SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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 DecemberMarch 31, 2017
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 0-23406
| | | |
Southern Missouri Bancorp, Inc. | |||
(Exact name of registrant as specified in its charter) | |||
Missouri | | 43-1665523 | |
(State or jurisdiction of incorporation) | | (IRS employer id. no.) |
| ||
2991 Oak Grove RoadPoplar Bluff, MO | | 63901 |
(Address of principal executive offices) | | (Zip code) |
(573) 778-1800
Registrant’s telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common | SMBC | NASDAQ Global Market |
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 and posted on its corporate Web site, if any, every Interactive Data file required to be submitted and posted pursuant to Rule 405 of regulation S-T (§232.405 of this chapter) during the proceedingpreceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
| | | |
Yes | ☒ | No | ☐ |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of "large“large accelerated filer," "accelerated” “accelerated filer,"” and "smaller“smaller reporting company"company” in Rule 12b-2 of the Exchange Act (check one):
| | | | | | | |
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 12 b-2 of the Exchange Act)
| | | |
Yes | ☐ | No | ☒ |
Indicate the number of shares outstanding of each of the registrant'sregistrant’s classes of common stock, as of the latest practicable date:
| | |
Class | Outstanding at May 9, 2023 | |
Common Stock, Par Value $.01 | | 11,330,712 shares |
FORM 10-Q
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SOUTHERN MISSOURI BANCORP, INC.
MARCH 31, 20172023 AND JUNE 30, 2017
December 31, 2017 | June 30, 2017 | |||||||
(dollars in thousands) | (unaudited) | |||||||
Assets | ||||||||
Cash and cash equivalents | $ | 35,236 | $ | 30,786 | ||||
Interest-bearing time deposits | 498 | 747 | ||||||
Available for sale securities | 148,353 | 144,416 | ||||||
Stock in FHLB of Des Moines | 4,311 | 3,547 | ||||||
Stock in Federal Reserve Bank of St. Louis | 3,193 | 2,357 | ||||||
Loans receivable, net of allowance for loan losses of $16,867 and $15,538 at December 31, 2017 and June 30, 2017, respectively | 1,452,975 | 1,397,730 | ||||||
Accrued interest receivable | 9,059 | 6,769 | ||||||
Premises and equipment, net | 53,479 | 54,167 | ||||||
Bank owned life insurance – cash surrender value | 34,795 | 34,329 | ||||||
Goodwill | 8,631 | 8,631 | ||||||
Other intangible assets, net | 6,121 | 6,759 | ||||||
Prepaid expenses and other assets | 20,046 | 17,474 | ||||||
Total assets | $ | 1,776,697 | $ | 1,707,712 | ||||
Liabilities and Stockholders' Equity | ||||||||
Deposits | $ | 1,508,969 | $ | 1,455,597 | ||||
Securities sold under agreements to repurchase | 3,697 | 10,212 | ||||||
Advances from FHLB of Des Moines | 59,914 | 43,637 | ||||||
Note payable | 3,000 | 3,000 | ||||||
Accounts payable and other liabilities | 4,641 | 6,417 | ||||||
Accrued interest payable | 1,080 | 918 | ||||||
Subordinated debt | 14,896 | 14,848 | ||||||
Total liabilities | 1,596,197 | 1,534,629 | ||||||
Common stock, $.01 par value; 12,000,000 shares authorized; 8,588,388 and 8,591,363 shares issued, respectively, at December 31, 2017 and June 30, 2017 | 86 | 86 | ||||||
Additional paid-in capital | 70,209 | 70,101 | ||||||
Retained earnings | 110,577 | 102,369 | ||||||
Accumulated other comprehensive income (loss) | (372 | ) | 527 | |||||
Total stockholders' equity | 180,500 | 173,083 | ||||||
Total liabilities and stockholders' equity | $ | 1,776,697 | $ | 1,707,712 |
| | | | | | | |
|
| March 31, 2023 |
| June 30, 2022 |
| ||
(dollars in thousands) |
| (unaudited) | | | | | |
| | | | | | | |
Assets | | | | | | | |
Cash and cash equivalents | | $ | 114,540 | | $ | 86,792 | |
Interest-bearing time deposits | |
| 1,251 | |
| 4,768 | |
Available for sale securities | |
| 429,798 | |
| 235,394 | |
Stock in FHLB of Des Moines | |
| 7,855 | |
| 5,893 | |
Stock in Federal Reserve Bank of St. Louis | |
| 8,491 | |
| 5,790 | |
Loans receivable, net of ACL of $45,685 and $33,192 at March 31, 2023 and June 30, 2022, respectively | |
| 3,434,519 | |
| 2,686,198 | |
Accrued interest receivable | |
| 16,372 | |
| 11,052 | |
Premises and equipment, net | |
| 92,343 | |
| 71,347 | |
Bank owned life insurance – cash surrender value | |
| 71,202 | |
| 48,705 | |
Goodwill | |
| 50,657 | |
| 27,288 | |
Other intangible assets, net | |
| 31,144 | |
| 8,175 | |
Prepaid expenses and other assets | |
| 34,494 | |
| 23,380 | |
Total assets | | $ | 4,292,666 | | $ | 3,214,782 | |
| | | | | | | |
Liabilities and Stockholders' Equity | |
|
| |
|
| |
Deposits | | $ | 3,755,193 | | $ | 2,815,075 | |
Advances from FHLB | |
| 45,002 | |
| 37,957 | |
Accounts payable and other liabilities | |
| 29,011 | |
| 17,122 | |
Accrued interest payable | |
| 3,721 | |
| 801 | |
Subordinated debt | |
| 23,092 | |
| 23,055 | |
Total liabilities | |
| 3,856,019 | |
| 2,894,010 | |
| | | | | | | |
Commitments and contingencies | | | | | | | |
| | | | | | | |
Common stock, $.01 par value; 25,000,000 shares authorized; 11,919,337 and 9,815,736 shares issued at March 31, 2023 and June 30, 2022, respectively | |
| 119 | |
| 98 | |
Additional paid-in capital | |
| 218,182 | |
| 119,162 | |
Retained earnings | |
| 257,539 | |
| 240,115 | |
Treasury stock of 588,625 shares at March 31, 2023 and June 30, 2022, at cost | |
| (21,116) | |
| (21,116) | |
Accumulated other comprehensive loss | |
| (18,077) | |
| (17,487) | |
Total stockholders' equity | |
| 436,647 | |
| 320,772 | |
Total liabilities and stockholders' equity | | $ | 4,292,666 | | $ | 3,214,782 | |
See Notes to Condensed Consolidated Financial Statements
-3-
FOR THE THREE- AND SIX-NINE- MONTH PERIODS ENDED DECEMBERMARCH 31, 20172023 AND 20162022 (Unaudited)
Three months ended | Six months ended | |||||||||||||||
December 31, | December 31, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
(dollars in thousands except per share data) | ||||||||||||||||
INTEREST INCOME: | ||||||||||||||||
Loans | $ | 18,236 | $ | 14,229 | $ | 35,692 | $ | 28,479 | ||||||||
Investment securities | 558 | 500 | 1,087 | 1,006 | ||||||||||||
Mortgage-backed securities | 426 | 350 | 843 | 695 | ||||||||||||
Other interest-earning assets | 11 | 4 | 20 | 8 | ||||||||||||
Total interest income | 19,231 | 15,083 | 37,642 | 30,188 | ||||||||||||
INTEREST EXPENSE: | ||||||||||||||||
Deposits | 3,025 | 2,043 | 5,887 | 3,975 | ||||||||||||
Securities sold under agreements to repurchase | 8 | 25 | 22 | 52 | ||||||||||||
Advances from FHLB of Des Moines | 284 | 282 | 510 | 700 | ||||||||||||
Note payable | 29 | - | 57 | - | ||||||||||||
Subordinated debt | 182 | 160 | 360 | 312 | ||||||||||||
Total interest expense | 3,528 | 2,510 | 6,836 | 5,039 | ||||||||||||
NET INTEREST INCOME | 15,703 | 12,573 | 30,806 | 25,149 | ||||||||||||
PROVISION FOR LOAN LOSSES | 642 | 656 | 1,511 | 1,581 | ||||||||||||
NET INTEREST INCOME AFTER | ||||||||||||||||
PROVISION FOR LOAN LOSSES | 15,061 | 11,917 | 29,295 | 23,568 | ||||||||||||
NONINTEREST INCOME: | ||||||||||||||||
Deposit account charges and related fees | 1,162 | 952 | 2,331 | 1,894 | ||||||||||||
Bank card interchange income | 905 | 719 | 1,773 | 1,404 | ||||||||||||
Loan late charges | 106 | 100 | 219 | 185 | ||||||||||||
Loan servicing fees | 147 | 74 | 327 | 130 | ||||||||||||
Other loan fees | 242 | 319 | 630 | 557 | ||||||||||||
Net realized gains on sale of loans | 219 | 241 | 422 | 513 | ||||||||||||
Net realized gains on sale of AFS securities | 37 | - | 37 | - | ||||||||||||
Earnings on bank owned life insurance | 234 | 210 | 466 | 421 | ||||||||||||
Other income | 122 | 85 | 241 | 171 | ||||||||||||
Total noninterest income | 3,174 | 2,700 | 6,446 | 5,275 | ||||||||||||
NONINTEREST EXPENSE: | ||||||||||||||||
Compensation and benefits | 5,424 | 4,513 | 11,356 | 9,300 | ||||||||||||
Occupancy and equipment, net | 2,379 | 1,991 | 4,684 | 4,021 | ||||||||||||
Deposit insurance premiums | 151 | 146 | 270 | 320 | ||||||||||||
Legal and professional fees | 293 | 325 | 545 | 528 | ||||||||||||
Advertising | 364 | 242 | 602 | 482 | ||||||||||||
Postage and office supplies | 177 | 145 | 374 | 277 | ||||||||||||
Intangible amortization | 348 | 228 | 696 | 456 | ||||||||||||
Bank card network expense | 373 | 274 | 740 | 553 | ||||||||||||
Other operating expense | 1,010 | 842 | 2,006 | 1,928 | ||||||||||||
Total noninterest expense | 10,519 | 8,706 | 21,273 | 17,865 | ||||||||||||
INCOME BEFORE INCOME TAXES | 7,716 | 5,911 | 14,468 | 10,978 | ||||||||||||
INCOME TAXES | 2,546 | 1,735 | 4,435 | 3,093 | ||||||||||||
NET INCOME | $ | 5,170 | $ | 4,176 | $ | 10,033 | $ | 7,885 |
| | | | | | | | | | | | | |
| | Three months ended |
| Nine months ended | | ||||||||
|
| March 31, | | March 31, | | ||||||||
(dollars in thousands except per share data) |
| 2023 |
| 2022 |
| 2023 |
| 2022 |
| ||||
| | | | | | | | | | | | | |
Interest Income | | | | | | | | | | | | | |
Loans | | $ | 43,115 | | $ | 27,060 | | $ | 113,288 | | $ | 81,614 | |
Investment securities | |
| 2,076 | |
| 524 | | | 3,519 | | | 1,608 | |
Mortgage-backed securities | |
| 1,652 | |
| 646 | | | 3,654 | | | 1,833 | |
Other interest-earning assets | |
| 1,443 | |
| 109 | | | 1,672 | | | 239 | |
Total interest income | |
| 48,286 | |
| 28,339 | | | 122,133 | | | 85,294 | |
Interest Expense | | | | | | | | | | | | | |
Deposits | |
| 13,705 | |
| 2,871 | | | 28,061 | | | 8,426 | |
Securities sold under agreements to repurchase | | | 213 | |
| — | | | 213 | | | — | |
Advances from FHLB | |
| 206 | |
| 167 | | | 2,300 | | | 613 | |
Subordinated debt | |
| 395 | |
| 187 | | | 1,033 | | | 447 | |
Total interest expense | |
| 14,519 | |
| 3,225 | | | 31,607 | | | 9,486 | |
Net Interest Income | |
| 33,767 | |
| 25,114 | | | 90,526 | | | 75,808 | |
Provision for Credit Losses | |
| 10,072 | |
| 1,552 | | | 16,266 | | | 1,247 | |
Net Interest Income After Provision for Credit Losses | |
| 23,695 | |
| 23,562 | | | 74,260 | | | 74,561 | |
Noninterest Income | |
|
| |
|
| | |
| | | | |
Deposit account charges and related fees | |
| 2,089 | |
| 1,560 | | | 5,578 | | | 4,743 | |
Bank card interchange income | |
| 1,374 | |
| 1,025 | | | 3,471 | | | 2,952 | |
Loan late charges | |
| 161 | |
| 135 | | | 402 | | | 414 | |
Loan servicing fees | |
| 265 | |
| 170 | | | 834 | | | 504 | |
Other loan fees | |
| 465 | |
| 606 | | | 1,959 | | | 1,556 | |
Net realized gains on sale of loans | |
| 132 | |
| 204 | | | 550 | | | 934 | |
Earnings on bank owned life insurance | |
| 368 | |
| 291 | | | 1,006 | | | 854 | |
Other income | |
| 1,430 | |
| 913 | | | 3,454 | | | 2,746 | |
Total noninterest income | |
| 6,284 | |
| 4,904 | | | 17,254 | | | 14,703 | |
Noninterest Expense | |
|
| |
|
| | |
| | | | |
Compensation and benefits | |
| 14,188 | |
| 9,223 | | | 33,733 | | | 25,745 | |
Occupancy and equipment, net | |
| 3,024 | |
| 2,399 | | | 7,914 | | | 6,710 | |
Data processing expense | |
| 2,505 | |
| 1,935 | | | 5,380 | | | 4,501 | |
Telecommunications expense | |
| 449 | |
| 308 | | | 1,127 | | | 946 | |
Deposit insurance premiums | |
| 231 | |
| 178 | | | 710 | | | 536 | |
Legal and professional fees | |
| 2,324 | |
| 341 | | | 3,587 | | | 931 | |
Advertising | |
| 409 | |
| 312 | | | 1,074 | | | 917 | |
Postage and office supplies | |
| 331 | |
| 202 | | | 779 | | | 582 | |
Intangible amortization | |
| 812 | |
| 363 | | | 1,615 | | | 1,040 | |
Foreclosed property expenses/losses | |
| 280 | |
| 115 | | | 275 | | | 449 | |
Other operating expense | |
| 2,439 | |
| 1,381 | | | 5,356 | | | 3,692 | |
Total noninterest expense | |
| 26,992 | |
| 16,757 | | | 61,550 | | | 46,049 | |
Income Before Income Taxes | |
| 2,987 | |
| 11,709 | | | 29,964 | | | 43,215 | |
Income Taxes | |
| 578 | |
| 2,358 | | | 6,288 | | | 9,133 | |
Net Income | | $ | 2,409 | | $ | 9,351 | | $ | 23,676 | | $ | 34,082 | |
| | | | | | | | | | | | | |
Basic earnings per share | | $ | 0.22 | | $ | 1.03 | | $ | 2.42 | | $ | 3.81 | |
Diluted earnings per share | | $ | 0.22 | | $ | 1.03 | | $ | 2.41 | | $ | 3.80 | |
Dividends paid | | $ | 0.21 | | $ | 0.20 | | $ | 0.63 | | $ | 0.60 | |
See Notes to Condensed Consolidated Financial Statements
-4-
FOR THE THREE- AND SIX-NINE- MONTH PERIODS ENDED DECEMBERMARCH 31, 20172023 AND 20162022 (Unaudited)
Three months ended | Six months ended | |||||||||||||||
December 31, | December 31, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
(dollars in thousands) | ||||||||||||||||
Net income | $ | 5,170 | $ | 4,176 | $ | 10,033 | $ | 7,885 | ||||||||
Other comprehensive income: | ||||||||||||||||
Unrealized gains (losses) on securities available-for-sale | (1,360 | ) | (3,401 | ) | (1,338 | ) | (3,631 | ) | ||||||||
Less: reclassification adjustment for realized gains included in net income | 37 | - | 37 | - | ||||||||||||
Unrealized gains (losses) on available-for-sale securities for which a portion of an other-than-temporary impairment has been recognized in income | 40 | 10 | 52 | (20 | ) | |||||||||||
Tax benefit (expense) | 428 | 1,255 | 416 | 1,351 | ||||||||||||
Total other comprehensive income (loss) | (929 | ) | (2,136 | ) | (907 | ) | (2,300 | ) | ||||||||
Comprehensive income | $ | 4,241 | $ | 2,040 | $ | 9,126 | $ | 5,585 |
| | | | | | | | | | | | | |
| | Three months ended |
| Nine months ended | | ||||||||
|
| March 31, | | March 31, | | ||||||||
(dollars in thousands) |
| 2023 |
| 2022 | | 2023 |
| 2022 |
| ||||
| | | | | | | | | | | | | |
Net Income | | $ | 2,409 | | $ | 9,351 | | $ | 23,676 | | $ | 34,082 | |
Other comprehensive income (loss): | |
|
| |
|
| | | | | | | |
Unrealized gains (losses) on securities available-for-sale | |
| 901 | |
| (9,579) | | | (756) | | | (12,014) | |
Tax benefit (expense) | |
| (198) | |
| 2,108 | | | 166 | | | 2,643 | |
Total other comprehensive income (loss) | |
| 703 | |
| (7,471) | | | (590) | | | (9,371) | |
Comprehensive Income | | $ | 3,112 | | $ | 1,880 | | $ | 23,086 | | $ | 24,711 | |
See Notes to Condensed Consolidated Financial Statements
-5-
FOR THE SIX-MONTHTHREE- AND NINE- MONTH PERIODS ENDED DECEMBERMARCH 31, 20172023 AND 20162022 (Unaudited)
Six months ended | ||||||||
December 31, | ||||||||
(dollars in thousands) | 2017 | 2016 | ||||||
Cash Flows From Operating Activities: | ||||||||
Net income | $ | 10,033 | $ | 7,885 | ||||
Items not requiring (providing) cash: | ||||||||
Depreciation | 1,559 | 1,507 | ||||||
Gain on disposal of fixed assets | (12 | ) | (9 | ) | ||||
Stock option and stock grant expense | 144 | 232 | ||||||
Amortization of intangible assets | 696 | 456 | ||||||
Amortization of purchase accounting adjustments | (820 | ) | (577 | ) | ||||
Increase in cash surrender value of bank owned life insurance | (466 | ) | (420 | ) | ||||
Gain on sale of foreclosed assets | (71 | ) | (5 | ) | ||||
Provision for loan losses | 1,511 | 1,581 | ||||||
Gains realized on sale of AFS securities | (37 | ) | - | |||||
Net amortization of premiums and discounts on securities | 510 | 526 | ||||||
Originations of loans held for sale | (11,605 | ) | (17,999 | ) | ||||
Proceeds from sales of loans held for sale | 11,199 | 18,193 | ||||||
Gain on sales of loans held for sale | (422 | ) | (513 | ) | ||||
Changes in: | ||||||||
Accrued interest receivable | (2,290 | ) | (1,279 | ) | ||||
Prepaid expenses and other assets | 4,938 | 958 | ||||||
Accounts payable and other liabilities | (3,657 | ) | (1,100 | ) | ||||
Deferred income taxes | 142 | 235 | ||||||
Accrued interest payable | 162 | 43 | ||||||
Net cash provided by operating activities | 11,514 | 9,714 | ||||||
Cash flows from investing activities: | ||||||||
Net increase in loans | (56,501 | ) | (75,726 | ) | ||||
Net change in interest-bearing deposits | 249 | 225 | ||||||
Proceeds from maturities of available for sale securities | 7,943 | 13,371 | ||||||
Proceeds from sales of available for sale securities | 7,303 | - | ||||||
Net (purchases) redemptions of Federal Home Loan Bank stock | (764 | ) | 103 | |||||
Net purchases of Federal Reserve Bank of Saint Louis stock | (836 | ) | (7 | ) | ||||
Purchases of available-for-sale securities | (20,978 | ) | (20,440 | ) | ||||
Purchases of premises and equipment | (1,714 | ) | (939 | ) | ||||
Investments in state & federal tax credits | (4,748 | ) | (1,661 | ) | ||||
Proceeds from sale of fixed assets | 854 | 11 | ||||||
Proceeds from sale of foreclosed assets | 752 | 484 | ||||||
Net cash used in investing activities | (68,440 | ) | (84,579 | ) | ||||
Cash flows from financing activities: | ||||||||
Net increase in demand deposits and savings accounts | 73,299 | 55,029 | ||||||
Net (decrease) increase in certificates of deposits | (19,914 | ) | 36,172 | |||||
Net decrease in securities sold under agreements to repurchase | (6,515 | ) | (4,543 | ) | ||||
Proceeds from Federal Home Loan Bank advances | 1,186,400 | 336,055 | ||||||
Repayments of Federal Home Loan Bank advances | (1,170,000 | ) | (338,605 | ) | ||||
Exercise of stock options | - | 61 | ||||||
Common stock issued expense | (4 | ) | - | |||||
Dividends paid on common stock | (1,890 | ) | (1,491 | ) | ||||
Net cash provided by financing activities | 61,376 | 82,678 | ||||||
Increase in cash and cash equivalents | 4,450 | 7,813 | ||||||
Cash and cash equivalents at beginning of period | 30,786 | 22,554 | ||||||
Cash and cash equivalents at end of period | $ | 35,236 | $ | 30,367 | ||||
Supplemental disclosures of cash flow information: | ||||||||
Noncash investing and financing activities: | ||||||||
Conversion of loans to foreclosed real estate | $ | 1,272 | $ | 472 | ||||
Conversion of foreclosed real estate to loans | - | 54 | ||||||
Conversion of loans to repossessed assets | 34 | 44 | ||||||
Cash paid during the period for: | ||||||||
Interest (net of interest credited) | $ | 1,749 | $ | 1,930 | ||||
Income taxes | 1,080 | 2,582 |
| | | | | | | | | | | | | | | | | | |
| | For the three-and nine- month period ended March 31, 2023 | ||||||||||||||||
|
| | |
| Additional |
| | | | | | | Accumulated Other | | Total | |||
|
| Common |
| Paid-In |
| Retained |
| Treasury |
| | Comprehensive |
| | Stockholders' | ||||
(dollars in thousands) |
| Stock |
| Capital |
| Earnings |
| Stock |
| Income (Loss) |
| Equity | ||||||
| | | | | | | | | | | | | | | | | | |
BALANCE AS OF DECEMBER 31, 2022 | | $ | 98 | | $ | 119,271 | | $ | 257,506 | | $ | (21,116) | | $ | (18,780) | | $ | 336,979 |
| | | | | | | | | | | | | | | | | | |
Net Income | | | | | | | | | 2,409 | | | | | | | | | 2,409 |
Change in unrealized loss on available for sale securities | | | | | | | | | | | | | | | 703 | | | 703 |
Dividends paid on common stock ($.21 per share) | | | | | | | | | (2,376) | | | | | | | | | (2,376) |
Stock option expense | | | | | | 68 | | | | | | | | | | | | 68 |
Stock grant expense | | | | | | 584 | | | | | | | | | | | | 584 |
Common stock issued | | | 21 | | | 98,259 | | | | | | | | | | | | 98,280 |
BALANCE AS OF MARCH 31, 2023 | | $ | 119 | | $ | 218,182 | | $ | 257,539 | | $ | (21,116) | | $ | (18,077) | | $ | 436,647 |
| | | | | | | | | | | | | | | | | | |
BALANCE AS OF JUNE 30, 2022 | | $ | 98 | | $ | 119,162 | | $ | 240,115 | | $ | (21,116) | | $ | (17,487) | | $ | 320,772 |
| | | | | | | | | | | | | | | | | | |
Net Income | |
| | |
| | |
| 23,676 | |
| | |
| | |
| 23,676 |
Change in unrealized loss on available for sale securities | |
| | |
| | |
| | |
| | |
| (590) | |
| (590) |
Dividends paid on common stock ($.63 per share) | |
| | |
| | |
| (6,252) | |
| | |
| | |
| (6,252) |
Stock option expense | | | | | | 177 | | | | | | | | | | | | 177 |
Stock grant expense | | | | | | 584 | | | | | | | | | | | | 584 |
Common stock issued | | | 21 | | | 98,259 | | | | | | | | | | | | 98,280 |
BALANCE AS OF MARCH 31, 2023 | | $ | 119 | | $ | 218,182 | | $ | 257,539 | | $ | (21,116) | | $ | (18,077) | | $ | 436,647 |
| | | | | | | | | | | | | | | | | | |
| | For the three- and nine- month period ended March 31, 2022 | ||||||||||||||||
|
| | |
| Additional |
| | | | | | | Accumulated Other | | Total | |||
|
| Common |
| Paid-In |
| Retained |
| Treasury |
| Comprehensive |
| Stockholders' | ||||||
(dollars in thousands) |
| Stock |
| Capital |
| Earnings |
| Stock |
| Income (Loss) |
| Equity | ||||||
| | | | | | | | | | | | | | | | | | |
BALANCE AS OF DECEMBER 31, 2021 | | $ | 94 | | $ | 95,675 | | $ | 221,312 | | $ | (16,452) | | $ | 982 | | $ | 301,611 |
| | | | | | | | | | | | | | | | | | |
Net Income | | | | | | | | | 9,351 | | | | | | | | | 9,351 |
Change in unrealized loss on available for sale securities | | | | | | | | | | | | | | | (7,471) | | | (7,471) |
Dividends paid on common stock ($.20 per share) | | | | | | | | | (1,778) | | | | | | | | | (1,778) |
Stock option expense | | | | | | 44 | | | | | | | | | | | | 44 |
Stock grant expense | | | | | | 515 | | | | | | | | | | | | 515 |
Common stock issued | | | 4 | | | 22,881 | | | | | | | | | | | | 22,885 |
BALANCE AS OF MARCH 31, 2022 | | $ | 98 | | $ | 119,115 | | $ | 228,885 | | $ | (16,452) | | $ | (6,489) | | $ | 325,157 |
| | | | | | | | | | | | | | | | | | |
BALANCE AS OF JUNE 30, 2021 | | $ | 94 | | $ | 95,585 | | $ | 200,140 | | $ | (15,278) | | $ | 2,882 | | $ | 283,423 |
| | | | | | | | | | | | | | | | | | |
Net Income | |
| | |
| | | | 34,082 | | | | | | | | | 34,082 |
Change in unrealized loss on available for sale securities | |
| | |
| | |
|
| |
|
| |
| (9,371) | |
| (9,371) |
Dividends paid on common stock ($.60 per share) | |
| | |
| | |
| (5,337) | |
|
| |
|
| |
| (5,337) |
Stock option expense | |
| | |
| 117 | |
|
| |
|
| |
|
| |
| 117 |
Stock grant expense | |
| | |
| 532 | |
|
| |
|
| |
|
| |
| 532 |
Common stock issued | | | 4 | | | 22,881 | | | | | | | | | | | | 22,885 |
Treasury stock purchased | |
| | |
| | |
|
| |
| (1,174) | |
|
| |
| (1,174) |
BALANCE AS OF MARCH 31, 2022 | | $ | 98 | | $ | 119,115 | | $ | 228,885 | | $ | (16,452) | | $ | (6,489) | | $ | 325,157 |
See Notes to Condensed Consolidated Financial Statements
-6-
SOUTHERN MISSOURI BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE- MONTH PERIODS ENDED MARCH 31, 2023 AND 2022 (Unaudited)
| | | | | | | |
| | Nine months ended | | ||||
|
| March 31, | | ||||
(dollars in thousands) |
| 2023 |
| 2022 |
| ||
| | | | | | | |
Cash Flows From Operating Activities: | | | | | | | |
Net Income | | $ | 23,676 | | $ | 34,082 | |
Items not requiring (providing) cash: | | | | | | | |
Depreciation | |
| 3,429 | |
| 3,307 | |
(Gain) loss on disposal of fixed assets | |
| (317) | |
| 3 | |
Stock option and stock grant expense | |
| 761 | |
| 649 | |
Loss on sale/write-down of REO | |
| 140 | |
| 392 | |
Amortization of intangible assets | |
| 1,615 | |
| 1,040 | |
Accretion of purchase accounting adjustments | |
| (2,166) | |
| (1,036) | |
Increase in cash surrender value of bank owned life insurance (BOLI) | |
| (1,006) | |
| (854) | |
Provision (benefit) for credit losses | |
| 16,266 | |
| 1,247 | |
Net amortization of premiums and discounts on securities | |
| 646 | |
| 855 | |
Originations of loans held for sale | |
| (14,673) | |
| (38,454) | |
Proceeds from sales of loans held for sale | |
| 14,723 | |
| 38,164 | |
Gain on sales of loans held for sale | |
| (550) | |
| (934) | |
Changes in: | |
| | |
| | |
Accrued interest receivable | |
| (2,901) | |
| 252 | |
Prepaid expenses and other assets | |
| (815) | |
| 2,311 | |
Accounts payable and other liabilities | |
| 136 | |
| 3,910 | |
Deferred income taxes | |
| (1,981) | |
| 1,019 | |
Accrued interest payable | |
| 2,383 | |
| (79) | |
Net cash provided by operating activities | |
| 39,366 | |
| 45,874 | |
Cash flows from investing activities: | |
|
| |
|
| |
Net increase in loans | |
| (311,095) | |
| (174,600) | |
Net change in interest-bearing deposits | |
| 1,244 | |
| (1,488) | |
Proceeds from maturities of available for sale securities | |
| 27,987 | |
| 33,863 | |
Proceeds from sales of available for sale securities | |
| 136,714 | |
| — | |
Net (purchases) redemptions of Federal Home Loan Bank stock | |
| (788) | |
| 502 | |
Net purchases of Federal Reserve Bank of St. Louis stock | |
| (2,701) | |
| (4) | |
Purchases of available-for-sale securities | |
| (131,827) | |
| (66,168) | |
Purchases of long-term investment | | | (165) | | | (133) | |
Purchases of premises and equipment | |
| (4,225) | |
| (4,365) | |
Net cash received in acquisition | | | 210,704 | | | 48,768 | |
Investments in state & federal tax credits | |
| (4,423) | |
| (9,786) | |
Proceeds from sale of fixed assets | |
| 3,464 | |
| 928 | |
Proceeds from sale of foreclosed assets | |
| 1,122 | |
| 471 | |
Proceeds from BOLI claim | | | 270 | | | — | |
Net cash used in investing activities | |
| (73,719) | |
| (172,012) | |
Cash flows from financing activities: | |
|
| |
|
| |
Net (decrease) increase in demand deposits and savings accounts | |
| (104,729) | |
| 303,499 | |
Net increase (decrease) in certificates of deposits | |
| 193,749 | |
| (21,571) | |
Net decrease in securities sold under agreements to repurchase | |
| (27,629) | |
| — | |
Proceeds from Federal Home Loan Bank advances | |
| 1,579,630 | |
| — | |
Repayments of Federal Home Loan Bank advances | |
| (1,572,668) | |
| (24,287) | |
Purchase of treasury stock | |
| — | |
| (1,174) | |
Dividends paid on common stock | |
| (6,252) | |
| (5,337) | |
Net cash provided by financing activities | |
| 62,101 | |
| 251,130 | |
Increase in cash and cash equivalents | |
| 27,748 | |
| 124,992 | |
Cash and cash equivalents at beginning of period | |
| 86,792 | |
| 123,592 | |
Cash and cash equivalents at end of period | | $ | 114,540 | | $ | 248,584 | |
Supplemental disclosures of cash flow information: | |
|
| |
|
| |
Noncash investing and financing activities: | |
|
| |
|
| |
Conversion of loans to foreclosed real estate | | $ | 1,073 | | $ | 127 | |
Conversion of loans to repossessed assets | |
| 58 | |
| 14 | |
Right of use assets obtained in exchange for lease obligations: Operating Leases | |
| 82 | |
| 109 | |
| | | | | | | |
-7-
The Company purchased all of the Citizens Bancshares Company on January 20, 2023. | | | | | | | |
In conjunction with the acquisition, liabilities were assumed as follows: | | | | | | | |
Fair value of assets acquired | | $ | 1,017,837 | | $ | — | |
Less: common stock issued | | | 98,280 | | | — | |
Cash paid | | | 32,522 | | | — | |
Liabilities assumed | | | 887,035 | | | — | |
| | | | | | | |
The Company purchased all of the Fortune Financial Corporation on February 25, 2022. | | | | | | | |
In conjunction with the acquisition, liabilities were assumed as follows: | | | | | | | |
Fair value of assets acquired | | $ | — | | $ | 267,913 | |
Less: common stock issued | | | — | | | 22,885 | |
Cash received | | | — | | | 12,663 | |
Liabilities assumed | | | — | | | 232,365 | |
| | | | | | | |
The Company assumed the liabilities and purchased associated assets of the First National Bank -Cairo branch on December 15, 2021. | | | | | | | |
In conjunction with the acquisitions, liabilities were assumed as follows: | | | | | | | |
Fair value of assets acquired | | $ | — | | $ | 1,707 | |
Cash paid for the capital stock | | | — | | | 27,151 | |
Liabilities assumed | | | — | | | 28,859 | |
| | | | | | | |
Cash paid during the period for: | |
|
| |
|
| |
Interest (net of interest credited) | | $ | 3,717 | | $ | 1,487 | |
Income taxes | |
| 4,062 | |
| 262 | |
See Notes to Condensed Consolidated Financial Statements
-8-
The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Securities and Exchange Commission (SEC)(“SEC”) Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all material adjustments (consisting only of normal recurring accruals) considered necessary for a fair presentation have been included. The condensed consolidated balance sheet of the Company as of June 30, 2017,2022, has been derived from the audited consolidated balance sheet of the Company as of that date. Operating results for the three- and six-nine- month periodperiods ended DecemberMarch 31, 2017,2023, are not necessarily indicative of the results that may be expected for the entire fiscal year. For additional information, refer to the audited consolidated financial statements included in the Company'sCompany’s June 30, 2017,2022 Form 10-K, which was filed with the SEC.
