UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One) | |||||||||||
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||||||||
For the quarterly period ended | March 31, 2021 | ||||||||||
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 333-236022
BANCPLUS CORPORATION
(Exact name of registrant as specified in its charter)
Mississippi | 64-0655312 | |||||||
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) |
1068 Highland Colony Parkway
Ridgeland, Mississippi 39157
(601) 898-8300
(Address, including zip code, and telephone number, including area code, of registrant's principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol | Name of each exchange on which registered | ||||||||||||
None | N/A | N/A |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
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 Act). Yes ☐ No ☒
Shares of the registrant’s Common Stock, par value $1.00 per share, issued and outstanding as of April 30, 2021: 10,120,459
BANCPLUS CORPORATION
FORM 10-Q
For the Quarter Ended MARCH 31, 2021
INDEX
Page Number | |||||
Condensed Consolidated Balance Sheets at March 31, 2021 (unaudited), and December 31, 2020 | |||||
Condensed Consolidated Statements of Income for the three months ended March 31, 2021 and 2020 (unaudited) | |||||
Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2021 and 2020 (unaudited) | |||||
Condensed Consolidated Statements of Shareholders’ Equity for the three months ended March 31, 2021 and 2020 (unaudited) | |||||
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2021 and 2020 (unaudited) | |||||
1
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
BancPlus Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
(In Thousands, Except Par Value, Share and Per Share Data)
March 31, 2021 | December 31, 2020 | ||||||||||
(unaudited) | |||||||||||
Assets: | |||||||||||
Cash and due from banks | $ | 98,920 | $ | 109,233 | |||||||
Interest bearing deposits with banks | 483,155 | 508,196 | |||||||||
Federal funds sold | 19,908 | 20,116 | |||||||||
Total cash and cash equivalents | 601,983 | 637,545 | |||||||||
Securities available for sale | 572,888 | 311,373 | |||||||||
Securities held to maturity - fair value: $91,350 - 2021; $94,436 - 2020 | 90,818 | 93,766 | |||||||||
Loans held for sale | 19,459 | 28,684 | |||||||||
Loans | 3,407,934 | 3,378,732 | |||||||||
Less: Allowance for loan losses | 40,041 | 36,000 | |||||||||
Net loans | 3,367,893 | 3,342,732 | |||||||||
Premises and equipment | 101,966 | 102,967 | |||||||||
Operating lease right-of-use assets | 35,151 | 35,936 | |||||||||
Accrued interest receivable | 18,769 | 18,061 | |||||||||
Goodwill | 2,616 | 2,616 | |||||||||
Other assets | 139,721 | 137,240 | |||||||||
$ | 4,951,264 | $ | 4,710,920 | ||||||||
Liabilities: | |||||||||||
Deposits | $ | 4,392,958 | $ | 4,152,810 | |||||||
Advances from Federal Home Loan Bank and other borrowings | 32,837 | 33,771 | |||||||||
Subordinated debentures | 111,217 | 111,124 | |||||||||
Operating lease liabilities | 36,425 | 37,127 | |||||||||
Accrued interest payable | 3,409 | 2,709 | |||||||||
Other liabilities | 10,526 | 18,129 | |||||||||
Total liabilities | 4,587,372 | 4,355,670 | |||||||||
Redeemable common stock owned by the ESOP | 87,403 | 74,278 | |||||||||
Shareholders' equity: | |||||||||||
Common Stock, par value $1.00 per share. | |||||||||||
40,000,000 authorized at March 31, 2021 and December 31, 2020; 10,041,328 and 10,079,277 issued and outstanding at March 31, 2021 and December 31, 2020, respectively | 10,041 | 10,079 | |||||||||
Unearned Employee Stock Ownership Plan compensation | (2,304) | (2,650) | |||||||||
Additional paid-in capital | 66,322 | 67,742 | |||||||||
Retained earnings | 286,665 | 273,204 | |||||||||
Accumulated other comprehensive income, net | 3,168 | 6,875 | |||||||||
363,892 | 355,250 | ||||||||||
Less: Redeemable common stock owned by the ESOP | (87,403) | (74,278) | |||||||||
Total shareholders' equity | 276,489 | 280,972 | |||||||||
$ | 4,951,264 | $ | 4,710,920 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
BancPlus Corporation and Subsidiaries
Condensed Consolidated Statements of Income
(Unaudited)
(In Thousands, Except Per Share Data)
Three Months Ended March 31, | |||||||||||||||||||||||
2021 | 2020 | ||||||||||||||||||||||
Interest income: | |||||||||||||||||||||||
Interest and fees on loans | $ | 43,142 | $ | 26,907 | |||||||||||||||||||
Taxable securities | 1,833 | 1,330 | |||||||||||||||||||||
Tax-exempt securities | 539 | 763 | |||||||||||||||||||||
Interest bearing bank balances and other | 138 | 1,112 | |||||||||||||||||||||
Total interest income | 45,652 | 30,112 | |||||||||||||||||||||
Interest expense: | |||||||||||||||||||||||
Deposits | 2,164 | 4,252 | |||||||||||||||||||||
Short-term borrowings | 0 | 2 | |||||||||||||||||||||
Advances from Federal Home Loan Bank | 77 | 80 | |||||||||||||||||||||
Other borrowings | 1,369 | 483 | |||||||||||||||||||||
Total interest expense | 3,610 | 4,817 | |||||||||||||||||||||
Net interest income | 42,042 | 25,295 | |||||||||||||||||||||
Provision for loan losses | 3,889 | 185 | |||||||||||||||||||||
Net interest income after provision for loan losses | 38,153 | 25,110 | |||||||||||||||||||||
Other operating income: | |||||||||||||||||||||||
Service charges on deposit accounts | 5,737 | 6,530 | |||||||||||||||||||||
Mortgage origination income | 2,714 | 1,259 | |||||||||||||||||||||
Debit card interchange | 2,640 | 1,447 | |||||||||||||||||||||
Securities gains, net | 0 | 37 | |||||||||||||||||||||
Other income | 9,186 | 4,927 | |||||||||||||||||||||
Total other operating income | 20,277 | 14,200 | |||||||||||||||||||||
Other operating expenses: | |||||||||||||||||||||||
Salaries and employee benefits | 23,025 | 17,615 | |||||||||||||||||||||
Net occupancy expenses | 3,345 | 2,863 | |||||||||||||||||||||
Furniture, equipment and data processing expenses | 5,932 | 4,231 | |||||||||||||||||||||
Other expenses | 5,835 | 5,052 | |||||||||||||||||||||
Total other operating expenses | 38,137 | 29,761 | |||||||||||||||||||||
Income before income taxes | 20,293 | 9,549 | |||||||||||||||||||||
Income tax expense | 3,021 | 1,873 | |||||||||||||||||||||
Net income | $ | 17,272 | $ | 7,676 | |||||||||||||||||||
Earnings per common share - basic | $ | 1.74 | $ | 1.01 | |||||||||||||||||||
Earnings per common share - diluted | $ | 1.73 | $ | 1.00 | |||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
BancPlus Corporation and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
(In Thousands)
Three Months Ended March 31, | |||||||||||
2021 | 2020 | ||||||||||
Net income | $ | 17,272 | $ | 7,676 | |||||||
Other comprehensive income (loss), net of tax: | |||||||||||
Change in unrealized gains (losses) on securities available for sale | (4,936) | 6,169 | |||||||||
Tax effect | 1,229 | (1,536) | |||||||||
Total other comprehensive income (loss), net of tax | (3,707) | 4,633 | |||||||||
Comprehensive income | $ | 13,565 | $ | 12,309 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
BancPlus Corporation and Subsidiaries
Condensed Consolidated Statements of Shareholders’ Equity
(Unaudited)
(In Thousands, Except Share and Per Share Data)
Unearned ESOP Compensation | Additional Paid-In Capital | Accumulated Other Comprehensive Income | Less: Redeemable Common Stock Owned by the ESOP | Total Shareholders' Equity | ||||||||||||||||||||||
Common Stock | Retained Earnings | |||||||||||||||||||||||||
Shares | Amount | |||||||||||||||||||||||||
January 1, 2020 | 7,652,957 | $ | 7,653 | $ | (4,476) | $ | 811 | $ | 247,241 | $ | 282 | $ | (79,308) | $ | 172,203 | |||||||||||
Net income | — | — | — | — | 7,676 | — | — | 7,676 | ||||||||||||||||||
Other comprehensive income, net | — | — | — | — | — | 4,633 | — | 4,633 | ||||||||||||||||||
Issuance of restricted stock | 2,500 | 2 | — | (2) | — | — | — | 0 | ||||||||||||||||||
Shares withheld to satisfy withholding obligation in the vesting of restricted stock | (272) | — | — | (10) | — | — | — | (10) | ||||||||||||||||||
Stock based compensation | — | — | — | 383 | — | — | — | 383 | ||||||||||||||||||
Net change fair value of ESOP shares | — | — | — | — | — | — | (422) | (422) | ||||||||||||||||||
Common stock released by ESOP | — | — | 292 | — | — | — | — | 292 | ||||||||||||||||||
Dividends declared ($0.35 per share) | — | — | — | — | (2,653) | — | — | (2,653) | ||||||||||||||||||
March 31, 2020 | 7,655,185 | $ | 7,655 | $ | (4,184) | $ | 1,182 | $ | 252,264 | $ | 4,915 | $ | (79,730) | $ | 182,102 | |||||||||||
January 1, 2021 | 10,079,277 | $ | 10,079 | $ | (2,650) | $ | 67,742 | $ | 273,204 | $ | 6,875 | $ | (74,278) | $ | 280,972 | |||||||||||
Net income | — | — | — | — | 17,272 | — | — | 17,272 | ||||||||||||||||||
Other comprehensive loss, net | — | — | — | — | — | (3,707) | — | (3,707) | ||||||||||||||||||
Shares withheld to satisfy withholding obligation in the vesting of restricted stock | (1,500) | (2) | — | (75) | — | — | — | (77) | ||||||||||||||||||
Purchase of Company stock | (36,449) | (36) | — | (1,832) | — | — | — | (1,868) | ||||||||||||||||||
Stock based compensation | — | — | — | 487 | — | — | — | 487 | ||||||||||||||||||
Net change fair value of ESOP shares | — | — | — | — | — | — | (13,125) | (13,125) | ||||||||||||||||||
Common stock released by ESOP | — | — | 346 | — | — | — | — | 346 | ||||||||||||||||||
Dividends declared ($0.38 per share) | — | — | — | — | (3,811) | — | — | (3,811) | ||||||||||||||||||
March 31, 2021 | 10,041,328 | $ | 10,041 | $ | (2,304) | $ | 66,322 | $ | 286,665 | $ | 3,168 | $ | (87,403) | $ | 276,489 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
BancPlus Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In Thousands)
Three Months Ended March 31, | |||||||||||
2021 | 2020 | ||||||||||
Cash flows from operating activities: | |||||||||||
Net income per condensed consolidated statements of income | $ | 17,272 | $ | 7,676 | |||||||
Adjustments to reconcile net income to net cash from operating activities: | |||||||||||
Provision for loan losses | 3,889 | 185 | |||||||||
Depreciation and amortization | 1,903 | 1,303 | |||||||||
Net loss (gain) on sales of premises and equipment | 85 | (4) | |||||||||
Net gain on sales of other real estate owned | (171) | (121) | |||||||||
Write-downs of other real estate | 20 | 80 | |||||||||
Deferred income tax expense | 433 | (1,126) | |||||||||
Federal Home Loan Bank stock dividends | (3) | (14) | |||||||||
Common stock released by ESOP | 346 | 292 | |||||||||
Stock based compensation expense | 487 | 383 | |||||||||
Origination of loans held for sale | (105,569) | (59,354) | |||||||||
Proceeds from loans held for sale | 114,794 | 59,134 | |||||||||
Earnings on bank-owned life insurance | (3,492) | (395) | |||||||||
Net change in: | |||||||||||
Accrued interest receivable and other assets | (1,365) | (1,639) | |||||||||
Accrued interest payable and other liabilities | (6,903) | (1,706) | |||||||||
Net cash from operating activities | 21,726 | 4,694 | |||||||||
Cash flows from investing activities: | |||||||||||
Purchases of securities available for sale | (296,923) | (44,603) | |||||||||
Maturities and calls of securities available for sale | 29,822 | 45,976 | |||||||||
Purchases of securities held to maturity | (19,103) | 0 | |||||||||
Maturities, prepayments and calls of securities held to maturity | 22,005 | 2,130 | |||||||||
Net increase in loans | (30,982) | (16,761) | |||||||||
Purchases of premises and equipment | (1,343) | (912) | |||||||||
Proceeds from sales of premises and equipment | 26 | 30 | |||||||||
Proceeds from sales of other real estate owned | 1,539 | 832 | |||||||||
Investment in unconsolidated entities, net | (122) | (77) | |||||||||
Proceeds from bank-owned life insurance | 4,336 | 0 | |||||||||
Net cash used in investing activities | (290,745) | (13,385) |
6
BancPlus Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows (continued)
(Unaudited)
(In Thousands)
Three Months Ended March 31, | |||||||||||
2021 | 2020 | ||||||||||
Cash flows from financing activities: | |||||||||||
Net increase (decrease) in: | |||||||||||
Noninterest-bearing deposits | $ | 82,692 | $ | 29,452 | |||||||
Money market, negotiable order of withdrawal, and savings deposits | 183,510 | 15,389 | |||||||||
Certificates of deposit | (26,055) | 2,098 | |||||||||
Payments on FHLB advances | (59) | (68) | |||||||||
Payments on other borrowings | (875) | (875) | |||||||||
Cash dividends paid on common stock | (3,811) | (2,653) | |||||||||
Purchase of Company stock | (1,868) | 0 | |||||||||
Shares withheld to pay taxes on restricted stock vesting | (77) | (10) | |||||||||
Net cash from financing activities | 233,457 | 43,333 | |||||||||
Net change in cash and cash equivalents | (35,562) | 34,642 | |||||||||
Cash and cash equivalents at beginning of period | 637,545 | 312,972 | |||||||||
Cash and cash equivalents at end of period | $ | 601,983 | $ | 347,614 | |||||||
Supplemental cash flow information: | |||||||||||
Interest paid | $ | 2,910 | $ | 4,832 | |||||||
Acquisition of real estate in non-cash foreclosures | 2,272 | 1,131 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
7
BancPlus Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1: Basis of Presentation
BancPlus Corporation (the “Company”) is a bank holding company headquartered in Ridgeland, Mississippi operating in 1 reportable segment. BankPlus (the “Bank”), the principal operating subsidiary and sole banking subsidiary of the Company, is a commercial bank primarily engaged in the business of commercial and consumer banking. In addition to general and consumer banking, other products and services offered though the Bank’s subsidiaries include certain insurance and annuity services, asset and investment management and financial planning services. Oakhurst Development, Inc. (“Oakhurst”) is a real estate subsidiary originally formed by the Company to liquidate a real estate development that was acquired by the Bank through foreclosure in 2002. Oakhurst became active again in March 2009 and holds loans and other real estate.
The unaudited interim condensed consolidated financial statements include the accounts of the Company and all other entities in which the Company has a controlling financial interest, and reflect all adjustments (consisting of normal recurring adjustments) that are necessary in the opinion of the Company’s management to fairly present the financial position, results of operations and cash flows of the Company. They have been derived from the audited consolidated financial statements for the fiscal year ended December 31, 2020; however, certain notes and information have been omitted from the interim periods. Therefore, these unaudited financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2020. All significant intercompany balances and transactions have been eliminated in consolidation. Certain reclassifications have been made to prior period amounts to conform to the current period presentation. The accounting and financial reporting policies followed by the Company conform, in all material respects, to the accounting principles generally accepted in the United States (“GAAP”) and to general practices within the financial services industry. The results of operations for the interim periods are not necessarily indicative of the results to be expected for future interim periods or for the entire year.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Particularly given the effects of the COVID-19 pandemic, the allowance for loan losses, provision for loan losses, the fair value of financial instruments and the status of contingencies are particularly subject to change. Material estimates that are subject to significant change in the near term are the allowance for loan losses, provision for loan losses, valuation of other real estate owned and fair values of financial instruments. Actual results could differ from these estimates.
Recently Issued But Not Yet Effective Accounting Standards
Accounting Standards Update 2016-13 (“ASU 2016-13”), “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” In June 2016, the FASB issued ASU 2016-13, which requires earlier measurement of credit losses and enhances disclosures. The main objective of ASU 2016-13 is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses over the life of the loan. ASU 2016-13 was originally effective for the Company for annual and interim periods beginning on January 1, 2021. Subsequently, FASB approved a deferral of the effective date. ASU 2016-13 will now be effective for the Company for annual and interim periods beginning on January 1, 2023. The Company has formed a cross functional team that is assessing data and system needs and evaluating the impact of adopting the new guidance. The Company expects to recognize a one-time cumulative effect adjustment to the allowance for loan losses as of the beginning of the first reporting period in which the Company adopts the new standard, but has not yet determined the magnitude of the one-time adjustment or the overall impact on the Company’s consolidated financial statements.
Accounting Standards Update 2020-04 (“ASU 2020-04”), “Reference Rate Reform - Topic 848.” In March 2020, the FASB issued ASU 2020-04, which provides temporary optional expedients and exceptions to the GAAP guidance on contract modifications, hedge accounting, and other transactions affected that reference the London Inter-Bank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued. ASU 2020-04 is effective upon issuance and can be applied through December 31, 2022. The company is still evaluating the impact of ASU 2020-04, but does not expect it to have a material impact on the Company’s consolidated financial statements.
8
Note 2: Earnings Per Share
Basic earnings per share is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net income available to common shareholders by the weighted number of common shares outstanding during the period and the number of common shares that would have been outstanding assuming the issuance of common shares for all dilutive potential common shares outstanding during the reporting period.
Three Months Ended March 31, | |||||||||||
(In thousands except per share data) | 2021 | 2020 | |||||||||
Net income | $ | 17,272 | $ | 7,676 | |||||||
Weighted average common shares outstanding | 9,919 | 7,576 | |||||||||
Diluted effect of unallocated stock | 73 | 79 | |||||||||
Diluted common shares | 9,992 | 7,655 | |||||||||
Basic earnings per common share | $ | 1.74 | $ | 1.01 | |||||||
Diluted earnings per common share | $ | 1.73 | $ | 1.00 |
Note 3: Business Combination
On April 1, 2020, the Company completed its previously announced merger with State Capital Corp. (“SCC”), the holding company of State Bank & Trust Company (“State Bank”). Pursuant to the terms of the Agreement and Plan of Share Exchange and Merger, dated September 18, 2019, by and among the Company, BankPlus, SCC, and State Bank (the “Merger Agreement”), following BancPlus’ acquisition of SCC by a statutory share exchange, SCC was merged with and into BancPlus, with BancPlus surviving the merger (the “Merger”). Immediately thereafter, State Bank was merged with and into BankPlus, with BankPlus surviving the merger. As a result of the Merger, the Company’s geographic footprint expanded in Mississippi, Louisiana and Alabama, providing access to new markets and deposits.
Pursuant to the Merger Agreement, holders of SCC common stock received 0.6950 shares of BancPlus common stock, par value $1.00 per share, for each share of SCC common stock, par value $1.25 per share, held immediately prior to the effective time of the Merger, plus cash in lieu of fractional shares. BancPlus issued 2,453,827 shares of common stock to holders of SCC common stock, in addition to approximately $12,000 in lieu of fractional shares. In connection with the Merger, the Company incurred approximately $6.4 million of acquisition expenses, of which approximately $539,000 were incurred during the three months ended March 31, 2020. These expenses are recorded in other operating expenses and furniture, equipment and data processing expenses in the Company’s Condensed Consolidated Statement of Income for the three months ended March 31, 2020.
The excess fair value of net assets acquired over cost paid was recorded as a gain on bargain purchase during 2020. The gain on bargain purchase was primarily the result of changes in the value of BancPlus common stock due to the timing of the closing of the Merger relative to when the Merger Agreement was signed and declines in the overall market as a result of the COVID-19 pandemic over that period. The measurement period adjustment during the third quarter of 2020 was the result of a reduction in the value of liabilities assumed in the Merger during refinement of the preliminary valuations disclosed at the time of the Merger.
9
The following table reflects the consideration paid and the fair value allocation of assets acquired and liabilities assumed as of the acquisition date:
(In thousands) | |||||||||||
Purchase price allocation: | |||||||||||
Common stock issued | $ | 71,161 | |||||||||
Cash paid for fractional shares | 12 | ||||||||||
Total purchase price | $ | 71,173 | |||||||||
Assets acquired: | |||||||||||
Cash and due from banks | $ | 75,315 | |||||||||
Securities, FHLB stock and FNBB stock | 97,910 | ||||||||||
Loans, net | 880,390 | ||||||||||
Premises and equipment | 29,968 | ||||||||||
Accrued interest receivable | 3,664 | ||||||||||
Bank-owned life insurance | 28,441 | ||||||||||
Core deposit intangible | 6,045 | ||||||||||
Taxes receivable | 7,787 | ||||||||||
Deferred tax asset, net | 5,972 | ||||||||||
Other assets | 3,330 | ||||||||||
Total assets acquired | $ | 1,138,822 | |||||||||
Liabilities assumed: | |||||||||||
Deposits | $ | 1,024,381 | |||||||||
Advances from FHLB and other borrowings | 14,563 | ||||||||||
Subordinated debentures | 11,121 | ||||||||||
Deferred compensation | 10,310 | ||||||||||
Other liabilities | 6,196 | ||||||||||
Total liabilities assumed | $ | 1,066,571 | |||||||||
Net assets acquired | 72,251 | ||||||||||
Excess of fair value of net assets acquired over consideration paid - Gain on bargain purchase | $ | (1,078) |
In connection with the Merger, the Company recorded a $6.0 million core deposit intangible, which will be amortized over 10 years. The Company also acquired loans with a fair value of $880.4 million, net of an $19.1 million fair value discount, which included a credit mark discount of $11.6 million.
Revenues and earnings of the acquired company since the Merger date have not been disclosed as it is not practicable as SCC was merged into BancPlus and separate financial information for SCC is not available. The following table presents unaudited pro forma information as if the Merger with SCC had occurred on January 1, 2020. This pro forma information combines the historic condensed consolidated results of operations of BancPlus and SCC after giving effect to certain adjustments, including purchase accounting fair value adjustments and amortization of intangibles, as well as the related income tax effects of those adjustments. The pro forma information does not necessarily reflect the results of operations that would have occurred had the Merger occurred on January 1, 2020.
10
Three Months Ended | |||||||||||||||||
(In thousands, except per share data) | March 31, 2020 | ||||||||||||||||
Net interest income | $ | 37,230 | |||||||||||||||
Other operating income | 15,582 | ||||||||||||||||
Net income available to common shareholders | 4,777 | ||||||||||||||||
Earnings per common share: | |||||||||||||||||
Basic | $ | 0.48 | |||||||||||||||
Diluted | 0.47 |
Note 4: Investment Securities
The following is a summary of the amortized cost and fair value of securities available for sale.
