
| $ | 1.16 |
| $ | 0.42 |
| $ | 0.37 |
|
NOTE 24: SUBSEQUENT EVENT
On April 29, 2019, the Company received proceeds in the amount of $1.6 million as the owner and beneficiary under a bank-owned life insurance policy as the result of the death of a former employee. The Company recorded a gain of $1.2 million over the recorded value in April 2019.
3231
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and the accompanying notes included in Item I of Part I of this Quarterly Report on Form 10-Q, as well as our consolidated financial statements and the accompanying notes for the year ended December 31, 2017, included in our Annual Report on Form 10-K. In this Quarterly Report on Form 10-Q, unless otherwise indicated or the context otherwise requires, all references to “we,” “our,” “us,” “ourselves,” and “the Company” refer to CBTX, Inc., a Texas corporation, and its consolidated subsidiaries. All references in this Quarterly Report on Form 10-Q to “CommunityBank of Texas” or “the Bank” refer to CommunityBank of Texas, National Association, our wholly‑owned bank subsidiary.
Cautionary Note Regarding Forward-looking Statements
This Quarterly Report on Form 10-Q contains forward‑looking statements. These forward‑looking statements reflect our current views with respect to, among other things, future events and our financial performance. These statements are often, but not always, made through the use of words or phrases such as “may,” “should,” “could,” “predict,” “potential,” “believe,” “will likely result,” “expect,” “continue,” “will,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “projection,” “would” and “outlook,” or the negative version of those words or other comparable words or phrases of a future or forward‑looking nature. These forward‑looking statements are not historical facts, and are based on current expectations, estimates and projections about our industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Accordingly, we caution you that any such forward‑looking statements are not guarantees of future performance and are subject to risks, assumptions and uncertainties that are difficult to predict. Although we believe that the expectations reflected in these forward‑looking statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward‑looking statements.
There are or will be important factors that could cause our actual results to differ materially from those indicated in these forward‑looking statements, including, but not limited to, the risks described in Part I — Item 1A. — Risk Factors in our Annual Report on Form 10-K and the following:
· | natural disasters and adverse weather, acts of terrorism, an outbreak of hostilities or other international or domestic calamities and other matters beyond our control; |
· | the geographic concentration of our markets in Beaumont and Houston, Texas; |
· | our ability to prudently manage our growth and execute our strategy; |
· | risks associated with our acquisition and de novo branching |
· | changes in management personnel; |
· | the amount of nonperforming and classified assets that we |
| hold and the time and effort necessary to resolve nonperforming assets; |
· | deterioration of our asset quality; |
· | interest rate risk associated with our business; |
· | business and economic conditions generally and in the financial services industry, nationally and within our primary markets; |
· | volatility and direction of oil prices and the strength of the energy industry, generally and within Texas; |
· | the composition of our loan portfolio, including the identity of our borrowers and the concentration of loans in specialized industries; |
· | changes in the value of collateral securing our loans; |
· | our ability to maintain important deposit customer relationships and our reputation; |
· | our ability to maintain effective internal control over financial reporting; |
33
|
|
· | increased competition in the financial services industry, particularly from regional and national institutions; |
· | volatility and direction of market interest rates; |
· | liquidity risks associated with our business; |
· | systems failures or interruptions involving our information technology and telecommunications systems or third‑party servicers; |
· | interruptions or breaches in |
· | the failure of certain third-party vendors to perform; |
· | environmental liability associated with our lending activities; |
· | the institution and outcome of litigation and other legal proceedings against us or to which we may become subject; |
· | the costs and effects of regulatory or other governmental inquiries, the results of regulatory examinations, investigations, or reviews or the ability to obtain required regulatory approvals; |
32
· | changes in the laws, rules, regulations, interpretations or policies relating to financial institution, accounting, tax, trade, monetary and fiscal matters; |
· | further government intervention in the U.S. financial system; |
· | other risks, uncertainties, and factors that are discussed from time to time in our reports and documents filed with the SEC; and |
· | other factors that are discussed in the section to this Quarterly Report on Form 10-Q entitled “Risk Factors”. |
The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in this Quarterly Report on Form 10-Q. If one or more events related to these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may differ materially from what we anticipate. Accordingly, you should not place undue reliance on any such forward‑looking statements. Any forward‑looking statement speaks only as of the date on which it is made, and we do not undertake any obligation to publicly update or review any forward‑looking statement, whether as a result of new information, future developments or otherwise. New factors emerge from time to time, and it is not possible for us to predict which will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward‑looking statements.
We are a bank holding company that operates through our wholly‑owned subsidiary, CommunityBank of Texas National Association, in Houston and Beaumont/East Texas market areas. As of September 30, 2018, we had consolidated total assets of $3.2 billion, total loans of $2.4 billion, total deposits of $2.7 billion and total shareholders’ equity of $471.9 million.
The following discussion and analysis presentof our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and the accompanying notes included in Item I of Part I of this Quarterly Report on Form 10-Q, as well as our consolidated financial statements and the accompanying notes for the year ended December 31, 2018, included in our Annual Report on Form 10-K. In this Quarterly Report on Form 10-Q, unless otherwise indicated or the context otherwise requires, all references to “we,” “our,” “us,” “ourselves,” and “the Company” refer to CBTX, Inc., a Texas corporation, and its consolidated basis. However, because we conduct our material business operations throughsubsidiaries. All references in this Quarterly Report on Form 10-Q to “CommunityBank of Texas” or “the Bank” refer to CommunityBank of Texas, National Association, the discussion and analysis relate to activities primarily conducted by the Bank. As aour wholly‑owned bank holding company that operatessubsidiary.
We operate through one segment, community banking, we generate mostbanking. Our primary source of funds is deposits and our primary use of funds is loans. Most of our revenue is generated from interest on loans and investments. We incur interest expense on deposits and other borrowed funds as well as noninterest expense, such as salaries and employee benefits and occupancy expenses.
Our operating results depend primarily on our net interest income, calculated as the difference between interest income on interest‑earning assets, such as loans and securities and interest expense on interest‑bearing liabilities, such as deposits and borrowings. Changes in market interest rates and the interest rates we earn on interest‑earning assets or pay on interest‑bearing liabilities, as well as in the volume and types of interest‑earning assets, interest‑bearing and noninterest‑bearing liabilities, are usually the largest drivers of periodic changes in net interest spread, net interest margin and net interest income. Fluctuations in market interest rates are driven by many factors, including governmental monetary policies, inflation, deflation, macroeconomic developments, changes in unemployment, the money supply, political and international conditions and conditions in domestic and foreign financial markets.
Periodic changes in the volume and types of loans in our loan portfolio are affected by, among other factors, economic and competitive conditions in Texas, as well as developments affecting the real estate, technology, financial services, insurance, transportation, manufacturing and energy sectors within our target markets and throughout the state of Texas. We maintain diversity in our loan portfolio as a means of managing risk associated with fluctuations in economic conditions. Our focus on lending to small to medium‑sized businesses and professionals in our market areas has resulted in a diverse loan portfolio comprised primarily of core relationships. We carefully monitor exposure to certain asset classes to minimize the impact of a downturn in the value of such assets.
We seek to remain competitive with respect to interest rates on loans and deposits, as well as prices on fee‑based services, which are typically significant competitive factors within the banking and financial services industry. Many of our competitors are much larger financial institutions that have greater financial resources than we do and compete aggressively for market share. Through our relationship‑driven, community banking strategy, a significant portion of our continued growth has been through referral business from our existing customers and professionals in our markets including attorneys, accountants and other professional service providers.
33
The Bank is the subject of an investigation by the Financial Crimes Enforcement Network (FinCEN) of the U.S. Department of the Treasury regarding the Bank’s compliance with the Bank Secrecy Act and anti-money laundering laws and regulations. The Bank is cooperating with this investigation. The costs to respond to and cooperate with FinCEN’s investigation have been material over the course of the period of this report, and we expect to continue to incur material fees and expenses regarding this matter at least through the completion of FinCEN’s investigation.
Net income for the three months ended March 31, 2019 was $10.5 million compared to $9.1 million for the three months ended March 31, 2018, an increase of $1.4 million, or 15.1%. This increase is primarily due to a $4.3 million increase in net interest income partially offset by a $2.3 million increase in noninterest expense. See further analysis of these fluctuations in the related discussions that follow.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended March 31, |
| |||||||||
(Dollars in thousands, except per share data) |
|
| 2019 |
| 2018 |
| Increase (Decrease) |
| ||||
Interest income |
| $ | 36,985 |
| $ | 31,085 |
| $ | 5,900 |
| 19.0% |
|
Interest expense |
|
| 3,657 |
|
| 2,046 |
|
| 1,611 |
| 78.7% |
|
Net interest income |
|
| 33,328 |
|
| 29,039 |
|
| 4,289 |
| 14.8% |
|
Provision for loan losses |
|
| 1,147 |
|
| 865 |
|
| 282 |
| 32.6% |
|
Noninterest income |
|
| 3,493 |
|
| 3,361 |
|
| 132 |
| 3.9% |
|
Noninterest expense |
|
| 22,585 |
|
| 20,284 |
|
| 2,301 |
| 11.3% |
|
Income before income taxes |
|
| 13,089 |
|
| 11,251 |
|
| 1,838 |
| 16.3% |
|
Income tax expense |
|
| 2,599 |
|
| 2,139 |
|
| 460 |
| 21.5% |
|
Net income |
| $ | 10,490 |
| $ | 9,112 |
| $ | 1,378 |
| 15.1% |
|
Earnings per share - basic |
| $ | 0.42 |
| $ | 0.37 |
| $ | 0.05 |
|
|
|
Earnings per share - diluted |
| $ | 0.42 |
| $ | 0.37 |
| $ | 0.05 |
|
|
|
Dividends declared per share |
| $ | 0.10 |
| $ | 0.05 |
|
| 0.05 |
|
|
|
Return on average assets |
|
| 1.3% |
|
| 1.2% |
|
| 0.10% |
|
|
|
Return on average shareholders' equity |
|
| 8.6% |
|
| 8.2% |
|
| 0.39% |
|
|
|
Efficiency ratio (1) |
|
| 61.3% |
|
| 62.6% |
|
| -1.26% |
|
|
|
(1)Efficiency ratio represents noninterest expense divided by the sum of net interest income and noninterest income.
Net Interest Income for the Three Months Ended March 31, 2019 Compared to the Three Months Ended March 31, 2018.
Net interest income for the three months ended March 31, 2019 was $33.3 million, compared to $29.0 million for three months ended March 31, 2018, an increase of $4.3 million, or 14.8%. For three months ended March 31, 2019, net interest margin and net interest spread were 4.53% and 4.07%, respectively, compared to 4.19% and 3.93% for the three months ended March 31, 2018.
The increase in net interest income in the first quarter of 2019 from the first quarter of 2018 was primarily due to higher average loans and higher average yields on loans and higher average federal funds sold, that were partially offset by the impact of higher rates on interest-bearing deposits. Average loans increased in the first quarter of 2019 due to organic growth and the increase in loan yields reflects increased rates in the market. The increase in rates on interest-bearing deposits in the first quarter of 2019 mainly due to competitive stress on rates primarily for certificates of deposit and money market accounts. Although rates have increased on the Company’s interest-bearing deposits, they remain a low cost source of funds compared to other sources such as debt.
34
Net income for the nine months ended September 30, 2018 was $33.2 million compared to $25.6 million for nine months ended September 30, 2017, an increase of $7.6 million, or 29.5%. This increase is primarily due to a $11.8 million increase in net interest income and a $2.2 million decrease in income taxes offset by a $1.8 million increase in provision (recapture) for loan losses and a $4.0 million increase in noninterest expense. Net income for the three months ended September 30, 2018 was $13.0 million compared to $10.0 million for three months ended September 30, 2017, an increase of $3.0 million, or 29.6%. This increase is primarily due to a $4.3 million increase in net interest income and a $720,000 decrease in income taxes offset by a $512,000 increase in provision (recapture) for loan losses and a $947,000 increase in noninterest expense. See further analysis of these fluctuations in the related discussions that follow.
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|
|
| For the Three Months Ended September 30, |
|
| For the Nine Months Ended September 30, | |||||||||||||||||||
(Dollars in thousands, except per share data) |
|
| 2018 |
| 2017 |
| Increase (Decrease) |
| 2018 |
| 2017 |
| Increase (Decrease) | |||||||||||
Interest income |
| $ | 34,665 |
| $ | 29,569 |
| $ | 5,096 |
| 17.2 | % |
| $ | 98,877 |
| $ | 86,293 |
| $ | 12,584 |
| 14.6 | % |
Interest expense |
|
| 3,139 |
|
| 2,318 |
|
| 821 |
| 35.4 | % |
|
| 7,436 |
|
| 6,684 |
|
| 752 |
| 11.3 | % |
Net interest income |
|
| 31,526 |
|
| 27,251 |
|
| 4,275 |
| 15.7 | % |
|
| 91,441 |
|
| 79,609 |
|
| 11,832 |
| 14.9 | % |
Provision (recapture) for loan losses |
|
| (1,142) |
|
| (1,654) |
|
| 512 |
| (31.0) | % |
|
| 413 |
|
| (1,388) |
|
| 1,801 |
| (129.8) | % |
Noninterest income |
|
| 3,526 |
|
| 4,086 |
|
| (560) |
| (13.7) | % |
|
| 10,393 |
|
| 11,060 |
|
| (667) |
| (6.0) | % |
Noninterest expense |
|
| 19,964 |
|
| 19,017 |
|
| 947 |
| 5.0 | % |
|
| 60,260 |
|
| 56,303 |
|
| 3,957 |
| 7.0 | % |
Income before income taxes |
|
| 16,230 |
|
| 13,974 |
|
| 2,256 |
| 16.1 | % |
|
| 41,161 |
|
| 35,754 |
|
| 5,407 |
| 15.1 | % |
Income tax expense |
|
| 3,207 |
|
| 3,927 |
|
| (720) |
| (18.3) | % |
|
| 7,984 |
|
| 10,140 |
|
| (2,156) |
| (21.3) | % |
Net income |
| $ | 13,023 |
| $ | 10,047 |
| $ | 2,976 |
| 29.6 | % |
| $ | 33,177 |
| $ | 25,614 |
| $ | 7,563 |
| 29.5 | % |
Earnings per share - Basic |
| $ | 0.52 |
| $ | 0.46 |
| $ | 0.06 |
|
|
|
| $ | 1.34 |
| $ | 1.16 |
| $ | 0.18 |
|
|
|
Earnings per share - Diluted |
|
| 0.52 |
|
| 0.45 |
|
| 0.07 |
|
|
|
|
| 1.33 |
|
| 1.16 |
|
| 0.17 |
|
|
|
Net Interest Income for the Nine Months Ended September 30, 2018 Compared to the Nine Months Ended September 30, 2017.
Net interest income for the nine months ended September 30, 2018 was $91.4 million compared to $79.6 million for nine months ended September 30, 2017, an increase of $11.8 million, or 14.9%. For the nine months ended September 30, 2018, net interest margin and net interest spread were 4.29% and 3.98%, respectively, compared to 3.97% and 3.72% for the nine months ended September 30, 2017. The increase in the interest margin and net interest spread is primarily attributed to the increase of average loans and increased average yields on loans and federal funds sold, partially offset by increased rates on interest-bearing deposits. Changes in rates paid on interest‑bearing deposits for the nine months ended September 30, 2018 reduced the net interest margin by $1.4 million as compared to the nine months ended September 30, 2017.
Tax equivalent net interest margin, which is defined as net interest income adjusted for tax‑free income divided by average interest‑earning assets, was 4.32% for the nine months ended September 30, 2018 and 4.05% for the nine months ended September 30, 2017. Tax equivalent adjustments to net interest margin are the result of increasing income from tax‑free securities and loans by an amount equal to the taxes that would have been paid if the income were fully taxable based on a federal tax rate applicable to the periods indicated, thus making tax‑exempt yields comparable to taxable asset yields.
35
The following tables present,table presents for the periods indicated, average outstanding balances for each major category of interest‑earninginterest-earning assets and interest‑bearinginterest-bearing liabilities, the interest income or interest expense and the average yield or rate on an annualized basis.for the periods indicated. Any nonaccrual loans have been included in the tablestable as loans carrying a zero yield.
