UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| |
| For the quarterly period ended |
| |
or | |
| |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| |
| For the transition period from to |
Commission File Number: 001-32590
COMMUNITY BANKERS TRUST CORPORATION
(Exact name of registrant as specified in its charter)
Virginia | 20-2652949 |
(State or other jurisdiction of | (I.R.S. Employer |
| |
9954 Mayland Drive, Suite 2100 | |
Richmond, Virginia | 23233 |
(Address of principal executive offices) | (Zip Code) |
(804) 934-9999 (Registrant’s telephone number, including area code) | |
| |
n/a (Former name, former address and former fiscal year, if changed since last report) |
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
| Trading Symbol |
| Name of each exchange on which registered: |
Common Stock, $0.01 par value | | ESXB | | The NASDAQ Stock Market, LLC |
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 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.
| | | ||
Large accelerated filer | ☐ | | Accelerated filer |
|
Non-accelerated filer | ☒ | |||
|
| Smaller reporting company | ☒ | |
| | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
At SeptemberJune 30, 2020,2021, there were 22,321,00022,451,463 shares of the Company’s common stock outstanding.
COMMUNITY BANKERS TRUST CORPORATION
TABLE OF CONTENTS
FORM 10-Q
SeptemberJune 30, 20202021
2
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
COMMUNITY BANKERS TRUST CORPORATION
UNAUDITED CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBERJUNE 30, 20202021 AND DECEMBER 31, 20192020
(dollars in thousands, except share data)
| | | | | | |
|
| June 30, 2021 |
| December 31, 2020 * | ||
ASSETS | | | | | | |
Cash and due from banks | | $ | 21,414 | | $ | 17,845 |
Interest bearing bank deposits | |
| 101,996 | |
| 45,118 |
Federal funds sold | | | 234 | | | 222 |
Total cash and cash equivalents | |
| 123,644 | |
| 63,185 |
| | | | | | |
Securities available for sale, at fair value | |
| 321,759 | |
| 271,347 |
Securities held to maturity, at cost (fair value of $20,698 and $22,257, respectively) | |
| 19,824 | |
| 21,176 |
Equity securities, restricted, at cost | |
| 8,049 | |
| 8,436 |
Total securities | |
| 349,632 | |
| 300,959 |
| | | | | | |
Loans | |
| 1,191,841 | |
| 1,182,362 |
Purchased credit impaired (PCI) loans | |
| 17,943 | |
| 24,040 |
Total loans | |
| 1,209,784 | |
| 1,206,402 |
Allowance for loan losses (loans of $11,006 and $12,340, respectively; PCI loans of $156 and $156, respectively) | |
| (11,162) | |
| (12,496) |
Net loans | |
| 1,198,622 | |
| 1,193,906 |
| | | | | | |
Bank premises and equipment, net | |
| 27,297 | |
| 27,897 |
Bank premises and equipment held for sale | |
| 1,507 | |
| 1,507 |
Right-of-use lease assets | | | 5,053 | | | 5,530 |
Other real estate owned | |
| 364 | |
| 4,361 |
Bank owned life insurance | |
| 30,363 | |
| 30,029 |
Other assets | |
| 17,731 | |
| 17,435 |
Total assets | | $ | 1,754,213 | | $ | 1,644,809 |
| | | | | | |
LIABILITIES | |
| | |
| |
Deposits: | |
| | |
| |
Noninterest bearing | | $ | 339,712 | | $ | 298,901 |
Interest bearing | |
| 1,149,116 | |
| 1,099,800 |
Total deposits | |
| 1,488,828 | |
| 1,398,701 |
| | | | | | |
Federal Home Loan Bank borrowings | |
| 67,500 | |
| 57,833 |
Trust preferred capital notes | |
| 4,124 | |
| 4,124 |
Lease liabilities | | | 5,297 | | | 5,787 |
Other liabilities | |
| 8,733 | |
| 8,710 |
Total liabilities | |
| 1,574,482 | |
| 1,475,155 |
| | | | | | |
SHAREHOLDERS’ EQUITY | |
| | |
| |
Common stock (200,000,000 shares authorized $0.01 par value; 22,451,463 and 22,220,929 shares issued and outstanding, respectively) | |
| 225 | |
| 222 |
Additional paid in capital | |
| 151,522 | |
| 149,822 |
Retained earnings | |
| 22,811 | |
| 13,419 |
Accumulated other comprehensive income | |
| 5,173 | |
| 6,191 |
Total shareholders’ equity | |
| 179,731 | |
| 169,654 |
Total liabilities and shareholders’ equity | | $ | 1,754,213 | | $ | 1,644,809 |
| | | | | | |
|
| September 30, 2020 |
| December 31, 2019 * | ||
ASSETS | | | | | | |
Cash and due from banks | | $ | 18,689 | | $ | 16,976 |
Interest bearing bank deposits | |
| 56,795 | |
| 11,708 |
Total cash and cash equivalents | |
| 75,484 | |
| 28,684 |
| | | | | | |
Securities available for sale, at fair value | |
| 233,653 | |
| 186,969 |
Securities held to maturity, at cost (fair value of $24,118 and $36,633, respectively) | |
| 23,026 | |
| 35,733 |
Equity securities, restricted, at cost | |
| 8,875 | |
| 8,855 |
Total securities | |
| 265,554 | |
| 231,557 |
| | | | | | |
Loans held for sale | |
| 1,151 | |
| 501 |
| | | | | | |
Loans | |
| 1,177,709 | |
| 1,058,323 |
Purchased credit impaired (PCI) loans | |
| 27,146 | |
| 32,528 |
Total loans | |
| 1,204,855 | |
| 1,090,851 |
Allowance for loan losses (loans of $12,328 and $8,429, respectively; PCI loans of $156 and $156, respectively) | |
| (12,484) | |
| (8,585) |
Net loans | |
| 1,192,371 | |
| 1,082,266 |
| | | | | | |
Bank premises and equipment, net | |
| 28,197 | |
| 29,472 |
Bank premises and equipment held for sale | |
| 1,589 | |
| 1,589 |
Right-of-use lease assets | | | 5,766 | | | 6,472 |
Other real estate owned | |
| 4,416 | |
| 4,527 |
Bank owned life insurance | |
| 29,858 | |
| 29,340 |
Other assets | |
| 17,851 | |
| 16,432 |
Total assets | | $ | 1,622,237 | | $ | 1,430,840 |
| | | | | | |
LIABILITIES | |
|
| |
|
|
Deposits: | |
|
| |
|
|
Noninterest bearing | | $ | 281,679 | | $ | 178,584 |
Interest bearing | |
| 1,087,663 | |
| 984,864 |
Total deposits | |
| 1,369,342 | |
| 1,163,448 |
| | | | | | |
Federal funds purchased | |
| 940 | |
| 24,437 |
Federal Home Loan Bank borrowings | |
| 68,000 | |
| 68,500 |
Trust preferred capital notes | |
| 4,124 | |
| 4,124 |
Lease liabilities | | | 6,027 | | | 6,737 |
Other liabilities | |
| 8,014 | |
| 8,115 |
Total liabilities | |
| 1,456,447 | |
| 1,275,361 |
| | | | | | |
SHAREHOLDERS’ EQUITY | |
|
| |
|
|
Common stock (200,000,000 shares authorized, $0.01 par value; 22,321,000 and 22,422,621 shares issued and outstanding, respectively) | |
| 223 | |
| 224 |
Additional paid in capital | |
| 150,708 | |
| 150,728 |
Retained earnings | |
| 9,300 | |
| 2,562 |
Accumulated other comprehensive income | |
| 5,559 | |
| 1,965 |
Total shareholders’ equity | |
| 165,790 | |
| 155,479 |
Total liabilities and shareholders’ equity | | $ | 1,622,237 | | $ | 1,430,840 |
* | Derived from audited consolidated financial statements |
See accompanying notes to unaudited consolidated financial statements
3
COMMUNITY BANKERS TRUST CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND NINESIX MONTHS ENDED SEPTEMBERJUNE 30, 20202021 AND 20192020
(dollars and shares in thousands, except per share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| Three months ended | | Nine months ended | |
| Three months ended | | Six months ended | | ||||||||||||||||
| | September 30, 2020 |
| September 30, 2019 | | September 30, 2020 |
| September 30, 2019 | | | June 30, 2021 |
| June 30, 2020 | | June 30, 2021 |
| June 30, 2020 | | ||||||||
Interest and dividend income |
| |
|
| |
| | |
|
| |
| |
| |
|
| |
| | |
|
| |
| |
Interest and fees on loans | | $ | 12,760 | | $ | 13,187 | | $ | 38,858 | | $ | 38,246 | | | $ | 13,196 | | $ | 13,012 | | $ | 26,346 | | $ | 26,098 | |
Interest and fees on PCI loans | |
| 962 | |
| 2,333 | |
| 3,121 | |
| 4,877 | | |
| 784 | |
| 1,062 | |
| 1,640 | |
| 2,159 | |
Interest on federal funds sold | |
| — | |
| 9 | |
| — | |
| 14 | | |||||||||||||
Interest on deposits in other banks | |
| 121 | |
| 87 | |
| 231 | |
| 300 | | |
| 54 | |
| 41 | |
| 114 | |
| 110 | |
Interest and dividends on securities | |
| | |
| | |
| | |
| | | |
| | |
| | |
| | |
| | |
Taxable | |
| 1,362 | |
| 1,489 | |
| 4,000 | |
| 4,483 | | |
| 1,695 | |
| 1,287 | |
| 3,162 | |
| 2,638 | |
Nontaxable | |
| 344 | |
| 355 | |
| 1,036 | |
| 1,252 | | |
| 335 | |
| 349 | |
| 662 | |
| 692 | |
Total interest and dividend income | |
| 15,549 | |
| 17,460 | |
| 47,246 | |
| 49,172 | | |
| 16,064 | |
| 15,751 | |
| 31,924 | |
| 31,697 | |
Interest expense | |
|
| |
|
| |
|
| |
|
| | |
| | |
|
| |
| | |
| | |
Interest on deposits | |
| 2,614 | |
| 3,698 | |
| 9,215 | |
| 10,521 | | |
| 1,347 | |
| 3,182 | |
| 2,912 | |
| 6,601 | |
Interest on borrowed funds | |
| 222 | |
| 343 | |
| 720 | |
| 1,107 | | |
| 220 | |
| 209 | |
| 437 | |
| 498 | |
Total interest expense | |
| 2,836 | |
| 4,041 | |
| 9,935 | |
| 11,628 | | |
| 1,567 | |
| 3,391 | |
| 3,349 | |
| 7,099 | |
Net interest income | |
| 12,713 | |
| 13,419 | |
| 37,311 | |
| 37,544 | | |
| 14,497 | |
| 12,360 | |
| 28,575 | |
| 24,598 | |
Provision for loan losses | |
| — | |
| — | |
| 4,200 | |
| 125 | | |||||||||||||
Net interest income after provision for loan losses | |
| 12,713 | |
| 13,419 | |
| 33,111 | |
| 37,419 | | |||||||||||||
Provision for (recovery of) loan losses | |
| — | |
| 900 | |
| (1,400) | |
| 4,200 | | |||||||||||||
Net interest income after provision for (recovery of) loan losses | |
| 14,497 | |
| 11,460 | |
| 29,975 | |
| 20,398 | | |||||||||||||
Noninterest income | |
|
| |
|
| |
|
| |
|
| | |
|
| |
|
| |
|
| |
| | |
Service charges and fees | |
| 613 | |
| 758 | |
| 1,817 | |
| 2,074 | | |
| 651 | |
| 532 | |
| 1,330 | |
| 1,204 | |
Gain on securities transactions, net | |
| 78 | |
| 50 | |
| 281 | |
| 274 | | |||||||||||||
Gain (loss) on securities transactions, net | |
| (28) | |
| 242 | |
| (12) | |
| 203 | | |||||||||||||
Gain on sale of other loans | |
| — | |
| — | |
| 11 | |
| — | | |
| — | |
| — | |
| — | |
| 11 | |
Income on bank owned life insurance | |
| 171 | |
| 181 | |
| 518 | |
| 546 | | |
| 168 | |
| 173 | |
| 334 | |
| 347 | |
Mortgage loan income | |
| 228 | |
| 176 | |
| 822 | |
| 338 | | |
| 235 | |
| 373 | |
| 555 | |
| 594 | |
Other | |
| 382 | |
| 346 | |
| 974 | |
| 744 | | |
| 435 | |
| 296 | |
| 882 | |
| 592 | |
Total noninterest income | |
| 1,472 | |
| 1,511 | |
| 4,423 | |
| 3,976 | | |
| 1,461 | |
| 1,616 | |
| 3,089 | |
| 2,951 | |
Noninterest expense | |
|
| |
|
| |
|
| |
|
| | |
|
| |
|
| |
|
| |
| | |
Salaries and employee benefits | |
| 5,041 | |
| 5,289 | |
| 14,806 | |
| 15,943 | | |
| 5,352 | |
| 4,613 | |
| 10,560 | |
| 9,765 | |
Occupancy expenses | |
| 815 | |
| 813 | |
| 2,420 | |
| 2,662 | | |
| 761 | |
| 778 | |
| 1,597 | |
| 1,605 | |
Equipment expenses | |
| 330 | |
| 377 | |
| 1,047 | |
| 1,152 | | |
| 317 | |
| 345 | |
| 605 | |
| 717 | |
FDIC assessment | |
| 174 | |
| 4 | |
| 455 | |
| 316 | | |
| 108 | |
| 156 | |
| 320 | |
| 281 | |
Data processing fees | |
| 656 | |
| 594 | |
| 1,821 | |
| 1,741 | | |
| 741 | |
| 573 | |
| 1,349 | |
| 1,165 | |
Other real estate expense, net | |
| 87 | |
| 565 | |
| 89 | |
| 662 | | |
| (431) | |
| (4) | |
| (420) | |
| 2 | |
Other operating expenses | |
| 1,423 | |
| 1,588 | |
| 4,355 | |
| 4,585 | | |
| 2,344 | |
| 1,412 | |
| 3,936 | |
| 2,932 | |
Total noninterest expense | |
| 8,526 | |
| 9,230 | |
| 24,993 | |
| 27,061 | | |
| 9,192 | |
| 7,873 | |
| 17,947 | |
| 16,467 | |
Income before income taxes | |
| 5,659 | |
| 5,700 | |
| 12,541 | |
| 14,334 | | |
| 6,766 | |
| 5,203 | |
| 15,117 | |
| 6,882 | |
Income tax expense | |
| 1,143 | |
| 1,087 | |
| 2,450 | |
| 2,674 | | |
| 1,340 | |
| 1,043 | |
| 3,048 | |
| 1,307 | |
Net income | | $ | 4,516 | | $ | 4,613 | | $ | 10,091 | | $ | 11,660 | | | $ | 5,426 | | $ | 4,160 | | $ | 12,069 | | $ | 5,575 | |
Net income per share — basic | | $ | 0.20 | | $ | 0.21 | | $ | 0.45 | | $ | 0.52 | | | $ | 0.24 | | $ | 0.19 | | $ | 0.54 | | $ | 0.25 | |
Net income per share — diluted | | $ | 0.20 | | $ | 0.20 | | $ | 0.45 | | $ | 0.52 | | | $ | 0.24 | | $ | 0.18 | | $ | 0.53 | | $ | 0.25 | |
Weighted average number of shares outstanding | |
|
| |
|
| |
|
| |
|
| | |
|
| |
|
| |
|
| |
| | |
Basic | |
| 22,312 | |
| 22,303 | |
| 22,339 | |
| 22,224 | | |
| 22,341 | |
| 22,304 | |
| 22,272 | |
| 22,352 | |
Diluted | |
| 22,503 | |
| 22,561 | |
| 22,534 | |
| 22,475 | | | | 22,733 | | | 22,508 | | | 22,574 | | | 22,550 | |
See accompanying notes to unaudited consolidated financial statements
4
COMMUNITY BANKERS TRUST CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE THREE AND NINESIX MONTHS ENDED SEPTEMBERJUNE 30, 20202021 AND 20192020
(dollars in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | Nine months ended | | | Three months ended | | Six months ended | | ||||||||||||||||
|
| September 30, 2020 |
| September 30, 2019 |
| September 30, 2020 |
| September 30, 2019 | |
| June 30, 2021 |
| June 30, 2020 |
| June 30, 2021 |
| June 30, 2020 | | ||||||||
Net income | | $ | 4,516 | | $ | 4,613 | | $ | 10,091 | | $ | 11,660 | | | $ | 5,426 | | $ | 4,160 | | $ | 12,069 | | $ | 5,575 | |
| | | | | | | | | | | | | | |||||||||||||
Other comprehensive income: | | | | | | | | | | | | | | |||||||||||||
Unrealized gain on investment securities: | | | | | | | | | | | | | | |||||||||||||
Change in unrealized gain on investment securities | |
| 1,735 | |
| 1,215 | |
| 5,527 | |
| 5,818 | | |||||||||||||
Tax related to unrealized gain on investment securities | |
| (382) | |
| (267) | |
| (1,215) | |
| (1,279) | | |||||||||||||
Reclassification adjustment for gain on securities sold | |
| (78) | |
| (50) | |
| (281) | |
| (274) | | |||||||||||||
Tax related to realized gain on securities sold | |
| 17 | |
| 11 | |
| 62 | |
| 60 | | |||||||||||||
Other comprehensive (loss) income : | | | | | | | | | | | | | | |||||||||||||
Unrealized gain (loss) on investment securities: | | | | | | | | | | | | | | |||||||||||||
Change in unrealized gain (loss) on investment securities | |
| 2,113 | |
| 3,010 | |
| (1,522) | |
| 3,792 | | |||||||||||||
Tax related to unrealized (gain) loss on investment securities | |
| (465) | |
| (661) | |
| 334 | |
| (833) | | |||||||||||||
Reclassification adjustment for loss (gain) on securities sold | |
| 28 | |
| (242) | |
| 12 | |
| (203) | | |||||||||||||
Tax related to realized (loss) gain on securities sold | |
| (7) | |
| 54 | |
| (3) | |
| 45 | | |||||||||||||
Cash flow hedge: | | | | | | | | | | | | | | | | | | | | | | | | | | |
Change in unrealized gain (loss) on cash flow hedge | |
| 47 | |
| (156) | |
| (639) | |
| (395) | | |
| 25 | |
| (129) | |
| 207 | |
| (686) | |
Tax related to cash flow hedge | |
| (10) | |
| 34 | |
| 140 | |
| 86 | | |
| (7) | |
| 28 | |
| (46) | |
| 150 | |
Total other comprehensive income | |
| 1,329 | |
| 787 | |
| 3,594 | |
| 4,016 | | |||||||||||||
Total other comprehensive income (loss) | |
| 1,687 | |
| 2,060 | |
| (1,018) | |
| 2,265 | | |||||||||||||
Total comprehensive income | | $ | 5,845 | | $ | 5,400 | | $ | 13,685 | | $ | 15,676 | | | $ | 7,113 | | $ | 6,220 | | $ | 11,051 | | $ | 7,840 | |
See accompanying notes to unaudited consolidated financial statements
5
COMMUNITY BANKERS TRUST CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE THREE AND NINESIX MONTHS ENDED SEPTEMBERJUNE 30, 20202021 AND 20192020
(dollars and shares in thousands, except per share amounts)
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | Accumulated | | | | |
| | | | | | | Additional | | Retained | | Other | | | | |||
| | Common Stock | | Paid in | | Earnings | | Comprehensive | | | | ||||||
|
| Shares |
| Amount |
| Capital |
| (Deficit) |
| Income (Loss) |
| Total | |||||
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Balance June 30, 2019 |
| 22,258 | | $ | 223 | | $ | 149,752 | | $ | (4,529) | | $ | 1,950 | | $ | 147,396 |
Issuance of common stock |
| 7 | |
| — | |
| 54 | |
| — | |
| — | |
| 54 |
Exercise and issuance of employee stock options |
| 70 | |
| — | |
| 458 | |
| — | |
| — | |
| 458 |
Net income |
| — | |
| — | |
| — | |
| 4,613 | |
| — | |
| 4,613 |
Dividends of $0.03 per share paid on common stock |
| — | |
| — | |
| — | |
| (670) | |
| — | |
| (670) |
Other comprehensive income |
| — | | | — | | | — | | | — | | | 787 | | | 787 |
Balance September 30, 2019 |
| 22,335 | | $ | 223 | | $ | 150,264 | | $ | (586) | | $ | 2,737 | | $ | 152,638 |
| | | | | | | | | | | | | | | | | |
Balance December 31, 2018 | | 22,132 | | $ | 221 | | $ | 148,763 | | $ | (10,244) | | $ | (1,279) | | $ | 137,461 |
Issuance of common stock |
| 21 | |
| — | |
| 161 | |
| — | |
| — | |
| 161 |
Exercise and issuance of employee stock options |
| 182 | |
| 2 | |
| 1,340 | |
| — | |
| — | |
| 1,342 |
Net income |
| — | |
| — | |
| — | |
| 11,660 | |
| — | |
| 11,660 |
Dividends of $0.09 per share paid on common stock | | — | |
| — | |
| — | |
| (2,002) | |
| — | |
| (2,002) |
Other comprehensive income |
| — | |
| — | |
| — | |
| — | |
| 4,016 | |
| 4,016 |
Balance September 30, 2019 |
| 22,335 | | $ | 223 | | $ | 150,264 | | $ | (586) | | $ | 2,737 | | $ | 152,638 |
| | | | | | | | | | | | | | | | | |
Balance June 30, 2020 |
| 22,311 | | $ | 223 | | $ | 150,428 | | $ | 5,900 | | $ | 4,230 | | $ | 160,781 |
Issuance of common stock |
| 10 | |
| — | |
| 49 | |
| — | |
| — | |
| 49 |
Exercise and issuance of employee stock options |
| — | |
| — | |
| 231 | |
| — | |
| — | |
| 231 |
Net income |
| — | |
| — | |
| — | |
| 4,516 | |
| — | |
| 4,516 |
Dividends of $0.05 per share paid on common stock |
| — | |
| — | |
| — | |
| (1,116) | |
| — | |
| (1,116) |
Other comprehensive income |
| — | | | — | | | — | | | — | | | 1,329 | | | 1,329 |
Balance September 30, 2020 |
| 22,321 | | $ | 223 | | $ | 150,708 | | $ | 9,300 | | $ | 5,559 | | $ | 165,790 |
| | | | | | | | | | | | | | | | | |
Balance December 31, 2019 | | 22,423 | | $ | 224 | | $ | 150,728 | | $ | 2,562 | | $ | 1,965 | | $ | 155,479 |
Issuance of common stock |
| 25 | |
| — | |
| 152 | |
| — | |
| — | |
| 152 |
Exercise and issuance of employee stock options |
| 4 | |
| — | |
| 705 | |
| — | |
| — | |
| 705 |
Stock purchased under stock repurchase program | | (131) | | | (1) | | | (877) | | | — | | | | | | (878) |
Net income |
| — | |
| — | |
| — | |
| 10,091 | |
| — | |
| 10,091 |
Dividends of $0.15 per share paid on common stock | | — | |
| — | |
| — | |
| (3,353) | |
| — | |
| (3,353) |
Other comprehensive income |
| — | |
| — | |
| — | |
| — | |
| 3,594 | |
| 3,594 |
Balance September 30, 2020 |
| 22,321 | | $ | 223 | | $ | 150,708 | | $ | 9,300 | | $ | 5,559 | | $ | 165,790 |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | Accumulated | | | | |
| | | | | | | Additional | | | | Other | | | | |||
| | Common Stock | | Paid in | | Retained | | Comprehensive | | | | ||||||
|
| Shares |
| Amount |
| Capital |
| Earnings |
| Income |
| Total | |||||
Balance March 31, 2020 |
| 22,317 | | $ | 223 | | $ | 150,219 | | $ | 2,856 | | $ | 2,170 | | $ | 155,468 |
Issuance of common stock |
| 9 | | | — | | | 49 | | | — | | | — | | | 49 |
Exercise and issuance of employee stock options |
| — | | | — | | | 232 | | | — | | | — | | | 232 |
Stock purchased under stock repurchase program | | (15) | | | — | | | (72) | | | — | | | | | | (72) |
Net income |
| — | | | — | | | — | | | 4,160 | | | — | | | 4,160 |
Dividends of $0.05 per share paid on common stock |
| — | | | — | | | — | | | (1,116) | | | — | | | (1,116) |
Other comprehensive income |
| — | | | — | | | — | | | — | | | 2,060 | | | 2,060 |
Balance June 30, 2020 |
| 22,311 | | $ | 223 | | $ | 150,428 | | $ | 5,900 | | $ | 4,230 | | $ | 160,781 |
| | | | | | | | | | | | | | | | | |
Balance December 31, 2019 | | 22,423 | | $ | 224 | | $ | 150,728 | | $ | 2,562 | | $ | 1,965 | | $ | 155,479 |
Issuance of common stock |
| 15 | | | — | | | 103 | | | — | | | — | | | 103 |
Exercise and issuance of employee stock options |
| 4 | | | — | | | 474 | | | — | | | — | | | 474 |
Stock purchased under stock repurchase program | | (131) | | | (1) | | | (877) | | | — | | | | | | (878) |
Net income |
| — | | | — | | | — | | | 5,575 | | | — | | | 5,575 |
Dividends of $0.10 per share paid on common stock | | — | | | — | | | — | | | (2,237) | | | — | | | (2,237) |
Other comprehensive income |
| — | | | — | | | — | | | — | | | 2,265 | | | 2,265 |
Balance June 30, 2020 |
| 22,311 | | $ | 223 | | $ | 150,428 | | $ | 5,900 | | $ | 4,230 | | $ | 160,781 |
| | | | | | | | | | | | | | | | | |
Balance March 31, 2021 |
| 22,220 | | $ | 222 | | $ | 150,039 | | $ | 18,729 | | $ | 3,486 | | $ | 172,476 |
Issuance of common stock |
| 6 | | | 1 | | | 49 | | | — | | | — | |
| 50 |
Exercise and issuance of employee stock options |
| 226 | | | 2 | | | 1,434 | | | — | | | — | |
| 1,436 |
Net income |
| — | | | — | | | — | | | 5,426 | | | — | |
| 5,426 |
Dividends of $0.06 per share paid on common stock |
| — | | | — | | | — | | | (1,344) | | | — | |
| (1,344) |
Other comprehensive income |
| — | | | — | | | — | | | — | | | 1,687 | |
| 1,687 |
Balance June 30, 2021 |
| 22,452 | | $ | 225 | | $ | 151,522 | | $ | 22,811 | | $ | 5,173 | | $ | 179,731 |
| | | | | | | | | | | | | | | | | |
Balance December 31, 2020 | | 22,201 | | $ | 222 | | $ | 149,822 | | $ | 13,419 | | $ | 6,191 | | $ | 169,654 |
Issuance of common stock |
| 13 | |
| 1 | |
| 103 | |
| — | |
| — | |
| 104 |
Exercise and issuance of employee stock options |
| 259 | |
| 2 | |
| 1,743 | |
| — | |
| — | |
| 1,745 |
Stock purchased under stock repurchase program | | (21) | | | — | | | (146) | | | — | | | | | | (146) |
Net income |
| — | |
| — | |
| — | |
| 12,069 | |
| — | |
| 12,069 |
Dividends paid of $0.12 per share on common stock | | — | |
| — | |
| — | |
| (2,677) | |
| — | |
| (2,677) |
Other comprehensive loss |
| — | |
| — | |
| — | |
| — | |
| (1,018) | |
| (1,018) |
Balance June 30, 2021 |
| 22,452 | | $ | 225 | | $ | 151,522 | | $ | 22,811 | | $ | 5,173 | | $ | 179,731 |
See accompanying notes to unaudited consolidated financial statements
6
COMMUNITY BANKERS TRUST CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINESIX MONTHS ENDED SEPTEMBERJUNE 30, 20202021 AND 20192020
(dollars in thousands)
| | | | | | | |
|
| September 30, 2020 |
| September 30, 2019 | | ||
Operating activities: | | | | | | | |
Net income | | $ | 10,091 | | $ | 11,660 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | |
Depreciation | |
| 1,379 | |
| 1,552 | |
Right-of-use lease asset amortization | | | 706 | | | 699 | |
Stock-based compensation expense | |
| 846 | |
| 804 | |
Tax benefit of exercised stock options | |
| (6) | |
| (150) | |
Amortization of purchased loan premium | |
| 229 | |
| 236 | |
Provision for loan losses | |
| 4,200 | |
| 125 | |
Amortization of security premiums and accretion of discounts, net | |
| 574 | |
| 905 | |
Net gain on sale of securities | |
| (281) | |
| (274) | |
Net gain on sale and valuation of other real estate owned | |
| (23) | |
| (81) | |
Net gain on sale of loans | |
| (11) | |
| — | |
Originations of mortgages held for sale | |
| (26,112) | |
| (13,227) | |
Proceeds from sales of mortgages held for sale | |
| 25,462 | |
| 13,373 | |
Net loss on disposal of premises and equipment | | | 82 | | | — | |
Increase in bank owned life insurance investment | |
| (518) | |
| (327) | |
Changes in assets and liabilities: | |
| | |
| | |
Increase in other assets | |
| (2,086) | |
| (661) | |
Decrease in accrued expenses and other liabilities | |
| (1,446) | |
| (117) | |
Net cash provided by operating activities | |
| 13,086 | |
| 14,517 | |
| | | | | | | |
Investing activities: | |
|
| |
|
| |
Proceeds from sales/calls/maturities/paydowns of available for sale securities | |
| 66,171 | |
| 75,128 | |
Proceeds from calls/maturities/paydowns of held to maturity securities | |
| 12,640 | |
| 3,835 | |
Proceeds from sales of restricted equity securities | |
| 1,700 | |
| 866 | |
Purchase of available for sale securities | |
| (107,834) | |
| (53,589) | |
Purchase of restricted equity securities | |
| (1,720) | |
| (1,995) | |
Proceeds from sale of other real estate owned | |
| 134 | |
| 638 | |
Net increase in loans | |
| (115,608) | |
| (42,707) | |
Principal recoveries of loans previously charged off | |
| 453 | |
| 363 | |
Purchase of premises and equipment, net | |
| (186) | |
| (121) | |
Purchase small business investment company fund investment | |
| (345) | |
| (875) | |
Proceeds from sale of loans | |
| 632 | |
| 705 | |
Net cash used in investing activities | |
| (143,963) | |
| (17,752) | |
| | | | | | | |
Financing activities: | |
|
| |
|
| |
Net increase in deposits | |
| 205,894 | |
| 12,267 | |
Net decrease in federal funds purchased | |
| (23,497) | |
| (19,369) | |
Net increase in short-term Federal Home Loan Bank borrowings | |
| — | |
| 5,000 | |
Proceeds from long-term Federal Home Loan Bank borrowings | |
| 40,000 | |
| 10,137 | |
Payments on long-term Federal Home Loan Bank borrowings | |
| (40,500) | |
| (917) | |
Proceeds from issuance of common stock | |
| 11 | |
| 698 | |
Cash dividends paid | | | (3,353) | | | (2,002) | |
Repurchase of common stock | |
| (878) | |
| — | |
Net cash provided by financing activities | |
| 177,677 | |
| 5,814 | |
| | | | | | | |
Net increase in cash and cash equivalents | |
| 46,800 | |
| 2,579 | |
| | | | | | | |
Cash and cash equivalents: | |
|
| |
|
| |
Beginning of the period | |
| 28,684 | |
| 34,219 | |
End of the period | | $ | 75,484 | | $ | 36,798 | |
| | | | | | | |
Supplemental disclosures of cash flow information: | |
|
| |
|
| |
Interest paid | | $ | 10,312 | | $ | 11,554 | |
Income taxes paid | |
| 3,306 | |
| 2,195 | |
Transfers of loans to other real estate owned | |
| — | |
| 4,198 | |
Right-of-use lease assets in exchange for lease liability | | | — | | | 7,408 | |
Transfers of building premises and equipment to held for sale | |
| — | |
| 337 | |
| | | | | | | |
|
| June 30, 2021 |
| June 30, 2020 | | ||
Operating activities: | | | | | | | |
Net income | | $ | 12,069 | | $ | 5,575 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | |
Depreciation and intangibles amortization | |
| 839 | |
| 939 | |
Right-of-use lease asset amortization | | | 477 | | | 473 | |
Stock-based compensation expense | |
| 644 | |
| 566 | |
Tax benefit of exercised stock options | |
| (229) | |
| (6) | |
Amortization of purchased loan premium | |
| 57 | |
| 194 | |
(Recovery of) provision for loan losses | |
| (1,400) | |
| 4,200 | |
Amortization of security premiums and accretion of discounts, net | |
| 313 | |
| 413 | |
Net loss (gain) on sale of securities | |
| 12 | |
| (203) | |
Net gain on sale and valuation of other real estate owned | |
| (439) | |
| (6) | |
Net loss on disposal of premises and equipment | | | 5 | | | — | |
Net gain on sale of loans | |
| — | |
| (11) | |
Originations of mortgages held for sale | |
| — | |
| (23,625) | |
Proceeds from sales of mortgages held for sale | |
| — | |
| 23,730 | |
Increase in bank owned life insurance investment | | | (334) | | | (347) | |
Changes in assets and liabilities: | |
| | |
| | |
Increase in other assets | |
| (62) | |
| (334) | |
Increase (decrease) in accrued expenses and other liabilities | |
| 20 | |
| (518) | |
Net cash provided by operating activities | |
| 11,972 | |
| 11,040 | |
| | | | | | | |
Investing activities: | |
|
| |
|
| |
Proceeds from sales/calls/maturities/paydowns of available for sale securities | |
| 38,650 | |
| 34,653 | |
Proceeds from calls/maturities/paydowns of held to maturity securities | |
| 1,335 | |
| 11,520 | |
Proceeds from sales of restricted equity securities | |
| 805 | |
| 1,700 | |
Purchase of available for sale securities | |
| (90,880) | |
| (71,128) | |
Purchase of restricted equity securities | |
| (418) | |
| (1,720) | |
Proceeds from sale of other real estate owned | |
| 4,436 | |
| 47 | |
Net increase in loans | |
| (3,742) | |
| (105,493) | |
Principal recoveries of loans previously charged off | |
| 369 | |
| 321 | |
Purchase of premises and equipment, net | |
| (308) | |
| (180) | |
Purchase small business investment company fund investment | |
| — | |
| (345) | |
Proceeds from sale of premises and equipment | |
| 64 | |
| — | |
Proceeds from sale of loans | |
| — | |
| 632 | |
Net cash used in investing activities | |
| (49,689) | |
| (129,993) | |
| | | | | | | |
Financing activities: | |
|
| |
|
| |
Net increase in deposits | |
| 90,127 | |
| 200,201 | |
Net decrease in federal funds purchased | |
| — | |
| (21,169) | |
Net increase in short-term Federal Home Loan Bank borrowings | |
| 10,000 | |
| — | |
Proceeds from long-term Federal Home Loan Bank borrowings | |
| — | |
| 40,000 | |
Payments on long-term Federal Home Loan Bank borrowings | |
| (333) | |
| (40,333) | |
Proceeds from issuance of common stock | |
| 1,205 | |
| 11 | |
Cash dividends paid | | | (2,677) | | | (2,237) | |
Repurchase of common stock | |
| (146) | |
| (878) | |
Net cash provided by financing activities | |
| 98,176 | |
| 175,595 | |
| | | | | | | |
Net increase in cash and cash equivalents | |
| 60,459 | |
| 56,642 | |
| | | | | | | |
Cash and cash equivalents: | |
|
| |
|
| |
Beginning of the period | |
| 63,185 | |
| 28,684 | |
End of the period | | $ | 123,644 | | $ | 85,326 | |
| | | | | | | |
Supplemental disclosures of cash flow information: | |
|
| |
|
| |
Interest paid | | $ | 3,681 | | $ | 7,284 | |
Income taxes paid | |
| 2,764 | |
| — | |
| | | | | | | |
See accompanying notes to unaudited consolidated financial statements
7
COMMUNITY BANKERS TRUST CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Nature of Banking Activities and Significant Accounting Policies
Organization
Community Bankers Trust Corporation (the “Company”) is headquartered in Richmond, Virginia and is the holding company for Essex Bank (the “Bank”), a Virginia state bank with 24 full-service offices, 18 of which are in Virginia and 6 of which are in Maryland. The Bank also operates 2 loan production offices.