The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Southern Bank.subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.
Note 2: Organization and Summary of Significant Accounting Policies
Organization.
Southern Missouri Bancorp, Inc., a Missouri corporationThe Bank is primarily engaged in providing a full range of banking and financial services to individuals and corporate customers in its market areas. The Bank and Company are subject to competition from other financial institutions. The Bank and Company are subject to the regulation byof certain federal and state agencies and undergo periodic examinations by those regulatory authorities.
Basis of Financial Statement Presentation.
The condensed consolidated financial statements of the Company have been prepared in conformity with accounting principles generally accepted in the United States of America and general practices within the banking industry. In the normal course of business, the Company encounters two significant types of risk: economic and regulatory. Economic risk is comprised of interest rate risk, credit risk, and market risk. The Company is subject to interest rate risk to the degree that its interest-bearing liabilities reprice on a different basis than its interest-earning assets. Credit risk is the risk of default on thePrinciples of Consolidation.
The condensed consolidated financial statements include the accounts of the Company and its wholly-ownedUse of Estimates.
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the-9-
financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for loancredit losses, estimated fair values of purchased loans, other-than-temporary impairments (OTTI), and fair value of financial instruments.
Cash and Cash Equivalents.
For purposes of reporting cash flows, cash and cash equivalents includes cash, due from depository institutions and interest-bearing deposits in other depository institutions with original maturities of three months or less. Interest-bearing deposits in other depository institutions wereInterest-bearing Time Deposits.
Interest bearing deposits in banks mature within seven years and are carried at cost.Available for Sale Securities.
Available for sale securities (“AFS”), which include any security for which the Company has no immediate plan to sell but which may be sold in the future, are carried at fair value. Unrealized gains and losses, net of tax, are reported in accumulated other comprehensivePremiums and discounts on debt securities are amortized or accreted as adjustments to income over the estimated life of the security using the level yield method. Realized gains or losses on the sale of securities is based on the specific identification method. The fair value of securities is based on quoted market prices or dealer quotes. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities.
The Company does not invest in collateralized mortgage obligations that are considered high risk.
For AFS securities with fair value less than not the Company will not have to sell the security before recovery of its cost basis, it recognizes the credit component of an other-than-temporary impairment of a debt security in earnings and the remaining portion in other comprehensive income. As a result of this guidance, the Company's consolidated balance sheet as of the dates presented reflects the full impairment (that is, the difference between the security's amortized cost basis and fair value) on debt securities that the Company intends to sell or would more likely than not be required to sell before the expected recovery of the amortized cost basis. For available-for-sale debt securities that management has no intent to sell and believes that it more likely than not will not be required to sell prior to recovery, only the credit loss component of the impairment is recognized in earnings, while the noncredit loss is recognized in accumulated other comprehensive loss.income (loss). The credit loss component recognized in earnings is identified as the amount of principal cash flows not expected to be received over the remaining term of the security as projected based on cash flow projections.projections, and is recorded to the Allowance for Credit Losses (“ACL”), by a charge to provision for credit losses. Accrued interest receivable is excluded from the estimate of credit losses. Both the ACL and the adjustment to net income may be reversed if conditions change. However, if the Company intends to sell an impaired AFS security, or, if it is more likely than not the Company will be required to sell such a security before recovering its amortized cost basis, the entire impairment amount would be recognized in earnings with a corresponding adjustment to the security’s amortized cost basis. Because the security’s amortized cost basis is adjusted to fair value, there is no ACL in this situation.
The Company evaluates impaired AFS securities at the individual level on a quarterly basis, and considers factors including, but not limited to: the extent to which the fair value of the security is less than the amortized cost basis; adverse conditions specifically related to the security, an industry, or geographic area; the payment structure of the security and likelihood of the issuer to be able to make payments that may increase in the future; failure of the issuer to make scheduled interest or principal payments; any changes to the rating of the security by a rating agency; and the ability and intent to hold the security until maturity. A qualitative determination as to whether any portion of the impairment is attributable to credit risk is acceptable. There were no credit related factors underlying unrealized losses on AFS securities at March 31, 2023, or June 30, 2022.
Changes in the ACL are recorded as expense. Losses are charged against the ACL when management believes the uncollectability of an AFS debt security is confirmed or when either of the criteria regarding intent or requirement to sell is met.
-10-
Federal Reserve Bank and Federal Home Loan Bank and Federal Reserve Bank Stock.The Bank is a member of the Federal Reserve and the Federal Home Loan Bank (FHLB) system, and the Federal Reserve Bank of St. Louis.(“FHLB”) systems. Capital stock of the FHLBFederal Reserve and the Federal ReserveFHLB is a required investment of the Bank based upon a predetermined formula and is carried at cost.
Loans.
Loans are generally stated at unpaid principal balances, less theInterest on loans is accrued based upon the principal amount outstanding. The accrual of interest on loans is discontinued when, in management'smanagement’s judgment, the collectability of interest or principal in the normal course of business is doubtful. The Company complies with regulatory guidance which indicates that loans should be placed in nonaccrual status when 90 days past due, unless the loan is both well-secured and in the process of collection. A loan that is "in“in the process of collection"collection” may be subject to legal action or, in appropriate circumstances, through other collection efforts reasonably expected to result in repayment or restoration to current status in the near future. A loan is considered delinquent when a payment has not been made by the contractual due date. Interest income previously accrued but not collected at the date a loan is placed on nonaccrual status is reversed against interest income. Cash receipts on a nonaccrual loan are applied to principal and interest in accordance with its contractual terms unless full payment of principal is not expected, in which case cash receipts, whether designated as principal or interest, are applied as a reduction of the carrying value of the loan. A nonaccrual loan is generally returned to accrual status when principal and interest payments are current, full collectability of principal and interest is reasonably assured, and a consistent record of performance has been demonstrated.
The allowanceACL is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans, and is established through provision for credit losses on loans represents management's best estimate of losses probable in the existing loan portfolio.(“PCL”) charged to current earnings. The allowance for losses on loansACL is increased by the provision for losses on loans charged to expense and reduced by loans charged off, net of recoveries. Loans are charged off in the period deemed uncollectible, based on management'smanagement’s analysis of expected cash flows (for non-collateral dependent loans) or collateral value (for collateral-
Management estimates the ACL using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Adjustments may be made to historical loss information for differences identified in current loan-specific risk characteristics, such as differences in underwriting standards or terms; lending review systems; experience, ability, or depth of lending management and staff; portfolio growth and mix; delinquency levels and trends; as well as for changes in environmental conditions, such as changes in economic activity or employment, agricultural economic conditions, property values, or other relevant factors. The provision forCompany generally incorporates a reasonable and supportable forecast period of four quarters, and a four-quarter, straight-line reversion period to return to long-term historical averages.
The ACL is measured on a collective (pool) basis when similar risk characteristics exist. For loans that do not share general risk characteristics with the collectively evaluated pools, the Company estimates credit losses on an individual loan basis, and these loans are excluded from the collectively evaluated pools. An ACL for an individually evaluated loan is determined based on management's assessment of several factors: reviews and evaluations of specific loans, changes inrecorded when the nature and volumeamortized cost basis of the loan portfolio, current economic conditions andexceeds the related impact on specific borrowers and industry groups, historical loan loss experience, the level of classified and nonperforming loans and the results of regulatory examinations.
-11-
placed on nonaccrual status. A PD/LGD estimate is applied to a projected model of the loan. Impairment losses are recognized through an increase in the required allowance for loan losses. Cash receipts on loans deemed impaired are recorded based on the loan's separate status as a nonaccrual loan or an accrual status loan.
Loans acquired in a business combination that have experienced more-than-insignificant deterioration in credit quality since origination are considered purchased credit deteriorated (“PCD”) loans. At the amountacquisition date, an estimate of expected credit losses is made for groups of PCD loans with similar risk characteristics and timingindividual PCD loans without similar risk characteristics. This initial ACL is allocated to individual PCD loans and added to the purchase price or acquisition date fair values to establish the initial amortized cost basis of undiscounted expected principal and interest payments, including expected prepayments (the "undiscounted expected cash flows"). Under acquired impaired loan accounting, the PCD loans. As the initial ACL is added to the purchase price, there is no credit loss expense recognized upon acquisition of a PCD loan. Any difference between the undiscounted contractual cash flows and the undiscounted expected cash flows is the nonaccretable difference. The nonaccretable difference is an estimateunpaid principal balance of the loss exposure of principal and interest related to the purchased credit impairedPCD loans and the amountamortized cost basis is subjectconsidered to changerelate to non-credit factors and results in a discount or premium. Discounts and premiums are recognized through interest income on a level-yield method over time based on the performancelife of the loans. The carrying value of purchased credit impaired loans is initially determined as the discounted expected cash flows. The excess of expected cash flows at acquisition over the initial fair value of the purchased credit impaired loans is referred to as the "accretable yield" and is recorded as interest income over the estimated life of the acquired loans using the level-yield method, if the timing and amount of the future cash flows is reasonably estimable. The carrying value of purchased credit impaired loans is reduced by payments received, both principal and interest, and increased by the portion of the accretable yield recognized as interest income. Subsequent to acquisition, the Company evaluates the purchased credit impaired loans on a quarterly basis. Increases in expected cash flows compared to those previously estimated increase the accretable yield and are recognized as interest income prospectively. Decreases in expected cash flows compared to those previously estimated decrease the accretable yield and may result in the establishment of an allowance for loan losses and a provision for loan losses. Purchased credit impaired loans are generally considered accruing and performing loans, as the loans accrete interest income over the estimated life of the loan when expected cash flows are reasonably estimable. Accordingly, purchased credit impaired loans that are contractually past due are still considered to be accruing and performing as long as there is an expectation that the estimated cash flows will be received. If the timing and amount of cash flows is not reasonably estimable, the loans may be classified as nonaccrual loans.
Loan fees and certain direct loan origination costs are deferred, and the net fee or cost is recognized as an adjustment to interest income using the interest method over the contractual life of the loans.
Off-Balance Sheet Credit Exposures. Off-balance sheet credit instruments include commitments to make loans, and commercial letters of credit, issued to meet customer financing needs. The Company’s exposure to credit loss in the event of non-performance by the other party to the financial instrument for off-balance sheet loan commitments is represented by the contractual amount of those instruments. Such financial instruments are recorded when they are funded. The ACL on off-balance sheet credit exposures is estimated by loan pool on a quarterly basis under the current CECL model using the same methodologies as portfolio loans, taking into consideration the likelihood that funding will occur and is included in other liabilities on the Company’s consolidated balance sheets. The Company records an ACL on off-balance sheet credit exposures, unless the commitments to extend credit are unconditionally cancelable.
Foreclosed Real Estate.
Real estate acquired by foreclosure or by deed in lieu of foreclosure is initially recorded at fair value less estimated sellingValuations are periodically performed by management, and an allowance for losses is established by a charge to operations if the carrying value of a property exceeds its estimated fair value, less estimated selling costs.
Loans to facilitate the sale of real estate acquired in foreclosure are discounted if made at less than market rates. Discounts are amortized over the fixed interest period of each loan using the interest method.
Premises and Equipment.
Premises and equipment are stated at cost less accumulated depreciation and include expenditures for major betterments and renewals. Maintenance, repairs, and minor renewals are expensed as incurred. When property is retired or sold, the retired asset and related accumulated depreciation are removed from the accounts and the resulting gain or loss taken into income. The Company reviews property and equipment forDepreciation is computed by use of straight-line and accelerated methods over the estimated useful lives of the assets. Estimated lives are generally seven to forty years for premises, three to seven years for equipment, and three years for software.
Bank Owned Life Insurance.
Bank owned life insurance policies are reflected in the condensed consolidated balance sheets at the estimated cash surrender value. Changes in the cash surrender value of these policies, as well as a portion of the insurance proceeds received, are recorded in noninterest income in the condensed consolidated statements of income.-12-
Goodwill. The Company'sCompany’s goodwill is evaluated annually for impairment or more frequently if impairment indicators are present. A qualitative assessment is performed to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value is less than the carrying amount, including goodwill. If, based on the evaluation, it is determined to be more likely than not that the fair value is less than the carrying value, then goodwill is tested further for impairment. If the implied fair value of goodwill is lower than its carrying amount, a goodwill impairment is indicated and goodwill is written down to its implied fair value. Subsequent increases in goodwill value are not recognized in the financial statements.
Intangible Assets.
TheIncome Taxes.
The Company accounts for income taxes in accordance with income tax accounting guidance (ASC 740, Income Taxes). The income tax accounting guidance results in two components of income tax expense: current and deferred. Current income tax expense reflects taxes to be paid or refunded for the current period by applying the provisions of the enacted tax law to the taxable income or excess of deductions over revenues. The Company determines deferred income taxes using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is based on the tax effects of the differences between the book and tax bases of assets and liabilities, and enacted changes in tax rates and laws are recognized in the period in which they occur.Deferred income tax expense results from changes in deferred tax assets and liabilities between periods. Deferred tax assets are recognized if it is more likely than not, based on the technical merits, that the tax position will be realized or sustained upon examination. The term more likely than not means a likelihood of more than 50 percent; the terms examined and upon examination also include resolution of the related appeals or litigation processes, if any. A tax position that meets the more-likely-than-not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that has a greater than 50 percent likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information. The determination of whether or not a tax position has met the more-likely-than-not recognition threshold considers the facts, circumstances, and information available at the reporting date and is subject to management'smanagement’s judgment. Deferred tax assets are reduced by a valuation allowance if, based on the weight of evidence available, it is more likely than not that some portion or all of a deferred tax asset will not be realized.
The Company recognizes interest and penalties, if any, on income taxes as a component of income tax expense.
The Company files consolidated income tax returns with its subsidiaries.
Incentive Plan.
-13-
Outside Directors'Directors’ Retirement.
In the event that the participant dies before collecting any or all of the benefits, the Bank shall pay the participant'sparticipant’s beneficiary. No benefitsBenefits shall not be payable to anyone other than the beneficiary, and shall terminate on the death of the beneficiary.
Stock Options.
Compensation cost is measured based on the grant-date fair value of the equity instruments issued, and recognized over the vesting period during which an employee provides service in exchange for the award.Earnings Per Share.
Basic earnings per share available to common stockholders is computed using the weighted-average number of common shares outstanding. Diluted earnings per share available to common stockholders includes the effect of all weighted-average dilutive potential common shares (stock options andComprehensive Income.
Comprehensive income consists of net income and other comprehensive income (loss), net of applicable income taxes. Other comprehensive income (loss) includes unrealized appreciation (depreciation) on available-for-sale securities, unrealized appreciation (depreciation) on available-for-sale securities for which a portion of an other-than-temporary impairment has been recognized in income, and changes in the funded status of defined benefit pension plans.Transfers Between Fair Value Hierarchy Levels.
Transfers in and out of Level 1 (quoted market prices), Level 2 (other significant observable inputs) and Level 3 (significant unobservable inputs) are recognized on the period ending date.New Accounting Pronouncements:
In March 2017,2020, the CARES Act was signed into law, creating a forbearance program for federally backed mortgage loans, protects borrowers from negative credit reporting due to loan accommodations related to the National Emergency, and provides financial institutions the option to temporarily suspend certain requirements under U.S. GAAP related to troubled debt restructurings (TDR) for a limited period of time to account for the effects of COVID-19. The Company elected to not apply ASC Subtopic 310-40 for loans eligible under the CARES Act, based on the modification’s (1) relation to COVID-19, (2) execution for a loan that was not more than 30-days past due as of December 31, 2019, and (3) execution between March 1, 2020, and the earlier of the date that falls 60 days following the termination of the declared National Emergency, or December 31, 2020. The 2021 Consolidated Appropriations Act, signed into law in December 2020, extended the window during which loans could have been modified without classification as TDRs under ASC Subtopic 310-40, to the earlier of January 1, 2022, or 60 days following the termination of the declared National Emergency.
In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2017-08, Receivables – Nonrefundable FeesReporting (Topic 848)," to provide temporary optional guidance to ease the potential burden in accounting for reference rate reform. LIBOR and Other Costs: Premium Amortizationother interbank offered rates are widely used benchmarks or reference rates in the United States and globally. Trillions of dollars in loans, derivatives, and other financial contracts reference LIBOR, the benchmark interest rate banks use to make short-term loans to each other. With global capital markets expected to move away from LIBOR and other interbank offered rates and move toward rates that are more observable or transaction based and less susceptible to manipulation, the FASB launched a broad project in late 2018 to address potential accounting challenges expected to arise from the transition. The new guidance provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. The ASU is intended to help stakeholders during the global market-wide reference rate transition period.
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Originally, an entity could apply this ASU as of the beginning of an interim period that includes the March 12, 2020 issuance date of the ASU, through December 31, 2022. With the issuance of ASU 2022-06 - Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848, the sunset date for adoption of ASU 2020-04 was extended from December 31, 2022 to December 31, 2024. The Company expects to adopt the practical expedients included in this ASU in 2023 as it transitions its loans and other financial instruments to another reference rate. The adoption of ASU 2020-04 is not expected to have a material impact on Purchased Callable Debt Securities (Subtopic 310-20)the Company’s consolidated financial statements.
In January 2021, the FASB has published ASU 2021-01, “Reference Rate Reform. (Topic 848)”. ASU 2021-01 clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. The UpdateASU also amends the amortizationexpedients and exceptions in Topic 848 to capture the incremental consequences of the scope clarification and to tailor the existing guidance to derivative instruments affected by the discounting transition. An entity may elect to apply the amendments in this update on a full retrospective basis as of any date from the beginning of an interim period for certain callable debt securities held atthat includes or is subsequent to March 12, 2020, or on a premium. The Update requiresprospective basis to new modifications from any date within an interim period that includes or is subsequent to the premiumdate of the issuance of a final update, up to the date that financial statements are available to be amortizedissued. If an entity elects to apply any of the earliest call date. Foramendments in this update for an eligible hedging relationship, any adjustments as a result of those elections must be reflected as of the date the entity applies the election. Originally, the amendments in this update did not apply to contract modifications made after December 31, 2022, new hedging relationships entered into after December 31, 2022, and existing hedging relationships evaluated for effectiveness in periods after December 31, 2022 except for hedging relationships existing as of December 31, 2022, that apply certain optional expedients in which the accounting effects are recorded through the end of the hedging relationship (including periods after December 31, 2022). With the issuance of ASU 2022-06 Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848, the sunset date for adoption of ASU 2021-01 was extended from December 31, 2022 to December 31, 2024. The Company expects to adopt the practical expedients included in this ASU in 2023 as it transitions its loans and other financial instruments to another reference rate, and is not expected to have a material impact on the consolidated financial statements.
In March 2022, the FASB issued ASU No. 2022-02, “Financial Instruments – Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures.” ASU 2022-02 eliminates the accounting guidance for TDRs in ASC 310-40, “Receivables – Troubled Debt Restructurings by Creditors” for entities that have adopted the CECL model introduced by ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” ASU 2022-02 also requires that public companies,business entities disclose current-period gross charge offs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20, “Financial Instruments – Credit Losses – Measured at Amortized Cost.” ASU 2022-02 is effective for fiscal years beginning after December 15, 2018, including interim periods. Early adoption2022, for entities that have adopted the amendments in ASU 2016-13, and is permitted. The Company elected to adopt the ASU early, and there was not a material impact on the Company's consolidated financial statements.
In October 2016,March 2023, the FASB issued ASU 2016-16, Income Taxes2023-02, “Investments - Equity Method and Joint Ventures (Topic 740). The Update provides guidance323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method.” This ASU permits reporting entities to improveelect to account for tax equity investments, regardless of the accountingtax credit program for which the income tax consequences of intra-entity transfers of assets other than inventory.credits are received, using the proportional amortization method if certain conditions are met. Under the new guidance, companies should recognizeproportional amortization method, an entity amortizes the initial cost of the investment in proportion to the income tax consequences of an intra-entity transfer of an assetcredits and other than inventory whenincome tax benefits received and recognizes the transfer occurs. Intellectual propertynet amortization and property, plant,income tax credits and equipment, are two common examples of assets includedother income tax benefits in the scopeincome statement as a component of this Update. For public companies,income tax expense. A reporting entity makes an accounting policy election to apply the ASU is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Management is evaluating the impact of the new guidance, but does not expect the adoption of this guidance to have a material impact on the Company's consolidated financial statements.
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The amortized cost, gross unrealized gains, gross unrealized losses, ACL, and approximate fair value of securities available for sale consisted of the following:
December 31, 2017 | ||||||||||||||||
Gross | Gross | Estimated | ||||||||||||||
Amortized | Unrealized | Unrealized | Fair | |||||||||||||
(dollars in thousands) | Cost | Gains | Losses | Value | ||||||||||||
Investment and mortgage backed securities: | ||||||||||||||||
U.S. government-sponsored enterprises (GSEs) | $ | 10,452 | $ | 2 | $ | (63 | ) | $ | 10,391 | |||||||
State and political subdivisions | 54,020 | 610 | (318 | ) | 54,312 | |||||||||||
Other securities | 5,899 | 387 | (470 | ) | 5,816 | |||||||||||
Mortgage-backed: GSE residential | 78,486 | 97 | (749 | ) | 77,834 | |||||||||||
Total investments and mortgage-backed securities | $ | 148,857 | $ | 1,096 | $ | (1,600 | ) | $ | 148,353 | |||||||
June 30, 2017 | ||||||||||||||||
Gross | Gross | Estimated | ||||||||||||||
Amortized | Unrealized | Unrealized | Fair | |||||||||||||
(dollars in thousands) | Cost | Gains | Losses | Value | ||||||||||||
Investment and mortgage backed securities: | ||||||||||||||||
U.S. government-sponsored enterprises (GSEs) | $ | 10,433 | $ | 17 | $ | (12 | ) | $ | 10,438 | |||||||
State and political subdivisions | 49,059 | 1,046 | (127 | ) | 49,978 | |||||||||||
Other securities | 6,017 | 306 | (598 | ) | 5,725 | |||||||||||
Mortgage-backed GSE residential | 78,088 | 490 | (303 | ) | 78,275 | |||||||||||
Total investments and mortgage-backed securities | $ | 143,597 | $ | 1,859 | $ | (1,040 | ) | $ | 144,416 |
| | | | | | | | | | | | | | | |
| | March 31, 2023 | |||||||||||||
|
| | |
| Gross |
| Gross |
| Allowance | | Estimated | ||||
|
| Amortized |
| Unrealized |
| Unrealized |
| for |
| Fair | |||||
(dollars in thousands) |
| Cost |
| Gains |
| Losses |
| Credit Losses |
| Value | |||||
Debt and equity securities: | | | | | | | | | | | | | | | |
U.S. government-sponsored enterprises (GSEs) | | $ | 8,476 | | $ | 265 | | $ | — | | $ | — | | $ | 8,741 |
Obligations of states and political subdivisions | | | 45,740 | | | 43 | | | (2,377) | | | — | | | 43,406 |
Corporate obligations | | | 36,644 | | | 68 | | | (2,416) | | | — | | | 34,296 |
Asset backed securities | | | 59,592 | | | 850 | | | (95) | | | — | | | 60,347 |
Other securities | |
| 3,600 | |
| 46 | |
| (60) | |
| — | |
| 3,586 |
Total debt and equity securities | | | 154,052 | | | 1,272 | | | (4,948) | | | — | | | 150,376 |
| | | | | | | | | | | | | | | |
Mortgage-backed securities (MBS) and collateralized mortgage obligations (CMOs): | | | | | | | | | | | | | | | |
Residential MBS issued by governmental sponsored enterprises (GSEs) | | | 100,054 | | | 738 | | | (7,440) | | | — | | | 93,352 |
Commercial MBS issued by GSEs | | | 60,485 | | | 83 | | | (5,747) | | | — | | | 54,821 |
CMOs issued by GSEs | | | 138,512 | | | 8 | | | (7,271) | | | — | | | 131,249 |
Total MBS and CMOs | |
| 299,051 | |
| 829 | |
| (20,458) | |
| — | | | 279,422 |
Total AFS securities | | $ | 453,103 | | $ | 2,101 | | $ | (25,406) | | $ | — | | $ | 429,798 |
| | | | | | | | | | | | | | | |
| | June 30, 2022 | |||||||||||||
|
| | |
| Gross |
| Gross | | Allowance | | Estimated | ||||
|
| Amortized |
| Unrealized |
| Unrealized |
| for |
| Fair | |||||
(dollars in thousands) |
| Cost |
| Gains |
| Losses |
| Credit Losses |
| Value | |||||
| | | | | | | | | | | | | | | |
Debt and equity securities: | | | | | | | | | | | | | | | |
Obligations of states and political subdivisions | | $ | 47,383 | | $ | 77 | | $ | (2,981) | | $ | — | | $ | 44,479 |
Corporate obligations | | | 20,818 | | | 32 | | | (963) | | | — | | | 19,887 |
Other securities | | | 486 | |
| — | |
| (43) | |
| — | | | 443 |
Total debt and equity securities | | | 68,687 | | | 109 | | | (3,987) | | | — | | | 64,809 |
| | | | | | | | | | | | | | | |
Mortgage-backed securities (MBS) and collateralized mortgage obligations (CMOs): | | | | | | | | | | | | | | | |
Residential MBS issued by governmental sponsored enterprises (GSEs) | | | 76,345 | | | — | | | (7,177) | | | — | | | 69,168 |
Commercial MBS issued by GSEs | | | 51,435 | | | — | | | (5,705) | | | — | | | 45,730 |
CMOs issued by GSEs | | | 61,293 | | | — | | | (5,606) | | | — | | | 55,687 |
Total MBS and CMOs | |
| 189,073 | |
| — | |
| (18,488) | |
| — | |
| 170,585 |
Total AFS securities | | $ | 257,760 | | $ | 109 | | $ | (22,475) | | $ | — | | $ | 235,394 |
The amortized cost and estimated fair value of investment and mortgage-backed securities, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without penalties.
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December 31, 2017 | ||||||||
Amortized | Estimated | |||||||
(dollars in thousands) | Cost | Fair Value | ||||||
Within one year | $ | 4,229 | $ | 4,232 | ||||
After one year but less than five years | 17,610 | 17,596 | ||||||
After five years but less than ten years | 21,316 | 21,459 | ||||||
After ten years | 27,216 | 27,232 | ||||||
Total investment securities | 70,371 | 70,519 | ||||||
Mortgage-backed securities | 78,486 | 77,834 | ||||||
Total investments and mortgage-backed securities | $ | 148,857 | $ | 148,353 |
| | | | | | |
| | March 31, 2023 | ||||
|
| Amortized |
| Estimated | ||
(dollars in thousands) |
| Cost |
| Fair Value | ||
Within one year | | $ | 3,227 | | $ | 3,216 |
After one year but less than five years | |
| 29,339 | |
| 28,156 |
After five years but less than ten years | |
| 64,436 | |
| 61,923 |
After ten years | |
| 57,050 | |
| 57,081 |
Total investment securities | |
| 154,052 | |
| 150,376 |
MBS and CMOs | |
| 299,051 | |
| 279,422 |
Total AFS securities | | $ | 453,103 | | $ | 429,798 |
The carrying value of investment and mortgage-backed securities pledged as collateral to secure public deposits and securities sold under agreements to repurchase amounted to $121.4$243.6 million at DecemberMarch 31, 20172023, and $114.1$198.3 million at June 30, 2017.2022. The securities pledged consist of marketable securities, including $9.4$99.1 million and $6.5$126.3 million of U.S. Government and Federal Agency Obligations, $41.3Mortgage-backed Securities, $111.5 million and $50.5 million of Mortgage-Backed Securities, $26.3 million and $19.9$27.3 million of Collateralized Mortgage Obligations, $44.1$24.4 million and $36.8$42.3 million of State and Political Subdivisions Obligations, and $300,000$8.6 million and $400,000$2.4 million of Other Securitiesother securities at DecemberMarch 31, 2023 and June 30, 2017,2022, respectively.
The following tables show our investments'the Company’s investments’ gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position for which an ACL has not been recorded at DecemberMarch 31, 2023 and June 30, 2017:2022:
| | | | | | | | | | | | | | | | | | |
| | March 31, 2023 | ||||||||||||||||
|
| Less than 12 months |
| 12 months or more |
| Total | ||||||||||||
|
| | | | Unrealized |
| | | | Unrealized |
| | | | Unrealized | |||
(dollars in thousands) |
| Fair Value |
| Losses |
| Fair Value |
| Losses |
| Fair Value |
| Losses | ||||||
Obligations of state and political subdivisions | | $ | 9,413 | | $ | 98 | | $ | 26,218 | | $ | 2,279 | | $ | 35,631 | | $ | 2,377 |
Corporate obligations | | | 18,451 | | | 750 | | | 13,760 | | | 1,666 | | | 32,211 | | | 2,416 |
Asset backed securities | | | 7,013 | | | 95 | | | — | | | — | | | 7,013 | | | 95 |
Other securities | | | 1,962 | | | 19 | | | 354 | | | 41 | | | 2,316 | | | 60 |
MBS and CMOs | |
| 109,361 | |
| 1,528 | |
| 135,113 | |
| 18,930 | |
| 244,474 | |
| 20,458 |
Total AFS securities | | $ | 146,200 | | $ | 2,490 | | $ | 175,445 | | $ | 22,916 | | $ | 321,645 | | $ | 25,406 |
| | | | | | | | | | | | | | | | | | |
| | June 30, 2022 | ||||||||||||||||
|
| Less than 12 months |
| 12 months or more |
| Total | ||||||||||||
|
| | | | Unrealized |
| | | | Unrealized |
| | | | Unrealized | |||
(dollars in thousands) |
| Fair Value |
| Losses |
| Fair Value |
| Losses |
| Fair Value |
| Losses | ||||||
Obligations of state and political subdivisions | | $ | 31,985 | | $ | 2,639 | | $ | 1,600 | | $ | 342 | | $ | 33,585 | | $ | 2,981 |
Corporate obligations | | | 10,944 | | | 420 | | | 6,911 | | | 543 | | | 17,855 | | | 963 |
Other securities | | | 418 | | | 43 | | | — | | | — | | | 418 | | | 43 |
MBS and CMOs | |
| 137,590 | |
| 12,482 | |
| 29,834 | |
| 6,006 | |
| 167,424 | |
| 18,488 |
Total AFS securities | | $ | 180,937 | | $ | 15,584 | | $ | 38,345 | | $ | 6,891 | | $ | 219,282 | | $ | 22,475 |
Obligations of state and political subdivisions. The unrealized losses on the Company’s investments in obligations of state and political subdivisions include 22 individual securities which have been in an unrealized loss position for less than 12 months and 51 individual securities which have been in an unrealized loss position for more than 12 months. The securities are performing and are of high credit quality. The unrealized losses were caused by increases in market interest rates since purchase or acquisition. Because the Company does not intend to sell these securities and it is likely that the Company will not be required to sell these securities prior to recovery of their amortized cost basis, which may be maturity, the Company has not recorded an ACL on these securities.
Corporate Obligations. The unrealized losses on the Company’s investments in corporate obligations include 13 individual securities which have been in an unrealized loss position for less than 12 months and ten individual securities which have been in an unrealized loss position for more than 12 months. The securities are performing and are of high credit quality. The unrealized losses were caused by increases in market interest rates since purchase or acquisition.
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December 31, 2017 | ||||||||||||||||||||||||
Less than 12 months | 12 months or more | Total | ||||||||||||||||||||||
Unrealized | Unrealized | Unrealized | ||||||||||||||||||||||
Fair Value | Losses | Fair Value | Losses | Fair Value | Losses | |||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||
U.S. government-sponsored enterprises (GSEs) | $ | 5,931 | $ | 30 | $ | 2,465 | $ | 33 | $ | 8,396 | $ | 63 | ||||||||||||
Obligations of state and political subdivisions | 14,502 | 150 | 8,306 | 168 | 22,808 | 318 | ||||||||||||||||||
Other securities | - | - | 1,271 | 470 | 1,271 | 470 | ||||||||||||||||||
Mortgage-backed securities | 47,655 | 296 | 20,494 | 453 | 68,149 | 749 | ||||||||||||||||||
Total investments and mortgage-backed securities | $ | 68,088 | $ | 476 | $ | 32,536 | $ | 1,124 | $ | 100,624 | $ | 1,600 | ||||||||||||
June 30, 2017 | ||||||||||||||||||||||||
Less than 12 months | 12 months or more | Total | ||||||||||||||||||||||
Unrealized | Unrealized | Unrealized | ||||||||||||||||||||||
Fair Value | Losses | Fair Value | Losses | Fair Value | Losses | |||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||
U.S. government-sponsored enterprises (GSEs) | $ | 6,457 | $ | 12 | $ | - | $ | - | $ | 6,457 | $ | 12 | ||||||||||||
Obligations of state and political subdivisions | 12,341 | 127 | 256 | - | 12,597 | 127 | ||||||||||||||||||
Other securities | - | - | 1,160 | 598 | 1,160 | 598 | ||||||||||||||||||
Mortgage-backed securities | 29,836 | 267 | 2,285 | 36 | 32,121 | 303 | ||||||||||||||||||
Total investments and mortgage-backed securities | $ | 48,634 | $ | 406 | $ | 3,701 | $ | 634 | $ | 52,335 | $ | 1,040 |
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 these securities prior to recovery of their amortized cost basis, which may be maturity, the Company has not recorded an ACL on these securities.