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|
| For the Nine Months Ended September 30, |
| Three Months Ended March 31, | ||||||||||||||||||||||||||||||
|
| 2018 |
| 2017 |
| 2019 |
| 2018 | ||||||||||||||||||||||||||
|
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|
|
| Interest |
|
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|
|
| Interest |
|
|
|
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|
|
| Interest |
|
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|
|
|
| Interest |
|
| ||||
|
| Average |
| Earned/ |
| Average |
| Average |
| Earned/ |
| Average |
| Average |
| Earned/ |
| Average |
| Average |
| Earned/ |
| Average | ||||||||||
|
| Outstanding |
| Interest |
| Yield/ |
| Outstanding |
| Interest |
| Yield/ |
| Outstanding |
| Interest |
| Yield/ |
| Outstanding |
| Interest |
| Yield/ | ||||||||||
(Dollars in thousands) |
| Balance |
| Paid |
| Rate |
| Balance |
| Paid |
| Rate |
| Balance |
| Paid |
| Rate |
| Balance |
| Paid |
| Rate | ||||||||||
Assets |
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|
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|
|
|
|
|
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| |
Interest-earnings assets: |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
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|
|
|
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|
|
|
|
| |
Total loans (1) |
| $ | 2,366,714 |
| $ | 90,468 |
| 5.11 | % |
| $ | 2,190,975 |
| $ | 79,642 |
| 4.86 | % |
| $ | 2,500,788 |
| $ | 33,793 |
| 5.48% |
| $ | 2,319,463 |
| $ | 28,462 |
| 4.98% |
Debt securities |
|
| 227,552 |
|
| 4,478 |
| 2.63 | % |
|
| 220,396 |
|
| 3,990 |
| 2.42 | % | ||||||||||||||||
Securities |
|
| 231,650 |
|
| 1,557 |
| 2.73% |
|
| 223,730 |
|
| 1,436 |
| 2.60% | ||||||||||||||||||
Federal funds sold and other interest-earning assets |
|
| 242,529 |
|
| 3,334 |
| 1.84 | % |
|
| 257,628 |
|
| 2,110 |
| 1.10 | % |
|
| 239,281 |
|
| 1,483 |
| 2.51% |
|
| 252,722 |
|
| 994 |
| 1.60% |
Nonmarketable equity securities |
|
| 15,449 |
|
| 597 |
| 5.17 | % |
|
| 14,690 |
|
| 551 |
| 5.01 | % | ||||||||||||||||
Equity investments |
|
| 12,285 |
|
| 152 |
| 5.02% |
|
| 14,701 |
|
| 193 |
| 5.32% | ||||||||||||||||||
Total interest-earning assets |
|
| 2,852,244 |
| $ | 98,877 |
| 4.63 | % |
|
| 2,683,689 |
| $ | 86,293 |
| 4.30 | % |
|
| 2,984,004 |
| $ | 36,985 |
| 5.03% |
|
| 2,810,616 |
| $ | 31,085 |
| 4.49% |
Allowance for loan losses |
|
| (25,318) |
|
|
|
|
|
|
| (25,719) |
|
|
|
|
|
|
|
| (24,016) |
|
|
|
|
|
|
| (24,866) |
|
|
|
|
| |
Noninterest-earnings assets |
|
| 289,391 |
|
|
|
|
|
|
| 280,139 |
|
|
|
|
|
|
|
| 302,915 |
|
|
|
|
|
|
| 287,099 |
|
|
|
|
| |
Total assets |
| $ | 3,116,317 |
|
|
|
|
|
| $ | 2,938,109 |
|
|
|
|
|
|
| $ | 3,262,903 |
|
|
|
|
|
| $ | 3,072,849 |
|
|
|
|
| |
Liabilities and Shareholders’ Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Interest-bearing deposits |
| $ | 1,499,925 |
| $ | 7,035 |
| 0.63 | % |
| $ | 1,497,845 |
| $ | 5,659 |
| 0.51 | % |
| $ | 1,544,039 |
| $ | 3,584 |
| 0.94% |
| $ | 1,491,613 |
| $ | 1,948 |
| 0.53% |
Repurchase agreements |
|
| 1,492 |
|
| 3 |
| 0.27 | % |
|
| 2,409 |
|
| 5 |
| 0.28 | % | ||||||||||||||||
FHLB advances |
|
| 4,487 |
|
| 73 |
| 2.18 | % |
|
| — |
|
| — |
| — | % | ||||||||||||||||
Note payable |
|
| — |
|
| 11 |
| — | % |
|
| 25,841 |
|
| 784 |
| 4.06 | % | ||||||||||||||||
Junior subordinated debt |
|
| 10,826 |
|
| 314 |
| 3.88 | % |
|
| 10,826 |
|
| 236 |
| 2.91 | % | ||||||||||||||||
FHLB advances and repurchase agreements |
|
| 11,578 |
|
| 65 |
| 2.28% |
|
| 1,418 |
|
| 1 |
| 0.29% | ||||||||||||||||||
Note payable and junior subordinated debt |
|
| 365 |
|
| 8 |
| 8.89% |
|
| 10,826 |
|
| 97 |
| 3.63% | ||||||||||||||||||
Total interest-bearing liabilities |
|
| 1,516,730 |
| $ | 7,436 |
| 0.66 | % |
|
| 1,536,921 |
| $ | 6,684 |
| 0.58 | % |
|
| 1,555,982 |
| $ | 3,657 |
| 0.95% |
|
| 1,503,857 |
| $ | 2,046 |
| 0.55% |
Noninterest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Noninterest-bearing deposits |
|
| 1,118,408 |
|
|
|
|
|
|
| 1,012,952 |
|
|
|
|
|
|
|
| 1,177,086 |
|
|
|
|
|
|
| 1,097,085 |
|
|
|
|
| |
Other liabilities |
|
| 21,744 |
|
|
|
|
|
|
| 18,080 |
|
|
|
|
|
|
|
| 34,634 |
|
|
|
|
|
|
| 21,165 |
|
|
|
|
| |
Total noninterest-bearing liabilities |
|
| 1,140,152 |
|
|
|
|
|
|
| 1,031,032 |
|
|
|
|
|
|
|
| 1,211,720 |
|
|
|
|
|
|
| 1,118,250 |
|
|
|
|
| |
Shareholders’ equity |
|
| 459,435 |
|
|
|
|
|
|
| 370,156 |
|
|
|
|
|
|
|
| 495,201 |
|
|
|
|
|
|
| 450,742 |
|
|
|
|
| |
Total liabilities and shareholders’ equity |
| $ | 3,116,317 |
|
|
|
|
|
| $ | 2,938,109 |
|
|
|
|
|
|
| $ | 3,262,903 |
|
|
|
|
|
| $ | 3,072,849 |
|
|
|
|
| |
Net interest income |
|
|
|
| $ | 91,441 |
|
|
|
|
|
| $ | 79,609 |
|
|
|
|
|
|
| $ | 33,328 |
|
|
|
|
|
| $ | 29,039 |
|
| |
Net interest spread (2) |
|
|
|
|
|
|
| 3.98 | % |
|
|
|
|
|
|
| 3.72 | % | ||||||||||||||||
Net interest rate spread (2) |
|
|
|
|
|
|
| 4.07% |
|
|
|
|
|
|
| 3.93% | ||||||||||||||||||
Net interest margin (3) |
|
|
|
|
|
|
| 4.29 | % |
|
|
|
|
|
|
| 3.97 | % |
|
|
|
|
|
|
| 4.53% |
|
|
|
|
|
|
| 4.19% |
Net interest margin—tax equivalent (4) |
|
|
|
|
|
|
| 4.32 | % |
|
|
|
|
|
|
| 4.05 | % |
|
|
|
|
|
|
| 4.56% |
|
|
|
|
|
|
| 4.23% |
(1) | Includes average outstanding balances of loans held for sale of |
(2) | Net interest spread is the average yield on interest‑earning assets minus the average rate on interest‑bearing liabilities. |
(3) | Net interest margin is equal to net interest income divided by average interest‑earning assets. |
(4) |
|
3635
The following tables present information regarding changes in interest income and interest expense for the periods indicated for each major component of interest‑earning assets and interest‑bearing liabilities and distinguishes between the changes attributable to changes in volume and changes attributable to changes in interest rates. For purposes of these tables, changes attributable to both rate and volume that cannot be segregated have been allocated to rate.
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|
|
|
|
|
|
|
|
|
|
| For the Nine Months Ended | |||||||
|
| September 30, 2018 Compared to 2017 | |||||||
|
| Increase (Decrease) due to |
|
| |||||
(Dollars in thousands) |
| Volume |
| Rate |
| Total | |||
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
Total loans |
| $ | 6,388 |
| $ | 4,438 |
| $ | 10,826 |
Debt securities |
|
| 130 |
|
| 358 |
|
| 488 |
Federal funds sold and other interest-earning assets |
|
| (124) |
|
| 1,348 |
|
| 1,224 |
Nonmarketable equity securities |
|
| 28 |
|
| 18 |
|
| 46 |
Total increase in interest income |
|
| 6,422 |
|
| 6,162 |
|
| 12,584 |
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
Interest-bearing deposits |
|
| 8 |
|
| 1,368 |
|
| 1,376 |
Repurchase agreements |
|
| (2) |
|
| — |
|
| (2) |
FHLB advances |
|
| 73 |
|
| — |
|
| 73 |
Note payable |
|
| (773) |
|
| — |
|
| (773) |
Junior subordinated debt |
|
| — |
|
| 78 |
|
| 78 |
Total increase (decrease) in interest expense |
|
| (694) |
|
| 1,446 |
|
| 752 |
Increase in net interest income |
| $ | 7,116 |
| $ | 4,716 |
| $ | 11,832 |
37
Net Interest Income for the Three Months Ended September 30, 2018 Compared to the Three Months Ended September 30, 2017.
Net interest income for the three months ended September 30, 2018 was $31.5 million compared to $27.3 million for three months ended September 30, 2017, an increase of $4.3 million, or 15.7%. For three months ended September 30, 2018, net interest margin and net interest spread were 4.28% and 3.90%, respectively, compared to 3.98% and 3.73% for the three months ended September 30, 2017. The increase in the interest margin and net interest spread is primarily attributed to the increase in the average loans and increased average yields on loans and federal funds sold, partially offset by increased rates on interest-bearing deposits. Changes in rates paid on interest‑bearing deposits for the three months ended September 30, 2018 reduced the net interest margin by $960,000 as compared to the three months ended September 30, 2017.
Tax equivalent net interest margin, which is defined as net interest income adjusted for tax‑free income divided by average interest‑earning assets, was 4.31% for the three months ended September 30, 2018 and 4.07% for the three months ended September 30, 2017. Tax equivalent adjustments to net interest margin are the result of increasing income from tax‑free securities and loans by an amount equal to the taxes that would have been paid if the income were fully taxable based on a federal tax rate applicable to the periods indicated, thus making tax‑exempt yields comparable to taxable asset yields.
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|
|
|
| For the Three Months Ended September 30, |
| |||||||||||||||
|
| 2018 |
|
| 2017 |
| ||||||||||||
|
|
|
|
| Interest |
|
|
|
|
|
|
| Interest |
|
|
| ||
|
| Average |
| Earned/ |
| Average |
|
| Average |
| Earned/ |
| Average |
| ||||
|
| Outstanding |
| Interest |
| Yield/ |
|
| Outstanding |
| Interest |
| Yield/ |
| ||||
(Dollars in thousands) |
| Balance |
| Paid |
| Rate |
|
| Balance |
| Paid |
| Rate |
| ||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earnings assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans (1) |
| $ | 2,404,491 |
| $ | 31,513 |
| 5.20 | % |
| $ | 2,191,016 |
| $ | 27,129 |
| 4.91 | % |
Securities |
|
| 230,592 |
|
| 1,535 |
| 2.64 | % |
|
| 223,132 |
|
| 1,334 |
| 2.37 | % |
Federal funds sold and other interest-earning assets |
|
| 272,739 |
|
| 1,404 |
| 2.04 | % |
|
| 284,334 |
|
| 927 |
| 1.29 | % |
Nonmarketable equity securities |
|
| 16,799 |
|
| 213 |
| 5.01 | % |
|
| 14,695 |
|
| 179 |
| 4.83 | % |
Total interest-earning assets |
|
| 2,924,621 |
| $ | 34,665 |
| 4.70 | % |
|
| 2,713,177 |
| $ | 29,569 |
| 4.32 | % |
Allowance for loan losses |
|
| (25,689) |
|
|
|
|
|
|
|
| (25,316) |
|
|
|
|
|
|
Noninterest-earnings assets |
|
| 292,598 |
|
|
|
|
|
|
|
| 290,767 |
|
|
|
|
|
|
Total assets |
| $ | 3,191,530 |
|
|
|
|
|
|
| $ | 2,978,628 |
|
|
|
|
|
|
Liabilities and Shareholders’ Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits |
| $ | 1,530,077 |
| $ | 2,961 |
| 0.77 | % |
| $ | 1,501,732 |
| $ | 1,964 |
| 0.52 | % |
Repurchase agreements |
|
| 1,516 |
|
| 1 |
| 0.26 | % |
|
| 2,404 |
|
| 2 |
| 0.33 | % |
FHLB advances |
|
| 11,141 |
|
| 61 |
| 2.17 | % |
|
| — |
|
| — |
| — | % |
Note payable |
|
| — |
|
| 4 |
| — | % |
|
| 24,742 |
|
| 269 |
| 4.31 | % |
Junior subordinated debt |
|
| 10,826 |
|
| 112 |
| 4.14 | % |
|
| 10,826 |
|
| 83 |
| 3.04 | % |
Total interest-bearing liabilities |
|
| 1,553,560 |
| $ | 3,139 |
| 0.80 | % |
|
| 1,539,704 |
| $ | 2,318 |
| 0.60 | % |
Noninterest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing deposits |
|
| 1,145,516 |
|
|
|
|
|
|
|
| 1,041,731 |
|
|
|
|
|
|
Other liabilities |
|
| 23,600 |
|
|
|
|
|
|
|
| 18,844 |
|
|
|
|
|
|
Total noninterest-bearing liabilities |
|
| 1,169,116 |
|
|
|
|
|
|
|
| 1,060,575 |
|
|
|
|
|
|
Shareholders’ equity |
|
| 468,854 |
|
|
|
|
|
|
|
| 378,349 |
|
|
|
|
|
|
Total liabilities and shareholders’ equity |
| $ | 3,191,530 |
|
|
|
|
|
|
| $ | 2,978,628 |
|
|
|
|
|
|
Net interest income |
|
|
|
| $ | 31,526 |
|
|
|
|
|
|
| $ | 27,251 |
|
|
|
Net interest rate spread (2) |
|
|
|
|
|
|
| 3.90 | % |
|
|
|
|
|
|
| 3.73 | % |
Net interest margin (3) |
|
|
|
|
|
|
| 4.28 | % |
|
|
|
|
|
|
| 3.98 | % |
Net interest margin—tax equivalent (4) |
|
|
|
|
|
|
| 4.31 | % |
|
|
|
|
|
|
| 4.07 | % |
|
|
|
|
|
|
|
|
38
The following tables present information regarding changes in interest income and interest expense for the periods indicated for each major component of interest‑earning assets and interest‑bearing liabilities and distinguishes between the changes attributable to changes in volume and changes attributable to changes in interest rates. For purposes of these tables, changes attributable to both rate and volume that cannot be segregated have been allocated to rate.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the Three Months Ended |
| Three Months Ended March 31, | ||||||||||||||
|
| September 30, 2018 Compared to 2017 |
| 2019 Compared to 2018 | ||||||||||||||
|
| Increase (Decrease) due to |
|
|
| Increase (Decrease) due to |
|
| ||||||||||
(Dollars in thousands) |
| Volume |
| Rate |
| Total |
| Rate |
| Volume |
| Total | ||||||
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans |
| $ | 2,643 |
| $ | 1,741 |
| $ | 4,384 |
| $ | 3,111 |
| $ | 2,220 |
| $ | 5,331 |
Debt securities |
|
| 45 |
|
| 156 |
|
| 201 |
|
| 70 |
|
| 51 |
|
| 121 |
Federal funds sold and other interest-earning assets |
|
| (38) |
|
| 515 |
|
| 477 |
|
| 542 |
|
| (53) |
|
| 489 |
Nonmarketable equity securities |
|
| 26 |
|
| 8 |
|
| 34 | |||||||||
Equity investments |
|
| (12) |
|
| (29) |
|
| (41) | |||||||||
Total increase in interest income |
|
| 2,676 |
|
| 2,420 |
|
| 5,096 |
|
| 3,711 |
|
| 2,189 |
|
| 5,900 |
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits |
|
| 37 |
|
| 960 |
|
| 997 |
|
| 1,567 |
|
| 69 |
|
| 1,636 |
Repurchase agreements |
|
| (1) |
|
| — |
|
| (1) | |||||||||
FHLB advances |
|
| 61 |
|
| — |
|
| 61 | |||||||||
Note payable |
|
| (265) |
|
| — |
|
| (265) | |||||||||
Junior subordinated debt |
|
| — |
|
| 29 |
|
| 29 | |||||||||
Total increase (decrease) in interest expense |
|
| (168) |
|
| 989 |
|
| 821 | |||||||||
FHLB advances and repurchase agreements |
|
| — |
|
| 64 |
|
| 64 | |||||||||
Note payable and junior subordinated debt |
|
| 1 |
|
| (90) |
|
| (89) | |||||||||
Total increase in interest expense |
|
| 1,568 |
|
| 43 |
|
| 1,611 | |||||||||
Increase in net interest income |
| $ | 2,844 |
| $ | 1,431 |
| $ | 4,275 |
| $ | 2,143 |
| $ | 2,146 |
| $ | 4,289 |
Provision for Loan Losses
The provision for loan losses is an expense we useused to maintain an allowance for loan losses at a level which is deemed appropriate by management to absorb inherent losses on existing loans. For a description of the factors considered by our management in determining the allowance for loan losses see “—Financial Condition—Allowance for Loan Losses.” The provision for loan losses for the ninethree months ended September 30, 2018March 31, 2019 was $413,000,$1.1 million, compared to a $1.4 million recapture for the nine months ended September 30, 2017 and $1.1 million recapture$865,000 for the three months ended September 30,March 31, 2018. The provisions in the first quarter of 2019 and 2018 compared to a $1.7 million recapture forreflect the increase in loans during those periods.