The Bank engages in a general commercial banking business and provides a wide range of financial services primarily to individuals, small businesses and larger commercial companies, including individual and commercial demand and time deposit accounts, commercial and industrial loans, consumer and small business loans, real estate and mortgage loans, investment services, on-line and mobile banking products, and cash management services.
Financial Statements
The consolidated statements presented include accounts of the Company and the Bank, its wholly-owned subsidiary. All material intercompany balances and transactions have been eliminated. The statements should be read in conjunction with the Company’s consolidated financial statements and the accompanying notes to consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.2020. The accounting and reporting policies of the Company conform to U.S. generally accepted accounting principles (GAAP) and to the general practices within the banking industry. The interim financial statements have not been audited; however, in the opinion of management, all adjustments, consisting of normal accruals, were made that are necessary to present fairly the balance sheet of the Company as of SeptemberJune 30, 2020,2021, the statements of income, and comprehensive income and changes in shareholders’ equity for the three and ninesix months ended SeptemberJune 30, 2020,2021, and the statements of cash flows for the ninesix months ended SeptemberJune 30, 2020.2021. Results for the ninethree and six month periodperiods ended SeptemberJune 30, 20202021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.2021.
The financial information contained within the statements is, to a significant extent, financial information that is based on measures of the financial effects of transactions and events that have already occurred. A variety of factors could affect the ultimate value that is obtained when either earning income, recognizing an expense, recovering an asset or relieving a liability. The Company uses historical loss factors as one factor in determining the inherent loss that may be present in its loan portfolio. Actual losses could differ significantly from the historical factors that the Company uses. In addition, GAAP itself may change from one previously acceptable method to another method. Although the economics of the Company’s transactions would be the same, the timing of events that would impact its transactions could change.
In preparing these financial statements, the Company has evaluated subsequent events and transactions for potential recognition or disclosure through the date the financial statements were issued.
Recent Accounting Developments
In October 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Codification (ASC) 2020-08, Codification Improvements to Subtopic 310-20, Receivables – Nonrefundable fees and Other Costs. This ASU clarifies that an entity should reevaluate whether a callable debt security is within the scope of ASC paragraph 310-20-35-33 for each reporting period. For public business entities, the ASU is effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. Early adoption is not permitted. All entities should apply ASU 2020-08 on a prospective basis as of the beginning of the period of adoption for existing or newly purchased callable debt securities. The Company does not expect the adoption of ASU 2020-08 to have a material impact on its consolidated financial statements.
8
In March 2020, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which provides relief from certain requirements under GAAP. Section 4013 of the CARES Act gives entities temporary relief from the accounting and disclosure requirements for troubled debt restructurings (TDRs) under FASB ASC 310-40, Receivables – Troubled Debt Restructurings by Creditors, in certain situations. Under FASB ASC 310-40, a restructuring of debt constitutes a TDR if the creditor, for economic or legal reasons related to the debtor’s financial difficulties, grants a concession to the debtor that it would not otherwise consider. Section 4013 of the CARES Act permits the suspension of FASB ASC 310-40 for loan modifications that are made by financial institutions in response to the coronavirus (COVID-19) pandemic if (1) the borrower was not more than 30 days past due as of December 31, 2019, and (2) the modifications are related to arrangements that defer or delay the payment of principal or interest, or change the interest rate on the loan. These modifications must be made between March 1, 2020 and the earlier of December 31, 2020 or the date that is 60 days after the date on which the national emergency concerning COVID–19 declared by the President on March 13, 2020 under the National Emergencies Act (50 U.S.C. 1601 et seq.) terminates (the “applicable period”).
In April 2020, various regulatory agencies, including the Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Corporation (the “agencies”), issued an interagency statement on loan modifications and reporting for financial institutions working with customers affected by COVID-19. The agencies noted that there are circumstances in which a loan modification may not be eligible for non-TDR treatment under Section 4013 of the CARES Act or in which an institution elects not to apply Section 4013. For example, a loan that is modified after the end of the applicable period would not be eligible under Section 4013. For such loans, the agencies confirmed with the staff of the FASB that short-term modifications made on a good faith basis in response to the impact of COVID-19 to borrowers who were current prior to any relief are not to be considered TDRs. This includes short-term (e.g., six months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant. Borrowers considered current are those that are less than 30 days past due on their contractual payments at the time a modification program is implemented. The interagency statement was effective immediately.
The CARES Act and interagency statement are expected to have a material impact on the Company’s financial statements; however, due to the uncertainties regarding the economic effects of COVID-19, this impact cannot be quantified at this time.
Note 2. Securities
Amortized costs and fair values of securities available for sale and held to maturity at September 30, 2020 and December 31, 2019 were as follows (dollars in thousands):
| | | | | | | | | | | | |
| | September 30, 2020 | ||||||||||
| | | | | Gross Unrealized | |
| | ||||
|
| Amortized Cost |
| Gains |
| Losses |
| Fair Value | ||||
Securities Available for Sale |
| |
|
| |
|
| |
|
| |
|
U.S. Treasury securities | | $ | 12,500 | | $ | — | | $ | — | | $ | 12,500 |
U.S. Government agencies | | | 19,942 | | | 83 | | | (280) | | | 19,745 |
State, county and municipal | |
| 109,976 | |
| 6,608 | |
| (50) | |
| 116,534 |
Mortgage backed securities | |
| 28,086 | |
| 1,865 | |
| — | |
| 29,951 |
Asset backed securities | |
| 28,748 | |
| 373 | |
| (135) | |
| 28,986 |
Corporate bonds | |
| 25,454 | |
| 496 | |
| (13) | |
| 25,937 |
Total Securities Available for Sale | | $ | 224,706 | | $ | 9,425 | | $ | (478) | | $ | 233,653 |
| | | | | | | | | | | | |
Securities Held to Maturity | |
|
| |
|
| |
|
| |
|
|
State, county and municipal | | $ | 23,026 | | $ | 1,092 | | $ | — | | $ | 24,118 |
Total Securities Held to Maturity | | $ | 23,026 | | $ | 1,092 | | $ | — | | $ | 24,118 |
9
| | | | | | | | | | | | |
| | December 31, 2019 | ||||||||||
| | | | | Gross Unrealized | | | | ||||
|
| Amortized Cost |
| Gains |
| Losses |
| Fair Value | ||||
Securities Available for Sale | | | | | | | | | | | | |
U.S. Government agencies | | $ | 22,104 | | $ | 51 | | $ | (219) | | $ | 21,936 |
State, county and municipal | |
| 95,467 | |
| 3,167 | |
| (42) | |
| 98,592 |
Mortgage backed securities | |
| 48,045 | |
| 808 | |
| (113) | |
| 48,740 |
Asset backed securities | |
| 11,637 | |
| 49 | |
| (82) | |
| 11,604 |
Corporate bonds | |
| 6,016 | |
| 84 | |
| (3) | |
| 6,097 |
Total Securities Available for Sale | | $ | 183,269 | | $ | 4,159 | | $ | (459) | | $ | 186,969 |
| | | | | | | | | | | | |
Securities Held to Maturity | |
|
| |
|
| |
|
| |
|
|
U.S. Government agencies | | $ | 10,000 | | $ | — | | $ | (12) | | $ | 9,988 |
State, county and municipal | |
| 25,733 | |
| 913 | |
| (1) | |
| 26,645 |
Total Securities Held to Maturity | | $ | 35,733 | | $ | 913 | | $ | (13) | | $ | 36,633 |
The amortized cost and fair value of securities at September 30, 2020 by final contractual maturity are shown below. Expected maturities may differ from final contractual maturities because issuers may have the right to call or prepay obligations without any penalties.
| | | | | | �� | | | | | | |
| | Held to Maturity | | Available for Sale | ||||||||
(dollars in thousands) |
| Amortized Cost |
| Fair Value |
| Amortized Cost |
| Fair Value | ||||
Due in one year or less | | $ | 2,941 | | $ | 2,960 | | $ | 31,603 | | $ | 31,763 |
Due after one year through five years | |
| 14,630 | |
| 15,403 | |
| 80,130 | |
| 82,863 |
Due after five years through ten years | |
| 5,204 | |
| 5,467 | |
| 88,038 | |
| 93,204 |
Due after ten years | |
| 251 | |
| 288 | |
| 24,935 | |
| 25,823 |
Total securities | | $ | 23,026 | | $ | 24,118 | | $ | 224,706 | | $ | 233,653 |
Proceeds from sales and calls of securities were $4.6 million and $16.4 million during the three months ended September 30, 2020 and 2019, respectively, and $25.2 million and $57.5 million for the nine months ended September 30, 2020 and 2019, respectively. Gains and losses on securities transactions are determined using the specific identification method. Gross realized gains and losses on securities transactions during the three and nine months ended September 30, 2020 and 2019 were as follows (dollars in thousands):
| | | | | | | | | | | | |
|
| Three months ended | | Nine months ended | ||||||||
|
| September 30, 2020 |
| September 30, 2019 |
| September 30, 2020 |
| September 30, 2019 | ||||
Gross realized gains | | $ | 79 | | $ | 87 | | $ | 375 | | $ | 504 |
Gross realized losses | |
| (1) | |
| (37) | |
| (94) | |
| (230) |
Net securities gain | | $ | 78 | | $ | 50 | | $ | 281 | | $ | 274 |
In estimating other than temporary impairment (OTTI) losses, management considers the length of time and the extent to which the fair value has been less than cost, the financial condition and short-term prospects for the issuer, and the intent and ability of management to hold its investment for a period of time to allow a recovery in fair value. There were 0 investments held that had OTTI losses for the three and nine months ended September 30, 2020 and 2019.
10
Note 2. Securities
Amortized costs and fair values of securities available for sale and held to maturity at June 30, 2021 and December 31, 2020 were as follows (dollars in thousands):
| | | | | | | | | | | | |
| | June 30, 2021 | ||||||||||
| | | | | Gross Unrealized | |
| | ||||
|
| Amortized Cost |
| Gains |
| Losses |
| Fair Value | ||||
Securities Available for Sale |
| |
|
| |
|
| |
|
| |
|
U.S. Treasury securities | | $ | 10,166 | | $ | 64 | | $ | (1) | | $ | 10,229 |
U.S. Government agencies | | | 47,757 | | | 301 | | | (298) | | | 47,760 |
State, county and municipal | |
| 145,483 | |
| 6,185 | |
| (359) | |
| 151,309 |
Mortgage backed securities | |
| 36,888 | |
| 1,270 | |
| (134) | |
| 38,024 |
Asset backed securities | |
| 46,882 | |
| 934 | |
| (49) | |
| 47,767 |
Corporate bonds | |
| 26,150 | |
| 557 | |
| (37) | |
| 26,670 |
Total Securities Available for Sale | | $ | 313,326 | | $ | 9,311 | | $ | (878) | | $ | 321,759 |
| | | | | | | | | | | | |
Securities Held to Maturity | |
|
| |
|
| |
|
| |
|
|
State, county and municipal | | $ | 19,824 | |
| 874 | |
| — | |
| 20,698 |
Total Securities Held to Maturity | | $ | 19,824 | | $ | 874 | | $ | — | | $ | 20,698 |
| | | | | | | | | | | | |
| | December 31, 2020 | ||||||||||
| | | | | Gross Unrealized | | | | ||||
|
| Amortized Cost |
| Gains |
| Losses |
| Fair Value | ||||
Securities Available for Sale | | | | | | | | | | | | |
U.S. Treasury securities | | $ | 23,500 | | $ | — | | $ | (1) | | $ | 23,499 |
U.S. Government agencies | | | 25,880 | | | 114 | | | (141) | | | 25,853 |
State, county and municipal | |
| 118,612 | | | 7,172 | | | (64) | | | 125,720 |
Mortgage backed securities | |
| 30,434 | | | 1,756 | | | (1) | | | 32,189 |
Asset backed securities | |
| 36,841 | | | 704 | | | (57) | | | 37,488 |
Corporate bonds | |
| 26,136 | | | 480 | | | (18) | | | 26,598 |
Total Securities Available for Sale | | $ | 261,403 | | $ | 10,226 | | $ | (282) | | $ | 271,347 |
| | | | | | | | | | | | |
Securities Held to Maturity | |
|
| | |
| | |
| | |
|
State, county and municipal | | $ | 21,176 | | $ | 1,081 | | $ | — | | $ | 22,257 |
Total Securities Held to Maturity | | $ | 21,176 | | $ | 1,081 | | $ | — | | $ | 22,257 |
The amortized cost and fair value of securities at June 30, 2021 by final contractual maturity are shown below. Expected maturities may differ from final contractual maturities because issuers may have the right to call or prepay obligations without any penalties.
| | | | | | | | | | | | |
| | Held to Maturity | | Available for Sale | ||||||||
(dollars in thousands) |
| Amortized Cost |
| Fair Value |
| Amortized Cost |
| Fair Value | ||||
Due in one year or less | | $ | 4,491 | | $ | 4,544 | | $ | 16,781 | | $ | 16,937 |
Due after one year through five years | |
| 10,964 | |
| 11,561 | |
| 115,155 | |
| 118,443 |
Due after five years through ten years | |
| 4,117 | |
| 4,308 | |
| 141,982 | |
| 146,141 |
Due after ten years | |
| 252 | |
| 285 | |
| 39,408 | |
| 40,238 |
Total securities | | $ | 19,824 | | $ | 20,698 | | $ | 313,326 | | $ | 321,759 |
9
Proceeds from sales and calls of securities were $3.6 million and $14.4 million during the three months ended June 30, 2021 and 2020, respectively, and $7.4 million and $20.6 million for the six months ended June 30, 2021 and 2020, respectively. Gains and losses on securities transactions are determined using the specific identification method. Gross realized gains and losses on securities transactions during the three and six months ended June 30, 2021 and 2020 were as follows (dollars in thousands):
| | | | | | | | | | | | | |
|
| June 30, 2021 |
| June 30, 2020 |
| June 30, 2021 |
| June 30, 2020 | | ||||
Gross realized gains | | $ | 2 | | $ | 267 | | $ | 18 | | $ | 296 | |
Gross realized losses | |
| (30) | |
| (25) | |
| (30) | |
| (93) | |
Net securities gain | | $ | (28) | | $ | 242 | | $ | (12) | | $ | 203 | |
In estimating other than temporary impairment (OTTI) losses, management considers the length of time and the extent to which the fair value has been less than cost, the financial condition and short-term prospects for the issuer, and the intent and ability of management to hold its investment for a period of time to allow a recovery in fair value. There were 0 investments held that had OTTI losses for the three and six months ended June 30, 2021 and 2020.
The fair value and gross unrealized losses for securities, segregated by the length of time that individual securities have been in a continuous gross unrealized loss position, at SeptemberJune 30, 20202021 and December 31, 20192020 were as follows (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2020 | | June 30, 2021 | ||||||||||||||||||||||||||||||||
| | Less than 12 Months | | 12 Months or More | | Total | | Less than 12 Months | | 12 Months or More | | Total | ||||||||||||||||||||||||
|
| Fair Value |
| Unrealized Loss |
| Fair Value |
| Unrealized Loss |
| Fair Value |
| Unrealized Loss |
| Fair Value |
| Unrealized Loss |
| Fair Value |
| Unrealized Loss |
| Fair Value |
| Unrealized Loss | ||||||||||||
Securities Available for Sale | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
U.S. Treasury securities | | $ | 2,353 | | | (1) | | $ | — | | $ | — | | $ | 2,353 | | | (1) | ||||||||||||||||||
U.S. Government agencies | | $ | 2,912 | | $ | (9) | | $ | 8,765 | | $ | (271) | | $ | 11,677 | | $ | (280) | | | 14,836 | | | (191) | | | 4,933 | | | (107) | | | 19,769 | | | (298) |
State, county and municipal | |
| 4,830 | |
| (35) | |
| 301 | |
| (15) | |
| 5,131 | |
| (50) | |
| 22,675 | | | (343) | | | 119 | | | (16) | | | 22,794 | | | (359) |
Mortgage backed securities | |
| 10,725 | | | (134) | | | — | | | — | | | 10,725 | | | (134) | ||||||||||||||||||
Asset backed securities | |
| 12,536 | |
| (38) | |
| 4,388 | |
| (97) | |
| 16,924 | |
| (135) | |
| 10,206 | | | (46) | | | 381 | | | (3) | | | 10,587 | | | (49) |
Corporate bonds | |
| 7,727 | |
| (13) | |
| — | |
| — | |
| 7,727 | |
| (13) | |
| 3,968 | | | (37) | | | — | | | — | | | 3,968 | | | (37) |
Total | | $ | 28,005 | | $ | (95) | | $ | 13,454 | | $ | (383) | | $ | 41,459 | | $ | (478) | | $ | 64,763 | | $ | (752) | | $ | 5,433 | | $ | (126) | | $ | 70,196 | | $ | (878) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2019 | | December 31, 2020 | ||||||||||||||||||||||||||||||||
| | Less than 12 Months | | 12 Months or More | | Total | | Less than 12 Months | | 12 Months or More | | Total | ||||||||||||||||||||||||
|
| Fair Value |
| Unrealized Loss |
| Fair Value |
| Unrealized Loss |
| Fair Value |
| Unrealized Loss |
| Fair Value |
| Unrealized Loss |
| Fair Value |
| Unrealized Loss |
| Fair Value |
| Unrealized Loss | ||||||||||||
Securities Available for Sale | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
U.S. Treasury securities | | $ | 23,499 | | $ | (1) | | $ | — | | $ | — | | $ | 23,499 | | $ | (1) | ||||||||||||||||||
U.S. Government agencies | | $ | 6,396 | | $ | (102) | | $ | 8,020 | | $ | (117) | | $ | 14,416 | | $ | (219) | |
| 6,726 | | | (25) | | | 8,266 | | | (116) | | | 14,992 | | | (141) |
State, county and municipal | |
| 7,088 | |
| (32) | |
| 308 | |
| (10) | |
| 7,396 | |
| (42) | |
| 6,203 | | | (49) | | | 301 | | | (15) | | | 6,504 | | | (64) |
Mortgage backed securities | |
| 11,001 | |
| (40) | |
| 4,287 | |
| (73) | |
| 15,288 | |
| (113) | |
| 118 | | | (1) | | | — | | | — | | | 118 | | | (1) |
Asset backed securities | |
| 4,861 | |
| (74) | |
| 625 | |
| (8) | |
| 5,486 | |
| (82) | |
| 12,427 | | | (8) | | | 4,410 | | | (49) | | | 16,837 | | | (57) |
Corporate bonds | |
| 248 | |
| (3) | |
| — | |
| — | |
| 248 | |
| (3) | |
| 7,216 | | | (18) | | | — | | | — | | | 7,216 | | | (18) |
Total | | $ | 29,594 | | $ | (251) | | $ | 13,240 | | $ | (208) | | $ | 42,834 | | $ | (459) | | $ | 56,189 | | $ | (102) | | $ | 12,977 | | $ | (180) | | $ | 69,166 | | $ | (282) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Securities Held to Maturity | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| ||||||||||||||||||
U.S. Government agencies | | $ | — | | $ | — | | $ | 9,988 | | $ | (12) | | $ | 9,988 | | $ | (12) | ||||||||||||||||||
State, county and municipal | |
| 31 | |
| — | |
| 622 | |
| (1) | |
| 653 | | | (1) | ||||||||||||||||||
Total | | $ | 31 | | $ | — | | $ | 10,610 | | $ | (13) | | $ | 10,641 | | $ | (13) | ||||||||||||||||||
| | | | | | | | | | | | | | | | | | |
The unrealized losses (impairments) in the investment portfolio at SeptemberJune 30, 20202021 and December 31, 20192020 are generally a result of market fluctuations of interest rates that occur daily. The unrealized losses are from 5372 securities at SeptemberJune 30, 2020.2021. Of those, 3262 are investment grade, have U.S. government agency guarantees, or are backed by the full faith and credit of local municipalities throughout the United States. NaN investment grade asset-backed securities comprised of student loan pools, which are 97% U.S. government guaranteed, included in corporate obligations and 5 corporate bonds make up the remaining securities with unrealized losses at SeptemberJune 30, 2020.2021. The Company considers the reason for
10
impairment, length of impairment, and ability and intent to hold until the full value is recovered in determining if the impairment is temporary in nature. Based on this analysis, the Company has determined these impairments to be temporary in nature. The Company does not intend to sell, and it is more likely than not that the Company will not be required to sell, these securities until they recover in value or reach maturity.
Market prices are affected by conditions beyond the control of the Company. Investment decisions are made by the management group of the Company and reflect the overall liquidity and strategic asset/liability objectives of the Company. Management analyzes the securities portfolio frequently and manages the portfolio to provide an overall positive impact to the Company’s income statement and balance sheet.
Securities with amortized costs of $49.8$63.7 million and $47.3$52.2 million at SeptemberJune 30, 20202021 and December 31, 2019,2020, respectively, were pledged to secure public deposits as required or permitted by law. Securities with amortized costs of $5.3$4.5 million and $5.8$5.0 million at SeptemberJune 30, 20202021 and December 31, 2019,2020, respectively, were pledged to secure lines of credit at the Federal Reserve discount window. At each of SeptemberJune 30, 20202021 and December 31, 2019,2020, there were 0 securities purchased from a single issuer, other than U.S. Treasury securities and other U.S. Government agencies that comprised more than 10% of the consolidated shareholders’ equity.
11
Note 3. Loans and Related Allowance for Loan Losses
The Company’s loans, net of deferred fees and costs, at SeptemberJune 30, 20202021 and December 31, 20192020 were comprised of the following (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2020 | | December 31, 2019 |
| | June 30, 2021 | | December 31, 2020 |
| ||||||||||||
|
| Amount | | % of Loans | | Amount | | % of Loans |
|
| Amount | | % of Loans | | Amount | | % of Loans |
| ||||
Mortgage loans on real estate: | | | | | | | | | | | | | | | | | | | | | | |
Residential 1‑4 family | | $ | 204,366 |
| 17.35 | % | $ | 223,538 |
| 21.12 | % | | $ | 182,929 |
| 15.35 | % | $ | 197,228 |
| 16.68 | % |
Commercial | |
| 452,677 |
| 38.44 | |
| 396,858 |
| 37.50 | | |
| 506,951 |
| 42.53 | |
| 474,856 |
| 40.16 | |
Construction and land development | |
| 159,766 |
| 13.57 | |
| 146,566 |
| 13.85 | | |
| 180,215 |
| 15.12 | |
| 182,277 |
| 15.42 | |
Second mortgages | |
| 6,488 |
| 0.55 | |
| 6,639 |
| 0.63 | | |
| 6,893 |
| 0.58 | |
| 6,360 |
| 0.54 | |
Multifamily | |
| 77,787 |
| 6.60 | |
| 72,978 |
| 6.90 | | |
| 72,918 |
| 6.12 | |
| 78,158 |
| 6.61 | |
Agriculture | |
| 7,138 |
| 0.61 | |
| 8,346 |
| 0.79 | | |
| 7,841 |
| 0.66 | |
| 6,662 |
| 0.56 | |
Total real estate loans | |
| 908,222 |
| 77.12 | |
| 854,925 |
| 80.79 | | |
| 957,747 |
| 80.36 | |
| 945,541 |
| 79.97 | |
Commercial loans | |
| 257,362 |
| 21.85 | |
| 191,183 |
| 18.06 | | |
| 224,437 |
| 18.83 | |
| 225,386 |
| 19.06 | |
Consumer installment loans | |
| 10,606 |
| 0.90 | |
| 11,163 |
| 1.05 | | |
| 8,452 |
| 0.71 | |
| 9,996 |
| 0.85 | |
All other loans | |
| 1,519 |
| 0.13 | |
| 1,052 |
| 0.10 | | |
| 1,205 |
| 0.10 | |
| 1,439 |
| 0.12 | |
Total loans | | $ | 1,177,709 |
| 100.00 | % | $ | 1,058,323 |
| 100.00 | % | | $ | 1,191,841 |
| 100.00 | % | $ | 1,182,362 |
| 100.00 | % |
The Company held $11.9$10.5 million and $12.7$10.7 million in balances of loans guaranteed by the United States Department of Agriculture (USDA), which are included in various categories in the table above, at SeptemberJune 30, 20202021 and December 31, 2019,2020, respectively. As these loans are 100% guaranteed by the USDA, 0 loan loss allowance is required. These loan balances included a purchase premium of $906,000$748,000 and $1.0$804,000 million at SeptemberJune 30, 20202021 and December 31, 2019,2020, respectively. The purchase premium is amortized as an adjustment of the related loan yield on a straight line basis, which is substantially equivalent to the results obtained using the effective interest method. Any unamortized purchase premium remaining on loans prepaid by the borrower is written off.
During the second and third quarters of 2020, theThe Company originatedoriginates loans under the Paycheck Protection Program (PPP) of the Small Business Administration (SBA). These PPP loans totaled $85.1$53.9 million and $49.3 million at SeptemberJune 30, 2021 and December 31, 2020, respectively, and are included in commercial loans. As these loans are 100% guaranteed by the SBA, 0 loan loss allowance is required. The majority of the PPP loans have a twofive year term; however, most are expected to be forgiven by the SBA as borrowers use the funds for qualified expenses. These loan balances included net fees of $2.0$1.9 million and $920,000 at SeptemberJune 30, 2021 and December 31, 2020, respectively, which are being amortized as an adjustment of the related loan yield on a straight line basis, which is substantially equivalent to the results obtained using the effective interest method. Any unamortized net fee remaining on loans forgiven or prepaid by the borrower is recorded as income.
11
At SeptemberJune 30, 20202021 and December 31, 2019,2020, the Company’s allowance for loan losses was comprised of the following: (i) a specific valuation component calculated in accordance with FASB ASCFinancial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 310, Receivables, (ii) a general valuation component calculated in accordance with FASB ASC 450, Contingencies, based on historical loan loss experience, current economic conditions and other qualitative risk factors, and (iii) an unallocated component to cover imprecision in the model and uncertainties that could affect management’s estimate of probable losses. Management identified loans subject to impairment in accordance with FASB ASC 310.