Amortized | Gross Unrealized | Fair | |||||||||||||||||||||
(In thousands) | Cost | Gains | Losses | Value | |||||||||||||||||||
March 31, 2021: | |||||||||||||||||||||||
U.S. Government agency obligations | $ | 303,347 | $ | 295 | $ | 3,261 | $ | 300,381 | |||||||||||||||
Residential mortgage-backed securities | 153,540 | 4,979 | 37 | 158,482 | |||||||||||||||||||
Commercial mortgage-backed securities | 15,677 | 90 | 107 | 15,660 | |||||||||||||||||||
Asset-backed securities | 13,689 | 603 | 44 | 14,248 | |||||||||||||||||||
Corporate investments | 32,750 | 633 | 161 | 33,222 | |||||||||||||||||||
State and political subdivisions | 49,667 | 1,376 | 148 | 50,895 | |||||||||||||||||||
Total available for sale | $ | 568,670 | $ | 7,976 | $ | 3,758 | $ | 572,888 | |||||||||||||||
December 31, 2020: | |||||||||||||||||||||||
U.S. Government agency obligations | $ | 12,092 | $ | 342 | $ | 0 | $ | 12,434 | |||||||||||||||
Residential mortgage-backed securities | 181,569 | 5,644 | 1 | 187,212 | |||||||||||||||||||
Commercial mortgage-backed securities | 16,793 | 538 | 0 | 17,331 | |||||||||||||||||||
Asset backed securities | 13,990 | 543 | 86 | 14,447 | |||||||||||||||||||
Corporate investments | 32,750 | 420 | 22 | 33,148 | |||||||||||||||||||
State and political subdivisions | 45,025 | 1,833 | 57 | 46,801 | |||||||||||||||||||
Total available for sale | $ | 302,219 | $ | 9,320 | $ | 166 | $ | 311,373 |
Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method.
The following is a summary of the amortized cost and fair value of securities held to maturity.
Amortized | Gross Unrealized | Fair | |||||||||||||||||||||
(In thousands) | Cost | Gains | Losses | Value | |||||||||||||||||||
March 31, 2021: | |||||||||||||||||||||||
States and political subdivisions | $ | 90,818 | $ | 532 | $ | 0 | $ | 91,350 | |||||||||||||||
Total held to maturity | $ | 90,818 | $ | 532 | $ | 0 | $ | 91,350 | |||||||||||||||
December 31, 2020: | |||||||||||||||||||||||
States and political subdivisions | $ | 93,766 | $ | 670 | $ | 0 | $ | 94,436 | |||||||||||||||
Total held to maturity | $ | 93,766 | $ | 670 | $ | 0 | $ | 94,436 |
All mortgage-backed securities in the above tables were issued or guaranteed by U.S. government agencies or sponsored agencies.
11
Provided below is a summary of investment securities that were in an unrealized loss position and the length of time that individual securities have been in a continuous loss position.
Less Than 12 Months | 12 Months or More | Total | |||||||||||||||||||||||||||||||||
Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | ||||||||||||||||||||||||||||||
(In thousands) | |||||||||||||||||||||||||||||||||||
March 31, 2021: | |||||||||||||||||||||||||||||||||||
Available for sale: | |||||||||||||||||||||||||||||||||||
U.S. Government agencies | $ | 288,452 | $ | 3,261 | $ | 0 | $ | 0 | 288,452 | $ | 3,261 | ||||||||||||||||||||||||
Residential mortgage-backed securities | 3,730 | 37 | 0 | 0 | 3,730 | 37 | |||||||||||||||||||||||||||||
Commercial mortgage-backed securities | 8,371 | 107 | 0 | 0 | 8,371 | 107 | |||||||||||||||||||||||||||||
Asset backed securities | 2,440 | 44 | 0 | 0 | 2,440 | 44 | |||||||||||||||||||||||||||||
Corporate investments | 12,839 | 161 | 0 | 0 | 12,839 | 161 | |||||||||||||||||||||||||||||
States and political subdivisions | 5,311 | 84 | 2,636 | 64 | 7,947 | 148 | |||||||||||||||||||||||||||||
$ | 321,143 | $ | 3,694 | $ | 2,636 | $ | 64 | 323,779 | $ | 3,758 | |||||||||||||||||||||||||
December 31, 2020: | |||||||||||||||||||||||||||||||||||
Available for sale: | |||||||||||||||||||||||||||||||||||
Residential mortgage-backed securities | $ | 4,471 | $ | 1 | $ | 0 | $ | 0 | 4,471 | $ | 1 | ||||||||||||||||||||||||
Commercial mortgage-backed securities | 305 | 0 | 0 | 0 | 305 | 0 | |||||||||||||||||||||||||||||
Asset backed securities | 2,492 | 86 | 0 | 0 | 2,492 | 86 | |||||||||||||||||||||||||||||
Corporate investments | 9,229 | 22 | 0 | 0 | 9,229 | 22 | |||||||||||||||||||||||||||||
States and political subdivisions | 3,028 | 57 | 0 | 0 | 3,028 | 57 | |||||||||||||||||||||||||||||
$ | 19,525 | $ | 166 | $ | 0 | $ | 0 | 19,525 | $ | 166 |
The number of debt securities in an unrealized loss position increased from 13 at December 31, 2020 to 75 at March 31, 2021. The unrealized losses shown above are due to increases in market rates over the yields available at the time of purchase of the underlying securities and not credit quality. Because the Company does not intend to sell these securities and it is more likely than not that the Company will not be required to sell the investments before recovery of their amortized cost bases, which may be at maturity, the Company does not consider these investments to be other than temporarily impaired at March 31, 2021.
The amortized cost and fair value of debt securities, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities because borrowers have the right to call or prepay certain obligations with, or without, call or prepayment penalties.
Available for Sale | Held to Maturity | ||||||||||||||||||||||
Amortized | Fair | Amortized | Fair | ||||||||||||||||||||
(In thousands) | Cost | Value | Cost | Value | |||||||||||||||||||
March 31, 2021: | |||||||||||||||||||||||
One year or less | $ | 13,114 | $ | 13,271 | $ | 16,265 | $ | 16,301 | |||||||||||||||
After one through five years | 179,829 | 178,923 | 48,785 | 48,956 | |||||||||||||||||||
After five through ten years | 201,102 | 200,343 | 22,878 | 23,203 | |||||||||||||||||||
After ten years | 174,625 | 180,351 | 2,890 | 2,890 | |||||||||||||||||||
$ | 568,670 | $ | 572,888 | $ | 90,818 | $ | 91,350 |
The following is a summary of the amortized cost and fair value for investment securities which were pledged to secure public deposits and for other purposes required or permitted by law.
12
Available for Sale | Held to Maturity | ||||||||||||||||||||||
Amortized | Fair | Amortized | Fair | ||||||||||||||||||||
(In thousands) | Cost | Value | Cost | Value | |||||||||||||||||||
March 31, 2021 | $ | 447,040 | $ | 451,684 | $ | 41,570 | $ | 41,579 | |||||||||||||||
December 31, 2020 | $ | 251,913 | $ | 260,351 | $ | 57,110 | $ | 57,770 |
Note 5: Loans
The following is a summary of the Company’s loan portfolio by loan class.
(In thousands) | March 31, 2021 | December 31, 2020 | |||||||||
Secured by real estate: | |||||||||||
Residential properties | $ | 736,047 | $ | 738,340 | |||||||
Construction and land development | 450,489 | 403,496 | |||||||||
Farmland | 207,218 | 217,104 | |||||||||
Other commercial | 1,238,984 | 1,224,633 | |||||||||
Total real estate | 2,632,738 | 2,583,573 | |||||||||
Commercial and industrial loans | 612,105 | 635,714 | |||||||||
Agricultural production and other loans to farmers | 84,179 | 85,469 | |||||||||
Consumer and other loans | 78,912 | 73,976 | |||||||||
Total loans before allowance for loan losses | $ | 3,407,934 | $ | 3,378,732 |
Loans are stated at the amount of unpaid principal, before allowance for loan losses. Interest on loans is calculated using the simple interest method on daily balances of the principal amount outstanding.
Loan Origination/Risk Management/Credit Concentration - The Company has certain lending policies and procedures in place that are designed to maximize loan income within an acceptable level of risk. The Company’s Board of Directors reviews and approves these policies and procedures on a regular basis. Although the Company has a diversified loan portfolio, the Company has concentrations of credit risks related to the real estate market, including residential, commercial, and construction and land development lending. Most of the Company’s lending activity occurs within Mississippi, Louisiana, and Alabama.
The risk characteristics of the Company’s material portfolio segments are as follows:
Residential Real Estate Loans - The residential real estate loan portfolio consists of residential loans for single and multifamily properties. Residential loans are generally secured by owner occupied 1-4 family residences. Repayment of these loans is primarily dependent on the personal income and credit rating of the borrowers and can be impacted by economic conditions within their market area. Risk is mitigated by the fact that the loans are of smaller individual amounts and spread over a large number of borrowers.
Commercial Real Estate Loans - Commercial real estate loans include construction and land development loans, loans secured by farmland and other commercial real estate loans.
Construction and land development loans are usually based upon estimates of costs and estimated value of the completed project and include independent appraisal reviews and a financial analysis of the developers and property owners. Sources of repayment of these loans may include permanent loans, sales of developed property or an interim loan commitment from the Company until permanent financing is obtained. These loans are considered to be higher risk than other real estate loans due to their ultimate repayment being sensitive to interest rate changes, general economic conditions and the availability of long-term financing.
Farm loans are generally made for the purpose of acquiring land devoted to crop production or livestock, the propagation of timber or the operation of a similar type business on the secured property. Sources of repayment for these loans generally include income generated from operations of a business on the property, rental income, or sales of timber. Repayment may be impacted by changes in economic conditions which affect underlying collateral values.
13
Commercial real estate loans typically involve larger principal amounts and repayment of these loans is generally dependent on the successful operations of the property securing the loan or the business conducted on the property securing the loan. These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Management monitors and evaluates commercial real estate loans based on collateral and risk grade criteria.
Commercial and Industrial Loans - The commercial and industrial loan portfolio consists of loans to commercial customers for use in normal business operations to finance working capital needs, equipment purchase or other expansion projects. Commercial loan underwriting standards are designed to promote relationship banking rather than transactional banking and are underwritten based on the borrower’s expected ability to profitably operate its business. The cash flows of borrowers, however, may not be as expected and collateral securing these loans may fluctuate in value. Most commercial loans are secured by assets being financed or other business assets such as accounts receivable or inventory and may incorporate a personal guarantee. In the case of loans secured by accounts receivable, the availability of funds for repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers.
Consumer and other - The consumer and other loan portfolio consists of various term and line of credit loans such as automobile loans and loans for other personal purposes. Repayment for these types of loans will come from a borrower’s income sources that are typically independent of the loan purpose. Credit risk is driven by consumer economic factors (such as unemployment and general economic conditions in the Company’s market area) and the creditworthiness of a borrower.
Loans that are 30 days or more past due based on payments received and applied to the loan are considered delinquent. Accrual of interest is discontinued on a loan when management believes, after considering economic and business conditions and collection efforts, that a borrower's financial condition is such that collection of interest, but not necessarily principal, is doubtful. A loan is typically placed on non-accrual when the contractual payment of principal or interest becomes 90 days past due unless the loan is well-secured and in the process of collection. Loans may be placed on non-accrual status regardless of whether or not such loans are considered past due. Current year interest previously recorded, but deemed not collectible, is reversed and charged against current year income. Prior year interest previously recorded, but deemed not collectible, is charged against the allowance.
Payments subsequently received on non-accrual loans are applied to principal. Interest income is recognized to the extent that cash payments are received in excess of principal due. A loan may return to accrual status when principal and interest payments are no longer past due and collectability is reasonably assured.
The following table presents the recorded investment in nonaccrual loans, segregated by class.
(In thousands) | March 31, 2021 | December 31, 2020 | |||||||||
Secured by real estate: | |||||||||||
Residential properties | $ | 3,825 | $ | 3,869 | |||||||
Construction and land development | 763 | 1,863 | |||||||||
Farmland | 0 | 158 | |||||||||
Other commercial | 3,426 | 7,947 | |||||||||
Total real estate | 8,014 | 13,837 | |||||||||
Commercial and industrial loans | 11 | 12 | |||||||||
Agricultural production and other loans to farmers | 42 | 85 | |||||||||
Consumer and other loans | 176 | 177 | |||||||||
Total nonaccrual loans | $ | 8,243 | $ | 14,111 |
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An age analysis of past due loans (including both accruing and non-accruing loans) segregated by class of loans is as follows:
(In thousands) | Past Due 30-89 Days | Past Due 90 Days or More | Total Past Due | Current | Total Loans | Past Due 90 Days or More and Accruing | |||||||||||||||||||||||||||||
March 31, 2021 | |||||||||||||||||||||||||||||||||||
Secured by real estate: | |||||||||||||||||||||||||||||||||||
Residential properties | $ | 6,800 | $ | 2,232 | $ | 9,032 | $ | 727,015 | $ | 736,047 | $ | 1,347 | |||||||||||||||||||||||
Construction and land development | 378 | 2,047 | 2,425 | 448,064 | 450,489 | 1,614 | |||||||||||||||||||||||||||||
Farmland | 528 | 561 | 1,089 | 206,129 | 207,218 | 560 | |||||||||||||||||||||||||||||
Other commercial | 2,056 | 2,869 | 4,925 | 1,234,059 | 1,238,984 | 2,325 | |||||||||||||||||||||||||||||
Total real estate | 9,762 | 7,709 | 17,471 | 2,615,267 | 2,632,738 | 5,846 | |||||||||||||||||||||||||||||
Commercial and industrial loans | 2,787 | 393 | 3,180 | 608,925 | 612,105 | 393 | |||||||||||||||||||||||||||||
Agricultural production and other loans to farmers | 388 | 14 | 402 | 83,777 | 84,179 | 14 | |||||||||||||||||||||||||||||
Consumer loans | 245 | 333 | 578 | 78,334 | 78,912 | 157 | |||||||||||||||||||||||||||||
Total | $ | 13,182 | $ | 8,449 | $ | 21,631 | $ | 3,386,303 | $ | 3,407,934 | $ | 6,410 |
(In thousands) | Past Due 30-89 Days | Past Due 90 Days or More | Total Past Due | Current | Total Loans | Past Due 90 Days or More and Accruing | |||||||||||||||||||||||||||||
December 31, 2020 | |||||||||||||||||||||||||||||||||||
Secured by real estate: | |||||||||||||||||||||||||||||||||||
Residential properties | $ | 5,836 | $ | 2,016 | $ | 7,852 | $ | 730,488 | $ | 738,340 | $ | 1,174 | |||||||||||||||||||||||
Construction and land development | 713 | 3,086 | 3,799 | 399,697 | 403,496 | 1,843 | |||||||||||||||||||||||||||||
Farmland | 373 | 779 | 1,152 | 215,952 | 217,104 | 618 | |||||||||||||||||||||||||||||
Other commercial | 3,956 | 3,084 | 7,040 | 1,217,593 | 1,224,633 | 2,417 | |||||||||||||||||||||||||||||
Total real estate | 10,878 | 8,965 | 19,843 | 2,563,730 | 2,583,573 | 6,052 | |||||||||||||||||||||||||||||
Commercial and industrial loans | 2,195 | 135 | 2,330 | 633,384 | 635,714 | 135 | |||||||||||||||||||||||||||||
Agricultural production and other loans to farmers | 319 | 15 | 334 | 85,135 | 85,469 | 15 | |||||||||||||||||||||||||||||
Consumer loans | 444 | 278 | 722 | 73,254 | 73,976 | 101 | |||||||||||||||||||||||||||||
Total | $ | 13,836 | $ | 9,393 | $ | 23,229 | $ | 3,355,503 | $ | 3,378,732 | $ | 6,303 |
Impaired Loans - Impaired loans include nonperforming loans, loans modified in troubled debt restructurings (“TDRs”) where concessions have been granted to borrowers experiencing financial difficulties, and certain other loans identified by management. Certain other loans identified by management consist of performing loans with specific allocations of the allowance for loan loss. Impaired loans, or portions thereof, are charged-off when deemed uncollectible.
Impaired loans, segregated by class were as follows:
15
March 31, 2021 | |||||||||||||||||
Principal | Recorded | Related | |||||||||||||||
(In thousands) | Balance | Balance (1) | Allowance | ||||||||||||||
Impaired loans with no related allowance: | |||||||||||||||||
Secured by real estate: | |||||||||||||||||
Residential properties | $ | 8,524 | $ | 5,733 | $ | — | |||||||||||
Construction and land development | 4,652 | 2,362 | — | ||||||||||||||
Farmland | 10,551 | 10,289 | — | ||||||||||||||
Other commercial | 6,896 | 3,824 | — | ||||||||||||||
Total real estate | 30,623 | 22,208 | — | ||||||||||||||
Commercial and industrial | 19,881 | 19,544 | — | ||||||||||||||
Agricultural production and other loans to farmers | 86 | 54 | — | ||||||||||||||
Consumer and other loans | 192 | 176 | — | ||||||||||||||
Total | $ | 50,782 | $ | 41,982 | $ | — | |||||||||||
Impaired loans with related allowance: | |||||||||||||||||
Secured by real estate: | |||||||||||||||||
Residential properties | $ | 1,069 | $ | 1,068 | $ | 9 | |||||||||||
Construction and land development | 0 | 0 | 0 | ||||||||||||||
Farmland | 0 | 0 | 0 | ||||||||||||||
Other commercial | 2,040 | 2,040 | 254 | ||||||||||||||
Total real estate | 3,109 | 3,108 | 263 | ||||||||||||||
Commercial and industrial | 2,327 | 2,327 | 1,725 | ||||||||||||||
Agricultural production and other loans to farmers | 0 | 0 | 0 | ||||||||||||||
Consumer and other loans | 0 | 0 | 0 | ||||||||||||||
Total | $ | 5,436 | $ | 5,435 | $ | 1,988 | |||||||||||
Total impaired loans | $ | 56,218 | $ | 47,417 | $ | 1,988 |
(1) Recorded balance represents the carrying value – the contractual principal obligation due from the customer less charge offs and payments applied.
December 31, 2020 | |||||||||||||||||
Principal | Recorded | Related | |||||||||||||||
(In thousands) | Balance | Balance (1) | Allowance | ||||||||||||||
Impaired loans with no related allowance: | |||||||||||||||||
Secured by real estate: | |||||||||||||||||
Residential properties | $ | 8,474 | $ | 5,795 | $ | — | |||||||||||
Construction and land development | 5,530 | 3,462 | — | ||||||||||||||
Farmland | 11,024 | 10,584 | — | ||||||||||||||
Other commercial | 8,439 | 5,149 | — | ||||||||||||||
Total real estate | 33,467 | 24,990 | — | ||||||||||||||
Commercial and industrial | 10,386 | 9,962 | — | ||||||||||||||
Agricultural production and other loans to farmers | 156 | 97 | — | ||||||||||||||
Consumer and other loans | 216 | 177 | — | ||||||||||||||
Total | $ | 44,225 | $ | 35,226 | $ | — | |||||||||||
Impaired loans with related allowance: | |||||||||||||||||
Secured by real estate: | |||||||||||||||||
Residential properties | $ | 1,073 | $ | 1,073 | $ | 9 | |||||||||||
Construction and land development | 0 | 0 | 0 | ||||||||||||||
Farmland | 0 | 0 | 0 | ||||||||||||||
Other commercial | 6,072 | 6,039 | 2,028 | ||||||||||||||
Total real estate | 7,145 | 7,112 | 2,037 | ||||||||||||||
Commercial and industrial | 4,430 | 4,430 | 2,158 | ||||||||||||||
Agricultural production and other loans to farmers | 0 | 0 | 0 | ||||||||||||||
Consumer and other loans | 0 | 0 | 0 | ||||||||||||||
Total | 11,575 | 11,542 | 4,195 | ||||||||||||||
Total impaired loans | $ | 55,800 | $ | 46,768 | $ | 4,195 |
(1)Recorded balance represents the carrying value – the contractual principal obligation due from the customer less charge-offs and payments applied.
16
The average recorded investment and interest recognized for impaired loans for the three months ended March 31, 2021 and 2020 are presented below.
Three Months Ended March 31, | |||||||||||||||||||||||
2021 | 2020 | ||||||||||||||||||||||
Average | Interest | Average | Interest | ||||||||||||||||||||
(In thousands) | Investment | Recognized | Investment | Recognized | |||||||||||||||||||
Secured by real estate: | |||||||||||||||||||||||
Residential properties | $ | 6,657 | $ | 37 | $ | 4,773 | $ | 38 | |||||||||||||||
Construction and land development | 2,997 | 29 | 2,009 | 35 | |||||||||||||||||||
Farmland | 10,432 | 124 | 10,563 | 129 | |||||||||||||||||||
Other commercial | 9,311 | 57 | 10,724 | 58 | |||||||||||||||||||
Total real estate | 29,397 | 247 | 28,069 | 260 | |||||||||||||||||||
Commercial and industrial | 16,798 | 210 | 464 | 8 | |||||||||||||||||||
Agricultural production and other loans to farmers | 81 | 0 | 62 | 0 | |||||||||||||||||||
Consumer loans | 177 | 0 | 183 | 0 | |||||||||||||||||||
Total | $ | 46,453 | $ | 457 | $ | 28,778 | $ | 268 |
There were no modifications classified as TDRs for the three months ended March 31, 2021 or 2020. Although there were additional modifications of terms on some loans, the prevailing modifications during the reported periods were related to converting the loans to interest only for a period of time, reductions in the interest rates, and/or extensions of payment dates or maturity dates. Because the majority of these loans were classified as impaired loans before restructuring, the modifications did not materially impact the Company’s determination of the allowance for loan losses. The Company did not forgive any principal on the above loans. The allowance for loan losses attributable to restructured loans was $169,000 and $2.0 million at March 31, 2021 and December 31, 2020, respectively. The primary reason for the decrease in the allowance for loan losses attributable to restructured loans was a $1.8 million payment received in the first quarter of 2021 related to a loan classified as a TDR in 2019. The Company defines a payment default as a payment received more than 90 days after its due date.
Note 6: Allowance for Loan Losses
As management evaluates the allowance for loan losses, it is categorized as follows: (1) specific allocations; (2) allocations for classified assets with no specific allowance, based on historical loan experience for similar loans with similar characteristics, adjusted as necessary, to reflect the impact of current conditions; and (3) general allocations for each major loan category for loans not deemed impaired or classified, segmented by loan class based on historical loss experience and other risk factors. In assessing general economic conditions, management monitors several factors, including regional and national economic conditions, real estate market conditions and recently enacted regulations with potential economic effects.
Credit Quality Indicators – The Company utilizes a risk grading matrix to assign a grade to each of its commercial and real estate loans. Loans are rated on a scale of 1 to 10. A description of the general characteristics of the 10 risk ratings is as follows
•Risk Grades 1, 2, 3, 4 and 5 – These grades include loans to borrowers of solid credit quality with no higher than normal risk of loss. Borrowers in these categories have satisfactory financial strength and adequate cash flow coverage to service debt requirements. Collateral type and quality, as well as protection, are adequate. The borrower’s management is strong and capable, financial information is timely and accurate, and guarantor support is strong.