Noninterest Income
For the three months ended September 30, 2017. The recaptures during the three and nine months ended September 30, 2017, were primarily the result of pay-offs of certain classified and problem loans, which resulted in the reversal of their related allowance for loan losses. The recapture during the three months ended September 30, 2018, was driven by strong credit quality, improved national and local economic trends, continuing low nonperforming and impaired loans and minimal charge off history. See further discussion of our allowance for loan losses and the factors considered in “ — Financial Condition”.
Noninterest Income
Our primary sources of recurring noninterest income are deposit account service charges, gains on the sale of assets, card interchange fees and earnings on bank‑owned life insurance. Noninterest income does not include loan origination fees to the extent they exceed the direct loan origination costs, which are generally recognized over the life of the related loan as an adjustment to yield using the interest method.
For the nine months ended September 30, 2018,March 31, 2019, noninterest income totaled $10.4$3.5 million, a decreasean increase of $667,000,$132,000, or 6.0%3.9%, compared to $11.1 million for the nine months ended September 30, 2017, primarily due to lower net gains on sales of assets during 2018, partially offset by increases in card interchange fees and earnings on bank-owned life insurance. Noninterest income totaled $3.5$3.4 million for the three months ended September 30, 2018 and totaled $4.1 million for the three months ended September 30, 2017. The decrease of $560,000, between the quarterly period was primarily due to lower net gains on sales of assets during the 2018 quarter.
39
March 31, 2018. The major categories of noninterest income for the periods indicated were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the Three Months Ended September 30, |
|
| For the Nine Months Ended September 30, |
| Three Months Ended March 31, | ||||||||||||||||||||||||||||
(Dollars in thousands) |
| 2018 |
| 2017 |
| Increase (Decrease) |
|
| 2018 |
| 2017 |
| Increase (Decrease) |
| 2019 |
| 2018 |
| Increase (Decrease) | ||||||||||||||||
Noninterest income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
Deposit account service charges |
| $ | 1,597 |
| $ | 1,395 |
| $ | 202 |
| 14.5 | % |
| $ | 4,572 |
| $ | 4,412 |
| $ | 160 |
| 3.6 | % |
| $ | 1,629 |
| $ | 1,478 |
| $ | 151 |
| 10.2% |
Net gain on sale of assets |
|
| 152 |
|
| 828 |
|
| (676) |
| (81.6) | % |
|
| 492 |
|
| 1,531 |
|
| (1,039) |
| (67.9) | % |
|
| 88 |
|
| 130 |
|
| (42) |
| (32.3%) |
Card interchange fees |
|
| 922 |
|
| 803 |
|
| 119 |
| 14.8 | % |
|
| 2,820 |
|
| 2,512 |
|
| 308 |
| 12.3 | % |
|
| 864 |
|
| 927 |
|
| (63) |
| (6.8%) |
Earnings on bank-owned life insurance |
|
| 443 |
|
| 459 |
|
| (16) |
| (3.5) | % |
|
| 1,359 |
|
| 1,120 |
|
| 239 |
| 21.3 | % |
|
| 430 |
|
| 451 |
|
| (21) |
| (4.7%) |
Other |
|
| 412 |
|
| 601 |
|
| (189) |
| (31.4) | % |
|
| 1,150 |
|
| 1,485 |
|
| (335) |
| (22.6) | % |
|
| 482 |
|
| 375 |
|
| 107 |
| 28.5% |
Total noninterest income |
| $ | 3,526 |
| $ | 4,086 |
| $ | (560) |
| (13.7) | % |
| $ | 10,393 |
| $ | 11,060 |
| $ | (667) |
| (6.0) | % |
| $ | 3,493 |
| $ | 3,361 |
| $ | 132 |
| 3.9% |
Deposit Account Service Charges. The Company earns fees from its customers for deposit related services and these fees are a significant component of our noninterest income. Service charges on deposit accounts increased $151,000 for the three months ended March 31, 2019, compared to the same period in 2018 predominately due to an increase in non- sufficient and account analysis charges incurred by our deposit customers.
Net Gain on Sale of Assets. Net gain on sale of assets consists of the gains associated with the sale of fixed assets, loans and other real estate owned, or OREO. Net gain on sale of assets decreased $1.0 million,$42,000 or 67.9%,32.3% for the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017 and decreased $676,000, or 81.6%, from the three months ended September 30, 2017March 31, 2019, compared to the same period in 2018, primarily due tolower gains on sales of two branchesloans held for sale during the 2019, partially offset by higher gains on SBA loans.
36
Card Interchange Fees. The Company earns card interchange fees from merchants as an issuer of debit cards. Card interchange fees decreased $63,000 for the three months ended March 31, 2019, compared to the three months ended March 31, 2018, due a decrease in the third quartervolume of 2017.such transactions.
Earnings on bank-owned life insurance. The Company has purchased life insurance policies on certain employees, whichthat are carried on the condensed consolidated balance sheet at their cash surrender value. Changes in the cash surrender value of the policies are recorded in noninterest income. Earnings on bank-owned life insurance increased $239,000decreased $21,000 during the ninethree months ended September 30, 2018March 31, 2019, compared to the ninethree months ended September 30, 2017.March 31, 2018.
Other. This category includes a variety of other income‑producing activities, including partnership and investment fund income, other loan fees, swap origination charges, wire transfer fees, credit card program income and other fee income. Other noninterest income increased $107,000 for the three months ended March 31, 2019, compared to the same period of the prior year due to a vendor rebate received during 2019 based on the volume of 2018 activity.
Noninterest Expense
Generally, noninterest expense is composed of employee expenses and costs associated with operating our facilities, obtaining and retaining customer relationships and providing bank services. The largest component of noninterest expense is salaries and employee benefits. Noninterest expense also includes operational expenses, such as occupancy expenses, depreciation and amortization of our facilities and our furniture, fixtures and office equipment, professional and director fees, regulatory fees, including FDIC assessments, data processing expenses, printing and office supplies, amortization of intangibles, and advertising and marketing expenses.
For the nine months ended September 30, 2018, noninterest expense totaled $60.3 million, an increase of $4.0 million, or 7.0%, compared to $56.3 million for the nine months ended September 30, 2017. For the three months ended September 30, 2018,March 31, 2019, noninterest expense totaled $20.0$22.6 million, an increase of $947,000,$2.3 million, or 5.0%11.3%, compared to $19.0$20.3 million for the three months ended September 30, 2017. The increase in noninterest expense from 2017 to 2018 is largely due to increases in salaries and employee benefits duringMarch 31, 2018.
40
The major categories of noninterest expense for the periods indicated were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the Three Months Ended September 30, |
| For the Nine Months Ended September 30, |
| Three Months Ended March 31, | ||||||||||||||||||||
(Dollars in thousands) |
| 2018 |
| 2017 |
| Increase (Decrease) |
| 2018 |
| 2017 |
| Increase (Decrease) |
| 2019 |
| 2018 |
| Increase (Decrease) | ||||||||
Noninterest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Salaries and employee benefits |
| $ 12,499 |
| $ 11,829 |
| $ 670 |
| 5.7 | % |
| $ 37,690 |
| $ 34,552 |
| $ 3,138 |
| 9.1 | % |
| $ 13,822 |
| $ 12,695 |
| $ 1,127 |
| 8.9% |
Net occupancy expense |
| 2,428 |
| 2,221 |
| 207 |
| 9.3 | % |
| 7,126 |
| 6,805 |
| 321 |
| 4.7 | % |
| 2,267 |
| 2,265 |
| 2 |
| 0.1% |
Regulatory fees |
| 488 |
| 458 |
| 30 |
| 6.6 | % |
| 1,546 |
| 1,689 |
| (143) |
| (8.5) | % |
| 464 |
| 545 |
| (81) |
| (14.9%) |
Data processing |
| 664 |
| 662 |
| 2 |
| 0.3 | % |
| 2,013 |
| 1,955 |
| 58 |
| 3.0 | % |
| 714 |
| 683 |
| 31 |
| 4.5% |
Software |
| 440 |
| 365 |
| 75 |
| 20.5% | ||||||||||||||||||
Printing, stationery and office |
| 503 |
| 348 |
| 155 |
| 44.5 | % |
| 1,394 |
| 1,065 |
| 329 |
| 30.9 | % |
| 353 |
| 264 |
| 89 |
| 33.7% |
Amortization of intangibles |
| 245 |
| 267 |
| (22) |
| (8.2) | % |
| 748 |
| 816 |
| (68) |
| (8.3) | % |
| 232 |
| 255 |
| (23) |
| (9.0%) |
Professional and director fees |
| 809 |
| 606 |
| 203 |
| 33.5 | % |
| 2,414 |
| 1,937 |
| 477 |
| 24.6 | % |
| 2,091 |
| 919 |
| 1,172 |
| 127.5% |
Correspondent bank and customer related expense |
| 66 |
| 67 |
| (1) |
| (1.5) | % |
| 201 |
| 219 |
| (18) |
| (8.2) | % |
| 65 |
| 67 |
| (2) |
| (3.0%) |
Loan processing |
| 102 |
| 115 |
| (13) |
| (11.3) | % |
| 295 |
| 320 |
| (25) |
| (7.8) | % |
| 95 |
| 118 |
| (23) |
| (19.5%) |
Advertising, marketing and business development |
| 437 |
| 266 |
| 171 |
| 64.3 | % |
| 1,418 |
| 953 |
| 465 |
| 48.8 | % |
| 440 |
| 506 |
| (66) |
| (13.0%) |
Repossessed real estate and other assets |
| 3 |
| 340 |
| (337) |
| (99.1) | % |
| 65 |
| 543 |
| (478) |
| (88.0) | % |
| - |
| 57 |
| (57) |
| (100.0%) |
Security and protection expense |
| 346 |
| 331 |
| 15 |
| 4.5 | % |
| 959 |
| 1,055 |
| (96) |
| (9.1) | % |
| 323 |
| 302 |
| 21 |
| 7.0% |
Telephone and communications |
| 342 |
| 311 |
| 31 |
| 10.0 | % |
| 1,122 |
| 972 |
| 150 |
| 15.4 | % |
| 378 |
| 386 |
| (8) |
| (2.1%) |
Other expense |
| 1,032 |
| 1,196 |
| (164) |
| (13.7) | % |
| 3,269 |
| 3,422 |
| (153) |
| (4.5) | % |
| 901 |
| 857 |
| 44 |
| 5.1% |
Total noninterest expense |
| $ 19,964 |
| $ 19,017 |
| $ 947 |
| 5.0 | % |
| $ 60,260 |
| $ 56,303 |
| $ 3,957 |
| 7.0 | % |
| $ 22,585 |
| $ 20,284 |
| $ 2,301 |
| 11.3% |
Salaries and Employee Benefits. Salaries and employee benefits are the largest component of noninterest expense and include payroll expense, the cost of incentive compensation, benefit plans, health insurance and payroll taxes. Salaries and employee benefits increased $3.1$1.1 million or 9.1%, during the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017resulting from annual salary increases in 2019 and $670,000, or 5.7% during the three months ended September 30, 2018 compared to the three months ended September 30, 2017. These increases were primarilyincreased stock compensation expense due to increases in salaries and incentive compensation, health insurance premiums andrestricted stock compensation expense.
Net Occupancy Expense. Net occupancy expense includes rent, lease expenses, depreciation and other related costs. Net occupancy expense increased $321,000 during the nine months ended September 30, 2018 as compared to the nine months ended September 30, 2017 and $207,000 during the three months ended September 30, 2018 as compared to the three months ended September 30, 2017. Although we sold two branches in the third quarter of 2017, costs for repairs and maintence and other costs related to occupancy increased in 2018.grants made February 1, 2019.
Professional and Director Fees. Professional and director fees, which include legal, audit, loan review and consulting fees were $2.4$2.1 million and $1.9 million$919,000 for the ninethree months ended September 30,March 31, 2019 and 2018, and 2017, respectively. The increase of $477,000during 2019 was primarily due to anlegal fees of $1.1 million included in professional and director fees in the current quarter. The increase in auditprofessional fees during the first quarter largely is the result of fees incurred in the Bank’s responding and consulting fees.
Advertising, Marketing and Business Development. Advertising, marketing and business development expenses were $1.4 million and $953,000 forcooperating with an investigation by FinCEN regarding the nine months ended September 30, 2018 and 2017, respectively. The increase was primarily due to an increase in media costs associatedBank’s compliance with the Company’s branding campaign that began early inBank Secrecy Act and anti-money laundering laws and regulations. We expect to continue to incur material fees and expenses regarding this matter until the second quarter of 2017 and continued into 2018.investigation is completed.
Repossessed Real Estate and Other Assets. Costs related to repossessed real estate and other assets decreased $478,000, or 88.0% during the nine months ended September 30, 2018 as compared to the nine months ended September 30, 2017 and $337,000, or 99.1%, during the three months ended September 30, 2018 as compared to the three months ended September 30, 2017. These decreases were due to a reduction in the number of repossessed and other assets in 2018 as compared to 2017 and a resulting decrease in related costs.
41
Income Tax Expense
The amount of income tax expense we incur is impacted by the amounts of our pre‑tax income, tax‑exempt income and other nondeductible expenses. Deferred tax assets and liabilities are reflected at current income tax rates in effect for the period in which the deferred tax assets and liabilities are expected to be realized or settled. As changes in tax laws or rates
37
are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.
For the nine months ended September 30, 2018The provision for income tax expense and 2017, our effective tax rate was 19.4% and 28.4% andrates for the three months ended September 30, 2018periods shown below were as follows:
|
|
|
|
|
|
|
| Three Months Ended March 31, |
| ||
(Dollars in thousands) |
| 2019 |
| 2018 |
|
Provision for income tax expense |
| $ 2,599 |
| $ 2,139 |
|
Effective tax rate |
| 19.9% |
| 19.0% |
|
The differences between the federal statutory rate of 21% and 2017, ourthe effective tax rate was 19.8% and 28.1%, respectively. The Tax Cuts and Jobs Act of 2017 was effective January 1, 2018 and lowered the corporate federal income tax raterates presented in the U.S. from 35%table above were largely attributable to 21%.permanent differences primarily related to tax exempt interest and bank‑owned life insurance.
Total assets were $3.2$3.3 billion as of September 30, 2018,March 31, 2019, compared to $3.1$3.3 billion as of December 31, 2017,2018, an increase of $109.4$4.4 million or 3.5%,primarily due primarily to an increase in loans of $151.8$97.9 million and a $12.9 million increase due to the implementation of the new lease accounting standard, partially offset by a $44.6$105.6 million decrease in cash and cash equivalents. Total liabilities decreased $6.7 million primarily due to a $15.3 million decrease in deposits, partially offset by an increase of $15.1 million due to implementation of the new lease accounting standard. See Note 1 and Note 16 to the condensed consolidated financial statements for further discussion of the new lease accounting standard. See further analysis of the other changes in the related discussions that follow.
Loan Portfolio
As of September 30, 2018, grossMarch 31, 2019, loans were $2.5 billion, an increase of $151.8$97.9 million, or 6.6%4.0%, compared to $2.3$2.4 billion at December 31, 2017. Our loans2018. Loans grew from December 31, 20172018 to September 30, 2018March 31, 2019 due to organic growth, needs of existing customers and demand.