The following table summarizes information related to impaired loans at and for the three and six months ended June 30, 2021 (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | Three months ended | | Six months ended | | ||||||||
| | June 30, 2021 | | June 30, 2021 | | June 30, 2021 | | |||||||||||||||
|
| | |
| Unpaid |
| | |
| | | | | | | | | | | | ||
| | Recorded | | Principal | | Related | | Average | | Interest | | Average | | Interest | | |||||||
| | Investment (1) | | Balance (2) | | Allowance | | Investment | | Recognized | | Investment | | Recognized | | |||||||
With no related allowance recorded: | | | | | | | | | | | | | | | | | | | | | | |
Mortgage loans on real estate: | | | | | | | | | | | | | | | | | | | | | | |
Residential 1‑4 family | | $ | 304 | | $ | 412 | | $ | — | | $ | 306 | | $ | 3 | | $ | 411 | | $ | 7 | |
Commercial | |
| 3,800 | |
| 4,578 | |
| — | |
| 3,610 | |
| 33 | |
| 3,686 | |
| 65 | |
Total real estate loans | |
| 4,104 | |
| 4,990 | |
| — | |
| 3,916 | |
| 36 | |
| 4,097 | |
| 72 | |
Subtotal impaired loans with no valuation allowance | |
| 4,104 | |
| 4,990 | |
| — | |
| 3,916 | |
| 36 | |
| 4,097 | |
| 72 | |
With an allowance recorded: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Mortgage loans on real estate: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Residential 1‑4 family | |
| 2,141 | |
| 2,517 | |
| 632 | |
| 2,197 | |
| 11 | |
| 2,160 | |
| 21 | |
Commercial | |
| 29 | |
| 391 | |
| 8 | |
| 110 | |
| — | |
| 86 | |
| — | |
Construction and land development | |
| 2 | |
| 4 | |
| 1 | |
| 3 | |
| — | |
| 16 | |
| — | |
Agriculture | |
| — | |
| — | |
| — | |
| 23 | |
| — | |
| 15 | |
| — | |
Total real estate loans | |
| 2,172 | |
| 2,912 | |
| 641 | |
| 2,333 | |
| 11 | |
| 2,277 | |
| 21 | |
Commercial loans | |
| 1,440 | |
| 1,465 | |
| 273 | |
| 1,451 | |
| 1 | |
| 1,810 | |
| 2 | |
Consumer installment loans | |
| — | |
| — | |
| — | |
| 6 | |
| — | |
| 6 | |
| — | |
Subtotal impaired loans with a valuation allowance | |
| 3,612 | |
| 4,377 | |
| 914 | |
| 3,790 | |
| 12 | |
| 4,093 | |
| 23 | |
Total: | ��� |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Mortgage loans on real estate: | |
|
| |
|
| | |
| |
|
| |
|
| |
|
| |
|
| |
Residential 1‑4 family | |
| 2,445 | |
| 2,929 | |
| 632 | |
| 2,503 | |
| 14 | |
| 2,571 | |
| 28 | |
Commercial | |
| 3,829 | |
| 4,969 | |
| 8 | |
| 3,720 | |
| 33 | |
| 3,772 | |
| 65 | |
Construction and land development | |
| 2 | |
| 4 | |
| 1 | |
| 3 | |
| — | |
| 16 | |
| — | |
Agriculture | |
| — | |
| — | |
| — | |
| 23 | |
| — | |
| 15 | |
| — | |
Total real estate loans | |
| 6,276 | |
| 7,902 | |
| 641 | |
| 6,249 | |
| 47 | |
| 6,374 | |
| 93 | |
Commercial loans | |
| 1,440 | |
| 1,465 | |
| 273 | |
| 1,451 | |
| 1 | |
| 1,810 | |
| 2 | |
Consumer installment loans | |
| — | |
| — | |
| — | |
| 6 | |
| — | |
| 6 | |
| — | |
Total impaired loans | | $ | 7,716 | | $ | 9,367 | | $ | 914 | | $ | 7,706 | | $ | 48 | | $ | 8,190 | | $ | 95 | |
(1) | The amount of the investment in a loan is not net of a valuation allowance, but does reflect any direct write-down of the investment. |
(2) | The contractual amount due reflects paydowns applied in accordance with loan documents, but does not reflect any direct write-downs or valuation allowances. |
12
The following table summarizes information related to impaired loans as of September 30,at December 31, 2020 and for the three and ninesix months ended SeptemberJune 30, 2020 (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | Three months ended | | Nine months ended | ||||||||
| | September 30, 2020 | | September 30, 2020 | | September 30, 2020 | |||||||||||||||
|
| | |
| Unpaid |
| | |
| | | | | | | | | | | ||
| | Recorded | | Principal | | Related | | Average | | Interest | | Average | | Interest | |||||||
| | Investment (1) | | Balance (2) | | Allowance | | Investment | | Recognized | | Investment | | Recognized | |||||||
With no related allowance recorded: | | | | | | | | | | | | | | | | | | | | | |
Mortgage loans on real estate: | | | | | | | | | | | | | | | | | | | | | |
Residential 1‑4 family | | $ | 631 | | $ | 789 | | $ | — | | $ | 888 | | $ | 7 | | $ | 1,105 | | $ | 22 |
Commercial | |
| 3,501 | |
| 4,226 | |
| — | |
| 3,080 | |
| 34 | |
| 3,129 | |
| 101 |
Construction and land development | | | — | | | — | | | — | | | — | | | — | | | 164 | | | — |
Multifamily | |
| — | |
| — | |
| — | |
| — | |
| — | |
| 616 | |
| — |
Total real estate loans | |
| 4,132 | |
| 5,015 | |
| — | |
| 3,968 | |
| 41 | |
| 5,014 | |
| 123 |
Commercial loans | |
| — | |
| — | |
| — | |
| 175 | |
| — | |
| 88 | |
| — |
Subtotal impaired loans with no valuation allowance | |
| 4,132 | |
| 5,015 | |
| — | |
| 4,143 | |
| 41 | |
| 5,102 | |
| 123 |
With an allowance recorded: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Mortgage loans on real estate: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Residential 1‑4 family | |
| 2,190 | |
| 2,621 | |
| 615 | |
| 2,156 | |
| 13 | |
| 1,923 | |
| 37 |
Commercial | |
| 217 | |
| 722 | |
| 59 | |
| 152 | |
| 2 | |
| 195 | |
| 6 |
Construction and land development | |
| 572 | |
| 675 | |
| 153 | |
| 847 | |
| — | |
| 798 | |
| — |
Agriculture | |
| 51 | |
| 51 | |
| 14 | |
| 51 | |
| — | |
| 26 | |
| — |
Total real estate loans | |
| 3,030 | |
| 4,069 | |
| 841 | |
| 3,206 | |
| 15 | |
| 2,942 | |
| 43 |
Commercial loans | |
| 1,786 | |
| 1,786 | |
| 334 | |
| 1,243 | |
| 3 | |
| 1,142 | |
| 9 |
Consumer installment loans | |
| 19 | |
| 19 | |
| 5 | |
| 15 | |
| — | |
| 12 | |
| — |
Subtotal impaired loans with a valuation allowance | |
| 4,835 | |
| 5,874 | |
| 1,180 | |
| 4,464 | |
| 18 | |
| 4,096 | |
| 52 |
Total: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Mortgage loans on real estate: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Residential 1‑4 family | |
| 2,821 | |
| 3,410 | |
| 615 | |
| 3,044 | |
| 20 | |
| 3,028 | |
| 59 |
Commercial | |
| 3,718 | |
| 4,948 | |
| 59 | |
| 3,232 | |
| 36 | |
| 3,324 | |
| 107 |
Construction and land development | |
| 572 | |
| 675 | |
| 153 | |
| 847 | |
| — | |
| 962 | |
| — |
Multifamily | |
| — | |
| — | |
| — | |
| — | |
| — | |
| 616 | |
| — |
Agriculture | |
| 51 | |
| 51 | |
| 14 | |
| 51 | |
| — | |
| 26 | |
| — |
Total real estate loans | |
| 7,162 | |
| 9,084 | |
| 841 | |
| 7,174 | |
| 56 | |
| 7,956 | |
| 166 |
Commercial loans | |
| 1,786 | |
| 1,786 | |
| 334 | |
| 1,418 | |
| 3 | |
| 1,230 | |
| 9 |
Consumer installment loans | |
| 19 | |
| 19 | |
| 5 | |
| 15 | |
| — | |
| 12 | |
| — |
Total impaired loans | | $ | 8,967 | | $ | 10,889 | | $ | 1,180 | | $ | 8,607 | | $ | 59 | | $ | 9,198 | | $ | 175 |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | Three months ended | | Six months ended | ||||||||
| | December 31, 2020 | | June 30, 2020 | | June 30, 2020 | |||||||||||||||
|
| | |
| Unpaid |
| | |
| | | | | | | | | | | ||
| | Recorded | | Principal | | Related | | Average | | Interest | | Average | | Interest | |||||||
| | Investment (1) | | Balance (2) | | Allowance | | Investment | | Recognized | | Investment | | Recognized | |||||||
With no related allowance recorded: | | | | | | | | | | | | | | | | | | | | | |
Mortgage loans on real estate: | | | | | | | | | | | | | | | | | | | | | |
Residential 1‑4 family | | $ | 624 | | $ | 787 | | $ | — | | $ | 1,152 | | $ | 10 | | $ | 1,263 | | $ | 21 |
Commercial | |
| 3,458 | | | 4,198 | | | — | |
| 3,114 | | | 34 | |
| 3,151 | | | 68 |
Construction and land development | | | — | | | — | | | — | | | 164 | | | — | | | 219 | | | — |
Multifamily | |
| | | | | | | — | |
| — | | | — | |
| 821 | | | — |
Total real estate loans | |
| 4,082 | | | 4,985 | | | — | |
| 4,430 | | | 44 | |
| 5,454 | | | 89 |
Commercial loans | |
| — | |
| — | |
| — | |
| 175 | | | — | |
| 117 | | | — |
Subtotal impaired loans with no valuation allowance | |
| 4,082 | |
| 4,985 | |
| — | |
| 4,605 | | | 44 | |
| 5,571 | | | 89 |
With an allowance recorded: | |
|
| |
|
| |
|
| |
|
| | |
| |
|
| | |
|
Mortgage loans on real estate: | |
|
| |
|
| |
|
| |
|
| | |
| |
|
| | |
|
Residential 1‑4 family | |
| 2,200 | | | 2,573 | | | 640 | |
| 2,003 | | | 11 | |
| 1,834 | | | 22 |
Commercial | |
| 200 | | | 715 | | | 57 | |
| 92 | | | 2 | |
| 187 | | | 4 |
Construction and land development | |
| 44 | | | 149 | | | 12 | |
| 1,286 | | | — | |
| 873 | | | — |
Agriculture | |
| 45 | | | 46 | | | 13 | |
| 26 | | | — | |
| 17 | | | — |
Total real estate loans | |
| 2,489 | | | 3,483 | | | 722 | |
| 3,407 | | | 13 | |
| 2,911 | | | 26 |
Commercial loans | |
| 2,549 | | | 2,549 | | | 437 | |
| 1,164 | | | 3 | |
| 928 | | | 7 |
Consumer installment loans | |
| 19 | | | 19 | | | 6 | |
| 11 | | | — | |
| 10 | | | — |
Subtotal impaired loans with a valuation allowance | |
| 5,057 | | | 6,051 | | | 1,165 | |
| 4,582 | | | 16 | |
| 3,849 | | | 33 |
Total: | |
|
| | |
| | |
| |
|
| | |
| |
|
| | |
|
Mortgage loans on real estate: | |
|
| |
|
| |
|
| |
|
| | |
| |
|
| | |
|
Residential 1‑4 family | |
| 2,824 | | | 3,360 | | | 640 | |
| 3,155 | | | 21 | |
| 3,097 | | | 43 |
Commercial | |
| 3,658 | | | 4,913 | | | 57 | |
| 3,206 | | | 36 | |
| 3,338 | | | 72 |
Construction and land development | |
| 44 | | | 149 | | | 12 | |
| 1,450 | | | — | |
| 1,092 | | | — |
Multifamily | |
| — | | | — | | | — | |
| — | | | — | |
| 821 | | | — |
Agriculture | |
| 45 | | | 46 | | | 13 | |
| 26 | | | — | |
| 17 | | | — |
Total real estate loans | |
| 6,571 | | | 8,468 | | | 722 | |
| 7,837 | | | 57 | |
| 8,365 | | | 115 |
Commercial loans | |
| 2,549 | | | 2,549 | | | 437 | |
| 1,339 | | | 3 | |
| 1,045 | | | 7 |
Consumer installment loans | |
| 19 | | | 19 | | | 6 | |
| 11 | | | — | |
| 10 | | | — |
Total impaired loans | | $ | 9,139 | | $ | 11,036 | | $ | 1,165 | | $ | 9,187 | | $ | 60 | | $ | 9,420 | | $ | 122 |
(1) | The amount of the investment in a loan |
(2) | The contractual amount due |
Troubled debt restructures still accruing interest are loans that management expects to ultimately collect all principal and interest due, but not under the terms of the original contract. A reconciliation of impaired loans to nonaccrual loans at June 30, 2021 and December 31, 2020, is set forth in the table below (dollars in thousands):
| | | | | | |
|
| June 30, 2021 |
| December 31, 2020 | ||
Nonaccruals | | $ | 3,555 | | $ | 4,460 |
Trouble debt restructure and still accruing | |
| 4,161 | |
| 4,679 |
Total impaired | | $ | 7,716 | | $ | 9,139 |
Interest income on nonaccrual loans, if recognized, is recorded using the cash basis method of accounting. There was $65,000 and $168,000 recognized during the three and six months ended June 30, 2021, respectively. There was an insignificant amount of cash basis income recognized during the three and six months ended June 30, 2020. For the three months ended June 30, 2021 and 2020, estimated interest income of $54,000 and $100,000, respectively, would have been recorded if all such loans had been accruing interest according to their original contractual terms. For the six months ended
13
The following table summarizes information related to impaired loans as of December 31, 2019June 30, 2021 and for the three and nine months ended September 30, 2019 (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | Three months ended | | Nine months ended | ||||||||
| | December 31, 2019 | | September 30, 2019 | | September 30, 2019 | |||||||||||||||
|
| | |
| Unpaid |
| | |
| | | | | | | | | | | ||
| | Recorded | | Principal | | Related | | Average | | Interest | | Average | | Interest | |||||||
| | Investment (1) | | Balance (2) | | Allowance | | Investment | | Recognized | | Investment | | Recognized | |||||||
With no related allowance recorded: | | | | | | | | | | | | | | | | | | | | | |
Mortgage loans on real estate: | | | | | | | | | | | | | | | | | | | | | |
Residential 1‑4 family | | $ | 1,483 | | $ | 1,850 | | $ | — | | $ | 1,514 | | $ | 11 | | $ | 1,534 | | $ | 32 |
Commercial | |
| 3,226 | |
| 3,966 | |
| — | |
| 3,308 | |
| 35 | |
| 3,372 | |
| 103 |
Construction and land development | | | 328 | | | 328 | | | — | | | 164 | | | — | | | 82 | | | — |
Multifamily | |
| 2,463 | |
| 2,463 | |
| — | |
| 2,510 | |
| — | |
| 2,533 | |
| — |
Total real estate loans | |
| 7,500 | |
| 8,607 | |
| — | |
| 7,496 | |
| 46 | |
| 7,521 | |
| 135 |
Subtotal impaired loans with no valuation allowance | |
| 7,500 | |
| 8,607 | |
| — | |
| 7,496 | |
| 46 | |
| 7,521 | |
| 135 |
With an allowance recorded: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Mortgage loans on real estate: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Residential 1‑4 family | |
| 1,498 | |
| 1,808 | |
| 380 | |
| 1,862 | |
| 12 | |
| 1,965 | |
| 36 |
Commercial | |
| 378 | |
| 876 | |
| 87 | |
| 552 | |
| 2 | |
| 847 | |
| 6 |
Construction and land development | |
| 48 | |
| 147 | |
| 11 | |
| 2,084 | |
| — | |
| 3,210 | |
| — |
Total real estate loans | |
| 1,924 | |
| 2,831 | |
| 478 | |
| 4,498 | |
| 14 | |
| 6,022 | |
| 42 |
Commercial loans | |
| 454 | |
| 460 | |
| 105 | |
| 1,080 | |
| 4 | |
| 1,618 | |
| 13 |
Consumer installment loans | |
| 7 | |
| 7 | |
| 1 | |
| 6 | |
| — | |
| 5 | |
| — |
Subtotal impaired loans with a valuation allowance | |
| 2,385 | |
| 3,298 | |
| 584 | |
| 5,584 | |
| 18 | |
| 7,645 | |
| 55 |
Total: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Mortgage loans on real estate: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Residential 1‑4 family | |
| 2,981 | |
| 3,658 | |
| 380 | |
| 3,376 | |
| 23 | |
| 3,499 | |
| 68 |
Commercial | |
| 3,604 | |
| 4,842 | |
| 87 | |
| 3,860 | |
| 37 | |
| 4,219 | |
| 109 |
Construction and land development | |
| 376 | |
| 475 | |
| 11 | |
| 2,248 | |
| — | |
| 3,292 | |
| — |
Multifamily | |
| 2,463 | |
| 2,463 | |
| — | |
| 2,510 | |
| — | |
| 2,533 | |
| — |
Total real estate loans | |
| 9,424 | |
| 11,438 | |
| 478 | |
| 11,994 | |
| 60 | |
| 13,543 | |
| 177 |
Commercial loans | |
| 454 | |
| 460 | |
| 105 | |
| 1,080 | |
| 4 | |
| 1,618 | |
| 13 |
Consumer installment loans | |
| 7 | |
| 7 | |
| 1 | |
| 6 | |
| — | |
| 5 | |
| — |
Total impaired loans | | $ | 9,885 | | $ | 11,905 | | $ | 584 | | $ | 13,080 | | $ | 64 | | $ | 15,166 | | $ | 190 |
Troubled debt restructures still accruing interest are loans that management expects to ultimately collect all principal and interest due, but not under the terms of the original contract. A reconciliation of impaired loans to nonaccrual loans at September 30, 2020, and December 31, 2019, is set forth in the table below (dollars in thousands):
| | | | | | |
|
| September 30, 2020 |
| December 31, 2019 | ||
Nonaccruals | | $ | 4,214 | | $ | 5,292 |
Trouble debt restructure and still accruing | |
| 4,753 | |
| 4,593 |
Total impaired | | $ | 8,967 | | $ | 9,885 |
Interest income on nonaccrual loans, if recognized, is recorded using the cash basis method of accounting. There was an insignificant amount of cash basis income recognized during the three and nine months ended September 30, 2020 and 2019. For the three months ended September 30, 2020 and 2019, estimated interest income of $61,000$110,000 and $92,000,$168,000, respectively, would have been recorded if all such loans had been accruing interest according to their original contractual terms. For the nine months ended September
The following tables present an age analysis of past due status of loans by category as of June 30, 2021 and December 31, 2020 and 2019, estimated interest income of $152,000 and $284,000, respectively, would have been recorded if all such loans had been accruing interest according to their original contractual terms. (dollars in thousands):
| | | | | | | | | | | | | | | | | | |
| | June 30, 2021 | ||||||||||||||||
|
| 30‑89 Days |
| 90+ Days Past | | | |
| Total Past |
| | |
| Total Loans | ||||
| | Past Due | | Due and Accruing | | Nonaccrual | | Due | | Current | | Receivable | ||||||
Mortgage loans on real estate: |
| |
|
| |
| | |
|
| |
|
| |
|
| |
|
Residential 1‑4 family | | $ | 753 | | $ | — | | $ | 1,316 | | $ | 2,069 | | $ | 180,860 | | $ | 182,929 |
Commercial | |
| 98 | |
| — | |
| 953 | |
| 1,051 | |
| 505,900 | |
| 506,951 |
Construction and land development | |
| 227 | |
| — | |
| 2 | |
| 229 | |
| 179,986 | |
| 180,215 |
Second mortgages | |
| 22 | |
| — | |
| — | |
| 22 | |
| 6,871 | |
| 6,893 |
Multifamily | |
| — | |
| — | |
| — | |
| — | |
| 72,918 | |
| 72,918 |
Agriculture | |
| 32 | |
| — | |
| — | |
| 32 | |
| 7,809 | |
| 7,841 |
Total real estate loans | |
| 1,132 | |
| — | |
| 2,271 | |
| 3,403 | |
| 954,344 | |
| 957,747 |
Commercial loans | |
| 39 | |
| — | |
| 1,284 | |
| 1,323 | |
| 223,114 | |
| 224,437 |
Consumer installment loans | |
| 1 | |
| — | |
| — | |
| 1 | |
| 8,451 | |
| 8,452 |
All other loans | |
| — | |
| — | |
| — | |
| — | |
| 1,205 | |
| 1,205 |
Total loans | | $ | 1,172 | | $ | — | | $ | 3,555 | | $ | 4,727 | | $ | 1,187,114 | | $ | 1,191,841 |
| | | | | | | | | | | | | | | | | | |
| | December 31, 2020 | ||||||||||||||||
|
| 30‑89 Days |
| 90+ Days Past | | | |
| Total Past |
| | |
| Total Loans | ||||
| | Past Due | | Due and Accruing | | Nonaccrual | | Due | | Current | | Receivable | ||||||
Mortgage loans on real estate: |
| |
|
| |
| | |
|
| |
|
| |
|
| |
|
Residential 1‑4 family | | $ | 1,324 | | $ | 33 | | $ | 1,357 | | $ | 2,714 | | $ | 194,514 | | $ | 197,228 |
Commercial | |
| 438 | | | — | | | 730 | | | 1,168 | | | 473,688 | | | 474,856 |
Construction and land development | |
| 157 | | | — | | | 44 | | | 201 | | | 182,076 | | | 182,277 |
Second mortgages | |
| 227 | | | — | | | — | | | 227 | | | 6,133 | | | 6,360 |
Multifamily | |
| — | | | — | | | — | | | — | | | 78,158 | | | 78,158 |
Agriculture | |
| — | | | — | | | 45 | | | 45 | | | 6,617 | | | 6,662 |
Total real estate loans | |
| 2,146 | | | 33 | | | 2,176 | | | 4,355 | | | 941,186 | | | 945,541 |
Commercial loans | |
| 60 | | | — | | | 2,264 | | | 2,324 | | | 223,062 | | | 225,386 |
Consumer installment loans | |
| — | | | 12 | | | 20 | | | 32 | | | 9,964 | | | 9,996 |
All other loans | |
| — | | | — | | | — | | | — | | | 1,439 | | | 1,439 |
Total loans | | $ | 2,206 | | $ | 45 | | $ | 4,460 | | $ | 6,711 | | $ | 1,175,651 | | $ | 1,182,362 |
14
The following tables present an age analysis of past due status of loans by category as of September 30, 2020 and December 31, 2019 (dollars in thousands):
| | | | | | | | | | | | | | | | | | |
| | September 30, 2020 | ||||||||||||||||
|
| 30‑89 Days |
| 90+ Days Past | | | |
| Total Past |
| | |
| Total Loans | ||||
| | Past Due | | Due and Accruing | | Nonaccrual | | Due | | Current | | Receivable | ||||||
Mortgage loans on real estate: |
| |
|
| |
| | |
|
| |
|
| |
|
| |
|
Residential 1‑4 family | | $ | 1,279 | | $ | — | | $ | 1,338 | | $ | 2,617 | | $ | 201,749 | | $ | 204,366 |
Commercial | |
| — | |
| — | |
| 764 | |
| 764 | |
| 451,913 | |
| 452,677 |
Construction and land development | |
| — | |
| — | |
| 572 | |
| 572 | |
| 159,194 | |
| 159,766 |
Second mortgages | |
| 227 | |
| — | |
| — | |
| 227 | |
| 6,261 | |
| 6,488 |
Multifamily | |
| — | |
| — | |
| — | |
| — | |
| 77,787 | |
| 77,787 |
Agriculture | |
| — | |
| — | |
| 51 | |
| 51 | |
| 7,087 | |
| 7,138 |
Total real estate loans | |
| 1,506 | |
| — | |
| 2,725 | |
| 4,231 | |
| 903,991 | |
| 908,222 |
Commercial loans | |
| 635 | |
| — | |
| 1,470 | |
| 2,105 | |
| 255,257 | |
| 257,362 |
Consumer installment loans | |
| 20 | |
| — | |
| 19 | |
| 39 | |
| 10,567 | |
| 10,606 |
All other loans | |
| — | |
| — | |
| — | |
| — | |
| 1,519 | |
| 1,519 |
Total loans | | $ | 2,161 | | $ | — | | $ | 4,214 | | $ | 6,375 | | $ | 1,171,334 | | $ | 1,177,709 |
| | | | | | | | | | | | | | | | | | |
| | December 31, 2019 | ||||||||||||||||
|
| 30‑89 Days |
| 90+ Days Past | | | |
| Total Past |
| | |
| Total Loans | ||||
| | Past Due | | Due and Accruing | | Nonaccrual | | Due | | Current | | Receivable | ||||||
Mortgage loans on real estate: |
| |
|
| |
| | |
|
| |
|
| |
|
| |
|
Residential 1‑4 family | | $ | 1,308 | | $ | — | | $ | 1,378 | | $ | 2,686 | | $ | 220,852 | | $ | 223,538 |
Commercial | |
| 552 | |
| — | |
| 1,006 | |
| 1,558 | |
| 395,300 | |
| 396,858 |
Construction and land development | |
| 166 | |
| — | |
| 376 | |
| 542 | |
| 146,024 | |
| 146,566 |
Second mortgages | |
| 229 | |
| — | |
| — | |
| 229 | |
| 6,410 | |
| 6,639 |
Multifamily | |
| — | |
| — | |
| 2,463 | |
| 2,463 | |
| 70,515 | |
| 72,978 |
Agriculture | |
| — | |
| — | |
| — | |
| — | |
| 8,346 | |
| 8,346 |
Total real estate loans | |
| 2,255 | |
| — | |
| 5,223 | |
| 7,478 | |
| 847,447 | |
| 854,925 |
Commercial loans | |
| 1,085 | |
| 946 | |
| 62 | |
| 2,093 | |
| 189,090 | |
| 191,183 |
Consumer installment loans | |
| 41 | |
| — | |
| 7 | |
| 48 | |
| 11,115 | |
| 11,163 |
All other loans | |
| — | |
| — | |
| — | |
| — | |
| 1,052 | |
| 1,052 |
Total loans | | $ | 3,381 | | $ | 946 | | $ | 5,292 | | $ | 9,619 | | $ | 1,048,704 | | $ | 1,058,323 |
Activity in the allowance for loan losses on loans by segment for the three and ninesix months ended SeptemberJune 30, 20202021 and 20192020 is presented in the following tables (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| Three Months Ended September 30, 2020 |
| Three Months Ended June 30, 2021 | ||||||||||||||||||||||||||
| | | | | Provision | | | | | | | | | | | | | | Provision | | | | | | | | | | ||
| | June 30, 2020 | | Allocation | | Charge-offs | | Recoveries | | September 30, 2020 | | March 31, 2021 | | Allocation | | Charge-offs | | Recoveries | | June 30, 2021 | ||||||||||
Mortgage loans on real estate: |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Residential 1‑4 family | | $ | 3,495 | | $ | (954) | | $ | — | | $ | 14 | | $ | 2,555 | | $ | 1,904 | | $ | 60 | | $ | (11) | | $ | 51 | | $ | 2,004 |
Commercial | |
| 4,612 | |
| (1,606) | |
| — | |
| 5 | |
| 3,011 | |
| 3,512 | |
| 266 | |
| — | |
| 4 | |
| 3,782 |
Construction and land development | |
| 1,342 | |
| (254) | |
| — | |
| 75 | |
| 1,163 | |
| 1,807 | |
| 118 | |
| — | |
| 115 | |
| 2,040 |
Second mortgages | |
| 45 | |
| (9) | |
| — | |
| 2 | |
| 38 | |
| 19 | |
| (1) | |
| — | |
| 2 | |
| 20 |
Multifamily | |
| 499 | |
| 28 | |
| — | |
| — | |
| 527 | |
| 307 | |
| 59 | |
| — | |
| — | |
| 366 |
Agriculture | |
| 44 | |
| 7 | |
| — | |
| — | |
| 51 | |
| 59 | |
| (16) | |
| — | |
| — | |
| 43 |
Total real estate loans | |
| 10,037 | |
| (2,788) | |
| — | |
| 96 | |
| 7,345 | |
| 7,608 | |
| 486 | |
| (11) | |
| 172 | |
| 8,255 |
Commercial loans | |
| 2,058 | |
| (288) | |
| — | |
| 19 | |
| 1,789 | |
| 2,133 | |
| (676) | |
| — | |
| 25 | |
| 1,482 |
Consumer installment loans | |
| 110 | |
| 31 | |
| (42) | |
| 17 | |
| 116 | |
| 167 | |
| (49) | |
| (46) | |
| 38 | |
| 110 |
All other loans | |
| 8 | |
| 2 | |
| — | |
| — | |
| 10 | |
| 7 | |
| 1 | |
| — | |
| — | |
| 8 |
Unallocated | |
| 25 | |
| 3,043 | |
| — | |
| — | |
| 3,068 | |
| 913 | |
| 238 | |
| — | |
| — | |
| 1,151 |
Total loans | | $ | 12,238 | | $ | — | | $ | (42) | | $ | 132 | | $ | 12,328 | | $ | 10,828 | | $ | — | | $ | (57) | | $ | 235 | | $ | 11,006 |
| | | | | | | | | | | | | | | |
| | Three Months Ended June 30, 2020 | |||||||||||||
| | | | | Provision | | | | | | | | | | |
|
| March 31, 2020 |
| Allocation |
| Charge-offs |
| Recoveries |
| June 30, 2020 | |||||
Mortgage loans on real estate: | |
| | |
| | |
| | |
| | |
| |
Residential 1‑4 family | | $ | 2,935 | | $ | 547 | | $ | — | | $ | 13 | | $ | 3,495 |
Commercial | |
| 4,240 | | | 337 | | | — | | | 35 | | | 4,612 |
Construction and land development | |
| 1,354 | | | (13) | | | — | | | 1 | | | 1,342 |
Second mortgages | |
| 70 | | | (26) | | | — | | | 1 | | | 45 |
Multifamily | |
| 267 | | | 232 | | | — | | | — | | | 499 |
Agriculture | |
| 45 | | | (1) | | | — | | | — | | | 44 |
Total real estate loans | |
| 8,911 | | | 1,076 | | | — | | | 50 | | | 10,037 |
Commercial loans | |
| 2,546 | | | 37 | | | (589) | | | 64 | | | 2,058 |
Consumer installment loans | |
| 111 | | | 5 | | | (29) | | | 23 | | | 110 |
All other loans | |
| 8 | | | — | | | — | | | — | | | 8 |
Unallocated | |
| 243 | | | (218) | | | — | | | — | | | 25 |
Total loans | | $ | 11,819 | | $ | 900 | | $ | (618) | | $ | 137 | | $ | 12,238 |
| | | | | | | | | | | | | | | |
|
| Six Months Ended June 30, 2021 | |||||||||||||
| | | | | Provision | | | | | | | | | | |
| | December 31, 2020 | | Allocation | | Charge-offs | | Recoveries | | June 30, 2021 | |||||
Mortgage loans on real estate: |
| |
|
| |
|
| |
|
| |
|
| |
|
Residential 1‑4 family | | $ | 2,638 | | $ | (712) | | $ | (11) | | $ | 89 | | $ | 2,004 |
Commercial | |
| 4,568 | |
| (793) | |
| — | |
| 7 | |
| 3,782 |
Construction and land development | |
| 2,545 | |
| (640) | |
| — | |
| 135 | |
| 2,040 |
Second mortgages | |
| 18 | |
| (8) | |
| — | |
| 10 | |
| 20 |
Multifamily | |
| 508 | |
| (142) | |
| — | |
| — | |
| 366 |
Agriculture | |
| 40 | |
| 3 | |
| — | |
| — | |
| 43 |
Total real estate loans | |
| 10,317 | |
| (2,292) | |
| (11) | |
| 241 | |
| 8,255 |
Commercial loans | |
| 1,897 | |
| (297) | |
| (167) | |
| 49 | |
| 1,482 |
Consumer installment loans | |
| 119 | |
| 37 | |
| (125) | |
| 79 | |
| 110 |
All other loans | |
| 7 | |
| 1 | |
| — | |
| | |
| 8 |
Unallocated | |
| — | |
| 1,151 | |
| — | |
| — | |
| 1,151 |
Total loans | | $ | 12,340 | | $ | (1,400) | | $ | (303) | | $ | 369 | | $ | 11,006 |
15
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2019 | | Six Months Ended June 30, 2020 | ||||||||||||||||||||||||||
| | | | | Provision | | | | | | | | | | | | | | Provision | | | | | | | | | | ||
|
| June 30, 2019 |
| Allocation |
| Charge-offs |
| Recoveries |
| September 30, 2019 |
| December 31, 2019 |
| Allocation |
| Charge-offs |
| Recoveries |
| June 30, 2020 | ||||||||||
Mortgage loans on real estate: | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Residential 1‑4 family | | $ | 2,894 | | $ | (35) | | $ | (144) | | $ | 26 | | $ | 2,741 | | $ | 2,685 | | $ | 781 | | $ | — | | $ | 29 | | $ | 3,495 |
Commercial | |
| 2,026 | |
| 1 | |
| — | |
| 7 | |
| 2,034 | |
| 2,196 | | | 2,337 | | | — | | | 79 | | | 4,612 |
Construction and land development | |
| 1,399 | |
| (587) | |
| (200) | |
| 18 | |
| 630 | |
| 1,044 | | | 214 | | | — | | | 84 | | | 1,342 |
Second mortgages | |
| 81 | |
| (7) | |
| — | |
| 2 | |
| 76 | |
| 79 | | | (36) | | | — | | | 2 | | | 45 |
Multifamily | |
| 192 | |
| 17 | |
| — | |
| 41 | |
| 250 | |
| 248 | | | 251 | | | — | | | — | | | 499 |
Agriculture | |
| 32 | |
| 15 | |
| — | |
| — | |
| 47 | |
| 38 | | | 6 | | | — | | | — | | | 44 |
Total real estate loans | |
| 6,624 | |
| (596) | |
| (344) | |
| 94 | |
| 5,778 | |
| 6,290 | | | 3,553 | | | — | | | 194 | | | 10,037 |
Commercial loans | |
| 1,999 | |
| (229) | |
| (98) | |
| 3 | |
| 1,675 | |
| 1,980 | | | 619 | | | (608) | | | 67 | | | 2,058 |
Consumer installment loans | |
| 185 | |
| 32 | |
| (134) | |
| 53 | |
| 136 | |
| 114 | | | 40 | | | (104) | | | 60 | | | 110 |
All other loans | |
| 8 | |
| — | |
| — | |
| — | |
| 8 | |
| 7 | | | 1 | | | ��� | | | — | | | 8 |
Unallocated | |
| 3 | |
| 793 | |
| — | |
| — | |
| 796 | |
| 38 | | | (13) | | | — | | | — | | | 25 |
Total loans | | $ | 8,819 | | $ | — | | $ | (576) | | $ | 150 | | $ | 8,393 | | $ | 8,429 | | $ | 4,200 | | $ | (712) | | $ | 321 | | $ | 12,238 |
The increase in provision expense for the three and six months ended June 30, 2020 reflected the significant increase in commercial real estate and commercial loans classified as special mention due to the inherent economic impact COVID-19 was expected to have on these borrowers. The subsequent recovery of loan loss provision for the six months ended June 30, 2021 reflected a more stable economic climate in the first six months of 2021 compared with each quarter in 2020. This is evidenced by the level of charge-offs and delinquencies, which have remained relatively low, as well as decreases in special mention loans. Also, the majority of loans that were granted COVID-19 related payment relief have resumed normal payments. The allowance for loan losses could be further impacted by COVID-19; however, the amount of that impact is not currently estimable.
| | | | | | | | | | | | | | | |
|
| Nine Months Ended September 30, 2020 | |||||||||||||
| | | | | Provision | | | | | | | | | | |
| | December 31, 2019 | | Allocation | | Charge-offs | | Recoveries | | September 30, 2020 | |||||
Mortgage loans on real estate: |
| |
|
| |
|
| |
|
| |
|
| |
|
Residential 1‑4 family | | $ | 2,685 | | $ | (173) | | $ | — | | $ | 43 | | $ | 2,555 |
Commercial | |
| 2,196 | |
| 731 | |
| — | |
| 84 | |
| 3,011 |
Construction and land development | |
| 1,044 | |
| (40) | |
| — | |
| 159 | |
| 1,163 |
Second mortgages | |
| 79 | |
| (45) | |
| — | |
| 4 | |
| 38 |
Multifamily | |
| 248 | |
| 279 | |
| — | |
| — | |
| 527 |
Agriculture | |
| 38 | |
| 13 | |
| — | |
| — | |
| 51 |
Total real estate loans | |
| 6,290 | |
| 765 | |
| — | |
| 290 | |
| 7,345 |
Commercial loans | |
| 1,980 | |
| 331 | |
| (608) | |
| 86 | |
| 1,789 |
Consumer installment loans | |
| 114 | |
| 71 | |
| (146) | |
| 77 | |
| 116 |
All other loans | |
| 7 | |
| 3 | |
| — | |
| — | |
| 10 |
Unallocated | |
| 38 | |
| 3,030 | |
| — | |
| — | |
| 3,068 |
Total loans | | $ | 8,429 | | $ | 4,200 | | $ | (754) | | $ | 453 | | $ | 12,328 |
Due to the lingering potential effects of COVID-19, the Company changed the look back period related to the qualitative factor measuring credit quality deterioration trends for the June 30, 2021 loan loss allowance calculation. The factor was calculated based on an 8 quarter look back period versus a 4 quarter look back period used in prior periods. This change accounted for the credit quality changes pre- and post-COVID-19, which span over the 8 quarter period. The revised methodology resulted in a decrease of $900,000 to the unallocated component with corresponding increases of $607,000, $150,000 and $110,000 to the commercial real estate, residential 1-4 family and commercial loan components, respectively, as compared to the previous methodology.