•Risk Grade 6 – Pass and Watch – Loans in this category are currently protected, but risks are emerging that warrant more than normal attention and have above average risk of loss. These factors require a higher level of monitoring and may include emerging balance sheet weaknesses, strained liquidity, increased leverage ratio, and weakening management. Collateral support is less marketable or limited use and, although the protection is sufficient, the loan-to-value ratio may not meet policy guidelines. Guarantors may have a limited ability and willingness to provide intermediate support. Also, considerations surrounding industry deterioration, increased competition and minor policy exceptions concerning structure or amortization may affect the rating of these loans.
•Risk Grade 7 – Special Mention – The Company’s special mention rating is intended to closely align with the regulatory definition. A special mention asset has potential weaknesses that deserve management’s close attention. If left
17
uncorrected, these weaknesses may result in deterioration of repayment prospects. These weaknesses may include deteriorating balance sheets, strained liquidity and elevated leverage ratios. Cash flow and profitability are marginally sufficient to service debt and collateral is exhibiting signs of decline in value; however, protection is currently sufficient. Limited management experience or weaknesses have emerged requiring more than normal supervision and uncertainties regarding the quality of the financials are not explained. Guarantor has very limited ability and willingness to provide short-term support. Moderate policy exceptions concerning structure or amortization may be considered in order to provide relief to the borrower. Special mention assets are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification.
•Risk Grade 8 – Substandard – A loan in this category is inadequately protected by the current net worth and paying capacity of the borrower or of the collateral pledged. Assets so classified have a well-defined weakness that jeopardizes the liquidation of the debt. Factors affecting these loans may include balance sheet deterioration that has resulted in illiquid, highly leveraged or deficit net worth, cash flow that is not able to service debts as structured, collateral protection that may be inadequate, guarantor support that may be virtually non-existent, and management that is poor. Loans may require a major policy exception concerning structure or amortization. They are characterized by the distinct possibility that the Company will incur some loss if the deficiencies are not corrected.
•Risk Grade 9 – Doubtful – Loans classified doubtful have all the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions and values, highly questionable and improbable.
•Risk Grade 10 – Loss – Loans are considered uncollectible and of such little value that continuing to carry them as an active asset is not warranted. It does not mean that there will be no recovery, but, rather, it is not practical or desirable to defer writing off these assets even though a partial recovery may be possible in the future.
Classified loans for the Company include loans in Risk Grades 8, 9 and 10. Loans may be classified but not considered impaired, due to one of the following reasons: (i) the loan falls below the established minimum dollar thresholds for loan impairment testing or (ii) the loan was tested for impairment, but not deemed to be impaired.
The following table summarizes the credit quality of the Company’s loan portfolio by loan class for the period indicated:
18
Risk Grades | Risk Grade | Risk Grade | Risk Grade | ||||||||||||||||||||||||||
(In thousands) | 1-6 | 7 | 8 | 9 | Total | ||||||||||||||||||||||||
March 31, 2021 | |||||||||||||||||||||||||||||
Secured by real estate: | |||||||||||||||||||||||||||||
Residential properties | $ | 717,367 | $ | 163 | $ | 18,517 | $ | 0 | $ | 736,047 | |||||||||||||||||||
Construction and land development | 448,899 | 0 | 1,590 | 0 | 450,489 | ||||||||||||||||||||||||
Farmland | 194,157 | 0 | 13,061 | 0 | 207,218 | ||||||||||||||||||||||||
Other commercial | 1,227,224 | 0 | 11,533 | 227 | 1,238,984 | ||||||||||||||||||||||||
Total real estate | 2,587,647 | 163 | 44,701 | 227 | 2,632,738 | ||||||||||||||||||||||||
Commercial and industrial | 586,862 | 51 | 25,143 | 49 | 612,105 | ||||||||||||||||||||||||
Agricultural production and other loans to farmers | 83,940 | 91 | 148 | 0 | 84,179 | ||||||||||||||||||||||||
Consumer and other loans | 78,491 | 0 | 421 | 0 | 78,912 | ||||||||||||||||||||||||
Total | $ | 3,336,940 | $ | 305 | $ | 70,413 | $ | 276 | $ | 3,407,934 |
Risk Grades | Risk Grade | Risk Grade | Risk Grade | ||||||||||||||||||||||||||
(In thousands) | 1-6 | 7 | 8 | 9 | Total | ||||||||||||||||||||||||
December 31, 2020 | |||||||||||||||||||||||||||||
Secured by real estate: | |||||||||||||||||||||||||||||
Residential properties | $ | 721,024 | $ | 0 | $ | 17,316 | $ | 0 | $ | 738,340 | |||||||||||||||||||
Construction and land development | 401,347 | 0 | 2,149 | 0 | 403,496 | ||||||||||||||||||||||||
Farmland | 205,211 | 0 | 11,893 | 0 | 217,104 | ||||||||||||||||||||||||
Other commercial | 1,209,365 | 0 | 15,041 | 227 | 1,224,633 | ||||||||||||||||||||||||
Total real estate | 2,536,947 | 0 | 46,399 | 227 | 2,583,573 | ||||||||||||||||||||||||
Commercial and industrial | 619,086 | 51 | 16,526 | 51 | 635,714 | ||||||||||||||||||||||||
Agricultural production and other loans to farmers | 85,197 | 91 | 181 | 0 | 85,469 | ||||||||||||||||||||||||
Consumer and other loans | 73,560 | 0 | 416 | 0 | 73,976 | ||||||||||||||||||||||||
Total | $ | 3,314,790 | $ | 142 | $ | 63,522 | $ | 278 | $ | 3,378,732 |
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Transactions in the allowance for loan losses and balances in the loan portfolio by loan segment are as follows:
(In thousands) | Commercial and Industrial | Commercial Real Estate | Residential | Consumer and other | Total | ||||||||||||||||||||||||
Three Months Ended March 31, 2021 | |||||||||||||||||||||||||||||
Allowance for loan losses: | |||||||||||||||||||||||||||||
Beginning balance | $ | 6,337 | $ | 20,163 | $ | 7,900 | $ | 1,600 | $ | 36,000 | |||||||||||||||||||
Provision for loan losses | (290) | 2,355 | 1,581 | 243 | 3,889 | ||||||||||||||||||||||||
Recoveries on loans | 107 | 413 | 84 | 882 | 1,486 | ||||||||||||||||||||||||
Loans charged off | (19) | (315) | (126) | (874) | (1,334) | ||||||||||||||||||||||||
Ending balance | $ | 6,135 | $ | 22,616 | $ | 9,439 | $ | 1,851 | $ | 40,041 | |||||||||||||||||||
Period End Allowance Balance Allocated To: | |||||||||||||||||||||||||||||
Individually evaluated for impairment | $ | 1,725 | $ | 254 | $ | 9 | $ | 0 | $ | 1,988 | |||||||||||||||||||
Collectively evaluated for impairment | 4,410 | 22,362 | 9,430 | 1,851 | 38,053 | ||||||||||||||||||||||||
Ending balance | $ | 6,135 | $ | 22,616 | $ | 9,439 | $ | 1,851 | $ | 40,041 |
(In thousands) | Commercial and Industrial | Commercial Real Estate | Residential | Consumer and other | Unallocated | Total | |||||||||||||||||||||||||||||
Three Months Ended March 31, 2020 | |||||||||||||||||||||||||||||||||||
Allowance for loan losses: | |||||||||||||||||||||||||||||||||||
Beginning balance | $ | 2,773 | $ | 10,766 | $ | 5,568 | $ | 1,135 | $ | 1,258 | $ | 21,500 | |||||||||||||||||||||||
Provision for loan losses | 7 | 385 | (67) | 288 | (428) | 185 | |||||||||||||||||||||||||||||
Recoveries on loans | 87 | 34 | 56 | 943 | 0 | 1,120 | |||||||||||||||||||||||||||||
Loans charged off | (82) | (217) | (151) | (1,185) | 0 | (1,635) | |||||||||||||||||||||||||||||
Balance, end of year | $ | 2,785 | $ | 10,968 | $ | 5,406 | $ | 1,181 | $ | 830 | $ | 21,170 | |||||||||||||||||||||||
Period End Allowance Balance Allocated To: | |||||||||||||||||||||||||||||||||||
Individually evaluated for impairment | $ | 34 | $ | 3,332 | $ | 14 | $ | 0 | $ | 0 | $ | 3,380 | |||||||||||||||||||||||
Collectively evaluated for impairment | 2,751 | 7,636 | 5,392 | 1,181 | 830 | 17,790 | |||||||||||||||||||||||||||||
Ending balance | $ | 2,785 | $ | 10,968 | $ | 5,406 | $ | 1,181 | $ | 830 | $ | 21,170 |
The following table provides the recorded investment in loans, net of unearned income, based on the Company’s impairment methodology as of the dates presented:
(In thousands) | Commercial and Industrial | Commercial Real Estate | Residential | Consumer and other | Total | ||||||||||||||||||||||||
March 31, 2021 | |||||||||||||||||||||||||||||
Individually evaluated for impairment | $ | 21,860 | $ | 16,436 | $ | 2,396 | $ | 176 | $ | 40,868 | |||||||||||||||||||
Collectively evaluated for impairment | 590,245 | 1,880,255 | 733,651 | 162,915 | 3,367,066 | ||||||||||||||||||||||||
Ending balance | $ | 612,105 | $ | 1,896,691 | $ | 736,047 | $ | 163,091 | $ | 3,407,934 | |||||||||||||||||||
December 31, 2020 | |||||||||||||||||||||||||||||
Individually evaluated for impairment | $ | 14,392 | $ | 25,234 | $ | 6,868 | $ | 274 | $ | 46,768 | |||||||||||||||||||
Collectively evaluated for impairment | 621,322 | 1,819,999 | 731,472 | 159,171 | 3,331,964 | ||||||||||||||||||||||||
Ending balance | $ | 635,714 | $ | 1,845,233 | $ | 738,340 | $ | 159,445 | $ | 3,378,732 |
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Note 7: Regulatory Matters
The Company (on a consolidated basis) and Bank are subject to various regulatory capital requirements administered by state and federal banking agencies. Failure to meet minimum capital requirements triggers certain mandatory, and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.
The U.S. capital rules, which in substance adopted the international Basel III Capital Rules and accordingly are referred to as the Basel III rules, became effective for both the Company and Bank on January 1, 2015, with full compliance with all of the requirements being phased in over a multi-year schedule and fully phased in by January 1, 2019. The Basel III rules require banking institutions to comply with three minimum risk-based capital ratios for common equity Tier 1 (“CET1”) capital, Tier 1 capital, and total capital, as well as a minimum leverage ratio based on Tier 1 capital.
Under the Basel III rules, the Company must maintain a capital conservation buffer of CET1 capital above the minimum risk-based capital ratios. The capital conservation buffer is designed to absorb losses during periods of economic stress and effectively increases the minimum required risk-weighted capital ratios. If, after deducting the buffer amount from its CET1 capital, Tier 1 capital, and total capital, any of these amounts results in a risk-based capital ratio below the minimum, a banking institution will face constraints on dividends, equity repurchases and compensation based on the amount of the shortfall. The capital conservation buffer, which was 2.50% at March 31, 2021 and December 31, 2020, is included in the minimum capital requirements relative to risk-weighted assets in the following table. Management believes as of March 31, 2021 and December 31, 2020, the Company and the Bank met Basel III minimum capital requirements to which they are subject.
The Bank is also subject to capital requirements under the prompt corrective action regime. As of March 31, 2021, the most recent notification from the Federal Deposit Insurance Corporation categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. The prompt corrective action framework applies only to insured depository institutions, such as the Bank, and not to their holding companies, such as the Company. To be categorized as well capitalized, an insured depository institution must maintain certain ratios of CET1 capital, Tier 1 capital and total capital to risk-weighted assets, and of Tier 1 capital to adjusted quarterly average assets. There are no conditions or events since that notification that management believes have changed the Bank’s category. The amounts of the Bank’s capital relative to the standards for well capitalized status are set forth in the following table.
The Company’s and the Bank’s CET1 capital includes total common equity reduced by goodwill and other intangible assets, net of associated deferred tax liabilities. In connection with the adoption of Basel III, the Company elected to opt out of the requirement to include most components of accumulated other comprehensive income (loss) in CET1 capital.
Tier 1 capital includes CET1 capital and additional Tier 1 capital. For the Company, additional Tier 1 capital at March 31, 2021 and December 31, 2020 included $50.8 million and $50.7 million of trust preferred securities issued by the trusts (net of investment in the trusts), respectively. The Bank did 0t have any additional Tier 1 capital beyond CET1 capital as of March 31, 2021 and December 31, 2020.
Total capital includes Tier 1 capital and Tier 2 capital. Tier 2 capital for both the Company and the Bank includes a permissible portion of the allowance for loan losses. In addition, Tier 2 capital at March 31, 2021 and December 31, 2020 for the Company includes $58.7 million and $58.6 million, respectively, of subordinated debentures. Capital levels required to be considered well capitalized are based upon prompt corrective action regulations, as amended to reflect the changes under Basel III.
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The following table presents actual and required capital ratios for the Company and the Bank under the Basel III rules.
Actual | Minimum Requirement | Required to be Well Capitalized | |||||||||||||||||||||||||||||||||
(In thousands) | Capital Amount | Ratio | Capital Amount | Ratio | Capital Amount | Ratio | |||||||||||||||||||||||||||||
March 31, 2021: | |||||||||||||||||||||||||||||||||||
Company: | |||||||||||||||||||||||||||||||||||
CET1 Capital to Risk-Weighted Assets | $ | 352,466 | 10.04 | % | $ | 245,694 | 7.00 | % | n/a | n/a | |||||||||||||||||||||||||
Tier 1 Capital to Risk-Weighted Assets | 403,300 | 11.49 | % | 298,343 | 8.50 | % | n/a | n/a | |||||||||||||||||||||||||||
Total Capital to Risk-Weighted Assets | 502,021 | 14.30 | % | 368,541 | 10.50 | % | n/a | n/a | |||||||||||||||||||||||||||
Tier 1 Capital to Average Assets | 403,300 | 8.40 | % | 192,159 | 4.00 | % | n/a | n/a | |||||||||||||||||||||||||||
Bank: | |||||||||||||||||||||||||||||||||||
CET1 Capital to Risk-Weighted Assets | $ | 398,495 | 11.39 | % | $ | 244,919 | 7.00 | % | $ | 227,425 | 6.50 | % | |||||||||||||||||||||||
Tier 1 Capital to Risk-Weighted Assets | 398,495 | 11.39 | % | 297,402 | 8.50 | % | 279,908 | 8.00 | % | ||||||||||||||||||||||||||
Total Capital to Risk-Weighted Assets | 438,536 | 12.53 | % | 367,379 | 10.50 | % | 349,885 | 10.00 | % | ||||||||||||||||||||||||||
Tier 1 Capital to Average Assets | 398,495 | 8.31 | % | 191,801 | 4.00 | % | 239,752 | 5.00 | % | ||||||||||||||||||||||||||
December 31, 2020: | |||||||||||||||||||||||||||||||||||
Company: | |||||||||||||||||||||||||||||||||||
CET1 Capital to Risk-Weighted Assets | $ | 339,936 | 9.94 | % | $ | 239,437 | 7.00 | % | n/a | n/a | |||||||||||||||||||||||||
Tier 1 Capital to Risk-Weighted Assets | 390,713 | 11.42 | % | 290,745 | 8.50 | % | n/a | n/a | |||||||||||||||||||||||||||
Total Capital to Risk-Weighted Assets | 485,357 | 14.19 | % | 359,155 | 10.50 | % | n/a | n/a | |||||||||||||||||||||||||||
Tier 1 Capital to Average Assets | 390,713 | 8.55 | % | 182,853 | 4.00 | % | n/a | n/a | |||||||||||||||||||||||||||
Bank: | |||||||||||||||||||||||||||||||||||
CET1 Capital to Risk-Weighted Assets | $ | 387,231 | 11.36 | % | $ | 238,629 | 7.00 | % | $ | 221,584 | 6.50 | % | |||||||||||||||||||||||
Tier 1 Capital to Risk-Weighted Assets | 387,231 | 11.36 | % | 289,763 | 8.50 | % | 272,719 | 8.00 | % | ||||||||||||||||||||||||||
Total Capital to Risk-Weighted Assets | 423,231 | 12.42 | % | 357,943 | 10.50 | % | 340,898 | 10.00 | % | ||||||||||||||||||||||||||
Tier 1 Capital to Average Assets | 387,231 | 8.49 | % | 182,531 | 4.00 | % | 228,164 | 5.00 | % |
The ability of the Company to pay future dividends, pay its expenses and retire its debt is dependent upon future income tax benefits and dividends paid to the Company by the Bank. The Bank is subject to dividend restrictions as imposed by Federal and state regulatory authorities.
Note 8: Fair Value
Financial Instruments Measured at Fair Value
Fair value is the exchange price that would be received for an asset or paid to transfer a liability (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. The Company groups its assets and liabilities measured 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. Valuations within these levels are based upon:
Level 1
Unadjusted quoted prices in active markets for identical assets or liabilities that the entity has the ability to access as of the measurement date
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Level 2
Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities
Level 3
Unobservable inputs that are significant to the fair value of the assets or liabilities that reflect a company’s own assumptions about the assumptions that market participants would use in pricing assets or liabilities
Management monitors the availability of observable market data to assess the appropriate classification of assets and liabilities within the fair value hierarchy. Changes in economic conditions or model-based valuation techniques may require the transfer of financial instruments from one fair value level to another. In such instances, the transfer is reported at the beginning of the reporting period. There were no transfers of financial instruments between fair value levels for any period presented.
The Company used the following methods and significant assumptions to estimate fair value.
Securities - The Company utilizes an independent pricing service to advise it on the value of the securities portfolio. Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics or discounted cash flows. For these investments, the inputs used by the pricing service to determine fair value may include one, or a combination of several, observable inputs such as benchmark yields, reported trades, benchmark securities, bids, offers and reference data market research publications and are classified within Level 2 of the valuation hierarchy. In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy. For Level 3 securities, in addition to the inputs noted above, inputs used by the pricing service to determine fair value may also include estimated duration, municipal bond interest rate curve, and tax effected yield. There were no Level 3 securities as of March 31, 2021 or December 31, 2020. The Company’s treasury department and Asset Liability Management Committee review the aggregate fair values of the securities portfolio.
Impaired loans - Loans for which it is probable that the Company will not collect all principal and interest due according to contractual terms are measured for impairment on a nonrecurring basis. Allowable methods for determining the amount of impairment include estimating fair value using the fair value of the collateral for collateral-dependent loans. Specific allowances for impaired loans are based on comparisons of the recorded carrying values of the loans to the present value of the estimated cash flows of these loans at each loan’s effective interest rate or the fair value of the collateral net of selling costs if the loan is collateral dependent. Impaired loans are primarily collateral dependent loans and are assessed using a fair value approach. Fair value estimates for collateral dependent loans are derived from appraised values based on the current market value or as-is value of the property being appraised. Appraisals are based on certain assumptions, which may include construction or development status and the highest and best use of the property. The appraisals are reviewed by the Bank’s Appraisal Review Department to ensure they are acceptable. Impaired loans are classified within Level 3 of the fair value hierarchy. Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted in accordance with the allowance policy.
Other Real Estate Owned - Other real estate owned is initially recorded at fair value less cost to sell at the date of foreclosure, establishing a new cost basis. These assets are subsequently accounted for at lower of cost or fair value less estimated cost to sell. Fair value estimates begin with obtaining a current independent appraisal or internal evaluation of the collateral value. Subsequent to foreclosure, valuations are performed periodically by the Company’s appraisal department and any subsequent reduction in value is recognized by a charge to income.
Appraisals for both collateral-dependent impaired loans and other real estate owned are performed by certified appraisers whose qualifications and licenses have been reviewed by the Company. These appraisals are reviewed by a member of the Appraisal Department to ensure they are acceptable. Appraised values are adjusted down for costs associated with asset disposal. The significant unobservable inputs (Level 3) used in the fair value measurement of collateral for collateral impaired loans and other real estate owned are primarily based on appraisals, observable market conditions, and other factors which may affect collectability. The appraisals use marketability and comparability discounts, which generally range from 5% to 15%. Assessment of the significance of a specific input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset. It is reasonably possible that a change in the estimated fair value for assets measured using Level 3 inputs could occur in the future.
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Assets and liabilities measured at fair value on a recurring basis are summarized below:
Fair | Fair Value Measurements Using | ||||||||||||||||||||||
(In thousands) | Value | Level 1 | Level 2 | Level 3 | |||||||||||||||||||
March 31, 2021 | |||||||||||||||||||||||
U.S. Government agency obligations | $ | 300,381 | $ | 0 | $ | 300,381 | $ | 0 | |||||||||||||||
Residential mortgage-backed securities | 158,482 | 0 | 158,482 | 0 | |||||||||||||||||||
Commercial mortgage-backed securities | 15,660 | 0 | 15,660 | 0 | |||||||||||||||||||
Asset-backed securities | 14,248 | 0 | 14,248 | 0 | |||||||||||||||||||
Corporate investments | 33,222 | 0 | 33,222 | 0 | |||||||||||||||||||
State and political subdivisions | 50,895 | 0 | 50,895 | 0 | |||||||||||||||||||
Total securities available for sale | $ | 572,888 | $ | 0 | $ | 572,888 | $ | 0 |
December 31, 2020 | |||||||||||||||||||||||
U.S. Government agency obligations | $ | 12,434 | $ | 0 | $ | 12,434 | $ | 0 | |||||||||||||||
Residential mortgage-backed securities | 187,212 | 0 | 187,212 | 0 | |||||||||||||||||||
Commercial mortgage-backed securities | 17,331 | 0 | 17,331 | 0 | |||||||||||||||||||
Asset backed securities | 14,447 | 0 | 14,447 | 0 | |||||||||||||||||||
Corporate investments | 33,148 | 0 | 33,148 | 0 | |||||||||||||||||||
State and political subdivisions | 46,801 | 0 | 46,801 | 0 | |||||||||||||||||||
Total securities available for sale | $ | 311,373 | $ | 0 | $ | 311,373 | $ | 0 |
Assets measured at fair value on a non-recurring basis are summarized below.
Fair | Fair Value Measurements Using | ||||||||||||||||||||||
(In thousands) | Value | Level 1 | Level 2 | Level 3 | |||||||||||||||||||
Impaired loans, net of allowance for loan losses: | |||||||||||||||||||||||
March 31, 2021 | $ | 45,429 | $ | 0 | $ | 0 | $ | 45,429 | |||||||||||||||
December 31, 2020 | $ | 42,573 | $ | 0 | $ | 0 | $ | 42,573 | |||||||||||||||
Other real estate owned: | |||||||||||||||||||||||
March 31, 2021 | $ | 7,637 | $ | 0 | $ | 0 | $ | 7,637 | |||||||||||||||
December 31, 2020 | $ | 6,754 | $ | 0 | $ | 0 | $ | 6,754 |
The following table presents quantitative information about Level 3 fair value measurements for assets measured at fair value on a non-recurring basis.