OurThe loan portfolio by loan class as of the dates indicated was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
| September 30, |
| December 31, |
|
|
| March 31, |
| December 31, |
|
| |||||||||||
(Dollars in thousands) |
| 2018 |
| 2017 |
| Increase (Decrease) |
| 2019 |
| 2018 |
| Increase (Decrease) | |||||||||||
Commercial and industrial |
| $ | 569,334 |
| $ | 559,363 |
| $ | 9,971 |
| 1.8 | % |
| $ | 559,882 |
| $ | 519,779 |
| $ | 40,103 |
| 7.7% |
Real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Commercial real estate |
|
| 776,439 |
| 738,293 |
|
| 38,146 |
| 5.2 | % |
|
| 811,742 |
| 795,733 |
|
| 16,009 |
| 2.0% | ||
Construction and development |
|
| 487,289 |
| 449,211 |
|
| 38,078 |
| 8.5 | % |
|
| 572,861 |
| 515,533 |
|
| 57,328 |
| 11.1% | ||
1-4 family residential |
|
| 288,737 |
| 258,584 |
|
| 30,153 |
| 11.7 | % |
|
| 281,502 |
| 282,011 |
|
| (509) |
| (0.2%) | ||
Multi-family residential |
|
| 236,907 |
| 220,305 |
|
| 16,602 |
| 7.5 | % |
|
| 213,582 |
| 221,194 |
|
| (7,612) |
| (3.4%) | ||
Consumer |
|
| 39,807 |
| 40,433 |
|
| (626) |
| (1.6) | % |
|
| 39,072 |
| 39,421 |
|
| (349) |
| (0.9%) | ||
Agricultural |
|
| 11,609 |
| 11,256 |
|
| 353 |
| 3.1 | % |
|
| 8,915 |
| 11,076 |
|
| (2,161) |
| (19.5%) | ||
Other |
|
| 59,484 |
| 40,344 |
|
| 19,140 |
| 47.4 | % |
|
| 64,215 |
| 68,382 |
|
| (4,167) |
| (6.1%) | ||
Gross loans |
|
| 2,469,606 |
| 2,317,789 |
|
| 151,817 |
| 6.6 | % |
|
| 2,551,771 |
| 2,453,129 |
|
| 98,642 |
| 4.0% | ||
Less deferred fees and unearned discount |
|
| 6,025 |
| 4,785 |
|
| 1,240 |
|
|
|
|
| (6,210) |
| (6,306) |
|
| 96 |
|
| ||
Less loans held for sale |
|
| 384 |
| 1,460 |
|
| (1,076) |
|
|
|
|
| (852) |
| — |
|
| (852) |
|
| ||
Total loans |
| $ | 2,463,197 |
| 2,311,544 |
| $ | 151,653 |
|
|
|
| $ | 2,544,709 |
| 2,446,823 |
| $ | 97,886 |
| 4.0% | ||
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Loans as a percentage of deposits |
|
| 91.6% |
| 88.8% |
|
|
|
|
|
|
|
| 92.5% |
| 88.5% |
|
|
|
|
| ||
Loans as a percentage of total assets |
|
| 77.2% |
| 75.0% |
|
|
|
|
|
|
|
| 77.5% |
| 74.6% |
|
|
|
|
|
4238
The contractual maturity ranges of loans in ourthe loan portfolio and the amount of such loans with fixed and variable interest rates in each maturity range as of the dates indicated were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
| 1 Year |
| 1 Year Through |
| After |
|
|
|
| 1 Year |
| 1 Year Through |
| After |
|
|
| ||||||
(Dollars in thousands) |
| or Less |
| 5 Years |
| 5 Years |
| Total |
| or Less |
| 5 Years |
| 5 Years |
| Total | ||||||||
September 30, 2018 |
|
|
|
|
|
|
|
| ||||||||||||||||
March 31, 2019 |
|
|
|
|
|
|
|
| ||||||||||||||||
Commercial and industrial |
| $ | 287,695 |
| $ | 242,713 |
| $ | 38,926 |
| $ | 569,334 |
| $ | 286,739 |
| $ | 254,540 |
| $ | 18,603 |
| $ | 559,882 |
Real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Commercial real estate |
| 111,541 |
| 459,866 |
| 205,032 |
| 776,439 |
| 109,790 |
| 528,167 |
| 173,785 |
| 811,742 | ||||||||
Construction and development |
| 127,037 |
| 315,017 |
| 45,235 |
| 487,289 |
| 159,218 |
| 377,504 |
| 36,139 |
| 572,861 | ||||||||
1-4 family residential |
| 18,188 |
| 47,074 |
| 223,475 |
| 288,737 |
| 15,003 |
| 50,734 |
| 215,765 |
| 281,502 | ||||||||
Multi-family residential |
| 22,235 |
| 30,902 |
| 183,770 |
| 236,907 |
| 9,707 |
| 31,018 |
| 172,857 |
| 213,582 | ||||||||
Consumer |
| 25,035 |
| 14,672 |
| 100 |
| 39,807 |
| 24,064 |
| 14,975 |
| 33 |
| 39,072 | ||||||||
Agricultural |
| 10,250 |
| 1,359 |
| — |
| 11,609 |
| 7,527 |
| 1,388 |
| — |
| 8,915 | ||||||||
Other |
|
| 24,534 |
|
| 33,173 |
|
| 1,777 |
|
| 59,484 |
|
| 18,845 |
|
| 43,330 |
|
| 2,040 |
|
| 64,215 |
Total loans |
| $ | 626,515 |
| $ | 1,144,776 |
| $ | 698,315 |
| $ | 2,469,606 |
| $ | 630,893 |
| $ | 1,301,656 |
| $ | 619,222 |
| $ | 2,551,771 |
Fixed rate loans |
| $ | 188,457 |
| $ | 622,197 |
| $ | 306,117 |
| $ | 1,116,771 |
| $ | 180,170 |
| $ | 699,602 |
| $ | 260,542 |
| $ | 1,140,314 |
Variable rate loans |
| 438,058 |
| 522,579 |
| 392,198 |
| 1,352,835 |
| 450,723 |
| 602,054 |
| 358,680 |
| 1,411,457 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1 Year |
| 1 Year Through |
| After |
|
|
| |||
(Dollars in thousands) |
| or Less |
| 5 Years |
| 5 Years |
| Total | ||||
December 31, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial |
| $ | 324,434 |
| $ | 183,915 |
| $ | 51,014 |
| $ | 559,363 |
Real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate |
|
| 109,920 |
|
| 434,390 |
|
| 193,983 |
|
| 738,293 |
Construction and development |
|
| 149,227 |
|
| 234,783 |
|
| 65,201 |
|
| 449,211 |
1-4 family residential |
|
| 19,332 |
|
| 48,563 |
|
| 190,689 |
|
| 258,584 |
Multi-family residential |
|
| 56,855 |
|
| 25,229 |
|
| 138,221 |
|
| 220,305 |
Consumer |
|
| 25,169 |
|
| 14,652 |
|
| 612 |
|
| 40,433 |
Agricultural |
|
| 9,820 |
|
| 1,436 |
|
| — |
|
| 11,256 |
Other |
|
| 24,694 |
|
| 13,870 |
|
| 1,780 |
|
| 40,344 |
Total loans |
| $ | 719,451 |
| $ | 956,838 |
| $ | 641,500 |
| $ | 2,317,789 |
Fixed rate loans |
| $ | 212,052 |
| $ | 566,321 |
| $ | 252,419 |
| $ | 1,030,792 |
Variable rate loans |
|
| 507,399 |
|
| 390,517 |
|
| 389,081 |
|
| 1,286,997 |
Nonperforming Assets
LoansNonperforming assets include nonaccrual loans, loans that are consideredaccruing over 90 days past due if the required principal and interest payments have not been received as of the date such payments were due. Loansforeclosed assets. Generally loans are placed on nonaccrual status when in management’s opinion, the borrower may be unable to meet payment obligations as they become due, as well as when required by regulatory provisions. Loans may be placed on nonaccrual status whether or not such loans are considered past due. In general, we place loans on nonaccrual status when they become 90 days past due. We also place loans on nonaccrual status if they are lessmore than 90 days past due ifand/or the collection of principal or interest is in doubt. When interest accrual is discontinued, all unpaid accrued interest is reversed from income. Interest income is subsequently recognized only to the extent cash payments are received in excess of principal due. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are, in management’s opinion, reasonably assured.
43
The components of nonperforming assets as of the dates indicated were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
| September 30, |
| December 31, |
| March 31, |
| December 31, | ||
(Dollars in thousands) |
| 2018 |
| 2017 |
| 2019 |
| 2018 | ||
Nonaccrual loans by category: |
|
|
|
|
|
|
|
|
|
|
Commercial and industrial |
| $ 2,161 |
|
| $ 3,280 |
|
| $ 1,390 |
| $ 1,317 |
Real estate: |
|
|
|
|
|
|
|
|
|
|
Commercial real estate |
| 2,751 |
|
| 3,216 |
|
| 862 |
| 1,517 |
Construction and development |
| 13 |
|
| 252 |
| ||||
1-4 family residential |
| 677 |
|
| 898 |
|
| 635 |
| 656 |
Consumer |
| — |
|
| — |
|
| 47 |
| — |
Total nonaccrual loans |
| 5,602 |
|
| 7,646 |
|
| 2,934 |
| 3,490 |
Accruing loans 90 or more days past due |
| — |
|
| — |
|
| — |
| — |
Total nonperforming loans |
| 5,602 |
|
| 7,646 |
|
| 2,934 |
| 3,490 |
Foreclosed assets, including other real estate: |
|
|
|
|
|
| ||||
Commercial real estate, construction and development, land and land development |
| 175 |
|
| 298 |
| ||||
Residential real estate |
| — |
|
| 407 |
| ||||
Foreclosed assets: |
|
|
|
| ||||||
Real estate |
| — |
| 12 | ||||||
Other |
| 41 |
| — | ||||||
Total foreclosed assets |
| 175 |
|
| 705 |
|
| 41 |
| 12 |
Total nonperforming assets |
| $ 5,777 |
|
| $ 8,351 |
|
| $ 2,975 |
| $ 3,502 |
Nonperforming loans to total loans |
| 0.23 | % |
| 0.33 | % |
| 0.12% |
| 0.14% |
Nonperforming assets to total assets |
| 0.18 | % |
| 0.27 | % |
| 0.09% |
| 0.11% |
|
|
|
|
|
|
|
|
|
|
|
Potential Problem LoansRisk Grading
From a credit risk standpoint, we classify loans in one of five categories: pass, special mention, substandard, doubtful or loss. Within the pass category, we classify loans into oneAs part of the following three subcategories based on perceived credit risk, including repayment capacity and collateral security: high quality, good and satisfactory. The classificationson‑going monitoring of loans reflect a judgment about the risks of default and loss associated with the loan. We review the ratings of our credits on a monthly basis. Ratings are adjusted to reflect the degree of risk and loss that is believed to be inherent in each credit as of each monthly reporting period. Our methodology is structured so that specific reserve allocations are increased in accordance with deterioration in credit quality (and a corresponding increase in riskof the Company’s loan portfolio and loss) or decreased in accordance with improvement inmethodology for calculating the allowance for loan losses, management assigns and tracks loan grades as described below are used as credit quality (and a corresponding decrease in risk and loss).indicators.
Pass— Credits in this category are considered “pass” which indicates prudent underwriting and a normalcontain an acceptable amount of risk. The range of risk within these credits can vary from little to no risk with cash securing a credit, to a level of risk that requires a strong secondary source of repayment on the debt. Pass credits with a higher level of risk may be to borrowers that are higher leveraged, less well capitalized or in an industry or economic area that is known to carry a higher level of risk, volatility, or susceptibility to weaknesses in the economy. This higher risk grade may be assigned due to out of date credit information, as well as collateral information, which may need to be updated for current market value in order to allow a credit quality analysis of the credit.
Special Mention—Credits in this category contain more than the normal amount of risk and are referred to as “special mention” in accordance with regulatory guidelines. These credits possess clearly identifiable temporary weaknesses or trends that, if not corrected or revised, may result in a condition that exposes the Company to higher level of risk of loss.
39
Substandard—Credits in this category are “substandard” in accordance with regulatory guidelines and of unsatisfactory credit quality with well‑defined weaknesses or weaknesses that jeopardize the liquidation of the debt. Credits in this category are inadequately protected by the current sound worth and paying capacity of the obligor or the collateral pledged, if any. These credits are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. Often, the assets in this category will have a valuation allowance representative of management’s estimated loss that is probable to be incurred. Substandard loans may also be placed on nonaccrual status asLoans deemed appropriate by management. Loans substandard and on nonaccrual status are considered impaired and are evaluated for impairment.
44
Doubtful—Credits in this category are considered “doubtful” in accordance with regulatory guidelines, are placed on nonaccrual status and may be dependent upon collateral having a value that is difficult to determine or upon some near‑term event which lacks certainty. Generally, these credits will have a valuation allowance based upon management’s best estimate of the losses probable to occur in the liquidation of the debt.
Loss— Credits in this category are considered “loss” in accordance with regulatory guidelines and are considered uncollectible and of such little value as to question their continued existence as assets on the Company’s financial statements. Such credits are to be charged off or charged down when payment is acknowledged to be uncertain or when the timing or value of payments cannot be determined. This category does not intend to imply that the debt or some portion of it will never be paid, nor does it in any way imply that the debt will be forgiven.
The Company had no loans graded Loss“loss” or Doubtful“doubtful” at September 30, 2018March 31, 2019 and December 31, 2017.2018.
The internal ratings of our loans as of the dates indicated were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Special |
|
|
|
|
|
|
|
|
|
| Special |
|
|
|
|
|
| ||
(Dollars in thousands) |
| Pass |
| Mention |
| Substandard |
| Total |
| Pass |
| Mention |
| Substandard |
| Total | ||||||||
September 30, 2018 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
March 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Commercial and industrial |
| $ | 553,492 |
| $ | 5,041 |
| $ | 10,801 |
| $ | 569,334 |
| $ | 544,799 |
| $ | 5,816 |
| $ | 9,267 |
| $ | 559,882 |
Real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate |
|
| 766,348 |
|
| 2,719 |
|
| 7,372 |
|
| 776,439 |
|
| 801,078 |
|
| 8,058 |
|
| 2,606 |
|
| 811,742 |
Construction and development |
|
| 483,067 |
|
| 4,204 |
|
| 18 |
|
| 487,289 |
|
| 571,301 |
|
| 1,560 |
|
| — |
|
| 572,861 |
1-4 family residential |
|
| 281,094 |
|
| 2,186 |
|
| 5,457 |
|
| 288,737 |
|
| 276,203 |
|
| — |
|
| 5,299 |
|
| 281,502 |
Multi-family residential |
|
| 229,698 |
|
| 7,209 |
|
| — |
|
| 236,907 |
|
| 213,582 |
|
| — |
|
| — |
|
| 213,582 |
Consumer |
|
| 39,539 |
|
| 246 |
|
| 22 |
|
| 39,807 |
|
| 38,816 |
|
| 242 |
|
| 14 |
|
| 39,072 |
Agricultural |
|
| 11,580 |
|
| — |
|
| 29 |
|
| 11,609 |
|
| 8,888 |
|
| — |
|
| 27 |
|
| 8,915 |
Other |
|
| 51,074 |
|
| — |
|
| 8,410 |
|
| 59,484 |
|
| 56,833 |
|
| — |
|
| 7,382 |
|
| 64,215 |
Total |
| $ | 2,415,892 |
| $ | 21,605 |
| $ | 32,109 |
| $ | 2,469,606 |
| $ | 2,511,500 |
| $ | 15,676 |
| $ | 24,595 |
| $ | 2,551,771 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Special |
|
|
|
|
|
|
|
|
|
| Special |
|
|
|
|
|
| ||
(Dollars in thousands) |
| Pass |
| Mention |
| Substandard |
| Total |
| Pass |
| Mention |
| Substandard |
| Total | ||||||||
December 31, 2017 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
December 31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Commercial and industrial |
| $ | 535,589 |
| $ | 8,403 |
| $ | 15,371 |
| $ | 559,363 |
| $ | 504,425 |
| $ | 5,768 |
| $ | 9,586 |
| $ | 519,779 |
Real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate |
|
| 722,503 |
|
| 2,951 |
|
| 12,839 |
|
| 738,293 |
|
| 781,035 |
|
| 10,370 |
|
| 4,328 |
|
| 795,733 |
Construction and development |
|
| 448,124 |
|
| 565 |
|
| 522 |
|
| 449,211 |
|
| 511,329 |
|
| 4,204 |
|
| — |
|
| 515,533 |
1-4 family residential |
|
| 252,317 |
|
| — |
|
| 6,267 |
|
| 258,584 |
|
| 274,781 |
|
| 2,175 |
|
| 5,055 |
|
| 282,011 |
Multi-family residential |
|
| 212,899 |
|
| 7,406 |
|
| — |
|
| 220,305 |
|
| 221,194 |
|
| — |
|
| — |
|
| 221,194 |
Consumer |
|
| 40,144 |
|
| 246 |
|
| 43 |
|
| 40,433 |
|
| 39,140 |
|
| 246 |
|
| 35 |
|
| 39,421 |
Agricultural |
|
| 11,223 |
|
| — |
|
| 33 |
|
| 11,256 |
|
| 11,048 |
|
| — |
|
| 28 |
|
| 11,076 |
Other |
|
| 33,109 |
|
| — |
|
| 7,235 |
|
| 40,344 |
|
| 61,569 |
|
| — |
|
| 6,813 |
|
| 68,382 |
Total |
| $ | 2,255,908 |
| $ | 19,571 |
| $ | 42,310 |
| $ | 2,317,789 |
| $ | 2,404,521 |
| $ | 22,763 |
| $ | 25,845 |
| $ | 2,453,129 |
40
Allowance for Loan Losses
We maintainThe Company maintains an allowance for loan losses that represents management’s best estimate of the loan losses and risks inherent in ourthe loan portfolio. The amount of the allowance for loan losses should not be interpreted as an indication that charge‑offs in future periods will necessarily occur in those amounts. In determining the allowance for loan losses, we estimate losses on specific loans, or groups of loans, where the probable loss can be identified and reasonably determined. The balance of our allowance for loan losses is based on internally assigned risk classifications of loans, historical loan loss rates, changes in ourthe loan portfolio, overall portfolio quality, industry concentrations, delinquency trends, current economic factors and the estimated impact of current economic conditions on certain historical loan loss rates. Please seeSee “—Critical Accounting Policies—Loans and Allowance for Loan Losses.”
45
In reviewing ourthe loan portfolio, we considerthe Company considers risk elements applicable to particular loan types or categories to assess the quality of individual loans. Some of the risk elements we considerconsidered include:
Commercial and industrial loans—the debt service coverage ratio (income from the business in excess of operating expenses compared to loan repayment requirements), the operating results of the commercial, industrial or professional enterprise, the borrower’s business, professional and financial ability and expertise, the specific risks and volatility of income and operating results typical for businesses in that category and the value, nature and marketability of collateral;
Commercial real estate loans and multi‑family residential loans—the debt service coverage ratio, operating results of the owner in the case of owner‑occupied properties, the loan‑to‑value ratio, the age and condition of the collateral and the volatility of income, property value and future operating results typical of properties of that type;
1‑4 family residential mortgage loans— the borrower’s ability to repay the loan, including a consideration of the debt‑to‑income ratio and employment and income stability, the loan‑to‑value ratio and the age, condition and marketability of the collateral; and
Construction and development loans—the perceived feasibility of the project including the ability to sell developed lots or improvements constructed for resale or the ability to lease property constructed for lease, the quality and nature of contracts for presale or prelease, if any, experience and ability of the developer and loan‑to‑value ratio.