The following tables present information on the loans evaluated for impairment in the allowance for loan losses as of June 30, 2021 and December 31, 2020 (dollars in thousands):
| | | | | | | | | | | | | | | | | | | |||||||||||||||
| | June 30, 2021 | |||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | Allowance for Loan Losses | | Recorded Investment in Loans | ||||||||||||||
| | Nine Months Ended September 30, 2019 |
| Individually |
| Collectively |
| | |
| Individually |
| Collectively |
| | | |||||||||||||||||
| | | | | Provision | | | | | | | | | | | Evaluated for | | Evaluated for | | | | Evaluated for | | Evaluated for | | | |||||||
|
| December 31, 2018 |
| Allocation |
| Charge-offs |
| Recoveries |
| September 30, 2019 | | Impairment | | Impairment | | Total | | Impairment | | Impairment | | Total | |||||||||||
Mortgage loans on real estate: | |
| | |
| | |
| | |
| | |
| |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Residential 1‑4 family | | $ | 2,281 | | $ | 394 | | $ | (178) | | $ | 244 | | $ | 2,741 | | $ | 632 | | $ | 1,372 | | $ | 2,004 | | $ | 2,445 | | $ | 180,484 | | $ | 182,929 |
Commercial | |
| 1,810 | |
| 430 | |
| (277) | |
| 71 | |
| 2,034 | |
| 8 | |
| 3,774 | |
| 3,782 | |
| 3,829 | |
| 503,122 | |
| 506,951 |
Construction and land development | |
| 1,161 | |
| (390) | |
| (212) | |
| 71 | |
| 630 | |
| 1 | |
| 2,039 | |
| 2,040 | |
| 2 | |
| 180,213 | |
| 180,215 |
Second mortgages | |
| 20 | |
| 51 | |
| — | |
| 5 | |
| 76 | |
| — | |
| 20 | |
| 20 | |
| — | |
| 6,893 | |
| 6,893 |
Multifamily | |
| 371 | |
| (162) | |
| — | |
| 41 | |
| 250 | |
| — | |
| 366 | |
| 366 | |
| — | |
| 72,918 | |
| 72,918 |
Agriculture | |
| 17 | |
| 30 | |
| — | |
| — | |
| 47 | |
| — | |
| 43 | |
| 43 | |
| — | |
| 7,841 | |
| 7,841 |
Total real estate loans | |
| 5,660 | |
| 353 | |
| (667) | |
| 432 | |
| 5,778 | |
| 641 | |
| 7,614 | |
| 8,255 | |
| 6,276 | |
| 951,471 | |
| 957,747 |
Commercial loans | |
| 1,894 | |
| 129 | |
| (355) | |
| 7 | |
| 1,675 | |
| 273 | |
| 1,209 | |
| 1,482 | |
| 1,440 | |
| 222,997 | |
| 224,437 |
Consumer installment loans | |
| 152 | |
| 116 | |
| (234) | |
| 102 | |
| 136 | |
| — | |
| 110 | |
| 110 | |
| — | |
| 8,452 | |
| 8,452 |
All other loans | |
| 12 | |
| (4) | |
| — | |
| — | |
| 8 | |
| — | |
| 8 | |
| 8 | |
| — | |
| 1,205 | |
| 1,205 |
Unallocated | |
| 1,265 | |
| (469) | |
| — | |
| — | |
| 796 | |
| — | |
| 1,151 | |
| 1,151 | |
| — | |
| — | |
| — |
Total loans | | $ | 8,983 | | $ | 125 | | $ | (1,256) | | $ | 541 | | $ | 8,393 | | $ | 914 | | $ | 10,092 | | $ | 11,006 | | $ | 7,716 | | $ | 1,184,125 | | $ | 1,191,841 |
16
The increase in provision expense reflects the significant increase in commercial real estate and commercial loans classified as special mention due to the inherent economic impact COVID-19 may have on these borrowers. The allowance for loan losses could be further impacted by COVID-19; however, the amount of that impact is not currently estimable.
The following tables present information on the loans evaluated for impairment in the allowance for loan losses as of September 30, 2020 and December 31, 2019 (dollars in thousands):
| | | | | | | | | | | | | | | | | | |
| | September 30, 2020 | ||||||||||||||||
| | Allowance for Loan Losses | | Recorded Investment in Loans | ||||||||||||||
|
| Individually |
| Collectively |
| | |
| Individually |
| Collectively |
| | | ||||
| | Evaluated for | | Evaluated for | | | | Evaluated for | | Evaluated for | | | ||||||
| | Impairment | | Impairment | | Total | | Impairment | | Impairment | | Total | ||||||
Mortgage loans on real estate: |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Residential 1‑4 family | | $ | 615 | | $ | 1,940 | | $ | 2,555 | | $ | 2,821 | | $ | 201,545 | | $ | 204,366 |
Commercial | |
| 59 | |
| 2,952 | |
| 3,011 | |
| 3,718 | |
| 448,959 | |
| 452,677 |
Construction and land development | |
| 153 | |
| 1,010 | |
| 1,163 | |
| 572 | |
| 159,194 | |
| 159,766 |
Second mortgages | |
| — | |
| 38 | |
| 38 | |
| — | |
| 6,488 | |
| 6,488 |
Multifamily | |
| — | |
| 527 | |
| 527 | |
| — | |
| 77,787 | |
| 77,787 |
Agriculture | |
| 14 | |
| 37 | |
| 51 | |
| 51 | |
| 7,087 | |
| 7,138 |
Total real estate loans | |
| 841 | |
| 6,504 | |
| 7,345 | |
| 7,162 | |
| 901,060 | |
| 908,222 |
Commercial loans | |
| 334 | |
| 1,455 | |
| 1,789 | |
| 1,786 | |
| 255,576 | |
| 257,362 |
Consumer installment loans | |
| 5 | |
| 111 | |
| 116 | |
| 19 | |
| 10,587 | |
| 10,606 |
All other loans | |
| — | |
| 10 | |
| 10 | |
| — | |
| 1,519 | |
| 1,519 |
Unallocated | |
| — | |
| 3,068 | |
| 3,068 | |
| — | |
| — | |
| — |
Total loans | | $ | 1,180 | | $ | 11,148 | | $ | 12,328 | | $ | 8,967 | | $ | 1,168,742 | | $ | 1,177,709 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2019 | | December 31, 2020 | ||||||||||||||||||||||||||||||||
| | Allowance for Loan Losses | | Recorded Investment in Loans | | Allowance for Loan Losses | | Recorded Investment in Loans | ||||||||||||||||||||||||||||
|
| Individually |
| Collectively |
| | |
| Individually |
| Collectively |
| | |
| Individually |
| Collectively |
| | |
| Individually |
| Collectively |
| | | ||||||||
| | Evaluated for | | Evaluated for | | | | | Evaluated for | | Evaluated for | | | | | Evaluated for | | Evaluated for | | | | | Evaluated for | | Evaluated for | | | | ||||||||
| | Impairment | | Impairment | | Total | | Impairment | | Impairment | | Total | | Impairment | | Impairment | | Total | | Impairment | | Impairment | | Total | ||||||||||||
Mortgage loans on real estate: |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Residential 1‑4 family | | $ | 380 | | $ | 2,305 | | $ | 2,685 | | $ | 2,981 | | $ | 220,557 | | $ | 223,538 | | $ | 640 | | $ | 1,998 | | $ | 2,638 | | $ | 2,824 | | $ | 194,404 | | $ | 197,228 |
Commercial | |
| 87 | |
| 2,109 | |
| 2,196 | |
| 3,604 | |
| 393,254 | |
| 396,858 | |
| 57 | |
| 4,511 | |
| 4,568 | |
| 3,658 | |
| 471,198 | |
| 474,856 |
Construction and land development | |
| 11 | |
| 1,033 | |
| 1,044 | |
| 376 | |
| 146,190 | |
| 146,566 | |
| 12 | |
| 2,533 | |
| 2,545 | |
| 44 | |
| 182,233 | |
| 182,277 |
Second mortgages | |
| — | |
| 79 | |
| 79 | |
| — | |
| 6,639 | |
| 6,639 | |
| — | |
| 18 | |
| 18 | |
| — | |
| 6,360 | |
| 6,360 |
Multifamily | |
| — | |
| 248 | |
| 248 | |
| 2,463 | |
| 70,515 | |
| 72,978 | |
| — | |
| 508 | |
| 508 | |
| — | |
| 78,158 | |
| 78,158 |
Agriculture | |
| — | |
| 38 | |
| 38 | |
| — | |
| 8,346 | |
| 8,346 | |
| 13 | |
| 27 | |
| 40 | |
| 45 | |
| 6,617 | |
| 6,662 |
Total real estate loans | |
| 478 | |
| 5,812 | |
| 6,290 | |
| 9,424 | |
| 845,501 | |
| 854,925 | |
| 722 | |
| 9,595 | |
| 10,317 | |
| 6,571 | |
| 938,970 | |
| 945,541 |
Commercial loans | |
| 105 | |
| 1,875 | |
| 1,980 | |
| 454 | |
| 190,729 | |
| 191,183 | |
| 437 | |
| 1,460 | |
| 1,897 | |
| 2,549 | |
| 222,837 | |
| 225,386 |
Consumer installment loans | |
| 1 | |
| 113 | |
| 114 | |
| 7 | |
| 11,156 | |
| 11,163 | |
| 6 | |
| 113 | |
| 119 | |
| 19 | |
| 9,977 | |
| 9,996 |
All other loans | |
| — | |
| 7 | |
| 7 | |
| — | |
| 1,052 | |
| 1,052 | |
| — | |
| 7 | |
| 7 | |
| — | |
| 1,439 | |
| 1,439 |
Unallocated | |
| — | |
| 38 | |
| 38 | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Total loans | | $ | 584 | | $ | 7,845 | | $ | 8,429 | | $ | 9,885 | | $ | 1,048,438 | | $ | 1,058,323 | | $ | 1,165 | | $ | 11,175 | | $ | 12,340 | | $ | 9,139 | | $ | 1,173,223 | | $ | 1,182,362 |
Loans are monitored for credit quality on a recurring basis. These credit quality indicators are defined as follows:
Pass - A pass loan is not adversely classified, as it does not display any of the characteristics for adverse classification. This category includes purchased loans that are 100% guaranteed by U.S. Government agencies of $11.9$10.5 million and $12.7$10.7 million at SeptemberJune 30, 20202021 and December 31, 2019,2020, respectively, and PPP loans 100% guaranteed by the SBA of $85.1$53.9 million and $49.3 million at SeptemberJune 30, 2020.2021 and December 31, 2020, respectively.
Special Mention - A special mention loan has potential weaknesses that deserve management’s close attention. If left uncorrected, such potential weaknesses may result in deterioration of the repayment prospects or collateral position at some future date. Special mention loans are not adversely classified and do not warrant adverse classification.
17
Substandard - A substandard loan is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified as substandard generally have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt. These loans are characterized by the distinct possibility of loss if the deficiencies are not corrected.
Doubtful - A doubtful loan has all the weaknesses inherent in a loan classified as substandard with the added characteristics that the weaknesses make collection or liquidation in full, highly questionable and improbable, on the basis of currently existing facts, conditions, and values. The possibility of loss is extremely high.
17
The following tables present the composition of loans by credit quality indicator at SeptemberJune 30, 20202021 and December 31, 20192020 (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2020 | | June 30, 2021 | ||||||||||||||||||||||||||
| | | | | Special | | | | | | | | | | | | | | Special | | | | | | | | | | ||
|
| Pass |
| Mention |
| Substandard |
| Doubtful |
| Total |
| Pass |
| Mention |
| Substandard |
| Doubtful |
| Total | ||||||||||
Mortgage loans on real estate: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Residential 1‑4 family | | $ | 189,923 | | $ | 13,104 | | $ | 1,339 | | $ | — | | $ | 204,366 | | $ | 177,280 | | $ | 4,363 | | $ | 1,286 | | $ | — | | $ | 182,929 |
Commercial | |
| 357,037 | |
| 93,500 | |
| 2,140 | |
| — | |
| 452,677 | |
| 458,076 | | | 47,922 | | | 953 | | | — | | | 506,951 |
Construction and land development | |
| 158,447 | |
| 747 | |
| 572 | |
| — | |
| 159,766 | |
| 175,406 | | | 4,807 | | | 2 | | | — | | | 180,215 |
Second mortgages | |
| 5,286 | |
| 1,202 | |
| — | |
| — | |
| 6,488 | |
| 6,275 | | | 618 | | | — | | | — | | | 6,893 |
Multifamily | |
| 70,964 | |
| 6,823 | |
| — | |
| — | |
| 77,787 | |
| 72,732 | | | 186 | | | — | | | — | | | 72,918 |
Agriculture | |
| 6,713 | |
| 374 | |
| 51 | |
| — | |
| 7,138 | |
| 6,391 | | | 1,450 | | | — | | | — | | | 7,841 |
Total real estate loans | |
| 788,370 | |
| 115,750 | |
| 4,102 | |
| — | |
| 908,222 | |
| 896,160 | | | 59,346 | | | 2,241 | | | — | | | 957,747 |
Commercial loans | |
| 222,378 | |
| 27,653 | |
| 7,331 | |
| — | |
| 257,362 | |
| 205,096 | | | 14,764 | | | 4,577 | | | — | | | 224,437 |
Consumer installment loans | |
| 10,537 | |
| 50 | |
| 19 | |
| — | |
| 10,606 | |
| 8,442 | | | 10 | | | — | | | — | | | 8,452 |
All other loans | |
| 1,503 | |
| 16 | |
| — | |
| — | |
| 1,519 | |
| 1,191 | | | 14 | | | — | | | — | | | 1,205 |
Total loans | | $ | 1,022,788 | | $ | 143,469 | | $ | 11,452 | | $ | — | | $ | 1,177,709 | | $ | 1,110,889 | | $ | 74,134 | | $ | 6,818 | | $ | — | | $ | 1,191,841 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2019 | | December 31, 2020 | ||||||||||||||||||||||||||
| | | | | Special | | | | | | | | | | | | | | Special | | | | | | | | | | ||
|
| Pass |
| Mention |
| Substandard |
| Doubtful |
| Total |
| Pass |
| Mention |
| Substandard |
| Doubtful |
| Total | ||||||||||
Mortgage loans on real estate: |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Residential 1‑4 family | | $ | 219,210 | | $ | 2,964 | | $ | 1,364 | | $ | — | | $ | 223,538 | | $ | 189,617 | | $ | 6,253 | | $ | 1,358 | | $ | — | | $ | 197,228 |
Commercial | |
| 391,251 | |
| 3,188 | |
| 2,419 | |
| — | |
| 396,858 | |
| 433,748 | | | 39,001 | | | 2,107 | | | — | | | 474,856 |
Construction and land development | |
| 145,782 | |
| 408 | |
| 376 | |
| — | |
| 146,566 | |
| 173,668 | | | 8,565 | | | 44 | | | — | | | 182,277 |
Second mortgages | |
| 6,096 | |
| 543 | |
| — | |
| — | |
| 6,639 | |
| 5,495 | | | 865 | | | — | | | — | | | 6,360 |
Multifamily | |
| 70,515 | |
| — | |
| 2,463 | |
| — | |
| 72,978 | |
| 71,923 | | | 6,235 | | | — | | | — | | | 78,158 |
Agriculture | |
| 8,098 | |
| 248 | |
| — | |
| — | |
| 8,346 | |
| 6,208 | | | 409 | | | 45 | | | — | | | 6,662 |
Total real estate loans | |
| 840,952 | |
| 7,351 | |
| 6,622 | |
| — | |
| 854,925 | |
| 880,659 | | | 61,328 | | | 3,554 | | | — | | | 945,541 |
Commercial loans | |
| 185,123 | |
| 2,770 | |
| 3,290 | |
| — | |
| 191,183 | |
| 199,762 | | | 17,843 | | | 7,781 | | | — | | | 225,386 |
Consumer installment loans | |
| 11,140 | |
| 16 | |
| 7 | |
| — | |
| 11,163 | |
| 9,959 | | | 18 | | | 19 | | | — | | | 9,996 |
All other loans | |
| 1,052 | |
| — | |
| — | |
| — | |
| 1,052 | |
| 1,424 | | | 15 | | | — | | | — | | | 1,439 |
Total loans | | $ | 1,038,267 | | $ | 10,137 | | $ | 9,919 | | $ | — | | $ | 1,058,323 | | $ | 1,091,804 | | $ | 79,204 | | $ | 11,354 | | $ | — | | $ | 1,182,362 |
In accordance with FASB Accounting Standards Update (ASU) 2011-02, Receivables (Topic 310): A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring, the Company assesses all loan modifications to determine whether they are considered troubled debt restructurings (TDRs) under the guidance. The Company had 1915 and 2519 loans that met the definition of a TDR at Septembereach of June 30, 20202021 and 2019,2020, respectively.
TheDuring the three and six months ended June 30, 2021, the Company had 0restructured the terms of one 1-4 family residential loan modificationsthat was considered to be TDRs duringa TDR with a pre- and post-modification balance of $61,000. During the three and six months ended September 30, 2020. During the nine months ended SeptemberJune 30, 2020, the Company modified 1 commercial real estate loan that was considered to be a TDR. The Company granted the borrower six months interest only payment relief and no other changes were made to the loan structure. The loan is 100% guaranteed by the USDA and had a pre- and post-modification balance of $438,000. The Company had 0 loan modifications considered to be TDRs during the three and nine months ended September 30, 2019.
18
A loan is considered to be in default if it is 90 days or more past due. There were 0 TDRs that had been restructured during the previous 12 months that resulted in default during the three and ninesix months ended SeptemberJune 30, 2021 and 2020. There were 0 TDRs that had been restructured during the previous 12 months that resulted in default during the three months ended September 30, 2019. During the nine months ended September 30, 2019, 1 loan defaulted that had been restructured during the previous 12 months prior to the default. This multifamily real estate loan had a recorded investment of $2.6 million.
In the determination of the allowance for loan losses, management considers TDRs and subsequent defaults in these restructures by reviewing for impairment in accordance with FASB ASC 310-10-35, Receivables, Subsequent Measurement.
At SeptemberJune 30, 2020,2021, the Company had 1-4 family mortgages in the amount of $92.4$79.7 million and cash in the amount of $6.5 million pledged as collateral to the Federal Home Loan Bank for a total borrowing capacity of $76.7$67.8 million.
18
Note 4. PCI Loans and Related Allowance for Loan Losses
On January 30, 2009, the Company entered into a Purchase and Assumption Agreement with the Federal Deposit Insurance Corporation (FDIC) to assume all of the deposits and certain other liabilities and acquire substantially all assets of Suburban Federal Savings Bank (SFSB). The Company is applying the provisions of FASB ASC 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality, to all loans acquired in the SFSB transaction (the “PCI loans”). Of the total $198.3 million in loans acquired, $49.1 million met the criteria of FASB ASC 310-30. These loans, consisting mainly of construction loans, were deemed impaired at the acquisition date. The remaining $149.1 million of loans acquired, comprised mainly of residential 1-4 family, were analogized to meet the criteria of FASB ASC 310-30. Analysis of this portfolio revealed that SFSB utilized weak underwriting and documentation standards, which led the Company to believe that significant losses were probable given the economic environment at the time.
As of SeptemberJune 30, 20202021 and December 31, 2019,2020, the outstanding contractual balance of the PCI loans was $46.6$36.3 million and $53.2$43.2 million, respectively. The carrying amount, by loan type, as of these dates is as follows (dollars in
thousands):
| | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2020 | | December 31, 2019 |
| | June 30, 2021 | | December 31, 2020 |
| ||||||||||||
|
| | |
| % of PCI |
| | |
| % of PCI |
|
| | |
| % of PCI |
| | |
| % of PCI |
|
| | Amount | | Loans | | Amount | | Loans |
| | Amount | | Loans | | Amount | | Loans |
| ||||
Mortgage loans on real estate: | | | | | | | | | | | | | | | | | | | | | | |
Residential 1‑4 family | | $ | 24,664 |
| 90.86 | % | $ | 29,465 |
| 90.58 | % | | $ | 16,067 |
| 89.54 | % | $ | 21,720 |
| 90.35 | % |
Commercial | |
| 457 |
| 1.68 | |
| 490 |
| 1.51 | | |
| 403 |
| 2.25 | |
| 429 |
| 1.78 | |
Construction and land development | |
| 846 |
| 3.12 | |
| 1,172 |
| 3.60 | | |
| 508 |
| 2.83 | |
| 780 |
| 3.25 | |
Second mortgages | |
| 963 |
| 3.55 | |
| 1,169 |
| 3.59 | | |
| 779 |
| 4.34 | |
| 904 |
| 3.76 | |
Multifamily | |
| 216 |
| 0.79 | |
| 232 |
| 0.72 | | |
| 186 |
| 1.04 | |
| 207 |
| 0.86 | |
Total real estate loans | |
| 27,146 |
| 100.00 | |
| 32,528 |
| 100.00 | | |
| 17,943 |
| 100.00 | |
| 24,040 |
| 100.00 | |
Total PCI loans | | $ | 27,146 |
| 100.00 | % | $ | 32,528 |
| 100.00 | % | | $ | 17,943 |
| 100.00 | % | $ | 24,040 |
| 100.00 | % |
There was 0 activity in the allowance for loan losses on PCI loans for the three and ninesix months ended SeptemberJune 30, 2021 and 2020.
The following table presents information on the PCI loans collectively evaluated for impairment in the allowance for loan losses at June 30, 2021 and December 31, 2020 and 2019.(dollars in thousands):
| | | | | | | | | | | | |
| | June 30, 2021 | | December 31, 2020 | ||||||||
|
| Allowance |
| Recorded |
| | |
| Recorded | |||
| | for loan | | investment in | | Allowance for | | investment in | ||||
| | losses | | loans | | loan losses | | loans | ||||
Mortgage loans on real estate: |
| |
|
| |
|
| |
|
| |
|
Residential 1‑4 family | | $ | 156 | | $ | 16,067 | | $ | 156 | | $ | 21,720 |
Commercial | |
| — | |
| 403 | |
| — | |
| 429 |
Construction and land development | |
| — | |
| 508 | |
| — | |
| 780 |
Second mortgages | |
| — | |
| 779 | |
| — | |
| 904 |
Multifamily | |
| — | |
| 186 | |
| — | |
| 207 |
Total real estate loans | |
| 156 | |
| 17,943 | |
| 156 | |
| 24,040 |
Total PCI loans | | $ | 156 | | $ | 17,943 | | $ | 156 | | $ | 24,040 |
19
The following table presents information on the PCI loans collectively evaluated for impairment in the allowance for loan losses at September 30, 2020 and December 31, 2019 (dollars in thousands):
| | | | | | | | | | | | |
| | September 30, 2020 | | December 31, 2019 | ||||||||
|
| Allowance |
| Recorded |
| | |
| Recorded | |||
| | for loan | | investment in | | Allowance for | | investment in | ||||
| | losses | | loans | | loan losses | | loans | ||||
Mortgage loans on real estate: |
| |
|
| |
|
| |
|
| |
|
Residential 1‑4 family | | $ | 156 | | $ | 24,664 | | $ | 156 | | $ | 29,465 |
Commercial | |
| — | |
| 457 | |
| — | |
| 490 |
Construction and land development | |
| — | |
| 846 | |
| — | |
| 1,172 |
Second mortgages | |
| — | |
| 963 | |
| — | |
| 1,169 |
Multifamily | |
| — | |
| 216 | |
| — | |
| 232 |
Total real estate loans | |
| 156 | |
| 27,146 | |
| 156 | |
| 32,528 |
Total PCI loans | | $ | 156 | | $ | 27,146 | | $ | 156 | | $ | 32,528 |
The change in the accretable yield balance for the ninesix months ended SeptemberJune 30, 20202021 and the year ended December 31, 2019,2020, is as follows (dollars in thousands):
| | | | | | |
|
| |
|
| |
|
Balance, January 1, 2019 | | $ | 38,107 | |||
Accretion | |
| (6,010) | |||
Reclassification from nonaccretable difference | |
| 1,369 | |||
Balance, December 31, 2019 | | $ | 33,466 | |||
Balance, January 1, 2020 | | $ | 33,466 | |||
Accretion | |
| (3,110) | |
| (4,024) |
Reclassification to nonaccretable difference | |
| (101) | |
| (253) |
Balance, September 30, 2020 | | $ | 30,255 | |||
Balance, December 31, 2020 | | $ | 29,189 | |||
Accretion | |
| (1,604) | |||
Reclassification to nonaccretable difference | |
| (2,185) | |||
Balance, June 30, 2021 | | $ | 25,400 |
The PCI loans were not classified as nonperforming assets as of SeptemberJune 30, 2020,2021, as the loans are accounted for on a pooled basis, and interest income, through accretion of the difference between the carrying amount of the loans and the expected cash flows, is being recognized on all PCI loans.
Note 5. Other Real Estate Owned
The following table presents the balances of other real estate owned (OREO) at SeptemberJune 30, 20202021 and December 31, 20192020 (dollars in thousands):
| | | | | | | | | | | | |
|
| September 30, 2020 |
| December 31, 2019 |
| June 30, 2021 |
| December 31, 2020 | ||||
Residential 1‑4 family | | $ | 21 | | $ | 21 | | $ | 21 | | $ | 21 |
Construction and land development | |
| 4,395 | |
| 4,506 | |
| 343 | |
| 4,340 |
Total other real estate owned | | $ | 4,416 | | $ | 4,527 | | $ | 364 | | $ | 4,361 |
At SeptemberJune 30, 2020,2021, the Company had $429,000 in$253,000 of residential 1-4 family loans and PCI loans that were in the process of foreclosure.
20On April 7, 2021, the Company sold OREO property with a carrying value of $3.8 million for a gain of $435,000. In accordance with FASB ASC 610, Other Income, the Company recognizes a sale when it deems that it is probable it will collect substantially all of the consideration to which it will be entitled in exchange for the OREO property and has transferred control to the buyer.
Note 6. Deposits
The following table provides interest bearing deposit information, by type, at SeptemberJune 30, 20202021 and December 31, 20192020 (dollars in thousands):
| | | | | | | | | | | | |
|
| September 30, 2020 |
| December 31, 2019 |
| June 30, 2021 |
| December 31, 2020 | ||||
Interest bearing checking | | $ | 201,121 | | $ | — | | $ | 285,044 | | $ | 239,628 |
NOW | | | — | | | 170,532 | ||||||
MMDA | |
| 158,569 | |
| 120,841 | |
| 182,702 | |
| 154,503 |
Savings | |
| 118,007 | |
| 96,570 | |
| 142,110 | |
| 124,384 |
Time deposits less than or equal to $250,000 | |
| 468,549 | |
| 477,461 | |
| 425,837 | |
| 452,885 |
Time deposits over $250,000 | |
| 141,417 | |
| 119,460 | |
| 113,423 | |
| 128,400 |
Total interest bearing deposits | | $ | 1,087,663 | | $ | 984,864 | | $ | 1,149,116 | | $ | 1,099,800 |
Effective January 1, 2020, the Company re-classified all NOW accounts to interest bearing checking accounts, thereby eliminating the seven days withdrawal notification requirement imposed on NOW accounts.
20
Note 7. Accumulated Other Comprehensive Income
The following tables present activity net of tax in accumulated other comprehensive income (AOCI) for the three and ninesix months ended SeptemberJune 30, 20202021 and 20192020 (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, 2020 | | Three months ended June 30, 2021 | ||||||||||||||||||||
|
| Unrealized |
| Defined |
| Gain (Loss) on |
| Total Other |
| Unrealized |
| Defined |
| Gain (Loss) on |
| Total Other | ||||||||
| | Gain (Loss) on | | Benefit | | Cash Flow | | Comprehensive | | Gain (Loss) on | | Benefit | | Cash Flow | | Comprehensive | ||||||||
| | Securities | | Pension Plan | | Hedge | | Income (Loss) | | Securities | | Pension Plan | | Hedge | | Income | ||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |
Beginning balance | | $ | 5,688 | | $ | (886) | | $ | (572) | | $ | 4,230 | | $ | 4,910 | | $ | (1,073) | | $ | (351) | | $ | 3,486 |
Other comprehensive income (loss) before reclassifications | |
| 1,353 | |
| — | |
| 37 | |
| 1,390 | ||||||||||||
Other comprehensive income before reclassifications | |
| 1,648 | | | — | | | 18 | |
| 1,666 | ||||||||||||
Amounts reclassified from AOCI | |
| (61) | |
| — | |
| — | |
| (61) | |
| 21 | | | — | | | — | |
| 21 |
Net current period other comprehensive income (loss) | |
| 1,292 | |
| — | |
| 37 | |
| 1,329 | ||||||||||||
Net current period other comprehensive income | |
| 1,669 | | | — | | | 18 | |
| 1,687 | ||||||||||||
Ending balance | | $ | 6,980 | | $ | (886) | | $ | (535) | | $ | 5,559 | | $ | 6,579 | | $ | (1,073) | | $ | (333) | | $ | 5,173 |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, 2019 | | Three months ended June 30, 2020 | ||||||||||||||||||||
|
| Unrealized |
| Defined |
| Gain (Loss) on |
| Total Other |
| Unrealized |
| Defined |
| Gain (Loss) on |
| Total Other | ||||||||
| | Gain (Loss) on | | Benefit | | Cash Flow | | Comprehensive | | Gain (Loss) on | | Benefit | | Cash Flow | | Comprehensive | ||||||||
| | Securities | | Pension Plan | | Hedge | | Income (Loss) | | Securities | | Pension Plan | | Hedge | | Income | ||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |
Beginning balance | | $ | 2,798 | | $ | (857) | | $ | 9 | | $ | 1,950 | | $ | 3,527 | | $ | (886) | | $ | (471) | | $ | 2,170 |
Other comprehensive income (loss) before reclassifications | |
| 948 | |
| — | |
| (122) | |
| 826 | |
| 2,349 | | | — | | | (101) | | | 2,248 |
Amounts reclassified from AOCI | |
| (39) | |
| — | |
| — | |
| (39) | |
| (188) | | | — | | | — | | | (188) |
Net current period other comprehensive income (loss) | |
| 909 | |
| — | |
| (122) | |
| 787 | |
| 2,161 | | | — | | | (101) | | | 2,060 |
Ending balance | | $ | 3,707 | | $ | (857) | | $ | (113) | | $ | 2,737 | | $ | 5,688 | | $ | (886) | | $ | (572) | | $ | 4,230 |
| | | | | | | | | | | | |
| | Six months ended June 30, 2021 | ||||||||||
|
| Unrealized |
| Defined |
| Gain (Loss) on |
| Total Other | ||||
| | Gain (Loss) on | | Benefit | | Cash Flow | | Comprehensive | ||||
| | Securities | | Pension Plan | | Hedge | | Income | ||||
| | | | | | | | | | | | |
Beginning balance | | $ | 7,758 | | $ | (1,073) | | $ | (494) | | $ | 6,191 |
Other comprehensive income (loss) before reclassifications | |
| (1,188) | |
| — | |
| 161 | |
| (1,027) |
Amounts reclassified from AOCI | |
| 9 | |
| — | |
| — | |
| 9 |
Net current period other comprehensive (loss) income | |
| (1,179) | |
| — | |
| 161 | |
| (1,018) |
Ending balance | | $ | 6,579 | | $ | (1,073) | | $ | (333) | | $ | 5,173 |
| | | | | | | | | | | | |
| | Six months ended June 30, 2020 | ||||||||||
|
| Unrealized |
| Defined |
| Gain (Loss) on |
| Total Other | ||||
| | Gain (Loss) on | | Benefit | | Cash Flow | | Comprehensive | ||||
| | Securities | | Pension Plan | | Hedge | | Income | ||||
| | | | | | | | | | | | |
Beginning balance | | $ | 2,887 | | $ | (886) | | $ | (36) | | $ | 1,965 |
Other comprehensive income (loss) before reclassifications | |
| 2,959 | | | — | | | (536) | | | 2,423 |
Amounts reclassified from AOCI | |
| (158) | | | — | | | — | | | (158) |
Net current period other comprehensive income (loss) | |
| 2,801 | | | — | | | (536) | | | 2,265 |
Ending balance | | $ | 5,688 | | $ | (886) | | $ | (572) | | $ | 4,230 |
21
| | | | | | | | | | | | |
| | Nine months ended September 30, 2020 | ||||||||||
|
| Unrealized |
| Defined |
| Gain (Loss) on |
| Total Other | ||||
| | Gain (Loss) on | | Benefit | | Cash Flow | | Comprehensive | ||||
| | Securities | | Pension Plan | | Hedge | | Income (Loss) | ||||
| | | | | | | | | | | | |
Beginning balance | | $ | 2,887 | | $ | (886) | | $ | (36) | | $ | 1,965 |
Other comprehensive income (loss) before reclassifications | |
| 4,312 | |
| — | |
| (499) | |
| 3,813 |
Amounts reclassified from AOCI | |
| (219) | |
| — | |
| — | |
| (219) |
Net current period other comprehensive income (loss) | |
| 4,093 | |
| — | |
| (499) | |
| 3,594 |
Ending balance | | $ | 6,980 | | $ | (886) | | $ | (535) | | $ | 5,559 |
| | | | | | | | | | | | |
| | Nine months ended September 30, 2019 | ||||||||||
|
| Unrealized |
| Defined |
| Gain (Loss) on |
| Total Other | ||||
| | Gain (Loss) on | | Benefit | | Cash Flow | | Comprehensive | ||||
| | Securities | | Pension Plan | | Hedge | | Income (Loss) | ||||
| | | | | | | | | | | | |
Beginning balance | | $ | (618) | | $ | (857) | | $ | 196 | | $ | (1,279) |
Other comprehensive income (loss) before reclassifications | |
| 4,539 | |
| — | |
| (309) | |
| 4,230 |
Amounts reclassified from AOCI | |
| (214) | |
| — | |
| — | |
| (214) |
Net current period other comprehensive income (loss) | |
| 4,325 | |
| — | |
| (309) | |
| 4,016 |
Ending balance | | $ | 3,707 | | $ | (857) | | $ | (113) | | $ | 2,737 |
The following tables present the effects of reclassifications out of AOCI on line items of consolidated income for the three and ninesix months ended SeptemberJune 30, 20202021 and 20192020 (dollars in thousands):
| | | | | | | | | | | | | | | | |
| | | | | | | | Affected Line Item in the Unaudited Consolidated | | | | | | | | Affected Line Item in the Unaudited Consolidated |
Details about AOCI Components | | Amount Reclassified from AOCI | | Statement of Income | | Amount Reclassified from AOCI | | Statement of Income | ||||||||
| | Three months ended | | | | Three months ended | | | ||||||||
|
| September 30, 2020 |
| September 30, 2019 |
|
| | June 30, 2021 | | June 30, 2020 | | | ||||
Securities available for sale: |
| |
|
| |
|
|
|
| |
|
| |
|
|
|
Unrealized gains on securities available for sale | | $ | (78) | | $ | (50) |
| Gain on securities transactions, net | ||||||||
Related tax expense | |
| 17 | |
| 11 |
| Income tax expense | ||||||||
Unrealized (loss) gains on securities available for sale | | $ | 28 | | $ | (242) |
| Gain (loss) on securities transactions, net | ||||||||
Related tax (benefit) expense | |
| (7) | |
| 54 |
| Income tax expense | ||||||||
| | $ | (61) | | $ | (39) |
| Net of tax | | $ | 21 | | $ | (188) |
| Net of tax |
| | | | | | | | |
| | | | | | | | Affected Line Item in the Unaudited Consolidated |
Details about AOCI Components | | Amount Reclassified from AOCI | | Statement of Income | ||||
| | Nine months ended | | | ||||
|
| September 30, 2020 |
| September 30, 2019 |
|
| ||
Securities available for sale: |
| |
|
| |
|
|
|
Unrealized gains on securities available for sale | | $ | (281) | | $ | (274) |
| Gain on securities transactions, net |
Related tax expense | |
| 62 | |
| 60 |
| Income tax expense |
| | $ | (219) | | $ | (214) |
| Net of tax |
| | | | | | | | |
| | | | | | | | Affected Line Item in the Unaudited Consolidated |
Details about AOCI Components | | Amount Reclassified from AOCI | | Statement of Income | ||||
| | Six months ended | | | ||||
|
| June 30, 2021 |
| June 30, 2020 |
|
| ||
Securities available for sale: |
| |
|
| |
|
|
|
Unrealized (loss) gains on securities available for sale | | $ | 12 | | $ | (203) |
| Gain (loss) on securities transactions, net |
Related tax (benefit) expense | |
| (3) | |
| 45 |
| Income tax expense |
| | $ | 9 | | $ | (158) |
| Net of tax |
Note 8. Fair Values of Assets and Liabilities
FASB ASC 820, Fair Value Measurements and Disclosures, defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. FASB ASC 820 requires that
22
valuation techniques maximize the use of observable inputs and minimize the use of unobservable inputs and also establishes a fair value hierarchy that prioritizes the valuation inputs into three broad levels. The Company groups assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are:
● | Level 1—Valuation is based upon quoted prices for identical instruments traded in active markets. |
● | Level 2—Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities. |
● | Level 3—Valuation is determined using model-based techniques with significant assumptions not observable in the market. These unobservable assumptions reflect the Company’s own estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include the use of third party pricing services, option pricing models, discounted cash flow models and similar techniques. |
FASB ASC 825, Financial Instruments, allows an entity the irrevocable option to elect fair value for the initial and subsequent measurement for certain financial assets and liabilities on a contract-by-contract basis. The Company has not made any material FASB ASC 825 elections as of SeptemberJune 30, 2020.