Qualitative Information about Level 3 Fair Value Measurements | |||||||||||||||||||||||||||||
(In thousands) | Carrying Value | Valuation Methods | Unobservable Inputs | Range | Weighted Average | ||||||||||||||||||||||||
March 31, 2021 | |||||||||||||||||||||||||||||
Impaired loans, net of specific allowance | $ | 45,429 | Third-party appraisals | Selling costs | 5% - 10% | 6% | |||||||||||||||||||||||
Other real estate owned | $ | 7,637 | Third-party appraisals and internal evaluations | Selling costs | 5% - 10% | 6% |
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Qualitative Information about Level 3 Fair Value Measurements | |||||||||||||||||||||||||||||
(In thousands) | Carrying Value | Valuation Methods | Unobservable Inputs | Range | Weighted Average | ||||||||||||||||||||||||
December 31, 2020 | |||||||||||||||||||||||||||||
Impaired loans, net of specific allowance | $ | 42,573 | Third-party appraisals | Selling costs | 5% - 10% | 6% | |||||||||||||||||||||||
Other real estate owned | $ | 6,754 | Third-party appraisals and internal evaluations | Selling costs | 5% - 10% | 6% |
Fair Value of Financial Instruments
Generally accepted accounting principles require disclosure of fair value information about financial instruments, whether or not recognized on the balance sheet, that are not measured and reported at fair value on a recurring or non-recurring basis. Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions significantly affect the estimates and, as such, the derived fair value may not be indicative of the value negotiated in an actual sale and may not be comparable to that reported by other financial institutions. In addition, the fair value estimates are based on existing financial instruments without attempting to estimate the value of anticipated business and the value of assets and liabilities that are not considered financial instruments. In addition, the tax ramifications related to the realization of unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates.
The following table presents estimated fair values of the Company’s financial instruments not previously disclosed:
March 31, 2021 | December 31, 2020 | ||||||||||||||||||||||
(In thousands) | Carrying Value | Fair Value | Carrying Value | Fair Value | |||||||||||||||||||
Financial assets: | |||||||||||||||||||||||
Level 1 inputs: | |||||||||||||||||||||||
Cash and cash equivalents | $ | 601,983 | $ | 601,983 | $ | 637,545 | $ | 637,545 | |||||||||||||||
Level 2 inputs: | |||||||||||||||||||||||
Securities held to maturity | 90,818 | 91,350 | 93,766 | 94,436 | |||||||||||||||||||
FHLB stock | 2,560 | 2,560 | 2,557 | 2,557 | |||||||||||||||||||
Accrued interest receivable | 18,769 | 18,769 | 18,061 | 18,061 | |||||||||||||||||||
Level 3 inputs: | |||||||||||||||||||||||
Loans held for sale | 19,459 | 19,459 | 28,684 | 28,684 | |||||||||||||||||||
Loans, net | 3,367,893 | 3,366,801 | 3,342,732 | 3,348,872 | |||||||||||||||||||
Financial liabilities: | |||||||||||||||||||||||
Level 2 inputs: | |||||||||||||||||||||||
Deposits | 4,392,958 | 4,393,341 | 4,152,810 | 4,153,402 | |||||||||||||||||||
FHLB and other borrowings | 32,837 | 33,711 | 33,771 | 34,941 | |||||||||||||||||||
Subordinated debentures | 111,217 | 111,217 | 111,124 | 111,124 | |||||||||||||||||||
Accrued interest payable | 3,409 | 3,409 | 2,709 | 2,709 |
Note 9: Subordinated Debentures and Trust Preferred Securities
On June 4, 2020, the Company entered into a Subordinated Note Purchase Agreement with certain qualified institutional buyers and institutional accredited investors pursuant to which the Company issued and sold $60.0 million in aggregate principal amount of its 6.000% Fixed-to-Floating Rate Subordinated Notes due June 15, 2030 (the “Notes”). The Company incurred issuance costs of $1.4 million in conjunction with the issuance of the Notes. These issuance costs are netted with the balance of the Notes on the Company’s condensed consolidated balance sheet and will be amortized over the life of the Notes. The Notes will initially bear
25
interest at a rate of 6.000% per annum from and including June 4, 2020, to but excluding June 15, 2025 or the early redemption date, with interest during this period payable semiannually in arrears. From and including June 15, 2025, to but excluding the maturity date or early redemption date, the interest rate will reset quarterly to an annual floating rate equal to Three-Month Term Secured Overnight Financing Rate plus 586 basis points, with interest during this period payable quarterly in arrears. The Company intends to use the proceeds of the private placement for general corporate purposes, including improving the Company’s liquidity and capital position.
The Notes are not redeemable by the Company, in whole or in part, prior to the fifth anniversary of the original date of issue, except that the Notes may be redeemed at any time in whole but not in part in the event of a Tier 2 Capital Event, a Tax Event, or an Investment Company Event, each as defined and described in the Notes. On or after the fifth anniversary of the original date of issue, the Notes shall be redeemable on any interest payment date at the option of the Company, in whole or in part in integral multiples of $1,000, at an amount equal to 100% of the outstanding principal amount redeemed plus accrued but unpaid interest thereon. Any partial redemption will be made on a pro rata basis as to the holders of the Notes. Any redemption of the Notes is subject to any applicable regulatory requirements and approvals.
The Company also owns the outstanding common stock of business trusts that have issued preferred capital securities to third parties. These preferred capital securities have qualified as Tier I capital for the Company, subject to regulatory rules and limits. These trusts used the proceeds from the issuance of the common stock and the preferred capital securities to purchase subordinated debentures issued by the Company. These subordinated debentures are these trusts’ only assets, and quarterly interest payments on these subordinated debentures are the sole source of cash for these trusts to pay quarterly distributions on the common stock and preferred capital securities. The Company has fully and unconditionally guaranteed the trusts’ obligations with respect to the preferred capital securities.
The Company has the right to defer the payment of interest on the subordinated debentures at any time, or from time to time, for periods not exceeding five years. If interest payments on the subordinated debentures are deferred, the distributions on the trust preferred securities are also deferred. Interest on the subordinated debentures and distributions on the trust preferred securities are cumulative.
The following is a summary of subordinated debentures payable to statutory trusts.
(In thousands) | Year of Maturity | Interest Rate | March 31, 2021 | December 31, 2020 | |||||||||||||||||||
First Bancshares of Baton Rouge Statutory Trust I | 2034 | 3 month LIBOR, plus 2.50% | $ | 4,124 | $ | 4,124 | |||||||||||||||||
State Capital Statutory Trust IV | 2035 | 3 month LIBOR, plus 1.99% | 5,155 | 5,155 | |||||||||||||||||||
BancPlus Statutory Trust II | 2036 | 3 month LIBOR, plus 1.50% | 20,619 | 20,619 | |||||||||||||||||||
BancPlus Statutory Trust III | 2037 | 3 month LIBOR, plus 1.35% | 20,619 | 20,619 | |||||||||||||||||||
State Capital Master Trust | 2037 | 3 month LIBOR, plus 1.46% | 6,186 | 6,186 | |||||||||||||||||||
$ | 56,703 | $ | 56,703 |
The subordinated debentures payable to statutory trusts vary from the amount carried on the condensed consolidated balance sheet at March 31, 2021 due to the remaining purchase discount of $4.2 million, which was established upon the Merger with SCC and is being amortized over the remaining life of the debentures.
Interest rates adjust quarterly for the subordinated debentures with rates that are indexed with LIBOR. We are currently monitoring the actions of LIBOR’s regulator and the implementation of alternative reference rates in advance of the expected discontinuation of LIBOR to determine any potential impact on the subordinated debentures.
The Company has the right to redeem the subordinated debentures prior to maturity. Upon redemption of the subordinated debentures payable to a statutory trust, the trust will also liquidate its common stock and preferred capital securities.
Note 10: Employee Benefits
The Company has an Employee Stock Ownership Plan (“ESOP”) that covers all employees of the Bank who are at least 21 years of age and work in a position requiring at least 1000 hours of service annually. The plan also has 401(k) provisions that
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allow for employee tax deferred contributions. Participants may make contributions to the ESOP in accordance with applicable regulations and the ESOP’s provisions. The Company makes a 3% “safe harbor” matching contribution, plus an additional matching contribution equal to 50% of the next 2% of an employee’s salary deferral contributions in excess of 3%. Additional contributions are made to the ESOP at the discretion of the Company’s Board of Directors.
The ESOP owned 1,500,537 and 1,499,459 shares of the Company's common stock at March 31, 2021 and December 31, 2020, respectively. The ESOP entered into loans, collateralized by ESOP shares, with the Company in connection with the repurchase of shares of Company stock that were sold by participants in accordance with diversification provisions of the ESOP. A total of 176,786 shares were repurchased through 2011, an additional 77,000 shares were repurchased under this program in 2012, and 27,594 shares were repurchased under this program in 2019. These unallocated shares are released to participants proportionately as the loan is repaid. Dividends on allocated shares are recorded as dividends and charged to retained earnings. Dividends on unallocated shares that are used to repay the loan are treated as compensation expense.
The following table presents information related to the Company’s ESOP-owned shares.
(In thousands, except share data) | March 31, 2021 | December 31, 2020 | |||||||||
Allocated shares | 1,456,722 | 1,449,335 | |||||||||
Unearned shares | 43,815 | 50,124 | |||||||||
Total ESOP shares | 1,500,537 | 1,499,459 | |||||||||
Fair value of unearned shares | $ | 2,629 | $ | 2,569 |
Distributions of the ESOP may be either in cash or Company common stock. The allocated shares are subject to a put option, whereby the Company will provide a market for a specified period of time for shares distributed to participants. The put price is the appraised value of the stock. The fair value of shares of common stock held by the ESOP are deducted from permanent shareholders’ equity in the consolidated balance sheets and reflected in a line item below liabilities and above shareholders’ equity. This presentation is necessary in order to recognize the put option within the ESOP-owned shares, consistent with Securities and Exchange Commission guidelines, that is present as long as the Company is not publicly traded. The Company uses a valuation by an external third party to determine the maximum possible cash obligation related to these securities. Increases or decreases in the value of the cash obligation are included in a separate line item in the consolidated statement of changes shareholders’ equity. The fair value of shares held by the ESOP at March 31, 2021 was $87.4 million, based on the Company’s previously disclosed appraised value of $60.00 per share of common stock. The fair value at December 31, 2020 was $74.3 million, based on the Company’s previously disclosed appraised value of $51.25 per share of common stock. As previously disclosed, these appraised values were determined solely for purposes of the ESOP’s administration and are therefore subject to certain limitations, qualifications and assumptions and may not reflect the fair value of the Company’s common stock and should not be relied on for any reason. In particular, the COVID-19 pandemic has had a significant impact on the trading markets for equity securities, including the value of equity securities of banking institutions. Neither the Company nor the ESOP has any obligation to seek an adjusted valuation, to use these appraised values for any other purpose or, if the Company or the ESOP obtains a new appraised value, to disclose such new appraised value.
State Bank Employee Stock Ownership Plan
In connection with the Company’s Merger with SCC, the State Bank & Trust Company Employee Stock Ownership Plan (“State Bank ESOP”) was amended on March 17, 2020, to be terminated effective March 31, 2020. As of March 31, 2020, all State Bank ESOP participants were fully vested in their respective account balances, no additional contributions were permitted by either the Company or the State Bank ESOP participants, and no additional participants were permitted to enter the State Bank ESOP. All shares of SCC common stock held in the State Bank ESOP were allocated to participants. The Company has no contribution obligations or compensation expense with respect to the State Bank ESOP. The Company received approval for termination from the Internal Revenue Service (“IRS”) and plans to distribute all assets held by the State Bank ESOP in accordance with its terms as soon as reasonably possible.
In connection with the Merger, all shares of SCC common stock held in the State Bank ESOP were converted into shares of the Company’s common stock using the exchange ratio provided for in the Merger Agreement. Distributions from the State Bank ESOP may be either in cash or Company common stock. The shares of Company common stock distributed by the State Bank ESOP are subject to a put option so long as the Company is not publicly traded and the valuation obtained for purposes of the ESOP is used to determine the put option price under the State Bank ESOP. As of March 31, 2021 and December 31, 2020, the State Bank ESOP held 10,670 and 52,204 shares of Company common stock, respectively.
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State Bank Defined Contribution Plan
On March 31, 2020, the State Bank & Trust Company 401(k) Plan (“State Bank 401(k)”) was amended to be terminated effective as of the same date in connection with the Merger. As of March 31, 2020, all State Bank 401(k) participants were fully vested in their respective account balances, no additional contributions were permitted by either the Company or the State Bank 401(k) participants, and no additional participants were permitted to enter into the State Bank 401(k). The Company has no contribution obligations or compensation expense with respect to the State Bank 401(k). The Company has filed a determination letter application with the IRS to seek approval of the termination. Upon receipt of a favorable determination letter from the IRS, the Company will distribute all assets held by the State Bank 401(k) in accordance with its terms.
State Bank Defined Benefit Pension Plan
As a result of the Merger, the Company assumed the Mississippi Southern Bank Pension Plan (“State Bank Pension Plan”), a defined benefit pension plan which was closed to new participants and benefits were frozen effective as of December 31, 2002. While no additional benefits accrue, the Company’s cumulative obligation is subject to adjustment due to changes in actuarial assumptions such as expected mortality and changes in interest rates. Net periodic pension costs for the quarterly period ended March 31, 2021 were not material to the Company’s condensed consolidated statements of income. The Company has filed a determination letter with the IRS to seek approval of termination. Upon receipt of a favorable determination letter from the IRS, the Company will distribute all assets held by the State Bank Pension Plan in accordance with its terms.
Note 11: Equity
The Company’s Board of Directors authorized 10,000,000 shares of preferred stock with no par value, which may be issued from time to time and in one or more classes or series upon authorization of the Board. At March 31, 2021 and December 31, 2020, there were 0 shares of preferred stock issued and outstanding.
Note 12: Stock Based Compensation
Under the Company’s long-term incentive program, executive officers are eligible to receive equity-based awards under the 2020 Long-Term Incentive Plan (“LTIP”). Restricted stock awards (“RSAs”) granted under the LTIP generally vest over one to five years. Unvested RSAs are included in the Company’s common stock outstanding. Compensation expense for RSAs granted under the LTIP is recognized over the vesting period of the awards based on the fair value of the stock at the grant date, with forfeitures recognized as they occur.
Stock based compensation that has been charged against income was $487,000 for the three months ended March 31, 2021 and $383,000 for same period of 2020. There were 0 forfeitures during this period. As of March 31, 2021, there was $2.9 million of total unrecognized compensation cost related to unvested RSAs. The cost is expected to be recognized over a remaining weighted average period of 3.0 years.
A summary of the Company’s equity-based award activity and related information for the Company’s RSAs is as follows:
Three Months Ended | |||||||||||||||||||||||
March 31, 2021 | March 31, 2020 | ||||||||||||||||||||||
Number of Shares | Weighted Average Grant Date Fair Value | Number of Shares | Weighted Average Grant Date Fair Value | ||||||||||||||||||||
Beginning of period | 91,109 | $ | 50.60 | 69,093 | $ | 53.67 | |||||||||||||||||
Granted | 0 | 0 | 2,500 | 57.00 | |||||||||||||||||||
Vested | (9,878) | 50.91 | (16,283) | 50.78 | |||||||||||||||||||
Forfeited | 0 | 0 | 0 | 0 | |||||||||||||||||||
End of period | 81,231 | $ | 50.56 | 55,310 | $ | 54.68 |
Note 13: COVID-19
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In the first quarter of 2020, the outbreak of COVID-19 was declared a pandemic by the World Health Organization. In response to the economic impact of the COVID-19 pandemic, on March 27, 2020, Congress enacted the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act. It contains substantial lending, tax and spending provisions, including creating and appropriating an initial $39 billion of funding to the Paycheck Protection Program (“PPP”), designed to aid small and medium-sized businesses through federally guaranteed loans distributed by banks. On April 24, 2020, Congress enacted the Paycheck Protection Program and Healthcare Enhancement Act (the “Enhancement Act”) to, among other things, increase the available funding under the PPP by $310 billion to a total of $659 billion. The deadline for the first round of loan applications was August 8, 2020.
The Consolidated Appropriations Act, enacted on December 27, 2021, provided additional funding for the PPP of approximately $284 billion and allowed eligible borrowers, including certain borrowers who already received a PPP loan, to apply for PPP loans through March 31, 2021. Subsequently, the American Rescue Plan Act of 2021, enacted on March 11, 2021, expanded the eligibility criteria for both first and second draw PPP loans and revised the exclusions from payroll costs for purposes of loan forgiveness. The PPP Extension Act of 2021, enacted on March 30, 2021, extended the PPP through May 31, 2021.
PPP loans are intended to guarantee payroll and other qualifying expenses to help small businesses remain viable and allow their workers to pay their bills. The Small Business Administration (“SBA”) manages and backs the PPP. If a loan is fully forgiven, the SBA will repay the lending bank in full. If a loan is partially forgiven or not forgiven at all, a bank must look to the borrower for repayment of unforgiven principal and interest. If the borrower defaults, the loan is guaranteed by the SBA. In order to obtain loan forgiveness, a PPP borrower must submit a forgiveness application to the Company, which the Company must review and forward to the SBA. The SBA began approving forgiveness applications on August 10, 2020.
As of March 31, 2021, 2,564 BankPlus loans totaling $188.0 million had been forgiven and paid by the SBA or the customer. As of March 31, 2021, the Company held 3,559 loans for customers under the PPP, totaling approximately $223.8 million. The loans have maturities ranging from September 2021 to March 2026. The Company expects to recognize total fee income of approximately $6.6 million over the lives of the remaining loans.
The CARES Act and related guidance from the federal banking agencies also provide financial institutions the option to temporarily suspend requirements under GAAP related to classification of certain loan modifications as TDRs, to account for the current and anticipated effects of COVID-19. The CARES Act, as amended by the Consolidated Appropriations Act, 2021, specified that COVID-19 related loan modifications executed between March 1, 2020 and the earlier of (i) 60 days after the date of termination of the national emergency declared by the President and (ii) January 1, 2022, on loans that were current as of December 31, 2019 are not subject to TDR accounting requirements under GAAP. Additionally, under April 2020 interagency guidance from the federal banking agencies, other short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief are not TDRs under ASC Subtopic 310-40, “Troubled Debt Restructuring by Creditors.” These modifications include short-term (e.g., up to six months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or delays in payment that are insignificant. The federal banking agencies also have encouraged banks to work with their borrowers to modify loans as may be appropriate.
As of March 31, 2021, the Company had granted temporary modifications on 2,252 outstanding loans totaling approximately $834.7 million, or 24% of total outstanding loans, primarily secured by 1-4 family residences and multi-tenant retail commercial real estate. As of March 31, 2021, 19 loans totaling $37.1 million, or 1.1% of the Company’s loan portfolio, were still in deferment.
Economic uncertainties have arisen which may negatively affect the financial position, results of operations and cash flows of the Company. The duration of these uncertainties and ultimate financial effects cannot be reasonably estimated at this time.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Unless otherwise indicated, references in this report to “we”, “us”, “our company”, “the Company”, or “BancPlus” refer to BancPlus Corporation. All references to “BankPlus” or “the Bank” refer to BankPlus, our wholly-owned subsidiary.
The following discussion and analysis of BancPlus’ financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and related notes contained in Item 1 of this report.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains estimates, predictions, opinions, projections and other “forward-looking statements” as that phrase is defined in the Private Securities Litigation Reform Act of 1995 about BancPlus. Such statements
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include, without limitation, references to the Company's predictions or expectations of future business or financial performance as well as its goals and objectives for future operations, financial and business trends, business prospects, and management’s outlook or expectations for earnings, revenues, expenses, capital levels, liquidity levels, asset quality or other future financial or business performance, strategies or expectations, and are subject to risks and uncertainties. These statements often, but not always, are preceded by, followed by or otherwise include the words “believe,” “expect,” “anticipate,” “intend,” “estimate,” “continue,” “seek,” “plan,” “can,” “should,” “could,” “would,” “will,” “to be,” “predict,” “potential,” “may,” “likely,” “will likely result,” “target,” “project” and “outlook” or the negative version of those words or other comparable words or phrases of a future or forward-looking nature. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about our industry based on certain assumptions and beliefs of the Company’s management, many of which, by their nature, are inherently uncertain and beyond the Company’s control. Although the Company believes that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements.
There are or will be important risk factors that could cause actual results to differ materially from those indicated in these forward-looking statements, including, but not limited to, the following:
•the effects of the novel coronavirus (“COVID-19”) pandemic on our business, financial condition and results of operations and on our customers, our employees, our third-party service providers and the economy, especially as a vaccine becomes widely available;
•our ability to adequately measure and limit our credit risk;
•factors that can impact the performance of our loan portfolio, including real estate values and liquidity in our primary market areas, the financial health of our commercial borrowers and the success of construction projects that we finance, including any loans acquired in acquisition transactions;
•possible additional loan losses and impairment of the collectability of loans, particularly as a result of the policies and programs implemented by the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, including its automatic loan forbearance provisions, the Paycheck Protection Program (“PPP”) and complying with government-imposed foreclosure moratoriums;
•our ability to prudently manage our growth and execute our strategy;
•the composition of our management team and our ability to attract and retain key personnel;
•changes in management personnel;
•geographic concentration of our business within Mississippi, Alabama and Louisiana;
•our ability to attract and retain customers;
•increased competition in the financial services industry, particularly from regional and national institutions;
•further government restrictions on overdraft programs;
•failure of our risk management framework;
•systems failures, unauthorized access, cyber-crime and other threats to data security or interruptions involving our information technology and telecommunications systems or third-party servicers, particularly in light of widespread remote work arrangements due to the COVID-19 pandemic;
•difficult market conditions and unfavorable economic trends in the United States generally, and particularly in the markets in which we operate and in which our loans are concentrated, including declines in housing markets, an increase in unemployment levels and slowdowns in economic growth, including as a result of the COVID-19 pandemic;
•our ability to maintain our historical rate of growth;
•our ability to manage the risks associated with our growth and expansion through de novo branching;
•our ability to identify potential candidates for, consummate, and achieve synergies resulting from, potential future acquisitions;
•deterioration of our asset quality;
•changes in the value of collateral securing our loans;
•changes in the laws, rules, regulations, interpretations, policies or stimulus programs relating to financial institution, accounting, tax, trade, monetary and fiscal matters, and the uncertainty of the short- and long-term impacts of such changes;
•further government intervention in the U.S. financial system, particularly in response to the COVID-19 pandemic;
•the effects of regional or national civil unrest (including any resulting branch closures or damage);
•compliance with governmental and regulatory requirements, including relating to banking, consumer protection, securities and tax matters;
•operational risks associated with our business;
•volatility and direction of market interest rates, including as a result of the COVID-19 pandemic;
•our ability to maintain important deposit customer relationships and our reputation or otherwise avoid liquidity risks;
•the obligations associated with being a public reporting company;
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•the commencement and outcome of litigation and other legal proceedings against us or to which we may become subject;
•natural disasters and adverse weather, public health crises, acts of terrorism, outbreaks of hostilities or other international or domestic calamities, and other matters beyond our control; and
•other factors that are discussed in the sections titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the annual period ended December 31, 2020, and in this Quarterly Report on Form 10-Q.