At DecemberMarch 31, 2017, there were three2023, corporate obligations included two pooled trust preferred securities with an estimated fair value of $943,000$770,000 and unrealized losses of $465,000$209,000 in a continuous unrealized loss position for twelve months or more. These unrealized losses were primarily due to the long-term nature of the pooled trust preferred securities, and a reduced demand for these securities, and concerns regarding the financial institutions that issuedissuers of the underlying trust preferred securities. Rules adopted by the federal banking agencies in December 2013 to implement Section 619 of the Dodd-Frank Act (the "Volcker Rule") generally prohibit banking entities from engaging in proprietary trading and from investing in, sponsoring, or having certain relationships with a hedge fund or private equity fund. All pooled trust preferred securities owned by the Company were included in a January 2014 listing of securities which the agencies considered to be grandfathered with regard to these prohibitions; as such, banking entities are permitted to retain their interest in these securities, provided the interest was acquired on or before December 10, 2013, unless acquired pursuant to a merger or acquisition.
A cash flow analysis performed as of March 31, 2023, for these threetwo securities indicated it is probable the Company will receive all contracted principal and related interest projected. The cash flow analysis used in making this determination was based on anticipated default, recovery, and prepayment rates, and the resulting cash flows were discounted based on the yield spread anticipated at the time the securities were purchased. Other inputs include the actual collateral attributes, which include credit ratings and other performance indicators of the underlying financial institutions, including profitability, capital ratios, and asset quality. Assumptions for these three securities included annualized prepayments of 1.3 to 1.7 percent; recoveries of 21 percent on currently deferred issuers within the next two years; new deferrals of 40 to 50 basis points annually; and eventual recoveries of eight to ten percent of new deferrals.
Other securities. The unrealized losses on the Company’s investments in other securities includes ten individual securities which has been in an unrealized loss position for less than 12 months and two individual securities which have been in an unrealized loss position for more than 12 months. The securities are performing and are of high credit quality. The unrealized loss was caused by increases in market interest rates since purchase or acquisition. Because the Company does not considerintend to sell these investmentssecurities and it is more likely than not that the Company will not be required to be other-than-temporarily impaired at December 31, 2017.
MBS and CMOs. As of March 31, 2023, the unrealized losses on the Company’s investments in MBS and CMOs include 33 individual securities which have been in an unrealized loss position for less than 12 months, and 113 individual securities which have been in an unrealized loss position for 12 months or more. The securities are performing and are of high credit quality. The unrealized losses were caused by increases in market interest rates since purchase or acquisition. Because the security,Company does not intend to sell these securities and asit is likely that the Company will not be required to sell these securities prior to recovery of December 31, 2017, the estimated fair value of the security exceeds the new, lowertheir amortized cost basis.
The Company does not believe that any other individual unrealized loss as of DecemberMarch 31, 2017, represents OTTI.2023, is the result of a credit loss. However, the Company could be required to recognize OTTI lossesan ACL in future periods with respect to its available for sale investment securities portfolio. The amount and timing of any additional OTTI will depend on the decline in the underlying cash flows of the securities. Should the impairment of any of these securities become other-than-temporary, the cost basis of the investment will be reduced and the resulting loss recognized in the period the other-than-temporary impairment is identified.
Credit losses recognized on investments.
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Accumulated Credit Losses | ||||||||
Six-Month Period Ended | ||||||||
(dollars in thousands) | December 31, | |||||||
2017 | 2016 | |||||||
Credit losses on debt securities held | ||||||||
Beginning of period | $ | 340 | $ | 352 | ||||
Additions related to OTTI losses not previously recognized | - | - | ||||||
Reductions due to sales | - | - | ||||||
Reductions due to change in intent or likelihood of sale | - | - | ||||||
Additions related to increases in previously-recognized OTTI losses | - | - | ||||||
Reductions due to increases in expected cash flows | (6 | ) | (6 | ) | ||||
End of period | $ | 334 | $ | 346 |
Classes of loans are summarized as follows:
(dollars in thousands) | December 31, 2017 | June 30, 2017 | ||||||
Real Estate Loans: | ||||||||
Residential | $ | 447,401 | $ | 442,463 | ||||
Construction | 86,088 | 106,782 | ||||||
Commercial | 655,996 | 603,922 | ||||||
Consumer loans | 66,725 | 63,651 | ||||||
Commercial loans | 246,165 | 247,184 | ||||||
1,502,375 | 1,464,002 | |||||||
Loans in process | (32,536 | ) | (50,740 | ) | ||||
Deferred loan fees, net | 3 | 6 | ||||||
Allowance for loan losses | (16,867 | ) | (15,538 | ) | ||||
Total loans | $ | 1,452,975 | $ | 1,397,730 |
| | | | | | |
(dollars in thousands) |
| March 31, 2023 |
| June 30, 2022 | ||
Real Estate Loans: | | | | | | |
Residential | | $ | 1,120,970 | | $ | 904,160 |
Construction | |
| 517,967 | |
| 258,072 |
Commercial | |
| 1,460,314 | |
| 1,146,673 |
Consumer loans | |
| 125,483 | |
| 92,996 |
Commercial loans | |
| 560,979 | |
| 441,598 |
| |
| 3,785,713 | |
| 2,843,499 |
Loans in process | |
| (305,193) | |
| (123,656) |
Deferred loan fees, net | |
| (316) | |
| (453) |
Allowance for credit losses | |
| (45,685) | |
| (33,192) |
Total loans | | $ | 3,434,519 | | $ | 2,686,198 |
The Company'sCompany’s lending activities consist of origination of loans secured by mortgages on one- to four-family residences and commercial and agricultural real estate, construction loans on residential and commercial properties, commercial and agricultural business loans and consumer loans. The Company has also occasionallyAt March 31, 2023, the Bank had purchased loan participation interests originated by other lenders and secured by properties generally locatedparticipations in the states of Missouri and Arkansas.
Residential Mortgage Lending.
The Company actively originates loans for the acquisition or refinance of one- to four-family residences. This category includes both fixed-rate and adjustable-rate mortgageThe Company also originates loans secured by multi-family residential properties that are often located outside the Company'sCompany’s primary lending area but made to borrowers who operate within theour primary marketlending area. The majority
-19-
Commercial Real Estate Lending.The Company actively originates loans secured by owner- and non-owner-occupied commercial real estate including farmland, single- and multi-tenant retail properties, restaurants, hotels, land (improved unimproved, and farmland)unimproved), strip shoppingnursing homes and other healthcare facilities, warehouses and distribution centers, retail establishmentsconvenience stores, automobile dealerships and other automotive-related services, and other businesses. These properties are typically owned and operated by borrowers headquartered within the Company'sCompany’s primary lending area, however, the property may be located outside our primary lending area.
Most commercial real estate loans originated by the Company generally are based on amortization schedules of up to 25 years with monthly principal and interest payments. Generally, the interest rate received on these loans is fixed for a maturity forof up to seventen years, with a balloon payment due at maturity. Alternatively, for some loans, the interest rate adjusts at least annually after an initial period up to seven years. The Company typically includes an interest rate "floor"“floor” in the loan agreement. Generally, improved commercial real estate loan amounts do not exceed 80% of the lower of the appraised value or the purchase price of the secured property. Agricultural real estate terms offered differ slightly, with amortization schedules of up to 25 years with an 80% loan-to-value ratio, or 30 years with a 75% loan-to-value ratio.
Construction Lending.
The Company originates real estate loans secured by property or land that is under construction or development. Construction loans originated by the Company are generallyWhile the Company typically utilizes relatively short maturity periods ranging from 6 to 12 months to closely monitor the inherent risks associated with construction loans for these loans, weather conditions, change orders, availability of materials and/or labor, and other factors may contribute to the lengthening of a project, thus necessitating the need to renew the construction loan at the balloon maturity. Such extensions are typically executed in incremental three month periods to facilitate project completion. The Company'sCompany’s average term of construction loans is approximately eight12 months. During construction, loans typically require monthly interest onlyinterest-only payments which may allow the Company an opportunity to monitor for early signs of financial difficulty should the borrower fail to make a required monthly payment. Additionally, during the construction phase, the Company typically obtainsperforms interim inspections completed by an independent third party. This monitoringwhich further allowsallow the Company opportunity to assess risk. At DecemberMarch 31, 2017,2023, construction loans outstanding included 5779 loans, totaling $10.7$68.5 million, for which a modification had been agreed to. At June 30, 2017,2022, construction loans outstanding included 5057 loans, totaling $10.3$13.8 million, for which a modification had been agreed to. AllIn general, these modifications were solely for the purpose of extending the maturity date due to conditions described above. None ofabove, pursuant to the Company’s normal underwriting and monitoring procedures. As these modifications were not executed due to financial difficulty on the part of the borrower, and, therefore,they were not accounted for as TDRs.troubled debt restructurings (TDRs).
-20-
Consumer Lending. The Company offers a variety of secured consumer loans, including home equity, direct and indirect automobile loans, second mortgages, mobile home loans and loans secured by deposits. The Company originates substantially all of its consumer loans in its primary lending area. Usually, consumer loans are originated with fixed rates for terms of up to five years,66 months, with the exception of home equity lines of credit, which are variable, tied to the prime rate of interest and are for a period of ten years.
Home equity lines of credit (HELOCs) are secured with a deed of trust and are issued up to 100% of the appraised or assessed value of the property securing the line of credit, less the outstanding balance on the first mortgage and are typically issued for a term of ten years. Interest rates on the HELOCs are generally adjustable. Interest rates are based upon the loan-to-value ratio of the property with better rates given to borrowers with more equity.
Automobile loans originated by the Company include both direct loans and a smaller amount of loans originated by auto dealers. The Company generally pays a negotiated fee back to the dealer for indirect loans. Typically, automobile loans are made for terms of up to 6066 months for new and used vehicles. Loans secured by automobiles have fixed rates and are generally made in amounts up to 100% of the purchase price of the vehicle.
Commercial Business Lending
. TheAllowance for Credit Losses. The PCL for the three- and nine- month periods ended March 31, 2023, was $10.1 million and $16.3 million, respectively, compared to $1.6 million and $1.2 million in the same period of the prior fiscal year. The ACL required for PCD loans acquired in the Citizens merger was $1.1 million, and was funded through purchase accounting adjustments, while the ACL required for non-PCD loans acquired in the Citizens merger was $5.2 million, and was funded through a charge to PCL. Additionally, the allowance for off-balance sheet credit exposures was increased by $1.8 million due to the Citizens merger and funded through a charge to PCL. Exclusive of the charges required as a result of the Citizens merger, the Company would have recorded a PCL of approximately $3.1 million and $9.3 million for the three- and nine-month periods ended March 31, 2023, of which $2.0 million and $6.6 million, respectively, are attributable to the required ACL for loan balances outstanding, while $1.1 million and $2.7 million, respectively, are attributable to the required allowance for off-balance sheet credit exposures, for the three- and nine-month periods. Exclusive of provisioning required by the Citizens merger, increased provisioning for loan balances outstanding in the three-month period is attributable primarily to qualitative adjustments to modeled results based on levels and trends of industry past due loans, and increased ACL estimates for classified hotel loans that have been slow to recover from the COVID-19 pandemic and the unguaranteed portion of a small pool of SBA loans exhibiting signs of credit stress, while increased provisioning for loan balances outstanding in the nine-month period is attributable primarily to loan growth and qualitative adjustments to modeled results based on the pace of growth of the Company’s loan portfolio, exclusive of acquisitions or government-guaranteed loans, relative to overall economic growth. Increased provisioning for off-balance sheet credit exposures is attributable primarily to changes in the level and mix of outstanding credit commitments. The Company has estimated its expected credit losses as of March 31, 2023, under ASC 326-20, and management believes the ACL as of that date is adequate based on that estimate. As a percentage of average loans outstanding, the Company recorded net charge offs of 0.02% (annualized) during the nine months ended March 31, 2023, as compared to less than one basis point (annualized) during the same period of the prior fiscal year. Specifically, management considered the following primary items in its estimate of the ACL:
-21-
● economic conditions and projections as provided by Moody’s Analytics, including baseline and downside scenarios, were utilized in the Company’s estimate at March 31, 2023. Economic factors considered in the projections included national and state levels of unemployment, and national and state rates of inflation-adjusted growth in the gross domestic product. Economic conditions are considered to be a moderate and stable risk factor, relative to June 30, 2022;
● the pace of growth of the Company’s loan portfolio, exclusive of acquisitions or government guaranteed loans, relative to overall economic growth. This measure is considered to be a moderate and increasing risk factor, relative to June 30, 2022;
● levels and trends for loan delinquencies nationally and in the region. This measure as reported remains relatively stable, and the level of uncertainty about loan delinquencies is considered to be diminishing. This is considered to be a moderate and stable risk factor, relative to June 30, 2022;
● exposure to the hotel industry, in particular, metropolitan area hotels which were negatively impacted by activity restrictions and a lack of business or convention-related travel. This is considered to be an elevated and stable risk factor, relative to June 30, 2022.
PCD Loans. In connection with the acquisition of Citizens Bancshares, Co. (“Citizens”) on January 20, 2023, and Fortune Financial Corporation (“Fortune”) on February 25, 2022, the Company acquired loans both with and without evidence of credit quality deterioration since origination. Acquired loans are recorded at their fair value at the time of acquisition with no carryover from the acquired institution’s previously recorded allowance for loan and lease losses. Acquired loans are accounted for under ASC 326, Financial Instruments – Credit Losses.
The fair value of acquired loans recorded at the time of acquisition is based upon several factors, including the timing and payment of expected cash flows, as adjusted for estimated credit losses and prepayments, and then discounting these cash flows using comparable market rates. The resulting fair value adjustment is recorded in the form of a premium or discount to the unpaid principal balance of the respective loans. As it relates to acquired loans that, as of the date of acquisition, have experienced a more-than-insignificant deterioration in credit quality since origination (“PCD”), the net premium or net discount is adjusted to reflect the Company’s allowance for credit losses recorded for PCD loans at the time of acquisition, and the remaining fair value adjustment is accreted or amortized into interest income over the remaining life of the respective loans. As it relates to loans not classified as PCD (“non-PCD”) loans, the credit loss and yield components of their fair value adjustment are aggregated, and the resulting net premium or net discount is accreted or amortized into interest income over the remaining life of the respective loans. The Company records an ACL for non-PCD loans at the time of acquisition through provision expense, and therefore, no further adjustments are made to the net premium or net discount for non-PCD loans.
Loans that the Company acquired from Citizens and Fortune, that at the time of acquisition had more-than-insignificant deterioration of credit quality since origination, are classified as PCD loans and presented in the tables below at acquisition carrying value:
| | | |
(dollars in thousands) |
| January 20, 2023 | |
PCD Loans - Citizens | | | |
Purchase price of PCD loans at acquisition | | $ | 27,481 |
Allowance for credit losses at acquisition | |
| (1,121) |
Fair value of PCD loans at acquisition | | $ | 26,360 |
| | | |
(dollars in thousands) |
| February 25, 2022 | |
PCD Loans - Fortune | | | |
Purchase price of PCD loans at acquisition | | $ | 15,055 |
Allowance for credit losses at acquisition | |
| (120) |
Fair value of PCD loans at acquisition | | $ | 14,935 |
-22-
The following tables present the balance in the ACL based on portfolio segment as of March 31, 2023 and 2022, and activity in the ACL for the three- and nine- month periods ended March 31, 2023 and 2022:
| | | | | | | | | | | | | | | | | | |
| | At period end and for the nine months ended March 31, 2023 | ||||||||||||||||
|
| Residential | | Construction |
| Commercial | | | |
| | | | | | |||
(dollars in thousands) |
| Real Estate |
| Real Estate |
| Real Estate |
| Consumer |
| Commercial |
| Total | ||||||
Allowance for credit losses: | | | | | | | | | | | | | | | | | | |
Balance, beginning of period | | $ | 8,908 | | $ | 2,220 | | $ | 16,838 | | $ | 710 | | $ | 4,516 | | $ | 33,192 |
Initial ACL on PCD loans | | | 96 | | | 12 | | | 628 | | | 164 | | | 221 | | | 1,121 |
Provision charged to expense | |
| 4,462 | |
| 1,406 | |
| 1,324 | |
| 283 | |
| 4,325 | |
| 11,800 |
Losses charged off | |
| (2) | | | — | | | (245) | | | (189) | | | (17) | |
| (453) |
Recoveries | |
| 1 | | | — | | | — | | | 18 | | | 6 | |
| 25 |
Balance, end of period | | $ | 13,465 | | $ | 3,638 | | $ | 18,545 | | $ | 986 | | $ | 9,051 | | $ | 45,685 |
| | | | | | | | | | | | | | | | | | |
| | At period end and for the three months ended March 31, 2023 | ||||||||||||||||
| | Residential | | Construction | | Commercial | | | | | | | | |
| |||
(dollars in thousands) |
| Real Estate |
| Real Estate |
| Real Estate |
| Consumer |
| Commercial |
| Total | ||||||
Allowance for loan losses: | | | | | | | | | | | | | | | | | | |
Balance, beginning of period |
| $ | 12,499 |
| $ | 2,754 |
| $ | 16,806 |
| $ | 761 |
| $ | 4,663 |
| $ | 37,483 |
Initial ACL on PCD loans | | | 96 | | | 12 | | | 628 | | | 164 | | | 221 | | | 1,121 |
Provision (benefit) charged to expense | | | 870 | | | 872 | | | 1,111 | | | 165 | | | 4,167 | | | 7,185 |
Losses charged off | | | — | | | — | | | — | | | (113) | | | — | | | (113) |
Recoveries | | | — | | | — | | | — | | | 9 | | | — | | | 9 |
Balance, end of period |
| $ | 13,465 |
| $ | 3,638 |
| $ | 18,545 |
| $ | 986 |
| $ | 9,051 |
| $ | 45,685 |
| | | | | | | | | | | | | | | | | | |
| | At period end and for the nine months ended March 31, 2022 | ||||||||||||||||
|
| Residential | | Construction |
| Commercial | | | |
| | | | | | |||
(dollars in thousands) |
| Real Estate |
| Real Estate |
| Real Estate |
| Consumer |
| Commercial |
| Total | ||||||
Allowance for credit losses: | | | | | | | | | | | | | | | | | | |
Balance, beginning of period | | $ | 11,192 | | $ | 2,170 | | $ | 14,535 | | $ | 916 | | $ | 4,409 | | $ | 33,222 |
Initial ACL on PCD loans | | | 23 | | | 4 | | | 52 | | | — | | | 41 | | | 120 |
Provision (benefit) charged to expense | |
| 30 | |
| (187) | |
| 963 | |
| (93) | |
| (340) | |
| 373 |
Losses charged off | |
| (62) | |
| — | |
| — | |
| (57) | |
| (17) | |
| (136) |
Recoveries | |
| 3 | |
| — | |
| — | |
| 57 | |
| 2 | |
| 62 |
Balance, end of period | | $ | 11,186 | | $ | 1,987 | | $ | 15,550 | | $ | 823 | | $ | 4,095 | | $ | 33,641 |
| | | | | | | | | | | | | | | | | | |
| | At period end and for the three months ended March 31, 2022 | ||||||||||||||||
| | Residential | | Construction | | Commercial | | | | | | | | |
| |||
(dollars in thousands) |
| Real Estate |
| Real Estate |
| Real Estate |
| Consumer |
| Commercial |
| Total | ||||||
Allowance for credit losses: | | | | | | | | | | | | | | | | | | |
Balance, beginning of period |
| $ | 10,757 |
| $ | 2,126 |
| $ | 14,727 |
| $ | 830 |
| $ | 4,089 |
| $ | 32,529 |
Initial ACL on PCD loans | | | 23 | | | 4 | | | 52 | | | — | | | 41 | | | 120 |
Provision (benefit) charged to expense | | | 434 | | | (143) | | | 771 | | | 19 | | | (29) | | | 1,052 |
Losses charged off | | | (30) | | | — | | | — | | | (32) | | | (6) | | | (68) |
Recoveries | | | 2 | | | — | | | — | | | 6 | | | — | | | 8 |
Balance, end of period |
| $ | 11,186 |
| $ | 1,987 |
| $ | 15,550 |
| $ | 823 |
| $ | 4,095 |
| $ | 33,641 |
-23-
The following tables present the balance in the allowance for loan losses and the recorded investment in loans (excluding loans in process and deferred loan fees)off-balance sheet credit exposure based on portfolio segment and impairment methods as of DecemberMarch 31, 2023 and June 30, 2017,2022, and activity in the allowance for loan losses for the three- and six-monthnine- month periods ended DecemberMarch 31, 20172023 and 2016:
At period end and for the six months ended December 31, 2017 | ||||||||||||||||||||||||
Residential | Construction | Commercial | ||||||||||||||||||||||
(dollars in thousands) | Real Estate | Real Estate | Real Estate | Consumer | Commercial | Total | ||||||||||||||||||
Allowance for loan losses: | ||||||||||||||||||||||||
Balance, beginning of period | $ | 3,230 | $ | 964 | $ | 7,068 | $ | 757 | $ | 3,519 | $ | 15,538 | ||||||||||||
Provision charged to expense | 133 | (78 | ) | 1,271 | 125 | 60 | 1,511 | |||||||||||||||||
Losses charged off | (78 | ) | - | (36 | ) | (58 | ) | (21 | ) | (193 | ) | |||||||||||||
Recoveries | 1 | - | - | 4 | 6 | 11 | ||||||||||||||||||
Balance, end of period | $ | 3,286 | $ | 886 | $ | 8,303 | $ | 828 | $ | 3,564 | $ | 16,867 | ||||||||||||
Ending Balance: individually evaluated for impairment | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||||
Ending Balance: collectively evaluated for impairment | $ | 3,286 | $ | 886 | $ | 8,303 | $ | 828 | $ | 3,564 | $ | 16,867 | ||||||||||||
Ending Balance: loans acquired with deteriorated credit quality | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||||
Loans: | ||||||||||||||||||||||||
Ending Balance: individually evaluated for impairment | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||||
Ending Balance: collectively evaluated for impairment | $ | 443,968 | $ | 52,231 | $ | 646,557 | $ | 66,725 | $ | 242,923 | $ | 1,452,404 | ||||||||||||
Ending Balance: loans acquired with deteriorated credit quality | $ | 3,433 | $ | 1,321 | $ | 9,439 | $ | - | $ | 3,242 | $ | 17,435 |
For the three months ended December 31, 2017 | ||||||||||||||||||||||||
Residential | Construction | Commercial | ||||||||||||||||||||||
(dollars in thousands) | Real Estate | Real Estate | Real Estate | Consumer | Commercial | Total | ||||||||||||||||||
Allowance for loan losses: | ||||||||||||||||||||||||
Balance, beginning of period | $ | 3,300 | $ | 965 | $ | 7,649 | $ | 815 | $ | 3,628 | $ | 16,357 | ||||||||||||
Provision charged to expense | 40 | (79 | ) | 690 | 40 | (49 | ) | 642 | ||||||||||||||||
Losses charged off | (55 | ) | - | (36 | ) | (28 | ) | (21 | ) | (140 | ) | |||||||||||||
Recoveries | 1 | - | - | 1 | 6 | 8 | ||||||||||||||||||
Balance, end of period | $ | 3,286 | $ | 886 | $ | 8,303 | $ | 828 | $ | 3,564 | $ | 16,867 |
At period end and for the six months ended December 31, 2016 | ||||||||||||||||||||||||
Residential | Construction | Commercial | ||||||||||||||||||||||
(dollars in thousands) | Real Estate | Real Estate | Real Estate | Consumer | Commercial | Total | ||||||||||||||||||
Allowance for loan losses: | ||||||||||||||||||||||||
Balance, beginning of period | $ | 3,247 | $ | 1,091 | $ | 5,711 | $ | 738 | $ | 3,004 | $ | 13,791 | ||||||||||||
Provision charged to expense | 316 | (170 | ) | 1,124 | 52 | 259 | 1,581 | |||||||||||||||||
Losses charged off | (97 | ) | (31 | ) | - | (39 | ) | (270 | ) | (437 | ) | |||||||||||||
Recoveries | 6 | 1 | 16 | 5 | 29 | 57 | ||||||||||||||||||
Balance, end of period | $ | 3,472 | $ | 891 | $ | 6,851 | $ | 756 | $ | 3,022 | $ | 14,992 | ||||||||||||
Ending Balance: individually evaluated for impairment | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||||
Ending Balance: collectively evaluated for impairment | $ | 3,472 | $ | 891 | $ | 6,851 | $ | 756 | $ | 3,022 | $ | 14,992 | ||||||||||||
Ending Balance: loans acquired with deteriorated credit quality | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - |
For the three months ended December 31, 2016 | ||||||||||||||||||||||||
Residential | Construction | Commercial | ||||||||||||||||||||||
(dollars in thousands) | Real Estate | Real Estate | Real Estate | Consumer | Commercial | Total | ||||||||||||||||||
Allowance for loan losses: | ||||||||||||||||||||||||
Balance, beginning of period | $ | 3,153 | $ | 1,121 | $ | 6,370 | $ | 738 | $ | 3,074 | $ | 14,456 | ||||||||||||
Provision charged to expense | 316 | (200 | ) | 465 | 53 | 22 | 656 | |||||||||||||||||
Losses charged off | - | (31 | ) | - | (35 | ) | (101 | ) | (167 | ) | ||||||||||||||
Recoveries | 3 | 1 | 16 | - | 27 | 47 | ||||||||||||||||||
Balance, end of period | $ | 3,472 | $ | 891 | $ | 6,851 | $ | 756 | $ | 3,022 | $ | 14,992 |
At June 30, 2017 | ||||||||||||||||||||||||
Residential | Construction | Commercial | ||||||||||||||||||||||
(dollars in thousands) | Real Estate | Real Estate | Real Estate | Consumer | Commercial | Total | ||||||||||||||||||
Allowance for loan losses: | ||||||||||||||||||||||||
Balance, end of period | $ | 3,230 | $ | 964 | $ | 7,068 | $ | 757 | $ | 3,519 | $ | 15,538 | ||||||||||||
Ending Balance: individually evaluated for impairment | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||||
Ending Balance: collectively evaluated for impairment | $ | 3,230 | $ | 964 | $ | 7,068 | $ | 757 | $ | 3,519 | $ | 15,538 | ||||||||||||
Ending Balance: loans acquired with deteriorated credit quality | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||||
Loans: | ||||||||||||||||||||||||
Ending Balance: individually evaluated for impairment | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||||
Ending Balance: collectively evaluated for impairment | $ | 438,981 | $ | 54,704 | $ | 592,427 | $ | 63,651 | $ | 243,369 | $ | 1,393,132 | ||||||||||||
Ending Balance: loans acquired with deteriorated credit quality | $ | 3,482 | $ | 1,338 | $ | 11,495 | $ | - | $ | 3,815 | $ | 20,130 |
December 31, 2017 | ||||||||||||||||||||
Residential | Construction | Commercial | ||||||||||||||||||
(dollars in thousands) | Real Estate | Real Estate | Real Estate | Consumer | Commercial | |||||||||||||||
Pass | $ | 441,488 | $ | 53,518 | $ | 643,665 | $ | 66,444 | $ | 240,845 | ||||||||||
Watch | 2,987 | - | 6,619 | 116 | 1,877 | |||||||||||||||
Special Mention | 147 | - | 937 | 30 | 78 | |||||||||||||||
Substandard | 2,779 | 34 | 4,775 | 135 | 2,763 | |||||||||||||||
Doubtful | - | - | - | - | 602 | |||||||||||||||
Total | $ | 447,401 | $ | 53,552 | $ | 655,996 | $ | 66,725 | $ | 246,165 |
June 30, 2017 | ||||||||||||||||||||
Residential | Construction | Commercial | ||||||||||||||||||
(dollars in thousands) | Real Estate | Real Estate | Real Estate | Consumer | Commercial | |||||||||||||||
Pass | $ | 438,222 | $ | 55,825 | $ | 588,385 | $ | 63,320 | $ | 240,864 | ||||||||||
Watch | 772 | - | 9,253 | 123 | 2,003 | |||||||||||||||
Special Mention | 148 | - | 926 | 30 | 84 | |||||||||||||||
Substandard | 3,321 | 217 | 5,358 | 178 | 3,631 | |||||||||||||||
Doubtful | - | - | - | - | 602 | |||||||||||||||
Total | $ | 442,463 | $ | 56,042 | $ | 603,922 | $ | 63,651 | $ | 247,184 |
| | | | | | | | | | | | | | | | | | |
| | At period end and for the nine months ended March 31, 2023 | ||||||||||||||||
|
| Residential | | | Construction |
| | Commercial | | | |
| | | | | | |
(dollars in thousands) |
| Real Estate |
| Real Estate |
| Real Estate |
| Consumer |
| Commercial |
| Total | ||||||
Allowance for off-balance sheet credit exposure: | | | | | | | | | | | | | | | | | | |
Balance, beginning of period | | $ | 58 | | $ | 2,178 | | $ | 421 | | $ | 61 | | $ | 640 | | $ | 3,358 |
Provision (benefit) charged to expense | | | 47 | | | 3,400 | | | (80) | | | 41 | | | 1,058 | | | 4,466 |
Balance, end of period | | $ | 105 | | $ | 5,578 | | $ | 341 | | $ | 102 | | $ | 1,698 | | $ | 7,824 |
| | | | | | | | | | | | | | | | | | |
| | At period end and for the three months ended March 31, 2023 | ||||||||||||||||
|
| Residential | | | Construction |
| | Commercial | | | |
| | | | | | |
(dollars in thousands) |
| Real Estate |
| Real Estate |
| Real Estate |
| Consumer |
| Commercial |
| Total | ||||||
Allowance for off-balance sheet credit exposure: | | | | | | | | | | | | | | | | | | |
Balance, beginning of period | | $ | 70 | | $ | 3,629 | | $ | 480 | | $ | 56 | | $ | 702 | | $ | 4,937 |
Provision (benefit) charged to expense | | | 35 | | | 1,949 | | | (139) | | | 46 | | | 996 | | | 2,887 |
Balance, end of period | | $ | 105 | | $ | 5,578 | | $ | 341 | | $ | 102 | | $ | 1,698 | | $ | 7,824 |
| | | | | | | | | | | | | | | | | | |
| | At period end and for the nine months ended March 31, 2022 | ||||||||||||||||
|
| Residential | | | Construction |
| | Commercial | | | |
| | | | | | |
(dollars in thousands) |
| Real Estate |
| Real Estate |
| Real Estate |
| Consumer |
| Commercial |
| Total | ||||||
Allowance for off-balance sheet credit exposure: | | | | | | | | | | | | | | | | | | |
Balance, beginning of period | | $ | 37 | | $ | 502 | | $ | 188 | | $ | 218 | | $ | 860 | | $ | 1,805 |
Provision (benefit) charged to expense | | | 46 | | | 1,221 | | | 147 | | | (144) | | | (396) | | | 874 |
Balance, end of period | | $ | 83 | | $ | 1,723 | | $ | 335 | | $ | 74 | | $ | 464 | | $ | 2,679 |
| | | | | | | | | | | | | | | | | | |
| | At period end and for the three months ended March 31, 2022 | ||||||||||||||||
|
| Residential | | | Construction |
| | Commercial | | | |
| | | | | | |
(dollars in thousands) |
| Real Estate |
| Real Estate |
| Real Estate |
| Consumer |
| Commercial |
| Total | ||||||
Allowance for off-balance sheet credit exposure: | | | | | | | | | | | | | | | | | | |
Balance, beginning of period | | $ | 34 | | $ | 1,673 | | $ | 170 | | $ | 58 | | $ | 244 | | $ | 2,179 |
Provision (benefit) charged to expense | | | 49 | | | 50 | | | 165 | | | 16 | | | 220 | | | 500 |
Balance, end of period | | $ | 83 | | $ | 1,723 | | $ | 335 | | $ | 74 | | $ | 464 | | $ | 2,679 |
Credit Quality Indicators
. The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis is performed on all loans at origination, and is updated on a quarterly basis for loans risk rated Watch, Special Mention, Substandard, or Doubtful. In addition, lending relationships ofWatch
– Loans classified as watch exhibit weaknesses that require more than usual monitoring. Issues may include deteriorating financial condition, payments made after due date but within 30 days, adverse industry conditions or management problems.-24-
Special Mention – Loans classified as special mention exhibit signs of further deterioration but still generally make payments within 30 days. This is a transitional rating and loans should typically not be rated Special Mention for more than 12 months.
Substandard
– Loans classified as substandard possess weaknesses that jeopardize the ultimate collection of the principal and interest outstanding. These loans exhibit continued financial losses, ongoing delinquency, overall poor financial condition, and insufficient collateral. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.Doubtful
– Loans classified as doubtful have all the weaknesses of substandard loans, and have deteriorated to the level that there is a high probability of substantial loss.Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be Pass rated loans.
A periodic review of selected credits (based on loan size and type) is conducted to identify loans with heightened risk or probable losses and to assign risk grades. The primary responsibility for this review rests with loan administration personnel. This review is supplemented with periodic examinations of both selected credits and the credit review process by the Company’s internal audit function and applicable regulatory agencies. The information from these reviews assists management in the timely identification of problems and potential problems and provides a basis for deciding whether the credit continues to share similar risk characteristics with collectively evaluated loan pools, or whether credit losses for the loan should be evaluated on an individual loan basis.