As of September 30, 2018, the allowance for loan losses totaled $24.5 million, or 0.99%, of gross loans and as of December 31, 2017, the allowance for loan losses totaled $24.8 million, or 1.07%, of gross loans. Our allowance for loan losses as of September 30, 2018, decreased by $292,000, or 1.2%, compared to December 31, 2017 due to the reversal of allowance for loan losses as a result of strong credit quality, improved national and local economic trends, continuing low nonperforming and impaired loans and minimal charge off history.
Activity in the allowance for loan losses as of the dates indicated was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the Nine |
| For the Year |
|
|
|
| ||||||
|
| Months Ended |
| Ended |
| Three Months Ended March 31, | ||||||||
(Dollars in thousands) |
| September 30, 2018 |
| December 31, 2017 |
| 2019 |
| 2018 | ||||||
Allowance for loan losses at beginning of period |
| $ | 24,778 |
|
| $ | 25,006 |
|
| $ | 23,693 |
| $ | 24,778 |
Provision (recapture) for loan losses |
|
| 413 |
|
|
| (338) |
| ||||||
Provision for loan losses |
|
| 1,147 |
|
| 865 | ||||||||
Charge-offs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial |
|
| 1,136 |
|
|
| 904 |
|
|
| 280 |
|
| 469 |
Real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate |
|
| 9 |
|
|
| 120 |
| ||||||
1-4 family residential |
|
| 3 |
|
|
| 8 |
|
|
| — |
|
| 3 |
Consumer |
|
| 1 |
|
|
| 93 |
|
|
| 4 |
|
| — |
Other |
|
| 3 |
|
|
| — |
| ||||||
Total charge-offs |
|
| 1,152 |
|
|
| 1,125 |
|
|
| 284 |
|
| 472 |
Recoveries: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial |
|
| 424 |
|
|
| 1,110 |
|
|
| 74 |
|
| 172 |
Real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate |
|
| 14 |
|
|
| 9 |
|
|
| 2 |
|
| 3 |
1-4 family residential |
|
| 5 |
|
|
| 13 |
|
|
| 1 |
|
| 1 |
Consumer |
|
| 2 |
|
|
| 43 |
|
|
| 10 |
|
| 2 |
Agricultural |
|
| — |
|
|
| 52 |
| ||||||
Other |
|
| 2 |
|
|
| 8 |
| ||||||
Total recoveries |
|
| 447 |
|
|
| 1,235 |
|
|
| 87 |
|
| 178 |
Net (charge-offs) recoveries |
|
| (705) |
|
|
| 110 |
| ||||||
Net charge-offs |
|
| (197) |
|
| (294) | ||||||||
Allowance for loan losses at end of period |
| $ | 24,486 |
|
| $ | 24,778 |
|
| $ | 24,643 |
| $ | 25,349 |
Allowance for loan losses to end of period loans |
|
| 0.99 | % |
|
| 1.07 | % |
|
| 0.97% |
|
| 1.08% |
Net charge-offs to average loans (1) |
|
| 0.04 | % |
|
| — | % | ||||||
Net charge-offs to average loans |
|
| 0.03% |
|
| 0.05% |
(1) | The ratio calculations for the |
4641
The allowance for loan losses by loan category as of the periods indicated was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
|
| September 30, 2018 |
| December 31, 2017 |
| March 31, 2019 |
| December 31, 2018 | ||||||||||||||||
(Dollars in thousands) |
| Amount |
| Percent |
| Amount |
| Percent |
| Amount |
| Percent |
| Amount |
| Percent | ||||||||
Commercial and industrial |
| $ | 8,763 |
| 35.8 | % |
| $ | 7,257 |
| 29.3 | % |
| $ | 8,416 |
| 34.1 | % |
| $ | 7,719 |
| 32.6 | % |
Real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate |
|
| 6,913 |
| 28.2 | % |
|
| 10,375 |
| 41.9 | % |
|
| 6,784 |
| 27.5 | % |
|
| 6,730 |
| 28.4 | % |
Construction and development |
|
| 3,606 |
| 14.7 | % |
|
| 3,482 |
| 14.0 | % |
|
| 4,700 |
| 19.1 | % |
|
| 4,298 |
| 18.1 | % |
1-4 family residential |
|
| 2,454 |
| 10.0 | % |
|
| 1,326 |
| 5.4 | % |
|
| 2,249 |
| 9.1 | % |
|
| 2,281 |
| 9.6 | % |
Multi-family residential |
|
| 1,630 |
| 6.7 | % |
|
| 1,419 |
| 5.7 | % |
|
| 1,457 |
| 5.9 | % |
|
| 1,511 |
| 6.4 | % |
Consumer |
|
| 394 |
| 1.6 | % |
|
| 566 |
| 2.3 | % |
|
| 357 |
| 1.5 | % |
|
| 387 |
| 1.6 | % |
Agricultural |
|
| 71 |
| 0.3 | % |
|
| 68 |
| 0.3 | % |
|
| 50 |
| 0.2 | % |
|
| 62 |
| 0.3 | % |
Other |
|
| 655 |
| 2.7 | % |
|
| 285 |
| 1.1 | % |
|
| 630 |
| 2.6 | % |
|
| 705 |
| 3.0 | % |
Total allowance for loan losses |
| $ | 24,486 |
| 100.0 | % |
| $ | 24,778 |
| 100.0 | % |
| $ | 24,643 |
| 100.0 | % |
| $ | 23,693 |
| 100 | % |
Securities
We use our securities portfolio to provide a source of liquidity, provide an appropriate return on funds invested, manage interest rate risk, meet collateral requirements and meet regulatory capital requirements. As of September 30, 2018,March 31, 2019, the carrying amount of our securities totaled $222.5$228.7 million compared to $223.2$230.0 million as of December 31, 2017,2018, a decrease of $715,000,$1.3 million or 0.3%0.6%. The decrease was the result of maturities, sales, calls and paydowns outpacing purchases. The fair valuenet unrealized losses of ourthe security portfolio also decreased due to changing market interest rates. Securities represented 7.0% and 7.2%7.0% of total assets as of September 30, 2018March 31, 2019 and December 31, 2017,2018, respectively.
Amortized cost and estimated fair value of our investments in debt securities as of the dates shown was as follows.
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Gross |
| Gross |
|
|
|
|
|
|
| Gross |
| Gross |
|
|
| ||||
|
| Amortized |
| Unrealized |
| Unrealized |
|
|
|
| Amortized |
| Unrealized |
| Unrealized |
|
| |||||||
(Dollars in thousands) |
| Cost |
| Gains |
| Losses |
| Fair Value |
| Cost |
| Gains |
| Losses |
| Fair Value | ||||||||
September 30, 2018 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
March 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Debt securities available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and municipal securities |
| $ | 56,155 |
| $ | 119 |
| $ | (1,150) |
| $ | 55,124 |
| $ | 54,854 |
| $ | 811 |
| $ | (194) |
| $ | 55,471 |
U.S. agency securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities |
|
| 17,315 |
|
| — |
|
| (628) |
|
| 16,687 |
|
| 17,315 |
|
| — |
|
| (255) |
|
| 17,060 |
Collateralized mortgage obligations |
|
| 66,737 |
|
| 8 |
|
| (2,206) |
|
| 64,539 |
|
| 66,230 |
|
| 158 |
|
| (603) |
|
| 65,785 |
Mortgage-backed securities |
|
| 88,185 |
|
| 95 |
|
| (3,239) |
|
| 85,041 |
|
| 89,856 |
|
| 490 |
|
| (1,116) |
|
| 89,230 |
Other securities |
|
| 1,123 |
|
| — |
|
| (52) |
|
| 1,071 |
|
| 1,135 |
|
| — |
|
| (27) |
|
| 1,108 |
Total available for sale securities |
| $ | 229,515 |
| $ | 222 |
| $ | (7,275) |
| $ | 222,462 | ||||||||||||
Total |
| $ | 229,390 |
| $ | 1,459 |
| $ | (2,195) |
| $ | 228,654 | ||||||||||||
Debt securities held to maturity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities |
| $ | 31 |
| $ | 2 |
| $ | — |
| $ | 33 |
| $ | 30 |
| $ | 2 |
| $ | — |
| $ | 32 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Gross |
| Gross |
|
|
|
|
|
|
| Gross |
| Gross |
|
|
| ||||
|
| Amortized |
| Unrealized |
| Unrealized |
|
|
|
| Amortized |
| Unrealized |
| Unrealized |
|
| |||||||
(Dollars in thousands) |
| Cost |
| Gains |
| Losses |
| Fair Value |
| Cost |
| Gains |
| Losses |
| Fair Value | ||||||||
December 31, 2017 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
December 31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Debt securities available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and municipal securities |
| $ | 60,861 |
| $ | 1,173 |
| $ | (118) |
| $ | 61,916 |
| $ | 57,972 |
| $ | 345 |
| $ | (626) |
| $ | 57,691 |
U.S. agency securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities |
|
| 17,315 |
|
| — |
|
| (370) |
|
| 16,945 |
|
| 17,315 |
|
| — |
|
| (434) |
|
| 16,881 |
Collateralized mortgage obligations |
|
| 61,878 |
|
| 50 |
|
| (675) |
|
| 61,253 |
|
| 66,438 |
|
| 98 |
|
| (1,122) |
|
| 65,414 |
Mortgage-backed securities |
|
| 82,510 |
|
| 330 |
|
| (866) |
|
| 81,974 |
|
| 90,845 |
|
| 230 |
|
| (2,216) |
|
| 88,859 |
Other securities |
|
| 1,104 |
|
| — |
|
| (17) |
|
| 1,087 |
|
| 1,129 |
|
| — |
|
| (41) |
|
| 1,088 |
Total available for sale securities |
| $ | 223,668 |
| $ | 1,553 |
| $ | (2,046) |
| $ | 223,175 | ||||||||||||
Total |
| $ | 233,699 |
| $ | 673 |
| $ | (4,439) |
| $ | 229,933 | ||||||||||||
Debt securities held to maturity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities |
| $ | 33 |
| $ | 2 |
| $ | — |
| $ | 35 |
| $ | 31 |
| $ | 1 |
| $ | — |
| $ | 32 |
4742
OurThe Company held 187 and 167 debt securities at March 31, 2019 and December 31, 2018, respectively, that were in a gross unrealized loss position for 12 months or more. The unrealized losses are attributable primarily to changes in market interest rates relative to those available when the securities were acquired. The fair value of these securities is expected to recover as the securities reach their maturity or re-pricing date, or if changes in market rates for such investments decline. Management does not believe that any of the debt securities are impaired due to reasons of credit quality. Accordingly, as of March 31, 2019 and December 31, 2018, management believes the unrealized losses in the table above are temporary and no impairment loss has been recorded.
The Company’s mortgage‑backed securities at September 30, 2018March 31, 2019 and December 31, 2017,2018, were agency securities. We doThe Company does not hold any Fannie Mae or Freddie Mac preferred stock, corporate equity, collateralized debt obligations, collateralized loan obligations, structured investment vehicles, private label collateralized mortgage obligations, subprime, Alt‑A or second lien elements in ourthe securities portfolio.
Amortized cost of held to maturity securitiesMaturities and the fair value of available for sale securities, maturities and approximated weighted-average yield based on estimated annual income divided by the average amortized cost of ourthe available for sale debt securities portfolio as of the datesdate indicated was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
|
| 1 Year |
| After 1 Year |
| After 5 Years |
| After |
|
|
|
|
|
| ||||||||||||||||
|
| or Less |
| to 5 years |
| to 10 Years |
| 10 Years |
| Total | ||||||||||||||||||||
(Dollars in thousands) |
| Amount |
| Yield |
| Amount |
| Yield |
| Amount |
| Yield |
| Amount |
| Yield |
| Total |
| Yield | ||||||||||
September 30, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and municipal securities |
| $ | 2,040 |
| 2.3 | % |
| $ | 4,534 |
| 2.6 | % |
| $ | 4,322 |
| 2.6 | % |
| $ | 44,228 |
| 2.9 | % |
| $ | 55,124 |
| 2.8 | % |
U.S. agency securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities |
|
| — |
| — | % |
|
| 16,687 |
| 1.7 | % |
|
| — |
| — | % |
|
| — |
| — | % |
|
| 16,687 |
| 1.7 | % |
Collateralized mortgage obligations |
|
| — |
| — | % |
|
| — |
| — | % |
|
| — |
| — | % |
|
| 64,539 |
| 2.8 | % |
|
| 64,539 |
| 2.8 | % |
Mortgage-backed securities |
|
| 75 |
| 3.1 | % |
|
| 860 |
| 2.9 | % |
|
| 3,963 |
| 3.6 | % |
|
| 80,174 |
| 2.6 | % |
|
| 85,072 |
| 2.7 | % |
Other securities |
|
| 1,071 |
| 2.2 | % |
|
| — |
| — | % |
|
| — |
| — | % |
|
| — |
| — | % |
|
| 1,071 |
| 2.2 | % |
Total debt securities |
| $ | 3,186 |
| 2.3 | % |
| $ | 22,081 |
| 1.9 | % |
| $ | 8,285 |
| 3.1 | % |
| $ | 188,941 |
| 2.8 | % |
| $ | 222,493 |
| 2.7 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
|
| 1 Year |
| After 1 Year |
| After 5 Years |
| After |
|
|
|
|
|
|
| 1 Year |
| After 1 Year |
| After 5 Years |
| After |
|
|
|
|
|
| ||||||||||||||||||||||||||||||||
|
| or Less |
| to 5 years |
| to 10 Years |
| 10 Years |
| Total |
| or Less |
| to 5 years |
| to 10 Years |
| 10 Years |
| Total | ||||||||||||||||||||||||||||||||||||||||
(Dollars in thousands) |
| Amount |
| Yield |
| Amount |
| Yield |
| Amount |
| Yield |
| Amount |
| Yield |
| Total |
| Yield |
| Amount |
| Yield |
| Amount |
| Yield |
| Amount |
| Yield |
| Amount |
| Yield |
| Total |
| Yield | ||||||||||||||||||||
December 31, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||
March 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||
State and municipal securities |
| $ | 5,107 |
| 2.1 | % |
| $ | 9,999 |
| 2.5 | % |
| $ | 2,265 |
| 2.4 | % |
| $ | 44,545 |
| 2.9 | % |
| $ | 61,916 |
| 2.7 | % |
| $ | 2,186 |
| 2.6 | % |
| $ | 1,989 |
| 2.6 | % |
| $ | 5,836 |
| 2.7 | % |
| $ | 45,460 |
| 2.9 | % |
| $ | 55,471 |
| 2.9 | % |
U.S. agency securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities |
|
| — |
| — | % |
|
| 15,005 |
| 1.7 | % |
|
| 1,940 |
| 1.9 | % |
|
| — |
| — | % |
|
| 16,945 |
| 1.7 | % |
|
| — |
| — | % |
|
| 17,060 |
| 1.7 | % |
|
| — |
| — | % |
|
| — |
| — | % |
|
| 17,060 |
| 1.7 | % |
Collateralized mortgage obligations |
|
| — |
| — | % |
|
| — |
| — | % |
|
| — |
| — | % |
|
| 61,253 |
| 2.5 | % |
|
| 61,253 |
| 2.5 | % |
|
| — |
| — | % |
|
| — |
| — | % |
|
| 5,065 |
| 2.5 | % |
|
| 60,720 |
| 2.8 | % |
|
| 65,785 |
| 2.7 | % |
Mortgage-backed securities |
|
| — |
| — | % |
|
| 1,631 |
| 2.8 | % |
|
| 5,143 |
| 3.6 | % |
|
| 75,233 |
| 2.5 | % |
|
| 82,007 |
| 2.5 | % |
|
| 32 |
| 2.8 | % |
|
| 797 |
| 3.6 | % |
|
| 3,160 |
| 3.5 | % |
|
| 85,241 |
| 2.7 | % |
|
| 89,230 |
| 2.7 | % |
Other securities |
|
| 1,087 |
| 2.1 | % |
|
| — |
| — | % |
|
| — |
| — | % |
|
| — |
| — | % |
|
| 1,087 |
| 2.1 | % |
|
| 1,108 |
| 2.2 | % |
|
| — |
| — | % |
|
| — |
| — | % |
|
| — |
| — | % |
|
| 1,108 |
| 2.2 | % |
Total debt securities |
| $ | 6,194 |
| 2.1 | % |
| $ | 26,635 |
| 2.0 | % |
| $ | 9,348 |
| 2.9 | % |
| $ | 181,031 |
| 2.6 | % |
| $ | 223,208 |
| 2.5 | % |
| $ | 3,326 |
| 2.5 | % |
| $ | 19,846 |
| 1.9 | % |
| $ | 14,061 |
| 2.8 | % |
| $ | 191,421 |
| 2.8 | % |
| $ | 228,654 |
| 2.7 | % |
The contractual maturity of a collateralized mortgage obligation or mortgage‑backed security is the date at which the last underlying mortgage matures and is not a reliable indicator of their expected life because borrowers have the right to prepay their obligations at any time. The weighted-average life of ourthe securities portfolio was 5.84.7 years with an estimated modified duration of 5.04.1 years as of September 30, 2018. As of September 30, 2018, we did not own securities of any one issuer, other than the U.S. government and its agencies, for which aggregate adjusted cost exceeded 10.0%March 31, 2019.