Assets and Liabilities Recorded at Fair Value on a Recurring Basis
The Company utilizes fair value measurements to record adjustments to certain assets to determine fair value disclosures. Securities available for sale and the cash flow hedge are recorded at fair value on a recurring basis. The tables below present the recorded amount of assets and liabilities measured at fair value on a recurring basis (dollars in thousands):
| | | | | | | | | | | | |
| | September 30, 2020 | ||||||||||
|
| Total |
| Level 1 |
| Level 2 |
| Level 3 | ||||
Investment securities available for sale |
| |
|
| |
|
| |
|
| |
|
U.S. Treasury securities | | $ | 12,500 | | $ | 12,500 | | $ | — | | $ | — |
U.S. Government agencies | |
| 19,745 | |
| — | |
| 19,745 | |
| — |
State, county and municipal | |
| 116,534 | |
| 1,329 | |
| 115,205 | |
| — |
Mortgage backed securities | |
| 29,951 | |
| — | |
| 29,951 | |
| — |
Asset backed securities | |
| 28,986 | |
| 550 | |
| 28,436 | |
| — |
Corporate bonds | |
| 25,937 | |
| 750 | |
| 25,187 | |
| — |
Total investment securities available for sale | |
| 233,653 | |
| 15,129 | |
| 218,524 | |
| — |
Total assets at fair value | | $ | 233,653 | | $ | 15,129 | | $ | 218,524 | | $ | — |
Cash flow hedge liability | | $ | 683 | |
| — | | $ | 683 | |
| — |
Total liabilities at fair value | | $ | 683 | | $ | — | | $ | 683 | | $ | — |
2021.
2322
| | | | | | | | | | | | |
| | December 31, 2019 | ||||||||||
|
| Total |
| Level 1 |
| Level 2 |
| Level 3 | ||||
Investment securities available for sale | | | | | | | | | | | | |
U.S. Government agencies | | $ | 21,936 | | $ | — | | $ | 21,936 | | $ | — |
State, county and municipal | |
| 98,592 | |
| 10,072 | |
| 88,520 | |
| — |
Mortgage backed securities | |
| 48,740 | |
| 1,181 | |
| 47,559 | |
| — |
Asset backed securities | |
| 11,604 | |
| — | |
| 11,604 | |
| — |
Corporate bonds | |
| 6,097 | |
| — | |
| 6,097 | |
| — |
Total investment securities available for sale | |
| 186,969 | |
| 11,253 | |
| 175,716 | |
| — |
Total assets at fair value | | $ | 186,969 | | $ | 11,253 | | $ | 175,716 | | $ | — |
Cash flow hedge liability | | | 44 | |
| — | | $ | 44 | |
| — |
Total liabilities at fair value | | $ | 44 | | $ | — | | $ | 44 | | $ | — |
Assets and Liabilities Recorded at Fair Value on a Recurring Basis
The Company utilizes fair value measurements to record adjustments to certain assets to determine fair value disclosures. Securities available for sale and the cash flow hedge are recorded at fair value on a recurring basis. The tables below present the recorded amount of assets and liabilities measured at fair value on a recurring basis as of June 30, 2021 and December 31, 2020 (dollars in thousands):
| | | | | | | | | | | | |
| | June 30, 2021 | ||||||||||
|
| Total |
| Level 1 |
| Level 2 |
| Level 3 | ||||
Investment securities available for sale |
| |
|
| |
|
| |
|
| |
|
U.S. Treasury securities | | $ | 10,229 | | $ | 2,353 | | $ | 7,876 | | $ | — |
U.S. Government agencies | |
| 47,760 | | | 5,247 | | | 42,513 | |
| — |
State, county and municipal | |
| 151,309 | | | 10,753 | | | 140,556 | |
| — |
Mortgage backed securities | |
| 38,024 | | | 6,111 | | | 31,913 | |
| — |
Asset backed securities | |
| 47,767 | | | — | | | 47,767 | |
| — |
Corporate bonds | |
| 26,670 | | | — | | | 26,670 | |
| — |
Total investment securities available for sale | |
| 321,759 | | | 24,464 | | | 297,295 | |
| — |
Total assets at fair value | | $ | 321,759 | | $ | 24,464 | | $ | 297,295 | | $ | — |
Cash flow hedge liability | | $ | 424 | |
| — | | $ | 424 | |
| — |
Total liabilities at fair value | | $ | 424 | | $ | — | | $ | 424 | | $ | — |
| | | | | | | | | | | | |
| | December 31, 2020 | ||||||||||
|
| Total |
| Level 1 |
| Level 2 |
| Level 3 | ||||
Investment securities available for sale | | | | | | | | | | | | |
U.S. Treasury securities | | $ | 23,499 | | $ | 23,499 | | $ | — | | $ | — |
U.S. Government agencies | | | 25,853 | |
| 4,034 | |
| 21,819 | |
| — |
State, county and municipal | |
| 125,720 | |
| 5,945 | |
| 119,775 | |
| — |
Mortgage backed securities | |
| 32,189 | |
| 5,534 | |
| 26,655 | |
| — |
Asset backed securities | |
| 37,488 | |
| 9,784 | |
| 27,704 | |
| — |
Corporate bonds | |
| 26,598 | |
| 500 | |
| 26,098 | |
| — |
Total investment securities available for sale | |
| 271,347 | |
| 49,296 | |
| 222,051 | |
| — |
Total assets at fair value | | $ | 271,347 | | $ | 49,296 | | $ | 222,051 | | $ | — |
Cash flow hedge liability | | | 631 | |
| — | | $ | 631 | |
| — |
Total liabilities at fair value | | $ | 631 | | $ | — | | $ | 631 | | $ | — |
Investment securities available for sale
Investment securities available for sale are recorded at fair value each reporting period. Fair value measurement is based upon quoted prices, if available (Level 1). If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions (Level 2).
The Company utilizes a third party vendor to provide fair value data for purposes of determining the fair value of its available for sale securities portfolio. The third party vendor uses reputable pricing companies for security market data. The third party vendor has controls in place for month-to-month market checks and zero pricing, and a Statement on Standards for Attestation Engagements No. 18 report is obtained from the third party vendor on an annual basis. The Company makes no adjustments to the pricing service data received for its securities available for sale.
Cash flow hedge
The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves.
23
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
The Company is also required to measure and recognize certain other financial assets at fair value on a nonrecurring basis on the consolidated balance sheet. The following tables present assets measured at fair value on a nonrecurring basis as of SeptemberJune 30, 20202021 and December 31, 20192020 (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2020 | | June 30, 2021 | ||||||||||||||||||||
|
| Total |
| Level 1 |
| Level 2 |
| Level 3 |
| Total |
| Level 1 |
| Level 2 |
| Level 3 | ||||||||
Impaired loans | | $ | 3,241 | | $ | — | | $ | — | | $ | 3,241 | | $ | 2,142 | | $ | — | | $ | — | | $ | 2,142 |
Loans held for sale | | | 1,151 | |
| — | |
| 1,151 | |
| — | ||||||||||||
Bank premises and equipment held for sale | |
| 1,589 | |
| — | |
| — | |
| 1,589 | |
| 1,507 | |
| — | |
| — | |
| 1,507 |
Other real estate owned | |
| 4,416 | |
| — | |
| — | |
| 4,416 | |
| 364 | |
| — | |
| — | |
| 364 |
Total assets at fair value | | $ | 10,397 | | $ | — | | $ | 1,151 | | $ | 9,246 | | $ | 4,013 | | $ | — | | $ | — | | $ | 4,013 |
Total liabilities at fair value | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — |
24
| | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2019 | | December 31, 2020 | ||||||||||||||||||||
|
| Total |
| Level 1 |
| Level 2 |
| Level 3 |
| Total |
| Level 1 |
| Level 2 |
| Level 3 | ||||||||
Impaired loans | | $ | 3,020 | | $ | — | | $ | — | | $ | 3,020 | | $ | 3,449 | | $ | — | | $ | — | | $ | 3,449 |
Loans held for sale | | | 501 | | | — | | | 501 | |
| — | ||||||||||||
Bank premises and equipment held for sale | | | 1,589 | | | — | | | — | |
| 1,589 | | | 1,507 | |
| — | |
| — | |
| 1,507 |
Other real estate owned | |
| 4,527 | |
| — | |
| — | |
| 4,527 | |
| 4,361 | |
| — | |
| — | |
| 4,361 |
Total assets at fair value | | $ | 9,637 | | $ | — | | $ | 501 | | $ | 9,136 | | $ | 9,317 | | $ | — | | $ | — | | $ | 9,317 |
Total liabilities at fair value | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — |
Impaired loans
Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as individually impaired, management measures the impairment in accordance with FASB ASC 310, Receivables. The fair value of impaired loans is estimated using one of several methods, including collateral value and discounted cash flows. Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceeds the recorded investments in such loans. At SeptemberJune 30, 20202021 and December 31, 2019,2020, a majority of total impaired loans were evaluated based on the fair value of the collateral. The Company frequently obtains appraisals prepared by external professional appraisers for classified loans greater than $250,000 when the most recent appraisal is greater than 18 months old and deemed to be stale or invalid. The Company may also utilize internally prepared estimates that generally result from current market data and actual sales data related to the Company’s collateral. The Company makes adjustments for selling costs estimated at 10%, market deterioration, and any known liens against the collateral. Therefore, the Company records impaired loans as nonrecurring Level 3. For each of the periodperiods ended SeptemberJune 30, 20202021 and December 31, 2019,2020, weighted average adjustments, calculated based on relative fair value, related to impaired loans were 16.4%12.6% and 12.8%12.3%, respectively.
Impaired loans can also be evaluated for impairment using the present value of expected future cash flows discounted at the loan’s effective interest rate. The measurement of impaired loans using future cash flows discounted at the loan’s effective interest rate rather than the market rate of interest is not a fair value measurement and is therefore excluded from fair value disclosure requirements. Reviews of classified loans are performed by management on a quarterly basis.
Loans held for sale
The carrying amounts of loans held for sale approximate fair value (Level 2).
Bank premises and equipment held for sale
The fair value of bank premises and equipment held for sale was determined using the adjusted appraisal methodology described in the other real estate owned (OREO)OREO asset section below.
Other real estate owned
OREO assets are adjusted to fair value less estimated disposal costs upon transfer of the related loans to OREO, establishing a new cost basis. Initial fair value is based on appraised values of the collateral less estimated disposal costs. Subsequent to the transfer, valuations are periodically performed by management based on updated appraisals, general market conditions, recent sales of similar properties, length of time the properties have been held, and the Company’s ability and intent with regard to continued ownership of the properties. The assets are carried at the lower of carrying value
24
or fair value less estimated disposal costs.costs ranging from 2% to 10%. The Company may incur additional write-downs of OREO assets to fair value less estimated costs to sell if valuations indicate a further deterioration in market conditions. As such, the Company records OREO as a nonrecurring fair value measurement classified as Level 3.
Fair Value of Financial Instruments
FASB ASC 825, Financial Instruments, requires disclosure of the fair value of financial assets and financial liabilities, including those financial assets and financial liabilities that are not measured and reported at fair value on a recurring or
25
nonrecurring basis. FASB ASC 825 excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company. Additionally, in accordance with FASB ASU 2016-01, the Company uses the exit price notion, rather than the entry price notion, in calculating fair values of financial instruments not measured at fair value on a recurring basis.
The following reflects the fair value of financial instruments, whether or not recognized on the consolidated balance sheet, at fair value measures by level of valuation assumptions used for those assets. These tables exclude financial instruments for which the carrying value approximates fair value (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2020 | | June 30, 2021 | ||||||||||||||||||||||||||
|
| | |
| Estimated Fair |
| | |
| | |
| | |
| | |
| Estimated Fair |
| | |
| | |
| | | ||
| | Carrying Value | | Value | | Level 1 | | Level 2 | | Level 3 | | Carrying Value | | Value | | Level 1 | | Level 2 | | Level 3 | ||||||||||
Financial assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Securities held to maturity | | $ | 23,026 | | $ | 24,118 | | $ | — | | $ | 24,118 | | $ | — | | $ | 19,824 | | $ | 20,698 | | $ | — | | $ | 20,698 | | $ | — |
Loans, net of allowance | |
| 1,165,381 | |
| 1,174,649 | |
| — | |
| — | |
| 1,174,649 | |
| 1,180,835 | |
| 1,193,023 | |
| — | |
| — | |
| 1,193,023 |
PCI loans, net of allowance | |
| 26,990 | |
| 35,188 | |
| — | |
| — | |
| 35,188 | |
| 17,787 | |
| 24,493 | |
| — | |
| — | |
| 24,493 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Financial liabilities: | |
| | |
|
| |
|
| |
| | |
|
| |
| | |
|
| |
|
| |
| | |
|
|
Interest bearing deposits | |
| 1,087,663 | |
| 1,091,539 | |
| — | |
| 1,091,539 | |
| — | |
| 1,149,116 | |
| 1,151,776 | |
| — | |
| 1,151,776 | |
| — |
Borrowings | |
| 72,124 | |
| 73,137 | |
| — | |
| 73,137 | |
| — | |
| 71,624 | |
| 72,223 | |
| — | |
| 72,223 | |
| — |
| | | | | | | | | | | | | | | |
| | December 31, 2019 | |||||||||||||
|
| | |
| Estimated Fair |
| | |
| | |
| | | |
| | Carrying Value | | Value | | Level 1 | | Level 2 | | Level 3 | |||||
Financial assets: | | | | | | | | | | | | | | | |
Securities held to maturity | | $ | 35,733 | | $ | 36,633 | | $ | — | | $ | 36,633 | | $ | — |
Loans, net of allowance | |
| 1,049,894 | |
| 1,041,671 | |
| — | |
| — | |
| 1,041,671 |
PCI loans, net of allowance | |
| 32,372 | |
| 38,982 | |
| — | |
| — | |
| 38,982 |
| | | | | | | | | | | | | | | |
Financial liabilities: | |
| | |
|
| |
|
| |
| | |
|
|
Interest bearing deposits | |
| 984,864 | |
| 985,853 | |
| — | |
| 985,853 | |
| — |
Borrowings | |
| 72,624 | |
| 72,457 | |
| — | |
| 72,457 | |
| — |
| | | | | | | | | | | | | | | |
| | December 31, 2020 | |||||||||||||
|
| | |
| Estimated Fair |
| | |
| | |
| | | |
| | Carrying Value | | Value | | Level 1 | | Level 2 | | Level 3 | |||||
Financial assets: | | | | | | | | | | | | | | | |
Securities held to maturity | | $ | 21,176 | | $ | 22,257 | | $ | — | | $ | 22,257 | | $ | — |
Loans, net of allowance | |
| 1,170,022 | |
| 1,178,764 | |
| — | |
| — | |
| 1,178,764 |
PCI loans, net of allowance | |
| 23,884 | |
| 32,657 | |
| — | |
| — | |
| 32,657 |
| | | | | | | | | | | | | | | |
Financial liabilities: | |
| | |
|
| |
|
| |
| | |
|
|
Interest bearing deposits | |
| 1,099,800 | |
| 1,103,112 | |
| — | |
| 1,103,112 | |
| — |
Borrowings | |
| 61,957 | |
| 62,852 | |
| — | |
| 62,852 | |
| — |
2625
Note 9. Earnings Per Share
Basic earnings per share (EPS) is computed by dividing net income by the weighted average number of shares outstanding during the period. Diluted EPS is computed using the weighted average number of shares outstanding during the period, including the effect of all potentially dilutive shares outstanding attributable to restricted stock instruments.units and stock option awards. The following table presents basic and diluted EPS for the three and ninesix months ended SeptemberJune 30, 20202021 and 20192020 (dollars and shares in thousands, except per share data):
| | | | | | | | | | | | | | | | |
|
| | |
| Weighted Average |
| | |
| | |
| Weighted Average |
| | |
| | Net Income | | Shares | | Per | | Net Income | | Shares | | Per | ||||
| | (Numerator) | | (Denominator) | | Share Amount | | (Numerator) | | (Denominator) | | Share Amount | ||||
For the three months September 30, 2020 | | | | | | | | | ||||||||
For the three months June 30, 2021 | | | | | | | | | ||||||||
Basic EPS | | $ | 4,516 |
| 22,312 | | $ | 0.20 | | $ | 5,426 |
| 22,341 | | $ | 0.24 |
Effect of dilutive stock awards | |
| — |
| 191 | |
| — | |
| — |
| 392 | |
| — |
Diluted EPS | | $ | 4,516 |
| 22,503 | | $ | 0.20 | | $ | 5,426 |
| 22,733 | | $ | 0.24 |
| | | | | | | | | | | | | | | | |
For the three months ended September 30, 2019 | |
|
|
|
| |
|
| ||||||||
For the three months ended June 30, 2020 | |
|
|
|
| |
|
| ||||||||
Basic EPS | | $ | 4,613 |
| 22,303 | | $ | 0.21 | | $ | 4,160 |
| 22,304 | | $ | 0.19 |
Effect of dilutive stock awards | |
| — |
| 258 | |
| (0.01) | |
| — |
| 204 | |
| (0.01) |
Diluted EPS | | $ | 4,613 |
| 22,561 | | $ | 0.20 | | $ | 4,160 |
| 22,508 | | $ | 0.18 |
| | | | | | | | | | | | | | | | |
For the nine months ended September 30, 2020 | | | | | | | | | ||||||||
For the six months ended June 30, 2021 | | | | | | | | | ||||||||
Basic EPS | | $ | 10,091 |
| 22,339 | | $ | 0.45 | | $ | 12,069 |
| 22,272 | | $ | 0.54 |
Effect of dilutive stock awards | |
| — |
| 195 | |
| — | |
| — |
| 302 | |
| (0.01) |
Diluted EPS | | $ | 10,091 |
| 22,534 | | $ | 0.45 | | $ | 12,069 |
| 22,574 | | $ | 0.53 |
| | | | | | | | | | | | | | | | |
For the nine months ended September 30, 2019 | |
|
|
|
| |
|
| ||||||||
For the six months ended June 30, 2020 | |
|
|
|
| |
|
| ||||||||
Basic EPS | | $ | 11,660 |
| 22,224 | | $ | 0.52 | | $ | 5,575 | | 22,352 | | $ | 0.25 |
Effect of dilutive stock awards | |
| — |
| 251 | |
| — | |
| — | | 198 | | | — |
Diluted EPS | | $ | 11,660 |
| 22,475 | | $ | 0.52 | | $ | 5,575 | | 22,550 | | $ | 0.25 |
There were 0 issuable antidilutive shares excluded from the computation of diluted earnings per share for the three and six months ended June 30, 2021. Antidilutive shares issuable under awards or options of 1.41.2 million and 253,000 were excluded from the computation of diluted earnings per share for the three and ninesix months ended SeptemberJune 30, 2020 and 2019, respectively.2020.
Note 10. Employee Benefit Plan
The Company adopted the Bank of Essex noncontributory, defined benefit pension plan for all full-time pre-merger Bank of Essex employees over 21 years of age. Benefits are generally based upon years of service and the employees’ compensation. The Company funds pension costs in accordance with the funding provisions of the Employee Retirement Income Security Act.
The Company froze the plan benefits for all the defined benefit plan participants effective December 31, 2010.
The following table provides the components of net periodic benefit (income) cost for the plan included in salaries and employee benefits in the consolidated statement of income for the three and ninesix months ended SeptemberJune 30, 20202021 and 20192020 (dollars in thousands):
| | | | | | | | | | | | | ||||||||||||
| | | | | | | | | | | | | ||||||||||||
|
| Three months ended |
| Nine months ended |
| Three months ended |
| Six months ended | ||||||||||||||||
|
| September 30, 2020 |
| September 30, 2019 |
| September 30, 2020 |
| September 30, 2019 |
| June 30, 2021 |
| June 30, 2020 |
| June 30, 2021 |
| June 30, 2020 | ||||||||
Interest cost | | $ | 33 | | $ | 41 | | $ | 99 | | $ | 122 | | $ | 116 | | $ | 33 | | $ | 232 | | $ | 66 |
Expected return on plan assets | |
| (54) | |
| (53) | |
| (161) | |
| (159) | |
| (265) | |
| (53) | |
| (530) | |
| (107) |
Amortization of prior service cost | |
| 1 | |
| 1 | |
| 3 | |
| 3 | |
| 4 | |
| 1 | |
| 8 | |
| 2 |
Recognized net loss due to settlement | |
| — | |
| 40 | |
| — | |
| 93 | ||||||||||||
Recognized net actuarial loss | |
| 12 | |
| 12 | |
| 36 | |
| 36 | |
| 65 | |
| 12 | |
| 130 | |
| 24 |
Net periodic (income) expense | | $ | (8) | | $ | 41 | | $ | (23) | | $ | 95 | ||||||||||||
Net periodic (income) cost | | $ | (80) | | $ | (7) | | $ | (160) | | $ | (15) |
2726
Note 11. Cash Flow Hedge
The Company designates derivatives as cash flow hedges when they are used to manage exposure to variability in cash flows related to forecasted transactions on variable rate borrowings, such as FHLB borrowings, repurchase agreements, and brokered CDs. The Company had interest rate swaps designated as cash flow hedges with a total notional amountsamount of $20 million and $10 million at Septembereach of June 30, 20202021 and December 31, 2019, respectively.2020. The swaps were entered into with a counterparty that met the Company’s credit standards, and the agreements contain collateral provisions protecting the at-risk party. The Company believes that the credit risk inherent in the contracts is not significant. The Company had $770,000 and $180,000 of cash pledged as collateral at Septembereach of June 30, 20202021 and December 31, 2019, respectively.2020.
Amounts receivable or payable are recognized as accrued under the terms of the agreements. In accordance with FASB ASC 815, Derivatives and Hedging, the Company has designated the swaps as cash flow hedges, with the derivatives’ unrealized gains or losses recorded as a component of other comprehensive income. The Company has assessed the effectiveness of each hedging relationship by comparing the changes in cash flows on the designated hedged item. The Company’s cash flow hedge was deemed to be highly effective for the three and ninesix month periods ended SeptemberJune 30, 20202021 and 2019.2020. The Company recorded a fair value liability of $683,000$424,000 and $44,000$631,000 in other liabilities at SeptemberJune 30, 20202021 and December 31, 2019,2020, respectively. The net losses were recorded as a component of other comprehensive income net of associated tax effects.
Note 12. Revenue Recognition
The Company recognizes income in accordance with FASB ASU 2014-09, Revenue from Contracts with Customers (Topic 606), and all subsequent ASUs that modified Topic 606. Topic 606 does not apply to revenue associated with financial instruments, including revenue from loans and securities. In addition, certain noninterest income streams such as fees associated with mortgage servicing rights, financial guarantees, derivatives, and certain credit card fees are also not in scope of this guidance. Topic 606 is applicable to noninterest revenue streams such as deposit related fees, interchange fees, merchant income, and brokerage fees and commissions. Substantially all of the Company’s revenue is generated from contracts with customers. Noninterest revenue streams in-scope of Topic 606 are discussed below.
Service charges and fees on deposit accounts
The Company earns fees from its deposit customers for transaction-based, account maintenance, and overdraft services. Transaction-based fees, which include services such as stop payment charges, statement rendering, and ACH fees, are recognized at the time the transaction is executed as that is the point in time the Company fulfills the customer’s request. Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of a month, representing the period over which the Company satisfies the performance obligation. Overdraft fees are recognized at the point in time that the overdraft occurs. Service charges on deposits are withdrawn from the customer’s account balance.
Interchange and ATM fees
The Company earns interchange and ATM fees from debit/credit cardholder transactions conducted through the Visa and ATM payment networks. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, concurrently with the transaction processing services provided to the cardholder. Because the Company acts as an agent and does not control the services rendered to the customers, related costs are netted against the fee income. These costs were included in other operating expenses prior to the adoption of Topic 606.
Brokerage fees and commissions
Brokerage fees and commissions consist of other recurring revenue streams such as commissions from sales of mutual funds and other investments to customers by a third-party service provider and investment advisor fees. The Company receives commissions from the third-party service provider on a monthly basis based upon customer activity for the month. The investment advisor fees are charged to the customer’s account in advance on the first month of the quarter, and the revenue is recognized over the following three-month period.
2827
The investment advisor fees are charged to the customer’s account in advance on the first month of the quarter, and the revenue is recognized over the following three-month period.
The following table presents noninterest income, segregated by revenue streams in-scope and out-of-scope of Topic 606, for the three and ninesix months ended SeptemberJune 30, 20202021 and 20192020 (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | |
|
| Three months ended | | Nine months ended |
| Three months ended | | Six months ended | ||||||||||||||||
| | September 30, 2020 | | September 30, 2019 | | September 30, 2020 | | September 30, 2019 | | June 30, 2021 | | June 30, 2020 | | June 30, 2021 | | June 30, 2020 | ||||||||
Noninterest income | | | | | | | | | | | | | | | | | | | | | | | | |
In-scope of Topic 606: | | | | | | | | | | | | | | | | | | | | | | | | |
Service charges on deposit accounts | | $ | 315 | | $ | 486 | | $ | 1,042 | | $ | 1,341 | | $ | 305 | | $ | 273 | | $ | 623 | | $ | 727 |
Interchange and ATM fees | |
| 298 | |
| 271 | |
| 775 | |
| 732 | |
| 347 | |
| 259 | |
| 708 | |
| 477 |
Brokerage fees and commissions | |
| 53 | |
| 67 | |
| 256 | |
| 262 | |
| 83 | |
| 131 | |
| 181 | |
| 203 |
Noninterest income (in-scope of Topic 606) | |
| 666 | |
| 824 | |
| 2,073 | |
| 2,335 | |
| 735 | |
| 663 | |
| 1,512 | |
| 1,407 |
Noninterest income (out-of-scope of Topic 606) | |
| 806 | |
| 687 | |
| 2,350 | |
| 1,641 | |
| 726 | |
| 953 | |
| 1,577 | |
| 1,544 |
Total noninterest income | | $ | 1,472 | | $ | 1,511 | | $ | 4,423 | | $ | 3,976 | | $ | 1,461 | | $ | 1,616 | | $ | 3,089 | | $ | 2,951 |
Note 13. Leases
The Company accounts for leases in accordance with FASB ASU 2016-02, Leases (Topic 842), as it relates to its non-cancellable operating leases and subleases of bank premises. The Company's leases have lease terms between five years and 20 years, with the longest lease term having an expiration date in 2038. Most of these leases include one or more renewal options for five years or less. At lease commencement, the Company assesses whether it is reasonably certain to exercise a renewal option by considering various economic factors. Options that are reasonably certain of being exercised are factored into the determination of the lease term, and related payments are included in the calculation of the right-of-use asset and lease liability. The Company uses its incremental borrowing rate to calculate the present value of lease payments when the interest rate implicit in a lease is not disclosed. None of the Company’s current leases contain variable lease payment terms. The Company accounts for associated non-lease components separately.
The following table presents operating lease liabilities as of SeptemberJune 30, 20202021 and December 31, 20192020 (dollars in thousands):
| | | | | | | ||||||
| | September 30, 2020 | | December 31, 2019 | | | | | | | ||
|
| |
| | |
| | June 30, 2021 | | December 31, 2020 | ||
Gross lease liability | | $ | 8,354 | | $ | 9,278 | | $ | 7,428 | | $ | 8,047 |
Less: imputed interest | |
| (2,327) | |
| (2,541) | |
| (2,131) | |
| (2,260) |
Present value of lease liability | | $ | 6,027 | | $ | 6,737 | | $ | 5,297 | | $ | 5,787 |
The Company had 0 finance or sales type leases as of June 30, 2021 and December 30, 2020.
The weighted average remaining lease term and weighted average discount rate for operating leases at SeptemberJune 30, 20202021 was 12.212.8 years and 4.74%4.88%, respectively. The weighted average remaining lease term and weighted average discount rate for operating leases at December 31, 20192020 was 12.012.3 years and 4.63%4.78%, respectively.
Maturities of the gross operating lease liability at SeptemberJune 30, 20202021 are as follows (dollars in thousands):
| | | | | | |
2020 |
| $ | 307 | |||
2021 | |
| 1,191 |
| $ | 571 |
2022 | |
| 600 | |
| 600 |
2023 | |
| 630 | |
| 630 |
2024 | |
| 573 | |
| 573 |
2025 | |
| 552 | |||
Thereafter | |
| 5,053 | |
| 4,502 |
Total of future payments | | $ | 8,354 | | $ | 7,428 |
Operating lease costs and sublease rental income for the three months ended June 30, 2021 were $314,000 and $52,000, respectively. Operating lease costs and sublease rental income for the three months ended June 30, 2020 were $321,000 and $28,000, respectively. Operating lease costs and sublease rental income for the six months ended June 30,
2928
Operating lease costs2021 were $631,000 and sublease rental income for the three months ended September 30, 2020 were $317,000 and $27,000,$129,000, respectively. Operating lease costs and sublease rental income for the threesix months ended September 30, 2019 were $318,000 and $63,000, respectively. Operating lease costs and sublease rental income for the nine months ended SeptemberJune 30, 2020 were $952,000$635,000 and $82,000,$55,000, respectively.
Note 14. Other Operating lease costsExpenses
Other operating expenses totals for the three and sublease rentalsix month periods of June 30, 2021 and 2020 are presented in the following table. Components of these expenses exceeding 1.0%of the aggregate of total net interest income and total noninterest income for any of the nine months ended September 30, 2019 were $1.1 million and $129,000, respectively.periods presented are stated separately (dollars in thousands).
| | | | | | | | | | | | |
|
| Three months ended |
| Six months ended | ||||||||
|
| June 30, 2021 |
| June 30, 2020 |
| June 30, 2021 |
| June 30, 2020 | ||||
| | | | | | | | | | | | |
Bank franchise tax | | $ | 257 | | $ | 237 | | $ | 514 | | $ | 474 |
Stationery, printing and supplies | |
| 152 | | | 185 | | | 320 | | | 354 |
Qualified affordable housing investment amortization | |
| 242 | | | 18 | | | 309 | | | 36 |
Credit expense | |
| 92 | | | 162 | | | 249 | | | 340 |
Outside vendor fees | | | 110 | | | 190 | | | 292 | | | 427 |
Legal fees | | | 354 | | | 24 | | | 460 | | | 35 |
Professional fees | | | 461 | | | 79 | | | 576 | | | 153 |
Other expenses | |
| 676 | | | 517 | | | 1,216 | | | 1,113 |
Total other operating expenses | | $ | 2,344 | | $ | 1,412 | | $ | 3,936 | | $ | 2,932 |
The increase in qualified affordable housing project investment amortization during the three and six month periods ended June 30, 2021 reflects additional investments along with $154,000 of increased amortization related to the fair value assessment of one of the investments.