-25-
The following table presents the credit risk profile of the Company’s loan portfolio (excluding loans in process and deferred loan fees) based on rating category and fiscal year of origination as of March 31, 2023. This table includes PCD loans, which are reported according to risk categorization after acquisition based on the Company’s standards for such classification:
| | | | | | | | | | | | | | | | | | | | | | | | |
(dollars in thousands) | | | | | | | | | | | | | | | | | | | | Revolving | | | | |
March 31, |
| 2023 |
| 2022 |
| 2021 |
| 2020 |
| 2019 |
| Prior |
| loans |
| Total | ||||||||
Residential Real Estate | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | $ | 283,090 | | $ | 329,020 | | $ | 260,233 | | $ | 106,337 | | $ | 26,467 | | $ | 100,592 | | $ | 7,511 | | $ | 1,113,250 |
Watch | |
| 283 | |
| 1,147 | |
| 580 | |
| 2,307 | |
| 201 | |
| 27 | |
| 56 | |
| 4,601 |
Special Mention | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Substandard | |
| 799 | |
| 724 | |
| 448 | |
| 85 | |
| — | |
| 1,063 | |
| — | |
| 3,119 |
Doubtful | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Total Residential Real Estate | | $ | 284,172 | | $ | 330,891 | | $ | 261,261 | | $ | 108,729 | | $ | 26,668 | | $ | 101,682 | | $ | 7,567 | | $ | 1,120,970 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Construction Real Estate | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Pass | | $ | 112,913 | | $ | 68,069 | | $ | 11,896 | | $ | 9,193 | | $ | 94 | | $ | — | | $ | 5,616 | | $ | 207,781 |
Watch | |
| 155 | |
| — | |
| — | |
| 3,190 | |
| — | |
| — | |
| — | |
| 3,345 |
Special Mention | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Substandard | |
| 1,280 | |
| 368 | |
| — | |
| — | |
| — | |
| — | |
| — | |
| 1,648 |
Doubtful | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Total Construction Real Estate | | $ | 114,348 | | $ | 68,437 | | $ | 11,896 | | $ | 12,383 | | $ | 94 | | $ | — | | $ | 5,616 | | $ | 212,774 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Commercial Real Estate | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Pass | | $ | 272,653 | | $ | 480,124 | | $ | 290,963 | | $ | 98,101 | | $ | 86,394 | | $ | 132,560 | | $ | 33,128 | | $ | 1,393,923 |
Watch | |
| 7,251 | |
| 9,895 | |
| 165 | |
| 6,874 | |
| — | |
| 119 | |
| — | |
| 24,304 |
Special Mention | |
| 2,940 | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| 2,940 |
Substandard | |
| 3,141 | |
| 29,623 | |
| 2,438 | |
| 303 | |
| 478 | |
| 1,913 | |
| 1,251 | |
| 39,147 |
Doubtful | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Total Commercial Real Estate | | $ | 285,985 | | $ | 519,642 | | $ | 293,566 | | $ | 105,278 | | $ | 86,872 | | $ | 134,592 | | $ | 34,379 | | $ | 1,460,314 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Consumer | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Pass | | $ | 27,171 | | $ | 17,498 | | $ | 6,581 | | $ | 2,048 | | $ | 854 | | $ | 1,510 | | $ | 68,727 | | $ | 124,389 |
Watch | |
| 74 | |
| 596 | |
| 64 | |
| 10 | |
| — | |
| — | |
| — | |
| 744 |
Special Mention | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Substandard | |
| 15 | |
| 4 | |
| 81 | |
| 8 | |
| — | |
| 95 | |
| 147 | |
| 350 |
Doubtful | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Total Consumer | | $ | 27,260 | | $ | 18,098 | | $ | 6,726 | | $ | 2,066 | | $ | 854 | | $ | 1,605 | | $ | 68,874 | | $ | 125,483 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Commercial | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Pass | | $ | 106,504 | | $ | 87,601 | | $ | 77,257 | | $ | 12,466 | | $ | 9,302 | | $ | 11,427 | | $ | 245,911 | | $ | 550,468 |
Watch | |
| 667 | |
| 1,876 | |
| 121 | |
| 78 | |
| 6 | |
| — | |
| 5,107 | |
| 7,855 |
Special Mention | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Substandard | |
| 466 | |
| 798 | |
| 137 | |
| 155 | |
| 192 | |
| 621 | |
| 287 | |
| 2,656 |
Doubtful | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Total Commercial | | $ | 107,637 | | $ | 90,275 | | $ | 77,515 | | $ | 12,699 | | $ | 9,500 | | $ | 12,048 | | $ | 251,305 | | $ | 560,979 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total Loans | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Pass | | $ | 802,331 | | $ | 982,312 | | $ | 646,930 | | $ | 228,145 | | $ | 123,111 | | $ | 246,089 | | $ | 360,893 | | $ | 3,389,811 |
Watch | |
| 8,430 | |
| 13,514 | |
| 930 | |
| 12,459 | |
| 207 | |
| 146 | |
| 5,163 | |
| 40,849 |
Special Mention | |
| 2,940 | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| 2,940 |
Substandard | |
| 5,701 | |
| 31,517 | |
| 3,104 | |
| 551 | |
| 670 | |
| 3,692 | |
| 1,685 | |
| 46,920 |
Doubtful | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Total | | $ | 819,402 | | $ | 1,027,343 | | $ | 650,964 | | $ | 241,155 | | $ | 123,988 | | $ | 249,927 | | $ | 367,741 | | $ | 3,480,520 |
At March 31, 2023, PCD loans comprised $27.3 million of credits rated “Pass”; $25.1 million rated “Watch”; none rated “Special Mention”; $6.7 million of credits rated “Substandard”; and none rated “Doubtful”.
-26-
The following table presents the credit risk profile of the Company’s loan portfolio (excluding loans in process and deferred loan fees) based on rating category and fiscal year of origination as of June 30, 2022. This table includes PCD loans, which were reported according to risk categorization after acquisition based on the Company’s standards for such classification:
| | | | | | | | | | | | | | | | | | | | | | | | |
(dollars in thousands) | | | | | | | | | | | | | | | | | | | | Revolving | | | | |
June 30, |
| 2022 |
| 2021 |
| 2020 |
| 2019 |
| 2018 |
| Prior |
| loans |
| Total | ||||||||
Residential Real Estate | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | $ | 380,502 | | $ | 295,260 | | $ | 118,464 | | $ | 19,383 | | $ | 22,143 | | $ | 58,545 | | $ | 6,074 | | $ | 900,371 |
Watch | |
| 44 | |
| 242 | |
| 1,083 | |
| 56 | |
| — | |
| 30 | |
| — | |
| 1,455 |
Special Mention | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Substandard | |
| 266 | |
| 918 | |
| 87 | |
| 440 | |
| 18 | |
| 605 | |
| — | |
| 2,334 |
Doubtful | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Total Residential Real Estate | | $ | 380,812 | | $ | 296,420 | | $ | 119,634 | | $ | 19,879 | | $ | 22,161 | | $ | 59,180 | | $ | 6,074 | | $ | 904,160 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Construction Real Estate | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Pass | | $ | 100,114 | | $ | 34,082 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 220 | | $ | 134,416 |
Watch | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Special Mention | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Substandard | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Doubtful | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Total Construction Real Estate | | $ | 100,114 | | $ | 34,082 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 220 | | $ | 134,416 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Commercial Real Estate | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Pass | | $ | 487,486 | | $ | 284,736 | | $ | 105,893 | | $ | 71,380 | | $ | 51,804 | | $ | 78,115 | | $ | 23,669 | | $ | 1,103,083 |
Watch | |
| 4,763 | |
| 769 | |
| 1,818 | |
| — | |
| 668 | |
| 2,000 | |
| 548 | |
| 10,566 |
Special Mention | |
| 9,297 | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| 9,297 |
Substandard | |
| 22,086 | |
| 481 | |
| 140 | |
| 13 | |
| 22 | |
| 93 | |
| 65 | |
| 22,900 |
Doubtful | |
| 827 | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| 827 |
Total Commercial Real Estate | | $ | 524,459 | | $ | 285,986 | | $ | 107,851 | | $ | 71,393 | | $ | 52,494 | | $ | 80,208 | | $ | 24,282 | | $ | 1,146,673 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Consumer | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Pass | | $ | 28,519 | | $ | 10,989 | | $ | 3,662 | | $ | 1,524 | | $ | 916 | | $ | 676 | | $ | 46,521 | | $ | 92,807 |
Watch | |
| 21 | |
| 71 | |
| — | |
| — | |
| — | |
| — | |
| — | |
| 92 |
Special Mention | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Substandard | |
| 23 | |
| 6 | |
| 4 | |
| — | |
| 10 | |
| 31 | |
| 23 | |
| 97 |
Doubtful | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Total Consumer | | $ | 28,563 | | $ | 11,066 | | $ | 3,666 | | $ | 1,524 | | $ | 926 | | $ | 707 | | $ | 46,544 | | $ | 92,996 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Commercial | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Pass | | $ | 111,370 | | $ | 93,906 | | $ | 20,795 | | $ | 10,496 | | $ | 3,253 | | $ | 7,612 | | $ | 190,235 | | $ | 437,667 |
Watch | |
| 1,319 | |
| 194 | |
| 38 | |
| 6 | |
| — | |
| 186 | |
| 1,206 | |
| 2,949 |
Special Mention | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Substandard | |
| 295 | |
| 11 | |
| — | |
| 186 | |
| — | |
| 167 | |
| 323 | |
| 982 |
Doubtful | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Total Commercial | | $ | 112,984 | | $ | 94,111 | | $ | 20,833 | | $ | 10,688 | | $ | 3,253 | | $ | 7,965 | | $ | 191,764 | | $ | 441,598 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total Loans | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Pass | | $ | 1,107,991 | | $ | 718,973 | | $ | 248,814 | | $ | 102,783 | | $ | 78,116 | | $ | 144,948 | | $ | 266,719 | | $ | 2,668,344 |
Watch | |
| 6,147 | |
| 1,276 | |
| 2,939 | |
| 62 | |
| 668 | |
| 2,216 | |
| 1,754 | |
| 15,062 |
Special Mention | |
| 9,297 | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| 9,297 |
Substandard | |
| 22,670 | |
| 1,416 | |
| 231 | |
| 639 | |
| 50 | |
| 896 | |
| 411 | |
| 26,313 |
Doubtful | |
| 827 | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| 827 |
Total | | $ | 1,146,932 | | $ | 721,665 | | $ | 251,984 | | $ | 103,484 | | $ | 78,834 | | $ | 148,060 | | $ | 268,884 | | $ | 2,719,843 |
At June 30, 2022, PCD loans comprised $23.1 million of credits rated “Pass”; $4.7 million of credits rated “Watch”, none rated “Special Mention”, $1.1 million of credits rated “Substandard” and none rated “Doubtful”.
-27-
Past-due Loans. The following tables present the Company'sCompany’s loan portfolio aging analysis (excluding loans in process and deferred loan fees) as of DecemberMarch 31, 2023 and June 30, 2017.2022. These tables include purchased credit impairedPCD loans, which are reported according to aging analysis after acquisition based on the Company'sCompany’s standards for such classification:
December 31, 2017 | ||||||||||||||||||||||||||||
Greater Than | Greater Than 90 | |||||||||||||||||||||||||||
30-59 Days | 60-89 Days | 90 Days | Total | Total Loans | Days Past Due | |||||||||||||||||||||||
(dollars in thousands) | Past Due | Past Due | Past Due | Past Due | Current | Receivable | and Accruing | |||||||||||||||||||||
Real Estate Loans: | ||||||||||||||||||||||||||||
Residential | $ | 3,334 | $ | 1,074 | $ | 1,026 | $ | 5,434 | $ | 441,967 | $ | 447,401 | $ | 761 | ||||||||||||||
Construction | 507 | - | - | 507 | 53,045 | 53,552 | - | |||||||||||||||||||||
Commercial | 659 | 437 | 4,147 | 5,243 | 650,753 | 655,996 | 4,147 | |||||||||||||||||||||
Consumer loans | 466 | 232 | 241 | 939 | 65,786 | 66,725 | 136 | |||||||||||||||||||||
Commercial loans | 389 | 147 | 665 | 1,201 | 244,964 | 246,165 | 637 | |||||||||||||||||||||
Total loans | $ | 5,355 | $ | 1,890 | $ | 6,079 | $ | 13,324 | $ | 1,456,515 | $ | 1,469,839 | $ | 5,681 |
June 30, 2017 | ||||||||||||||||||||||||||||
Greater Than | Greater Than 90 | |||||||||||||||||||||||||||
30-59 Days | 60-89 Days | 90 Days | Total | Total Loans | Days Past Due | |||||||||||||||||||||||
(dollars in thousands) | Past Due | Past Due | Past Due | Past Due | Current | Receivable | and Accruing | |||||||||||||||||||||
Real Estate Loans: | ||||||||||||||||||||||||||||
Residential | $ | 1,491 | $ | 148 | $ | 676 | $ | 2,315 | $ | 440,148 | $ | 442,463 | $ | 59 | ||||||||||||||
Construction | 35 | - | - | 35 | 56,007 | 56,042 | - | |||||||||||||||||||||
Commercial | 700 | - | 711 | 1,411 | 602,511 | 603,922 | - | |||||||||||||||||||||
Consumer loans | 216 | 16 | 134 | 366 | 63,285 | 63,651 | 13 | |||||||||||||||||||||
Commercial loans | 144 | 53 | 426 | 623 | 246,561 | 247,184 | 329 | |||||||||||||||||||||
Total loans | $ | 2,586 | $ | 217 | $ | 1,947 | $ | 4,750 | $ | 1,408,512 | $ | 1,413,262 | $ | 401 |
| | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2023 | |||||||||||||||||||
| | | | | | | | Greater Than | | | | | | | | | | | Greater Than 90 | ||
| | 30-59 Days | | 60-89 Days | | 90 Days | | Total | | | | | Total Loans | | Days Past Due | ||||||
|
| Past Due |
| Past Due |
| Past Due |
| Past Due |
| Current |
| Receivable |
| and Accruing | |||||||
(dollars in thousands) | | | | | | | | | | | | | | | | | | | | | |
Real Estate Loans: | | | | | | | | | | | | | | | | | | | | | |
Residential | | $ | 2,110 | | $ | 203 | | $ | 636 | | $ | 2,949 | | $ | 1,118,021 | | $ | 1,120,970 | | $ | — |
Construction | |
| 141 | |
| 368 | |
| — | |
| 509 | |
| 212,265 | |
| 212,774 | |
| — |
Commercial | |
| 281 | |
| 97 | |
| 1,675 | |
| 2,053 | |
| 1,458,261 | |
| 1,460,314 | |
| — |
Consumer loans | |
| 536 | |
| 244 | |
| 176 | |
| 956 | |
| 124,527 | |
| 125,483 | |
| — |
Commercial loans | |
| 185 | |
| 96 | |
| 634 | |
| 915 | |
| 560,064 | |
| 560,979 | |
| — |
Total loans | | $ | 3,253 | | $ | 1,008 | | $ | 3,121 | | $ | 7,382 | | $ | 3,473,138 | | $ | 3,480,520 | | $ | — |
| | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2022 | |||||||||||||||||||
| | | | | | | | Greater Than | | | | | | | | | | | Greater Than 90 | ||
| | 30-59 Days | | 60-89 Days | | 90 Days | | Total | | | | | Total Loans | | Days Past Due | ||||||
|
| Past Due |
| Past Due |
| Past Due |
| Past Due |
| Current |
| Receivable |
| and Accruing | |||||||
(dollars in thousands) | | | | | | | | | | | | | | | | | | | | | |
Real Estate Loans: |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Residential | | $ | 1,402 | | $ | — | | $ | 1,064 | | $ | 2,466 | | $ | 901,694 | | $ | 904,160 | | $ | — |
Construction | |
| — | |
| — | |
| — | |
| — | |
| 134,416 | |
| 134,416 | |
| — |
Commercial | |
| 416 | |
| 615 | |
| 288 | |
| 1,319 | |
| 1,145,354 | |
| 1,146,673 | |
| — |
Consumer loans | |
| 340 | |
| 45 | |
| 57 | |
| 442 | |
| 92,554 | |
| 92,996 | |
| — |
Commercial loans | |
| 274 | |
| 72 | |
| 13 | |
| 359 | |
| 441,239 | |
| 441,598 | |
| — |
Total loans | | $ | 2,432 | | $ | 732 | | $ | 1,422 | | $ | 4,586 | | $ | 2,715,257 | | $ | 2,719,843 | | $ | — |
At DecemberMarch 31, 2017,2023, there was one purchased credit impairedPCD loan totaling $139,000 that was greater than 90 days past due with a net value of $168,000. Atand on nonaccrual, and none at June 30, 2017 there were no purchased credit impaired2022.
Loans that experience insignificant payment delays and payment shortfalls generally are not adversely classified or determined to not share similar risk characteristics with collectively evaluated pools of loans that were greater than 90 days past due.
December 31, 2017 | ||||||||||||
Recorded | Unpaid Principal | Specific | ||||||||||
(dollars in thousands) | Balance | Balance | Allowance | |||||||||
Loans without a specific valuation allowance: | ||||||||||||
Residential real estate | $ | 3,750 | $ | 4,397 | $ | - | ||||||
Construction real estate | 1,355 | 1,644 | - | |||||||||
Commercial real estate | 15,856 | 17,551 | - | |||||||||
Consumer loans | 1 | 1 | - | |||||||||
Commercial loans | 3,562 | 4,195 | - | |||||||||
Loans with a specific valuation allowance: | ||||||||||||
Residential real estate | $ | - | $ | - | $ | - | ||||||
Construction real estate | - | - | - | |||||||||
Commercial real estate | - | - | - | |||||||||
Consumer loans | - | - | - | |||||||||
Commercial loans | - | - | - | |||||||||
Total: | ||||||||||||
Residential real estate | $ | 3,750 | $ | 4,397 | $ | - | ||||||
Construction real estate | $ | 1,355 | $ | 1,644 | $ | - | ||||||
Commercial real estate | $ | 15,856 | $ | 17,551 | $ | - | ||||||
Consumer loans | $ | 1 | $ | 1 | $ | - | ||||||
Commercial loans | $ | 3,562 | $ | 4,195 | $ | - |
June 30, 2017 | ||||||||||||
Recorded | Unpaid Principal | Specific | ||||||||||
(dollars in thousands) | Balance | Balance | Allowance | |||||||||
Loans without a specific valuation allowance: | ||||||||||||
Residential real estate | $ | 3,811 | $ | 4,486 | $ | - | ||||||
Construction real estate | 1,373 | 1,695 | - | |||||||||
Commercial real estate | 14,935 | 16,834 | - | |||||||||
Consumer loans | 1 | 1 | - | |||||||||
Commercial loans | 4,302 | 4,990 | - | |||||||||
Loans with a specific valuation allowance: | ||||||||||||
Residential real estate | $ | - | $ | - | $ | - | ||||||
Construction real estate | - | - | - | |||||||||
Commercial real estate | - | - | - | |||||||||
Consumer loans | - | - | - | |||||||||
Commercial loans | - | - | - | |||||||||
Total: | ||||||||||||
Residential real estate | $ | 3,811 | $ | 4,486 | $ | - | ||||||
Construction real estate | $ | 1,373 | $ | 1,695 | $ | - | ||||||
Commercial real estate | $ | 14,935 | $ | 16,834 | $ | - | ||||||
Consumer loans | $ | 1 | $ | 1 | $ | - | ||||||
Commercial loans | $ | 4,302 | $ | 4,990 | $ | - |
For the three-month period ended | ||||||||
December 31, 2017 | ||||||||
Average | ||||||||
(dollars in thousands) | Investment in | Interest Income | ||||||
Impaired Loans | Recognized | |||||||
Residential Real Estate | $ | 3,443 | $ | 60 | ||||
Construction Real Estate | 1,326 | 40 | ||||||
Commercial Real Estate | 10,249 | 305 | ||||||
Consumer Loans | - | - | ||||||
Commercial Loans | 3,514 | 51 | ||||||
Total Loans | $ | 18,532 | $ | 456 |
For the three-month period ended | ||||||||
December 31, 2016 | ||||||||
Average | ||||||||
(dollars in thousands) | Investment in | Interest Income | ||||||
Impaired Loans | Recognized | |||||||
Residential Real Estate | $ | 2,836 | $ | 21 | ||||
Construction Real Estate | 1,378 | 37 | ||||||
Commercial Real Estate | 9,772 | 186 | ||||||
Consumer Loans | - | - | ||||||
Commercial Loans | 958 | 18 | ||||||
Total Loans | $ | 14,944 | $ | 262 |
For the six-month period ended | ||||||||
December 31, 2017 | ||||||||
Average | ||||||||
(dollars in thousands) | Investment in | Interest Income | ||||||
Impaired Loans | Recognized | |||||||
Residential Real Estate | $ | 3,456 | $ | 127 | ||||
Construction Real Estate | 1,329 | 79 | ||||||
Commercial Real Estate | 10,664 | 551 | ||||||
Consumer Loans | - | - | ||||||
Commercial Loans | 3,614 | 109 | ||||||
Total Loans | $ | 19,063 | $ | 866 |
For the six-month period ended | ||||||||
December 31, 2016 | ||||||||
Average | ||||||||
(dollars in thousands) | Investment in | Interest Income | ||||||
Impaired Loans | Recognized | |||||||
Residential Real Estate | $ | 2,889 | $ | 51 | ||||
Construction Real Estate | 1,387 | 71 | ||||||
Commercial Real Estate | 9,807 | 367 | ||||||
Consumer Loans | - | - | ||||||
Commercial Loans | 983 | 37 | ||||||
Total Loans | $ | 15,066 | $ | 526 |
Collateral Dependent Loans. The following table presents the Company's nonaccrualCompany’s collateral dependent loans and related ACL at DecemberMarch 31, 2023, and June 30, 2017.2022:
| | | | | | |
| | | | | | |
|
| March 31, 2023 | ||||
| | Amortized cost basis of | | | | |
| | loans determined to be | | Related allowance | ||
(dollars in thousands) | | collateral dependent | | for credit losses | ||
Residential real estate loans |
| |
|
| |
|
1- to 4-family residential loans |
| $ | 841 | | $ | 170 |
Total loans | | $ | 841 | | $ | 170 |
-28-
| | | | | | |
| | | | | | |
|
| June 30, 2022 | ||||
| | Amortized cost basis of | | | | |
| | loans determined to be | | Related allowance | ||
(dollars in thousands) | | collateral dependent | | for credit losses | ||
Residential real estate loans |
| |
|
| |
|
1- to 4-family residential loans |
| $ | 864 | | $ | 193 |
Total loans | | $ | 864 | | $ | 193 |
Nonaccrual Loans. The following table presents the Company’s amortized cost basis of nonaccrual loans segmented by class of loans at March 31, 2023, and June 30, 2022. The table excludes performing troubled debt restructurings.
(dollars in thousands) | December 31, 2017 | June 30, 2017 | ||||||
Residential real estate | $ | 924 | $ | 1,263 | ||||
Construction real estate | 34 | 35 | ||||||
Commercial real estate | 209 | 960 | ||||||
Consumer loans | 123 | 158 | ||||||
Commercial loans | 345 | 409 | ||||||
Total loans | $ | 1,635 | $ | 2,825 |
| | | | | | | |
|
| | |
| | | |
(dollars in thousands) | | March 31, 2023 | | June 30, 2022 |
| ||
Residential real estate | | $ | 1,175 | | $ | 1,647 | |
Construction real estate | |
| 368 | |
| — | |
Commercial real estate | |
| 4,741 | |
| 2,259 | |
Consumer loans | |
| 183 | |
| 73 | |
Commercial loans | |
| 930 | |
| 139 | |
Total loans | | $ | 7,397 | | $ | 4,118 | |
At DecemberMarch 31, and June 30, 2017,2023, there were no purchased credit impairednonaccrual loans individually evaluated for which no ACL was recorded. Interest income recognized on nonaccrual.
Troubled Debt Restructurings. TDRs are troubled debt restructurings (TDRs), where economic concessions have been grantedevaluated to borrowers who have experienced financial difficulties.determine whether they share similar risk characteristics with collectively evaluated loan pools, or must be individually evaluated. These concessions typically result from our loss mitigation activities, and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance, or other actions. In general, the Company’s loans that have been subject to classification as TDRs are the result of guidance under ASU No. 2011-02, which indicates that the Company may not consider the borrower’s effective borrowing rate on the old debt immediately before the restructuring in determining whether a concession has been granted. Certain TDRs are classified as nonperforming at the time of restructuring and typically are returned to performing status after considering the borrower'sborrower’s sustained repayment performance for a reasonable period of at least six months.
-29-
During the three- and six-monthnine- month periods ended DecemberMarch 31, 20172023 and 2016,2022, certain loans modified were classified as TDRs. They are shown, segregated by class, in the tabletables below:
For the three-month periods ended | ||||||||||||||||
December 31, 2017 | December 31, 2016 | |||||||||||||||
(dollars in thousands) | Number of | Recorded | Number of | Recorded | ||||||||||||
modifications | Investment | modifications | Investment | |||||||||||||
Residential real estate | - | $ | - | - | $ | - | ||||||||||
Construction real estate | - | - | - | - | ||||||||||||
Commercial real estate | - | - | 1 | 366 | ||||||||||||
Consumer loans | - | - | 1 | 1 | ||||||||||||
Commercial loans | - | - | - | - | ||||||||||||
Total | - | $ | - | 2 | $ | 367 |
For the six-month periods ended | ||||||||||||||||
December 31, 2017 | December 31, 2016 | |||||||||||||||
(dollars in thousands) | Number of | Recorded | Number of | Recorded | ||||||||||||
modifications | Investment | modifications | Investment | |||||||||||||
Residential real estate | - | $ | - | - | $ | - | ||||||||||
Construction real estate | - | - | 1 | 36 | ||||||||||||
Commercial real estate | - | - | 4 | 2,303 | ||||||||||||
Consumer loans | - | - | 2 | 1 | ||||||||||||
Commercial loans | - | - | 1 | 2 | ||||||||||||
Total | - | $ | - | 8 | $ | 2,342 |
| | | | | | | | | | |
| | For the three-month periods ended | ||||||||
| | March 31, 2023 | | March 31, 2022 | ||||||
| | Number of | | Recorded | | Number of | | Recorded | ||
(dollars in thousands) |
| modifications |
| Investment |
| modifications |
| Investment | ||
Residential real estate |
| — | | $ | — |
| — | | $ | — |
Construction real estate |
| — | |
| — |
| — | |
| — |
Commercial real estate |
| — | |
| — |
| — | |
| — |
Consumer loans |
| — | |
| — |
| — | |
| — |
Commercial loans |
| — | |
| — |
| 1 | |
| 185 |
Total |
| — | | $ | — |
| 1 | | $ | 185 |
| | | | | | | | | | |
| | For the nine-month periods ended | ||||||||
| | March 31, 2023 | | March 31, 2022 | ||||||
| | Number of | | Recorded | | Number of | | Recorded | ||
(dollars in thousands) |
| modifications |
| Investment |
| modifications |
| Investment | ||
Residential real estate |
| — |
| $ | — |
| 1 |
| $ | 150 |
Construction real estate |
| — | | | — |
| — | | | — |
Commercial real estate |
| — | | | — |
| — | | | — |
Consumer loans |
| — | | | — |
| — | | | — |
Commercial loans |
| — | | | — |
| 1 | | | 185 |
Total |
| — |
| $ | — |
| 2 |
| $ | 335 |
Performing loans classified as TDRs and outstanding at DecemberMarch 31, 2023, and June 30, 2017,2022, segregated by class, are shown in the table below. Nonperforming TDRs are shown asincluded in the nonaccrual loans.
December 31, 2017 | June 30, 2017 | |||||||||||||||
(dollars in thousands) | Number of | Recorded | Number of | Recorded | ||||||||||||
modifications | Investment | modifications | Investment | |||||||||||||
Residential real estate | 10 | $ | 1,746 | 10 | $ | 1,756 | ||||||||||
Construction real estate | - | - | - | - | ||||||||||||
Commercial real estate | 13 | 8,063 | 13 | 5,206 | ||||||||||||
Consumer loans | - | - | - | - | ||||||||||||
Commercial loans | 6 | 3,554 | 6 | 3,946 | ||||||||||||
Total | 29 | $ | 13,363 | 29 | $ | 10,908 |
| | | | | | | | | | |
| | March 31, 2023 | | June 30, 2022 | ||||||
| | Number of | | Recorded | | Number of | | Recorded | ||
(dollars in thousands) |
| modifications |
| Investment |
| modifications |
| Investment | ||
Residential real estate |
| 10 | | $ | 3,383 |
| 11 | | $ | 3,625 |
Construction real estate |
| — | |
| — |
| — | |
| — |
Commercial real estate |
| 6 | |
| 24,241 |
| 8 | |
| 25,132 |
Consumer loans |
| — | |
| — |
| — | |
| — |
Commercial loans |
| 6 | |
| 2,735 |
| 8 | |
| 1,849 |
Total |
| 22 | | $ | 30,359 |
| 27 | | $ | 30,606 |
Residential Real Estate Foreclosures. The Company acquired loans in transfers during the fiscal years ended June 30, 2011, June 30, 2015may obtain physical possession of real estate collateralizing a residential mortgage loan or home equity loan via foreclosure or in-substance repossession. As of March 31, 2023 and June 30, 2017. At acquisition,2022, the carrying value of foreclosed residential real estate properties as a result of obtaining physical possession was $589,000 and $580,000, respectively. In addition, as of March 31, 2023, and June 30, 2022, the Company had residential mortgage loans and home equity loans with a carrying value of $1.1 million and $486,000, respectively, collateralized by residential real estate property for which formal foreclosure proceedings were in process.
-30-
Note 5: Premises and Equipment
Following is a summary of premises and equipment:
| | | | | | | |
|
| | |
| | | |
(dollars in thousands) |
| March 31, 2023 |
| June 30, 2022 | | ||
Land | | $ | 15,403 | | $ | 13,532 | |
Buildings and improvements | |
| 78,831 | |
| 64,730 | |
Construction in progress | |
| 1,266 | |
| 142 | |
Furniture, fixtures, equipment and software | |
| 24,953 | |
| 20,838 | |
Automobiles | |
| 122 | |
| 120 | |
Operating leases ROU asset | |
| 6,259 | |
| 3,849 | |
| |
| 126,834 | |
| 103,211 | |
Less accumulated depreciation | |
| 34,491 | |
| 31,864 | |
| | $ | 92,343 | | $ | 71,347 | |
Leases. The Company elected certain transferred loans evidenced deteriorationrelief options under ASU 2016-02, Leases (Topic 842), including the option not to recognize right of credit quality since originationuse asset and it was probable, at acquisition,lease liabilities that all contractually required payments would not be collected.
All of the purchase date may include information suchCompany’s leases are classified as past-dueoperating leases. These operating leases are now included as a ROU asset in the premises and nonaccrual status, borrower credit scores and recent loan to value percentages. Purchased credit-impaired loans are accounted for underequipment line item on the accounting guidance for loans and debt securities acquired with deteriorated credit quality (ASC 310-30) and initially measured at fair value, which includes estimated future credit losses expected to be incurred over the life of the loan. Accordingly, an allowance for credit losses related to these loans is not carried over and recorded at the acquisition date. Management estimated the cash flows expected to be collected at acquisition using our internal risk models, which incorporate the estimate of current key assumptions, such as default rates, severity and prepayment speeds.
In the February 2022 acquisition of loans receivable at December 31Fortune, the Company assumed a ground lease with an entity that is controlled by a Company insider. This property is in St. Louis County, MO and June 30, 2017.is in its fourth year of a twenty year term.
ASU 2016-02 also requires certain other accounting elections. The Company elected the short-term lease recognition exemption for all leases that qualify, meaning those with terms under twelve months. ROU assets or lease liabilities are not to be recognized for short-term leases. The calculated amount of these loans is shown below:
(dollars in thousands) | December 31, 2017 | June 30, 2017 | ||||||
Residential real estate | $ | 4,080 | $ | 4,158 | ||||
Construction real estate | 1,609 | 1,660 | ||||||
Commercial real estate | 11,134 | 13,394 | ||||||
Consumer loans | - | - | ||||||
Commercial loans | 3,876 | 4,502 | ||||||
Outstanding balance | $ | 20,699 | $ | 23,714 | ||||
Carrying amount, net of fair value adjustment of $3,264 and $3,584 at December 31, 2017, and June 30, 2017, respectively | $ | 17,435 | $ | 20,130 |
| | | | | | |
|
| March 31, 2023 |
| June 30, 2022 | ||
Consolidated Balance Sheet |
| |
|
| |
|
Operating leases ROU asset | | $ | 6,259 | | $ | 3,849 |
Operating leases liability | | $ | 6,259 | | $ | 3,849 |
-31-
| | | | | | | | | | | | | | |
|
| For the three-month periods ended | | For the nine-month periods ended | | | ||||||||
|
| March 31, | | March 31, | | | ||||||||
(dollars in thousands) |
| 2023 |
| 2022 | | 2023 | | 2022 | | | ||||
Consolidated Statement of Income |
| |
|
| |
| | | | | | | | |
Operating lease costs classified as occupancy and equipment expense | | $ | 189 | | $ | 117 | | $ | 467 | | $ | 315 | | |
(includes short-term lease costs) | |
|
| |
|
| | | | | | | | |
| | | | | | | | | | | | | | |
Supplemental disclosures of cash flow information | |
|
| |
|
| | | | | | | | |
Cash paid for amounts included in the measurement of lease liabilities: | |
|
| |
|
| | | | | | | | |
Operating cash flows from operating leases | | $ | 148 | | $ | 92 | | $ | 354 | | $ | 261 | | |
ROU assets obtained in exchange for operating lease obligations: | | $ | — | | $ | — | | $ | — | | $ | — | | |
At March 31, 2023, future expected lease payments for leases with terms exceeding one year were as follows:
For the three-month period ended | ||||||||
(dollars in thousands) | December 31, 2017 | December 31, 2016 | ||||||
Balance at beginning of period | $ | 620 | $ | 640 | ||||
Additions | - | - | ||||||
Accretion | (183 | ) | (79 | ) | ||||
Reclassification from nonaccretable difference | 170 | 65 | ||||||
Disposals | - | - | ||||||
Balance at end of period | $ | 607 | $ | 626 | ||||
For the six-month period ended | ||||||||
(dollars in thousands) | December 31, 2017 | December 31, 2016 | ||||||
Balance at beginning of period | $ | 609 | $ | 656 | ||||
Additions | - | - | ||||||
Accretion | (261 | ) | (161 | ) | ||||
Reclassification from nonaccretable difference | 259 | 131 | ||||||
Disposals | - | - | ||||||
Balance at end of period | $ | 607 | $ | 626 |
| | | |
(dollars in thousands) |
|
| |
2023 | | $ | 236 |
2024 | |
| 712 |
2025 | |
| 656 |
2026 | |
| 604 |
2027 | |
| 587 |
Thereafter | |
| 7,579 |
Future lease payments expected | | $ | 10,374 |
The Company leases facilities it owns or portions of facilities it owns to other third parties. The Company has determined that all of these lease agreements, in terms of being the three-and six-monthlessor, are classified as operating leases. For the three- and nine- month periods ended DecemberMarch 31, 20172023, income recognized from these lessor agreements was $39,000 and 2016,$171,000, respectively.For the Company did not increase or reverse the allowance for loan losses related tothree- and nine- month periods ended March 31, 2022, income recognized from these purchased credit impaired loans.