A portion of the consolidated shareholders’ equity.debt securities have contractual maturities extending beyond 10 years, bear fixed rates of interest and are collateralized by residential mortgages. Repayment of principal on these bonds is primarily dependent on the cash flows received from payments on the underlying collateral to the bond issuer and therefore, the likelihood of prepayment is impacted by the economic environment. During a period of increasing interest rates, fixed rate mortgage-backed securities do not tend to experience heavy prepayments and as a result, the average lives of these securities are lengthened. If interest rates fall, prepayments tend to increase and as a result the lives of these securities are shortened.
Deposits
We offer a variety of deposit products, which have a wide range of interest rates and terms, including demand, savings, money market and time accounts. We rely primarily on competitive pricing policies, convenient locations, electronic delivery channels and personalized service to attract and retain these deposits. Total deposits as of September 30, 2018,March 31, 2019, were $2.7$2.8 billion, an increasea decrease of $87.1$15.3 million, or 3.3%0.6%, compared to $2.6 billion as of December 31, 2017.2018. Noninterest‑bearing deposits as of September 30, 2018,March 31, 2019, were $1.1$1.2 billion, an increase of $35.2$46.1 million, or 3.2%3.9%, compared to $1.1 billion as of December 31, 2017.2018. Total interest‑bearing account balances as of September 30, 2018,March 31, 2019, were $1.5 billion, an increasea decrease of $51.9$61.4 million, or 3.5%,3.9% from $1.5 billion as of December 31, 2017.2018. The changes in deposits from December 31, 20172018 to September 30, 2018March 31, 2019 are due to normal fluctuations in customer activities.
4843
The components of deposits at the dates shown below were as follows:
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| September 30, 2018 |
| December 31, 2017 |
| March 31, 2019 |
| December 31, 2018 | ||||||||||||||
(Dollars in thousands) |
| Amount |
| Percent |
| Amount |
| Percent |
| Amount |
| Percent |
| Amount |
| Percent | ||||||
Interest-bearing demand accounts |
| $ | 367,120 |
| 13.6 | % |
| $ | 363,015 |
| 14.0 | % |
| $ | 352,623 |
| 12.8% |
| $ | 387,457 |
| 14.0% |
Money market accounts |
|
| 722,382 |
| 26.9 | % |
|
| 702,299 |
| 27.0 | % |
|
| 695,968 |
| 25.3% |
|
| 737,770 |
| 26.7% |
Saving accounts |
|
| 94,344 |
| 3.5 | % |
|
| 95,842 |
| 3.7 | % |
|
| 96,251 |
| 3.5% |
|
| 96,962 |
| 3.5% |
Certificates and other time deposits, $100,000 or greater |
|
| 182,552 |
| 6.8 | % |
|
| 172,469 |
| 6.6 | % |
|
| 181,507 |
| 6.6% |
|
| 189,007 |
| 6.8% |
Certificates and other time deposits, less than $100,000 |
|
| 178,697 |
| 6.6 | % |
|
| 159,558 |
| 6.1 | % |
|
| 195,478 |
| 7.1% |
|
| 172,028 |
| 6.2% |
Total interest-bearing deposits |
|
| 1,545,095 |
| 57.4 | % |
|
| 1,493,183 |
| 57.4 | % |
|
| 1,521,827 |
| 55.3% |
|
| 1,583,224 |
| 57.2% |
Noninterest-bearing deposits |
|
| 1,144,985 |
| 42.6 | % |
|
| 1,109,789 |
| 42.6 | % |
|
| 1,229,172 |
| 44.7% |
|
| 1,183,058 |
| 42.8% |
Total deposits |
| $ | 2,690,080 |
| 100.0 | % |
| $ | 2,602,972 |
| 100.0 | % |
| $ | 2,750,999 |
| 100.0% |
| $ | 2,766,282 |
| 100.0% |
Certificates of deposit by time remaining until maturity as of the dates indicated were as follows:
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|
| September 30, |
| December 31, |
|
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|
| ||||
(Dollars in thousands) |
| 2018 |
| 2017 |
| March 31, 2019 |
| December 31, 2018 | ||||
Three months or less |
| $ | 60,899 |
| $ | 63,482 |
| $ | 57,110 |
| $ | 71,817 |
Over three months through six months |
|
| 63,611 |
|
| 57,471 |
|
| 68,469 |
|
| 50,966 |
Over six months through 12 months |
|
| 116,811 |
|
| 84,476 |
|
| 120,141 |
|
| 119,180 |
Over 12 months through three years |
|
| 103,477 |
|
| 102,864 |
|
| 119,838 |
|
| 108,436 |
Over three years |
|
| 16,451 |
|
| 23,734 |
|
| 11,427 |
|
| 10,636 |
Total |
| $ | 361,249 |
| $ | 332,027 |
| $ | 376,985 |
| $ | 361,035 |
Average balances and average rates paid on deposits for the periods indicated are shown in the table below. Average rates paid for the ninethree months ended September 30, 2018March 31, 2019 were computed on an annualized basis.
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| For the Nine Months Ended |
| For the Year Ended |
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| September 30, 2018 |
| December 31, 2017 |
| Three Months Ended March 31, |
| Year Ended December 31, 2018 | ||||||||||||||||
|
| Average |
| Average |
| Average |
| Average |
| Average |
| Average |
| Average |
| Average | ||||||||
(Dollars in thousands) |
| Balance |
| Rate |
| Balance |
| Rate |
| Balance |
| Rate |
| Balance |
| Rate | ||||||||
Interest-bearing demand accounts |
| $ | 359,416 |
| 0.23 | % |
| $ | 349,672 |
| 0.22 | % |
| $ | 369,816 |
| 0.25 | % |
| $ | 362,498 |
| 0.23 | % |
Savings accounts |
|
| 95,313 |
| 0.06 | % |
|
| 88,883 |
| 0.06 | % |
|
| 95,946 |
| 0.07 | % |
|
| 94,754 |
| 0.06 | % |
Money market accounts |
|
| 702,044 |
| 0.76 | % |
|
| 721,327 |
| 0.58 | % |
|
| 721,028 |
| 1.24 | % |
|
| 714,565 |
| 0.87 | % |
Certificates and other time deposits, $100,000 or greater |
|
| 168,489 |
| 0.66 | % |
|
| 175,793 |
| 0.54 | % |
|
| 187,671 |
| 1.20 | % |
|
| 173,160 |
| 0.79 | % |
Certificates and other time deposits, less than $100,000 |
|
| 174,663 |
| 1.19 | % |
|
| 167,675 |
| 1.01 | % |
|
| 169,578 |
| 1.40 | % |
|
| 174,666 |
| 1.23 | % |
Total interest-bearing deposits |
|
| 1,499,925 |
| 0.63 | % |
|
| 1,503,350 |
| 0.51 | % |
|
| 1,544,039 |
| 0.94 | % |
|
| 1,519,643 |
| 0.70 | % |
Noninterest-bearing deposits |
|
| 1,118,408 |
| — |
|
| 1,031,707 |
| — |
|
|
| 1,177,086 |
| — |
|
| 1,134,191 |
| — |
| ||
Total deposits |
| $ | 2,618,333 |
| 0.36 | % |
| $ | 2,535,057 |
| 0.30 | % |
| $ | 2,721,125 |
| 0.53 | % |
| $ | 2,653,834 |
| 0.40 | % |
The ratio of average noninterest‑bearing deposits to average total deposits was 42.7%43.3% for the ninethree months ended September 30, 2018March 31, 2019 and 40.7%42.7% for the year ended December 31, 2017.2018.
Borrowings
Frost Line of Credit. On December 13, 2017, theThe Company has entered into a loan agreement, or the Loan Agreement, with Frost Bank, which provides for a $30.0 million revolving line of credit, or Line of Credit. The Loan Agreement was amended and restated on December 13, 2018 and, as amended, is referred to as the Amended Agreement. The Company can make draws on the Line of Credit for a period of 12 months beginning on the date of the LoanAmended Agreement, after which the Company will not be permitted to make further draws and the outstanding balance will amortize over a period of 60 months. Interest accrues on outstanding borrowings at a rate equal to the maximum “Latest” U.S. prime rate of interest per annum and payable quarterly in the first 12 months and thereafter quarterly principal and interest payments are required over a term of 60 months. The entire outstanding balance and unpaid interest is payable in full on December 13, 2023.2024.
The Company may prepay the principal amount of any loan under the LoanAmended Agreement without premium or penalty. The obligations of the Company under the LoanAmended Agreement are secured by a valid and perfected first priority lien on all of the issued and outstanding shares of capital stock of the Bank.
4944
Covenants made under the Amended Agreement include, among other things, the Company maintaining tangible net worth of not less than $300 million, the Company maintaining free cash flow coverage ratio of not less than 1.25 to 1.00, the Bank’s Texas Ratio (as defined under the Amended Agreement) not to exceed 15%, the Bank’s Total Capital Ratio (as defined under the Amended Agreement) of not less than 12% and restrictions on the ability of the Company and its subsidiaries to incur certain additional debt. The Company was in compliance with these covenants at March 31, 2019.
As of September 30, 2018,March 31, 2019, there were no outstanding borrowings on this line and the Company didhas not drawdrawn on this line during the period from December 13, 2017, whensince the Company entered the agreement, to September 30, 2018.
Junior Subordinated Debt. In connection with the acquisition of Crosby Bancshares, Inc. during 2008, we assumed $5.2 million in junior subordinated debentures underlying common securities and trust preferred securities. The subordinated debt securities have a due date of December 15, 2035 and interest is payable quarterly. The interest rate of the debt is equal to the LIBOR, plus 1.44%, reset quarterly, which was 3.77% at September 30, 2018 and 3.03% at December 31, 2017. The Company has the right to redeem these debt securities in whole, or from time to time in part, provided that all accrued and unpaid interest has been paid.
In connection with the acquisition of County Bancshares, Inc. during 2007, we assumed $5.7 million in junior subordinated debt underlying common securities and trust preferred securities. In 2015, we purchased approximately $4.1 million of the outstanding preferred securities, reducing the outstanding preferred securities to $1.6 million. The subordinated debt securities have a due date of April 7, 2035 and interest is payable quarterly. The interest rate of the debt is equal to LIBOR, plus 2% and is reset quarterly. The rate of interest was 4.34% at September 30, 2018 and 3.36% at December 31, 2017. The Company has the right to redeem these debt securities in whole or from time to time in part, provided that all accrued and unpaid interest has been paid.agreement.
Liquidity and Capital Resources
Liquidity
Liquidity involves our ability to raise funds to support asset growth and acquisitions or reduce assets to meet deposit withdrawals and other payment obligations, to maintain reserve requirements and otherwise to operate on an ongoing basis and manage unexpected events.
For the nine months ended September 30, 2018 The Company’s primary source of funds is deposits and the year ended December 31, 2017, liquidity needs were primarily met by coreprimary use of funds is loans. Historically the cost of the Company’s deposits security and loan maturities and amortizing security and loan portfolios. Although access to advances fromhas been lower than other sources of funds available, such as debt. The Company does not expect a change in the FHLB are available as discussed above, we do not generally rely on this external funding source.
The FHLB allows us to borrow on a blanket floating lien status collateralized by certain loans. Asprimary source or use of September 30, 2018 and December 31, 2017, total borrowing capacity of $893.3 million and $793.3 million, respectively, was available under this arrangement. As of September 30, 2018 and December 31, 2017, there were no outstanding FHLB advances.
As of September 30, 2018 and December 31, 2017, we maintained four federal funds lines of credit with commercial banks that provide forin the availability to borrow up to an aggregate of $75.0 million, in federal funds. There were no funds under these lines of credit outstanding as of September 30, 2018 and December 31, 2017.
50
foreseeable future. The composition of our funding sources and uses as a percentage of average total assets for the periods indicated was as follows:
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| For the Nine |
| For the Year |
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| |||
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| Months Ended |
| Ended |
| Three Months Ended |
| Year Ended | ||||
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| September 30, 2018 |
| December 31, 2017 |
| March 31, 2019 |
| December 31, 2018 | ||||
Sources of funds: |
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| ||
Deposits: |
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| ||
Interest-bearing |
| 48.1 | % |
| 50.5 | % |
| 47.3 | % |
| 48.1 | % |
Noninterest-bearing |
| 35.9 | % |
| 34.7 | % |
| 36.1 | % |
| 35.9 | % |
Repurchase agreements |
| 0.1 | % |
| 0.1 | % | ||||||
FHLB advances |
| 0.1 | % |
| — | % | ||||||
Note payable |
| — | % |
| 0.7 | % | ||||||
Junior subordinated debt |
| 0.4 | % |
| 0.4 | % | ||||||
FHLB advances and repurchase agreements |
| 0.3 | % |
| 0.2 | % | ||||||
Note payable and junior subordinated debt |
| — | % |
| 0.4 | % | ||||||
Other liabilities |
| 0.7 | % |
| 0.7 | % |
| 1.1 | % |
| 0.7 | % |
Shareholders’ equity |
| 14.7 | % |
| 12.9 | % |
| 15.2 | % |
| 14.7 | % |
Total sources |
| 100.0 | % |
| 100.0 | % |
| 100.0 | % |
| 100.0 | % |
Uses of funds: |
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| ||
Loans |
| 76.0 | % |
| 74.2 | % |
| 76.1 | % |
| 75.8 | % |
Debt securities |
| 7.3 | % |
| 7.4 | % |
| 7.0 | % |
| 7.2 | % |
Federal funds sold and other interest-earning assets |
| 7.8 | % |
| 9.2 | % |
| 7.3 | % |
| 8.1 | % |
Nonmarketable equity securities |
| 0.5 | % |
| 0.5 | % | ||||||
Equity securities |
| 0.4 | % |
| 0.5 | % | ||||||
Other noninterest-earning assets |
| 8.4 | % |
| 8.7 | % |
| 9.2 | % |
| 8.4 | % |
Total uses |
| 100.0 | % |
| 100.0 | % |
| 100.0 | % |
| 100.0 | % |
Average loans to average deposits |
| 90.4 | % |
| 87.0 | % |
| 91.9 | % |
| 90.1 | % |
Our primary source of funds is deposits and our primary use of funds is loans. We do not expect a change in the primary source or use of our funds in the foreseeable future.
As of September 30, 2018, weMarch 31, 2019, the Company had $830.4$819.9 million in outstanding commitments to extend credit and $26.5$28.1 million in commitments associated with outstanding standby and commercial letters of credit, compared to $688.0 million in outstanding commitments to extend credit and $29.0 million in commitments associated with outstanding standby and commercial letters of credit as of December 31, 2017.credit. Since commitments associated with letters of credit and commitments to extend credit may expire unused, the total outstanding may not necessarily reflect the actual future cash funding requirements.
As of September 30, 2018, we hadMarch 31, 2019, there was no exposure to future cash requirements associated with known uncertainties or capital expenditure of a material nature.
As of September 30, 2018, we hadMarch 31, 2019, cash and cash equivalents was of $281.6$276.5 million, compared to $326.2$382.1 million as of December 31, 2017,2018, a decrease of $44.6$105.6 million. The decrease was primarily due to an increase in gross loans of $151.8$98.6 million, which outpaced the $87.1a $15.3 million increasedecrease in deposits and net income of $33.2$10.5 million. See the Condensed Consolidated Statementcondensed consolidated statement of Cash Flowscash flows for the ninethree months ended September 30, 2018March 31, 2019 for additional analysis.
45
Capital Resources
Total shareholders’ equity increased to $471.9$498.7 million as of September 30, 2018,March 31, 2019, compared to $446.2$487.6 million as of December 31, 2017,2018, an increase of $25.6$11.0 million, or 5.7%2.3%, after giving effect to $3.8primarily due the current year income of $10.5 million and a $2.4 million increase in other comprehensive income and $545,000 of stock compensation expense, partially offset by $2.5 million in dividends to common shareholders declared during the ninethree months ended September 30,March 31, 2019. In the three months ended March 31, 2019, quarterly dividends declared per share were increased to $0.10 from $0.05 per share per quarter during 2018.
Capital management consists of providing equity and other instruments that qualify as regulatory capital to support current and future operations. Banking regulators view capital levels as important indicators of an institution’s financial soundness. As a general matter, FDIC insured depository institutions and their holding companies are required to maintain minimum capital relative to the amount and types of assets they hold. WeThe Company and the Bank are both subject to regulatory capital requirements at the bank holding company and bank levels.
requirements. At September 30, 2018March 31, 2019 and December 31, 2017,2018, the Company and the Bank were in compliance with all applicable regulatory capital requirements at the bank holding company and bank levels, and the Bank was classified as “well capitalized” for purposes of the FDIC’s
51
prompt corrective action regulations. The OCC or the FDIC may require the Bank to maintain capital ratios above the required minimums and the Federal Reserve may require the Company to maintain capital ratios above the required minimums.