New factors emerge from time to time, and it is not possible for us to predict which will arise. The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in our Annual Report on Form 10-K for the year ended December 31, 2020, and in this Quarterly Report on Form 10-Q. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. If one or more events related to these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may differ materially from what we anticipate. Accordingly, you should not place undue reliance on any such forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made, and we do not undertake any obligation to publicly update or revise any forward-looking statement, whether written or oral, and whether as a result of new information, future developments or otherwise, except as specifically required by law.
Overview
BancPlus is a bank holding company headquartered in Ridgeland, Mississippi. Its wholly-owned bank subsidiary, BankPlus, offers a full suite of products and services to a broad spectrum of customers, including individuals, businesses and public entities. As of March 31, 2021, we operated 79 branch offices across Mississippi, Louisiana, and Alabama. Our franchise is built on a community banking approach focused on personalized, relationship-driven service combined with local market management and expertise. We have one reportable segment.
BancPlus’ business strategy is to provide exceptional community banking services and financial solutions within its markets, which enables us to fulfill our core purpose of enriching lives and building stronger communities. We believe our team of local, experienced and relationship-focused bankers, along with strong brand recognition in our communities, differentiate us from our competitors. As a result, we have a granular, stable deposit mix and a diversified loan portfolio. As of March 31, 2021, BancPlus held $4.4 billion of total deposits, and our deposit base consisted of 96.2% core deposits with a total deposit cost of 0.20%. Our loan portfolio was comprised of 76.1% commercial loans and 23.9% consumer loans for the same period. BancPlus currently holds meaningful market share in a number of attractive markets in Mississippi, including the number three position based on deposits in the Jackson, Mississippi metropolitan statistical area, and we believe we are well-positioned for future growth.
2021 First Quarter Highlights
•Net income for the three months ended March 31, 2021 was $17.3 million compared with $7.7 million for the same period of 2020
•Diluted earnings per share for the three months ended March 31, 2021 were $1.73, compared with $1.00 for the same period of 2020
•Net interest income was $42.0 million for the three months ended March 31, 2021 compared with $25.3 million for the same period of 2020
•Total loans held for investment were $3.41 billion at March 31, 2021 compared with $3.38 billion at December 31, 2020
Recent Developments
Impact of COVID-19
In the first quarter of 2020, the outbreak of COVID-19 was declared a pandemic by the World Health Organization. In response to the economic impact of the COVID-19 pandemic, on March 27, 2020, Congress enacted the CARES Act. It contains substantial lending, tax and spending provisions intended to address the economic impact of the COVID-19 pandemic, including creating and appropriating an initial $349 billion of funding to the PPP, designed to aid small and medium-sized businesses through federally guaranteed loans distributed by banks. On April 24, 2020, Congress enacted the Enhancement Act, which among other things,
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increased the available funding by $310 billion to a new total of $659 billion. The deadline for the first round of loan applications was August 8, 2020.
The Consolidated Appropriations Act, enacted on December 27, 2021, provided additional funding for the PPP of approximately $284 billion and allows eligible borrowers, including certain borrowers who already received a PPP loan, to apply for PPP loans through March 31, 2021. Subsequently, the American Rescue Plan Act of 2021, enacted on March 11, 2021, expanded the eligibility criteria for both first and second draw PPP loans and revised the exclusions from payroll costs for purposes of loan forgiveness. The PPP Extension Act of 2021, enacted on March 30, 2021, extended the PPP through May 31, 2021.
PPP loans are intended to guarantee payroll and other qualifying expenses to help those businesses remain viable and allow their workers to pay their bills. The SBA manages and backs the PPP. If a loan is fully forgiven, the SBA will repay the lending bank in full. If a loan is partially forgiven or not forgiven at all, a bank must look to the borrower for repayment of unforgiven principal and interest. If the borrower defaults, the loan is guaranteed by the SBA. In order to obtain loan forgiveness, a PPP borrower must submit a forgiveness application to us, which we must review and forward to the SBA. The SBA began approving forgiveness applications on August 10, 2020.
As of March 31, 2021, 2,564 BankPlus loans totaling $188.0 million had been forgiven and paid by the SBA or the customer. As of March 31, 2021, the Company held 3,559 loans for customers under the PPP, totaling approximately $223.8 million. The loans have maturities ranging from September 2021 to March 2026. The Company expects to recognize total fee income of approximately $6.6 million over the lives of the remaining loans.
The CARES Act and related guidance from the federal banking agencies also provide financial institutions the option to temporarily suspend requirements under GAAP related to classification of certain loan modifications as troubled debt restructurings (“TDRs”), to account for the current and anticipated effects of COVID-19. The CARES Act, as amended by the Consolidated Appropriations Act, 2021, specified that COVID-19 related loan modifications executed between March 1, 2020 and the earlier of (i) 60 days after the date of termination of the national emergency declared by the President and (ii) January 1, 2022, on loans that were current as of December 31, 2019 are not subject to TDR accounting requirements under GAAP. Additionally, under April 2020 interagency guidance from the federal banking agencies, other short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief are not TDRs under ASC Subtopic 310-40, “Troubled Debt Restructuring by Creditors.” These modifications include short-term (e.g., up to six months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or delays in payment that are insignificant. The federal banking agencies also have encouraged banks to work with their borrowers to modify loans as may be appropriate.
As of March 31, 2021, the Company had granted temporary modifications on 2,252 outstanding loans totaling approximately $834.7 million, or 24% of total outstanding loans, primarily secured by 1-4 family residences and multi-tenant retail commercial real estate. As of March 31, 2021, 19 loans totaling $37.1 million, or 1.1% of the Company’s loan portfolio, were still in deferment.
The continuation of the economic effects of the COVID-19 pandemic and actions taken in response to it, including the impacts of loan forbearance and other provisions of the CARES Act and other federal and state measures, have had and may in the future continue to have an adverse impact on our business and results of operations and the operations of our borrowers, customers and business partners. The uncertainty regarding the duration of the pandemic, including waves of the pandemic, especially as a vaccine becomes widely available, and the resulting economic disruption has caused increased market volatility and a significant decrease in consumer confidence and business generally, and has led to an economic recession. The ultimate impact of these factors over the longer term is uncertain and we do not yet know the full extent of the impacts on our business, our operations or the global economy as a whole. However, the decline in economic conditions generally and a prolonged negative impact on small to medium-sized businesses, in particular, due to COVID-19 is likely to result in an adverse effect to our business, financial condition and results of operations in future periods.
Transition from London Inter-Bank Offered Rate (LIBOR)
On March 5, 2021, the United Kingdom Financial Conduct Authority (“FCA”), which regulates LIBOR, confirmed that the publication of most LIBOR term rates will end on June 30, 2023 (excluding 1-week U.S. LIBOR and 2-month U.S. LIBOR, the publication of which will end on December 31, 2021). Additionally, on April 6, 2021, New York Governor Cuomo signed into law legislation that provides for the substitution of an alternative reference rate, the Secured Overnight Funding Rate (“SOFR”), in any LIBOR-based contract governed by New York state law that does not include clear fallback language, once LIBOR is discontinued. The Federal Reserve and other federal banking agencies have continued to encourage banks to transition away from LIBOR as soon as practicable. For more information on the Company’s approach to LIBOR transition planning, please see the
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risk factors under Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, previously filed with the Securities and Exchange Commission.
Results of Operations
The following discussion of BancPlus’ results of operations compares the three months ended March 31, 2021 to the three months ended March 31, 2020. The results of operations for the three months ended March 31, 2021 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2021.
Net Income
Net income for the three months ended March 31, 2021 and 2020 was $17.3 million and $7.7 million, respectively. BancPlus’ annualized return on average assets for the three months ended March 31, 2021 and 2020 was 1.45% and 1.01%, respectively. BancPlus’ annualized return on average equity for the three months ended March 31, 2021 and 2020 was 19.53% and 12.19%, respectively.
Net Interest Income
Net interest income represents interest income less interest expense. BancPlus generates interest income from interest, dividends and fees received on interest earning assets, including loans and investment securities. BancPlus incurs interest expense from interest paid on interest-bearing liabilities, including interest-bearing deposits, borrowings and other forms of indebtedness. Net interest income typically is the most significant contributor to BancPlus’ net income. To evaluate net interest income, BancPlus measures and monitors: (i) yields on its loans and other interest earning assets; (ii) the costs of its deposits and other funding sources; (iii) its net interest spread; and (iv) its net interest margin. Net interest spread is the difference between rates earned on interest earning assets and rates paid on interest-bearing liabilities. Net interest margin is calculated as the annualized net interest income divided by average interest earning assets. Because noninterest-bearing sources of funds, such as noninterest-bearing deposits and shareholders’ equity, also fund interest earning assets, net interest margin includes the benefit of these noninterest-bearing sources.
Changes in market interest rates and interest BancPlus earns on interest earning assets or pays on interest-bearing liabilities, as well as the volume and types of interest earning assets, interest-bearing and noninterest-bearing liabilities and shareholders’ equity, usually have the largest impact on periodic changes in its net interest spread, net interest margin and net interest income. BancPlus measures net interest income before and after the provision for loan losses that BancPlus maintains.
For the three months ended March 31, 2021, net interest income was $42.0 million, an increase of $16.7 million, or 66.2%, compared to net interest income of $25.3 million for the three months ended March 31, 2020. The increase in net interest income was primarily the result of increased interest earning assets as a result of the previously disclosed merger with State Capital Corp. (“SCC”).
Net interest margin for the three months ended March 31, 2021 increased 19 basis points to 3.75% from 3.56% for the same period of 2020 as the effect of the lower interest rate environment on our interest-bearing liabilities outpaced that of our interest earning assets this quarter primarily due to the merger with SCC.
Our average interest earning assets at March 31, 2021, increased $1.64 billion, or 57.78%, to $4.49 billion from $2.84 billion at March 31, 2020. BancPlus’ average interest-bearing liabilities increased $1.07 billion, or 50.74%, to $3.19 billion at March 31, 2021, from $2.12 billion at March 31, 2020. This increase in BancPlus’ average interest earning assets and interest-bearing liabilities was primarily due to our merger with SCC. The ratio of BancPlus’ average interest earning assets to average interest-bearing liabilities was 140.7% and 134.4% for the three months ended March 31, 2021 and 2020, respectively.
BancPlus’ average interest earning assets produced a tax-equivalent yield of 4.07% for the three months ended March 31, 2021 compared to 4.24% for the three months ended March 31, 2020. The average rate paid on interest-bearing liabilities was 0.45% for the three months ended March 31, 2021 compared to 0.91% for the three months ended March 31, 2020. These year over year decreases in yields reflect the current low interest rate environment.
Average Balances and Yields
The following tables show, for the three months ended March 31, 2021 and 2020, the average balances of each principal category of BancPlus’ assets, liabilities and shareholders’ equity, and an analysis of net interest income. The average balances are
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principally daily averages and, for loans, include both performing and nonperforming balances. These tables are presented on a tax-equivalent basis, if applicable.
Three Months Ended March 31, | |||||||||||||||||||||||||||||||||||
2021 | 2020 | ||||||||||||||||||||||||||||||||||
(Dollars in thousands) | Average Balance | Interest & Fees | Yield / Rate (4) | Average Balance | Interest & Fees | Yield / Rate (4) | |||||||||||||||||||||||||||||
ASSETS: | |||||||||||||||||||||||||||||||||||
Interest earning assets: | |||||||||||||||||||||||||||||||||||
Cash investments: | |||||||||||||||||||||||||||||||||||
Interest-bearing cash deposits | $ | 526,113 | $ | 125 | 0.10 | % | $ | 319,901 | $ | 921 | 1.15 | % | |||||||||||||||||||||||
Federal funds sold | 20,109 | 10 | 0.20 | % | 52,245 | 177 | 1.36 | % | |||||||||||||||||||||||||||
546,222 | 135 | 0.10 | % | 372,146 | 1,098 | 1.18 | % | ||||||||||||||||||||||||||||
Investment securities: | |||||||||||||||||||||||||||||||||||
Taxable investment securities | 425,247 | 1,833 | 1.72 | % | 256,878 | 1,330 | 2.07 | % | |||||||||||||||||||||||||||
Tax-exempt investment securities | 92,567 | 539 | 2.33 | % | 121,341 | 763 | 2.52 | % | |||||||||||||||||||||||||||
Total securities | 517,814 | 2,372 | 1.83 | % | 378,219 | 2,093 | 2.21 | % | |||||||||||||||||||||||||||
Loans (1) | 3,418,232 | 43,142 | 5.05 | % | 2,090,026 | 26,907 | 5.15 | % | |||||||||||||||||||||||||||
Federal Home Loan Bank stock | 3,407 | 3 | 0.35 | % | 2,585 | 14 | 2.17 | % | |||||||||||||||||||||||||||
Total interest earning assets | 4,485,675 | 45,652 | 4.07 | % | 2,842,976 | 30,112 | 4.24 | % | |||||||||||||||||||||||||||
Noninterest earning assets | 334,691 | 225,438 | |||||||||||||||||||||||||||||||||
Total assets | $ | 4,820,366 | $ | 3,068,414 | |||||||||||||||||||||||||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY: | |||||||||||||||||||||||||||||||||||
Interest-bearing liabilities: | |||||||||||||||||||||||||||||||||||
Interest-bearing transaction deposits | $ | 1,427,926 | $ | 791 | 0.22 | % | $ | 1,055,926 | $ | 1,870 | 0.71 | % | |||||||||||||||||||||||
Savings and money market deposits | 939,541 | 282 | 0.12 | % | 594,160 | 1,004 | 0.68 | % | |||||||||||||||||||||||||||
Time deposits | 676,683 | 1,091 | 0.64 | % | 386,175 | 1,378 | 1.43 | % | |||||||||||||||||||||||||||
Federal funds purchased | — | — | — | % | 605 | 2 | 1.32 | % | |||||||||||||||||||||||||||
FHLB advances | 20,608 | 77 | 1.49 | % | 20,982 | 80 | 1.53 | % | |||||||||||||||||||||||||||
Other borrowings | 12,960 | 124 | 3.83 | % | 16,444 | 158 | 3.84 | % | |||||||||||||||||||||||||||
Subordinated debentures | 111,153 | 1,245 | 4.48 | % | 41,238 | 325 | 3.15 | % | |||||||||||||||||||||||||||
Total interest-bearing liabilities | 3,188,871 | 3,610 | 0.45 | % | 2,115,530 | 4,817 | 0.91 | % | |||||||||||||||||||||||||||
Noninterest-bearing liabilities: | |||||||||||||||||||||||||||||||||||
Noninterest-bearing transaction deposits | 1,218,780 | 641,740 | |||||||||||||||||||||||||||||||||
Other noninterest-bearing liabilities | 54,056 | 55,809 | |||||||||||||||||||||||||||||||||
Total noninterest-bearing liabilities | 1,272,836 | 697,549 | |||||||||||||||||||||||||||||||||
Shareholders’ equity (6) | 358,659 | 255,335 | |||||||||||||||||||||||||||||||||
Total liabilities and shareholders’ equity | $ | 4,820,366 | $ | 3,068,414 | |||||||||||||||||||||||||||||||
Net interest income/net interest margin (2) | 42,042 | 3.75 | % | 25,295 | 3.56 | % | |||||||||||||||||||||||||||||
Net interest spread (5) | 3.62 | % | 3.33 | % | |||||||||||||||||||||||||||||||
Taxable equivalent adjustment: | |||||||||||||||||||||||||||||||||||
Tax-exempt investment securities (3) | 173 | 246 | |||||||||||||||||||||||||||||||||
Net interest income/net interest margin (2) | $ | 42,215 | 3.76 | % | $ | 25,541 | 3.59 | % |
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________________________________
(1)Average loan balances include nonaccrual loans.
(2)Net interest margin during the periods presented represents: (i) the difference between interest income on interest earning assets and the interest expense on interest-bearing liabilities, divided by (ii) average interest earning assets for the period.
(3)Interest income and averages rates for tax exempt securities are presented on a tax-equivalent basis, assuming a combined federal and state income tax rate of 25% for 2021 and 2020.
(4)Yields and rates are annualized.
(5)Net interest spread is the yield on BancPlus’ total interest earning assets less the yield on its interest-bearing liabilities.
(6)Includes Employee Stock Ownership-owned shares.
Rate/Volume Analysis
Increases and decreases in interest income and interest expense result from changes in average balances (volume) of interest earning assets and interest-bearing liabilities, as well as changes in average interest rates. The following table presents the dollar amount of changes in interest income and interest expense for major components of interest earning assets and interest-bearing liabilities. It distinguishes between the changes related to the outstanding balances and those due to changes in interest rates. The change in interest attributable to rate has been determined by applying the change in rate between periods to average balances outstanding in the earlier period. The change in interest due to volume has been determined by applying the rate from the later period to the change in average balances outstanding between periods. The following table presents the changes in the volume and rate of BancPlus’ interest bearing assets and liabilities for the dates indicated:
Three Months Ended March 31, 2021 Compared with Three Months Ended March 31, 2020 | |||||||||||||||||
Change Due To: | |||||||||||||||||
(Dollars in thousands) | Volume | Rate | Interest Variance | ||||||||||||||
Interest earning assets: | |||||||||||||||||
Cash investments | $ | 43 | $ | (1,006) | $ | (963) | |||||||||||
Investment securities: | |||||||||||||||||
Taxable investment securities | 726 | (223) | 503 | ||||||||||||||
Tax-exempt investment securities | (168) | (56) | (224) | ||||||||||||||
Total securities | 558 | (279) | 279 | ||||||||||||||
Loans, net | 16,764 | (529) | 16,235 | ||||||||||||||
Federal Home Loan Bank stock | 1 | (12) | (11) | ||||||||||||||
Total interest earning assets | $ | 17,366 | $ | (1,826) | $ | 15,540 | |||||||||||
Interest-bearing liabilities: | |||||||||||||||||
Interest-bearing transaction deposits | $ | 206 | $ | (1,285) | $ | (1,079) | |||||||||||
Savings and money market deposits | 104 | (826) | (722) | ||||||||||||||
Time deposits | 468 | (755) | (287) | ||||||||||||||
Federal funds purchased | — | (2) | (2) | ||||||||||||||
FHLB advances | (1) | (2) | (3) | ||||||||||||||
Other borrowings | (33) | (1) | (34) | ||||||||||||||
Subordinated debentures | 783 | 137 | 920 | ||||||||||||||
Total interest-bearing liabilities | $ | 1,527 | $ | (2,734) | $ | (1,207) | |||||||||||
Net interest income | $ | 15,839 | $ | 908 | $ | 16,747 |
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Provision for Loan Losses
The provision for loan losses is the amount of expense that, based on BancPlus’ judgment, is required to maintain the allowance for loan losses at an adequate level to absorb probable losses inherent in the loan portfolio at the balance sheet date and that, in management’s judgment, is appropriate under relevant accounting guidance. The determination of the provision for loan losses is complex and involves a high degree of judgment and subjectivity.
For the three months ended March 31, 2021, the provision for loan losses was $3.9 million compared to $185,000 for the same period of 2020, an increase of $3.7 million, or 2,002.2%. The increase for the three month period is primarily attributable to the impact of the COVID-19 pandemic, including the impact of the CARES Act measures to support individuals and businesses in maintaining solvency through monetary relief, including in the form of financing, loan forgiveness and automatic forbearance.
The allowance for loan losses at March 31, 2021 was $40.0 million, or 1.17% of total loans, compared to $21.2 million, or 1.00% of total loans at March 31, 2020. The increase in allowance as a percentage of total loans was primarily due to the increase in provision for loan losses in the current period as a result of the COVID-19 pandemic, partially offset by the increase in total loans as a result of the merger with SCC.
Noninterest Income
Noninterest income consists of, among other things: (i) service charges and other fees on deposit accounts; (ii) mortgage origination income; (iii) debit card interchange fees; (iv) wealth management service fees; (v) ATM network income; and (vi) other noninterest income. BancPlus’ income from service charges on deposit accounts and debit card interchange fees are largely impacted by the volume, growth and type of deposits BancPlus holds, which are impacted by prevailing market conditions for BancPlus’ deposit products, market interest rates, marketing efforts, and other factors.
Noninterest income was $20.3 million for the three months ended March 31, 2021, compared to $14.2 million for the same period of 2020, an increase of $6.1 million, or 42.8%, primarily due to increases in life insurance income of $3.1 million, or 784.1%, as a result of a death benefit paid on a policy held by the Company; mortgage origination income of $1.5 million, or 115.6%, resulting from the current lower interest rate environment; and debit card interchange of $1.2 million, or 82.4%.
The following table presents the major components of noninterest income for three months ended March 31, 2021, compared to the three months ended March 31, 2020:
Three Months Ended March 31, | |||||||||||||||||||||||
(Dollars in thousands) | 2021 | 2020 | $ Change | % Change | |||||||||||||||||||
Noninterest income: | |||||||||||||||||||||||
Service charges on deposit accounts | $ | 5,737 | $ | 6,530 | $ | (793) | (12.1) | % | |||||||||||||||
Mortgage origination income | 2,714 | 1,259 | 1,455 | 115.6 | % | ||||||||||||||||||
Debit card interchange | 2,640 | 1,447 | 1,193 | 82.4 | % | ||||||||||||||||||
Income from fiduciary activities | 1,844 | 1,114 | 730 | 65.5 | % | ||||||||||||||||||
ATM income | 1,533 | 1,096 | 437 | 39.9 | % | ||||||||||||||||||
Brokerage and insurance fees and commissions | 457 | 972 | (515) | (53.0) | % | ||||||||||||||||||
Life insurance income | 3,492 | 395 | 3,097 | 784.1 | % | ||||||||||||||||||
Other income | 1,860 | 1,387 | 473 | 34.1 | % | ||||||||||||||||||
Total | $ | 20,277 | $ | 14,200 | $ | 6,077 | 42.8 | % |
Noninterest Expense
Noninterest expense includes, among other things: (i) salaries and employee benefits; (ii) occupancy expenses; (iii) furniture, equipment, and data processing expenses; (iv) marketing and promotional expenses; (v) other real estate expenses and losses; (vi) professional fees; and (vii) other expenses.
Salaries and employee benefits include compensation, employee benefits and tax expenses for BancPlus’ personnel. Occupancy expenses include depreciation expense on BancPlus’ owned properties, lease expense on its leased properties and other occupancy-related expenses. Furniture and equipment expenses include depreciation and maintenance and other expenses related to its furniture, fixtures and equipment. Data processing expenses include costs related to maintenance and monitoring of its
36
systems and expenses paid to its third-party data processing system providers. Marketing and promotional expenses include costs for advertising, promotions and sponsorships. Other real estate expenses include taxes, insurance, maintenance and other expenses related to BancPlus’ foreclosed properties. Professional fees include accounting and auditing, consulting, and legal fees. Other expenses include expenses associated with Federal Deposit Insurance Corporation (“FDIC”) assessments, Mississippi Department of Banking and Consumer Finance (“MDBCF”) assessments, communications, travel, meals, training, supplies and postage. Noninterest expenses generally increase as BancPlus grows its business. Noninterest expenses have increased commensurate with growth over the past few years as BancPlus has grown organically and through the merger with SCC. Additionally, BancPlus has built out and modernized its operational infrastructure and implemented its plan to build an efficient, technology-driven banking operation with capacity for growth.