Note 6: Deposits
Deposits are summarized as follows:
| | | | | | | |
|
| | | | | | |
(dollars in thousands) |
| March 31, 2023 |
| June 30, 2022 |
| ||
Non-interest bearing accounts | | $ | 618,598 | | $ | 426,929 | |
NOW accounts | |
| 1,430,019 | |
| 1,171,620 | |
Money market deposit accounts | |
| 448,622 | |
| 303,612 | |
Savings accounts | |
| 304,663 | |
| 274,283 | |
Certificates | | | 953,291 | | | 638,631 | |
Total Deposit Accounts | | $ | 3,755,193 | | $ | 2,815,075 | |
Brokered certificates totaled $97.9 million at March 31, 2023, compared to $10.8 million at June 30, 2022.
-32-
(dollars in thousands) | December 31, 2017 | June 30, 2017 | ||||||
Non-interest bearing accounts | $ | 192,266 | $ | 186,203 | ||||
NOW accounts | 539,803 | 479,488 | ||||||
Money market deposit accounts | 113,572 | 105,599 | ||||||
Savings accounts | 146,182 | 147,247 | ||||||
Certificates | 517,146 | 537,060 | ||||||
Total Deposit Accounts | $ | 1,508,969 | $ | 1,455,597 |
The following table sets forth the computation of basic and diluted earnings per share:
Three months ended | Six months ended | |||||||||||||||
December 31, | December 31, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
(dollars in thousands except per share data) | ||||||||||||||||
Net income available to common shareholders | $ | 5,170 | $ | 4,176 | $ | 10,033 | $ | 7,885 | ||||||||
Average Common shares – outstanding basic | 8,589,073 | 7,440,620 | 8,590,218 | 7,438,767 | ||||||||||||
Stock options under treasury stock method | 29,883 | 26,388 | 28,778 | 25,195 | ||||||||||||
Average Common shares – outstanding diluted | 8,618,956 | 7,467,008 | 8,618,996 | 7,463,962 | ||||||||||||
Basic earnings per common share | $ | 0.60 | $ | 0.56 | $ | 1.17 | $ | 1.06 | ||||||||
Diluted earnings per common share | $ | 0.60 | $ | 0.56 | $ | 1.16 | $ | 1.06 |
| | | | | | | | | | | | | |
| | Three months ended |
| Nine months ended | | ||||||||
| | March 31, |
| March 31, | | ||||||||
(dollars in thousands except per share data) |
| 2023 |
| 2022 |
| 2023 |
| 2022 | | ||||
| | | | | | | | | | | | | |
|
| |
|
| |
| | | | | | | |
Net income | | $ | 2,409 | | $ | 9,351 | | $ | 23,676 | | $ | 34,082 | |
Less: distributed earnings allocated to participating securities | |
| (10) | |
| (8) | |
| (31) | |
| (22) | |
Less: undistributed earnings allocated to participating securities | |
| (8) | |
| (33) | |
| (89) | |
| (118) | |
Net income available to common shareholders | | $ | 2,391 | | $ | 9,310 | | $ | 23,556 | | $ | 33,942 | |
| | | | | | | | | | | | | |
Weighted-average common shares outstanding, including participating securities | |
| 10,893,199 | |
| 9,060,272 | |
| 9,783,773 | |
| 8,948,856 | |
Less: weighted-average participating securities outstanding (restricted shares) | |
| (49,510) | |
| (39,230) | |
| (44,100) | |
| (36,998) | |
Denominator for basic earnings per share - | | | | | | | | | | | | | |
Weighted-average shares outstanding | |
| 10,843,689 | |
| 9,021,042 | |
| 9,739,673 | |
| 8,911,858 | |
Effect of dilutive securities stock options or awards | |
| 14,652 | |
| 23,004 | |
| 20,459 | |
| 18,488 | |
Denominator for diluted earnings per share | | | 10,858,341 | | | 9,044,046 | | | 9,760,132 | | | 8,930,346 | |
| | | | | | | | | | | | | |
Basic earnings per share available to common stockholders | | $ | 0.22 | | $ | 1.03 | | $ | 2.42 | | $ | 3.81 | |
Diluted earnings per share available to common stockholders | | $ | 0.22 | | $ | 1.03 | | $ | 2.41 | | $ | 3.80 | |
Certain option and restricted stock awards were excluded from the computation of diluted earnings per share because they were anti-dilutive, based on the average market prices of the Company’s common stock for these periods. Outstanding options and shares of restricted stock totaling 84,740 and 66,440 were excluded from the computation of diluted earnings per share for each of the three- and nine- month periods ended March 31, 20172023, while outstanding options and 2016, no options outstanding had an exercise price exceedingshares of restricted stock totaling 14,500 and 22,750 were excluded from the market price.
Note 8: Income Taxes
The Company and its subsidiary filessubsidiaries file income tax returns in the U.S. Federal jurisdiction and various states. The Company is no longer subject to U.S. federal and state examinations by tax authorities for tax years ending June 30, 2017 and before. The Company’s Missouri income tax returns for the fiscal years before 2011.ending June 30, 2016 through 2018 are under audit by the Missouri Department of Revenue. The Company recognized no interest or penalties related to income taxes.taxes for the periods presented.
-33-
For the three-month period ended | For the six-month periods ended | |||||||||||||||
(dollars in thousands) | December 31, 2017 | December 31, 2016 | December 31, 2017 | December 31, 2016 | ||||||||||||
Income taxes | ||||||||||||||||
Current | $ | 2,484 | $ | 386 | $ | 4,366 | $ | 2,859 | ||||||||
Deferred | 62 | 1,349 | 69 | 234 | ||||||||||||
Total income tax provision | $ | 2,546 | $ | 1,735 | $ | 4,435 | $ | 3,093 |
| | | | | | | | | | | | |
|
| For the three-month periods ended |
| For the nine-month periods ended | ||||||||
(dollars in thousands) | | March 31, 2023 | | March 31, 2022 | | March 31, 2023 | | March 31, 2022 | ||||
Income taxes |
| |
|
| |
| | |
|
| |
|
Current | | $ | 2,572 | | $ | 1,852 | | $ | 8,269 | | $ | 8,114 |
Deferred | |
| (1,994) | |
| 506 | |
| (1,981) | |
| 1,019 |
Total income tax provision | | $ | 578 | | $ | 2,358 | | $ | 6,288 | | $ | 9,133 |
The components of net deferred tax assets (included in other assets on the condensed consolidated balance sheet) are summarized as follows:
(dollars in thousands) | December 31, 2017 | June 30, 2017 | ||||||
Deferred tax assets: | ||||||||
Provision for losses on loans | $ | 3,904 | $ | 5,563 | ||||
Accrued compensation and benefits | 544 | 1,068 | ||||||
Other-than-temporary impairment on available for sale securities | 80 | 128 | ||||||
NOL carry forwards acquired | 301 | 513 | ||||||
Minimum Tax Credit | 130 | 130 | ||||||
Unrealized loss on other real estate | 84 | 131 | ||||||
Unrealized loss on available for sale securities | 121 | - | ||||||
Total deferred tax assets | 5,164 | 7,533 | ||||||
Deferred tax liabilities: | ||||||||
Purchase accounting adjustments | 741 | 1,193 | ||||||
Depreciation | 1,442 | 2,734 | ||||||
FHLB stock dividends | 130 | 203 | ||||||
Prepaid expenses | 134 | 213 | ||||||
Unrealized gain on available for sale securities | - | 295 | ||||||
Other | 466 | 991 | ||||||
Total deferred tax liabilities | 2,913 | 5,629 | ||||||
Net deferred tax asset | $ | 2,251 | $ | 1,904 |
| | | | | | |
(dollars in thousands) |
| March 31, 2023 |
| June 30, 2022 | ||
Deferred tax assets: |
| |
|
| |
|
Provision for losses on loans | | $ | 11,560 | | $ | 7,761 |
Accrued compensation and benefits | |
| 881 | |
| 828 |
NOL carry forwards acquired | |
| 846 | |
| 57 |
Tax credit carry forward | |
| 1,035 | |
| — |
Unrealized loss on other real estate | |
| 868 | |
| 72 |
Unrealized loss on available for sale securities | | | 5,087 | | | 4,921 |
Total deferred tax assets | |
| 20,277 | |
| 13,639 |
| | | | | | |
Deferred tax liabilities: | |
| | |
| |
Purchase accounting adjustments | |
| 728 | |
| 224 |
Depreciation | |
| 4,327 | |
| 1,974 |
FHLB stock dividends | |
| 120 | |
| 120 |
Prepaid expenses | |
| 545 | |
| 415 |
Other | |
| 1,777 | |
| 181 |
Total deferred tax liabilities | |
| 7,497 | |
| 2,914 |
Net deferred tax asset | | $ | 12,780 | | $ | 10,725 |
As of DecemberMarch 31, 20172023, the Company had approximately $1.3$3.8 million and $3.2 million$0 in federal and state net operating loss carryforwards, respectively, which were acquired in the July 2009 acquisition of Southern Bank of Commerce, the February 2014 acquisition of Citizens State Bankshares of Bald Knob, Inc., the April 2020 acquisition of Central Federal Savings and Loan, the February 2022 acquisition of Fortune Bank, and the August 2014January 2023 acquisition of Peoples Service Company.Citizens Bank and Trust. The amount reported is net of the IRC Sec. 382 limitation, or state equivalent, related to utilization of net operating loss carryforwards of acquired corporations. Unless otherwise utilized, the net operating losses will begin to expire in 2027.
-34-
A reconciliation of income tax expense at the statutory rate to the Company'sCompany’s actual income tax expense is shown below:
For the three-month period ended | For the six-month periods ended | |||||||||||||||
(dollars in thousands) | December 31, 2017 | December 31, 2016 | December 31, 2017 | December 31, 2016 | ||||||||||||
Tax at statutory rate | $ | 2,168 | $ | 2,069 | $ | 4,066 | $ | 3,842 | ||||||||
Increase (reduction) in taxes resulting from: | ||||||||||||||||
Nontaxable municipal income | (114 | ) | (129 | ) | (225 | ) | (261 | ) | ||||||||
State tax, net of Federal benefit | 137 | 60 | 243 | 108 | ||||||||||||
Cash surrender value of Bank-owned life insurance | (66 | ) | (74 | ) | (131 | ) | (147 | ) | ||||||||
Tax credit benefits | (225 | ) | (93 | ) | (449 | ) | (187 | ) | ||||||||
Adjustment of deferred tax asset for enacted changes in tax laws | 1,124 | - | 1,124 | - | ||||||||||||
Other, net | (478 | ) | (98 | ) | (193 | ) | (262 | ) | ||||||||
Actual provision | $ | 2,546 | $ | 1,735 | $ | 4,435 | $ | 3,093 |
| | | | | | | | | | | | | |
|
| For the three-month periods ended |
| For the nine-month periods ended | | ||||||||
(dollars in thousands) | | March 31, 2023 | | March 31, 2022 | | March 31, 2023 | | March 31, 2022 | | ||||
Tax at statutory rate | | $ | 627 | | $ | 2,459 | | $ | 6,292 | | $ | 9,075 | |
Increase (reduction) in taxes resulting from: | |
| | |
| | |
| | |
| | |
Nontaxable municipal income | |
| (54) | |
| (80) | |
| (211) | |
| (273) | |
State tax, net of Federal benefit | |
| (179) | |
| 32 | |
| — | |
| 501 | |
Cash surrender value of Bank-owned life insurance | |
| (77) | |
| (61) | |
| (211) | |
| (179) | |
Tax credit benefits | |
| (3) | |
| (13) | |
| (7) | |
| (34) | |
Other, net | |
| 264 | |
| 21 | |
| 425 | |
| 43 | |
Actual provision | | $ | 578 | | $ | 2,358 | | $ | 6,288 | | $ | 9,133 | |
For the threethree- and sixnine- month periods ended DecemberMarch 31, 2017,2023 and 2022, income tax expense at the statutory rate was calculated using a 28.1%21% annual effective tax rate compared to 35.0% for the three and six month periods ended December 31, 2016. (AETR).
Tax credit benefits are recognized under the flow-throughdeferral method of accounting for investments in tax credits.
Note 9: 401(k) Retirement Plan
The Bank has a 401(k) retirement plan that covers substantially all eligible employees. The Bank made a safe harbor“safe harbor” matching contributioncontributions to the Plan of up to 4% of eligible compensation, depending upon the percentage of eligible pay deferred into the plan by the employee, and also made additional, discretionary profit-sharing contributions for fiscal 2017; for2022. For fiscal 2018,2023, the Company has maintained the safe harbor matching contribution of up to 4%, and expects to continue to make additional, discretionary profit-sharing contributions. During the three- and six-monthnine- month periods ended DecemberMarch 31, 2017,2023 retirement plan expenses recognized for the Plan totaled approximately $273,000
Note 10: Subordinated Debt
In March 2004, the Company established Southern Missouri Statutory Trust I issued $7.0 million ofas a statutory business trust, to issue Floating Rate Capital Securities (the "Trust“Trust Preferred Securities"Securities”) with a liquidation value of $1,000 per share in March 2004.. The securities are duemature in 30 years,2034, became redeemable after five years, and bear interest at a floating rate based on LIBOR. At December 31, 2017, the current rate was 4.35%. The securities represent undivided beneficial interests in the trust, which was established by the Company for the purpose of issuing the securities. The Trust Preferred Securities were sold in a private transaction exempt from registration under the Securities Act of 1933, as amended (the "Act"“Act”) and have not been registered under the Act. The securities may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.
In connection with its October 2013 acquisition of Ozarks Legacy Community Financial, Inc. (OLCF), the Company assumed $3.1 million in floating rate junior subordinated debt securities. The debt securities had been issued in June 2005 by OLCF in connection with the sale of trust preferred securities, bear interest at a floating rate based on LIBOR, are now redeemable at par, and mature in 2035. At March 31, 2023, the current rate was 7.32%. The carrying value of the debt securities was approximately $2.6$2.7 million at DecemberMarch 31, 2017,2023 and $2.6 million at June 30, 2017.
In connection with its August 2014 acquisition of Peoples Service Company, Inc. (PSC), the Company assumed $6.5 million in floating rate junior subordinated debt securities. The debt securities had been issued in 2005 by PSC'sPSC’s subsidiary bank holding company, Peoples Banking Company, in connection with the sale of trust preferred securities, bear interest at a floating rate based on LIBOR, are now redeemable at par, and mature in 2035. At March 31, 2023, the
-35-
current rate was 6.67%. The carrying value of the debt securities was approximately $5.1$5.5 million at DecemberMarch 31, 2017,2023 and $5.0June 30, 2022, respectively.
The Company’s investment at a face amount of $505,000 in the three trusts noted above is included with Prepaid Expenses and Other Assets in the consolidated balance sheets, and is carried at a value of $463,000 and $461,000 at March 31, 2023 and June 30, 2022, respectively.
In connection with its February 2022 acquisition of Fortune, the Company assumed $7.5 million in fixed-to-floating rate subordinated notes. The notes had been issued in May 2021 by Fortune to a multi-lender group, bear interest through May 2026 at a fixed rate of 4.5%, and will bear interest thereafter at SOFR plus 3.77%. The notes will be redeemable at par beginning in May 2026, and mature in May 2031. The carrying value of the notes was approximately $7.7 million at March 31, 2023 and June 30, 2017.
ASC Topic 820, Fair Value Measurements, defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Topic 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:
Level 1
Quoted prices in active markets for identical assets or liabilitiesLevel 2
Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in active 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 liabilitiesLevel 3
Unobservable inputs supported by little or no market activity that are significant to the fair value of the assets or liabilitiesRecurring Measurements.
The following table presents the fair value measurements
| | | | | | | | | | | | |
| | Fair Value Measurements at March 31, 2023, Using: | ||||||||||
| | | | | Quoted Prices in | | | | | | ||
| | | | | Active Markets for | | Significant Other | | Significant | |||
| | | | | Identical Assets | | Observable Inputs | | Unobservable Inputs | |||
(dollars in thousands) |
| Fair Value |
| (Level 1) |
| (Level 2) |
| (Level 3) | ||||
U.S. government sponsored enterprises (GSEs) | | $ | 8,741 | | $ | — | | $ | 8,741 | | $ | — |
Obligations of state and political subdivisions | | | 43,406 | | | | | | 43,406 | | | |
Corporate obligations | | | 34,296 | | | — | | | 34,296 | | | — |
Asset backed securities | | | 60,347 | | | | | | 60,347 | | | |
Other securities | |
| 3,586 | |
| — | |
| 3,586 | |
| — |
MBS and CMOs | |
| 279,422 | |
| — | |
| 279,422 | |
| — |
| | | | | | | | | | | | |
| | Fair Value Measurements at June 30, 2022, Using: | ||||||||||
| | | | | Quoted Prices in | | | | | | | |
| | | | | Active Markets for | | Significant Other | | Significant | |||
| | | | | Identical Assets | | Observable Inputs | | Unobservable Inputs | |||
(dollars in thousands) |
| Fair Value |
| (Level 1) |
| (Level 2) |
| (Level 3) | ||||
Obligations of state and political subdivisions | | $ | 44,479 | | $ | — | | $ | 44,479 | | $ | — |
Corporate obligations | | | 19,887 | | | — | | | 19,887 | | | — |
Other securities | |
| 443 | |
| — | |
| 443 | |
| — |
-36-
Fair Value Measurements at December 31, 2017, Using: | ||||||||||||||||
Quoted Prices in Active Markets for Identical Assets | Significant Other Observable Inputs | Significant Unobservable Inputs | ||||||||||||||
(dollars in thousands) | Fair Value | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
U.S. government sponsored enterprises (GSEs) | $ | 10,391 | $ | - | $ | 10,391 | $ | - | ||||||||
State and political subdivisions | 54,312 | - | 54,312 | - | ||||||||||||
Other securities | 5,816 | - | 5,816 | - | ||||||||||||
Mortgage-backed GSE residential | 77,834 | - | 77,834 | - |
Fair Value Measurements at June 30, 2017, Using: | ||||||||||||||||
Quoted Prices in Active Markets for Identical Assets | Significant Other Observable Inputs | Significant Unobservable Inputs | ||||||||||||||
(dollars in thousands) | Fair Value | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
U.S. government sponsored enterprises (GSEs) | $ | 10,438 | $ | - | $ | 10,438 | $ | - | ||||||||
State and political subdivisions | 49,978 | - | 49,978 | - | ||||||||||||
Other securities | 5,725 | - | 5,725 | - | ||||||||||||
Mortgage-backed GSE residential | 78,275 | - | 78,275 | - |
MBS and CMOs | | 170,585 | | — | | 170,585 | | — |
Following is a description of the valuation methodologies and inputs used for assets measured at fair value on a recurring basis and recognized in the accompanying consolidated balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy. There have been no significant changes in the valuation techniques during the period ended December 31, 2017.
Available-for-sale Securities.
When quoted market prices are available in an active market, securities are classified within Level 1.Nonrecurring Measurements.
Fair Value Measurements at December 31, 2017, Using: | ||||
Quoted Prices in | ||||
Active Markets for | Significant Other | Significant | ||
Identical Assets | Observable Inputs | Unobservable Inputs | ||
(dollars in thousands) | Fair Value | (Level 1) | (Level 2) | (Level 3) |
Foreclosed and repossessed assets held for sale | $ 3,724 | $ - | $ - | $ 3,724 |
Fair Value Measurements at June 30, 2017, Using: | ||||
Quoted Prices in | ||||
Active Markets for | Significant Other | Significant | ||
Identical Assets | Observable Inputs | Unobservable Inputs | ||
(dollars in thousands) | Fair Value | (Level 1) | (Level 2) | (Level 3) |
Foreclosed and repossessed assets held for sale | $ 3,100 | $ - | $ - | $ 3,100 |
The following table presents gains and (losses)losses recognized on assets measured on a non-recurring basis for the six-monthnine- month periods ended DecemberMarch 31, 20172023 and 2016:
For the six months ended | ||||||||
(dollars in thousands) | December 31, 2017 | December 31, 2016 | ||||||
Foreclosed and repossessed assets held for sale | $ | (56 | ) | $ | (167 | ) | ||
Total (losses) gains on assets measured on a non-recurring basis | $ | (56 | ) | $ | (167 | ) |
| | | | | | | |
|
| For the nine months ended | | ||||
(dollars in thousands) | | March 31, 2023 | | March 31, 2022 | | ||
Foreclosed and repossessed assets held for sale | | $ | (123) | | $ | (435) | |
Total losses on assets measured on a non-recurring basis | | $ | (123) | | $ | (435) | |
The following is a description of valuation methodologies and inputs used for assets measured at fair value on a nonrecurring basis and recognized in the accompanying consolidated balance sheets, as well as the general classification of such assets and liabilities pursuant to the valuation hierarchy. For assets classified within Level 3 of fair value hierarchy, the process used to develop the reported fair value process is described below.
Foreclosed and Repossessed Assets Held for Sale.
Foreclosed and repossessed assets held for sale are valued at the time the loan is foreclosed upon or collateral is repossessed and the asset is transferred to foreclosed or repossessed assets held for sale. The value of the asset is based on third party or internal appraisals, less estimated costs to sell and appropriate discounts, if any. The appraisals are generally discounted based on current and expected market conditions that may impact the sale or value of the asset andUnobservable (Level 3) Inputs.
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(dollars in thousands) | Fair value at December 31, 2017 | Valuation technique | Unobservable inputs | Range of inputs applied | Weighted-average inputs applied | |
Nonrecurring Measurements | ||||||
Foreclosed and repossessed assets | $ 3,724 | Third party appraisal | Marketability discount | 0.0% - 66.4% | 36.2% | |
(dollars in thousands) | Fair value at June 30, 2017 | Valuation technique | Unobservable inputs | Range of inputs applied | Weighted-average inputs applied | |
Nonrecurring Measurements | ||||||
Foreclosed and repossessed assets | $ 3,100 | Third party appraisal | Marketability discount | 0.0% - 66.4% | 40.6% |
Fair Value of Financial Instruments.The following table presents estimated fair values of the Company'sCompany’s financial instruments not reported at fair value and the level within the fair value hierarchy in which the fair value measurements fell at DecemberMarch 31, 2023 and June 30, 2017.2022.
| | | | | | | | | | | | |
| | March 31, 2023 | ||||||||||
| | | | | Quoted Prices | | | | | | | |
| | | | | in Active | | | | | Significant | ||
| | | | | Markets for | | Significant Other | | Unobservable | |||
| | Carrying | | Identical Assets | | Observable Inputs | | Inputs | ||||
(dollars in thousands) |
| Amount |
| (Level 1) |
| (Level 2) |
| (Level 3) | ||||
Financial assets |
| |
|
| |
|
| |
|
| |
|
Cash and cash equivalents | | $ | 114,540 | | $ | 114,540 | | $ | — | | $ | — |
Interest-bearing time deposits | |
| 1,251 | |
| — | |
| 1,251 | |
| — |
Stock in FHLB | |
| 7,855 | |
| — | |
| 7,855 | |
| — |
Stock in Federal Reserve Bank of St. Louis | |
| 8,491 | |
| — | |
| 8,491 | |
| — |
Loans receivable, net | |
| 3,434,519 | |
| — | |
| — | |
| 3,272,957 |
Accrued interest receivable | |
| 16,372 | |
| — | |
| 16,372 | |
| — |
Financial liabilities | |
| | |
| | |
| | |
| |
Deposits | |
| 3,755,193 | |
| 2,801,811 | |
| — | |
| 941,690 |
Advances from FHLB | |
| 45,002 | |
| — | |
| 44,088 | |
| — |
Accrued interest payable | |
| 3,721 | |
| — | |
| 3,721 | |
| — |
Subordinated debt | |
| 23,092 | |
| — | |
| — | |
| 20,345 |
Unrecognized financial instruments (net of contract amount) | |
| | |
| | |
| | |
| |
Commitments to originate loans | |
| — | |
| — | |
| — | |
| — |
Letters of credit | |
| — | |
| — | |
| — | |
| — |
Lines of credit | |
| — | |
| — | |
| — | |
| — |
| | | | | | | | | | | | |
| | June 30, 2022 | ||||||||||
| | | | | Quoted Prices | | | | | | | |
| | | | | in Active | | | | | Significant | ||
| | | | | Markets for | | Significant Other | | Unobservable | |||
| | Carrying | | Identical Assets | | Observable Inputs | | Inputs | ||||
(dollars in thousands) |
| Amount |
| (Level 1) |
| (Level 2) |
| (Level 3) | ||||
Financial assets |
| |
|
| |
|
| |
|
| |
|
Cash and cash equivalents | | $ | 86,792 | | $ | 86,792 | | $ | — | | $ | — |
Interest-bearing time deposits | |
| 4,768 | |
| — | |
| 4,768 | |
| — |
Stock in FHLB | |
| 5,893 | |
| — | |
| 5,893 | |
| — |
Stock in Federal Reserve Bank of St. Louis | |
| 5,790 | |
| — | |
| 5,790 | |
| — |
Loans receivable, net | |
| 2,686,198 | |
| — | |
| — | |
| 2,655,882 |
Accrued interest receivable | |
| 11,052 | |
| — | |
| 11,052 | |
| — |
Financial liabilities | |
| | | | | | | | | | |
Deposits | |
| 2,815,075 | |
| 2,176,444 | |
| — | |
| 637,163 |
Advances from FHLB | |
| 37,957 | |
| — | |
| 35,916 | |
| — |
Accrued interest payable | | | 801 | |
| — | |
| 801 | |
| — |
Subordinated debt | | | 23,055 | |
| — | |
| — | |
| 22,070 |
Unrecognized financial instruments (net of contract amount) | |
| | | | | | | | | | |
Commitments to originate loans | |
| — | |
| — | |
| — | |
| — |
Letters of credit | |
| — | |
| — | |
| — | |
| — |
Lines of credit | |
| — | |
| — | |
| — | |
| — |
Note 12: Business Combinations
-38-
December 31, 2017 | ||||||||||||||||
Quoted Prices | ||||||||||||||||
in Active | Significant | |||||||||||||||
Markets for | Significant Other | Unobservable | ||||||||||||||
Carrying | Identical Assets | Observable Inputs | Inputs | |||||||||||||
(dollars in thousands) | Amount | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
Financial assets | ||||||||||||||||
Cash and cash equivalents | $ | 35,236 | $ | 35,236 | $ | - | $ | - | ||||||||
Interest-bearing time deposits | 498 | - | 498 | - | ||||||||||||
Stock in FHLB | 4,311 | - | 4,311 | - | ||||||||||||
Stock in Federal Reserve Bank of St. Louis | 3,193 | - | 3,193 | - | ||||||||||||
Loans receivable, net | 1,452,975 | - | - | 1,449,727 | ||||||||||||
Accrued interest receivable | 9,059 | - | 9,059 | - | ||||||||||||
Financial liabilities | ||||||||||||||||
Deposits | 1,508,969 | 991,874 | - | 516,326 | ||||||||||||
Securities sold under agreements to repurchase | 3,697 | - | 3,697 | - | ||||||||||||
Advances from FHLB | 59,914 | 49,400 | 10,571 | - | ||||||||||||
Accrued interest payable | 1,080 | - | 1,080 | - | ||||||||||||
Subordinated debt | 14,896 | - | - | 12,413 | ||||||||||||
Unrecognized financial instruments (net of contract amount) | ||||||||||||||||
Commitments to originate loans | - | - | - | - | ||||||||||||
Letters of credit | - | - | - | - | ||||||||||||
Lines of credit | - | - | - | - |
June 30, 2017 | ||||||||||||||||
Quoted Prices | ||||||||||||||||
in Active | Significant | |||||||||||||||
Markets for | Significant Other | Unobservable | ||||||||||||||
Carrying | Identical Assets | Observable Inputs | Inputs | |||||||||||||
(dollars in thousands) | Amount | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
Financial assets | ||||||||||||||||
Cash and cash equivalents | $ | 30,786 | $ | 30,786 | $ | - | $ | - | ||||||||
Interest-bearing time deposits | 747 | - | 747 | - | ||||||||||||
Stock in FHLB | 3,547 | - | 3,547 | - | ||||||||||||
Stock in Federal Reserve Bank of St. Louis | 2,357 | - | 2,357 | - | ||||||||||||
Loans receivable, net | 1,397,730 | - | - | 1,394,164 | ||||||||||||
Accrued interest receivable | 6,769 | - | 6,769 | - | ||||||||||||
Financial liabilities | ||||||||||||||||
Deposits | 1,455,597 | 918,553 | - | 536,266 | ||||||||||||
Securities sold under agreements to repurchase | 10,212 | - | 10,212 | - | ||||||||||||
Advances from FHLB | 43,637 | 20,000 | 23,781 | - | ||||||||||||
Accrued interest payable | 918 | - | 918 | - | ||||||||||||
Subordinated debt | 14,848 | - | - | 11,984 | ||||||||||||
Unrecognized financial instruments (net of contract amount) | ||||||||||||||||
Commitments to originate loans | - | - | - | - | ||||||||||||
Letters of credit | - | - | - | - | ||||||||||||
Lines of credit | - | - | - | - |
On January 20, 2023, the Company completed its acquisition of Citizens Bancshares, Co., Kansas City, Missouri (“Citizens”), and assumptions were usedits wholly owned subsidiary, Citizens Bank and Trust Company, in estimatinga stock and cash transaction. In late February 2023, the Company merged Citizens Bank and Trust Company with and into Southern Bank, coincident to the data systems conversion. For the three- and nine- month periods ended March 31, 2023, the Company incurred $3.3 million and $4.1 million respectively, of third-party acquisition-related costs, included in noninterest expense in the Company’s condensed consolidated statements of income.
Under the acquisition method of accounting, the total purchase price is allocated to the net tangible and intangible assets acquired based on their estimated fair values of financial instruments:
| | | |
Citizens Bancshares Company | | | |
Fair Value of Consideration Transferred | | | |
(dollars in thousands) | | | |
Cash | | $ | 32,522 |
Common stock, at fair value | | | 98,280 |
Total consideration | | $ | 130,802 |
|
| | |
Recognized amounts of identifiable assets acquired and liabilities assumed |
| | |
| |
| |
Cash and cash equivalents | | $ | 243,225 |
Investment securities | |
| 226,451 |
Loans | |
| 447,388 |
Premises and equipment | |
| 23,430 |
BOLI | |
| 21,733 |
Identifiable intangible assets | |
| 24,645 |
Miscellaneous other assets | |
| 7,596 |
| |
| |
Deposits | |
| (851,140) |
Securities sold under agreements to repurchase | |
| (27,629) |
Miscellaneous other liabilities | | | (8,266) |
Total identifiable net assets | | | 107,433 |
Goodwill | | $ | 23,369 |
Of the total purchase price, $22.1 million was allocated to core deposit intangible, and will be amortized over ten years on a straight line basis, $2.5 million was allocated to trust intangible and will be amortized over ten years on a straight line basis, and $23.4 million was allocated to goodwill. None of the purchase price is deductible. Goodwill is attributable to synergies and economies of scale expected from combining the operations of the Citizens Bank. To the extent that management revises any of the fair value of subordinated debt isthe above fair value adjustments as a result of continuing evaluation, the amount of goodwill recorded in the acquisition will change.
The Company acquired the $461.5 million loan portfolio at an estimated using rates currently available tofair value discount of $14.1 million. The excess of expected cash flows above the Company for debt with similar terms and maturities. The fair value of commitmentsthe performing portion of loans will be accreted to originate loans is estimated using the fees currently charged to enter into similar agreements, taking into accountinterest income over the remaining termslives of the agreements and the present creditworthiness of the counterparties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and committed rates. Theloans in accordance with ASC 310-30. Loans acquired that were not subject to guidance relating to PCD loans include loans with a fair value of letters$419.5 million and gross contractual amounts receivable of credit$520.0 million at the date of acquisition. Management identified 48 PCD loans, with a book balance of $27.5 million, associated with the Citizens acquisition (ASC 310-30).