As we deploy our capital and continue to grow our operations, our regulatory capital levels may decrease depending on our level of earnings. However, we expect to monitor and control our growth to remain in compliance with all regulatory capital standards applicable to us.
The following table presents the regulatory capital ratios for our Company and the Bank as of the dates indicated.
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| Minimum |
| Minimum |
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| Minimum |
| Minimum |
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| Capital Required |
| Capital Required |
| Required to be |
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| Capital Required |
| Capital Required |
| Required to be | ||||||||||||
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| for Capital Adequacy |
| Basel III |
| Considered Well |
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| for Capital Adequacy |
| Basel III |
| Considered Well | ||||||||||||
|
| Actual |
| Purposes |
| Fully Phased-in |
| Capitalized |
| Actual |
| Purposes |
| Fully Phased-in |
| Capitalized | ||||||||||||||||
(Dollars in thousands) |
| Amount |
| Ratio |
| Amount |
| Ratio |
| Amount |
| Ratio |
| Amount |
| Ratio |
| Amount |
| Ratio |
| Amount |
| Ratio |
| Amount |
| Ratio | �� | Amount |
| Ratio |
September 30, 2018 |
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March 31, 2019 |
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Common Equity Tier I to Risk-Weighted Assets: |
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Consolidated |
| $ 391,556 |
| 14.3% |
| $ 123,271 |
| 4.5% |
| $ 191,755 |
| 7.0% |
| N/A |
| N/A |
| $ 413,851 |
| 14.5% |
| $ 128,186 |
| 4.5% |
| $ 199,401 |
| 7.0% |
| N/A |
| N/A |
Bank Only |
| $ 350,337 |
| 12.8% |
| $ 123,259 |
| 4.5% |
| $ 182,549 |
| 7.0% |
| $ 178,040 |
| 6.5% |
| $ 372,226 |
| 13.1% |
| $ 128,176 |
| 4.5% |
| $ 199,385 |
| 7.0% |
| $ 185,143 |
| 6.5% |
Tier I Capital to Risk-Weighted Assets: |
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Consolidated |
| $ 397,956 |
| 14.5% |
| $ 164,361 |
| 6.0% |
| $ 232,845 |
| 8.5% |
| N/A |
| N/A |
| $ 413,851 |
| 14.5% |
| $ 170,915 |
| 6.0% |
| $ 242,129 |
| 8.5% |
| N/A |
| N/A |
Bank Only |
| $ 350,337 |
| 12.8% |
| $ 164,345 |
| 6.0% |
| $ 232,822 |
| 8.5% |
| $ 219,126 |
| 8.0% |
| $ 372,226 |
| 13.1% |
| $ 170,901 |
| 6.0% |
| $ 242,110 |
| 8.5% |
| $ 227,869 |
| 8.0% |
Total Capital to Risk-Weighted Assets: |
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Consolidated |
| $ 422,820 |
| 15.4% |
| $ 219,148 |
| 8.0% |
| $ 287,632 |
| 10.5% |
| N/A |
| N/A |
| $ 438,872 |
| 15.4% |
| $ 227,886 |
| 8.0% |
| $ 299,101 |
| 10.5% |
| N/A |
| N/A |
Bank Only |
| $ 375,202 |
| 13.7% |
| $ 219,216 |
| 8.0% |
| $ 287,604 |
| 10.5% |
| $ 273,908 |
| 10.0% |
| $ 397,246 |
| 14.0% |
| $ 227,869 |
| 8.0% |
| $ 299,077 |
| 10.5% |
| $ 284,836 |
| 10.0% |
Tier 1 Leverage Capital to Average Assets: |
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Consolidated |
| $ 397,956 |
| 12.8% |
| $ 123,987 |
| 4.0% |
| $ 123,987 |
| 4.0% |
| N/A |
| N/A |
| $ 413,851 |
| 13.0% |
| $ 127,051 |
| 4.0% |
| $ 127,051 |
| 4.0% |
| N/A |
| N/A |
Bank Only |
| $ 350,336 |
| 11.3% |
| $ 123,987 |
| 4.0% |
| $ 123,987 |
| 4.0% |
| $ 154,983 |
| 5.0% |
| $ 372,224 |
| 11.7% |
| $ 127,051 |
| 4.0% |
| $ 127,051 |
| 4.0% |
| $ 158,814 |
| 5.0% |
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December 31, 2017 |
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December 31, 2018 |
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| ||||||||||||||||
Common Equity Tier I to Risk-Weighted Assets: |
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|
|
|
|
|
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|
|
|
Consolidated |
| $ 361,322 |
| 14.2% |
| $ 114,628 |
| 4.5% |
| $ 178,310 |
| 7.0% |
| N/A |
| N/A |
| $ 405,012 |
| 14.7% |
| $ 123,885 |
| 4.5% |
| $ 192,710 |
| 7.0% |
| N/A |
| N/A |
Bank Only |
| $ 322,414 |
| 12.7% |
| $ 114,252 |
| 4.5% |
| $ 178,150 |
| 7.0% |
| $ 165,425 |
| 6.5% |
| $ 363,140 |
| 13.2% |
| $ 123,877 |
| 4.5% |
| $ 192,697 |
| 7.0% |
| $ 178,933 |
| 6.5% |
Tier I Capital to Risk-Weighted Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
| $ 367,722 |
| 14.4% |
| $ 152,837 |
| 6.0% |
| $ 216,519 |
| 8.5% |
| N/A |
| N/A |
| $ 406,257 |
| 14.8% |
| $ 165,180 |
| 6.0% |
| $ 234,005 |
| 8.5% |
| N/A |
| N/A |
Bank Only |
| $ 322,414 |
| 12.7% |
| $ 152,700 |
| 6.0% |
| $ 216,325 |
| 8.5% |
| $ 203,600 |
| 8.0% |
| $ 363,140 |
| 13.2% |
| $ 165,169 |
| 6.0% |
| $ 233,989 |
| 8.5% |
| $ 220,225 |
| 8.0% |
Total Capital to Risk-Weighted Assets: |
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
Consolidated |
| $ 392,878 |
| 15.4% |
| $ 203,782 |
| 8.0% |
| $ 267,464 |
| 10.5% |
| N/A |
| N/A |
| $ 430,238 |
| 15.6% |
| $ 220,240 |
| 8.0% |
| $ 289,065 |
| 10.5% |
| N/A |
| N/A |
Bank Only |
| $ 347,569 |
| 13.7% |
| $ 203,600 |
| 8.0% |
| $ 267,726 |
| 10.5% |
| $ 254,501 |
| 10.0% |
| $ 387,211 |
| 14.1% |
| $ 220,225 |
| 8.0% |
| $ 289,046 |
| 10.5% |
| $ 275,282 |
| 10.0% |
Tier 1 Leverage Capital to Average Assets: |
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
| $ 367,722 |
| 12.3% |
| $ 119,769 |
| 4.0% |
| $ 119,769 |
| 4.0% |
| N/A |
| N/A |
| $ 406,257 |
| 12.8% |
| $ 127,350 |
| 4.0% |
| $ 127,350 |
| 4.0% |
| N/A |
| N/A |
Bank Only |
| $ 322,414 |
| 10.8% |
| $ 119,403 |
| 4.0% |
| $ 119,403 |
| 4.0% |
| $ 149,253 |
| 5.0% |
| $ 363,140 |
| 11.4% |
| $ 127,350 |
| 4.0% |
| $ 127,350 |
| 4.0% |
| $ 159,188 |
| 5.0% |
|
|
|
|
5246
Contractual Obligations
In the normal course of operations, the Company enters into certain contractual obligations, such as obligations for operating leases, certificates of deposits and borrowings. Future cash payments associated with our contractual obligations, as of the dates indicated were as follows:
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| ||||||||||||||||||||||||||
|
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|
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| More than |
| 3 years or |
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|
|
|
|
|
|
| More than |
| 3 years or |
|
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|
| ||||
|
| 1 year or |
| 1 year but less |
| more but less |
| 5 years or |
|
|
|
| 1 year or |
| 1 year but less |
| more but less |
| 5 years or |
|
|
| ||||||||
(Dollars in thousands) |
| less |
| than 3 years |
| than 5 years |
| more |
| Total |
| less |
| than 3 years |
| than 5 years |
| more |
| Total | ||||||||||
September 30, 2018 |
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| |||||||||||||||
March 31, 2019 |
|
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|
|
|
|
|
|
|
|
|
| |||||||||||||||
Non-cancelable future operating leases |
| $ | 1,940 |
| $ | 4,235 |
| $ | 4,331 |
| $ | 10,347 |
| $ | 20,853 | |||||||||||||||
Certificates of deposit |
|
| 245,720 |
|
| 119,838 |
|
| 11,427 |
|
| — |
|
| 376,985 | |||||||||||||||
Total |
| $ | 247,660 |
| $ | 124,073 |
| $ | 15,758 |
| $ | 10,347 |
| $ | 397,838 | |||||||||||||||
December 31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Non-cancelable future operating leases |
| $ | 2,058 |
| $ | 4,268 |
| $ | 4,491 |
| $ | 10,602 |
| $ | 21,419 |
| $ | 2,118 |
| $ | 4,363 |
| $ | 4,565 |
| $ | 10,048 |
| $ | 21,094 |
Certificates of deposit |
|
| 241,321 |
|
| 103,477 |
|
| 16,451 |
|
| — |
|
| 361,249 |
|
| 241,963 |
|
| 108,436 |
|
| 10,636 |
|
| — |
|
| 361,035 |
Junior subordinated debt |
|
| — |
|
| — |
|
| — |
|
| 6,726 |
|
| 6,726 |
|
| 1,571 |
|
| — |
|
| — |
|
| — |
|
| 1,571 |
Total |
| $ | 243,379 |
| $ | 107,745 |
| $ | 20,942 |
| $ | 17,328 |
| $ | 389,394 |
| $ | 245,652 |
| $ | 112,799 |
| $ | 15,201 |
| $ | 10,048 |
| $ | 383,700 |
December 31, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Non-cancelable future operating leases |
| $ | 1,573 |
| $ | 2,803 |
| $ | 2,975 |
| $ | 10,833 |
| $ | 18,184 | |||||||||||||||
Certificates of deposit |
|
| 205,429 |
|
| 102,864 |
|
| 23,734 |
|
| — |
|
| 332,027 | |||||||||||||||
Junior subordinated debt |
|
| — |
|
| — |
|
| — |
|
| 6,726 |
|
| 6,726 | |||||||||||||||
Total |
| $ | 207,002 |
| $ | 105,667 |
| $ | 26,709 |
| $ | 17,559 |
| $ | 356,937 |
In January 2019, the trust preferred securities underlying the junior subordinated debt outstanding at December 31, 2018 were redeemed.
Off‑Balance Sheet Items
In the normal course of business, we enterthe Company enters into various transactions, which, in accordance with GAAP, are not included in ourthe consolidated balance sheets. We enterThese transactions are entered into these transactions to meet the customer financing needs of our customers.needs. These transactions include commitments to extend credit and standby and commercial letters of credit, which involve, to varying degrees, elements of credit risk and interest rate risk in excess of the amounts recognized in our consolidated balance sheets.
Our commitmentsCommitments associated with outstanding standby and commercial letters of credit and commitments to extend credit expiring by period as of the date indicated are summarized below.
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|
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|
|
|
|
|
|
|
|
|
|
| More than |
| 3 years or |
|
|
|
|
|
|
|
|
|
| More than |
| 3 years or |
|
|
|
|
|
| ||||
|
| 1 year or |
| 1 year but less |
| more but less |
| 5 years or |
|
|
|
| 1 year or |
| 1 year but less |
| more but less |
| 5 years or |
|
|
| ||||||||
(Dollars in thousands) |
| less |
| than 3 years |
| than 5 years |
| more |
| Total |
| less |
| than 3 years |
| than 5 years |
| more |
| Total | ||||||||||
September 30, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Standby and commercial letters of credit |
| $ | 24,583 |
| $ | 1,902 |
| $ | — |
| $ | — |
| $ | 26,485 | |||||||||||||||
March 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Standby letters of credit |
| $ | 21,273 |
| $ | 1,799 |
| $ | 5,000 |
| $ | — |
| $ | 28,072 | |||||||||||||||
Commitments to extend credit |
|
| 507,415 |
|
| 249,235 |
|
| 33,187 |
|
| 40,524 |
|
| 830,361 |
|
| 496,680 |
|
| 250,499 |
|
| 18,546 |
|
| 54,174 |
|
| 819,899 |
Total |
| $ | 531,998 |
| $ | 251,137 |
| $ | 33,187 |
| $ | 40,524 |
| $ | 856,846 |
| $ | 517,953 |
| $ | 252,298 |
| $ | 23,546 |
| $ | 54,174 |
| $ | 847,971 |
December 31, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Standby and commercial letters of credit |
| $ | 27,996 |
| $ | 981 |
| $ | — |
| $ | — |
| $ | 28,977 | |||||||||||||||
December 31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Standby letters of credit |
| $ | 22,789 |
| $ | 3,940 |
| $ | 5,000 |
| $ | — |
| $ | 31,729 | |||||||||||||||
Commitments to extend credit |
|
| 386,505 |
|
| 257,223 |
|
| 25,546 |
|
| 18,775 |
|
| 688,049 |
|
| 486,480 |
|
| 267,099 |
|
| 14,415 |
|
| 63,642 |
|
| 831,636 |
Total |
| $ | 414,501 |
| $ | 258,204 |
| $ | 25,546 |
| $ | 18,775 |
| $ | 717,026 |
| $ | 509,269 |
| $ | 271,039 |
| $ | 19,415 |
| $ | 63,642 |
| $ | 863,365 |
Standby and commercial letters of credit are conditional commitments issued by us to guarantee the performance of a customer to a third party. In the event of nonperformance by the customer, we havethe Company has rights to the underlying collateral, which can include commercial real estate, physical plant and property, inventory, receivables, cash and/or marketable securities. OurThe Company’s credit risk associated with issuing letters of credit is essentially the same as the risk involved in extending loan facilities to our customers.
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 of the commitments are expected to expire without being fully drawn upon, the total commitment amounts disclosed above do not necessarily represent future cash requirements.
5347
Interest Rate Sensitivity and Market Risk
As a financial institution, ourthe Company’s primary component of market risk is interest rate volatility. OurThe Company’s asset, liability and funds management policy provides management with the guidelines for effective funds management and we have established amanagement. A measurement system for monitoring our net interest rate sensitivity position. We haveposition has been established and the Company has historically managed ourits sensitivity position within ourits established guidelines.
Fluctuations in interest rates will ultimately impact both the level of income and expense recorded on most of ourthe Company’s assets and liabilities and the market value of all interest‑earning assets and interest‑bearing liabilities, other than those which have a short-term to maturity. Interest rate risk is the potential of economic losses due to future interest rate changes. These economic losses can be reflected as a loss of future net interest income and/or a decrease in current fair market values. The objective is to measure the effect on net interest income and to adjust the balance sheet to minimize the inherent risk while at the same time maximizing income.
We manage ourThe Company manages exposure to interest rates by structuring our balance sheet in the ordinary course of business. We doThe Company does not enter into instruments such as leveraged derivatives, financial options, financial future contracts or forward delivery contracts to reduce interest rate risk. Based upon the nature of our operations, we arethe Company is not subject to foreign exchange or commodity price risk. We dorisk and does not own any trading assets.
OurThe Company’s exposure to interest rate risk is managed by the Funds Management Committee of the Bank, in accordance with policies approved by the Bank’s Board of Directors. The committee formulates strategies based on appropriate levels of interest rate risk. In determining the appropriate level of interest rate risk, the committee considers the impact on earnings and capital of the current outlook on interest rates, potential changes in interest rates, regional economies, liquidity, business strategies and other factors. The committee meets regularly to review, among other things, the sensitivity of assets and liabilities to interest rate changes, the book and market values of assets and liabilities, unrealized gains and losses, purchase and sale activities, commitments to originate loans and the maturities of investments and borrowings. Additionally, the committee reviews liquidity, cash flow flexibility, maturities of deposits and consumer and commercial deposit activity. Management employs methodologies to manage interest rate risk, which include an analysis of relationships between interest‑earning assets and interest‑bearing liabilities and an interest rate shock simulation model.
We useThe Company uses interest rate risk simulation models and shock analyses to test the interest rate sensitivity of net interest income and fair value of equity and the impact of changes in interest rates on other financial metrics. Contractual maturities and re‑pricing opportunities of loans are incorporated in the model, as are prepayment assumptions, maturity data and call options within the investment portfolio. Average life of non‑maturity deposit accounts are based on standard regulatory decay assumptions and are incorporated into the model. The assumptions used are inherently uncertain and the model cannot precisely measure future net interest income or precisely predict the impact of fluctuations in market interest rates on net interest income. Actual results will differ from the model’s simulated results due to timing, magnitude and frequency of interest rate changes as well as changes in market conditions and the application and timing of various management strategies.
On a quarterly basis, we run two simulation models are run, including a static balance sheet and dynamic growth balance sheet. These models test the impact on net interest income and fair value of equity from changes in market interest rates under various scenarios. Under the static and dynamic growth models, rates are shocked instantaneously and ramped rate changes over a 12‑month horizon based upon parallel and non‑parallel yield curve shifts. Parallel shock scenarios assume instantaneous parallel movements in the yield curve compared to a flat yield curve scenario. Non‑parallel simulation involves analysis of interest income and expense under various changes in the shape of the yield curve. OurThe Company’s internal policy regarding internal rate risk simulations currently specifies that for instantaneous parallel shifts of the yield curve, estimated net income at risk for the subsequent one‑year period should not decline by more than 10% for a 100 basis-point shift, 20% for a 200‑basis point shift and 30% for a 300‑basis point shift.