For the three months ended March 31, 2021, noninterest expense totaled $38.1 million, a $8.4 million, or 28.1%, increase from $29.8 million for the three months ended March 31, 2020. This increase was primarily due to increases in salaries and employee benefits of $5.4 million, furniture, equipment and data processing of $1.7 million, and other expenses of $1.3 million.
The following table presents the major components of noninterest expense for the three months ended March 31, 2021 compared to the three months ended March 31, 2020:
Three Months Ended March 31, | |||||||||||||||||||||||
(Dollars in thousands) | 2021 | 2020 | $ Change | % Change | |||||||||||||||||||
Noninterest expense: | |||||||||||||||||||||||
Salaries and employee benefits | $ | 23,025 | $ | 17,615 | $ | 5,410 | 30.7 | % | |||||||||||||||
Net occupancy expenses | 3,345 | 2,863 | 482 | 16.8 | % | ||||||||||||||||||
Furniture, equipment and data processing expenses | 5,932 | 4,231 | 1,701 | 40.2 | % | ||||||||||||||||||
Marketing and promotional expenses | 577 | 924 | (347) | (37.6) | % | ||||||||||||||||||
Other real estate expenses and losses | 174 | 194 | (20) | (10.3) | % | ||||||||||||||||||
Professional fees | 547 | 730 | (183) | (25.1) | % | ||||||||||||||||||
Other expenses | 4,537 | 3,204 | 1,333 | 41.6 | % | ||||||||||||||||||
Total | $ | 38,137 | $ | 29,761 | $ | 8,376 | 28.1 | % |
Salaries and employee benefits expense is the largest component of noninterest expense, representing 60.4% and 59.2% of total noninterest expense for the three months ended March 31, 2021 and 2020, respectively. During the three months ended March 31, 2021, salaries and employee benefits expense increased $5.4 million, or 30.7%, to $23.0 million as compared to $17.6 million for the three months ended March 31, 2020. The increase in salaries and employee benefits expense is primarily due to the merger with SCC, in addition to normal annual salary increases for employees.
Furniture, equipment and data processing expense for the three months ended March 31, 2021 was $5.9 million, an increase of $1.7 million, or 40.2%, compared to $4.2 million for the three months ended March 31, 2020. This increase was primarily attributable to increases in depreciation, data processing and software expenses in the first quarter of 2020 related to the merger with SCC in addition to expenses related to preparation for the Company’s planned software conversion during the third quarter of 2021.
Other expenses increased $1.3 million, or 41.6%, to $4.5 million for the three months ended March 31, 2021 compared to $3.2 million for the three months ended March 31, 2020, primarily due to an increase in FDIC and state assessment fees as a result of the merger with SCC.
BancPlus continues to focus efforts on supporting growth through sales efforts, product development, marketing and promotion, as well as investing in technology and its branch network, while also seeking to improve productivity and maintain appropriate cost structure and customer service levels.
Income Tax Expense
The provision for income taxes includes both federal and state taxes. Fluctuations in effective tax rates reflect the effect of the differences in the inclusion or deductibility of certain income and expenses for income tax purposes, the mix of BancPlus’ taxable and tax-free investments and loans, and its overall taxable income.
BancPlus recorded income tax expense of $3.0 million for the three months ended March 31, 2021, compared to $1.9 million for the same period of 2020, an increase of $1.1 million, or 61.3%. The increase was the result of larger income before taxes in the
37
current year period. BancPlus’ effective tax rate for the three months ended March 31, 2021 was 14.9% compared to 19.6% for the same period of 2020. The decrease in effective rate for the period was the result of the Company taking advantage of tax credits offered by Mississippi in the current year, non-taxable life insurance proceeds recorded in 2021, and apportionment of state taxable income to Louisiana which does not have a state income tax. The Company’s Louisiana locations were acquired in the merger with SCC which was effective April 1, 2020.
Financial Condition
The following discussion compares BancPlus’ financial condition as of March 31, 2021 to December 31, 2020.
Assets
Total assets at March 31, 2021 were $4.951 billion, an increase of $240.3 million over total assets of $4.711 billion at December 31, 2020. Total cash and cash equivalents decreased $35.6 million, or 5.6%, to $602.0 million at March 31, 2021, compared to $637.5 million at December 31, 2020, primarily due to decreases in interest bearing deposits with banks. Total loans increased $29.2 million, or 0.9%, to $3.41 billion at March 31, 2021, compared to $3.38 billion at December 31, 2020 as a result of PPP lending activity. Investment securities increased $258.6 million, or 63.8%, from $405.1 million at December 31, 2020 to $663.7 million at March 31, 2021 as a result of increased purchases of available for sale securities.
Investment Securities Portfolio
BancPlus’ investment securities portfolio, which consists primarily of municipal securities, U.S. government agency obligations, mortgage-backed securities and corporate investments, is used as a source of liquidity and serves as collateral for certain types of deposits. BancPlus manages its investment securities portfolio according to a written investment policy. Balances in BancPlus’ investment securities portfolio change over time based on its funding needs and interest rate risk management objectives. BancPlus’ liquidity levels take into account anticipated future cash flows and all available sources of credit and are maintained at levels management believes ensure flexibility in meeting its anticipated funding needs.
As of March 31, 2021, 13.7% of BancPlus’ investment securities portfolio was classified as held to maturity and 86.3% was classified as available for sale. As of December 31, 2020, 23.1% of BancPlus’ investment securities portfolio was classified as held to maturity and 76.9% was classified as available for sale. Securities available for sale increased $261.5 million, or 84.0%, from $311.4 million at December 31, 2020 to $572.9 million at March 31, 2021. During the period, we took advantage of the steepening yield curve to invest excess liquidity. We used a disciplined approach to build a ladder of non-callable state tax-exempt agency bonds. We expect to continue this strategy to enhance net interest margin in the current rate environment and provide predictable cash flows for future loan demand.
At March 31, 2021, mortgage-backed securities represented 26.2% of the investment securities portfolio, municipal securities represented 21.4%, U.S. government agency obligations represented 45.3% and corporate investments represented 5.0% of the investment securities portfolio. At December 31, 2020, mortgage-backed securities represented 50.5% of the investment securities portfolio, municipal securities represented 34.7%, U.S. government agency obligations represented 3.1% and corporate investments represented 8.2% of the investment securities portfolio. Other than the U.S. government and its agencies, BancPlus’ securities portfolio did not contain securities of any single issuer, including any securities issued by a state or political subdivision, that were payable from and secured by the same source of revenue or taxing authority where the aggregate carrying value of such securities exceeded 10% of shareholders’ equity.
The following table presents the carrying value of BancPlus’ investment securities portfolio as of the dates indicated:
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March 31, 2021 | December 31, 2020 | |||||||||||||||||||||||||
(Dollars in thousands) | Carrying Value | % of Total | Carrying Value | % of Total | ||||||||||||||||||||||
Held to Maturity: | ||||||||||||||||||||||||||
(At amortized cost) | ||||||||||||||||||||||||||
U.S. Government agency obligations | $ | — | — | % | $ | — | — | % | ||||||||||||||||||
Issued by states and political subdivisions | 90,818 | 13.68 | % | 93,766 | 23.14 | % | ||||||||||||||||||||
Residential mortgage-backed securities | — | — | % | — | — | % | ||||||||||||||||||||
Total held-to-maturity | 90,818 | 13.68 | % | 93,766 | 23.14 | % | ||||||||||||||||||||
Available for Sale: | ||||||||||||||||||||||||||
(At fair value) | ||||||||||||||||||||||||||
U.S. Government agency obligations | 300,381 | 45.26 | % | 12,434 | 3.07 | % | ||||||||||||||||||||
Issued by states and political subdivisions | 50,895 | 7.67 | % | 46,801 | 11.55 | % | ||||||||||||||||||||
Mortgage-backed securities: | ||||||||||||||||||||||||||
Residential | 158,482 | 23.88 | % | 187,212 | 46.21 | % | ||||||||||||||||||||
Commercial | 15,660 | 2.36 | % | 17,331 | 4.28 | % | ||||||||||||||||||||
Asset-backed securities | 14,248 | 2.15 | % | 14,447 | 3.57 | % | ||||||||||||||||||||
Corporate investments | 33,222 | 5.01 | % | 33,148 | 8.18 | % | ||||||||||||||||||||
Total available for sale | 572,888 | 86.32 | % | 311,373 | 76.86 | % | ||||||||||||||||||||
Total securities | $ | 663,706 | 100.00 | % | $ | 405,139 | 100.00 | % |
The following tables present the carrying value of BancPlus’ investment securities portfolio by their stated maturities and the weighted average yields for each maturity range as of the dates indicated. Weighted-average yields have been computed on a fully tax equivalent basis using a tax rate of 21%.
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Maturity as of March 31, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||
Due in One Year or Less | More Than One Year to Five Years | More Than Five Years to Ten Years | Due After Ten Years | ||||||||||||||||||||||||||||||||||||||||||||
(Dollars in thousands) | Amount | Weighted Average Yield | Amount | Weighted Average Yield | Amount | Weighted Average Yield | Amount | Weighted Average Yield | |||||||||||||||||||||||||||||||||||||||
Held to maturity: | |||||||||||||||||||||||||||||||||||||||||||||||
U.S. Government agency obligations | $ | — | — | % | $ | — | — | % | $ | — | — | % | $ | — | — | % | |||||||||||||||||||||||||||||||
Issued by states and political subdivisions | 16,265 | 3.07 | % | 48,785 | 2.69 | % | 22,878 | 2.85 | % | 2,890 | 4.17 | % | |||||||||||||||||||||||||||||||||||
Mortgage-backed securities: | |||||||||||||||||||||||||||||||||||||||||||||||
Residential | — | — | % | — | — | % | — | — | % | — | — | % | |||||||||||||||||||||||||||||||||||
Commercial | — | — | % | — | — | % | — | — | % | — | — | % | |||||||||||||||||||||||||||||||||||
Corporate investments | — | — | % | — | — | % | — | — | % | — | — | % | |||||||||||||||||||||||||||||||||||
Total held to maturity | 16,265 | 3.07 | % | 48,785 | 2.69 | % | 22,878 | 2.85 | % | 2,890 | 4.17 | % | |||||||||||||||||||||||||||||||||||
Available for sale: | |||||||||||||||||||||||||||||||||||||||||||||||
U.S. Government agency obligations | 5,099 | 2.60 | % | 164,350 | 0.45 | % | 126,378 | 3.14 | % | 4,554 | 1.77 | % | |||||||||||||||||||||||||||||||||||
Issued by states and political subdivisions | 4,126 | 3.30 | % | 14,573 | 2.79 | % | 23,431 | 3.14 | % | 8,766 | 3.30 | % | |||||||||||||||||||||||||||||||||||
Mortgage-backed securities: | |||||||||||||||||||||||||||||||||||||||||||||||
Residential | — | — | % | — | — | % | 8,831 | 1.66 | % | 149,650 | 2.50 | % | |||||||||||||||||||||||||||||||||||
Commercial | — | — | % | — | — | % | 13,529 | 1.54 | % | 2,131 | 2.54 | % | |||||||||||||||||||||||||||||||||||
Asset-backed securities | — | — | % | — | — | % | — | — | % | 14,248 | 2.06 | % | |||||||||||||||||||||||||||||||||||
Corporate investments | 4,046 | 2.21 | % | — | — | % | 28,174 | 4.49 | % | 1,002 | 4.50 | % | |||||||||||||||||||||||||||||||||||
Total available for sale | 13,271 | 2.70 | % | 178,923 | 0.64 | % | 200,343 | 3.16 | % | 180,351 | 2.50 | % | |||||||||||||||||||||||||||||||||||
Total securities | $ | 29,536 | 2.90 | % | $ | 227,708 | 1.08 | % | $ | 223,221 | 3.13 | % | $ | 183,241 | 2.52 | % |
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Maturity as of December 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||
Due in One Year or Less | More Than One Year to Five Years | More Than Five Years to Ten Years | Due After Ten Years | ||||||||||||||||||||||||||||||||||||||||||||
(Dollars in thousands) | Amount | Weighted Average Yield | Amount | Weighted Average Yield | Amount | Weighted Average Yield | Amount | Weighted Average Yield | |||||||||||||||||||||||||||||||||||||||
Held to maturity: | |||||||||||||||||||||||||||||||||||||||||||||||
U.S. Government agency obligations | $ | — | — | % | $ | — | — | % | $ | — | — | % | $ | — | — | % | |||||||||||||||||||||||||||||||
Issued by states and political subdivisions | 15,891 | 3.02 | % | 50,738 | 4.05 | % | 24,247 | 3.67 | % | 2,890 | 3.85 | % | |||||||||||||||||||||||||||||||||||
Mortgage-backed securities: | |||||||||||||||||||||||||||||||||||||||||||||||
Residential | — | — | % | — | — | % | — | — | % | — | — | % | |||||||||||||||||||||||||||||||||||
Commercial | — | — | % | — | — | % | — | — | % | — | — | % | |||||||||||||||||||||||||||||||||||
Corporate investments | — | — | % | — | — | % | — | — | % | — | — | % | |||||||||||||||||||||||||||||||||||
Total held to maturity | 15,891 | 3.02 | % | 50,738 | 4.05 | % | 24,247 | 3.67 | % | 2,890 | 3.85 | % | |||||||||||||||||||||||||||||||||||
Available for sale: | |||||||||||||||||||||||||||||||||||||||||||||||
U.S. Government agency obligations | — | — | % | 5,128 | 2.60 | % | 2,508 | 3.19 | % | 4,798 | 1.78 | % | |||||||||||||||||||||||||||||||||||
Issued by states and political subdivisions | 3,803 | 3.08 | % | 12,504 | 2.99 | % | 20,538 | 3.18 | % | 9,956 | 3.19 | % | |||||||||||||||||||||||||||||||||||
Mortgage-backed securities: | |||||||||||||||||||||||||||||||||||||||||||||||
Residential | — | — | % | — | — | % | 10,991 | 0.93 | % | 176,220 | 2.35 | % | |||||||||||||||||||||||||||||||||||
Commercial | 305 | 3.25 | % | — | — | % | 14,071 | 1.54 | % | 2,955 | 2.53 | % | |||||||||||||||||||||||||||||||||||
Asset-backed securities | — | — | % | — | — | % | — | — | % | 14,447 | 3.94 | % | |||||||||||||||||||||||||||||||||||
Corporate investments | — | — | % | 4,060 | 2.22 | % | 28,084 | 4.48 | % | 1,005 | 4.50 | % | |||||||||||||||||||||||||||||||||||
Total available for sale | 4,108 | 3.09 | % | 21,692 | 2.75 | % | 76,192 | 3.03 | % | 209,381 | 2.50 | % | |||||||||||||||||||||||||||||||||||
Total securities | $ | 19,999 | 3.03 | % | $ | 72,430 | 3.66 | % | $ | 100,439 | 3.19 | % | $ | 212,271 | 2.52 | % |
The objective of BancPlus’ investment policy is to invest funds to provide sufficient liquidity, optimize the total return of the portfolio, mitigate interest rate risk, and meet pledging requirements. In doing so, BancPlus balances the market and credit risks against the potential investment return, makes most investments compatible with the pledge requirements of any deposits of public funds, and maintains compliance with regulatory investment requirements. BancPlus’ investment policy allows portfolio holdings to include short-term securities purchased to provide needed liquidity and longer term securities purchased to generate stable income over periods of interest rate fluctuations.
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Loan Portfolio
The following tables detail composition and percentage composition of BancPlus’ loan portfolio, by category, as of the dates indicated:
As of March 31, 2021 | As of December 31, 2020 | ||||||||||||||||||||||
(Dollars in thousands) | Amount | Percent | Amount | Percent | |||||||||||||||||||
Secured by real estate: | |||||||||||||||||||||||
Residential properties | $ | 736,047 | 21.60 | % | $ | 738,340 | 21.85 | % | |||||||||||||||
Construction and land development | 450,489 | 13.22 | % | 403,496 | 11.94 | % | |||||||||||||||||
Farmland | 207,218 | 6.08 | % | 217,104 | 6.43 | % | |||||||||||||||||
Other commercial | 1,238,984 | 36.36 | % | 1,224,633 | 36.25 | % | |||||||||||||||||
Total real estate | 2,632,738 | 77.25 | % | 2,583,573 | 76.47 | % | |||||||||||||||||
Commercial and industrial | 612,105 | 17.96 | % | 635,714 | 18.82 | % | |||||||||||||||||
Agricultural production and other loans to farmers | 84,179 | 2.47 | % | 85,469 | 2.53 | % | |||||||||||||||||
Consumer and other | 78,912 | 2.32 | % | 73,976 | 2.19 | % | |||||||||||||||||
Total loans, gross | 3,407,934 | 100.00 | % | 3,378,732 | 100.00 | % | |||||||||||||||||
Allowance for loan losses | (40,041) | (36,000) | |||||||||||||||||||||
Total loans, net | $ | 3,367,893 | $ | 3,342,732 |
As a general practice, BancPlus originates substantially all of its loans, but BancPlus occasionally participates in syndications and other loan participations. At March 31, 2021, BancPlus’ loan portfolio included $236.6 million of loan participations purchased, or 6.94% of total loans, which includes $76.3 million of shared national credits. At December 31, 2020, BancPlus’ loan portfolio included $245.7 million of loan participations purchased, or 7.27% of total loans, which includes $93.8 million of shared national credits.
The following tables detail the contractual maturities and sensitivity to interest rate changes for BancPlus’ loan portfolio as of the dates indicated:
As of March 31, 2021 | |||||||||||||||||||||||||||||
(Dollars in thousands) | Due in One Year or Less | More Than One Year to Five | More Than Five Years to Fifteen | After Fifteen Years | Total | ||||||||||||||||||||||||
Secured by real estate: | |||||||||||||||||||||||||||||
Residential properties | $ | 105,989 | $ | 375,003 | $ | 242,900 | $ | 12,155 | $ | 736,047 | |||||||||||||||||||
Construction and land development | 161,400 | 221,993 | 58,706 | 8,390 | 450,489 | ||||||||||||||||||||||||
Farmland | 47,437 | 103,993 | 55,107 | 681 | 207,218 | ||||||||||||||||||||||||
Other commercial | 148,383 | 739,924 | 304,763 | 45,914 | 1,238,984 | ||||||||||||||||||||||||
Total real estate | 463,209 | 1,440,913 | 661,476 | 67,140 | 2,632,738 | ||||||||||||||||||||||||
Commercial and industrial | 89,421 | 478,716 | 43,968 | — | 612,105 | ||||||||||||||||||||||||
Agricultural production and other loans to farmers | 35,738 | 46,412 | 2,029 | — | 84,179 | ||||||||||||||||||||||||
Consumer and other loans | 22,327 | 55,171 | 1,399 | 15 | 78,912 | ||||||||||||||||||||||||
Total loans | $ | 610,695 | $ | 2,021,212 | $ | 708,872 | $ | 67,155 | $ | 3,407,934 |
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As of March 31, 2021 | |||||||||||||||||
(Dollars in thousands) | Fixed Interest Rates | Floating or Adjustable Rates | Total | ||||||||||||||
Secured by real estate: | |||||||||||||||||
Residential properties | $ | 595,567 | $ | 140,480 | $ | 736,047 | |||||||||||
Construction and land development | 221,142 | 229,347 | 450,489 | ||||||||||||||
Farmland | 159,715 | 47,503 | 207,218 | ||||||||||||||
Other commercial | 1,029,927 | 209,057 | 1,238,984 | ||||||||||||||
Total real estate | 2,006,351 | 626,387 | 2,632,738 | ||||||||||||||
Commercial and industrial | 423,251 | 188,854 | 612,105 | ||||||||||||||
Agricultural production and other loans to farmers | 53,688 | 30,491 | 84,179 | ||||||||||||||
Consumer and other loans | 55,470 | 23,442 | 78,912 | ||||||||||||||
Total loans | $ | 2,538,760 | $ | 869,174 | $ | 3,407,934 |
Asset Quality
Federal regulations and BancPlus’ internal policies require that BancPlus utilize an asset classification system as a means of managing and reporting problem and potential problem assets. BancPlus has incorporated an internal asset classification system, substantially consistent with federal banking regulations, as part of its credit monitoring system. Federal banking regulations set forth a classification scheme for problem and potential problem assets as “substandard,” “doubtful” or “loss” assets. An asset is considered substandard if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Substandard assets include those characterized by the distinct possibility that the insured institution will sustain some loss if the deficiencies are not corrected. Assets classified as doubtful have all the weaknesses inherent in those classified as substandard with the added characteristic that the weaknesses present make collection or liquidation in full on the basis of currently existing facts, conditions, and values highly questionable and improbable. Assets classified as loss are those considered uncollectible and of such little value that their continuance as assets without the establishment of a specific loss reserve is not warranted. Assets which do not currently expose BancPlus to sufficient risk to warrant classification in one of the categories mentioned above but possess weakness are required to be designated “watch” or “special mention.” Loans modified under Section 4013 of the CARES Act and related interagency guidance are excluded from being reported as TDR loans.
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The tables below set forth information on BancPlus’ asset classification as of the dates indicated. BancPlus had no assets classified as loss.
As of March 31, 2021 | |||||||||||||||||||||||
(Dollars in thousands) | Risk Grades 1-7 | Substandard | Doubtful | Total | |||||||||||||||||||
Secured by real estate: | |||||||||||||||||||||||
Residential properties | $ | 717,530 | $ | 18,517 | $ | — | $ | 736,047 | |||||||||||||||
Construction and land development | 448,899 | 1,590 | — | 450,489 | |||||||||||||||||||
Farmland | 194,157 | 13,061 | — | 207,218 | |||||||||||||||||||
Other commercial | 1,227,224 | 11,533 | 227 | 1,238,984 | |||||||||||||||||||
Total real estate | 2,587,810 | 44,701 | 227 | 2,632,738 | |||||||||||||||||||
Commercial and industrial | 586,913 | 25,143 | 49 | 612,105 | |||||||||||||||||||
Agricultural production and other loans to farmers | 84,031 | 148 | — | 84,179 | |||||||||||||||||||
Consumer and other | 78,491 | 421 | — | 78,912 | |||||||||||||||||||
Total | $ | 3,337,245 | $ | 70,413 | $ | 276 | $ | 3,407,934 |
As of December 31, 2020 | |||||||||||||||||||||||
(Dollars in thousands) | Risk Grades 1-7 | Substandard | Doubtful | Total | |||||||||||||||||||
Secured by real estate: | |||||||||||||||||||||||
Residential properties | $ | 721,024 | $ | 17,316 | $ | — | $ | 738,340 | |||||||||||||||
Construction and land development | 401,347 | 2,149 | — | 403,496 | |||||||||||||||||||
Farmland | 205,211 | 11,893 | — | 217,104 | |||||||||||||||||||
Other commercial | 1,209,365 | 15,041 | 227 | 1,224,633 | |||||||||||||||||||
Total real estate | 2,536,947 | 46,399 | 227 | 2,583,573 | |||||||||||||||||||
Commercial and industrial | 619,137 | 16,526 | 51 | 635,714 | |||||||||||||||||||
Agricultural production and other loans to farmers | 85,288 | 181 | — | 85,469 | |||||||||||||||||||
Consumer and other | 73,560 | 416 | — | 73,976 | |||||||||||||||||||
Total | $ | 3,314,932 | $ | 63,522 | $ | 278 | $ | 3,378,732 |
Nonperforming Assets
Nonperforming loans include loans accounted for on a nonaccrual basis and TDR loans that are accruing. Nonperforming assets consist of nonperforming loans plus foreclosed assets (i.e. real estate acquired through foreclosure).