-39-
The acquired business contributed revenues of $5.7 million and linesearnings of credit are based on fees currently charged$1.2 million for similar agreements orthe period from January 20, 2023 through March 31, 2023. The following unaudited pro forma summaries present consolidated information of the Company as if the business combination had occurred on the estimated cost to terminate or otherwise settle the obligations with the counterparties at the reporting date.
| | | | | | | |
|
| Pro Forma | |||||
| | For the three months ended | |||||
| | March 31, | |||||
(dollars in thousands) | | | 2023 | | | 2022 | |
Revenue | | $ | 43,232 | | $ | 40,529 | |
Earnings | | $ | 4,103 | | $ | 11,987 | |
| | | | | | | |
|
| Pro Forma | |||||
| | For the nine months ended | |||||
| | March 31, | |||||
(dollars in thousands) | | | 2023 | | | 2022 | |
Revenue | | $ | 138,709 | | $ | 121,128 | |
Earnings | | $ | 35,595 | | $ | 41,265 | |
On August 17, 2017,February 25, 2022, the Company announced the signingcompleted its acquisition of an agreement and plan of merger whereby Southern Missouri Bancshares, Inc. ("Bancshares"),Fortune, and its wholly-ownedwholly owned subsidiary, Southern MissouriFortune Bank of Marshfield, will be acquired by the Company(“FB”), in a stock and cash transaction valued at approximately $15.1 million, (representing 140% of Bancshares' anticipated capital, as adjusted, at closing). At December 31, 2017, Bancshares held consolidated assets of $86.7 million, loans, net, of $68.4 million, and deposits of $70.1$35.5 million. The transaction is expected to close in the first quarter of calendar year 2018, subject to satisfaction of customary closing conditions, including regulatory and shareholder approvals. The acquired financial institution is expected to bewas merged with and into Southern Bank shortly aftersimultaneously with the acquisition of Bancshares inFortune. For the first quarter of calendar year 2018. Through Decemberthree- and nine- month periods ended March 31, 2017,2023, the Company incurred a total $152,000$0 and $45,000, respectively, compared to $1.1 million and $1.3 million in the same periods of the prior fiscal year, of third-party acquisition-related costs, with $77,000 and $127,000 being included in noninterest expense in the Company'sCompany’s condensed consolidated statementstatements of income.
Under the acquisition method of accounting, the total purchase price is allocated to the net tangible and intangible assets acquired based on their estimated fair values on the date of the acquisition. Based on valuations of the fair value of tangible and intangible assets acquired and liabilities assumed, the purchase price for the Fortune acquisition is detailed in the following table.
| | | |
Fortune Financial Corporation | | | |
Fair Value of Consideration Transferred | | | |
(dollars in thousands) | | | |
Cash | | $ | 12,664 |
Common stock, at fair value | | | 22,884 |
Total consideration | | $ | 35,548 |
| | | |
Recognized amounts of identifiable assets acquired and liabilities assumed | | | |
| | | |
Cash and cash equivalents | | $ | 34,280 |
Interest bearing time deposits | | 2,300 | |
Loans | | 202,053 | |
Premises and equipment | | 7,690 | |
BOLI | | 3,720 | |
Identifiable intangible assets | | 1,602 | |
Miscellaneous other assets | | 3,512 | |
| | | |
Deposits | | (213,670) | |
FHLB Advances | | (9,681) | |
Subordinated debt | | (7,800) | |
Miscellaneous other liabilities | | | (1,214) |
Total identifiable net assets | | | 22,792 |
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Goodwill | | $ | 12,756 |
Of the total purchase price, $1.6 million was allocated to core deposit intangible, and will be amortized over seven years on a straight line basis. Additionally, $12.8 million was allocated to goodwill, and none of the purchase price is deductible. Goodwill is attributable to synergies and economies of scale expected from combining the operations of the Bank and Fortune. To the extent that management revises any of the fair value of the above fair value adjustments as a result of continuing evaluation, the amount of goodwill recorded in the acquisition will change.
The Company acquired the $204.1 million loan portfolio at an estimated fair value discount of $2.1 million. The excess of expected cash flows above the fair value of the performing portion of loans will be accreted to interest income forover the remaining lives of the loans in accordance with ASC 310-30. Loans acquired that were not subject to guidance relating to PCD loans include loans with a fair value and gross contractual amounts receivable of $187.0 million and $211.0 million at the date of acquisition. Management identified 31 PCD loans, with a book balance of $15.1 million, associated with the Fortune acquisition (ASC 310-30).
On December 15, 2021, the Company completed its acquisition of the Cairo, Illinois, branch of First National Bank, Oldham, South Dakota. The deal resulted in Southern Bank relocating its facility from its prior location to the First National Bank location in Cairo. The Company views the acquisition and updates to the new facility as an expression of its continuing commitment to the Cairo community. For the three- and six- monthsnine- month periods ended DecemberMarch 31, 2017, respectively.2023, the Company incurred no third-party acquisition-related costs, compared to $26,000 and $50,000, respectively, in the same periods of the prior fiscal year.
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Based on valuations of the fair value of tangible and intangible assets acquired and liabilities assumed, the purchase price for the Cairo acquisition is detailed in the following table.
| | | |
First National Bank - Cairo Branch | | | |
Fair Value of Consideration Transferred | | | |
(dollars in thousands) | | | |
Cash | | $ | (26,932) |
|
| | |
Recognized amounts of identifiable assets acquired and liabilities assumed |
| | |
| |
| |
Cash and cash equivalents | | $ | 220 |
Loans | |
| 408 |
Premises and equipment | |
| 468 |
Identifiable intangible assets | |
| 168 |
Miscellaneous other assets | |
| 1 |
| |
| |
Deposits | |
| (28,540) |
Miscellaneous other liabilities | | | (99) |
Total identifiable net liabilities | | | (27,374) |
Goodwill | | $ | 442 |
Of the total purchase price, $168,000 was allocated to core deposit intangible, and will be amortized over seven years on a straight line basis. Additionally, $442,000 was allocated to goodwill, and none of the purchase price is deductible. Goodwill is attributable to synergies and economies of scale expected from combining the operations of the Southern Bank existing facility with the acquired Cairo branch.
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PART I:
Item 2:SOUTHERN MISSOURI BANCORP, INC.
General
Southern Missouri Bancorp, Inc. (Southern Missouri or Company) is a Missouri corporation and owns all of the outstanding stock of Southern Bank (the Bank). The Company'sCompany’s earnings are primarily dependent on the operations of the Bank. As a result, the following discussion relates primarily to the operations of the Bank. The Bank'sBank’s deposit accounts are generally insured up to a maximum of $250,000 by the Deposit Insurance Fund (DIF), which is administered by the Federal Deposit Insurance Corporation (FDIC). At DecemberMarch 31, 2017,2023, the Bank operated from its headquarters, 3762 full-service branch offices, and threetwo limited-service branch offices. The Bank owns the office building and related land in which its headquarters are located, and 3558 of its other branch offices. The remaining fivesix branches are either leased or partially owned.
The significant accounting policies followed by Southern Missouri Bancorp, Inc. and its wholly owned subsidiaries for interim financial reporting are consistent with the accounting policies followed for annual financial reporting. All adjustments, which are of a normal recurring nature and are in the opinion of management necessary for a fair statement of the results for the periods reported, have been included in the accompanying condensed consolidated condensed financial statements.
The condensed consolidated balance sheet of the Company as of June 30, 2017,2022, has been derived from the audited consolidated balance sheet of the Company as of that date. Certain information and note disclosures normally included in the Company'sCompany’s annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company'sCompany’s annual report on Form 10-K annual report filed with the Securities and Exchange Commission.
Management’s discussion and analysis of financial condition and results of operations is intended to assist in understanding the financial condition and results of operations of the Company. The information contained in this section should be read in conjunction with the unaudited condensed consolidated financial statements and accompanying notes. The following discussion reviews the Company'sCompany’s condensed consolidated financial condition at DecemberMarch 31, 2017,2023, and results of operations for the three- and six-monththree-and nine- month periods ended DecemberMarch 31, 20172023 and 2016.
Forward Looking Statements
This document contains statements about the Company and its subsidiaries which we believe are "forward-looking statements"“forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements may include, without limitation, statements with respect to anticipated future operating and financial performance, growth opportunities, interest rates, cost savings and funding advantages expected or anticipated to be realized by management. Words such as "may," "could," "should," "would," "believe," "anticipate," "estimate," "expect," "intend," "plan"“may,” “could,” “should,” “would,” “believe,” “anticipate,” “estimate,” “expect,” “intend,” “plan” and similar expressions are intended to identify these forward‑lookingforward-looking statements. Forward-looking statements by the Company and its management are based on beliefs, plans, objectives, goals, expectations, anticipations, estimates and intentions of management and are not guarantees of future performance. The important factors we discuss below, as well as other factors discussed under the caption "Management's“Management’s Discussion and Analysis of Financial Condition and Results of Operations"Operations” and identified in this filing and in our other filings with the SEC and those presented elsewhere by our management from time to time, could cause actual results to differ materially from those indicated by the forward-looking statements made in this document:
● | potential adverse impacts to the economic conditions in the Company’s local market areas, other markets where the Company has lending relationships, or other aspects of the Company’s business operations or financial markets, generally, resulting from the continuing COVID-19 pandemic and any governmental or societal responses thereto; |
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expected cost savings, synergies and other benefits from our merger and acquisition activities, including our ongoing and recently completed acquisitions, might not be realized within the anticipated time frames, to the extent anticipated, or at all, and costs or difficulties relating to integration matters, including but not limited to customer and employee retention and labor shortages, might be greater than expected; |
the strength of the United States economy in general and the strength of the local economies in which we conduct |
fluctuations in interest rates and inflation, including the effects of a potential recession or slowed economic growth caused by changes in |
monetary and fiscal policies of the Board of Governors of the Federal Reserve System (the |
the risks of lending and investing activities, including changes in the level and direction of loan delinquencies and write-offs and changes in estimates of the adequacy of the allowance for loan losses; |
our ability to access cost-effective |
the timely development of and acceptance of our new products and services and the perceived overall value of these products and services by users, including the features, pricing and quality compared to |
fluctuations in real estate values and both residential and commercial real estate markets, as well as agricultural business conditions; |
demand for loans and deposits in our market area; |
legislative or regulatory changes |
changes in accounting principles, policies, or |
results of examinations of us by our regulators, including the possibility that our regulators may, among other things, require us to increase our reserve for loan losses or to write-down assets; |
the impact of technological changes; and |
our success at managing the risks involved in the foregoing. |
The Company disclaims any obligation to update or revise any forward-looking statements based on the occurrence of future events, the receipt of new information, or otherwise.
Critical Accounting Policies
Accounting principles generally accepted in the United States of America are complex and require management to apply significant judgments to various accounting, reporting and disclosure matters. Management of the Company must use assumptions and estimates to apply these principles where actual measurement is not possible or practical. For a complete discussion of the Company'sCompany’s significant accounting policies, see "Notes“Notes to the Consolidated Financial Statements"Statements” in the Company's 2017Company’s 2022 Annual Report.Report on Form 10-k. Certain policies are considered critical because they are highly dependent upon subjective or complex judgments, assumptions and estimates. Changes in such estimates may have a significant impact on the financial statements. Management has reviewed the application of these policies with the Audit Committee of the Company'sCompany’s Board of Directors. For a discussion of applying critical accounting policies, see "Critical“Critical Accounting Policies"Policies and Estimates” beginning on page 5362 in the Company's 2017Company’s 2022 Annual Report.
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COVID-19 Pandemic Response
During the global pandemic that took center stage during the past three years, the Company continued to serve our communities and our customers. The Company continues to actively monitor and respond to any remaining effects of the COVID-19 pandemic.
General operating conditions. From the initial onset of the pandemic in March, 2020, the Company worked to increase our telework capabilities, and we had as many as 10-15% of our team members working remotely during the height of the pandemic either on a regular or rotating basis. The Company chose not to extend beyond March 31, 2021, the additional leave provisions (over and above the Company’s standard paid time off policy) provided for under the Families First Coronavirus Response Act (the FFCRA) or the CARES Act. The operations of the Company’s internal controls have not been significantly impacted by changes in our work environment.
SBA Paycheck Protection Program Lending. In the first and second rounds of funding made available through the Small Business Administration’s Paycheck Protection Program (PPP), the Company originated just over 3,200 loans totaling $197.2 million through the program’s expiration on May 31, 2021. The Company has made substantial progress in processing and receiving approval from the SBA for applications by borrowers for forgiveness, and as of March 31, 2023, total PPP loans outstanding were reduced to $642,000.
Deferrals and modifications. In the months following the onset of the pandemic, the Company adhered to regulatory guidance encouraging financial institutions to work with borrowers affected by the pandemic to defer or temporarily modify payment arrangements. Under the CARES Act and subsequent legislation, in instances where the borrower was otherwise current and performing prior to the pandemic, the Company was permitted the option of temporarily suspending certain requirements under U.S. GAAP related to troubled debt restructurings (TDRs). As of June 30, 2020, the Company had provided such relief for approximately 900 loans totaling $380.2 million. As of June 30, 2021, the number of such modifications was reduced to six loans with balances totaling $23.9 million. At its January 1, 2022 expiration, the CARES Act was not further extended; therefore, the provisions to temporarily suspend certain requirements under U.S. GAAP as related to TDRs were no longer available. For more information regarding these deferrals and modifications, see discussion included in Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations (specifically: Financial Condition, Allowance for Credit Losses).
Executive Summary
Our results of operations depend primarily on our net interest margin, which is directly impacted by the interest rate environment. The net interest margin represents interest income earned on interest-earning assets (primarily real estate loans, commercial and agricultural loans, and the investment portfolio), less interest expense paid on interest-bearing liabilities (primarily interest-bearing transaction accounts, certificates of deposit, savings and money market deposit accounts, repurchase agreements, and borrowed funds), as a percentage of average interest-earning assets. Net interest margin is directly impacted by the spread between long-term interest rates and short-term interest rates, as our interest-earning assets, particularly those with initial terms to maturity or repricing greater than one year, generally price off longer term rates while our interest-bearing liabilities generally price off shorter term interest rates. This difference in longer term and shorter term interest rates is often referred to as the steepness of the yield curve. A steep yield curve – in which the difference in interest rates between short term and long term periods is relatively large – could be beneficial to our net interest income, as the interest rate spread between our interest-earning assets and interest-bearing liabilities would be larger. Conversely, a flat or flattening yield curve, in which the difference in rates between short term and long term periods is relatively small or shrinking, or an inverted yield curve, in which short term rates exceed long term rates, could have an adverse impact on our net interest income, as our interest rate spread could decrease.
Our results of operations may also be affected significantly by general and local economic and competitive conditions, particularly those with respect to changes in market interest rates, government policies and actions of regulatory authorities.
During the first sixnine months of fiscal 2018, we grew our balance sheet2023, total assets increased by $69.0 million.
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increased $194.4 million; and loans, net of the ACL, increased $748.3 million. DepositsLiabilities increased $53.4$962 million, inclusive of a $44.3 millionincluding an increase in public unit deposits and net of a
Net income for the first sixnine months of fiscal 20182023 was $10.0$23.7 million, an increasea decrease of $2.1$10.4 million, or 27.2%30.5% as compared to the same period of the prior fiscal year. C
Interest rates during the first sixnine months of fiscal 2018 generally2023 remained volatile and moved higher, but the longest end ofwhile the yield curve was actually down slightly, leading to a flatter curve. Early infurther inverted, with shorter-term obligations yielding more than longer-term obligations. While the period, long termFederal Reserve’s Open Market Committee (FOMC) has raised short-term rates moved down notably, and then from mid-September forward, generally increased less than shorter-term rates.significantly since March 2022, market expectations for economic growth over the next several years have become pessimistic. At DecemberMarch 31, 2017,2023, as compared to June 30, 2017,2022, the yield on three-month treasuries increased from 1.72% to 4.85%; the yield on two-year treasuries moved upincreased from 1.38%2.92% to 1.89%4.06%; the yield on five-year treasuries moved upincreased from 1.89%3.01% to 2.20%3.60%; the yield on ten-year treasuries moved upincreased from 2.31%2.98% to 2.40%3.48%; and the yield on 30-year treasuries actually moved downincreased from 2.84%3.14% to 2.74%3.67%.
As compared to the first sixnine months of the prior fiscal year, our average yield on earning assets increased by 1754 basis points, helpedprimarily attributable to increases in partthe market interest rates at which earning assets were originated, acquired, or renewed, as well as a shift in the earning asset mix to loans receivable from cash and cash equivalents from year-ago levels. Our cost of interest-bearing liabilities increased by discount accretion recognized94 basis points, as the Company increased offering rates on recent acquisitions,nonmaturity accounts and maturing time deposits to maintain funding in a more competitive environment. Brokered CD funding was utilized to reduce the Company’s overnight borrowing position resulting from loan growth outpacing deposit growth, but also as we originatedaverage balance of FHLB advances were higher for the current period and renewed loans atcontributed to the increased cost of interest-bearing liabilities. Higher market rates reflecting recent increases byreflected the Federal Reserve's Open Market Committee (FOMC) (see "Resultspolicy of the FOMC, which has increased overnight funding rates and began a “quantitative tightening” program to reverse some of the excess reserves placed into the financial system since March 2020. (See “Results of Operations: Comparison of the three- and six-monthnine-month periods ended DecemberMarch 31, 20172023 and 20162022 – Net Interest Income"Income”.). The FOMC increased targeted overnight rates by 25 basis pointsrapid increase in December 2017, and a totalthe level of 75 basis points between December 2016 and June 2017, just prior to the beginning of the Company's fiscal year. In December 2015, the FOMC increased rates by 25 basis points, the first increase since the financial crisis which began in 2008. The Company has considered the measured increase inshort-term market interest rates, to generally be favorable, however,along with the flatteningmagnitude of the yield curve inversion is concerning.
As PPP loan forgiveness declined, the Company’s accretion of interest income from deferred origination fees on these loans was reduced to $44,000 for the first nine months of the fiscal year, which impacted net interest margin increased sevenby less than one basis points when comparing the first six months of fiscal 2018point, compared to $3.2 million in the same period of the prior fiscal year. The improvement was attributable primarily to higher yields, partially offset by an increased cost of funds. Net interest income resulting from the accretion of the discount (and a smaller premium on acquired time deposits) attributable to the Peoples Acquisition and the Capaha Acquisition in the first six months of fiscal 2018 totaled $1.3 million as compared to $868,000 in the first six months of fiscal 2017. In the current period, this component of net interest income contributed 16 basis points to theyear ago, which impacted net interest margin an increase from a contribution ofby 13 basis points in the year-ago period.
The dollar impact of this component of net interest income has generally been declining each sequential quarter as assets from the Peoples Acquisition mature or prepay; however, the closing of the Capaha Acquisition in mid-June 2017 resulted in additional accretion in the current fiscal year, while resolution of particular acquired impaired credits also resulted in recognition of further discount accretion.
The Company’s noninterest income for the six-monthnine-month period ended DecemberMarch 31, 2017, noninterest income increased $1.22023, was $17.3 million, an increase $2.6 million, or 22.2%17.4%, as compared to the same period of the prior fiscal year. In the current period, increases in deposit
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account service charges, bank card interchange income, other loan fees, loan servicing fees, and other income were partially offset by a decrease in gains realized on the sale of residential real estate loans originated for that purpose. The increase in other income was attributable to a gain on the sale of fixed assets of $317,000 as the Company sold previously acquired properties not currently being utilized as banking facilities, trust management services income, and the sale of the guaranty portion of newly originated government-guaranteed loans. These increases were partially offset by the inclusion in the year ago period of a non-recurring benefit of $278,000 recognized on the Company’s exit from a renewable energy tax credit partnership. Origination of residential real estate loans for sale on the secondary market was down 65.1% as compared to the year ago period, as both refinancing and purchase activity declined due to the increase in market interest rates, resulting in a decrease to both gains on sale of these loans and recognition of new mortgage servicing rights, partially offset by income from the servicing and gain on sale of the guaranty portion of government-guaranteed loans.
Noninterest expense for the nine-month period ended March 31, 2023, was $61.6 million, an increase of $15.5 million, or 33.7%, as compared to the same period of the prior fiscal year The increase was attributable primarily to deposit account charges and related fees, bank card interchange income, loan servicing fees, and other loan fees, all of which were attributable in part to the Capaha Acquisition, which increased our number of account holders and loans serviced. These increases were partially offset by a decrease in net realized gains on sale of loans. Noninterest expense for the six-month period ended December 31, 2017, increased $3.4 million, or 19.1%, as compared to the same period of the prior fiscal year. The increase was due mostly to increases in compensation and benefits, legal and professional fees occupancy expenses, data processing expenses, amortization of core deposit intangibles, deposit insurance premiums, and
We expect, over time, to continue to grow our assets through the origination and occasional purchase of loans, and purchases of investment securities. The primary funding for this asset growth is expected to come from retail deposits, brokered funding, and short- and long-term FHLB borrowings. We have grown and intend to continue to grow deposits by offering desirable deposit products for our current customers and by attracting new depository relationships. We will also continue to explore strategic expansion opportunities in market areas that we believe will be attractive to our business model.
Comparison of Financial Condition at DecemberMarch 31, 2023 and June 30, 2017
The Company experienced balance sheet growth in the first sixnine months of fiscal 2018,2023, with total assets of $1.8$4.3 billion at DecemberMarch 31, 2017,2023, reflecting an increase of $69.0 million,$1.1 billion, or 4.0%33.5%, as compared to June 30, 2017. Asset growth2022. Growth was comprised mainly of loan growth.
Cash equivalents and time deposits were a combined $35.7$115.8 million at March 31, 2023, an increase of $4.2$24.2 million, or 13.3%26.5%, as compared to June 30, 2017.
Loans, net of the allowance for loancredit losses (“ACL"), were $1.5$3.4 billion at DecemberMarch 31, 2017,2023, an increase of $55.2$748 million, or 4.0%27.9%, as compared to June 30, 2017. The increase was2022. Gross loans increased by $760.8 million, while the ACL attributable primarily to growth in commercial real estate loans, along with smaller increases in residential real estate loans and consumer loans, partially offset by declines in drawn constructionoutstanding loan balances and commercial operating loans. The increase in commercial real estate lending was attributable mostly to loans secured by nonresidential properties. The increase in residential lending was attributable to loans secured by one- to four-family residential properties, partially offset by a decline in loans secured by multifamily properties. The decrease in commercial operating loans was attributable primarily to a seasonal decline in agricultural loan balances, partially offset by an increase in commercial and industrial loan balances.
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Loans anticipated to fund in the next 90 days totaled $164.4 million at March 31, 2023, as compared to $235.0 million at June 30, 2022, and $181.9 million at March 31, 2022.
The Bank’s concentration in non-owner occupied commercial real estate was approximately $1.5 billion, or 334% of regulatory capital, as defined, at March 31, 2023, as compared to 299% one year ago, representing 42% of total loans at March 31, 2023. Multi-family residential real estate totaled $395.0 million, or 11.3% of total loans, hotels/motels totaled $123.9 million, or 3.5% of total loans, and retail stand-alone and strip centers totaled $173.5 million, or 5.0% of total loans, and represent the most common collateral types within the non-owner occupied commercial real estate portfolio. The multi-family residential real estate portfolio commonly includes loans collateralized by properties currently in the low-income housing tax credit (LIHTC) program or having exited the program. Hotels/motels and retail stand-alone segments include primarily franchised businesses, and the strip centers can be defined as non-mall shopping centers with a variety of tenants. Office property types totaled $33.5 million, or 0.96% of total loans at March 31, 2023, and are comprised, primarilyin general, of smaller spaces with diverse tenants. The Company continues to monitor this concentration and the individual segments closely.
Deposits were $3.8 billion at March 31, 2023, an increase of $940.2 million, or 33.4%, as compared to June 30, 2022. The deposit portfolio saw fiscal year-to-date increases in certificates of deposit, interest-bearing transaction accounts, along with smaller increases in money market deposit accounts, and noninterest-bearingnoninterest bearing transaction accounts, partially offset by declines in certificatesprimarily as a result of deposit. Sincethe Citizens merger. Public unit balances totaled $636.6 million at March 31, 2023, an increase of $163.4 million compared to June 30, 2017, the Company's public unit deposits increased by $44.32022, and as compared to $524.0 million much of which is seasonal, though several new relationships contributed significantly to growth, as well. Brokered certificates of deposit decreased $37.5 million, as management chose to not renew some funding through this source due to strong core deposit growth, and brokered nonmaturity deposits increased $3.3 million. Our discussion of brokered deposits excludes those brokered deposits originated through reciprocal arrangements, as our reciprocal brokered deposits are primarily originated by our public unit depositors and utilized as an alternative to pledging securities against those deposits.at December 31, 2022. The average loan-to-deposit ratio for the first six monthsthird quarter of fiscal 20182023 was 98.4%91.2%, as compared to 103.0%91.3% for the same period of the prior fiscal year.
FHLB advances were $59.9$45.0 million at DecemberMarch 31, 2017,2023, an increase of $16.3$7.0 million, or 37.3%18.6%, as compared to June 30, 2017,2022, and a decrease of $16.5 million from December 31, 2022, the linked quarter, as the Company utilized overnight and short-term fundingcash acquired in the Citizens merger to partially fund loan growth in excess of deposit growth and allow brokered deposits to decrease. Securities sold under agreements to repurchase totaled $3.7growth. There were no overnight borrowings or short-term repo balances at March 31, 2023.
The Company’s stockholders’ equity was $436.6 million at DecemberMarch 31, 2017, a decrease2023, an increase of $6.5$115.9 million, or 63.8%36.1%, as compared to June 30, 2017, as we continued to encourage larger customers to migrate from this product to a reciprocal brokered deposit arrangement. At both dates, the full balance of repurchase agreements was due to local small business and government counterparties.