5448
Simulated change in net interest income and fair value of equity over a 12‑month horizon as of the dates indicated below were as follows:
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| ||||
|
| September 30, 2018 |
| December 31, 2017 |
| March 31, 2019 |
| December 31, 2018 | ||||||||||||||||
|
| Percent Change |
| Percent Change |
| Percent Change |
| Percent Change |
| Percent Change |
| Percent Change |
| Percent Change |
| Percent Change | ||||||||
Change in Interest |
| in Net Interest |
| in Fair Value |
| in Net Interest |
| in Fair Value |
| in Net Interest |
| in Fair Value |
| in Net Interest |
| in Fair Value | ||||||||
Rates (Basis Points) |
| Interest |
| of Equity |
| Interest |
| of Equity |
| Income |
| of Equity |
| Income |
| of Equity | ||||||||
+ 300 |
| 16.4 | % |
| (5.6) | % |
| 19.6 | % |
| 3.9 | % |
| 15.8 | % |
| 0.6 | % |
| 16.7 | % |
| (3.1) | % |
+ 200 |
| 11.4 | % |
| (1.9) | % |
| 13.5 | % |
| 5.5 | % |
| 11.0 | % |
| 2.5 | % |
| 11.6 | % |
| (0.4) | % |
+ 100 |
| 6.0 | % |
| (0.3) | % |
| 6.9 | % |
| 6.4 | % |
| 5.8 | % |
| 2.5 | % |
| 6.1 | % |
| 1.1 | % |
Base |
| — | % |
| — | % |
| — | % |
| — | % |
| — | % |
| — | % |
| — | % |
| — | % |
−100 |
| (6.1) | % |
| (6.8) | % |
| (7.2) | % |
| (10.3) | % |
| (6.1) | % |
| (11.2) | % |
| (6.8) | % |
| (7.6) | % |
The results are primarily due to behavior of demand, money market and savings deposits during such rate fluctuations. We have found that, historically,Historically, interest rates on these deposits changehave changed more slowly than changes in the discount and federal funds rates. This assumption is incorporated into the simulation model and is generally not fully reflected in a gap analysis. The assumptions incorporated into the model are inherently uncertain and, as a result, the model cannot precisely measure future net interest income or precisely predict the impact of fluctuations in market interest rates on net interest income. Actual results will differ from the model’s simulated results due to timing, magnitude and frequency of interest rate changes as well as changes in market conditions and the application and timing of various strategies.
OurThe Company’s condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q have been prepared in accordance with GAAP. GAAP requires the measurement of financial position and operating results in terms of historical dollars, without considering changes in the relative value of money over time due to inflation or recession.
Unlike many industrial companies, substantially all of ourthe Company’s assets and liabilities are monetary in nature. As a result, interest rates have a more significant impact on our performance than the effects of general levels of inflation. Interest rates may not necessarily move in the same direction or in the same magnitude as the prices of goods and services. However, other operating expenses do reflect general levels of inflation.
OurThe Company’s accounting and reporting policies conform to GAAP and the prevailing practices in the banking industry. However, wethe Company also evaluate ourits performance based on certain additional non‑GAAP financial measures. We classify aA financial measure as beingis considered to be a non‑GAAP financial measure if that financial measure excludes or includes amounts, or is subject to adjustments that have the effect of excluding or including amounts, that are not included or excluded in the most directly comparable measure calculated and presented in accordance with GAAP as in effect from time to time in the U.S. in ourthe Company’s statements of income, balance sheets or statements of cash flows. Non‑GAAP financial measures do not include operating and other statistical measures or ratios or statistical measures calculated using exclusively financial measures calculated in accordance with GAAP. Non‑GAAP financial measures should not be considered in isolation or as a substitute for the most directly comparable or other financial measures calculated in accordance with GAAP. Moreover, the way we calculate the non‑GAAP financial measures may differ from that of other companies reporting measures with similar names.
We calculateThe Company calculates tangible equity as total shareholders’ equity, less goodwill and other intangible assets, net of accumulated amortization and tangible book value per share as tangible equity divided by shares of common stock outstanding at the end of the relevant period. The most directly comparable GAAP financial measure for tangible book value per share is book value per share. We calculateThe Company calculates tangible assets as total assets less goodwill and other intangible assets, net of accumulated amortization. The most directly comparable GAAP financial measure for tangible equity to tangible assets is total shareholders’ equity to total assets. We believeThe Company believes that tangible book value per share and tangible equity to tangible assets are measures that are important to many investors in the marketplace who are interested in book value per share and total shareholders’ equity to total assets, exclusive of change in intangible assets.
5549
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|
|
|
| September 30, |
| December 31, |
|
|
|
|
|
| ||||
(Dollars in thousands, except per share data) |
| 2018 |
| 2017 |
|
| March 31, 2019 |
| December 31, 2018 |
| ||||
Tangible Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders’ equity |
| $ | 471,851 |
| $ | 446,214 |
|
| $ | 498,653 |
| $ | 487,625 |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
| 80,950 |
|
| 80,950 |
|
|
| 80,950 |
|
| 80,950 |
|
Other intangibles |
|
| 6,038 |
|
| 6,770 |
|
|
| 5,538 |
|
| 5,775 |
|
Tangible equity |
| $ | 384,863 |
| $ | 358,494 |
|
| $ | 412,165 |
| $ | 400,900 |
|
Tangible Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
| $ | 3,190,453 |
| $ | 3,081,083 |
|
| $ | 3,283,462 |
| $ | 3,279,096 |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
| 80,950 |
|
| 80,950 |
|
|
| 80,950 |
|
| 80,950 |
|
Other intangibles |
|
| 6,038 |
|
| 6,770 |
|
|
| 5,538 |
|
| 5,775 |
|
Tangible assets |
| $ | 3,103,465 |
| $ | 2,993,363 |
|
| $ | 3,196,974 |
| $ | 3,192,371 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares outstanding (1) (2) |
|
| 24,859 |
|
| 24,833 |
|
|
| 24,918 |
|
| 24,907 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Book value per share |
| $ | 19.0 |
| $ | 18.0 |
|
| $ | 20.0 |
| $ | 19.6 |
|
Tangible book value per share |
| $ | 15.5 |
| $ | 14.4 |
|
| $ | 16.5 |
| $ | 16.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders’ equity to total assets |
|
| 14.8 | % |
| 14.5 | % |
|
| 15.2% |
|
| 14.9% |
|
Tangible equity to tangible assets |
|
| 12.4 | % |
| 12.0 | % |
|
| 12.9% |
|
| 12.6% |
|
(1) | Excludes the dilutive effect, if any, of |
(2) | Excludes the dilutive effect, if any, of |
OurThe Company’s accounting policies are described in Note 1 to our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2017. We believe2018. The Company believes that of our accounting policies, the following mayaccounting policies involve a higher degree of judgment and complexity:
SecuritiesAllowance for Loan Losses
SecuritiesThe allowance for loan losses represents management’s estimate of probable and reasonably estimable credit losses inherent in the loan portfolio. In determining the allowance, we estimate losses on individual impaired loans, or groups of loans which are classifiednot impaired, where the probable loss can be identified and reasonably estimated. On a quarterly basis, the risk inherent in the loan portfolio based on qualitative and quantitative trends in the portfolio is assessed, including the internal risk classification of loans, historical loss rates, changes in the nature and volume of the loan portfolio, industry or borrower concentrations, delinquency trends, detailed reviews of significant loans with identified weaknesses and the impacts of local, regional and national economic factors on the quality of the loan portfolio.
Determining the amount of the allowance is considered a critical accounting estimate, as availableit requires significant judgment and the use of subjective measurements, including management’s assessment of overall portfolio quality. The Company maintains the allowance at an amount it believes is sufficient to provide for sale when they might be sold before maturity. Securities availableestimated losses inherent in the loan portfolio at each balance sheet date. Fluctuations in the provision for saleloan losses may result from management’s assessment of the adequacy of the allowance. Changes in these estimates and assumptions are carried at fair value. Unrealized gains and losses are excluded from earnings and reported, net of tax, as a separate component of shareholders’ equity until realized. Securities within the available for sale portfolio may be used as part of our asset/liability strategypossible and may be soldhave a material impact on the allowance, and therefore the Company’s financial position, liquidity or results of operations. For a description of the factors considered in response to changesdetermining the allowance for loan losses see “Management’s Discussion and Analysis of Financial Condition and Results of Operations —Financial Condition—Allowance for Loan Losses.”
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Fair Values of Financial Instruments
The fair values of the Company’s financial instruments are based upon quoted market prices, where available. If quoted market prices are not available, fair value is estimated based upon models that primarily use observable market‑based parameters as inputs. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments and other factors, especially in interest rate risk, prepayment riskthe absence of broad markets for particular items. Changes in assumptions or other similar economic factors.in market conditions could significantly affect the estimates.
Other‑than‑temporary Impairment of Debt Securities held to maturity are carried at cost, adjusted for the amortization of premiums and the accretion of discounts.
Interest earned on these assets is included in interest income. Interest income includes amortization of purchase premium or discount. Premiums and discounts onDebt securities are amortized on the level‑yield method, except for mortgage backed securities where prepayments are anticipated. Gains and losses on sales are recorded on the trade date and determined using the specific identification method.
Management evaluates debt securitiesevaluated for other‑than‑temporary impairment, or OTTI, on at least a quarterly basis and more frequently when economic or market conditions warrant such an evaluation. For securities in an unrealized loss position, management considers the extent and duration of the unrealized loss and the financial condition and near‑term prospects of the issuer. Management alsoThe Company assesses whether it intends to sell, or it is more likely than not that itthe Company will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings. For debt securities that do not meet the aforementioned criteria, the amount of impairment
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is split into two components as follows: (i) OTTI related to credit loss, which must be recognized in the income statement and (ii) OTTI related to other factors, which is recognized in other comprehensive income, net of applicable taxes. The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis. The previous amortized cost basis less the OTTI recognized in earnings becomes the new amortized cost basis of the security.
Loans Held for Investment
Loans held for investment are those that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal balance outstanding, net of deferred loan fees and costs, and an allowance for loan losses. Loans are typically secured by specific items of collateral including business assets, consumer assets and commercial and residential real estate. Commercial loans are expected to be repaid from cash flow from operations of businesses. Interest income is accrued on the unpaid principal balance. Loan origination fees and certain direct origination costs are deferred and recognized as adjustments to interest income using a level yield methodology without anticipating payoffs.
Allowance for Loan Losses
The allowance for loan losses represents management’s estimate of probable and reasonably estimable credit losses inherent in the loan portfolio. In determining the allowance, the Company estimates losses on individual impaired loans, or groups of loans which are not impaired, where the probable loss can be identified and reasonably estimated. On a quarterly basis, the Company assesses the risk inherent in the Company’s loan portfolio based on qualitative and quantitative trends in the portfolio, including the internal risk classification of loans, historical loss rates, changes in the nature and volume of the loan portfolio, industry or borrower concentrations, delinquency trends, detailed reviews of significant loans with identified weaknesses and the impacts of local, regional and national economic factors on the quality of the loan portfolio. Based on this analysis, the Company records a provision for loan losses to maintain the allowance at appropriate levels.
Determining the amount of the allowance is considered a critical accounting estimate, as it requires significant judgment and the use of subjective measurements, including management’s assessment of overall portfolio quality. The Company maintains the allowance at an amount the Company believes is sufficient to provide for estimated losses inherent in the Company’s loan portfolio at each balance sheet date, and fluctuations in the provision for loan losses may result from management’s assessment of the adequacy of the allowance. Changes in these estimates and assumptions are possible and may have a material impact on the Company’s allowance, and therefore the Company’s financial position, liquidity or results of operations.
Transfers of Financial Assets
Management accounts for the transfers of financial assets as sales when control over the assets has been surrendered. Control is surrendered when the assets have been isolated, a transferee obtains the right to pledge or exchange the transferred assets and there is no agreement to repurchase the assets before their maturity. The Company’s loan participations sold subject to this guidance which met the conditions to be treated as a sale were recorded as such. Any securities sold under agreements to repurchase that did not meet the criteria are included in securities available for sale and repurchase agreements in the consolidated balance sheets.
Goodwill and Other Intangibles
TheGoodwill, which is excess purchase price over the fair value of net assets from acquisitions, or goodwill, is evaluated for impairment at least annually and on an interim basis if an eventevents or circumstance indicatescircumstances indicate that it is likely an impairment has occurred. The Company first assesses qualitativeQualitative factors are assessed to determine whether the existence of events or circumstances leads to a determination thatif it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If after assessing the totality of events or circumstances, the Company determines it is not moredetermined that it is likely than not that the fair value of a reporting unit is less than its carrying amount, then performing a two‑step impairment test is unnecessary. If the Company concludes otherwise, then it is required to perform the first step of the two‑step impairment test by calculating the fair value of the reporting unit and comparing the fair valueis compared with the carrying amount of the reporting unit. The fair value of net assets is estimated based on an analysis of the Company’s market value.
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the reporting unit at the date of the test is less than the goodwill recorded. If goodwill is impaired, a loss would then be recognized in the consolidated financial statements to the extent of the impairment.
Determining the fair value of goodwill is considered a critical accounting estimate because the allocation of the fair value of goodwill to assets and liabilities requires significant management judgment and the use of subjective measurements. Variability in the market and changes in assumptions or subjective measurements used to allocate fair value are reasonably possible and may have a material impact on the Company’s financial position, liquidity or results of operations.
The Company’s other intangible assets include core deposits, loan servicing assets and customer relationship intangibles, which can be distinguished from goodwill because of contractual or other legal rights or because the asset is capable of being sold or exchanged either on its own or in combination with a related contract, asset, or liability. Other intangible assets are tested for impairment whenever events or changes in circumstances indicate the carrying amount of the assets may not be recoverable from future undiscounted cash flows. If impaired, the assets are recorded at fair value.
Emerging Growth Company
The Jump Start Our Business Start-ups, or JOBS Act permits an “emerging growth company” to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. However, we haveThe Company decided not to take advantage of this provision and we will complyis complying with new or revised accounting standards to the same extent that compliance is required for non‑emerging growth companies. OurThe decision to opt out of the extended transition period under the JOBS Act is irrevocable.
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Recently Issued Accounting Pronouncements
See “Note 1 – Basis of Presentation, Nature of Operations and Summary of Significant Accounting and Reporting Policies” to the condensed consolidated financial statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company manages market risk, which, as a financial institution is primarily interest rate volatility, through the Asset-Liability Committee of the Bank, in accordance with policies approved by its board of directors. The Company uses an interest rate risk simulation model and shock analysis to test the interest rate sensitivity of net interest income and fair value of equity, and the impact of changes in interest rates on other financial metrics. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Interest Rate Sensitivity and Market Risk” herein for a discussion of how we manage market risk.
Item 4. Controls and Procedures
Evaluation of disclosure controls and procedures — As of the end of the period covered by this Report, the Company carried out an evaluation, under the supervision and with the participation of its management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of its disclosure controls and procedures. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management was required to apply judgment in evaluating its controls and procedures. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a‑15(e) and 15d‑15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act) were effective as of the end of the period covered by this Report.
Changes in internal control over financial reporting —There were no changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a‑15(f) and 15d‑15(f) under the Exchange Act) during the quarter ended September 30, 2018,March 31, 2019, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
We areThe Company is not currently subject to any material legal proceedings. We areThe Company is from time to time subject to claims and litigation arising in the ordinary course of business. These claims and litigation may include, among other things,
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allegations of violation of banking and other applicable regulations, competition law, labor laws and consumer protection laws, as well as claims or litigation relating to intellectual property, securities, breach of contract and tort. We intendThe Company intends to defend ourselves vigorously against any pending or future claims and litigation.
At this time, in the opinion of management, the likelihood is remote that the impact of such proceedings, either individually or in the aggregate, would have a material adverse effect on ourthe Company’s consolidated results of operations, financial condition or cash flows. However, one or more unfavorable outcomes in any claim or litigation against us could have a material adverse effect for the period in which they are resolved. In addition, regardless of their merits or their ultimate outcomes, such matters are costly, divert management’s attention and may materially and adversely affect ourthe Company’s reputation, even if resolved in our favor.
There have been no material changes in the risk factors as disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2017.None.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
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Exhibit |
| Description of Exhibit |
3.1 |
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3.2 |
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4.1 |
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31.1* |
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31.2* |
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32.1** |
| Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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32.2** |
| Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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101* |
| The following materials from CBTX’s Quarterly Report on Form 10‑Q for the quarter ended |
* Filed with this Quarterly Report on Form 10‑Q
** Furnished with this Quarterly Report on Form 10‑Q
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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| CBTX, INC. |
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| (Registrant) |
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Date: |
| /s/ Robert R. Franklin, Jr. |
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| Robert R. Franklin, Jr. |
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| Chairman, President and Chief Executive Officer |
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| (Principal Executive Officer) |
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Date: |
| /s/ Robert T. Pigott, Jr. |
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| Chief Financial Officer |
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| (Principal Financial and Accounting Officer) |
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