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The following table summarizes BancPlus’ nonperforming assets, by category, as of the dates indicated:
(Dollars in thousands) | March 31, 2021 | December 31, 2020 | |||||||||
Nonaccrual loans: | |||||||||||
Real estate loans: | |||||||||||
Residential properties | $ | 3,825 | $ | 3,869 | |||||||
Construction and land development | 763 | 1,863 | |||||||||
Farmland | — | 158 | |||||||||
Other commercial | 3,426 | 7,947 | |||||||||
Total real estate | 8,014 | 13,837 | |||||||||
Commercial and industrial | 11 | 12 | |||||||||
Agricultural production and other loans to farmers | 42 | 85 | |||||||||
Consumer and other | 176 | 177 | |||||||||
Total nonaccrual loans | 8,243 | 14,111 | |||||||||
Troubled debt restructuring loans – accruing: | |||||||||||
Real estate loans: | |||||||||||
Residential properties | 1,911 | 1,916 | |||||||||
Construction and land development | 1,558 | — | |||||||||
Farmland | — | — | |||||||||
Other commercial | — | — | |||||||||
Total real estate | 3,469 | 1,916 | |||||||||
Commercial and industrial | 400 | — | |||||||||
Agricultural production and other loans to farmers | — | — | |||||||||
Consumer and other | — | — | |||||||||
Total troubled debt restructuring loans – accruing | 3,869 | 1,916 | |||||||||
Total nonperforming loans | 12,112 | 16,027 | |||||||||
Plus: foreclosed assets | 7,637 | 6,754 | |||||||||
Total nonperforming assets | $ | 19,749 | $ | 22,781 | |||||||
Nonaccrual loans to total loans | 0.24 | % | 0.42 | % | |||||||
Nonperforming loans to total loans | 0.36 | % | 0.47 | % | |||||||
Nonperforming assets to total assets | 0.40 | % | 0.48 | % | |||||||
Allowance for loan losses to nonaccrual loans | 485.76 | % | 255.12 | % | |||||||
90+ days past due and accruing | $ | 6,410 | $ | 6,303 | |||||||
Total troubled debt restructuring loans | $ | 5,731 | $ | 8,537 |
Total nonperforming assets decreased by $3.0 million, or 13.3%, from $22.8 million at December 31, 2020 to $19.7 million at March 31, 2021, primarily due to a decrease in nonaccrual loans as a result of payments and foreclosures during the first quarter on loans that were in nonaccrual status at December 31, 2020.
The balance of nonperforming assets can fluctuate due to changes in economic conditions. BancPlus has established a policy to discontinue accruing interest on a loan (that is, place the loan on nonaccrual status) after it has become 90 days delinquent as to payment of principal or interest, unless the loan is considered to be well-collateralized and is actively in the process of collection. When a loan is placed on nonaccrual status, current year interest previously accrued but uncollected on such loans is reversed and charged against current income and prior year interest, if any, is charged off against the allowance for loan losses. Generally, payments received on nonaccrual loans are applied directly to principal.
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Allowance for Loan Losses
The allowance for loan losses is a reserve established through charges to earnings in the form of a provision for loan losses. BancPlus maintains an allowance for loan losses at a level management considers adequate to provide for known and probable incurred losses in the portfolio. The level of the allowance is based on management’s evaluation of estimated losses in the portfolio, after consideration of risk characteristics of the loans and prevailing economic conditions. Loan charge-offs (i.e. loans judged to be uncollectible) are charged against the reserve and any subsequent recovery is credited to the reserve. BancPlus’ officers analyze risk in the loan portfolio on an ongoing basis. A risk system, consisting of multiple grading categories for each portfolio class, is utilized as an analytical tool to assess risk and appropriate reserves. In addition to the risk system, management further evaluates risk characteristics of the loan portfolio under current and anticipated economic conditions and considers such factors as the financial condition of the borrower, past and expected loss experience, and other factors which management feels deserve recognition in establishing an appropriate reserve. These estimates are reviewed at least quarterly, and, as adjustments become necessary, they are recognized in the periods in which they become known. During the first quarter of 2021, the U.S. economy continued to experience volatility and there remains uncertainty surrounding future economic conditions as a result of the COVID-19 pandemic. The government’s response to these conditions includes certain provisions, such as automatic forbearance and forgiveness for certain federally backed loans that could affect these estimates. Although management strives to maintain an allowance it deems adequate, future economic changes, deterioration of borrowers’ creditworthiness, and the impact of examinations by regulatory agencies all could cause changes to BancPlus’ allowance for loan losses.
The allowance for loan losses was $40.0 million and $36.0 million, and the allowance for loan losses as a percentage of loans was 1.17% and 1.06%, at March 31, 2021 and December 31, 2020, respectively. Net charge-offs (recoveries) totaled $(152,000) and $515,000 for the three months ended March 31, 2021 and 2020, respectively.
The allowance for loan losses increased by $4.0 million, or 11.2%, to $40.0 million at March 31, 2021, from $36.0 million at December 31, 2020, primarily due to the continuing impact of the COVID-19 pandemic, including the impact of the CARES Act measures to support individuals and businesses in maintaining solvency through monetary relief, including in the form of financing, loan forgiveness and automatic forbearance.
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The following is a summary of the activity in the allowance for loan loss reserve as of and for the year-to-date periods indicated:
(Dollars in thousands) | March 31, 2021 | March 31, 2020 | |||||||||
Balance, beginning of period | $ | 36,000 | $ | 21,500 | |||||||
Charge-offs: | |||||||||||
Residential properties | 126 | 151 | |||||||||
Construction and land development | 210 | — | |||||||||
Farmland | 4 | — | |||||||||
Other commercials | 101 | 217 | |||||||||
Total real estate | 441 | 368 | |||||||||
Commercial and industrial | 19 | 82 | |||||||||
Agricultural production and other loans to farmers | 776 | — | |||||||||
Consumer and other | 98 | 1,185 | |||||||||
Total charge-offs | 1,334 | 1,635 | |||||||||
Recoveries: | |||||||||||
Residential properties | 84 | 56 | |||||||||
Construction and land development | 8 | 19 | |||||||||
Farmland | 283 | — | |||||||||
Other commercial | 122 | 15 | |||||||||
Total real estate | 497 | 90 | |||||||||
Commercial and industrial | 107 | 87 | |||||||||
Agricultural production and other loans to farmers | 766 | — | |||||||||
Consumer and other | 116 | 943 | |||||||||
Total recoveries | 1,486 | 1,120 | |||||||||
Net charge-offs (recoveries) | (152) | 515 | |||||||||
Provision for loan losses | 3,889 | 185 | |||||||||
Balance, end of period | $ | 40,041 | $ | 21,170 | |||||||
Total loans, end of period | $ | 3,427,393 | $ | 2,110,424 | |||||||
Average loans | 3,418,232 | 2,090,026 | |||||||||
Net charge-offs (annualized) to average loans | (0.02) | % | 0.10 | % | |||||||
Allowance for loan losses to total loans | 1.17 | % | 1.00 | % |
The table below reflects net charge-offs to average loans outstanding, by category, during the periods presented.
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Three Months Ended March 31, | |||||||||||||||||||||||||||||||||||
2021 | 2020 | ||||||||||||||||||||||||||||||||||
(Dollars in thousands) | Net Charge-offs | Average Loans | Net Charge-offs to Average Loans | Net Charge-offs | Average Loans | Net Charge-offs to Average Loans | |||||||||||||||||||||||||||||
Residential properties | $ | 42 | $ | 732,682 | 0.01 | % | $ | 95 | $ | 549,410 | 0.02 | % | |||||||||||||||||||||||
Construction and land development | 202 | 437,070 | 0.05 | % | (19) | 234,793 | (0.01) | % | |||||||||||||||||||||||||||
Farmland | (279) | 209,550 | (0.13) | % | — | 158,344 | — | % | |||||||||||||||||||||||||||
Other commercial | (21) | 1,243,560 | — | % | 202 | 686,657 | 0.03 | % | |||||||||||||||||||||||||||
Commercial and industrial | (88) | 631,169 | (0.01) | % | (5) | 332,216 | — | % | |||||||||||||||||||||||||||
Agricultural production and other loans to farmers | 10 | 75,325 | 0.01 | % | — | 73,146 | — | % | |||||||||||||||||||||||||||
Consumer and other | (18) | 75,546 | (0.02) | % | 242 | 59,546 | 0.41 | % | |||||||||||||||||||||||||||
Total | $ | (152) | $ | 3,404,902 | — | % | $ | 515 | $ | 2,094,112 | 0.02 | % |
The following tables present a summary of the allocation of the allowance for loan losses by loan portfolio category, and the percentage of loans in each category, for the periods indicated:
March 31, 2021 | December 31, 2020 | ||||||||||||||||||||||
(Dollars in thousands) | Amount | Percent | Amount | Percent | |||||||||||||||||||
Residential properties | $ | 9,439 | 23.6 | % | $ | 7,900 | 21.9 | % | |||||||||||||||
Construction and land development | 6,167 | 15.4 | % | 4,618 | 12.8 | % | |||||||||||||||||
Farmland | 1,842 | 4.6 | % | 1,412 | 3.9 | % | |||||||||||||||||
Other commercial | 14,607 | 36.5 | % | 14,133 | 39.3 | % | |||||||||||||||||
Total real estate | 32,055 | 80.1 | % | 28,063 | 78.0 | % | |||||||||||||||||
Commercial and industrial | 6,135 | 15.3 | % | 6,337 | 17.6 | % | |||||||||||||||||
Agricultural production and other loans to farmers | 945 | 2.4 | % | 773 | 2.1 | % | |||||||||||||||||
Consumer and other | 906 | 2.3 | % | 827 | 2.3 | % | |||||||||||||||||
Total allowance for loan losses | $ | 40,041 | 100.0 | % | $ | 36,000 | 100.0 | % |
Goodwill and Other Intangible Assets
Goodwill was $2.6 million at both March 31, 2021 and December 31, 2020. Goodwill represents the excess of the consideration paid over the fair value of the net assets acquired by the Company in prior acquisitions. Goodwill is not amortized but is subject to, at a minimum, an annual test for impairment. Other intangible assets consist of acquired customer relationships from a 2014 acquisition and core deposit intangibles from the merger with SCC. Total other intangible assets at March 31, 2021 and December 31, 2020 were $5.6 million and $5.8 million, respectively. Other intangible assets are amortized over their estimated useful life.
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Deposits
The following table details composition and percentage composition of BancPlus’ deposit portfolio, by category, for the year to date periods indicated:
March 31, 2021 | December 31, 2020 | ||||||||||||||||||||||
(Dollars in thousands) | Average Balance | Average Rate | Percent | Average Balance | Average Rate | Percent | |||||||||||||||||
Non-interest bearing | $ | 1,218,780 | 0.00 | % | 28.59 | % | $ | 1,009,427 | 0.00 | % | 27.69 | % | |||||||||||
Interest bearing: | |||||||||||||||||||||||
Transaction accounts | 1,427,926 | 0.22 | % | 33.50 | % | 1,191,857 | 0.49 | % | 32.69 | % | |||||||||||||
Money market and other savings accounts | 939,541 | 0.12 | % | 22.04 | % | 806,652 | 0.29 | % | 22.13 | % | |||||||||||||
Certificates of deposit | 676,683 | 0.64 | % | 15.87 | % | 637,781 | 0.93 | % | 17.49 | % | |||||||||||||
Total deposits | $ | 4,262,930 | 0.20 | % | 100.00 | % | $ | 3,645,717 | 0.39 | % | 100.00 | % |
BancPlus relies on increasing its deposit base to fund loans and other asset growth. BancPlus competes for local deposits by offering a variety of products at competitive rates. The increase in deposits at March 31, 2021 compared with December 31, 2020 is primarily the result of recipients of PPP loans placing funds in deposit accounts held at the Bank. At March 31, 2021 and December 31, 2020, BancPlus held non-time deposits in excess of FDIC insurance limits estimated at $936.9 million and $889.3 million, respectively.
The following table shows the maturity of certificates of deposit as of March 31, 2021:
(Dollars in thousands) | $250,000 or Greater | Less than $250,000 | Total | Uninsured Portion | |||||||||||||||||||
3 months or less | $ | 28,467 | $ | 116,049 | $ | 144,516 | $ | 10,467 | |||||||||||||||
Over 3 months through 6 months | 41,299 | 87,519 | 128,818 | 24,048 | |||||||||||||||||||
Over 6 months through 12 months | 53,873 | 148,574 | 202,447 | 23,873 | |||||||||||||||||||
Over 12 months | 56,234 | 135,894 | 192,128 | 25,984 | |||||||||||||||||||
Total deposits | $ | 179,873 | $ | 488,036 | $ | 667,909 | $ | 84,372 |
Borrowed Funds
Short-term Borrowings. In addition to deposits, BancPlus uses short-term borrowings, which consist of federal funds purchased and securities sold under agreements to repurchase, to meet the daily liquidity needs of its customers and fund its loan growth. Federal funds purchased represent primarily overnight borrowings through relationships with correspondent banks. Securities sold under agreements to repurchase are considered overnight borrowings and are secured by U.S. Government agency securities. At March 31, 2021 and December 31, 2020, we had no short-term borrowings.
FHLB Advances and Other Borrowings. BankPlus is a member of the Federal Home Loan Bank (“FHLB”), and as a result, is eligible for advances from the FHLB pursuant to the terms of various borrowing agreements, which assist BancPlus in the funding of its loan and investment portfolios. BancPlus’ FHLB advances are collateralized by a blanket lien on first mortgage and other qualifying loans. At both March 31, 2021 and December 31, 2020, BancPlus had $20.6 million in FHLB borrowings, at a weighted average interest rate of 1.50%.
In October 2016, BancPlus entered into a five-year loan agreement with a correspondent bank under which BancPlus borrowed $35.0 million in connection with the redemption of BancPlus preferred stock. BancPlus pledged 100% of its shares of BankPlus stock as collateral for the loan. The loan requires quarterly principal reductions of $875,000 and quarterly interest payments at a fixed 3.75% annual rate. The balance outstanding on this loan was $12.3 million and $13.1 million at March 31, 2021 and December 31, 2020, respectively.
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Required principal payments on FHLB advances and other borrowings were as follows:
(Dollars in thousands) | March 31, 2021 | December 31, 2020 | |||||||||
2021 | $ | 12,262 | $ | 13,171 | |||||||
2022 | 385 | 395 | |||||||||
2023 | 98 | 110 | |||||||||
2024 | — | — | |||||||||
2025 | — | — | |||||||||
Thereafter | 20,092 | 20,095 | |||||||||
Total | $ | 32,837 | $ | 33,771 |
Subordinated Debentures and Trust Preferred Securities. On June 4, 2020, the Company entered into a Subordinated Note Purchase Agreement with certain qualified institutional buyers and institutional accredited investors pursuant to which the Company issued and sold $60.0 million in aggregate principal amount of its 6.000% Fixed-to-Floating Rate Subordinated Notes due June 15, 2030 (the “Notes”). The Company incurred issuance costs of $1.4 million in conjunction with the issuance of the Notes. These issuance costs are netted with the balance of the Notes on the Company’s condensed consolidated balance sheet and will be amortized over the life of the Notes. The Notes will initially bear interest at a rate of 6.000% per annum from and including June 4, 2020, to but excluding June 15, 2025 or early redemption date, with interest during this period payable semiannually in arrears. From and including June 15, 2025, to but excluding the maturity date or early redemption date, the interest rate will reset quarterly to an annual floating rate equal to Three-Month Term Secured Overnight Financing Rate plus 586 basis points, with interest during this period payable quarterly in arrears. The Company intends to use the proceeds of the private placement for general corporate purposes, including improving the Company’s liquidity and capital position.
The Notes are not redeemable by the Company, in whole or in part, prior to the fifth anniversary of the original date of issue, except that the Notes may be redeemed at any time in whole but not in part in the event of a Tier 2 Capital Event, a Tax Event, or an Investment Company Event, each as defined and described in the Notes. On or after the fifth anniversary of the original date of issue, the Notes shall be redeemable on any interest payment date at the option of the Company, in whole or in part in integral multiples of $1,000, at an amount equal to 100% of the outstanding principal amount redeemed plus accrued but unpaid interest thereon. Any partial redemption will be made on a pro rata basis as to the holders of the Notes. Any redemption of the Notes is subject to any applicable regulatory requirements and approvals.
BancPlus also owns the outstanding common stock of business trusts that have issued preferred capital securities to third parties. The preferred capital securities have qualified as Tier 1 capital, subject to regulatory rules and limits. These trusts used the proceeds from the issuance of the common stock and preferred capital securities to purchase subordinated debentures that BancPlus issued. The subordinated debentures are these trusts’ only assets, and quarterly interest payments on these subordinated debentures are the sole source of cash for these trusts to pay quarterly distributions on the common stock and preferred capital securities. BancPlus has fully and unconditionally guaranteed the trusts’ obligations on preferred capital securities.
The following table is a summary of debentures payable to statutory trusts:
(Dollars in thousands) | Year of Maturity | Interest Rate | March 31, 2021 | December 31, 2020 | |||||||||||||||||||
First Bancshares of Baton Rouge Statutory Trust I | 2034 | 3 month LIBOR, plus 2.50% | $ | 4,124 | $ | 4,124 | |||||||||||||||||
State Capital Statutory Trust IV | 2035 | 3 month LIBOR, plus 1.99% | 5,155 | 5,155 | |||||||||||||||||||
BancPlus Statutory Trust II | 2036 | 3 month LIBOR, plus 1.50% | 20,619 | 20,619 | |||||||||||||||||||
BancPlus Statutory Trust III | 2037 | 3 month LIBOR, plus 1.35% | 20,619 | 20,619 | |||||||||||||||||||
State Capital Master Trust | 2037 | 3 month LIBOR, plus 1.46% | 6,186 | 6,186 | |||||||||||||||||||
$ | 56,703 | $ | 56,703 |
The subordinated debentures payable to statutory trusts vary from the amount carried on the condensed consolidated balance sheet at March 31, 2021 due to the remaining purchase discount of $4.2 million, which was established upon the merger with SCC and is being amortized over the remaining life of the debentures. We are currently monitoring the actions of LIBOR’s regulator and the implementation of alternative reference rates in advance of the expected discontinuation of LIBOR to determine any potential impact on the subordinated debentures.
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BancPlus believes that it will be able to meet its principal and interest payment obligations as they come due through maintenance of adequate cash levels or subsequent borrowings. BancPlus expects to maintain adequate cash levels through profitability, loan and securities repayment and maturity activity and continued deposit gathering activities. BancPlus has in place various borrowing mechanisms for both short-term and long-term liquidity needs.
Shareholders’ Equity
Shareholders’ equity is influenced primarily by earnings, quarterly dividend payments, changes in common stock outstanding, and changes in accumulated other comprehensive income (loss) caused primarily by fluctuations in unrealized holding gains or losses, net of taxes, on available for sale investment securities.
Shareholders’ equity increased $8.6 million, or 2.4%, to $363.9 million at March 31, 2021 from $355.3 million at December 31, 2020, primarily due to net income of $17.3 million partially offset by other comprehensive loss of $3.7 million, dividends paid of $3.8 million, and purchase of Company stock of $1.9 million for the year to date period. The purchase of Company stock was the result of members of the State Bank Employee Stock Ownership Plan (“State Bank ESOP”), who took a distribution of Company stock from the State Bank ESOP, exercising a put option available to them following their distribution. The put option is available for shares of Company stock distributed by the State Bank ESOP, so long as the Company is not publicly traded, for a period of 60 days following the distribution request.
Contractual Obligations
The table below presents the funding requirements of BancPlus’ contractual obligations, excluding interest, as of March 31, 2021:
Payments Due by Period | |||||||||||||||||||||||||||||
(Dollars in thousands) | Greater | ||||||||||||||||||||||||||||
March 31, 2021 | Less Than One Year | One-Three Years | Three-Five Years | Than Five Years | Total | ||||||||||||||||||||||||
Operating lease obligations | $ | 3,474 | $ | 8,827 | $ | 8,513 | $ | 29,776 | $ | 50,590 | |||||||||||||||||||
FHLB advances (1) | 26 | 469 | — | 20,092 | 20,587 | ||||||||||||||||||||||||
Note payable (2) | 12,250 | — | — | — | 12,250 | ||||||||||||||||||||||||
Subordinated debentures (3) | — | — | — | 111,217 | 111,217 | ||||||||||||||||||||||||
Deposits with maturities | 475,781 | 157,229 | 34,879 | 20 | 667,909 | ||||||||||||||||||||||||
Low income housing tax credits | 4 | 9 | 9 | 3 | 25 | ||||||||||||||||||||||||
Total contractual obligations | $ | 491,535 | $ | 166,534 | $ | 43,401 | $ | 161,108 | $ | 862,578 |
________________________________
(1)Interest rates for BancPlus’ FHLB advances outstanding ranged from 1.42% to 2.94% at March 31, 2021. These advances are subject to restrictions or penalties in the event of prepayment. Advances subject to calls are shown at their earliest call date.
(2)The interest rate on BancPlus’ note payable is a 3.75% fixed annual rate.
(3)These subordinated debentures include the outstanding common securities of business trusts that have issued preferred capital securities to third parties which bear interest based on 3 month LIBOR plus 1.35% to 2.50% and fixed-to-floating subordinated notes that bear interest at 6.000% per annum.
Off-Balance Sheet Arrangements
In the normal course of business, BancPlus enters into various transactions to meet the financing needs of its customers, which, in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”), are not included in its consolidated balance sheets. These transactions include commitments to extend credit and letters of credit, which involve, to varying degrees, elements of credit risk and interest rate risk in excess of the amounts recognized in BancPlus’ consolidated balance sheets. A number of these commitments are used only partially, or in some cases, not at all before they expire.
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BancPlus’ exposure to credit loss in the event of non-performance by the other party to the financial instrument for commitments to extend credit and letters of credit is represented by the contractual or notional amount of those instruments. BancPlus decreases its exposure to losses under these commitments by subjecting them to credit approval and monitoring procedures.