On June 2, 2021, the Company entered into a merger agreement with United Bankshares, Inc. (“United”), the parent company of United Bank. Under the merger agreement, United will acquire 100% of the outstanding shares of the Company’s common stock in exchange for shares of United’s common stock. The exchange ratio will be fixed at 0.3173 of United’s shares for each share of the Company. The merger is expected to close in the fourth quarter of 2021, subject to satisfaction of customary closing conditions, including receipt of regulatory approvals and approval by the Company’s shareholders. Upon closing, the Company will merge into United, and Essex Bank will merge into United Bank, with United and United Bank being the surviving entities. There were $534,000 of merger related expenses included in legal and professional fees for the three and six month periods ended June 30, 2021.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of the financial condition at SeptemberJune 30, 20202021 and results of operations of Community Bankers Trust Corporation (the “Company”) for the three and ninesix months ended SeptemberJune 30, 20202021 should be read in conjunction with the Company’s consolidated financial statements and the accompanying notes to consolidated financial statements included in this report and in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.2020.
OVERVIEW
Community Bankers Trust Corporation (the “Company”) is headquartered in Richmond, Virginia and is the holding company for Essex Bank (the “Bank”), a Virginia state bank with 24 full-service offices, 18 of which are in Virginia and six of which are in Maryland. The Bank also operates two loan production offices.
The Bank engages in a general commercial banking business and provides a wide range of financial services primarily to individuals, small businesses and larger commercial companies, including individual and commercial demand and time
29
deposit accounts, commercial and industrial loans, consumer and small business loans, real estate and mortgage loans, investment services, on-line and mobile banking products, and cash management services.
On June 2, 2021, the Company entered into a merger agreement with United Bankshares, Inc. (“United”), the parent company of United Bank. Under the merger agreement, United will acquire 100% of the outstanding shares of the Company’s common stock in exchange for shares of United’s common stock. The exchange ratio will be fixed at 0.3173 of United’s shares for each share of the Company. The merger is expected to close in the fourth quarter of 2021, subject to satisfaction of customary closing conditions, including receipt of regulatory approvals and approval by the Company’s shareholders. Upon closing, the Company will merge into United, and Essex Bank will merge into United Bank, with United and United Bank being the surviving entities.
The Company generates a significant amount of its income from the net interest income earned by the Bank. Net interest income is the difference between interest income and interest expense. Interest income depends on the amount of interest earning assets outstanding during the period and the interest rates earned thereon. The Company’s cost of funds is a function of the average amount of interest bearing deposits and borrowed money outstanding during the period and the interest rates paid thereon. The mix and product type for both loans and deposits can have a significant effect on the net interest income of the Bank. For the past several years, the Bank’s focus has been on maximizing that mix through branchcustomer growth and targeted product types, with lenders and other employees directly involved with customer relationships. Additionally, the quality of the interest earning assets further influences the amount of interest income lost on nonaccrual loans and the amount of additions to the allowance for loan losses.
The Bank also earns noninterest income from service charges on deposit accounts and other fee or commission-based services and products, such as insurance, mortgage loans, annuities, and other wealth management products. Other sources of noninterest income can include gains or losses on securities transactions and income from bank owned life insurance (BOLI) policies. The Company’s income is offset by noninterest expense, which consists of salaries and employee benefits, occupancy and equipment costs, data processing fees,expenses, professional fees, transactions involving bank-owned property, and other operational expenses. The provision for loan losses and income taxes may also materially affect net income.
CAUTION ABOUT FORWARD-LOOKING STATEMENTS
The Company makes certain forward-looking statements in this report that are subject to risks and uncertainties. These forward-looking statements include statements regarding our profitability, liquidity, allowance for loan losses, interest rate sensitivity, market risk, future strategy, and financial and other goals. These forward-looking statements are generally identified by phrases such as “the Company expects,” “the Company believes” or words of similar import.
These forward-looking statements are subject to significant uncertainties because they are based upon or are affected by factors, including, without limitation, the effects of and changes in the following:
● | the quality or composition of the Company’s loan or investment portfolios, including collateral values and the repayment abilities of borrowers and issuers; |
30
● | assumptions that underlie the Company’s allowance for loan losses; |
● | general economic and market conditions, either nationally or in the Company’s market areas; |
● | unusual and infrequently occurring events, such as weather-related disasters, terrorist acts or public health events (such as the current COVID-19 pandemic), and of governmental and societal responses to them |
● | the pending merger with United Bankshares, including its closing on the expected terms and schedule, the costs associated with completing it and integrating the businesses, and business operations until and through its closing |
● | the interest rate environment; |
● | competitive pressures among banks and financial institutions or from companies outside the banking industry; |
● | real estate values; |
● | the demand for deposit, loan, and investment products and other financial services; |
● | the demand, development and acceptance of new products and services; |
● | the performance of vendors or other parties with which the Company does business; |
30
● | time and costs associated with de novo branching, acquisitions, dispositions and similar transactions; |
● | the realization of gains and expense savings from acquisitions, dispositions and similar transactions; |
● | assumptions and estimates that underlie the accounting for purchased credit impaired loans; |
● | consumer profiles and spending and savings habits; |
● | levels of fraud in the banking industry; |
● | the level of attempted cyber attacks in the banking industry; |
● | the securities and credit markets; |
● | costs associated with the integration of banking and other internal operations; |
● | the soundness of other financial institutions with which the Company does business; |
● | inflation; |
● | technology; and |
● | legislative and regulatory requirements. |
These factors and additional risks and uncertainties are described in the Company’s Annual Report on Form 10-K for the year ended December 31, 20192020 and other reports filed from time to time by the Company with the Securities and Exchange Commission.
Although the Company believes that its expectations with respect to the forward-looking statements are based upon reliable assumptions within the bounds of its knowledge of its business and operations, there can be no assurance that actual results, performance or achievements of the Company will not differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements.
31
CRITICAL ACCOUNTING POLICIES
The Company’s financial statements are prepared in accordance with accounting principles generally accepted in the United States (GAAP). The financial information contained within the statements is, to a significant extent, financial information that is based on measures of the financial effects of transactions and events that have already occurred. A variety of factors could affect the ultimate value that is obtained when either earning income, recognizing an expense, recovering an asset or relieving a liability. For example, the Company uses historical loss factors as one factor in determining the inherent loss that may be present in its loan portfolio. Actual losses could differ significantly from the historical factors that the Company uses. In addition, GAAP itself may change from one previously acceptable method to another method. Although the economics of the Company’s transactions would be the same, the timing of events that would impact its transactions could change.
The following is a summary of the Company’s critical accounting policies that are highly dependent on estimates, assumptions and judgments.
Allowance for Loan Losses on Loans
The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectability of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.
The allowance is an amount that management believes is appropriate to absorb estimated losses relating to specifically identified loans, as well as probable credit losses inherent in the balance of the loan portfolio, based on an evaluation of the collectability of existing loans and prior loss experience. This evaluation also takes into consideration such factors as changes in the nature and volume of the loan portfolio, overall portfolio quality, review of specific problem loans, and current economic conditions that may affect the borrower’s ability to pay. This evaluation does not include the effects of expected losses on specific loans or groups of loans that are related to future events or expected changes in economic conditions. The evaluation also considers the following risk characteristics of each loan portfolio:
● | Residential 1-4 family mortgage loans include HELOCs and single family investment properties secured by first liens. The carry risks associated with owner-occupied and investment properties are the continued credit-worthiness of the borrower, changes in the value of the collateral, successful property maintenance and |
31
collection of rents due from tenants. The Company manages these risks by using specific underwriting policies and procedures and by avoiding concentrations in geographic regions. |
● | Commercial real estate loans, including owner occupied and non-owner occupied mortgages, carry risks associated with the successful operations of the principal business operated on the property securing the loan or the successful operation of the real estate project securing the loan. General market conditions and economic activity may impact the performance of these loans. In addition to using specific underwriting policies and procedures for these types of loans, the Company manages risk by avoiding concentrations to any one business or industry, and by diversifying the lending to various lines of businesses, such as retail, office, office warehouse, industrial and hotel. |
● | Construction and land development loans are generally made to commercial and residential builders/developers for specific construction projects, as well as to consumer borrowers. These carry more risk than real estate term loans due to the dynamics of construction projects, changes in interest rates, the long-term financing market and state and local government regulations. The Company manages risk by using specific underwriting policies and procedures for these types of loans and by avoiding concentrations to any one business or industry and by diversifying lending to various lines of businesses, in various geographic regions and in various sales or rental price points. |
● | Second mortgages on residential 1-4 family loans carry risk associated with the continued credit-worthiness of the borrower, changes in value of the collateral and a higher risk of loss in the event the collateral is liquidated due to the inferior lien position. The Company manages risk by using specific underwriting policies and procedures. |
32
● | Multifamily loans carry risks associated with the successful operation of the property, general real estate market conditions and economic activity. In addition to using specific underwriting policies and procedures, the Company manages risk by avoiding concentrations |
● | Agriculture loans carry risks associated with the successful operation of the business, changes in value of non-real estate collateral that may depreciate over time and inventory that may be affected by weather, biological, price, labor, regulatory and economic factors. The Company manages risks by using specific underwriting policies and procedures, as well as avoiding concentrations to individual borrowers and by diversifying lending to various agricultural lines of business (i.e., crops, cattle, dairy, etc.). |
● | Commercial loans carry risks associated with the successful operation of the business, changes in value of non-real estate collateral that may depreciate over time, accounts receivable whose collectability may change and inventory values that may be subject to various risks including obsolescence. General market conditions and economic activity may also impact the performance of these loans. In addition to using specific underwriting policies and procedures for these types of loans, the Company manages risk by diversifying the lending to various industries and avoids geographic concentrations. |
● | Consumer installment loans carry risks associated with the continued credit-worthiness of the borrower and the value of rapidly depreciating assets or lack thereof. These types of loans are more likely than real estate loans to be quickly and adversely affected by job loss, divorce, illness or personal bankruptcy. The Company manages risk by using specific underwriting policies and procedures for these types of loans. |
● | All other loans generally support the obligations of state and political subdivisions in the U.S. and are not a material source of business for the Company. The loans carry risks associated with the continued credit-worthiness of the obligations and economic activity. The Company manages risk by using specific underwriting policies and procedures for these types of loans. |
While management uses the best information available to make its evaluation, future adjustments to the allowance may be necessary if there are significant changes in economic conditions. In addition, regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for loan losses, and may require the Company to make additions to the allowance based on their judgment about information available to them at the time of their examinations.
The allowance consists of specific, general and unallocated components. For loans that are also classified as impaired, an allowance is established when the collateral value (or discounted cash flows or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers non-classified loans and is based on historical loss experience adjusted for qualitative factors. Qualitative factors relate to loan growth and concentrations,
32
internal environment, loan quality deterioration and delinquencies. The unallocated component covers uncertainties that could affect management’s estimate of probable losses.
A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured by either the present value of the expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent.
Large groups of smaller balance homogeneous loans are evaluated for impairment as a pool. Accordingly, the Company does not separately analyze these individual loans for impairment disclosures.
33
Accounting for Certain Loans Acquired in a Transfer
Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 310, Receivables, requires acquired loans to be recorded at fair value and prohibits carrying over valuation allowances in the initial accounting for acquired impaired loans. Loans carried at fair value, mortgage loans held for sale, and loans to borrowers in good standing under revolving credit arrangements are excluded from the scope of FASB ASC 310, which limits the yield that may be accreted to the excess of the undiscounted expected cash flows over the investor’s initial investment in the loan. The excess of the contractual cash flows over expected cash flows may not be recognized as an adjustment of yield. Subsequent increases in cash flows to be collected are recognized prospectively through an adjustment of the loan’s yield over its remaining life. Decreases in expected cash flows are recognized as impairments through the allowance for loan losses.
The Company’s acquired loans from the Suburban Federal Savings Bank (SFSB) transaction (the “PCI loans”), subject to FASB ASC Topic 805, Business Combinations, were recorded at fair value and no separate valuation allowance was recorded at the date of acquisition. FASB ASC 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality, applies to loans acquired in a transfer with evidence of deterioration of credit quality for which it is probable, at acquisition, that the investor will be unable to collect all contractually required payments receivable. The Company is applying the provisions of FASB ASC 310-30 to all loans acquired in the SFSB transaction. The Company has grouped loans together based on common risk characteristics including product type, delinquency status and loan documentation requirements among others.
The PCI loans are subject to the credit review standards described above for loans. If and when credit deterioration occurs subsequent to the date that the loans were acquired, a provision for loan loss for PCI loans will be charged to earnings for the full amount.
The Company has made an estimate of the total cash flows it expects to collect from each pool of loans, which includes undiscounted expected principal and interest. The excess of that amount over the fair value of the pool is referred to as accretable yield. Accretable yield is recognized as interest income on a constant yield basis over the life of the pool. The Company also determines each pool’s contractual principal and contractual interest payments. The excess of that amount over the total cash flows that it expects to collect from the pool is referred to as nonaccretable difference, which is not recorded. Judgmental prepayment assumptions are applied to both contractually required payments and cash flows expected to be collected at acquisition. Over the life of the loan or pool, the Company continues to estimate cash flows expected to be collected. Subsequent decreases in cash flows expected to be collected over the life of the pool are recognized as an impairment in the current period through the allowance for loan losses. Subsequent increases in expected or actual cash flows are first used to reverse any existing valuation allowance for that loan or pool. Any remaining increase in cash flows expected to be collected is recognized as an adjustment to the accretable yield with the amount of periodic accretion adjusted over the remaining life of the pool.
33
RESULTS OF OPERATIONS
Overview
Coming off a strong end to the 2019 year, the Company began the year with good momentum but was disrupted by theThe coronavirus (COVID-19) pandemic that set off an economic crisis. Specific events that impactedcrisis in 2020 continues to impact the Company’s financial results for the first ninethree and six months of 2020,ending June 30 2021, and will impact future financial results, includeresults. While the government mandated business closures enacted in 2020 have eased, the Company’s customers and stay-at-home orders, which have transformed into some of the highestmarkets are not back to pre-COVID business levels, and unemployment rates seencontinues to be a major issue. Continued uncertainties in the Company’s markets. In addition, unprecedented government stimulus programseconomy and the uncertainties regarding how long the mandates will last have contributedtime that it could take to the unpredictability offully recover underlie the financial impacts that the Company may experience. The Company is focusedcontinues to focus on assessing the risks in its loan portfolio and workingto work with ourits customers to minimize future losses. See below for additional discussion regarding trends and the potential effects of COVID-19.
Net income in the thirdsecond quarter of 2020 decreased $97,0002021 increased $1.3 million when compared to the same period in 2019.2020. Net income was $4.5$5.4 million in the thirdsecond quarter of 2020,2021, with earnings per share of $0.20$0.24 basic and fully diluted. Net income for the thirdsecond quarter of 20192020 was $4.6$4.2 million, with earnings per share of $0.21$0.19 basic and $0.20$0.18 fully diluted. The decreaseThere was an increase of $2.1 million in net income was driven by a decrease of $1.9 million in interest income, primarily from a $1.1decline in interest expense of $1.8 million payoff within a loan pool in the PCI portfolio,second quarter of 2021 compared with no carrying value, and thus resulted in the entire payment being recognized as interest
34
income during the nine months ended September 30, 2019. Additionally, noninterest income declined a nominal $39,000same period one year earlier. Provision for loan losses decreased $900,000 year over year and income tax expense increased by $56,000.is reflective of no provision taken during the second quarter of 2021. Offsetting these decreasesincreases to net income were a decreasean increase of $1.2$1.3 million in interest expensenoninterest expenses and a decrease of $704,000$155,000 in noninterest expenses. The decreaseincome. There was also an increase of $297,000 in noninterest expenses was mainly the result of a nonperforming loan of $4.0 million that was migrated to other real estate owned (OREO) in the third quarter of 2019. As a part of this transaction, the Bank paid delinquent real estate taxes in the amount of $624,000 on this property.income tax expense year over year.
Net income for the first nine months of 2020 was $10.1 million, or $0.45 per common share, basic and fully diluted. This is a decrease of $1.6 million, or 13.5%, when compared with net income of $11.7 million, or $0.52 basic and diluted earnings per share, for the first nine months of 2019. The decrease was primarily the result of the provision for loan losses of $4.2$12.1 million for the first ninesix months of 2020 compared with $125,0002021 reflects an increase of $6.5 million, or 116.5%, over net income of $5.6 million for the same period in 2019. The level2020. Provision for loan losses reflects a reserve recovery of $1.4 million for the first six months of 2021 compared with a provision in 2020 was recorded to reflectof $4.2 million during the business and market disruptions arising fromearly stage of the COVID-19 pandemic. Also declining on a year-over-year nine month basispandemic for the first six months of 2020. Interest expense declined $3.8 million and was net$3.3 million for the first six months of 2021 compared with $7.1 million for the first six months of 2020. Smaller increases were in interest and dividend income, by $233,000.which increased $227,000, and in noninterest income, which increased $138,000 in the first six months of 2021 compared with the same period in 2020. Offsetting these decreasesincreases to net income were a decreasean increase of $2.1$1.5 million in noninterest expenses, primarily from a reduction in salarieswhich were $17.9 million for the first six months of 2021, and employee benefits of $1.1$1.7 million due primarily to capitalized internal loan origination costs related to PPP loan volume, an increase of $447,000 in noninterest income, which was driven by an increase of $484,000 in mortgage loan income, and a decrease of $224,000greater expense in income tax expense.taxes, which were $3.0 million for the first six months of 2021.
Net Interest Income
The Company’s operating results depend primarily on its net interest income, which is the difference between interest income on interest-earning assets, including securities and loans, and interest expense incurred on interest bearing liabilities, including deposits and other borrowed funds. Net interest income is affected by changes in the amount and mix of interest earning assets and interest bearing liabilities, referred to as a “volume change.” It is also affected by changes in yields earned on interest earning assets and rates paid on interest bearing deposits and other borrowed funds, referred to as a “rate change.”
Net interest income decreased $706,000,increased $2.1 million, or 5.3%17.3%, from the thirdsecond quarter of 20192020 to the thirdsecond quarter of 2020.2021. Net interest income was $12.7$14.5 million in the thirdsecond quarter of 20202021 compared with $13.4$12.4 million for the same period in 2019.2020. Interest and dividend income decreased $1.9 million,increased $313,000, or 10.9%2.0%, over this time period. In the thirdsecond quarter of 2019, a $1.1 million payoff was received within a loan pool2021, $562,000 in net origination fees under the Paycheck Protection Program (PPP) were recognized as income versus $304,000 in the PCI portfolio, with no carrying value, which resulted in the entire payment being recognized as interest income.same period of 2020. Interest and fees on loans decreased by $427,000,were $13.2 million in the second quarter of 2021, an increase of $184,000, or 3.2%1.4%, driven by a decreaseover the same period in rate.2020. Interest and fees on PCI loans affected by the $1.1 million payoff previously noted, decreased by $1.4 million$278,000 and was $962,000were $784,000 in the thirdsecond quarter of 2020.2021. Securities income decreased by $138,000, andwas $2.0 million in the second quarter of 2021, an increase of $394,000 over the same period in 2020. Income on interest on deposits in other banks increased by $34,000.$13,000 year over year.
The average balance of the loan portfolio, excluding PCI loans, increased by $131.9$58.7 million year over year and averaged $1.169$1.205 billion for the thirdsecond quarter of 2020.2021. The average balance of the PCI portfolio declined $6.5$10.2 million during the year-over-year comparison period. The average balance of securities increased by $82.8 million in the second quarter of 2021 compared with the same period one year earlier. The average balance of total earning assets increased $184.7$165.0 million, or 13.9%11.2%, from the thirdsecond quarter of 20192020 to the thirdsecond quarter of 2020.2021. The yield on earning assets decreased from 5.23%4.33% in the thirdsecond quarter of 2019, boosted by the $1.1 million PCI payment,2020 to 4.09%3.97% in the thirdsecond quarter of 2020.2021. The change in yield on earning assets was
34
the culmination of decreases in the yield on all loans, from 5.74%4.80% in the thirdsecond quarter of 20192020 to 4.55%4.58% in the thirdsecond quarter of 2020,2021, in the tax-equivalent yield on securities, from 3.17%2.88% in the thirdsecond quarter of 20192020 to 2.89%2.63% in the thirdsecond quarter of 2020,2021, and in the yield on interest bearing bank balances, from 2.58%0.31% to 0.68%0.25% year over year. Income on interest bearing bank balances increased $34,000 as a result of an increase of $57.1 million in the average balance in the third quarter of 2020 as compared with the same period one year ago.
Interest expense decreased $1.2$1.8 million, or 29.8%53.8%, when comparing the thirdsecond quarter of 20202021 and the thirdsecond quarter of 2019.2020. Interest expense on deposits decreased $1.1$1.8 million, or 29.3%57.7%, as the cost declined from 1.45%1.20% in the thirdsecond quarter of 20192020 to 0.96%0.48% for the same period in 2020.2021. The average balance of interest bearing deposits increased $70.0$60.2 million, or 6.9%5.6%. This growth was from non-maturity deposit sources. First, there was an increase of $45.8$86.7 million, or 29.5%47.7%, in the average balance of interest bearing checking accounts, which averaged $201.0$268.5 million in the thirdsecond quarter of 2020.2021. Additionally, there was an increase of $43.9$81.5 million in the average balance of savings and money market accounts from the thirdsecond quarter of 20192020 to the same period in 2020.2021. Offsetting these increases was a decrease of $108.0 million in the average balance of time deposits, of $19.8 million, to $612.8$535.5 million for the thirdsecond quarter of 2020.2021. FHLB and other borrowings benefited from
35
a decrease in cost from 1.99%costs were stable over the time frame and were 1.22% in the thirdsecond quarter of 2019 to 1.19%2021 compared with 1.15% for the same period in the third quarter of 2020. All of the above contributed to the reduction of interest expense for interest-bearinginterest bearing liabilities by $1.2$1.8 million despite an increase of $60.1 million in the average amount outstandingoutstanding. Also noteworthy is that, although not an interest bearing category, a sizeable amount of $77.4 million.funding was generated in the second quarter of 2021 by a year-over-year average balance increase of $83.7 million in noninterest bearing deposits. The amount of liquidity in the banking system, along with lower interest rates and a shift in deposit balances, decreased the cost of interest bearing liabilities from 1.49%1.19% in the thirdsecond quarter of 20192020 to 0.97%0.52% in the thirdsecond quarter of 20202021.
The tax-equivalent net interest margin decreased 67increased 18 basis points, from 4.02%3.40% in the thirdsecond quarter of 20192020 to 3.35%3.58% in the thirdsecond quarter of 2020.2021. Likewise, the interest spread decreasedincreased from 3.74%3.14% to 3.12%3.45% over the same time period. The decreaseincrease in the margin was precipitated by a greater decrease of 36 basis points in the yield on earning assets of 114 basis points compared with a greater decline of 67 basis points in the cost of interest bearing liabilities applied against growth of 52 basis points.$165.0 million, or 11.2%, in earning assets. The Company also examined the net interest margin without the effects of PPP net fees, interest income and average balances. Excluding these PPP related items from the net interest margin calculation would have resulted in a margin of 3.54% in the second quarter of 2021.
Net interest income was $37.3$28.6 million for the first ninesix months of 2020.2021. This is a slight decreasean increase of $233,000,$4.0 million, or 0.6%16.2%, from net interest income of $37.5$24.6 million for the first ninesix months of 2019.2020. Interest and dividend income declinedincreased by $1.9 million$227,000 over this time frame. Interest and dividend income was impacted by volume increases offset by a decline in yield. First, there was an increase of $612,000,$248,000, or 1.6%1.0%, in interest and fees on loans, which increased as a result of growth of $111.0$92.5 million, or 10.9%8.4%, in the average balance of loans in 20202021 over 2019.2020. The yield on loans declined from 5.03%4.73% for the first ninesix months of 20192020 to 4.59%4.43% for the same period in 2020. A portion of this decrease is attributable to the addition of $85.1 million in PPP loans net of fees during the second and third quarters of 2020 at a rate of 1.00%.2021. Interest and fees on PCI loans declined by $1.8 million,$519,000, or 36.0%24.0%. Part of this decline is related to payoffs within charged-off loan pools within the PCI portfolio. The yield on the PCI portfolio was 13.71%15.16% for the first ninesix months of 20202021 compared with 17.70%13.94% for the same period in 2019. Interest on deposits in other banks declined by $69,000.first six months of 2020. Interest and dividends on securities declinedincreased by $699,000$494,000 in the first ninesix months of 20202021 compared with the same period in 2019.2020. The average balance of the securities portfolio increased $67.7 million, or 28.7%, and the yield declined from 2.98% for the first six months of 2020 to 2.64% for the same period in 2021. The yield on earning assets was 4.38%4.04% for the first ninesix months of 2020,2021, a decline of 6450 basis points from 5.02%4.54% in the first ninesix months of 2019.2020. The yield on total loans, which includes PCI loans and PPP loans, declined from 5.48%4.99% for the first ninesix months of 20192020 compared to 4.83%4.63% for the same period in 2020. The return on interest bearing bank balances declined from 2.55% to 0.66%, while the tax-equivalent yield on the securities portfolio declined from 3.25% for the first nine months of 2019 to 2.95% for the first nine months of 2020.2021.
Interest expense of $9.9$3.3 million for the first ninesix months of 20202021 was a decrease of $1.7$3.8 million, or 14.6%52.8%, from interest expense of $11.6$7.1 million for the first ninesix months of 2019.2020. The cost of interest bearing liabilities decreased over this time frame from 1.44%1.28% for the first ninesix months of 20192020 to 1.17%0.57% for the same period in 2020.2021. Interest on deposits decreased $1.3$3.7 million due to a decline in the rate paid from 1.39%1.27% for the first ninesix months of 20192020 to 1.16%0.53% for the first ninesix months of 2020. Over the next 12 months, $480.7 million in certificates of deposit, or 78.8% of total certificates, will reprice, and these certificates were paying a weighted average rate of 1.28% at September 30, 2020.2021. The average balance of interest bearing liabilities increased over this time frame by $45.7 million.$64.7 million, or 5.8%. Short term borrowing expense decreased by $60,000,$23,000, and the cost of FHLB and other borrowings decreased by $327,000,$38,000, or 32.0%8.0%, as the rate paid decreased from 2.09%1.36% for the first ninesix months of 20192020 to 1.30%1.23% for the first ninesix months of 2020.2021.
The changes noted to interest income and interest expense led to a declinean increase in the net interest margin from 3.84%3.53% for the first ninesix months of 20192020 to 3.48%3.62% for the same period in 2020.2021. The interest spread also declinedincreased over this time frame from 3.58%3.26% in 20192020 to 3.21%3.47% in 2020.2021. Excluding PPP loansrelated items from the net interest margin calculation would have resulted in a margin of 3.49%3.57% for the first ninesix months of 20202021 compared with the actual margin of 3.48%3.62%. The yield onExcluding PPP related items from the loan portfolionet interest margin calculation for the first six months of 2020 would have been 4.68% excluding PPP loans versus the actual yieldresulted in a margin of 4.59% with PPP loans, and the yield on earning assets would have been 4.44% without PPP loans as opposed to the actual yield of 4.38% that included PPP loans.
3635
3.54% for the first six months of 2020 compared with the actual margin of 3.53%. The yield on the loan portfolio for the first six months of 2021 would have been 4.40% excluding PPP related items versus the actual yield of 4.43%. The yield on the loan portfolio for the first six months of 2020 would have been 4.78% excluding PPP related items versus the actual yield of 4.73% with PPP related items. The yield on earning assets for the first six months of 2021 would have been 4.00% without PPP related items as opposed to the actual yield of 4.04%. The yield on earning assets for the first six months of 2020 would have been 4.58% without PPP related items as opposed to the actual yield of 4.54% that included the PPP related items.