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Average Balance Sheet, Interest, and Average Yields and Rates for the Three- and Six-MonthNine- Month Periods Ended
March 31, 20172023 and 2016
The tables below presentpresents certain information regarding our financial condition and net interest income for the three- and six-monthnine- month periods ended DecemberMarch 31, 20172023 and 2016.2022. The tables presenttable presents the annualized average yield on interest-earning assets and the annualized average cost of interest-bearing liabilities. We derived the yields and costs
Three-month period ended | Three-month period ended | |||||||||||||||||||||||
December 31, 2017 | December 31, 2016 | |||||||||||||||||||||||
(dollars in thousands) | Average Balance | Interest and Dividends | Yield/ Cost (%) | Average Balance | Interest and Dividends | Yield/ Cost (%) | ||||||||||||||||||
Interest earning assets: | ||||||||||||||||||||||||
Mortgage loans (1) | $ | 1,162,386 | $ | 14,059 | 4.84 | $ | 974,321 | $ | 11,288 | 4.63 | ||||||||||||||
Other loans (1) | 300,668 | 4,177 | 5.56 | 242,286 | 2,941 | 4.86 | ||||||||||||||||||
Total net loans | 1,463,054 | 18,236 | 4.99 | 1,216,607 | 14,229 | 4.68 | ||||||||||||||||||
Mortgage-backed securities | 78,485 | 426 | 2.17 | 70,775 | 350 | 1.98 | ||||||||||||||||||
Investment securities (2) | 78,616 | 558 | 2.84 | 68,408 | 500 | 2.92 | ||||||||||||||||||
Other interest earning assets | 3,028 | 11 | 1.34 | 1,599 | 4 | 1.00 | ||||||||||||||||||
Total interest earning assets (1) | 1,623,183 | 19,231 | 4.74 | 1,357,389 | 15,083 | 4.44 | ||||||||||||||||||
Other noninterest earning assets (3) | 141,665 | - | 123,287 | - | ||||||||||||||||||||
Total assets | $ | 1,764,848 | $ | 19,231 | $ | 1,480,676 | $ | 15,083 | ||||||||||||||||
Interest bearing liabilities: | ||||||||||||||||||||||||
Savings accounts | $ | 144,880 | 174 | 0.48 | $ | 116,859 | 93 | 0.32 | ||||||||||||||||
NOW accounts | 513,202 | 1,025 | 0.80 | 410,746 | 754 | 0.73 | ||||||||||||||||||
Money market deposit accounts | 111,642 | 170 | 0.61 | 80,043 | 54 | 0.27 | ||||||||||||||||||
Certificates of deposit | 523,441 | 1,656 | 1.27 | 435,894 | 1,142 | 1.05 | ||||||||||||||||||
Total interest bearing deposits | 1,293,165 | 3,025 | 0.94 | 1,043,542 | 2,043 | 0.78 | ||||||||||||||||||
Borrowings: | ||||||||||||||||||||||||
Securities sold under agreements to repurchase | 4,585 | 8 | 0.68 | 24,323 | 25 | 0.41 | ||||||||||||||||||
FHLB advances | 70,797 | 284 | 1.60 | 124,834 | 282 | 0.90 | ||||||||||||||||||
Note Payable | 3,000 | 29 | 3.82 | - | - | - | ||||||||||||||||||
Subordinated debt | 14,884 | 182 | 4.89 | 14,789 | 160 | 4.33 | ||||||||||||||||||
Total interest bearing liabilities | 1,386,431 | 3,528 | 1.02 | 1,207,488 | 2,510 | 0.83 | ||||||||||||||||||
Noninterest bearing demand deposits | 193,028 | - | 137,468 | - | ||||||||||||||||||||
Other noninterest bearing liabilities | 6,657 | - | 5,873 | - | ||||||||||||||||||||
Total liabilities | 1,586,116 | 3,528 | 1,350,829 | 2,510 | ||||||||||||||||||||
Stockholders' equity | 178,732 | - | 129,847 | - | ||||||||||||||||||||
Total liabilities and stockholders' equity | $ | 1,764,848 | $ | 3,528 | $ | 1,480,676 | $ | 2,510 | ||||||||||||||||
Net interest income | $ | 15,703 | $ | 12,573 | ||||||||||||||||||||
Interest rate spread (4) | 3.72 | % | 3.61 | % | ||||||||||||||||||||
Net interest margin (5) | 3.87 | % | 3.71 | % | ||||||||||||||||||||
Ratio of average interest-earning assets to average interest-bearing liabilities | 117.08 | % | 112.41 | % |
| | | | | | | | | | | | | | | | | | |
| | Three-month period ended | | Three-month period ended |
| | ||||||||||||
| | March 31, 2023 | | March 31, 2022 |
| | ||||||||||||
(dollars in thousands) |
| Average |
| Interest and |
| Yield/ |
| Average |
| Interest and |
| Yield/ |
|
| ||||
| | Balance | | Dividends | | Cost (%) | | Balance | | Dividends | | Cost (%) |
| | ||||
Interest-earning assets: | | | | | | | | | | | | | | | | | | |
Mortgage loans (1) | | $ | 2,738,256 | | $ | 33,740 | | 4.93 | | $ | 2,010,318 | | $ | 22,094 | | 4.40 | | |
Other loans (1) | |
| 596,641 | | | 9,375 | | 6.29 | | | 451,048 | | | 4,966 | | 4.40 | | |
Total net loans | |
| 3,334,897 | |
| 43,115 |
| 5.17 | |
| 2,461,366 | |
| 27,060 |
| 4.40 | | |
Mortgage-backed securities | |
| 294,029 | | | 1,652 | | 2.25 | | | 149,527 | | | 646 | | 1.73 | | |
Investment securities (2) | |
| 129,755 | | | 2,076 | | 6.40 | | | 77,416 | | | 524 | | 2.71 | | |
Other interest-earning assets | |
| 129,977 | | | 1,443 | | 4.55 | | | 199,754 | | | 109 | | 0.22 | | |
TOTAL INTEREST- EARNING ASSETS (1) | |
| 3,888,658 | |
| 48,286 |
| 4.97 | |
| 2,888,063 | |
| 28,339 |
| 3.92 | | |
Other noninterest-earning assets (3) | |
| 270,131 | | | — | | | | | 188,549 | | | — | |
| | |
TOTAL ASSETS | | $ | 4,158,789 | | $ | 48,286 |
| | | $ | 3,076,612 | | $ | 28,339 |
|
| | |
| | | | | | | | | | | | | | | | | | |
Interest-bearing liabilities: | |
| | |
|
|
|
| |
|
| |
|
|
|
| | |
Savings accounts | | $ | 332,890 | | $ | 517 | | 0.62 | | $ | 263,192 | | $ | 171 | | 0.26 | | |
NOW accounts | |
| 1,416,933 | | | 5,605 | | 1.58 | | | 1,137,278 | | | 1,288 | | 0.45 | | |
Money market accounts | |
| 394,996 | | | 2,191 | | 2.22 | | | 281,949 | | | 213 | | 0.30 | | |
Certificates of deposit | |
| 901,344 | | | 5,392 | | 1.58 | | | 591,868 | | | 1,199 | | 0.81 | | |
TOTAL INTEREST- BEARING DEPOSITS | |
| 3,046,163 | |
| 13,705 |
| 1.80 | |
| 2,274,287 | |
| 2,871 |
| 0.50 | | |
Borrowings: | |
| | |
|
|
|
| |
|
| |
|
|
|
| | |
Securities sold under agreements to repurchase | | | 16,592 | | | 213 | | 5.13 | | | — | | | — | | — | | |
FHLB advances | |
| 35,645 | | | 206 | | 2.31 | | | 39,114 | | | 167 | | 1.71 | | |
Junior subordinated debt | |
| 23,086 | | | 395 | | 6.84 | | | 19,170 | | | 187 | | 3.90 | | |
TOTAL INTEREST- BEARING LIABILITIES | |
| 3,121,486 | |
| 14,519 |
| 1.86 | |
| 2,332,571 | |
| 3,225 |
| 0.55 | | |
Noninterest-bearing demand deposits | |
| 608,782 | | | — | | | | | 421,898 | | | — | | | | |
Other liabilities | |
| 15,718 | | | — | | | | | 8,345 | | | — | | | | |
TOTAL LIABILITIES | |
| 3,745,986 | |
| 14,519 |
|
| |
| 2,762,814 | |
| 3,225 |
|
| | |
Stockholders’ equity | |
| 412,803 | |
| — |
|
| |
| 313,798 | |
| — |
|
| | |
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | | $ | 4,158,789 | | $ | 14,519 |
|
| | $ | 3,076,612 | | $ | 3,225 |
|
| | |
| | | | | | | | | | | | | | | | | | |
Net interest income | |
|
| | $ | 33,767 |
|
| |
|
| | $ | 25,114 |
|
| | |
Interest rate spread (4) | |
|
| |
|
|
| 3.11 | % |
|
| |
|
|
| 3.37 | % | |
Net interest margin (5) | |
|
| |
|
|
| 3.48 | % |
|
| |
|
|
| 3.48 | % | |
Ratio of average interest-earning assets to average interest-bearing liabilities | |
| 124.48 | % |
|
|
|
| |
| 123.81 | % |
|
|
|
| | |
(1) | Calculated net of deferred loan fees, loan discounts and loans-in-process. Non-accrual loans are not included in average loans. |
(2) | Includes FHLB and Federal Reserve Bank of St. Louis membership stock and related cash dividends. |
(3) | Includes average balances for fixed assets and BOLI of |
(4) | Interest rate spread represents the difference between the average rate on interest-earning assets and the average cost of interest-bearing liabilities. |
(5) | Net interest margin represents annualized net interest income divided by average interest-earning assets. |
-49-
Six-month period ended | Six-month period ended | |||||||||||||||||||||||
December 31, 2017 | December 31, 2016 | |||||||||||||||||||||||
(dollars in thousands) | Average Balance | Interest and Dividends | Yield/ Cost (%) | Average Balance | Interest and Dividends | Yield/ Cost (%) | ||||||||||||||||||
Interest earning assets: | ||||||||||||||||||||||||
Mortgage loans (1) | $ | 1,148,842 | $ | 27,692 | 4.82 | $ | 952,406 | $ | 22,537 | 4.73 | ||||||||||||||
Other loans (1) | 300,764 | 8,000 | 5.32 | 244,931 | 5,942 | 4.85 | ||||||||||||||||||
Total net loans | 1,449,606 | 35,692 | 4.92 | 1,197,337 | 28,479 | 4.76 | ||||||||||||||||||
Mortgage-backed securities | 78,558 | 843 | 2.15 | 69,398 | 695 | 2.00 | ||||||||||||||||||
Investment securities (2) | 76,928 | 1,087 | 2.83 | 67,788 | 1,006 | 2.97 | ||||||||||||||||||
Other interest earning assets | 2,648 | 20 | 1.52 | 4,665 | 8 | 0.35 | ||||||||||||||||||
Total interest earning assets (1) | 1,607,740 | 37,642 | 4.68 | 1,339,188 | 30,188 | 4.51 | ||||||||||||||||||
Other noninterest earning assets (3) | 141,162 | - | 119,281 | - | ||||||||||||||||||||
Total assets | $ | 1,748,902 | $ | 37,642 | $ | 1,458,469 | $ | 30,188 | ||||||||||||||||
Interest bearing liabilities: | ||||||||||||||||||||||||
Savings accounts | $ | 145,376 | 344 | 0.47 | $ | 116,922 | 185 | 0.32 | ||||||||||||||||
NOW accounts | 498,891 | 1,974 | 0.79 | 403,614 | 1,475 | 0.73 | ||||||||||||||||||
Money market deposit accounts | 110,477 | 320 | 0.58 | 79,375 | 115 | 0.29 | ||||||||||||||||||
Certificates of deposit | 532,260 | 3,249 | 1.22 | 419,119 | 2,200 | 1.05 | ||||||||||||||||||
Total interest bearing deposits | 1,287,004 | 5,887 | 0.91 | 1,019,030 | 3,975 | 0.78 | ||||||||||||||||||
Borrowings: | ||||||||||||||||||||||||
Securities sold under agreements to repurchase | 7,038 | 22 | 0.61 | 25,523 | 52 | 0.41 | ||||||||||||||||||
FHLB advances | 62,930 | 510 | 1.62 | 128,471 | 700 | 1.09 | ||||||||||||||||||
Note Payable | 3,000 | 57 | 3.80 | - | - | - | ||||||||||||||||||
Subordinated debt | 14,872 | 360 | 4.84 | 14,776 | 312 | 4.23 | ||||||||||||||||||
Total interest bearing liabilities | 1,374,844 | 6,836 | 0.99 | 1,187,800 | 5,039 | 0.85 | ||||||||||||||||||
Noninterest bearing demand deposits | 190,179 | - | 135,535 | - | ||||||||||||||||||||
Other noninterest bearing liabilities | 7,012 | - | 6,477 | - | ||||||||||||||||||||
Total liabilities | 1,572,035 | 6,836 | 1,329,812 | 5,039 | ||||||||||||||||||||
Stockholders' equity | 176,867 | - | 128,657 | - | ||||||||||||||||||||
Total liabilities and stockholders' equity | $ | 1,748,902 | $ | 6,836 | $ | 1,458,469 | $ | 5,039 | ||||||||||||||||
Net interest income | $ | 30,806 | $ | 25,149 | ||||||||||||||||||||
Interest rate spread (4) | 3.69 | % | 3.66 | % | ||||||||||||||||||||
Net interest margin (5) | 3.83 | % | 3.76 | % | ||||||||||||||||||||
Ratio of average interest-earning assets to average interest-bearing liabilities | 116.94 | % | 112.75 | % |
| | | | | | | | | | | | | | | | | |
| | Nine- month period ended | | Nine- month period ended |
| ||||||||||||
| | March 31, 2023 | | March 31, 2022 |
| ||||||||||||
(dollars in thousands) | | Average | | Interest and | | Yield/ | | Average | | Interest and | | Yield/ |
| ||||
| | Balance | | Dividends | | Cost (%) | | Balance | | Dividends | | Cost (%) |
| ||||
Interest-earning assets: |
| |
|
| |
|
|
|
| |
|
| |
|
|
| |
Mortgage loans (1) |
| $ | 2,486,600 | | $ | 88,679 | | 4.76 | | $ | 1,881,354 | | $ | 66,383 | | 4.70 | |
Other loans (1) |
| | 564,178 | | | 24,609 | | 5.82 | | | 463,846 | | | 15,231 | | 4.38 | |
Total net loans |
| | 3,050,778 |
| | 113,288 |
| 4.95 |
| | 2,345,200 |
| | 81,614 |
| 4.64 | |
Mortgage-backed securities |
| | 223,304 | | | 3,654 | | 2.18 | | | 141,756 | | | 1,833 | | 1.72 | |
Investment securities (2) |
| | 100,441 | | | 3,519 | | 4.67 | | | 77,232 | | | 1,608 | | 2.78 | |
Other interest-earning assets |
| | 53,398 | | | 1,672 | | 4.17 | | | 136,632 | | | 239 | | 0.25 | |
TOTAL INTEREST- EARNING ASSETS (1) |
| | 3,427,921 |
| | 122,133 |
| 4.75 |
| | 2,700,820 |
| | 85,294 |
| 4.21 | |
Other noninterest-earning assets (3) |
| | 213,767 |
| | — |
|
|
| | 177,644 |
| | — |
|
| |
TOTAL ASSETS | | $ | 3,641,688 | | $ | 122,133 |
|
| | $ | 2,878,464 | | $ | 85,294 |
|
| |
| | | | | | | | | | | | | | | | | |
Interest-bearing liabilities: | |
|
| |
|
|
|
| |
|
| |
|
|
|
| |
Savings accounts | | $ | 285,276 | | $ | 1,190 | | 0.56 | | $ | 246,459 | | $ | 476 | | 0.26 | |
NOW accounts | |
| 1,253,592 | | | 12,094 | | 1.29 | |
| 1,031,130 | | | 3,606 | | 0.47 | |
Money market accounts | |
| 357,777 | | | 5,018 | | 1.87 | |
| 265,109 | | | 573 | | 0.29 | |
Certificates of deposit | |
| 751,418 | | | 9,759 | | 1.73 | |
| 567,925 | | | 3,771 | | 0.89 | |
TOTAL INTEREST- BEARING DEPOSITS | |
| 2,648,063 | |
| 28,061 |
| 1.41 | |
| 2,110,623 | |
| 8,426 |
| 0.53 | |
Borrowings: | |
|
| |
|
|
|
| |
|
| |
|
|
| | |
Securities sold under agreements to repurchase | |
| 5,531 | |
| 213 |
| 5.13 | |
| — | |
| — |
| — | |
FHLB advances | |
| 101,669 | |
| 2,300 |
| 3.02 | |
| 44,278 | |
| 613 |
| 1.84 | |
Junior subordinated debt | |
| 23,074 | |
| 1,033 |
| 5.97 | |
| 16,569 | |
| 447 |
| 3.60 | |
TOTAL INTEREST- BEARING LIABILITIES | |
| 2,778,337 | |
| 31,607 |
| 1.52 | |
| 2,171,470 | |
| 9,486 |
| 0.58 | |
Noninterest-bearing demand deposits | |
| 493,618 | |
| — |
|
| |
| 397,718 | |
| — |
|
| |
Other liabilities | |
| 13,389 | |
| — |
|
| |
| 9,521 | |
| — |
|
| |
TOTAL LIABILITIES | |
| 3,285,344 | |
| 31,607 |
|
| |
| 2,578,709 | |
| 9,486 |
|
| |
Stockholders’ equity | |
| 356,344 | |
| — |
|
| |
| 299,755 | |
| — |
|
| |
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | | $ | 3,641,688 | | $ | 31,607 |
|
| | $ | 2,878,464 | | $ | 9,486 |
|
| |
| | | | | | | | | | | | | | | | | |
Net interest income | |
|
| | $ | 90,526 |
|
| |
|
| | $ | 75,808 |
|
| |
Interest rate spread (4) | | |
| |
|
|
| 3.32 | % |
|
| |
|
|
| 3.63 | % |
Net interest margin (5) | |
|
| |
|
|
| 3.52 | % |
|
| |
|
|
| 3.74 | % |
Ratio of average interest-earning assets to average interest-bearing liabilities | |
| 123.38 | % |
|
|
|
| |
| 124.38 | % | | | | | |
| | | | | | | | | | | | |
|
|
|
| |
(1) | Calculated net of deferred loan fees, loan discounts and loans-in-process. Non-accrual loans are not included in average loans. |
(2) | Includes FHLB and Federal Reserve Bank of St. Louis membership stock and related cash dividends. |
(3) | Includes average balances for fixed assets and BOLI of |
(4) | Interest rate spread represents the difference between the average rate on interest-earning assets and the average cost of interest-bearing liabilities. |
(5) | Net interest margin represents annualized net interest income divided by average interest-earning assets. |
-50-
Rate/Volume Analysis
The following table setstables set forth the effects of changing rates and volumes on the Company'sCompany’s net interest income for the three- and six-monthnine- month periods ended DecemberMarch 31, 2017,2023, compared to the three- and six-monthnine- month periods ended DecemberMarch 31, 2016.2022. Information is provided with respect to (i) effects on interest income and expense attributable to changes in volume (changes in volume multiplied by the prior rate), (ii) effects on interest income and expense attributable to change in rate (changes in rate multiplied by prior volume), and (iii) changes in rate/volume (change in rate multiplied by change in volume).
Three-month period ended December 31, 2017 | ||||||||||||||||
Compared to three-month period ended December 31, 2016 | ||||||||||||||||
Increase (Decrease) Due to | ||||||||||||||||
(dollars in thousands) | Rate/ | |||||||||||||||
Rate | Volume | Volume | Net | |||||||||||||
Interest-earnings assets: | ||||||||||||||||
Loans receivable (1) | $ | 919 | $ | 2,886 | $ | 202 | $ | 4,007 | ||||||||
Mortgage-backed securities | 34 | 38 | 4 | 76 | ||||||||||||
Investment securities (2) | (16 | ) | 75 | (1 | ) | 58 | ||||||||||
Other interest-earning deposits | 2 | 3 | 2 | 7 | ||||||||||||
Total net change in income on | ||||||||||||||||
interest-earning assets | 939 | 3,002 | 207 | 4,148 | ||||||||||||
Interest-bearing liabilities: | ||||||||||||||||
Deposits | 420 | 460 | 102 | 982 | ||||||||||||
Securities sold under | ||||||||||||||||
agreements to repurchase | 16 | (20 | ) | (13 | ) | (17 | ) | |||||||||
Subordinated debt | 21 | 1 | - | 22 | ||||||||||||
Note Payable | - | - | 29 | 29 | ||||||||||||
FHLB advances | 220 | (122 | ) | (96 | ) | 2 | ||||||||||
Total net change in expense on | ||||||||||||||||
interest-bearing liabilities | 677 | 319 | 22 | 1,018 | ||||||||||||
Net change in net interest income | $ | 262 | $ | 2,683 | $ | 185 | $ | 3,130 |
Six-month period ended December 31, 2017 | ||||||||||||||||
Compared to six-month period ended December 31, 2016 | ||||||||||||||||
Increase (Decrease) Due to | ||||||||||||||||
(dollars in thousands) | Rate/ | |||||||||||||||
Rate | Volume | Volume | Net | |||||||||||||
Interest-earnings assets: | ||||||||||||||||
Loans receivable (1) | $ | 1,008 | $ | 6,000 | $ | 205 | $ | 7,213 | ||||||||
Mortgage-backed securities | 51 | 92 | 5 | 148 | ||||||||||||
Investment securities (2) | (49 | ) | 136 | (6 | ) | 81 | ||||||||||
Other interest-earning deposits | 27 | (4 | ) | (11 | ) | 12 | ||||||||||
Total net change in income on | ||||||||||||||||
interest-earning assets | 1,037 | 6,224 | 193 | 7,454 | ||||||||||||
Interest-bearing liabilities: | ||||||||||||||||
Deposits | 687 | 1,033 | 192 | 1,912 | ||||||||||||
Securities sold under | ||||||||||||||||
agreements to repurchase | 26 | (38 | ) | (18 | ) | (30 | ) | |||||||||
FHLB advances | 340 | (357 | ) | (173 | ) | (190 | ) | |||||||||
Note payable | - | - | 57 | 57 | ||||||||||||
Subordinated debt | 45 | 2 | 1 | 48 | ||||||||||||
Total net change in expense on | ||||||||||||||||
interest-bearing liabilities | 1,098 | 640 | 59 | 1,797 | ||||||||||||
Net change in net interest income | $ | (61 | ) | $ | 5,584 | $ | 134 | $ | 5,657 |
| | | | | | | | | | | | | |
| | Three-month period ended March 31, 2023 | | ||||||||||
| | Compared to three-month period ended March 31, 2022 | | ||||||||||
| | Increase (Decrease) Due to | | ||||||||||
|
| | |
| | |
| Rate/ |
| | | | |
(dollars in thousands) | | Rate | | Volume | | Volume | | Net |
| ||||
Interest-earning assets: | | | | | | | | | | | | | |
Loans receivable (1) | | $ | 4,762 | | $ | 9,603 | | $ | 1,690 | | $ | 16,055 | |
Mortgage-backed securities | |
| 194 | |
| 625 | |
| 187 | |
| 1,006 | |
Investment securities (2) | |
| 715 | |
| 354 | |
| 483 | |
| 1,552 | |
Other interest-earning deposits | |
| 2,161 | |
| (40) | |
| (787) | |
| 1,334 | |
Total net change in income on interest-earning assets | |
| 7,832 | |
| 10,542 | |
| 1,573 | |
| 19,947 | |
| | | | | | | | | | | | | |
Interest-bearing liabilities: | |
|
| |
|
| |
|
| |
|
| |
Deposits | |
| 7,141 | |
| 1,074 | |
| 2,619 | |
| 10,834 | |
Securities sold under agreements to repurchase | | | — | | | — | | | 213 | | | 213 | |
FHLB advances | |
| 141 | |
| 38 | |
| 29 | |
| 208 | |
Subordinated debt | |
| 59 | |
| (15) | |
| (5) | |
| 39 | |
Total net change in expense on interest-bearing liabilities | |
| 7,341 | |
| 1,097 | |
| 2,856 | |
| 11,294 | |
Net change in net interest income | | $ | 491 | | $ | 9,445 | | $ | (1,283) | | $ | 8,653 | |
(1) | Does not include interest on loans placed on nonaccrual status. |
(2) | Does not include dividends earned on equity securities. |
| | | | | | | | | | | | |
| | Nine Months Ended March 31, 2023 | ||||||||||
| | Compared to nine-month period ended March 31, 2022 | ||||||||||
| | Increase (Decrease) Due to | ||||||||||
| | | | | | | | Rate/ | | | | |
(dollars in thousands) | | Rate | | Volume | | Volume | | Net | ||||
Interest-earning assets: |
| |
|
| |
|
| |
|
| |
|
Loans receivable (1) | | $ | 5,712 | | $ | 24,651 | | $ | 1,311 | | $ | 31,674 |
Mortgage-backed securities | | | 487 | | | 1,054 | | | 280 | | | 1,821 |
Investment securities (2) | | | 1,098 | | | 483 | | | 330 | | | 1,911 |
Other interest-earning deposits | | | 4,038 | | | (146) | | | (2,459) | | | 1,433 |
Total net change in income on interest-earning assets | | | 11,335 | | | 26,042 | | | (538) | | | 36,839 |
| | | | | | | | | | | | |
Interest-bearing liabilities: | | |
| | |
| | |
| | |
|
Deposits | | | 13,643 | | | 2,272 | | | 3,720 | | | 19,635 |
Securities sold under agreements to repurchase | | | — | | | — | | | 213 | | | 213 |
FHLB advances | | | 389 | | | 794 | | | 504 | | | 1,687 |
Subordinated debt | | | 294 | | | 176 | | | 116 | | | 586 |
Total net change in expense on interest-bearing liabilities | | | 14,326 | | | 3,242 | | | 4,553 | | | 22,121 |
Net change in net interest income | | $ | (2,991) | | $ | 22,800 | | $ | (5,091) | | $ | 14,718 |
(1) | Does not include interest on loans placed on nonaccrual status. |
(2) | Does not include dividends earned on equity securities. |
-51-
Results of Operations – Comparison of the three-month periods ended DecemberMarch 31, 20172023 and 2016
General
. Net income for the three-month period ended
For the three-month period ended DecemberMarch 31, 2017,2023, basic and fully-diluted net income per share wereavailable to common shareholders was $0.22 under both $0.60,measures, as compared to $0.56$1.03 under both measures for the same period of the prior fiscal year, which represented an increasedecreases of $0.04,$0.81, or 7.1%.78.6% under both measures. Our annualized return on average assets for the three-month period ended DecemberMarch 31, 2017,2023, was 1.17%0.23%, as compared to 1.13%1.22% for the same period of the prior fiscal year. Our return on average common stockholders'stockholders’ equity for the three-month period ended DecemberMarch 31, 2017,2023, was 11.6%2.3%, as compared to 12.9%11.9% in the same period of the prior fiscal year.
Net Interest Income.
Loan discount accretion and deposit premium amortization related to the Company’s August 2014 acquisition of Peoples Acquisition increased to $558,000 for the three-month period ended December 31, 2017, as compared to $267,000 for the same periodBank of the prior fiscal year.Ozarks, the June 2017 acquisition of Capaha Bank, the February 2018 acquisition of Southern Missouri Bank of Marshfield, the November 2018 acquisition of First Commercial Bank, the May 2020 acquisition of Central Federal Savings & Loan discount accretionAssociation, the February 2022 merger of Fortune, and deposit premium amortization related to the Capaha AcquisitionJanuary 2023 acquisition of Citizens Bank & Trust resulted in an additional $302,000$1.4 million in net interest income for the three-month period ended DecemberMarch 31, 2017, with no comparable item2023, as compared to $446,000 in net interest income for the same period a year ago. Combined, these componentsthis component of net interest income contributed 2114 basis points to net interest margin in the three-month period ended DecemberMarch 31, 2017,2023, as compared to a six-basis point contribution of eight basis points for the same period of the prior fiscal year. The dollar impact of this component of net interest income has generally been declining each sequential quarter as assets from the Peoples Acquisition mature or prepay, however, the Capaha Acquisition will contribute additional net interest income during fiscal 2018, with no comparable items from fiscal 2017 periods. Also, additional net interest income was recognized in the quarter ended December 31, 2017, due to the resolution of specific purchased credit impaired loans.
For the three-month period ended DecemberMarch 31, 2017,2023 our net interest rate spread was 3.72%3.11%, as compared to 3.61%3.37% in the three-month period a year ago.year-ago period. The increasedecrease in net interest rate spread, compared to the same period a year ago, resulted from a 30131 basis point increase in the average cost of interest-bearing liabilities, offset by a 105 basis point increase in the average yield on interest-earning assets, partially offset by a 19 basis point increase in the average cost of interest-bearing liabilities.
Interest Income.
Total interest income for the three-month period ended
Interest Expense
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Provision for Credit Losses. The PCL for the three-month period ended March 31, 2023, was a charge of $10.1 million, as compared to $1.6 million in the same period of the prior fiscal year The ACL required for PCD loans acquired in the Citizens merger was $1.1 million, and was funded through purchase accounting adjustments, while the ACL required for non-PCD loans acquired in the Citizens merger was $5.2 million, and was funded through a charge to PCL. Additionally, the allowance for off-balance sheet credit exposures was increased by $1.8 million due to the Citizens merger, and funded through a charge to PCL. Exclusive of the charges required as a result of the Citizens merger, the Company would have recorded a PCL of approximately $3.0 million, of which $1.9 million was attributable to the ACL for outstanding loans, while $1.1 million was attributable to the allowance for off-balance sheet credit exposures. The Company’s assessment of the economic outlook at March 31, 2023, was little changed as compared to the assessment as of June 30, 2022, but improved modestly as compared to the assessment as of December 31, 2022. The Company modestly increased qualitative adjustments attributable to levels and trends of industry past due loans, a consideration in the Company’s ACL model. Additionally, the Company modestly increased adjustments related to classified hotel loans that have been slow to recover from the COVID-19 pandemic and the unguaranteed portion of a small pool of SBA loans exhibiting signs of credit stress. As a percentage of average loans outstanding, the Company recorded net charge offs of 0.01% (annualized) during the current period, unchanged from the same period of the prior fiscal year. (See “Critical Accounting Policies”, “Allowance for Credit Loss Activity” and “Nonperforming Assets”).
Noninterest Income. Noninterest income for the three-month period ended March 31, 2023, was $6.3 million, an increase of $1.4 million, or 28.1%, as compared to the same period of the prior fiscal year. Increased average interest-bearing balances wereIn the current quarter, the increase in noninterest income was higher in general due to the inclusion of results from the Citizens operation beginning January 20, 2023, and was attributable primarily to increases in interest-bearing transaction accounts, certificateshigher deposit account service charges, bank card interchange income, insurance commissions, trust management services income, gains on the sale of deposit, money market deposit accountsthe guaranty portion of newly originated government-guaranteed loans, and savings accounts,other income, and was partially offset by lower FHLB borrowingsa decrease in other loan fees and repurchase agreement balances. Thegains realized on the sale of residential real estate loans originated for that purpose. Origination of residential real estate loans for sale on the secondary market was down 65.1% as compared to the year ago period, as both refinancing and purchase activity declined due to the increase in market interest rates, resulting in a decrease to both gains on sale of these loans and recognition of new mortgage servicing rights, partially offset by income resulting from the average costservicing of interest-bearing liabilities was attributed to an increased cost to originate or renew certificatesand gain on sale of deposit, increased overnight and short-term FHLB borrowing rates, and increased rates paid on interest-bearing transaction and money market deposit accounts.
Noninterest Expense. Noninterest expense for the three-month period ended DecemberMarch 31, 2017,2023, was $642,000,$27.0 million, an increase of $10.2 million, or 61.1%, as compared to $656,000 in the same period of the prior fiscal year. As a percentage of average loans outstanding,In the provision for loan lossescurrent quarter, noninterest expense was higher in general due to charges directly related to merger and acquisition activities, which totaled $3.3 million in the current period, as well as ongoing operating costs of the larger organization beginning January 20, 2023. In total, the increase was attributable primarily to increases in compensation and benefits, legal and professional fees, occupancy expenses, data processing expenses, charges related to foreclosed property, and other noninterest expenses. Direct charges related to merger and acquisition activity were reflected primarily in legal and professional fees, data processing fees (including contract termination and data conversion fees), marketing activities, and other miscellaneous merger operating expenses. In the year ago period, similar charges totaled $1.1 million. The increase in compensation and benefits as compared to the prior year period was primarily due to increased headcount resulting from the Citizen merger, and a trend increase in legacy employee headcount, as well as annual merit increases which, for most team members, took effect in January 2023. Occupancy expenses increased primarily due to facilities added through the Citizens merger, and other equipment purchases. Other noninterest expenses increased due to miscellaneous merger-related expenses, expenses related to loan originations, deposit operations, and employee travel and training.
Income Taxes. The income tax provision for the three-month period representedended March 31, 2023, was $578,000, a chargedecrease of 0.18%
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Results of Operations – Comparison of the Company recorded net charge offs of 0.04% (annualized). (See "Critical Accounting Policies", "Allowance for Loan Loss Activity"nine-month periods ended March 31, 2023 and "Nonperforming Assets").
General. Net income including securities gains, for the three-monthnine-month period ended DecemberMarch 31, 2017,2023, was $3.2$23.7 million, an increasea decrease of $474,000,$10.4 million, or 17.6%30.5%, as compared to the same period of the prior fiscal year. The increasedecrease was attributable primarily to deposit account service charges, bank card interchange income, loan servicing income, and gains on sales of securities, partially offset by declines in loan fees and gains on sales of residential real estate loans originated for that purpose. Increases in deposit account service charges, bank card interchange income, and loan servicing income were attributable primarily to the additional account holders and loans serviced following the June 2017 Capaha Acquisition.
For the six-monthnine-month period ended DecemberMarch 31, 2017,2023, basic and fully-diluted net income per share were $1.17available to common shareholders was $2.42 and $1.16,2.41, respectively, as compared to $1.06 under both measures$3.81 and $3.80, respectively for the same period of the prior fiscal year, which represented increasesdecreases of $0.11,$1.39, or 10.3%, and $0.10, or 9.4%, respectively.36.6% under both measures. Our annualized return on average assets for the six-monthnine-month period ended DecemberMarch 31, 2017,2023, was 1.15%0.87%, as compared to 1.08%1.58% for the same period of the prior fiscal year. Our return on average common stockholders'stockholders’ equity for the six-monthnine-month period ended DecemberMarch 31, 2017,2023, was 11.3%8.9%, as compared to 12.3%15.2% in the same period of the prior fiscal year.
Net Interest Income.
Net interest income for the
Loan discount accretion and deposit premium amortization related to the Company’s August 2014 acquisition of Peoples Acquisition decreased to $793,000Bank of the Ozarks, the June 2017 acquisition of Capaha Bank, the February 2018 acquisition of Southern Missouri Bank of Marshfield, the November 2018 acquisition of First Commercial Bank, the May 2020 acquisition of Central Federal Savings & Loan Association, the February 2022 merger of Fortune, and the January 2023 merger of Citizens with the Company resulted in $2.4 million in net interest income for the six-monthnine-month period ended DecemberMarch 31, 2017,2023, as compared to $868,000$1.2 million in net interest income for the same period a year ago. Combined, this component of net interest income contributed four basis points to net interest margin in the nine-month period ended March 31, 2023, as compared to a six basis point contribution for the same period of the prior fiscal year. Loan discount accretion and deposit premium amortization related to
For the Capaha Acquisition resulted in an additional $532,000 in net interest income for the six-monthnine-month period ended DecemberMarch 31, 2017, with no comparable item in the same period a year ago. Combined, these components of net interest income contributed 16 basis points to net interest margin in the six-month period ended December 31, 2017, as compared to a contribution of 13 basis points for the same period of the prior fiscal year. The dollar impact of this component of net interest income has generally been declining each sequential quarter as assets from the Peoples Acquisition mature or prepay, however, the Capaha Acquisition will contribute additional net interest income during fiscal 2018, with no comparable items from fiscal 2017 periods. Also, additional net interest income was recognized during the quarters ended December 31, 2017, and September 30, 2016, due to the resolution of specific purchased credit impaired loans.
Interest Income.
Total interest income for the
Interest Expense
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Provision for Credit Losses. The PCL for the nine-month period ended March 31, 2023, was a charge of $16.3 million, as compared to $1.2 million in the same period of the prior fiscal year. The increased level of provisioning was driven mostly by loan growth in the fiscal year-to-date, qualitative adjustments to modeled results based on the pace of growth of the Company’s loan portfolio, exclusive of acquisitions or government-guaranteed loans, relative to overall economic growth, and required “Day 1” ACL on the acquired loans and off-balance sheet credit exposures related to the Citizens merger. As a percentage of average loans outstanding, the Company recorded net charge offs of approximately one basis point (annualized) during both the current period and the same period of the prior fiscal year. (See “Critical Accounting Policies”, “Allowance for Credit Loss Activity” and “Nonperforming Assets”).
Noninterest Income. Noninterest income for the nine-month period ended March 31, 2023, was $17.3 million, an increase of $2.6 million, or 17.3%, as compared to the same period of the prior fiscal year. Increased average interest-bearing balances were attributable primarily toIn the current period, increases in certificates of deposit interest-bearing transaction accounts, money market deposit accountsaccount service charges, bank card interchange income, other loan fees, loan servicing fees, and savings accounts,other income were partially offset by lower FHLB borrowings and repurchase agreement balances.a decrease in gains realized on the sale of residential real estate loans originated for that purpose. The increase in other income was attributable to a gain on the average costsale of interest-bearing liabilitiesfixed assets of $317,000 as the Company sold previously acquired properties not currently being utilized as banking facilities, trust management services income, and the sale of the guaranty portion of newly originated government-guaranteed loans. These increases were partially offset by the inclusion in the year ago period of a non-recurring benefit of $278,000 recognized on the Company’s exit from a renewable energy tax credit partnership. Origination of residential real estate loans for sale on the secondary market was attributed to an increased cost to originate or renew certificates of deposit, increased overnight and short-term FHLB borrowing rates, and increased rates paid on interest-bearing transaction and money market deposit accounts.
Noninterest Income
Income Taxes.
The income tax provision for the
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Allowance for LoanCredit Loss Activity
The Company regularly reviews its allowance for loan lossesACL and makes adjustments to its balance based on management's analysismanagement’s estimate of (1) the total expected losses included in the Company’s financial assets held at amortized cost, which is limited to the Company’s loan portfolio, and (2) any credit deterioration in the Company’s available-for-sale securities as of the loan portfolio, the amount of non-performing andbalance sheet date. The Company holds no securities classified loans, as well as general economic conditions. held-to-maturity.
Although the Company maintains its allowance for loan lossesACL at a level that it considers sufficient to provide for losses, there can be no assurance that future losses will not exceed internal estimates. In addition, the amount of the allowance for loan lossesACL is subject to review by regulatory agencies, which can order the establishmentCompany to record additional allowances. The required ACL has been estimated based upon the guidelines in ASC Topic 326, Financial Instruments – Credit Losses.
The estimate involves consideration of additionalquantitative and qualitative factors relevant to the loans as segmented by the Company, and is based on an evaluation, at the reporting date, of historical loss provision. experience, coupled with qualitative adjustments to address current economic conditions and credit quality, and reasonable and supportable forecasts. Specific qualitative factors considered include, but may not be limited to:
•Changes in lending policies and/or loan review system
•National, regional, and local economic trends and/or conditions
•Changes and/or trends in the nature, volume, or terms of the loan portfolio
•Experience, ability, and depth of lending management and staff
•Levels and/or trends of delinquent, non-accrual, problem assets, or charge offs and recoveries
•Concentrations of credit
•Changes in collateral values
•Agricultural economic conditions
•Risks from regulatory, legal, or competitive factors
The following table summarizes changes in the allowance for loan lossesACL over the three- and six-monthnine- month periods ended DecemberMarch 31, 20172023 and 2016:
For the three months ended | For the six months ended | |||||||||||||||
December 31, | December 31, | |||||||||||||||
(dollars in thousands) | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Balance, beginning of period | $ | 16,357 | $ | 14,456 | $ | 15,538 | $ | 13,791 | ||||||||
Loans charged off: | ||||||||||||||||
Residential real estate | (55 | ) | - | (78 | ) | (97 | ) | |||||||||
Construction | - | (31 | ) | - | (31 | ) | ||||||||||
Commercial business | (21 | ) | (101 | ) | (21 | ) | (270 | ) | ||||||||
Commercial real estate | (36 | ) | - | (36 | ) | - | ||||||||||
Consumer | (28 | ) | (35 | ) | (58 | ) | (39 | ) | ||||||||
Gross charged off loans | (140 | ) | (167 | ) | (193 | ) | (437 | ) | ||||||||
Recoveries of loans previously charged off: | ||||||||||||||||
Residential real estate | 1 | 3 | 1 | 6 | ||||||||||||
Construction | - | 1 | - | 1 | ||||||||||||
Commercial business | 6 | 27 | 6 | 29 | ||||||||||||
Commercial real estate | - | 16 | - | 16 | ||||||||||||
Consumer | 1 | - | 4 | 5 | ||||||||||||
Gross recoveries of charged off loans | 8 | 47 | 11 | 57 | ||||||||||||
Net (charge offs) recoveries | (132 | ) | (120 | ) | (182 | ) | (380 | ) | ||||||||
Provision charged to expense | 642 | 656 | 1,511 | 1,581 | ||||||||||||
Balance, end of period | $ | 16,867 | $ | 14,992 | $ | 16,867 | $ | 14,992 |
| | | | | | | | | | | | |
| | For the three months ended |
| For the nine months ended | ||||||||
| | March 31, |
| March 31, | ||||||||
(dollars in thousands) |
| 2023 |
| 2022 |
| 2023 |
| 2022 | ||||
Balance, beginning of period | | $ | 37,483 | | $ | 32,529 | | $ | 33,192 | | $ | 33,222 |
Initial ACL on PCD loans | | | 1,121 | | | 120 | | | 1,121 | | | 120 |
Loans charged off: | |
| | |
| | |
| | |
| |
Residential real estate | |
| — | |
| (30) | |
| (2) | |
| (62) |
Construction | |
| — | |
| — | |
| — | |
| — |
Commercial business | |
| — | |
| (6) | |
| (17) | |
| (17) |
Commercial real estate | |
| — | |
| — | |
| (245) | |
| — |
Consumer | |
| (113) | |
| (32) | |
| (189) | |
| (57) |
Gross charged off loans | |
| (113) | |
| (68) | |
| (453) | |
| (136) |
Recoveries of loans previously charged off: | |
| | |
| | |
| | |
| |
Residential real estate | |
| — | |
| 2 | |
| 1 | |
| 3 |
Construction | |
| — | |
| — | |
| — | |
| — |
Commercial business | |
| — | |
| — | |
| — | |
| 2 |
Commercial real estate | |
| — | |
| — | |
| 6 | |
| — |
Consumer | |
| 9 | |
| 6 | |
| 18 | |
| 57 |
Gross recoveries of charged off loans | |
| 9 | |
| 8 | |
| 25 | |
| 62 |
Net charge offs | |
| (104) | |
| (60) | |
| (428) | |
| (74) |
Provision charged to expense | |
| 7,185 | |
| 1,052 | |
| 11,800 | |
| 373 |
Balance, end of period | | $ | 45,685 | | $ | 33,641 | | $ | 45,685 | | $ | 33,641 |
Our ACL at March 31, 2023, totaled $45.7 million, representing 1.31% of gross loans and 618% of nonperforming loans, as compared to an ACL of $33.2 million, representing 1.22% of gross loans and 806% of nonperforming loans at June 30, 2022. The ACL required for PCD loans acquired in the Citizens merger was $1.1 million, and was funded through purchase accounting adjustments, while the ACL required for non-PCD loans acquired in the Citizens merger was $5.2 million, and was funded through a charge to PCL. Additionally, the allowance for loan losses has been calculated based upon an evaluationoff-balance sheet credit
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exposures was increased by $1.8 million due to the various typesCitizens merger, and qualityfunded through a charge to PCL. Exclusive of the Company's loans. Management considers such factorscharges required as a result of the Citizens merger, the Company would have recorded a PCL of approximately $3.0 million, of which $1.9 million was attributable to the ACL for outstanding loans, while $1.1 million was attributable to the allowance for off-balance sheet credit exposures.