The table below sets forth BancPlus’ commitments to extend credit by commitment expiration date indicated:
March 31, 2021 | |||||||||||||||||||||||||||||
(Dollars in thousands) | Less Than One Year | One-Three Years | Three-Five Years | Greater Than Five Years | Total | ||||||||||||||||||||||||
Commitments to extend credit (1) | $ | 401,912 | $ | 349,681 | $ | 225,045 | $ | 87,832 | $ | 1,064,470 | |||||||||||||||||||
Standby letters of credit | 7,124 | 113 | 700 | — | 7,937 | ||||||||||||||||||||||||
Total off-balance sheet commitments | $ | 409,036 | $ | 349,794 | $ | 225,745 | $ | 87,832 | $ | 1,072,407 |
____________________________
(1)Includes $234,436 of unconditionally cancellable commitments at March 31, 2021.
Commitments to extend credit beyond current funding are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Such commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments may expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. BancPlus evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary upon extension of credit, is based on BancPlus’ credit evaluation. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment, and income-producing properties.
Letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. These 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 is essentially the same as that involved in extending loan facilities to customers.
Liquidity
Bank Liquidity Management
Liquidity is BancPlus’ capacity to meet its cash and collateral obligations at a reasonable cost, having cash when BancPlus needs it and having the appropriate amount of cash and other assets that are quickly convertible into cash without incurring significant loss. BancPlus is expected to maintain adequate liquidity at BankPlus to meet the cash flow requirements of its customers who may be either depositors wishing to withdraw funds or borrowers needing assurance that sufficient funds will be available to meet their credit needs. Maintaining an adequate level of liquidity depends on BancPlus’ ability to efficiently meet both expected and unexpected cash flows and collateral needs without adversely affecting either BancPlus’ daily operations or its financial condition. BancPlus’ Asset Liability Management Committee (“ALCO”), which is comprised of members of senior management, is responsible for managing commitments to meet the needs of customers while achieving its financial objectives. ALCO meets regularly to review balance sheet composition, funding capacities, and current and forecasted loan demand, and BancPlus’ Treasury Management department continuously monitors its liquidity position to ensure that assets and liabilities are managed in a manner that will meet all of its short-term and long-term cash requirements.
BancPlus manages its liquidity by maintaining adequate levels of cash and other assets from on and off-balance sheet arrangements. Specifically, on-balance sheet liquidity consists of cash and due from banks and unpledged investment securities, which BancPlus considers its primary liquidity. Furthermore, a significant portion of these unencumbered liquid assets are comprised of U.S. government agency obligations, mortgage backed securities and other agency securities, which the regulatory bodies consider the most marketable and liquid, especially in a stress scenario. In regard to off-balance sheet capacity, BancPlus maintains available borrowing capacity under secured borrowing lines with the FHLB and the Federal Reserve Bank of St. Louis, as well as unsecured lines of credit for the purpose of overnight funds with various correspondent banks, which BancPlus consider its secondary liquidity, and other funding avenues, including the Paycheck Protection Program Liquidity Facility (“PPP Liquidity Facility”). At March 31, 2021, BancPlus had not used the PPP Liquidity Facility. BancPlus also monitors its liquidity requirements in light of interest rate trends, changes in the economy and the scheduled maturity and interest rate sensitivity of the investment and loan portfolios, FHLB borrowings and deposits. As part of its liquidity management strategy, BancPlus is also
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focused on minimizing its costs of liquidity and attempting to decrease these costs by growing its noninterest-bearing and other low-cost deposits and replacing higher cost borrowed funds.
The following tables provide a summary of BancPlus’ primary and secondary liquidity levels.
(Dollars in thousands) Primary Liquidity – On-Balance Sheet | March 31, 2021 | December 31, 2020 | |||||||||
Cash and cash equivalents | $ | 601,983 | $ | 637,545 | |||||||
Total securities | 663,706 | 405,139 | |||||||||
Less: pledged securities | (500,932) | (317,461) | |||||||||
Total primary liquidity | $ | 764,757 | $ | 725,223 | |||||||
Ratio of primary liquidity to total deposits | 17.4 | % | 17.5 | % |
Secondary Liquidity – Off-Balance Sheet Borrowing Capacity | March 31, 2021 | December 31, 2020 | |||||||||
Net secured borrowing capacity with the FHLB | $ | 1,430,917 | $ | 1,408,005 | |||||||
Net secured borrowing capacity with the Federal Reserve Bank | 283,270 | 211,407 | |||||||||
Unsecured borrowing capacity with correspondent lenders | 228,000 | 228,000 | |||||||||
Total secondary liquidity | $ | 1,942,187 | $ | 1,847,412 | |||||||
Ratio of primary and secondary liquidity to total deposits | 61.6 | % | 61.9 | % |
During the three months ended March 31, 2021, BancPlus’ primary liquidity increased by $39.5 million to $764.8 million compared to $725.2 million at December 31, 2020, due an increase in securities partially offset by an increase in our pledged securities. Secondary liquidity increased by $94.8 million to $1.94 billion as of March 31, 2021 from $1.85 billion as of December 31, 2020. This increase was primarily due to an increase in BancPlus’ Federal Reserve Bank borrowing capacity.
In addition to its primary liquidity, BancPlus generates liquidity from cash flows from its loan and securities portfolios and from its large base of core customer deposits, defined as total deposits less brokered deposits and time deposits greater than $250,000. Core deposits totaled $4.224 billion and $3.973 billion and represented 96.2% and 95.7% of total deposits as of March 31, 2021 and December 31, 2020, respectively. These core deposits are normally less volatile, often with customer relationships tied to other products, which promote long-standing relationships and stable funding sources. Although BancPlus’ policy allows the use of brokered deposits, BankPlus did not utilize this funding source during the 2021 and 2020 year to date periods.
BancPlus’ liquidity policy includes both policy limits and policy guidelines for measuring and monitoring liquidity. BancPlus’ policy measures include an Internal Liquidity Ratio, an Internal Liquidity Ratio adjusted for FHLB, an Internal Dependency Ratio adjusted for FHLB and a Maximum Available Funds to Total Assets Ratio. These ratios are calculated monthly. BancPlus also utilizes eleven liquidity guidelines that are reported quarterly. As of March 31, 2021 and December 31, 2020, BancPlus was in compliance with all of its established liquidity guidelines.
Holding Company Liquidity Management
BancPlus is a corporation separate and apart from BankPlus and, therefore, it must provide for its own liquidity. BancPlus’ main source of funding is dividends declared and paid to it by BankPlus. Statutory and regulatory limitations exist that affect the ability of BankPlus to pay dividends to the holding company. BancPlus believes that these limitations will not impact the ability of the holding company to meet its ongoing short-term cash obligations.
Due to state banking laws, BankPlus may not declare dividends without the prior approval of the MDBCF. BankPlus received permission from the MDBCF to pay dividends of $3.8 million and $2.7 million for the year-to-date periods ended March 31, 2021 and March 31, 2020, respectively. These dividends were used by the holding company to pay dividends to the BancPlus shareholders, principal and interest payments on debt and general operating expenses.
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Capital Management and Regulatory Capital Requirements
BancPlus is subject to various capital requirements administered by federal banking regulators. Failure to meet minimum capital requirements can trigger certain mandatory and possibly additional discretionary actions by federal banking regulators that, if undertaken, could have a direct material effect on BancPlus’ business operations.
Under the regulatory capital rules, BancPlus must maintain minimum amounts and ratios of common equity Tier 1 (“CET1”) capital, Tier 1 capital and total capital to risk-weighted assets and of Tier 1 capital to average consolidated assets, referred to as the leverage ratio. The adequacy of our capital levels is also subject to qualitative judgments by the federal banking regulators about components, risk weightings and other factors.
In addition, BancPlus must maintain a capital conservation buffer of 2.5%, consisting of CET1 capital, on top of the risk-based minimum capital ratios. A banking organization with a conservation buffer of less than the required amount of 2.5% will be subject to limitations on capital distributions, including dividend payments, and certain discretionary bonus payments to executive officers. Minimum capital requirements, including the capital conservation buffer, to which BankPlus and BancPlus are subject are summarized in the tables below.
Further, under prompt corrective action regulations, an insured depository institution is classified in one of several tiers based on its level of capital and other factors, and may be subject to an escalating series of remedial measures if it is less than “well capitalized.” An institution is deemed “well capitalized” if it satisfies certain capital ratios, summarized in the tables below, and is not subject to any written agreement, order, capital directive, or prompt corrective action directive to meet and maintain a specific capital level for any capital measure.
As of March 31, 2021 and December 31, 2020, BancPlus and BankPlus met all applicable capital adequacy requirements and BankPlus was deemed “well capitalized.” As a bank holding company, BancPlus is not subject to the prompt corrective action regime that applies to insured depository institutions, including BankPlus.
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BancPlus’ consolidated and BankPlus’ actual capital amounts and ratios are shown in the following tables as of the dates indicated (dollars in thousands):
Actual | For Capital Adequacy Purposes | Required to be Well Capitalized | |||||||||||||||||||||||||||||||||
As of March 31, 2021: | Capital Amount | Ratio | Capital Amount | Ratio | Capital Amount | Ratio | |||||||||||||||||||||||||||||
Consolidated: | |||||||||||||||||||||||||||||||||||
CET1 Capital to Risk-Weighted Assets | $ | 352,466 | 10.04 | % | $ | 245,694 | 7.00 | % | n/a | n/a | |||||||||||||||||||||||||
Tier 1 Capital to Risk-Weighted Assets | 403,300 | 11.49 | % | 298,343 | 8.50 | % | n/a | n/a | |||||||||||||||||||||||||||
Total Capital to Risk-Weighted Assets | 502,021 | 14.30 | % | 368,541 | 10.50 | % | n/a | n/a | |||||||||||||||||||||||||||
Tier 1 Capital to Average Assets | 403,300 | 8.40 | % | 192,159 | 4.00 | % | n/a | n/a | |||||||||||||||||||||||||||
Bank: | |||||||||||||||||||||||||||||||||||
CET1 Capital to Risk-Weighted Assets | $ | 398,495 | 11.39 | % | $ | 244,919 | 7.00 | % | $ | 227,425 | 6.50 | % | |||||||||||||||||||||||
Tier 1 Capital to Risk-Weighted Assets | 398,495 | 11.39 | % | 297,402 | 8.50 | % | 279,908 | 8.00 | % | ||||||||||||||||||||||||||
Total Capital to Risk-Weighted Assets | 438,536 | 12.53 | % | 367,379 | 10.50 | % | 349,885 | 10.00 | % | ||||||||||||||||||||||||||
Tier 1 Capital to Average Assets | 398,495 | 8.31 | % | 191,801 | 4.00 | % | 239,752 | 5.00 | % |
Actual | For Capital Adequacy Purposes | Required to be Well Capitalized | |||||||||||||||||||||||||||||||||
As of December 31, 2020: | Capital Amount | Ratio | Capital Amount | Ratio | Capital Amount | Ratio | |||||||||||||||||||||||||||||
Consolidated: | |||||||||||||||||||||||||||||||||||
CET1 Capital to Risk-Weighted Assets | $ | 339,936 | 9.94 | % | $ | 239,437 | 7.00 | % | n/a | n/a | |||||||||||||||||||||||||
Tier 1 Capital to Risk-Weighted Assets | 390,713 | 11.42 | % | 290,745 | 8.50 | % | n/a | n/a | |||||||||||||||||||||||||||
Total Capital to Risk-Weighted Assets | 485,357 | 14.19 | % | 359,155 | 10.50 | % | n/a | n/a | |||||||||||||||||||||||||||
Tier 1 Capital to Average Assets | 390,713 | 8.55 | % | 182,853 | 4.00 | % | n/a | n/a | |||||||||||||||||||||||||||
Bank: | |||||||||||||||||||||||||||||||||||
CET1 Capital to Risk-Weighted Assets | $ | 387,231 | 11.36 | % | $ | 238,629 | 7.00 | % | $ | 221,584 | 6.50 | % | |||||||||||||||||||||||
Tier 1 Capital to Risk-Weighted Assets | 387,231 | 11.36 | % | 289,763 | 8.50 | % | 272,719 | 8.00 | % | ||||||||||||||||||||||||||
Total Capital to Risk-Weighted Assets | 423,231 | 12.42 | % | 357,943 | 10.50 | % | 340,898 | 10.00 | % | ||||||||||||||||||||||||||
Tier 1 Capital to Average Assets | 387,231 | 8.49 | % | 182,531 | 4.00 | % | 228,164 | 5.00 | % |
Recent Accounting Pronouncements
ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-13, which requires earlier measurement of credit losses and enhances disclosures. The main objective of ASU 2016-13 is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses over the life of the loan. ASU 2016-13 is effective for the Company for annual and interim periods beginning on January 1, 2023. The Company has formed a cross functional team that is assessing data and system needs and evaluating the impact of adopting the new guidance. The Company expects to recognize a one-time cumulative effect adjustment to the allowance for loan losses as of the beginning of the first reporting period in which the new standard is effective, but has not yet determined the magnitude of any such one-time adjustments or the overall impact on the Company’s financial statements.
ASU 2020-04, “Reference Rate Reform - Topic 848.” In March 2020, the FASB issued ASU 2020-04 which provides temporary optional expedients and exceptions to the GAAP guidance on contract modifications, hedge accounting, and other transactions
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affected that reference LIBOR or another reference rate expected to be discontinued. ASU 2020-04 is effective upon issuance and can be applied through December 31, 2022. The Company is still evaluating the impact of ASU 2020-04, but does not expect it to have a material impact on the Company’s consolidated financial statements.
Item 3. Qualitative and Quantitative Disclosures about Market Risk
Interest Rate Risk
As a financial institution, BancPlus’ primary market risk is interest rate risk, which is defined as the risk of economic loss due to changes in interest rates. These economic losses can be reflected as a loss of future net interest income and/or loss of current fair market value. BancPlus continually seeks to measure and manage the potential impact of interest rate risk. Interest rate risk occurs when interest earning assets and interest-bearing liabilities mature or re-price at different times, on a different basis or in unequal amounts. Interest rate risk also arises when BancPlus’ assets and liabilities each respond differently to changes in interest rates.
BancPlus’ management of interest rate risk is overseen by the ALCO. BancPlus’ risk management infrastructure approved by the BancPlus board outlines reporting and measurement requirements. In particular, this infrastructure establishes limits and management targets for various metrics, including net interest income at risk and economic value of equity at risk, given instantaneous parallel shifts in interest rates. BancPlus’ risk management infrastructure also requires a periodic review of all key assumptions used, such as appropriate interest rate scenarios, loan prepayment rates, and transaction deposit durations.
BancPlus currently does not utilize derivative products to manage interest rate risk, although its policy does allow the use of derivatives within established parameters. BancPlus manages the interest rate risk associated with its interest bearing liabilities by managing the interest rates and terms associated with its borrowings and customer deposits on which BancPlus relies for funding. For instance, BancPlus occasionally uses special offers on deposits to attract additional balances and manage terms associated with its interest-bearing liabilities. BancPlus manages the interest rate risk associated with its earning assets by managing the interest rates and terms associated with its loan portfolio and investment securities portfolio.
Net Interest Income Simulation and Economic Value Analysis
On a quarterly basis, BancPlus uses a model to simulate and measure potential changes in its net interest income and economic value of equity (“EVE”) given instantaneous parallel shifts in interest rates of +/- 400 basis points. BancPlus’ net interest income at risk simulation measures shorter term risk over 12 and 24 month time frames. EVE measures the period end market value of assets minus the market value of liabilities and the change in this value given the changes in interest rates. EVE is a point-in-time measurement that helps quantify longer term interest rate risk. The model has inherent limitations since the results are based on a given set of rate changes and assumptions as of a certain point in time. For purpose of the simulation, BancPlus assumes no balance sheet growth. Therefore, the model’s results reflect an interest rate shock to a static balance sheet.
Potential changes to BancPlus’ net interest income and EVE in hypothetical rising and declining interest rate scenarios calculated as of March 31, 2021 and December 31, 2020 are presented in the table below (dollars in thousands). The projections assume immediate, parallel shifts down from the March 31, 2021 and December 31, 2020 yield curves of 100 and 200 basis points and immediate, parallel shifts up of 100, 200, and 300 basis points. In the current interest rate environment, a downward shift of the yield curve of 300 and 400 basis points does not provide BancPlus with meaningful results and therefore is not presented.
As of March 31, 2021 | As of December 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||
(Dollars in thousands) | Change in Net Interest Income | Change in Economic Value of Equity | Change in Net Interest Income | Change in Economic Value of Equity | ||||||||||||||||||||||||||||||||||||||||||||||
Parallel Rate Shift (basis points) | $ | % | $ | % | $ | % | $ | % | ||||||||||||||||||||||||||||||||||||||||||
300 | 17,248 | 10.5 | % | 82,438 | 17.2 | % | 17,787 | 12.5 | % | 113,405 | 28.7 | % | ||||||||||||||||||||||||||||||||||||||
200 | 11,549 | 7.0 | % | 61,366 | 12.8 | % | 12,048 | 8.5 | % | 83,273 | 21.1 | % | ||||||||||||||||||||||||||||||||||||||
100 | 5,745 | 3.5 | % | 34,796 | 7.3 | % | 3,052 | 2.2 | % | 46,093 | 11.7 | % | ||||||||||||||||||||||||||||||||||||||
Unchanged | — | — | % | — | — | % | — | — | % | — | — | % | ||||||||||||||||||||||||||||||||||||||
-100 | (2,981) | (1.8) | % | (52,575) | (11.0) | % | (2,676) | (1.9) | % | (55,139) | (14.0) | % | ||||||||||||||||||||||||||||||||||||||
-200 | (5,151) | (3.1) | % | (66,158) | (13.8) | % | (2,422) | (1.7) | % | (78,947) | (20.0) | % |
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The table above indicates that in the event of an immediate and sustained 300 basis point increase in interest rates, BancPlus would have experienced a 10.5% increase in net interest income and a 17.2% increase in EVE as of March 31, 2021, and a 12.5% increase in net interest income and a 28.7% increase in EVE as of December 31, 2020. In the event of an immediate 100 basis point decrease in interest rates, BancPlus would have experienced a decrease of 1.8% in net interest income and a 11.0% decrease in EVE as of March 31, 2021, and a 1.9% decrease in net interest income and a 14.0% decrease in EVE as of December 31, 2020.
The results of this simulation analysis are hypothetical, and a variety of factors might cause actual results to differ substantially from what is depicted. The timing and magnitude of interest rate changes (including, for example, the sharp reduction in interest rates by the Federal Reserve in response to the economic and financial effects of the COVID-19 pandemic) will most likely differ substantially from what is depicted. The shape or steepness of the yield curve typically changes with each change in the Fed Funds target range. Increasing rates could reduce net interest income if BancPlus is required to increase deposit rates faster than planned to maintain volumes or its mix of assets and funding changes. Results could also change depending on faster or slower prepays in loans or early withdrawals in deposits than those assumed in the model. Finally, the results do not incorporate growth in the balance sheet or strategic changes made in response to changes in rates.
Because of the flaws in the nature of the static balance sheet rate shocks, ALCO also periodically runs model simulations that incorporate many of the factors mentioned above. These alternate scenarios change given the current economic environment, but may include the following: (1) expected balance sheet growth, (2) 25 basis point changes in rates timed with Federal Open Market Committee meetings, (3) increased early withdrawals of time deposits, (4) shifts in funding out of deposits and into wholesale borrowings, and (5) increasing balances of variable rate loans versus fixed rate loans. Using a variety of scenarios in addition to BancPlus’ standard shocked scenarios enables ALCO to form a more accurate analysis of BancPlus’ overall interest rate sensitivity.
Impact of Inflation and Changing Prices
BancPlus’ consolidated financial statements and related notes have been prepared in accordance with GAAP, which require the measurement of financial position and operating results in terms of historical dollars, without considering the changes in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the increased cost of operations. Unlike most industrial companies, nearly all of BancPlus’ assets and liabilities are monetary in nature. As a result, interest rates have a greater impact on BancPlus’ performance than do the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or to the same extent as the price of goods or services.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this Quarterly Report on Form 10-Q, an evaluation was carried out by management with the participation of BancPlus’ Chief Executive Officer and Chief Financial Officer, of the effectiveness of BancPlus’ disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that as of the end of the period covered by this Quarterly Report on Form 10-Q, BancPlus’ disclosure controls and procedures were effective to ensure that information required to be disclosed by BancPlus in the reports required to be filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within time periods specified in the U.S. Securities and Exchange Commission’s rules and forms.
Changes in Internal Control over Financial Reporting
There has been no change in BancPlus’ internal control over financial reporting during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, BancPlus’ internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On March 20, 2019, a complaint (the “Complaint”), Mills v. BankPlus, et al., Case #3:19-cv-00196-CWR-FKB, was filed in the United States District Court for the Southern District of Mississippi, Northern Division, by Alysson Mills, in her capacity as Court-appointed Receiver for Arthur Lamar Adams (“Adams”) and Madison Timber Properties, LLC (“Madison Timber”),
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naming BankPlus, three former BankPlus employees, one current BankPlus employee and other defendants, including defendants affiliated and unaffiliated with BankPlus (“Defendants”). The Complaint seeks to recover damages from the Defendants for the benefit of the receivership estate related to certain investors who were allegedly defrauded by Adams and Madison Timber, whose actions were allegedly attributable to the actions of the Defendants that allegedly enabled negligent, illegal or fraudulent activities engaged in by Adams and Madison Timber. A brief description of the cause of action on the cover sheet filed with the Complaint includes securities, civil conspiracy, aiding and abetting, negligence, and other possible causes of action. The amount of damages (including punitive damages) requested against the Defendants in the Complaint is unspecified. As of February 15, 2021, the plaintiff, Mills, has filed an Amended Complaint. Answers and/or Motions to Dismiss the Amended complaint have been filed by the defendants. Discovery is currently stayed in the case pending resolution of the Motions to Dismiss.
In addition to the above, the Company, including subsidiaries, is party to various legal proceedings arising in the ordinary course of business. We do not believe that loss contingencies, if any, arising from pending litigation and regulatory matters will have a material adverse effect on our consolidated financial position or liquidity.
Item 1A. Risk Factors
There have been no material changes to the risk factors previously disclosed under Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, previously filed with the Securities and Exchange Commission.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Not applicable.
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Item 6. Exhibits
2.1* | |||||
3.1 | |||||
3.2 | |||||
4.1 | |||||
4.2 | |||||
31.1 | |||||
31.2 | |||||
32.1 | |||||
32.2 | |||||
101 | Inline XBRL Interactive Data | ||||
104 | Cover Page Interactive Data File (embedded within the Inline XBRL document in Exhibit 101) |
* Schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K. A copy of any omitted schedule will be furnished supplementally to the Securities and Exchange Commission upon request.
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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.
BancPlus Corporation
Date: | May 7, 2021 | By: | /s/ William A. Ray | ||||||||
William A. Ray | |||||||||||
President and Chief Executive Officer |
Date: | May 7, 2021 | By: | /s/ M. Ann Southerland | ||||||||
M. Ann Southerland | |||||||||||
Senior Executive Vice President and Chief Financial Officer |
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