The following tables set forth, for each category of interest-earning assets and interest bearing liabilities, the average amounts outstanding, the interest earned or paid on such amounts, and the average rate earned or paid for the three and ninesix months ended SeptemberJune 30, 20202021 and 2019.2020. The tables also set forth the average rate paid on total interest bearing liabilities, and the net interest margin on average total interest earning assets for the same periods. Except as indicated in the footnotes, no tax equivalent adjustments were made and all average balances are daily average balances. Any nonaccruing loans have been included in the tables, as loans carrying a zero yield.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||
|
| Three months ended September 30, 2020 |
| Three months ended September 30, 2019 | |
| Three months ended June 30, 2021 |
| Three months ended June 30, 2020 | | ||||||||||||||||||||||||
| | | | | | | | Average | | | | | | | | Average | | | | | | | | Average | | | | | | Average | | |||
| | Average | | Interest | | Rates | | Average | | Interest | | Rates | | | Average | | Interest | | Rates | | Average | | Interest | | Rates | | ||||||||
| | Balance | | Income/ | | Earned/ | | Balance | | Income/ | | Earned/ | | | Balance | | Income/ | | Earned/ | | Balance | | Income/ | | Earned/ | | ||||||||
(Dollars in thousands) |
| Sheet |
| Expense |
| Paid |
| Sheet |
| Expense |
| Paid | |
| Sheet |
| Expense |
| Paid |
| Sheet |
| Expense |
| Paid | | ||||||||
ASSETS: |
| |
|
| |
|
|
|
| |
|
| |
|
|
| |
| |
|
| |
|
|
|
| |
|
| |
|
|
| |
Loans | | $ | 1,169,330 | | $ | 12,760 |
| 4.33 | % | $ | 1,037,433 | | $ | 13,187 |
| 5.04 | % | | $ | 1,204,691 | | $ | 13,196 | | 4.39 | % | $ | 1,145,956 | | $ | 13,012 | | 4.55 | % |
PCI loans | |
| 28,480 | |
| 962 |
| 13.21 | |
| 34,999 | |
| 2,333 |
| 26.07 | | |
| 19,827 | | | 784 | | 15.63 | |
| 29,978 | | | 1,062 | | 14.01 | |
Total loans | |
| 1,197,810 | |
| 13,722 |
| 4.55 | |
| 1,072,432 | |
| 15,520 |
| 5.74 | | |
| 1,224,518 | | 13,980 | | 4.58 | |
| 1,175,934 | | 14,074 | | 4.80 | | ||
Interest bearing bank balances | |
| 70,590 | |
| 121 |
| 0.68 | |
| 13,454 | |
| 87 |
| 2.58 | | |
| 86,130 | | 54 | | 0.25 | |
| 52,551 | | 41 | | 0.31 | | ||
Federal funds sold | |
| 127 | |
| — |
| 0.07 | |
| 1,795 | |
| 9 |
| 2.08 | | |
| 208 | | — | | 0.08 | |
| 210 | | — | | 0.07 | | ||
Securities (taxable) | |
| 198,296 | |
| 1,362 |
| 2.75 | |
| 195,401 | |
| 1,489 |
| 3.05 | | |
| 272,556 | | 1,695 | | 2.49 | |
| 189,378 | | 1,287 | | 2.72 | | ||
Securities (tax exempt) (1) | |
| 50,551 | |
| 435 |
| 3.44 | |
| 49,616 | |
| 450 |
| 3.63 | | |
| 50,260 | | | 424 | | 3.37 | |
| 50,629 | | | 442 | | 3.49 | |
Total earning assets | |
| 1,517,374 | |
| 15,640 |
| 4.09 | |
| 1,332,698 | |
| 17,555 |
| 5.23 | | |
| 1,633,672 | | 16,153 | | 3.97 | |
| 1,468,702 | | 15,844 | | 4.33 | | ||
Allowance for loan losses | |
| (12,424) | |
|
|
|
| |
| (8,872) | |
|
|
|
| | |
| (11,037) | | | | | |
| (12,007) | |
| |
| | ||
Non-earning assets | |
| 108,772 | |
|
|
|
| |
| 101,129 | |
|
|
|
| | |
| 104,716 | | | | | |
| 109,847 | |
| |
| | ||
Total assets | | $ | 1,613,722 | |
|
|
|
| | $ | 1,424,955 | |
|
|
|
| | | $ | 1,727,351 | | | | | | $ | 1,566,542 | |
| |
| | ||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||
LIABILITIES AND SHAREHOLDERS’ EQUITY | |
|
| |
|
|
|
| |
|
| |
|
|
|
| | |
| | | | | | |
| | | | | | | ||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||
Demand - interest bearing | | $ | 200,995 | | | 112 |
| 0.22 | | $ | 155,208 | | | 85 |
| 0.22 | | | $ | 268,525 | | $ | 119 | | 0.18 | | $ | 181,789 | | 98 | | 0.22 | | |
Savings and money market | |
| 268,350 | |
| 241 |
| 0.36 | |
| 224,401 | |
| 330 |
| 0.58 | | |
| 323,137 | | 205 | | 0.25 | |
| 241,646 | | 228 | | 0.38 | | ||
Time deposits | |
| 612,848 | |
| 2,261 |
| 1.46 | |
| 632,625 | |
| 3,283 |
| 2.06 | | |
| 535,455 | | | 1,023 | | 0.77 | |
| 643,465 | | | 2,856 | | 1.78 | |
Total interest bearing deposits | |
| 1,082,193 | |
| 2,614 |
| 0.96 | |
| 1,012,234 | |
| 3,698 |
| 1.45 | | |
| 1,127,117 | | 1,347 | | 0.48 | |
| 1,066,900 | | 3,182 | | 1.20 | | ||
Short-term borrowings | |
| 1,611 | |
| 1 |
| 0.21 | |
| 4,409 | |
| 28 |
| 2.53 | | |
| 134 | | — | | 0.20 | |
| 323 | | — | | 0.20 | | ||
FHLB and other borrowings | |
| 72,285 | |
| 221 |
| 1.19 | |
| 62,079 | |
| 315 |
| 1.99 | | |
| 71,785 | | | 220 | | 1.22 | |
| 71,685 | | | 209 | | 1.15 | |
Total interest bearing liabilities | |
| 1,156,089 | |
| 2,836 |
| 0.97 | |
| 1,078,722 | |
| 4,041 |
| 1.49 | | |
| 1,199,036 | | | 1,567 | | 0.52 | |
| 1,138,908 | | | 3,391 | | 1.19 | |
Noninterest bearing deposits | |
| 281,026 | |
|
|
|
| |
| 181,249 | |
|
|
|
| | |
| 337,907 | | | | | | |
| 254,216 | | |
| |
| |
Other liabilities | |
| 12,980 | |
|
|
|
| |
| 14,246 | |
|
|
|
| | |
| 13,921 | | | | | |
| 14,396 | |
| |
| | ||
Total liabilities | |
| 1,450,095 | |
|
|
|
| |
| 1,274,217 | |
|
|
|
| | |
| 1,550,864 | | | | | |
| 1,407,520 | |
| |
| | ||
Shareholders’ equity | |
| 163,627 | |
|
|
|
| |
| 150,738 | |
|
|
|
| | |
| 176,487 | | | | | |
| 159,022 | |
| |
| | ||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||
Total liabilities and shareholders’ equity | | $ | 1,613,722 | |
|
|
|
| | $ | 1,424,955 | |
|
|
|
| | | $ | 1,727,351 | | | | | | $ | 1,566,542 | |
| |
| | ||
Net interest earnings | |
|
| | $ | 12,804 |
|
| |
|
| | $ | 13,514 |
|
| | |
| | | $ | 14,586 | | | |
|
| | $ | 12,453 | |
| |
Interest spread | |
|
| |
|
|
| 3.12 | % |
|
| |
|
|
| 3.74 | % | |
| | | | | 3.45 | % |
|
| |
| | 3.14 | % | ||
Net interest margin | |
|
| |
|
|
| 3.35 | % |
|
| |
|
|
| 4.02 | % | |
| | | | | 3.58 | % |
| | | | | 3.40 | % | ||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||
Tax equivalent adjustment: | |
|
| |
|
|
|
| |
|
| |
|
|
|
| | |
|
| |
|
|
|
| |
|
| |
|
|
|
| |
Securities | |
|
| | $ | 91 |
|
| |
|
| | $ | 95 |
|
| | |
|
| | $ | 89 |
|
| |
|
| | $ | 93 |
|
| |
3736
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||
|
| Nine months ended September 30, 2020 |
| Nine months ended September 30, 2019 |
|
| Six months ended June 30, 2021 |
| Six months ended June 30, 2020 |
| ||||||||||||||||||||||||
| | | | | | | | Average | | | | | | | | Average | | ��� | | | | | | Average | | | | | | Average | | |||
| | Average | | Interest | | Rates | | Average | | Interest | | Rates | | | Average | | Interest | | Rates | | Average | | Interest | | Rates | | ||||||||
| | Balance | | Income/ | | Earned/ | | Balance | | Income/ | | Earned/ | | | Balance | | Income/ | | Earned/ | | Balance | | Income/ | | Earned/ | | ||||||||
(Dollars in thousands) |
| Sheet |
| Expense |
| Paid |
| Sheet |
| Expense |
| Paid |
|
| Sheet |
| Expense |
| Paid |
| Sheet |
| Expense |
| Paid |
| ||||||||
ASSETS: |
| |
|
| |
|
|
|
| |
|
| |
|
|
|
|
| |
|
| |
|
|
|
| |
|
| |
|
|
|
|
Loans | | $ | 1,127,002 | | $ | 38,858 |
| 4.59 | % | $ | 1,016,041 | | $ | 38,246 |
| 5.03 | % | | $ | 1,198,080 | | $ | 26,346 | | 4.43 | % | $ | 1,105,612 | | $ | 26,098 | | 4.73 | % |
PCI loans | |
| 29,917 | |
| 3,121 |
| 13.71 | |
| 36,321 | |
| 4,877 |
| 17.70 | | |
| 21,517 | | | 1,640 | | 15.16 | |
| 30,644 | | | 2,159 | | 13.94 | |
Total loans | |
| 1,156,919 | |
| 41,979 |
| 4.83 | |
| 1,052,362 | |
| 43,123 |
| 5.48 | | |
| 1,219,597 | | 27,986 | | 4.63 | |
| 1,136,256 | | 28,257 | | 4.99 | | ||
Interest bearing bank balances | |
| 46,620 | |
| 231 |
| 0.66 | |
| 15,752 | |
| 300 |
| 2.55 | | |
| 78,204 | | 114 | | 0.29 | |
| 34,503 | | 110 | | 0.64 | | ||
Federal funds sold | |
| 159 | |
| — |
| 0.36 | |
| 890 | |
| 14 |
| 2.17 | | |
| 203 | | — | | 0.07 | |
| 176 | | — | | 0.47 | | ||
Securities (taxable) | |
| 190,035 | |
| 4,000 |
| 2.81 | |
| 190,433 | |
| 4,483 |
| 3.14 | | |
| 253,851 | | 3,162 | | 2.49 | |
| 185,859 | | 2,638 | | 2.84 | | ||
Securities (tax exempt) (1) | |
| 50,192 | |
| 1,311 |
| 3.48 | |
| 58,577 | |
| 1,585 |
| 3.61 | | |
| 49,712 | | | 838 | | 3.37 | |
| 50,010 | | | 876 | | 3.51 | |
Total earning assets | |
| 1,443,925 | |
| 47,521 |
| 4.38 | |
| 1,318,014 | |
| 49,505 |
| 5.02 | | |
| 1,601,567 | | 32,100 | | 4.04 | |
| 1,406,804 | | 31,881 | | 4.54 | | ||
Allowance for loan losses | |
| (11,023) | |
|
|
|
| |
| (8,925) | |
|
|
|
| | |
| (11,744) | | | | | |
| (10,314) | | | | | | ||
Non-earning assets | |
| 108,056 | |
|
|
|
| |
| 100,221 | |
|
|
|
| | |
| 105,329 | | | | | |
| 107,694 | | | | | | ||
Total assets | | $ | 1,540,958 | |
|
|
|
| | $ | 1,409,310 | |
|
|
|
| | | $ | 1,695,152 | | | | | | $ | 1,504,184 | | | | | | ||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||
LIABILITIES AND SHAREHOLDERS’ EQUITY | |
|
| |
|
|
|
| |
|
| |
|
|
|
| | |
| | | |
| | |
| | | | | | | ||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||
Demand - interest bearing | | $ | 184,415 | | | 304 |
| 0.22 | | $ | 156,335 | | | 258 |
| 0.22 | | | $ | 259,755 | | $ | 257 | | 0.20 | | $ | 176,034 | | $ | 192 | | 0.22 | |
Savings and money market | |
| 243,311 | |
| 749 |
| 0.41 | |
| 220,868 | |
| 930 |
| 0.56 | | |
| 307,545 | | 389 | | 0.25 | |
| 230,654 | | 508 | | 0.44 | | ||
Time deposits | |
| 629,598 | |
| 8,162 |
| 1.73 | |
| 634,434 | |
| 9,333 |
| 1.97 | | |
| 542,835 | | | 2,266 | | 0.84 | |
| 638,064 | | | 5,901 | | 1.85 | |
Total interest bearing deposits | |
| 1,057,324 | |
| 9,215 |
| 1.16 | |
| 1,011,637 | |
| 10,521 |
| 1.39 | | |
| 1,110,135 | | 2,912 | | 0.53 | |
| 1,044,752 | | 6,601 | | 1.27 | | ||
Short-term borrowings | |
| 2,038 | |
| 24 |
| 1.57 | |
| 4,072 | |
| 84 |
| 2.77 | | |
| 286 | | — | | 0.20 | |
| 2,254 | | 23 | | 2.06 | | ||
FHLB and other borrowings | |
| 70,263 | |
| 696 |
| 1.30 | |
| 64,686 | |
| 1,023 |
| 2.09 | | |
| 70,487 | | | 437 | | 1.23 | |
| 69,240 | | | 475 | | 1.36 | |
Total interest bearing liabilities | |
| 1,129,625 | |
| 9,935 |
| 1.17 | |
| 1,080,395 | |
| 11,628 |
| 1.44 | | |
| 1,180,908 | | | 3,349 | | 0.57 | |
| 1,116,246 | | | 7,099 | | 1.28 | |
Noninterest bearing deposits | |
| 237,198 | |
|
|
|
| |
| 170,919 | |
|
|
|
| | |
| 326,506 | | | | | | |
| 215,044 | | | | | | |
Other liabilities | |
| 13,849 | |
|
|
|
| |
| 12,809 | |
|
|
|
| | |
| 13,567 | | | | | |
| 14,290 | | | | | | ||
Total liabilities | |
| 1,380,672 | |
|
|
|
| |
| 1,264,123 | |
|
|
|
| | |
| 1,520,981 | | | | | |
| 1,345,580 | | | | | | ||
Shareholders’ equity | |
| 160,286 | |
|
|
|
| |
| 145,187 | |
|
|
|
| | |
| 174,171 | | | | | |
| 158,604 | | | | | | ||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||
Total liabilities and shareholders’ equity | | $ | 1,540,958 | |
|
|
|
| | $ | 1,409,310 | |
|
|
|
| | | $ | 1,695,152 | | | | | | $ | 1,504,184 | | | | | | ||
Net interest earnings | |
|
| | $ | 37,586 |
|
| |
|
| | $ | 37,877 |
|
| | |
| | | $ | 28,751 | | | |
| | | $ | 24,782 | | | |
Interest spread | |
|
| |
|
|
| 3.21 | % |
|
| |
|
|
| 3.58 | % | |
| | | | | 3.47 | % |
| | | | | 3.26 | % | ||
Net interest margin | |
|
| |
|
|
| 3.48 | % |
|
| |
|
|
| 3.84 | % | |
| | | | | 3.62 | % |
| | | | | 3.53 | % | ||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||
Tax equivalent adjustment: | |
|
| |
|
|
|
| |
|
| |
|
|
|
| | |
|
| |
|
|
|
| |
| | | | | | | |
Securities | |
|
| | $ | 275 |
|
| |
|
| | $ | 333 |
|
| | |
|
| | $ | 176 |
|
| |
| | | $ | 184 | | | |
(1) | Income and yields are reported on a tax equivalent basis assuming a federal tax rate of 21%. |
Provision for Loan Losses
Management actively monitors the Company’s asset quality and provides specific loss provisions when necessary. Provisions for loan losses are charged to income to bring the total allowance for loan losses to a level deemed appropriate by management of the Company based on such factors as historical credit loss experience, industry diversification of the commercial loan portfolio, the amount of nonperforming loans and related collateral, the volume growth and composition of the loan portfolio, current economic conditions that may affect the borrower’s ability to pay and the value of collateral, the evaluation of the loan portfolio through the internal loan review function and other relevant factors. See Allowance for Loan Losses on Loans in the Critical Accounting Policies section above for further discussion.
Loans are charged-off against the allowance for loan losses when appropriate. Although management believes it uses the best information available to make determinations with respect to the provision for loan losses, future adjustments may be necessary if economic conditions differ from the assumptions used in making the initial determinations.
37
Management also actively monitors its PCI loan portfolio for impairment and necessary loan loss provisions. Provisions for these loans may be necessary due to a change in expected cash flows or an increase in expected losses within a pool of loans.
38
The Company records a separate provision for loan losses for its loan portfolio, excluding PCI loans, and the PCI loan portfolio. There was no provision for loan losses on the loan portfolio, excluding PCI loans, in the thirdsecond quarter of either 2020 or 2019. There was a2021 compared with $900,000 in provision for loan losses onfor the second quarter of 2020. The recovery of $1.4 million of provision for loan losses for the first six months of 2021 compares with a provision of $4.2 million for the first six months of 2020.
The recovery of provision recorded in the first six months of 2021 was due to continued improvement in the quality of the loan portfolio excluding PCI loans, of $4.2 million and $125,000 foran overall improvement in the nine months ended September 30, 2020 and 2019, respectively.
The provision recorded during the first nine months of 2020 was due to the heightened risks associated with the loan portfolio that resulted from thepotential economic impact of the rapidly evolving effectsCOVID-19 pandemic. Beginning with the first quarter of the COVID-19 stay-at-home orders, business shut-downs and increased unemployment. The Company’s lenders reviewed2020, management performs a review of each loan within the portfolio to identify, and monitor on a going forward basis, those borrowers that management believed to be possibly impacted by the current state of the economy. Loans identified with increased risk wereare aggregated by loan type. ThisDuring the first quarter of 2020, this analysis indicated a risk grade migration in a number of loan categories that led to a heightened risk level in the loan portfolio. The impact of the loans’ risk grade migration was applied to the allowance for loan loss calculation, which led to the provision for loan losses of $4.2 million for each of the first two quarters ofsix month period ended June 30, 2020. The Company determined that no provision was necessary for the third quarteror fourth quarters of 2020 after a similar analysis and review process forprocess. Despite the quarter.stay-at-home orders, shut downs, higher than historical unemployment levels and slow growth, the loan portfolio has exhibited a trend over the last year of lower nonaccrual loans, lower other real estate loans and very low charge-offs.
Due to the COVID-19 pandemic, the Company is closely monitoring loan concentrations in various “at risk areas” that it has deemed most likely to be affected by the stay-at-home orders and lack of general business activity, including a lack of travel in our geographic territory. As of SeptemberJune 30, 2020,2021, the Company identified the following categories of borrowers as being potentially at risk:
| | | |
Category | | % of Total Loans | |
|
|
|
|
Lessors of commercial properties | |
|
|
Lessors of residential properties | |
| |
Consumer | | 11.7 | |
Hotels and other lodging | |
| |
Medical and care services | |
| |
Food service & drinking | |
| |
Retail stores | |
| |
Personal services | |
| |
The Company is workingcontinues to work with borrowers who have currently expressed a need for relief due to the effects of COVID-19. The Company granted reliefAt June 30, 2021, there were $33.5 million in the formloans under COVID-19 related payment relief. PCI loans comprised $1.4 million of various types of payment concessions, including interest only for up to six months or payment deferrals up to the same time frame for loans with outstanding balances of $164.1 million at September 30, 2020. In accordance with current regulatory guidance, none of these loans were deemed to be TDRs, as they were all current under their terms as of December 31, 2019.
The Company is also helping its customers and communities by participating in the PPP. As of September 30, 2020, the Company originated 793 loans totaling $85.1 million net of fees, with the median size for all loans made being approximately $31,500. As these loans are 100% guaranteed by the SBA, no allowance for loan losses is required.this total.
With respect to the PCI portfolio, due to the stable nature of its performance and its declining balances over time as the portfolio amortizes, no provision was taken during either of the three or nineand six months ended SeptemberJune 30, 20202021 and 2019.2020. Additional discussion of loan quality is presented below.
The loan portfolio, excluding PCI loans, had net recoveries of $90,000$178,000 in the thirdsecond quarter of 2020,2021, compared with net charge-offs of $426,000$481,000 in the thirdsecond quarter of 2019.2020. Total charge-offs were $42,000$57,000 for the thirdsecond quarter of 20202021 compared with $576,000$618,000 in the thirdsecond quarter of 2019.2020. Recoveries of previously charged-off loans were $132,000$235,000 for the thirdsecond quarter of 20202021 compared with $150,000$137,000 in the thirdfirst quarter of 2019.2020.
The loan portfolio, excluding PCI loans, had net charge-offsrecoveries of $301,000$66,000 for the ninesix months ended SeptemberJune 30, 2020,2021, compared with net charge-offs of $715,000$391,000 in the same period of 2019.2020. Total charge-offs were $754,000$303,000 for the ninesix months ended SeptemberJune 30, 2020,2021, compared with $1.3 million$712,000 in the same period of 2019.2020. Recoveries of previously charged-off loans were $453,000$369,000 for the ninesix months ended SeptemberJune 30, 2020,2021, compared with $541,000$321,000 in the same period of 2019.2021.
3938
Noninterest Income
Noninterest income of $1.5 million in the thirdsecond quarter of 20202021 was a decrease of $39,000,$155,000, or 2.6%9.6%, belowover the thirdsecond quarter of 2019. Service charges2020. Gains (losses) on deposit accounts of $613,000 in the third quarter of 2020securities transactions decreased by $145,000, or 19.1%,$270,000 year over year due to reduced transaction volumes during the COVID-19 pandemic. Income on bank owned life insurance was $171,000as securities losses of $28,000 were recognized in the thirdsecond quarter of 2020,2021 compared with gains of $242,000 in the second quarter of 2020. Mortgage loan income of $235,000 in the second quarter of 2021 was a decrease of $10,000$138,000 year over year. Offsetting these decreases to noninterest income was an increase of $139,000 in mortgage loanother noninterest income, which was $228,000$435,000 in the thirdsecond quarter of 2020 compared with $176,000 in the third quarter of 2019. Other noninterest income2021. The increase was $382,000 in the third quarter of 2020 compared with $346,000 in the third quarter of 2019,driven mainly by an increase of $36,000. Gains on securities transactions$199,000 in partnership investment income, partially offset by decreases of $78,000$39,000 and $48,000 in the third quarter of 2020 wereswap fee and brokerage/commission fee income, respectively. Additionally, there was an increase of $28,000 compared with the same quarter$119,000 in 2019.service charges and fees, which were $651,000.
Noninterest income was $4.4$3.1 million for the first ninesix months of 2020,2021, an increase of $447,000,$138,000, or 11.2%4.7%, over noninterest income of $4.0$3.0 million for the first ninesix months of 2019. Mortgage loan2020. Other noninterest income was $822,000$882,000 for the first ninesix months of 2020,2021, an increase of $484,000$290,000 over the same period in 2019. This increase was created by continuity among the mortgage team, coupled with attractive rates and increased referrals within the Bank. Other noninterest income was $974,000 for the first nine months of 2020, an increase of $230,000 over the same period in 2019.2020. The increase was primarily the result from 2020 activity that included a $64,000 gain on the extinguishment of a FHLB borrowing combined with a $261,000 increaseincreases of $312,000 and $141,000 in swap fee income. These items were partiallypartnership income and insurance commissions, respectively, offset by a decrease of $120,000 from non-recurring insurance proceeds received in 2019. Gain on saleswap fee income. Service charges and fees of loans was $11,000$1.3 million for the first ninesix months of 2020 compared with none for2021 was an increase of $126,000 over the same period in 2019. Offsetting these2020. These increases to noninterest income were a decline of $257,000 in service charges and fees, resulting from reduced transaction volumes createdprimarily offset by the COVID-19 pandemic stay-at-home orders, and a decrease of $28,000$215,000 in gain (loss) on securities transactions, net, which were losses of $12,000 for the first six months of 2021 compared with gains of $203,000 for the first six months of 2020. Mortgage loan income on bank owned life insurance.was $555,000 for the first six months of 2021, a decrease of $39,000 over the same period in 2020.
Noninterest Expense
Noninterest expenses were $8.5$9.2 million for the thirdsecond quarter of 2020.2021. This is a decreasean increase of $704,000$1.3 million, or 16.8%, from noninterest expenses of $9.2$7.9 million for the thirdsecond quarter of 2019.2020. The primary reasonlargest component of the increase was an increase in other noninterest expenses, which were $2.3 million in the second quarter of 2021, an increase of $932,000 over the same quarter one year earlier. The increase reflects $570,000 of merger related expenses from legal, professional and director fees during the second quarter of 2021, along with non-merger related increases of $105,000 and $73,000 in legal and professional fees, respectively. Salaries and employee benefits of $5.4 million in the second quarter of 2021 increased $739,000 over the second quarter of 2020. The second quarter of 2020 was positively affected by credits to internal costs for the volume of PPP loans that were booked in the quarter, as these costs were deferred and amortized over the life of the respective loans. Data processing fees of $741,000 in the second quarter of 2021 reflected an increase of $168,000 year over year. Offsetting these increases was a year-over-year decline resulted from a decreaseof $427,000 in other real estate expenses, net, which were $87,000reflect gains on the disposition of other real estate owned in the thirdsecond quarter of 2020 compared with $565,000 for the same period2021, in 2019. In addition, loan migration to OREO resulted in the Bank paying $624,000 in real estate taxes during the third quarterwhich they were a credit of 2019. Salaries and employee benefits declined $248,000, or 4.7%.$431,000. Also decreasing for the periodoffsetting these increases year over year were other operating expenses, which decreased $165,000, and equipment expense, which was $47,000 lower. Offsetting these decreases were increasesa decrease of $170,000$48,000 in FDIC assessment, mainly due towhich was $108,000 in the second quarter of 2021, a $165,000 assessment credit received by the FDICdecrease of $28,000 in 2019,equipment expenses, which was $317,000, and $62,000a decrease of $17,000 in data processing expenses.occupancy expenses, which was $761,000.
Noninterest expenses were $25.0$17.9 million for the ninesix months ended SeptemberJune 30, 2020, a decrease2021, an increase of $2.1$1.5 million, or 7.6%9.0%, year over year. Other real estateoperating expenses net were $89,000 for$3.9 million and increased by $1.0 million in the first ninesix months of 2020 and decreased by $573,000 versus the same period in 2019. In the third quarter of 2019, a nonperforming loan was migrated to OREO and as part of the process the Bank paid $624,000 in real estate taxes on the property. Salaries and employee benefits declined $1.1 million, or 7.1%. In addition to the internal loan costs relating to the origination of PPP loans, the closure of two branch offices in 2019 have positively affected salaries as well as other expense categories in 2020, namely occupancy and equipment expenses. Occupancy expenses were $242,000 lower, equipment expenses were $105,000 lower, and other operating expenses decreased $230,000. FDIC assessment was $455,000 for the first nine months of 2020 and increased $139,000 over the same period in 2019 reflecting the $165,000 credit noted above. Data processing fees were $1.8 million for the first nine months of 2020, an increase of $80,000 when2021 compared with the same period in 2019.
Income Taxes
Income tax expense was $1.1 million for2020. Part of the thirdincrease is attributed to $570,000 in merger related expenses, a downward adjustment of $154,000 related to an assessment of the fair value of a qualified affordable housing project investment, and non-merger related increases of $201,000 and $114,000 in legal and professional fees, respectively, incurred during the second quarter of 2020, compared with income tax expense2021. Salaries and employee benefits of $1.1$10.6 million for the third quarterwere an increase of 2019. For the first nine months of 2020, income tax expense was $2.5 million compared with $2.7 million$795,000 for the first ninesix months of 2019. The effective tax rate for the third quarter of 2020 was 20.2% compared with 19.1% for the third quarter of 2019. For the first nine months of 2020, the effective tax rate was 19.5% compared with 18.7% for2021 over the same period in 2019. The2020. A portion of this increase, in the effective tax rate in 2020 compared with 2019 is$559,000, was the result of the large loan volume of PPP loans in the second quarter of 2020 that generated ASC 310-20 credits to salaries and employee benefits. Data processing fees, which were $1.3 million, increased by $184,000, or 15.8%, for the first six months of 2021 over the same period in 2020. Offsetting these increases was a lower leveldecrease of tax-free municipal bond interest income.$422,000 in OREO expenses, net, as a result of gains recognized in the second quarter of 2021 on the disposition of OREO. Also offsetting these increases was a decline of $112,000 in equipment expenses, which was $605,000 for the first half of 2021.
4039
Income Taxes
Income tax expense was $1.3 million for the second quarter of 2021, compared with income tax expense of $1.0 million for the second quarter of 2020. The effective tax rate for the second quarter of 2021 was 19.8% compared with 20.0% for the second quarter of 2020.
Income tax expense was $3.0 million for the first six months of 2021 compared with $1.3 million for the same period in 2020. The effective tax rate was 20.2% for the first half of 2021 compared with an effective tax rate of 19.0% for the first half of 2020.
FINANCIAL CONDITION
General
Total assets were $1.754 billion at June 30, 2021 and increased $191.4$109.4 million, or 13.4%6.7%, to $1.622 billion at September 30, 2020 when compared towith December 31, 2019.2020. Total loans, excluding PCI loans, were $1.178$1.192 billion at SeptemberJune 30, 2020,2021, increasing $119.4$9.5 million, or 11.3%0.8%, from year end 2019.2020. Total PCI loans were $27.1$17.9 million at SeptemberJune 30, 20202021 versus $32.5$24.0 million at December 31, 2019.2020.
Loans, net of fees that the Bank originated under the PPP grew $1.6 million during the third quarter and were $85.1$52.0 million at SeptemberJune 30, 2020. There were PPP loans of $83.52021 compared with $49.3 million outstanding at June 30,December 31, 2020. All of these balances are included in commercial loans. As a result of the economic conditions that existed during the second and third quartersfirst half of 2020,2021, commercial loans, excluding PPP loans, declined by $18.9$3.7 million fromsince December 31, 2019. Commercial loan balances, excluding PPP balances, declined by $7.2 million during the third quarter of 2020. Commercial real estate loans, the largest category of loans at $452.7$507.0 million, or 38.4%42.5% of gross loans outstanding at June 30, 2021, increased $8.8$32.1 million, or 2.0%, during the third quarter of 2020. This category has increased $55.8 million, or 14.1%, year to date and $59.6 million, or 15.2%, year over year. Construction and land development loans, totaling $159.8 million, grew by $8.2 million, or 5.4%, during the third quarter of 2020, by $13.2 million since year end 2019 and by $28.8 million, or 22.0%6.8%, since September 30, 2019.December 31, 2020. Residential 1 – 4 family loans declined during the third quarterfirst half of 20202021 by $1.4$14.3 million, or 7.2%, and ended the period at $204.4$182.9 million, or 17.4%15.4% of the portfolio. This category declined by $19.2 million during the first nine months of 2020 and $17.6 million since September 30, 2019.
The Company’s securities portfolio, excluding restricted equity securities, increased $34.0 million since year end 2019 to $256.7was $341.6 million at SeptemberJune 30, 2020. U.S. Treasury issues2021 and increased by $12.5$49.1 million during the first nine monthshalf of 2020 as excess liquidity was invested short-term in very liquid and low risk instruments. Corporate securities with balances, at fair value, of $25.9 million at September 30, 2020, increased2021. U.S. Treasury issues decreased by $19.8$13.3 million during the nine month period.first half of 2021. U.S. Government agencies increased $21.9 million during the first half of 2021 and were $47.8 million at June 30, 2021. State, county and municipal securities, the largest investment category at $139.6totaling $171.1 million at SeptemberJune 30, 2020,2021, increased by $15.2$24.2 million during the first nine monthstwo quarters of 2020.2021. Asset backed securities, consisting of student loan pools 97% guaranteed by the U.S. Government, increased by $17.4$10.3 million during the first nine monthstwo quarters of 20202021 and totaled $29.0were $47.8 million at SeptemberJune 30, 2020. Offsetting these increases was a decrease of $18.8 million in mortgage2021. Mortgage backed securities were $38.0 million at June 30, 2021 and a decline of $12.2grew by $5.8 million in balances held in U.S. Government agency bonds. The Company actively manages the portfolio to improve its liquidity and maximize the return within the desired risk profile.during 2021. Corporate securities were $26.7 million at June 30, 2021.
The Company is required to account for the effect of changes in the fair value of securities available for sale (AFS) under FASB ASC 320, Investments – Debt and Equity Securities. The fair value of the AFS portfolio was $233.7 million at September 30, 2020 and $187.0 million at December 31, 2019. At September 30, 2020, the Company had a net unrealized gain on the AFS portfolio of $8.9 million compared with a net unrealized gain of $3.7 million at December 31, 2019. Municipal securities comprised 49.9% of the total AFS portfolio at September 30, 2020. These securities exhibit more price volatility in a changing interest rate environment because of their longer weighted average life, as compared to other categories contained within the rest of the portfolio.
The Company had cash and cash equivalents of $75.5$123.6 million at SeptemberJune 30, 20202021 compared with $28.7$63.2 million at year end 2019, an increase of $46.8 million.2020. The majority of this category growth, $56.9 million, occurred in interest bearing bank balances, $45.1which were $102.0 million during the nine months ended Septemberat June 30, 2020,2021, as large amounts of liquidity have been funneled into the banking system through the facilitation of PPP loans by the banking industry and stimulus checks issued by the U.S. Treasury under the CARES Act.
Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”).
Interest bearing deposits at SeptemberJune 30, 20202021 were $1.088$1.149 billion, an increase of $102.8$49.3 million, or 10.4%4.5%, from December 31, 2019.2020. Interest bearing checking accounts (formerly NOW accounts) of $201.1$285.0 million grew by $5.7$45.4 million, or 2.9%19.0%, during the third quarterfirst six months of 2020 and grew $30.6 million, or 17.9%, since year end 2019 and $53.5 million, or 36.2%, since September 30, 2019.2021. Money market deposit accounts were $158.6$182.7 million at SeptemberJune 30, 20202021 and grew $10.5$28.2 million, or 7.1%, during the third quarter of 2020 and $37.7 million, or 31.2%18.3%, during the first ninesix months of 2020.2021. Savings accounts totaled $118.0$142.1 million at SeptemberJune 30, 20202021 and grew $9.4$17.7 million, or 14.3%, during the third quarter and $21.4 million for the first nine monthshalf of 2020.2021. Strong growth in these non-maturity categories for both the quarter and year has
41
allowed the Bank to react to lower interest rates through proactive repricing in certificates of deposit, the highest costing deposit category. As a result, there has been tepid growtha decline in time deposits over $250,000, which grew by $1.4 million in the third quarter of 2020. Time deposits less than or equal to $250,000, which decreased by $27.0 million, or 6.0%, in the first half of 2021 and were $425.8 million at June 30, 2021. Time deposits over $250,000 declined $24.2$15.0 million in the third quarterfirst half of 2020.2021 and were $113.4 million at June 30, 2021. Time deposit balances combined were 56.1%46.9% of interest bearing deposits at SeptemberJune 30, 2020,2021 and 36.2% of all deposit balances. This is a decline from 60.6%52.9% of interest bearing balances and 41.6% of all deposit balances at December 31, 2019.2020. The growth in interest bearing checking accounts, money market accounts and savings accounts, as well as in noninterest bearing deposits,checking accounts, was $192.9$132.2 million during the first nine monthshalf of 2020.2021. A portion of this growth was associated with the $85.1 million in PPP loans originated during 2020 and held at September 30, 2020 2021
40
and stimulus checks issued under the CARES Act, as well as previously postponed business activity that resulted from the COVID-19 stay-at-home orders. Certificates of deposit in relation to total deposits declined from 51.3% at December 31, 2019 to 44.5% at September 30, 2020.
FHLB borrowings were $68.0$67.5 million at SeptemberJune 30, 2020,2021 compared with $68.5$57.8 million at December 31, 2019.2020. The stable level of FHLB borrowings during 2020 and into 2021 has been due to the FHLB swiftly responding to the March 16, 2020 rate cut of 1.50% to the discount rate by repricing advances downward to ensure low cost liquidity for the banking system. As a result, the Bank has found this level of borrowing to be a stable source of low cost funding. The average rate paid on FHLB borrowings was 1.23% during the first half of 2021. There were no Federal funds purchased of $940,000 at SeptemberJune 30, 2020, down from $24.4 million at2021 or December 31, 2019.2020.
Shareholders’ equity was $165.8$179.7 million at SeptemberJune 30, 2020,2021, or 10.2%10.3% of total assets, compared with $155.5$169.7 million, or 10.9%10.3% of total assets, at December 31, 2019. Shareholders’ equity at September 30, 2019 was $152.6 million, or 10.7% of total assets. On January 22, 2020, the Company announced a share repurchase program of up to 1,000,000 shares of its common stock. During the first nine months of 2020, the Company repurchased 130,800 shares of common stock at a total cost of $885,665.2020.
Asset Quality – excluding PCI loans
The allowance for loan losses represents management’s estimate of the amount appropriate to provide for probable losses inherent in the loan portfolio.
Loan quality is continually monitored, and the Company’s management has established an allowance for loan losses that it believes is appropriate for the risks inherent in the loan portfolio. Among other factors, management considers the Company’s historical loss experience, the size and composition of the loan portfolio, the value and appropriateness of collateral and guarantors, nonperforming loans and current and anticipated economic conditions. There are additional risks of future loan losses, which cannot be precisely quantified nor attributed to particular loans or classes of loans. Because those risks include general economic trends, as well as conditions affecting individual borrowers, the allowance for loan losses is an estimate. The allowance is also subject to regulatory examinations and determination as to appropriateness, which may take into account such factors as the methodology used to calculate the allowance and size of the allowance in comparison to peer companies identified by regulatory agencies. See Allowance for Loan Losses on Loans in the Critical Accounting Policies section above for further discussion.
The Company maintains a list of loans that have potential weaknesses and thus may need special attention. This loan list is used to monitor such loans and is used in the determination of the appropriateness of the allowance for loan losses. Nonperforming loans were $3.6 million at June 30, 2021, a decrease of $950,000 from December 31, 2020. Total non-performing assets totaled $8.6$3.9 million at SeptemberJune 30, 2020 and net charge-offs were $301,000 for the nine months ended September 30, 2020. This compares2021 compared with nonperforming assets of $10.8 million and net charge-offs of $879,000 for the year ended December 31, 2019.
Nonaccrual loans were $4.2 million at September 30, 2020, a $1.1 million decrease from $5.3$8.9 million at December 31, 2019. The $1.12020. On April 7, 2021, the Company sold an item included in OREO at March 31, 2021 in the amount of $3.8 million, decrease in nonaccrual loans since December 31, 2019and this sale was the primary reason for the decline in non-performing assets. There were net resultrecoveries of $5.1 million$66,000 in additions to nonaccrual loans and $6.2 million in reductions. The increase related mainly to one construction and land development relationship totaling $1.4 million and three commercial loans totaling $2.4 million. With respect to the reductions in nonaccrual loans, $277,000 were payments to existing credits, $619,000 were charge-offs, $4.9 million were paid off, including $1.9 millionfirst half of the additions noted above, and $415,000 returned to accruing status.2021.
