The outbreak of the COVID-19 pandemic has caused a significant global economic downturn which has, and is expected to, continue to adversely affect our business and results of operations, and the future impacts of the COVID-19 pandemic on the global economy and our business, results of operations, liquidity and financial condition remain uncertain.
As a business operating in the financial services industry, our business and operations may be adversely affected by weak economic conditions.
Our loans and operations are primarily in Utah, Salt Lake, Davis, Cache, Box Elder and Washington Counties; therefore, our business is particularly vulnerable to a downturn in the local economies of those counties.
A large portion of our loan portfolio is tied to the real estate market and we may be negatively impacted by downturns in that market.
We could suffer material credit losses if we do not appropriately manage our credit risk.
The small- to medium-sized businesses that we lend to may have fewer resources to weather adverse business developments, which may impair their ability to repay a loan, and such impairment could adversely affect our operations and financial condition.
Our profitability depends on interest rates generally, and we may be adversely affected by changes in market interest rates.
Risks Related to Our Growth
If we are not able to maintain our past levels of growth, our future prospects and competitive position could be diminished and our profitability could be reduced.
If we are unable to manage our growth effectively, we may incur higher than anticipated costs, and our ability to execute our growth strategy could be impaired.
We may have difficulty attracting additional necessary personnel, which may divert resources and limit our ability to successfully expand our operations.
The unexpected loss of key officers would materially and adversely affect our ability to execute our business strategy, and diminish our future prospects.
Our allowance for credit losses may not be adequate to cover actual losses.
Our financial and accounting estimates and risk management framework rely on analytical forecasting and models.
Impairment of investment securities could require charges to earnings, which would negatively impact our operations.
If we need additional capital in the future to continue our growth, we may not be able to obtain it on terms that are favorable.
Our funding sources may prove insufficient to provide liquidity, replace deposits and support our future growth.
Cyber-attacks or other security breaches could have a material adverse effect on our business.
Our risk management framework may not be effective in mitigating risks and losses to us.
We are subject to certain operating risks, related to client or employee fraud, which could harm our reputation and business.
We depend on the accuracy and completeness of information about clients and counterparties.
We are subject to regulation, which increases the cost and expense of regulatory compliance, and may restrict our growth and our ability to acquire other financial institutions.
Banking agencies periodically conduct examinations of our business, including compliance with laws and regulations, and our failure to comply with any regulatory actions to which we become subject because such examinations could materially and adversely affect us.
New and future rulemaking by the CFPB and other regulators, as well as enforcement of existing consumer protection laws, may have a material effect on our operations and operating costs.
We are subject to stringent capital requirements.
We may be required to contribute capital or assets to the Bank that could otherwise be invested or deployed more profitably elsewhere.
We face a risk of non-compliance and enforcement actions with respect to the Bank Secrecy Act and other anti-money laundering statutes and regulations.
Regulations relating to privacy, information security and data protection could increase our costs, affect or limit how we collect and use personal information and adversely affect our business opportunities.
We may be unable to, or choose not to, pay dividends on our common shares.
The price of our common shares may fluctuate significantly and our stock may have low trading volumes, which may make it difficult for you to resell common shares owned by you at times or prices you find attractive.
Factors that determine the level of net income include the volume of earning assets and interest bearing liabilities, yields earned and rates paid, fee income, non-interest expense, the level of non-performing loans and other non-earning assets, and the amount of non-interest bearing liabilities supporting earning assets. Non-interest income primarily includes service charges and other fees on deposits, and mortgage banking income. Non-interest expense consists primarily of employee compensation and benefits, occupancy, equipment and depreciation expense, and other operating expenses.
Pending Acquisition. In May 2021, ALTA announced the signing of definitive agreement with GBCI, to merge with and into GBCI, with GBCI as the surviving entity. The acquisition is subject to required regulatory approvals and other customary conditions of closing and is expected to be completed in the fourth quarter of 2021. During the first six months of 2021, ALTA incurred approximately $2.2 million of expenses associated with the Holding Company Merger. These expenses are recorded in acquisition-related costs. The Company expects to continue to record additional merger-related costs until the closing of the sale to GBCI.
Net Interest Income and Net Interest Margin. For the three months ended June 30, 2021, net interest income decreased $0.5 million, or 1.91%, to $25.3 million, compared with $25.8 million for the same period a year earlier. The decrease is primarily the result of net interest margins narrowing 99 basis points to 2.97% for the same comparable periods. The narrowing of net interest margins is primarily the result of the Federal Reserve reducing benchmark rates to almost zero and an increase in the average amount of lower yielding cash and investment securities held by the Company stemming from average core deposits increasing $797 million, or 33.78%, for the same respective periods. Average interest earning assets increased $804 million, or 30.72%, to $3.42 billion for the same comparable periods. The percentage of average loans to total average interest earning assets decreased to 53.97% for the three months ended June 30, 2021 compared with 64.75% for the same period a year earlier.
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