The allowance for loan losses excluding PCI, equaled 292.6%309.6% of nonaccrual loans at SeptemberJune 30, 20202021 compared with 159.3%276.7% at December 31, 2019.2020. The ratio of nonperforming assets to loans and OREO decreased 28 basis points. The
42was 0.33% at June 30, 2021 compared with 0.75% at December 31, 2020.
ratioThe allowance for loan losses to total loans was 0.73%0.92% at SeptemberJune 30, 2020 versus 1.01%2021 compared with 1.04% at December 31, 2019, which was driven primarily2020. The volume of PPP loans originated since the second quarter of 2020 impacted the ratio. PPP loans, net of fees, were $52.0 million at June 30, 2021 and $49.3 million at December 31, 2020. At June 30, 2021, when excluding PPP loans, the allowance for loan losses to total loans would have been 0.97% compared with 1.09% at December 31, 2020. These loans are fully guaranteed by the decreaseSmall Business Administration in nonperformingaccordance with the CARES Act; therefore, no allowance is required. The Company monitors and adjusts the allowance for loan losses based on loans and increase in total loans primarily from PPP loan originations.requiring a reserve.
The allowance for loan losses includes an amount that cannot be related to individual types of loans, and this is referred to as the unallocated component of the allowance. The Company recognizes the inherent imprecision in the estimates of losses due to various uncertainties and variability related to the factors used. Specifically, the partial recovery of $1.4 million from the provision of $4.2 million taken forduring the nine monthsyear ended SeptemberDecember 31, 2020 drove the June 30, 2020 primarily due to risk grade deterioration of the portfolio related to COVID-19 resulted in an elevated2021 unallocated amount of $3.1$1.2 million, at September 30, 2020.which is reflective of the on-going COVID-related risk grade stresses inherent in the loan portfolio. Several factors justify the maintenance of this unallocated amount:amount, as follows:
41
● | While the Company believes that it has appropriately assigned risk grade factors to address COVID-related risk in the most vulnerable pools, there is still a degree of uncertainty. For example, monthly and yearly gains of the Consumer Price Index have increased at a level not seen since 2008, which affects all borrowers. Hiring struggles and corresponding minimum wage increases affect our customers in the hospitality sector. Also, new variants of COVID-19 |
Coverage ratios at |
The Company |
In accordance with GAAP, an individual loan is impaired when, based on current information and events, it is probable that a creditor will be unable to collect all amounts due in accordance with contractual terms of the loan agreement. The Company considers all troubled debt restructures and nonaccrual loans to be impaired loans. In addition, the Company reviews all substandard and doubtful loans that are not on nonaccrual status, as well as loans with other risk characteristics, pursuant to and specifically for compliance with the accounting definition of impairment as described above. These impaired loans have been determined through analysis, appraisals, or other methods used by management.
See Note 3 to the Company’s financial statements for information related to the allowance for loan losses. At SeptemberJune 30, 20202021 and December 31, 2019,2020, total impaired loans, excluding PCI loans, equaled $9.0$7.7 million and $9.9$9.1 million, respectively.
4342
The following table sets forth selected asset quality data, excluding PCI loans, and ratios for the dates indicated (dollars in thousands):
| | | | | | | | | | | | | | |
|
| September 30, 2020 |
| December 31, 2019 | |
| June 30, 2021 |
| December 31, 2020 | | ||||
Nonaccrual loans | | $ | 4,214 | | $ | 5,292 | | | $ | 3,555 | | $ | 4,460 | |
Loans past due 90 days and accruing interest | |
| — | |
| 946 | | |
| — | |
| 45 | |
Total nonperforming loans | |
| 4,214 | |
| 6,238 | | |
| 3,555 | |
| 4,505 | |
OREO | |
| 4,416 | |
| 4,527 | | |
| 364 | |
| 4,361 | |
Total nonperforming assets | | $ | 8,630 | | $ | 10,765 | | | $ | 3,919 | | $ | 8,866 | |
| | | | | | | | | | | | | | |
Accruing troubled debt restructure loans | | $ | 4,753 | | $ | 4,593 | | | $ | 4,161 | | $ | 4,679 | |
| | | | | | | | | | | | | | |
Balances | |
|
| |
|
| | |
|
| |
|
| |
Specific reserve on impaired loans | |
| 1,180 | |
| 584 | | |
| 914 | |
| 1,165 | |
General reserve related to unimpaired loans | |
| 11,148 | |
| 7,845 | | |
| 10,092 | |
| 11,175 | |
Total allowance for loan losses | |
| 12,328 | |
| 8,429 | | |
| 11,006 | |
| 12,340 | |
| | | | | | | | | | | | | | |
Average loans during the year, net of unearned income | |
| 1,127,002 | |
| 1,023,861 | | |
| 1,198,080 | |
| 1,138,603 | |
| | | | | | | | | | | | | | |
Impaired loans | |
| 8,967 | |
| 9,885 | | |
| 7,716 | |
| 9,139 | |
Non-impaired loans | |
| 1,168,742 | |
| 1,048,438 | | |
| 1,184,125 | |
| 1,173,223 | |
Total loans, net of unearned income | |
| 1,177,709 | |
| 1,058,323 | | |
| 1,191,841 | |
| 1,182,362 | |
| | | | | | | | | | | | | | |
Ratios | |
|
| |
|
| | |
|
| |
|
| |
Allowance for loan losses to loans | |
| 1.05 | % |
| 0.80 | % | |
| 0.92 | % |
| 1.04 | |
Allowance for loan losses to nonaccrual loans | |
| 292.55 | |
| 159.28 | | |
| 309.59 | |
| 276.68 | |
General reserve to non-impaired loans | |
| 0.95 | |
| 0.75 | | |
| 0.85 | |
| 0.95 | |
Nonaccrual loans to loans | |
| 0.36 | |
| 0.50 | | |
| 0.30 | |
| 0.38 | |
Nonperforming assets to loans and OREO | |
| 0.73 | |
| 1.01 | | |
| 0.33 | |
| 0.75 | |
Net charge-offs to average loans | |
| 0.04 | |
| 0.09 | | |||||||
Net (recoveries) charge-offs to average loans | |
| (0.01) | |
| 0.03 | |
A further breakout of nonaccrual loans, excluding PCI loans, at SeptemberJune 30, 20202021 and December 31, 20192020 is below (dollars in thousands):
| | | | | | | | | | | | | | |
|
| September 30, 2020 |
| December 31, 2019 | |
| June 30, 2021 |
| December 31, 2020 | | ||||
Mortgage loans on real estate: | | | | | | | | | | | | | | |
Residential 1‑4 family | | $ | 1,338 | | $ | 1,378 | | | $ | 1,316 | | $ | 1,357 | |
Commercial | |
| 764 | |
| 1,006 | | |
| 953 | |
| 730 | |
Construction and land development | |
| 572 | |
| 376 | | |
| 2 | |
| 44 | |
Multifamily | | | — | | | 2,463 | | |||||||
Agriculture | |
| 51 | |
| — | | |
| — | |
| 45 | |
Total real estate loans | |
| 2,725 | |
| 5,223 | | |
| 2,271 | |
| 2,176 | |
Commercial loans | |
| 1,470 | |
| 62 | | |
| 1,284 | |
| 2,264 | |
Consumer installment loans | |
| 19 | |
| 7 | | |
| — | |
| 20 | |
Total loans | | $ | 4,214 | | $ | 5,292 | | | $ | 3,555 | | $ | 4,460 | |
Asset Quality – PCI loans
Loans accounted for under FASB ASC 310-30 are generally considered accruing and performing loans as the loans accrete interest income over the estimated life of the loan. Accordingly, acquired impaired loans that are contractually past due are still considered to be accruing and performing loans.
The PCI loans are subject to credit review standards for loans. If and when credit deterioration occurs subsequent to the date that they were acquired, a provision for credit loss for PCI loans will be charged to earnings for the full amount. The Company makes an estimate of the total cash flows that it expects to collect from a pool of PCI loans, which includes
44
undiscounted expected principal and interest. Over the life of the loan or pool, the Company continues to estimate cash
43
flows expected to be collected. Subsequent decreases in cash flows expected to be collected over the life of the pool are recognized as impairments in the current period through the allowance for loan losses. Subsequent increases in expected cash flows are first used to reverse any existing valuation allowance for that loan or pool. Any remaining increase in cash flows expected to be collected is recognized as an adjustment to the yield over the remaining life of the pool.
Capital Requirements
The determination of capital adequacy depends upon a number of factors, such as asset quality, liquidity, earnings, growth trends and economic conditions. The Company seeks to maintain a strong capital base exceeding regulatory minimums for well capitalized institutions to support its growth and expansion plans, provide stability to current operations and promote public confidence in the Company.
Current repurchase activityActivity under the Company’s stock repurchase program that the Company adopted in January 2020 was suspended effective April 2, 2020. The sole reason for this suspension was due to the uncertainties surrounding COVID-19. On October 29, 2020, the Company announced the recommencement of this program for the repurchase of up to 200,000 shares of its common stock through January 2021. On February 19, 2021, the Company’s Board of Directors authorized a new share repurchase program to purchase up to 1,000,000 shares of the Company’s common stock through February 2022. Shares of common stock may be purchased under the program periodically in privately negotiated transactions or in open market transactions at prevailing market prices, and pursuant to a trading plan in accordance with applicable securities laws.
The actual means and timing of any purchases, target number of shares and prices or range of prices under the repurchase program, which the Company determines in its discretion, depend on a number of factors, including the market price of the Company’s common stock, share issuances under the Company’s equity plans, general market and economic conditions, and applicable legal and regulatory requirements. The Company’s Board of Directors may modify, amend or terminate the program at any time. There is no assurance as to the amount of shares that the Company will purchase under the program. The Company continues to place a heightened emphasis on capital and liquidity to safeguard shareholders, its balance sheet and the needs of its customers.
Management believes that the Company possesses strong capital and liquidity. The actions taken with regard to capital and liquidity as a result of the pandemic were put into effect to safeguard these areas of strength.
Effective September 2018, the Federal Reserve raised the total consolidated asset limit in the Small Bank Holding Company Policy Statement from $1 billion to $3 billion, thereby eliminating the Company’s consolidated capital reporting requirements. Therefore, the Company only reports capital information at the Bank level.
Under the final rule on Enhanced Regulatory Capital Standards, commonly referred to as Basel III and which became effective January 1, 2015, the federal banking regulators have defined four tests for assessing the capital strength and adequacy of banks, based on four definitions of capital. “Common equity tier 1 capital” is defined as common equity, retained earnings, and accumulated other comprehensive income (AOCI), less certain intangibles. “Tier 1 capital” is defined as common equity tier 1 capital plus qualifying perpetual preferred stock, tier 1 minority interests, and grandfathered trust preferred securities. “Tier 2 capital” is defined as specific subordinated debt, some hybrid capital instruments and other qualifying preferred stock, non-tier 1 minority interests and a limited amount of the allowance for loan losses. “Total capital” is defined as tier 1 capital plus tier 2 capital. Four risk-based capital ratios are computed using the above capital definitions, total assets and risk-weighted assets, and the ratios are measured against regulatory minimums to ascertain adequacy. All assets and off-balance sheet risk items are grouped into categories according to degree of risk and assigned a risk-weighting and the resulting total is risk-weighted assets. “Common equity tier 1 capital ratio” is common equity tier 1 capital divided by risk-weighted assets. “Tier 1 risk-based capital ratio” is tier 1 capital divided by risk-weighted assets. “Total risk-based capital ratio” is total capital divided by risk-weighted assets. The “leverage ratio” is tier 1 capital divided by total average assets.
The Bank’s ratio of total risk-based capital was 13.9%14.1% at each of SeptemberJune 30, 2020 and2021 compared with 13.6% at December 31, 2019.2020. The tier 1 risk-based capital ratio was 12.9%13.3% at SeptemberJune 30, 20202021 and 13.2%12.7% at December 31, 2019.2020. The Bank’s tier 1 leverage ratio was 10.2%10.3% at SeptemberJune 30, 20202021 and 11.0%10.1% at December 31, 2019.2020. All capital ratios exceed regulatory minimums to be considered well capitalized. BASEL III introduced the common equity tier 1 capital ratio, which was 12.9%13.3% at SeptemberJune 30, 20202021 and 13.2%12.7% at December 31, 2019.2020.
44
Under Basel III, a capital conservation buffer of 2.5% above the minimum risk-based capital thresholds was established. Dividend and executive compensation restrictions begin if the Bank does not maintain the full amount of the buffer. At SeptemberJune 30, 2020,2021, the Bank had a capital conservation buffer of 5.9%6.1%.
45
Liquidity
Liquidity represents the Company’s ability to meet present and future financial obligations through either the sale or maturity of existing assets or the acquisition of additional funds through liability management. Liquid assets include cash, interest bearing deposits with banks, federal funds sold and certain investment securities. As a result of the Company’s management of liquid assets and the ability to generate liquidity through liability funding, management believes that the Company maintains overall liquidity sufficient to satisfy its depositors’ requirements and meet its customers’ credit needs.
The Company’s results of operations are significantly affected by its ability to manage effectively the interest rate sensitivity and maturity of its interest earning assets and interest bearing liabilities. A summary of the Company’s liquid assets at SeptemberJune 30, 20202021 and December 31, 20192020 was as follows (dollars in thousands):
| | | | | | | | | | | | | | |
|
| September 30, 2020 |
| December 31, 2019 |
|
| June 30, 2021 |
| December 31, 2020 |
| ||||
Cash and due from banks | | $ | 18,689 | | $ | 16,976 | | | $ | 21,414 | | $ | 17,845 | |
Interest bearing bank deposits | |
| 56,795 | |
| 11,708 | | |
| 101,996 | |
| 45,118 | |
Federal funds sold | | | 234 | | | 222 | | |||||||
Available for sale securities, at fair value, unpledged | |
| 198,581 | |
| 157,225 | | |
| 273,796 | |
| 235,784 | |
Total liquid assets | | $ | 274,065 | | $ | 185,909 | | | $ | 397,440 | | $ | 298,969 | |
| | | | | | | | | | | | | | |
Deposits and other liabilities | | $ | 1,456,447 | | $ | 1,275,361 | | | $ | 1,574,482 | | $ | 1,475,155 | |
Ratio of liquid assets to deposits and other liabilities | |
| 18.82 | % |
| 14.58 | % | |
| 25.24 | % |
| 20.27 | % |
The Company maintains unsecured lines of credit of varying amounts with correspondent banks to facilitate short-term liquidity needs. The Company has a total of $55 million in this type of facility in the aggregate at SeptemberJune 30, 2020.2021.
Off-Balance Sheet Arrangements and Contractual Obligations
A summary of the contract amount of the Company’s exposure to off-balance sheet and balance sheet risk as of SeptemberJune 30, 20202021 and December 31, 2019,2020, is as follows (dollars in thousands):
| | | | | | | | | | | | |
|
| September 30, 2020 |
| December 31, 2019 |
| June 30, 2021 |
| December 31, 2020 | ||||
Commitments with off-balance sheet risk: |
| |
|
| |
|
| |
|
| |
|
Commitments to extend credit | | $ | 244,625 | | $ | 210,086 | | $ | 283,772 | | $ | 245,858 |
Standby letters of credit | |
| 11,890 | |
| 15,155 | |
| 14,740 | |
| 15,193 |
Total commitments with off-balance sheet risks | | $ | 256,515 | | $ | 225,241 | | $ | 298,512 | | $ | 261,051 |
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 drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the counterparty. Collateral held varies but may include accounts receivable, inventory, property and equipment, and income-producing commercial properties.
Unfunded commitments under lines of credit are commitments for possible future extensions of credit to existing customers. Those lines of credit may be drawn upon only to the total extent to which the Company is committed.
Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing, and similar transactions. The credit risk involved in issuing letters of credit
45
is essentially the same as that involved in extending loan facilities to clients. The Company holds certificates of deposit, deposit accounts, and real estate as collateral supporting those commitments for which collateral is deemed necessary.
46
The Company designates derivatives as cash flow hedges when they are used to manage exposure to variability in cash flows related to forecasted transactions on variable rate borrowings, such as FHLB borrowings, repurchase agreements, and brokered CDs. The Company had cash flow hedges with total notional amounts of $20 million and $10 million at Septembereach of June 30, 20202021 and December 31, 2019, respectively.2020. The Company recorded a fair value liability of $683,000$424,000 and $44,000$631,000 in other liabilities, at SeptemberJune 30, 20202021 and December 31, 2019,2020, respectively. The Company’s cash flow hedges are deemed to be highly effective. Therefore, the net losses were recorded as a component of other comprehensive income in the Company’s consolidated statements of comprehensive income.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Market risk is the risk of loss in a financial instrument arising from adverse changes in market rates or prices such as interest rates, foreign currency exchange rates, commodity prices and equity prices. The Company’s primary market risk exposure is interest rate risk. The ongoing monitoring and management of interest rate risk is an important component of the Company’s asset/liability management process, which is governed by policies established by its Board of Directors that are reviewed and approved annually. The Board of Directors delegates responsibility for carrying out asset/liability management policies to the Asset/Liability Committee (ALCO) of the Bank. In this capacity, ALCO develops guidelines and strategies that govern the Company’s asset/liability management related activities, based upon estimated market risk sensitivity, policy limits and overall market interest rate levels and trends.
Interest rate risk represents the sensitivity of earnings to changes in market interest rates. As interest rates change, the interest income and expense streams associated with the Company’s financial instruments also change, affecting net interest income, the primary component of the Company’s earnings. ALCO uses the results of a detailed and dynamic simulation model to quantify the estimated exposure of net interest income to sustained interest rate changes. While ALCO routinely monitors simulated net interest income sensitivity over various periods, it also employs additional tools to monitor potential longer-term interest rate risk.
The simulation model captures the impact of changing interest rates on the interest income received and interest expense paid on all assets and liabilities reflected on the Company’s balance sheet. The simulation model is prepared and results are analyzed at least quarterly. This sensitivity analysis is compared to ALCO policy limits, which specify a maximum tolerance level for net interest income exposure over a one-year horizon, assuming no balance sheet growth, given a 400 basis point upward shift and a 400 basis point downward shift in interest rates. The downward shift of 300 or 400 basis points is included in the analysis, although less meaningful in the current rate environment, because all results are monitored regardless of likelihood. A parallel shift in rates over a 12-month period is assumed.
The following table represents the change to net interest income given interest rate shocks up and down 100, 200, 300 and 400 basis points at SeptemberJune 30, 20202021 (dollars in thousands):
| | | | | | | | |
| | September 30, 2020 | | June 30, 2021 | ||||
|
| % |
| $ |
| % |
| $ |
Change in Yield curve | | | | | | | | |
+400 bp |
| 13.0 | | 6,740 |
| 12.9 | | 6,989 |
+300 bp |
| 9.3 | | 4,811 |
| 9.5 | | 5,118 |
+200 bp |
| 5.4 | | 2,814 |
| 6.0 | | 3,263 |
+100 bp |
| 2.2 | | 1,135 |
| 2.7 | | 1,485 |
most likely |
| — | | — |
| — | | — |
‑100 bp |
| (0.1) | | (60) |
| (0.7) | | (374) |
‑200 bp |
| (0.1) | | (71) |
| (0.8) | | (445) |
‑300 bp |
| (0.1) | | (73) |
| (0.8) | | (447) |
‑400 bp |
| (0.1) | | (73) |
| (0.8) | | (447) |
At SeptemberJune 30, 2020,2021, the Company’s interest rate risk model indicated that, in a rising rate environment of 400 basis points over a 12 month period, net interest income could increase by 13.0%12.9%. For the same time period, the interest rate risk model indicated that in a declining rate environment of 400 basis points, net interest income could decrease by 0.1%0.8%.
46
While these percentages are subjective based upon assumptions used within the model, management believes the balance sheet is appropriately balanced with acceptable risk to changes in interest rates.
47
The preceding sensitivity analysis does not represent a forecast and should not be relied upon as being indicative of expected operating results. These hypothetical estimates are based upon numerous assumptions, including the nature and timing of interest rate levels such as yield curve shape, prepayments on loans and securities, deposit decay rates, pricing decisions on loans and deposits, reinvestment or replacement of asset and liability cash flows. While assumptions are developed based upon current economic and local market conditions, the Company cannot make any assurances about the predictive nature of these assumptions, including how customer preferences or competitor influences might change.
Also, as market conditions vary from those assumed in the sensitivity analysis, actual results will also differ due to factors such as prepayment and refinancing levels likely deviating from those assumed, the varying impact of interest rate change, caps or floors on adjustable rate assets, the potential effect of changing debt service levels on customers with adjustable rate loans, depositor early withdrawals and product preference changes, and other internal and external variables. Furthermore, the sensitivity analysis does not reflect actions that ALCO might take in response to, or in anticipation of, changes in interest rates.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this Form 10-Q, the Company’s management, with the participation of the Company’s chief executive officer and chief financial officer (the “Certifying Officers”), conducted evaluations of the Company’s disclosure controls and procedures. As defined under Section 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the term “disclosure controls and procedures” means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the Securities and Exchange Commission. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including the Certifying Officers, to allow timely decisions regarding required disclosures.
Based on this evaluation, the Certifying Officers have concluded that the Company’s disclosure controls and procedures were effective to ensure that material information is recorded, processed, summarized and reported by management of the Company on a timely basis in order to comply with the Company’s disclosure obligations under the Exchange Act and the rules and regulations promulgated under it.
Internal Control over Financial Reporting
The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control over financial reporting is a process designed under the supervision of the Certifying Officers to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements for external purposes in accordance with U.S. generally accepted accounting principles. There were no changes in the Company’s internal control over financial reporting identified in connection with the evaluation of it that occurred during the Company’s last fiscal quarter that materially affected, or are reasonably likely to materially affect, internal control over financial reporting. Furthermore, the Company has seen no effect on internal control over financial reporting related to its change to a mostly remote workforce due to COVID-19.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
There are no material pending legal proceedings, other than ordinary routine litigation incidental to the Company’s business, to which the Company, including its subsidiaries, is a party or of which the property of the Company is subject.
4847
Item 1A. Risk Factors
There are no material changes to any of the risk factors previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 20192020 (Part I, Item 1A), other than the addition of the risk factorfactors relating to the COVID-19 pandemicpending merger with United Bankshares, Inc. as set forth below.
Our business, financial condition, liquidity, capitalThe integration of United and results of operations have been, and will likely continue tous in the merger may be adversely affected by the COVID-19 pandemic.more difficult, costly or time-consuming than expected.
The coronavirus (COVID-19) pandemic, including measures that governmental authoritiesUnited and we have taken to manageoperated and, until the public health effectscompletion of the pandemic, has created economic and financial disruptions that have adversely affected, and are likely to continue to adversely affect, our business, financial condition, liquidity, capital and results of operations. These measures, together with voluntary changes in consumer behavior, have led to a substantial decrease in economic activity and a dramatic increase in unemployment. We cannot predict at this time the extent to which COVID-19merger, will continue to negatively affect us.operate independently. The extentsuccess of any continued or future adverse effects of COVID-19the merger will depend, in part, on future developments, which are highly uncertain and outside our control, includingability to successfully combine the scope and durationbusinesses of United with ours. To realize these anticipated benefits, after the completion of the pandemic,merger, United expects to integrate our business into its own. It is possible that the directintegration process could result in the loss of key employees, the disruption of each company’s ongoing businesses or inconsistencies in standards, controls, procedures and indirect impactpolicies that adversely affect the combined company’s ability to maintain relationships with customers and employees or to achieve the anticipated benefits of the pandemicmerger. The loss of key employees could adversely affect United’s ability to successfully conduct its business in the markets in which we now operate, which could have an adverse effect on our employees,United’s financial results and the value of its common stock. If United experiences difficulties with the integration process, the anticipated benefits of the merger may not be realized fully or at all, or they may take longer to realize than expected. As with any merger of financial institutions, there also may be business disruptions that cause us to lose customers or cause customers to remove their accounts from us and service providers, as well as other market participants,move their business to competing financial institutions.
Integration efforts between United and additional actions taken by governmental authoritiesus could also cause the respective management groups to focus their time and other third parties in responseenergies on matters related to the pandemic.merger that otherwise would be directed to their business and operations. Any such distraction on the part of either company’s management could affect its ability to service existing business and develop new business and adversely affect the business and earnings of us or United before the merger, or the business and earnings of United after the merger.
We are prioritizingwill be subject to business uncertainties and contractual restrictions while the safetymerger is pending.
Uncertainty about the effect of the merger on employees and customers may have an adverse effect on us and our business. These uncertainties may impair our ability to attract, retain and motivate key personnel until the merger is completed, and they could cause customers and others that deal with us to seek to change existing business relationships. Retention of certain employees by us may be challenging while the merger is pending, as certain employees may experience uncertainty about their future roles with us or United. If key employees depart because of issues relating to the uncertainty and have limiteddifficulty of integration or a desire not to remain with us or United, our branch activity to drive-through servicesbusiness or in-branch appointments.the business of the combined company following the merger could be harmed. In addition, most of our employees are working remotely. If these measures are not effective in serving our customers or affect the productivity of our employees, they may leadsubject to significant disruptions incertain exceptions, we have agreed to operate our business operations.in the ordinary course prior to closing and refrain from taking certain specified actions until the merger occurs, which may prevent us from pursuing attractive business opportunities that may arise prior to completion of the merger.
ManyTermination of the merger agreement could negatively impact us.
If the merger agreement is terminated and the parties fail to consummate the merger, there may be various negative consequences to us. For example, our business may be impacted adversely by the failure to pursue other beneficial opportunities due to the focus of management on the merger, without realizing any of the anticipated benefits of completing the merger. In addition, if the merger agreement is terminated, the market price of our third-party service providerscommon stock could decline to the extent that the current market prices reflect a market assumption that the merger will be completed. Furthermore, we have also been,incurred and may further be, affected bywill incur substantial expenses in connection with the same factors that affect us and that, in turn, increase their own risks of business disruption or may otherwise affect their ability to perform under the terms of any agreements with us or provide essential services. As a result, our operationalmerger, such as legal, financial advisory and other risks are generallyprofessional fees. If the merger is not completed, we would have to incur these expenses without realizing the expected to increase untilbenefits of the pandemic subsides.merger.
We are offering varying levelsIf the merger agreement is terminated and our board of credit reliefdirectors seeks another merger or business combination, our shareholders cannot be certain that we will be able to borrowers who are experiencing financial hardships relatedfind a party willing to COVID-19, including interest only payment concessions and payment deferrals.pay the equivalent or greater consideration than that which United has agreed to pay with respect to the merger. In addition, we are a certified and qualified SBA lender and assisted our customers with their applications under the PPP. These assistance efforts may adversely affect our revenue and results of operations. These government programs are complex, and our participation may lead to governmental and regulatory scrutiny, negative publicity and damage to our reputation. In addition, if these assistance efforts are not effective in mitigating the effects of COVID-19 on borrowers, we may experience higher rates of default and increased credit losses in future periods.
Certain concentrations where we have credit exposure, including commercial and residential lessors, hotels, medical service providers and restaurants, have experienced significant operational challenges as a result of COVID-19. These negative effects may cause our commercial customers to be unable to pay their loans as they come due or decrease the value of collateral, which we expect would cause significant increases in our credit losses.
Our earnings and cash flows are dependent to a large degree on net interest income. Net interest income is significantly affected by market rates of interest. Significant reductions to the federal funds rate have led to a decrease in the rates and yields on U.S. Treasury securities. If interest rates are reduced further in response to COVID-19, we expect that our net interest income will decline, perhaps significantly. The overall effect of lower interest rates cannot be predicted at this time and depends on future actions that the Federal Reserve may take to increase or reduce the targeted federal funds rate in response to COVID-19, and resulting economic conditions.
The effects of COVID-19 on economic and market conditions have increased demands on our liquidity as we meet our customers’ and clients’ needs. We suspended repurchases for a period of time under our stock repurchase program to preserve capital and liquidity in order to support our customers and employees and, although we have no current plans to reduce or suspend our common stock dividend, we will continue to exercise prudent capital management and monitor the business environment.
certain
4948
Governmental authorities have taken unprecedented measurescircumstances, the termination of the merger agreement may require us to stabilizepay to United a termination fee in the marketsamount of $12.1 million.
Our ability to complete the merger with United is subject to the receipt of consents and support economic growth. The successapprovals from regulatory agencies that may impose conditions that could adversely affect us or cause the merger to be abandoned.
Before the merger may be completed, we must obtain various approvals or consents from various bank regulatory and other authorities. These regulators may impose conditions on the completion of these measures is unknown andthe merger or require changes to the terms of the merger. Although neither we nor United currently expect that any such conditions or changes would be imposed, there can be no assurance that they maywill not be, sufficient to address the negative effects of COVID-19and such conditions or avert severe and prolonged reductions in economic activity.
Other negative effects of the COVID-19 pandemic that may impact our business, financial condition, liquidity, capital and results of operations cannot be predicted at this time, but it is likely that we will continue to be adversely affected until the pandemic subsides and the economy begins to recover. Further, COVID-19 may alsochanges could have the effect of heightening manydelaying completion of the other risks describedmerger or imposing additional costs on or limiting the revenues of United following the merger. There can be no assurance as to whether the regulatory approvals will be received, the timing of those approvals, or whether any conditions will be imposed.
Fluctuations in our Annual Report on Form 10-K for the year ended December 31, 2019. Even aftermarket price of United’s common stock will affect the pandemic subsides, it is possiblevalue that our markets continueshareholders receive for their shares of our common stock.
Under the terms of the merger agreement, if the merger is completed, our shareholders will receive 0.3173 shares of United’s common stock for each share of our common stock. This number of shares of United’s common stock is fixed and, subject to experiencethe conditions and limitations discussed in the following paragraph, will not be adjusted to reflect changes in the market price of either the shares of United’s common stock or the shares of our common stock prior to the closing of the merger. The market price of United’s common stock may vary from its price on the date immediately prior to the public announcement of the merger as a prolonged recession, whichresult of a variety of factors, including, among other things, changes in United’s businesses, operations and prospects, regulatory considerations and general market and economic conditions. Many of these factors are beyond the control of United or us. As a result of the fixed number of shares of United’s common stock to be issued in the merger, the market value of the shares of United’s common stock that our shareholders receive in the merger will decline correspondingly with any declines in the market price of United’s common stock prior to and as of the date the merger consideration is paid, subject to the conditions and limitations discussed in the following paragraph.
As addressed in more detail in the merger agreement, we expect would materiallymay terminate the merger agreement by a vote of a majority of our board of directors if (a) the average closing price per share (calculated in accordance with the merger agreement) of United’s common stock declines 20 percent from the closing price per share on the last trading day prior to publicly announcing the merger agreement and adversely affect(b) the percentage decline in the average closing price per share of United’s common stock is at least 20 percent greater than the percentage decline in the closing price of the KBW Regional Banking Index over the same period, except as follows. Even if the conditions in (a) and (b) above are met, United may adjust the exchange ratio or add a cash payment as provided in the merger agreement to increase the consideration received by our business, financial condition, liquidity, capitalshareholders in the merger and, resultsif such adjustment or addition is made, our right to terminate the merger agreement will be extinguished. Because the price of operations.United’s common stock and the KBW Regional Banking Index will fluctuate prior to the merger, and because in certain circumstances United has the right to increase the consideration received in the merger by our shareholders, we cannot assure our shareholders of the market value or number of shares of United’s common stock that they will receive in the merger.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(c) Purchases of Equity Securities by the Company
The Company did not purchaserepurchase any shares of its common stock during the quarter ended SeptemberJune 30, 2020.2021.
Effective January 22, 2020, the Company’s Board of Directors authorized a share repurchase program to purchase up to 1,000,000 shares of the Company’s common stock in open market transactions or privately negotiated transactions, including pursuant to a trading plan in accordance with Rule 10b5-1 and/or Rule 10b-18 under the Exchange Act.Act. The Company purchased 130,800 shares under the program during the first two quarters of 2020 before suspending activity under it effective April 2, 2020. On October 26, 2020, the Company authorized the recommencement of the program for
49
for
the repurchase of up to 200,000 shares of its common stock through January 2021. The Company repurchased 178,900 shares under the program during the fourth quarter of 2020 and 21,100 shares during the first quarter of 2021.
On February 19, 2021, the Company’s Board of Directors authorized a new share repurchase program to purchase up to 1,000,000 shares of the Company’s common stock through February 2022. The Company has not repurchased any shares under this authorization.
Item 3. Defaults upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable
Item 5. Other Information
None.
50
Item 6. Exhibits
Exhibit No. |
| Description |
2.1 | | |
31.1 | | Rule 13a-14(a)/15d-14(a) Certification for Chief Executive Officer* |
31.2 | | Rule 13a-14(a)/15d-14(a) Certification for Chief Financial Officer* |
32.1 | | |
101 | | Interactive Data File with respect to the following materials from the Company’s Quarterly Report on Form 10-Q for the period ended |
104 | | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |
* | Filed herewith. |
5150
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| COMMUNITY BANKERS TRUST CORPORATION |
| (Registrant) |
| |
| /s/ Rex L. Smith, III |
| Rex L. Smith, III |
| President and Chief Executive Officer |
| (principal executive officer) |
| |
Date: | |
| |
| /s/ Bruce E. Thomas |
| Bruce E. Thomas |
| Executive Vice President and Chief Financial Officer |
| (principal financial officer) |
| |
Date: | |
5251