The Company has estimated its expected credit losses as of March 31, 2023, under ASC 326-20, and management believes the ACL as of that date is adequate based on that estimate. There remains, however, significant uncertainty as the repayment statusFederal Reserve tightens monetary policy to address inflation risks. Management continues to closely monitor borrowers in the hotel industry that were slow to recover from the COVID-19 pandemic.
For the nine-month period ended March 31, 2023, the ACL increased by $12.5 million and the allowance for off-balance sheet credit exposures increased by $4.5 million, reflecting the $1.1 million addition to the ACL for PCD loans acquired in the Citizens merger, a PCL of $16.3 million, and net charge offs of $428,000.
At March 31, 2023, the Bank also had accrued within other liabilities an allowance for off-balance sheet credit exposures of $7.8 million, as compared to $3.3 million at June 30, 2022. The increase reflects the component of the PCL attributable to off-balance sheet credit exposures noted above. This amount is maintained as a separate liability account to cover estimated credit losses associated with off-balance sheet credit instruments such as off-balance sheet loan commitments, standby letters of credit, and guarantees. The $4.5 million increase in the estimated netallowance for off-balance sheet credit exposures was primarily the result of an increase in the amount of unfunded commitments (unused lines of credit) available and expected to be utilized for loans originated by the legacy branches as well as unfunded commitments acquired with the Citizens merger.
The following table sets forth the sum of the amounts of the ACL attributable to individual loans within each category, or the loan categories in general, and the percentage of the ACL that is attributable to each category, as of the reporting date. The table also reflects the percentage of loans in each category to the total loan portfolio, as of the reporting date.
| | | | | | | | | | | |
|
| | |
| % of |
| | |
| % of |
|
| | ACL as of | | total | | ACL as of | | total |
| ||
| | March 31, 2023 | | ACL | | June 30, 2022 | | ACL |
| ||
Real Estate Loans: |
| |
|
|
|
| |
|
|
| |
Residential | | $ | 13,465 |
| 29.5 | % | $ | 8,908 |
| 26.8 | % |
Construction | |
| 3,638 |
| 8.0 | % |
| 2,220 |
| 6.7 | % |
Commercial | |
| 18,545 |
| 40.6 | % |
| 16,838 |
| 50.7 | % |
Consumer loans | |
| 986 |
| 2.1 | % |
| 710 |
| 2.2 | % |
Commercial loans | |
| 9,051 |
| 19.8 | % |
| 4,516 |
| 13.6 | % |
| | $ | 45,685 |
| 100.0 | % | $ | 33,192 |
| 100.0 | % |
For loans that do not exhibit similar risk characteristics, the Company evaluates the loan on an individual basis. Loans that are classified with an adverse internal credit rating or identified as TDRs are most commonly considered for individual evaluation. The ACL for individually evaluated loans may be estimated based on the fair value of the underlying collateral, or based on the borrower's intent and ability to repay the loan, local economic conditions, and the Company's historical loss ratios. We maintain the allowance for loan losses through the provision for loan losses that we charge to income. We charge losses on loans against the allowance for loan losses when we believe the collectionpresent value of loan principal is unlikely. The allowance for loan losses increased $1.4 million to $16.9 million at Decemberexpected cash flows.
At March 31, 2017, from $15.5 million at June 30, 2017. The increase was deemed appropriate in order to bring the allowance for loan losses to a level that reflects management's estimate of the incurred loss in the Company's loan portfolio at December 31, 2017.
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total past due loans increased from $4.8$4.6 million at June 30, 2017,2022, to $13.3$7.4 million at March 31, 2023. Total past due loans were $8.9 million at December 31, 2017. Of this increase, approximately $4.7 million was attributable to a $4.7 million commercial relationship which has been classified for more than five years, and with whom the Company was in negotiations for renewal and modification during the quarter ended December 31, 2017. Included in the relationship is a $3.5 million loan secured by commercial real estate and equipment which carries a 90% guaranty from the USDA.2022. The remaining balance is structured as lines of credit which are secured by additional commercial real estate, receivables, and a personal residence. The lines of credit matured as of September 30, 2017, though the borrower continued to make interest payments following that date. Following quarter end, the Company agreed to short term extensions and modifications of the loans in this relationship, restoring them to current status, though all remain classified. In addition to this relationship, the increase in past due loans is attributable to a $1.4 million relationship with a borrower operating residential rental properties who recently filed bankruptcy, as well as several other smaller loans, including some commercial and construction real estate loans which were awaiting renewal at quarter end and have since been renewed.
December 31, 2017 | June 30, 2017 | |||||||
Net charge offs – | Net charge offs – | |||||||
Portfolio segment | 12-month historical | 12-month historical | ||||||
Real estate loans: | ||||||||
Residential | 0.04 | % | 0.04 | % | ||||
Construction | 0.00 | % | 0.05 | % | ||||
Commercial | 0.01 | % | 0.00 | % | ||||
Consumer loans | 0.19 | % | 0.16 | % | ||||
Commercial loans | 0.03 | % | 0.13 | % |
Portfolio segment | Qualitative factor applied at interim period ended December 31, 2017 | Qualitative factor applied at fiscal year ended June 30, 2017 |
Real estate loans: | ||
Residential | 0.69% | 0.73% |
Construction | 1.62% | 1.73% |
Commercial | 1.31% | 1.33% |
Consumer loans | 1.32% | 1.36% |
Commercial loans | 1.36% | 1.37% |
Nonperforming Assets
The ratio of nonperforming assets to total assets and nonperforming loans to net loans receivable is another measure of asset quality. Nonperforming assets of the Company include nonaccruing loans, accruing loans delinquent/past maturity 90 days or more, and assets which have been acquired as a result of foreclosure or deed-in-lieu of foreclosure. The table below summarizes changes in the Company'sCompany’s level of nonperforming assets over selected time periods:
(dollars in thousands) | December 31, 2017 | June 30, 2017 | December 31, 2016 | |||||||||
Nonaccruing loans: | ||||||||||||
Residential real estate | $ | 924 | $ | 1,263 | $ | 2,453 | ||||||
Construction | 34 | 35 | 36 | |||||||||
Commercial real estate | 209 | 960 | 2,547 | |||||||||
Consumer | 123 | 158 | 123 | |||||||||
Commercial business | 345 | 409 | 413 | |||||||||
Total | 1,635 | 2,825 | 5,572 | |||||||||
Loans 90 days past due accruing interest: | ||||||||||||
Residential real estate | 761 | 59 | - | |||||||||
Construction | - | - | - | |||||||||
Commercial real estate | 4,147 | - | - | |||||||||
Consumer | 136 | 13 | 3 | |||||||||
Commercial business | 637 | 329 | 82 | |||||||||
Total | 5,681 | 401 | 85 | |||||||||
Total nonperforming loans | 7,316 | 3,226 | 5,657 | |||||||||
Foreclosed assets held for sale: | ||||||||||||
Real estate owned | 3,653 | 3,014 | 3,310 | |||||||||
Other nonperforming assets | 71 | 86 | 39 | |||||||||
Total nonperforming assets | $ | 11,040 | $ | 6,326 | $ | 9,006 |
| | | | | | | | | | | |
|
| | | | | | | | | |
|
|
| March 31, 2023 |
| June 30, 2022 |
| March 31, 2022 | |
| |||
| | | | | | | | | | | |
Nonaccruing loans: |
| |
|
| |
|
| |
| | |
Residential real estate | | $ | 1,175 | | $ | 1,647 | | $ | 1,255 | | |
Construction | |
| 368 | |
| — | |
| — | | |
Commercial real estate | |
| 4,741 | |
| 2,259 | |
| 2,373 | | |
Consumer | |
| 183 | |
| 73 | |
| 9 | | |
Commercial business | |
| 930 | |
| 139 | |
| 245 | | |
Total | |
| 7,397 | |
| 4,118 | |
| 3,882 | | |
| | | | | | | | | | | |
Loans 90 days past due accruing interest: | |
|
| |
|
| |
|
| | |
Residential real estate | |
| — | |
| — | |
| — | | |
Construction | |
| — | |
| — | |
| — | | |
Commercial real estate | |
| — | |
| — | |
| — | | |
Consumer | |
| — | |
| — | |
| — | | |
Commercial business | |
| — | |
| — | |
| — | | |
Total | |
| — | |
| — | |
| — | | |
| | | | | | | | | | | |
Total nonperforming loans | |
| 7,397 | |
| 4,118 | |
| 3,882 | | |
Nonperforming investments | | | — | | | — | | | — | | |
Foreclosed assets held for sale: | |
| — | |
| — | |
| — | | |
Real estate owned | |
| 5,258 | |
| 2,180 | |
| 3,199 | | |
Other nonperforming assets | |
| 25 | |
| 11 | |
| — | | |
Total nonperforming assets | | $ | 12,680 | | $ | 6,309 | | $ | 7,081 | | |
At DecemberMarch 31, 2017, troubled debt restructurings (TDRs)2023, TDRs totaled $13.6$31.1 million, of which $5.2 million$733,000 was considered nonperforming with $270,000and included in the nonaccrual loan total above and $4.9 million included in the loans 90 days past due accruing interest total above. The remaining $8.4$30.4 million in TDRs have complied with the modified terms for a reasonable period of time and are therefore considered by the Company to be accrual status loans. In general, these loans were subject to classification as TDRs at DecemberMarch 31, 2017,2023, on the basis of guidance under ASU No. 2011-02, which indicates that the Company may not consider the borrower'sborrower’s effective borrowing rate on the old debt immediately before the restructuring in determining whether a concession has been granted. At June 30, 2017,
At DecemberMarch 31, 2017,2023, nonperforming assets totaled $11.0$12.7 million, as compared to $6.3 million at June 30, 2017,2022, and $9.0$7.1 million at DecemberMarch 31, 2016.2022. The increase in nonperforming assets from fiscal year end was comprised mainly of loans 90 or more days past due and still accruing interest, whichas compared to June 30, 2022, was attributable primarily to $1.8 million in nonperforming loans and $2.7 million in other real estate owned obtained via the $4.7Citizens merger, a net increase of $355,000 in legacy other real estate owned, and an increase of $1.5 million commercial relationship described above (see "Allowance for Loan Loss Activity").in legacy nonperforming loans.
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Liquidity Resources
The term "liquidity"“liquidity” refers to our ability to generate adequate amounts of cash to fund loan originations, loans purchases, deposit withdrawals and operating expenses. Our primary sources of funds include deposit growth, securities sold under agreements to repurchase, FHLB advances, brokered deposits, amortization and prepayment of loan principal and interest, investment maturities and sales, and funds provided by our operations. While the scheduled loan repayments and maturing investments are relatively predictable, deposit flows, FHLB advance redemptions, and loan and security prepayment rates are significantly influenced by factors outside of the Bank'sBank’s control, including interest rates, general and local economic conditions and competition in the marketplace. The Bank relies on FHLB advances and brokered deposits as additional sources for funding cash or liquidity needs.
The Company uses its liquid resources principally to satisfy its ongoing cash requirements, which include funding loan commitments, funding maturing certificates of deposit and deposit withdrawals, maintaining liquidity, funding maturing or called FHLB advances, purchasing investments, and meeting operating expenses.
At DecemberMarch 31, 2017,2023, the Company had outstanding commitments and approvals to extend credit of approximately $272.4$1.1 billion million (including $170.0$723.2 million in unused lines of credit) in mortgage and non-mortgage loans. These commitments and approvals are expected to be funded through existing cash balances, cash flow from normal operations and, if needed, advances from the FHLB, or the Federal Reserve's discount window.Reserve Bank of St. Louis’ primary credit facility (“Discount Window”) and the new Bank Term Funding Program (“BTFP”). At DecemberMarch 31, 2017,2023, the Bank had pledged $1.0 billion of its single-family residential real estate loan portfolios and a significant portion of their commercial real estate loan portfolios withto the FHLB for available credit of approximately $325.1$606.6 million, of which $59.9$45.2 million had been advanced.was advanced, while an additional $373,000 was encumbered in relation to residential real estate loans sold onto the secondary market through the FHLB, and $29.5 million was utilized as collateral for the issuance of letters of credit to secure public unit deposits. The Bank has the ability to pledge several other loan portfolios, including, for example, its commercial andmulti-family or home equity loans, which could provide additional collateral for additional borrowings; inborrowings. In total, FHLB borrowings are generally limited to 35%45% of bank assets, or $614.4 million,approximately $1.5 billion, subject to available collateral. Also, at DecemberMarch 31, 2017,2023, the Bank had pledged a total of $207.9$297.9 million in loans secured by farmland and agricultural production loans to the Federal Reserve, providing access to $139.3$237.5 million in primary credit borrowings from the Federal Reserve'sReserve’s discount window.window, none of which was advanced at March 31, 2023. Of our AFS securities carrying value of $429.8 million, investment and mortgage-backed securities pledged as collateral to secure public deposits totaled $243.6 million at March 31, 2023. Management believes its liquid resources will be sufficient to meet the Company'sCompany’s liquidity needs.
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Regulatory Capital
The Company and Bank are subject to various regulatory capital requirements administered by the Federal banking agencies. Failure to meet minimum capital requirements can result in certain mandatory—mandatory - and possibly additional discretionary – actions by regulators that, if undertaken, could have a direct material effect on the Company'sCompany’s 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 the Company and the Bank'sBank’s assets, liabilities, and certain off-balance sheet items as calculated under U.S. GAAP, regulatory reporting requirements and regulatory capital standards. The CompanyCompany’s and Bank'sBank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Furthermore, the CompanyCompany’s and Bank'sBank’s regulators could require adjustments to regulatory capital not reflected in the condensed consolidated financial statements.
Quantitative measures established by regulatory capital standards to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the table below) of total capital, Tier 1 capital (as defined), and common equity Tier 1 capital (as defined) to risk-weighted assets (as defined) and of Tier 1 capital (as defined) to average total assets (as defined). Additionally, to make distributions or discretionary bonus payments, the Company and Bank must maintain a capital conservation buffer of 2.5% of risk-weighted assets. Management believes, as of DecemberMarch 31, 2023 and June 30, 2017,2022, that the Company and the Bank met all capital adequacy requirements to which they are subject.
Effective January 1, 2020, depository institutions and depository institution holding companies that have less than $10 billion in total consolidated assets and meet other qualifying criteria, including a tier 1 leverage ratio of greater than 9 percent, are considered qualifying community banking organizations and are eligible to opt into an alternative, simplified regulatory capital framework, which utilizes a newly-defined “Community Bank Leverage Ratio” (CBLR). The CBLR framework is an optional framework that is designed to reduce burden by removing the requirements for calculating and reporting risk-based capital ratios for qualifying community banking organizations that opt into the framework. Qualifying community banking organizations that elect to use the CBLR framework and that maintain a leverage ratio of greater than 9 percent are considered to have satisfied the risk-based and leverage capital requirements in the agencies’ generally applicable capital rule. In July 2013,April 2020, the federal bank regulatory agencies announced the issuance of two interim final rules to provide temporary relief to community banking organizations, and adopted the final rule with no changes in October 2020. Under the rules, the CBLR requirement was a minimum of 8.0% for the remainder of calendar year 2020, was 8.5% for calendar year 2021, and 9.0% thereafter. The Company and the Bank have not made an election to utilize the CBLR framework, but will continue to monitor the available option, and could do so in the future.
In August 2020, the Federal banking agencies announced their approvaladopted a final rule updating a December 2018 rule regarding the impact on regulatory capital of adoption of the finalCECL standard. The rule allows institutions that adopted the CECL standard in 2020 a five-year transition period to implementrecognize the Basel IIIestimated impact of adoption on regulatory reforms, among other changes required by the Dodd-Frank Wall Street Reform and Consumer Protection Act.capital. The approved rule included a new minimum ratio of common equity Tier 1 (CET1) capital of 4.5%, raised the minimum ratio of Tier 1 capital to risk-weighted assets from 4.0% to 6.0%, and included a minimum leverage ratio of
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As of DecemberMarch 31, 2017,2023, the most recent notification from the Federal banking agencies categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized the Bank must maintain minimum total risk-based, Tier 1 risk-based, common equity Tier 1 risk-based, and Tier 1 leverage ratios as set forth in the table.table below. There are no conditions or events since that notification that management believes have changed the Bank'sBank’s category.
The tables below summarize the CompanyCompany’s and Bank'sBank’s actual and required regulatory capital:capital at the dates indicated:
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | To Be Well Capitalized |
| ||
| | | | | | | For Capital | | | Under Prompt Corrective |
| |||||
| | Actual | | Adequacy Purposes | | | Action Provisions |
| ||||||||
As of March 31, 2023 |
| Amount |
| Ratio |
| Amount |
| Ratio |
| | Amount |
| Ratio |
| ||
(dollars in thousands) | | | | | | | | | | | | | | | |
|
Total Capital (to Risk-Weighted Assets) | | | | | | | | | | | | | | | | |
Consolidated | | $ | 459,771 |
| 12.22 | % | $ | 300,924 |
| 8.00 | % | | n/a |
| n/a | |
Southern Bank | |
| 442,021 |
| 11.87 | % |
| 297,954 |
| 8.00 | % | | 372,443 |
| 10.00 | % |
Tier I Capital (to Risk-Weighted Assets) | |
| |
| |
|
| |
| |
| |
|
|
| |
Consolidated | |
| 413,432 |
| 10.99 | % |
| 225,693 |
| 6.00 | % | | n/a |
| n/a | |
Southern Bank | |
| 395,685 |
| 10.62 | % |
| 223,466 |
| 6.00 | % | | 297,954 |
| 8.00 | % |
Tier I Capital (to Average Assets) | |
| |
| |
|
| |
| |
| |
|
|
| |
Consolidated | |
| 413,432 |
| 10.02 | % |
| 165,055 |
| 4.00 | % | | n/a |
| n/a | |
Southern Bank | |
| 395,685 |
| 10.58 | % |
| 149,655 |
| 4.00 | % | | 186,222 |
| 5.00 | % |
Common Equity Tier I Capital (to Risk-Weighted Assets) | |
| |
| |
|
| |
| |
| |
|
|
| |
Consolidated | |
| 398,010 |
| 10.58 | % |
| 169,270 |
| 4.50 | % | | n/a |
| n/a | |
Southern Bank | |
| 395,685 |
| 10.62 | % |
| 167,599 |
| 4.50 | % | | 242,088 |
| 6.50 | % |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | To Be Well Capitalized |
| ||
| | | | | | | For Capital | | | Under Prompt Corrective |
| |||||
| | Actual | | Adequacy Purposes | | | Action Provisions |
| ||||||||
As of June 30, 2022 |
| Amount |
| Ratio |
| Amount |
| Ratio |
| | Amount |
| Ratio |
| ||
(dollars in thousands) | | | | | | | | | | | | | | | |
|
Total Capital (to Risk-Weighted Assets) | | | | | | | | | | | | | | | | |
Consolidated | | $ | 370,013 | | 13.42 | % | $ | 220,558 | | 8.00 | % | | n/a | | n/a | |
Southern Bank | |
| 352,169 | | 12.90 | % |
| 218,397 | | 8.00 | % | | 272,996 | | 10.00 | % |
Tier I Capital (to Risk-Weighted Assets) | |
| | | | |
| | | |
| | | | | |
Consolidated | |
| 335,316 | | 12.16 | % |
| 165,418 | | 6.00 | % | | n/a | | n/a | |
Southern Bank | |
| 325,183 | | 11.91 | % |
| 163,797 | | 6.00 | % | | 218,397 | | 8.00 | % |
Tier I Capital (to Average Assets) | |
| | | | |
| | | |
| | | | | |
Consolidated | |
| 335,316 | | 10.41 | % |
| 128,822 | | 4.00 | % | | n/a | | n/a | |
Southern Bank | |
| 325,183 | | 10.22 | % |
| 127,333 | | 4.00 | % | | 159,167 | | 5.00 | % |
Common Equity Tier I Capital (to Risk-Weighted Assets) | |
| | | | |
| | | |
| | | | | |
Consolidated | |
| 319,971 | | 11.61 | % |
| 124,064 | | 4.50 | % | | n/a | | n/a | |
Southern Bank | |
| 325,183 | | 11.91 | % |
| 122,848 | | 4.50 | % | | 177,447 | | 6.50 | % |
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Actual | For Capital Adequacy Purposes | To Be Well Capitalized Under Prompt Corrective Action Provisions | ||||||||||||||||||||||
As of December 31, 2017 | Amount | Ratio | Amount | Ratio | Amount | Ratio | ||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||
Total Capital (to Risk-Weighted Assets) | ||||||||||||||||||||||||
Consolidated | $ | 202,705 | 12.93 | % | $ | 125,422 | 8.00 | % | n/a | n/a | ||||||||||||||
Southern Bank | 193,448 | 12.40 | % | 124,810 | 8.00 | % | 156,012 | 10.00 | % | |||||||||||||||
Tier I Capital (to Risk-Weighted Assets) | ||||||||||||||||||||||||
Consolidated | 184,803 | 11.79 | % | 94,066 | 6.00 | % | n/a | n/a | ||||||||||||||||
Southern Bank | 175,546 | 11.25 | % | 93,607 | 6.00 | % | 124,810 | 8.00 | % | |||||||||||||||
Tier I Capital (to Average Assets) | ||||||||||||||||||||||||
Consolidated | 184,803 | 10.53 | % | 70,176 | 4.00 | % | n/a | n/a | ||||||||||||||||
Southern Bank | 175,546 | 10.02 | % | 70,093 | 4.00 | % | 87,617 | 5.00 | % | |||||||||||||||
Common Equity Tier I Capital (to Risk- Weighted Assets) | ||||||||||||||||||||||||
Consolidated | 170,402 | 10.87 | % | 70,550 | 4.50 | % | n/a | n/a | ||||||||||||||||
Southern Bank | 175,546 | 11.25 | % | 70,206 | 4.50 | % | 101,408 | 6.50 | % |
Actual | For Capital Adequacy Purposes | To Be Well Capitalized Under Prompt Corrective Action Provisions | ||||||||||||||||||||||
As of June 30, 2017 | Amount | Ratio | Amount | Ratio | Amount | Ratio | ||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||
Total Capital (to Risk-Weighted Assets) | ||||||||||||||||||||||||
Consolidated | $ | 194,322 | 12.84 | % | $ | 121,086 | 8.00 | % | n/a | n/a | ||||||||||||||
Southern Bank | 183,906 | 12.15 | % | 121,118 | 8.00 | % | 151,397 | 10.00 | % | |||||||||||||||
Tier I Capital (to Risk-Weighted Assets) | ||||||||||||||||||||||||
Consolidated | 177,679 | 11.74 | % | 90,815 | 6.00 | % | n/a | n/a | ||||||||||||||||
Southern Bank | 167,263 | 11.05 | % | 90,838 | 6.00 | % | 121,118 | 8.00 | % | |||||||||||||||
Tier I Capital (to Average Assets) | ||||||||||||||||||||||||
Consolidated | 177,679 | 11.66 | % | 60,975 | 4.00 | % | n/a | n/a | ||||||||||||||||
Southern Bank | 167,263 | 10.98 | % | 60,949 | 4.00 | % | 76,187 | 5.00 | % | |||||||||||||||
Common Equity Tier I Capital (to Risk- Weighted Assets) | ||||||||||||||||||||||||
Consolidated | 163,626 | 10.81 | % | 68,111 | 4.50 | % | n/a | n/a | ||||||||||||||||
Southern Bank | 167,263 | 11.05 | % | 68,129 | 4.50 | % | 98,408 | 6.50 | % |
SOUTHERN MISSOURI BANCORP, INC.
Asset and Liability Management and Market Risk
The goal of the Company'sCompany’s asset/liability management strategy is to manage the interest rate sensitivity of both interest-earning assets and interest-bearing liabilities in order to maximize net interest income without exposing the Bank to an excessive level of interest rate risk. The Company employs various strategies intended to manage the potential effect that changing interest rates may have on future operating results. The primary asset/liability management strategy has been to focus on matching the anticipated re-pricing intervals of interest-earning assets and interest-bearing liabilities. At times, however, depending on the level of general interest rates, the relationship between long- and short-term interest rates, market conditions and competitive factors, the Company may determine to increase its interest rate risk position somewhat in order to maintain its net interest margin.
In an effort to manage the interest rate risk resulting from fixed rate lending, the Bank has utilized longer term FHLB advances (with maturities up to ten years), subject to early redemptions and fixed terms. Other elements of the Company'sCompany’s current asset/liability strategy include (i) increasing originations of commercial business, commercial real estate, agricultural operating lines, and agricultural real estate loans, which typically provide higher yields and shorter repricing periods, but inherently increase credit risk; (ii) actively soliciting less rate-sensitive deposits, including aggressive use of the Company's "rewards checking"Company’s “rewards checking” product, and (iii) offering competitively-priced money market accounts and CDs with maturities of up to five years. The degree to which each segment of the strategy is achieved will affect profitability and exposure to interest rate risk.
The Company continues to originate long-term, fixed-rate residential loans. During the first sixnine months of fiscal year 2018,2023, fixed rate 1- to 4-family residential loan production totaled $29.5$97.2 million (of which $12.7 million was originated for sale into the secondary market), as compared to $32.6$204.0 million during the same period of the prior fiscal year (of which $38.9 million was originated for sale into the secondary market). At March 31, 2023, the fixed rate residential loan portfolio was $592.5 million with a weighted average maturity of 194 months, as compared to $464.8 million at March 31, 2022, with a weighted average maturity of 190 months. The Company originated $32.1 million in adjustable-rate 1- to 4-family residential loans during the nine-month period ended March 31, 2023, as compared to $8.0 million during the same period of the prior fiscal year. At December 31, 2017, the fixed rate residential loan portfolio was $148.7 million with a weighted average maturity of 104 months, as compared to $141.2 million at December 31, 2016, with a weighted average maturity of 111 months. The Company originated $17.4 million in adjustable-rate 1- to 4-family residential loans during the six-month period ended December 31, 2017, as compared to $14.0 million during the same period of the prior fiscal year. At December 31, 2017, fixed rate loans with remaining maturities in excess of 10 years totaled $36.6 million, or 2.5% of net loans receivable, as compared to $36.7 million, or 3.0% of net loans receivable at December 31, 2016. The Company originated $115.2$477.9 million in fixed rate commercial and commercial real estate loans during the six-monthnine-month period ended DecemberMarch 31, 2017,2023, as compared to $132.0$421.9 million during the same period of the prior fiscal year. The Company also originated $39.1$119.4 million in adjustable rate commercial and commercial real estate loans during the six-monthnine-month period ended DecemberMarch 31, 2017,2023, as compared to $53.4$46.2 million during the same period of the prior fiscal year. At DecemberMarch 31, 2017,2023, adjustable-rate home equity lines of credit increased to $36.3$65.9 million, as compared to $26.1$41.7 million at DecemberMarch 31, 2016.2022. At DecemberMarch 31, 2017,2023, all fixed rate loans with remaining maturities in excess of 10 years totaled $383.8 million, or 11.2% of net loans receivable, as compared to $302.4 million, or 11.7% of net loans receivable at March 31, 2022. At March 31, 2023, the Company'sCompany’s investment portfolio had an expecteda weighted-average life of 3.96.1 years, compared to 3.74.9 years at DecemberMarch 31, 2016.2022, while the effective duration of the portfolio declined to 2.6 at March 31, 2023, as compared to 3.8 at March 31, 2022. Management continues to focus on customer retention, customer satisfaction, and offering new products to customers in order to increase the Company'sCompany’s amount of less rate-sensitive deposit accounts.
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Interest Rate Sensitivity Analysis
The following table sets forth as of DecemberMarch 31, 2017, management's2023, management’s estimates of the projected changes in net portfolio value ("NPV"(“NPV”) in the event of 100, 200, and 300 basis point ("bp"(“bp”) instantaneous, permanent, and permanentparallel increases, and 100, 200, and 300 basis point instantaneous, permanent, and permanentparallel decreases in market interest rates. Dollar amounts are expressed in thousands.
December 31, 2017 | ||||||||||||||||||||||
NPV as Percentage of | ||||||||||||||||||||||
Net Portfolio | PV of Assets | |||||||||||||||||||||
Change in Rates | Value | Change | % Change | NPV Ratio | Change | |||||||||||||||||
+300 bp | $ | 159,201 | $ | (24,418 | ) | -13 | % | 9.41 | % | -0.94 | % | |||||||||||
+200 bp | 167,404 | (16,216 | ) | -9 | % | 9.74 | % | -0.61 | % | |||||||||||||
+100 bp | 175,339 | (8,280 | ) | -5 | % | 10.04 | % | -0.31 | % | |||||||||||||
0 bp | 183,619 | - | - | 10.35 | % | 0.00 | % | |||||||||||||||
-100 bp | 194,811 | 11,192 | 6 | % | 10.80 | % | 0.45 | % | ||||||||||||||
-200 bp | 225,355 | 41,736 | 23 | % | 12.26 | % | 1.91 | % | ||||||||||||||
-300 bp | 234,183 | 50,564 | 28 | % | 12.69 | % | 2.34 | % | ||||||||||||||
June 30, 2017 | ||||||||||||||||||||||
NPV as Percentage of | ||||||||||||||||||||||
Net Portfolio | PV of Assets | |||||||||||||||||||||
Change in Rates | Value | Change | % Change | NPV Ratio | Change | |||||||||||||||||
+300 bp | $ | 146,140 | $ | (26,692 | ) | -15 | % | 8.99 | % | -1.13 | % | |||||||||||
+200 bp | 154,473 | (18,359 | ) | -11 | % | 9.35 | % | -0.77 | % | |||||||||||||
+100 bp | 162,804 | (10,027 | ) | -6 | % | 9.70 | % | -0.42 | % | |||||||||||||
0 bp | 172,832 | - | - | 10.12 | % | 0.00 | % | |||||||||||||||
-100 bp | 189,720 | 16,888 | 10 | % | 10.91 | % | 0.79 | % | ||||||||||||||
-200 bp | 209,964 | 37,133 | 21 | % | 11.91 | % | 1.79 | % | ||||||||||||||
-300 bp | 215,014 | 42,182 | 24 | % | 12.16 | % | 2.04 | % |
| | | | | | | | | | | | | |
March 31, 2023 |
| ||||||||||||
| | | | | | | | | | NPV as Percentage of |
| ||
| | Net Portfolio | | PV of Assets |
| ||||||||
Change in Rates |
| Value |
| Change |
| % Change |
| NPV Ratio |
| Change |
| ||
| | (Dollars in thousands) | | (%) | | (basis points) | | ||||||
+300 bp | | $ | 284,065 | | $ | (101,097) |
| (26) | | 7.36 | | (193) | |
+200 bp | |
| 321,356 | |
| (63,805) |
| (17) | | 8.13 | | (116) | |
+100 bp | |
| 347,429 | |
| (37,733) |
| (10) | | 8.60 | | (69) | |
0 bp | |
| 385,162 | |
| — |
| — | | 9.29 | | — | |
‑100 bp | |
| 423,069 | |
| 37,908 |
| 10 | | 9.96 | | 67 | |
‑200 bp | |
| 475,209 | |
| 90,048 |
| 23 | | 10.98 | | 169 | |
‑300 bp | |
| 517,484 | |
| 132,323 |
| 34 | | 11.77 | | 248 | |
| | | | | | | | | | | | | |
June 30, 2022 |
| ||||||||||||
| | | | | | | | | | NPV as Percentage of |
| ||
| | Net Portfolio | | PV of Assets |
| ||||||||
Change in Rates |
| Value |
| Change |
| % Change |
| NPV Ratio |
| Change |
| ||
| | (Dollars in thousands) | | (%) | | (basis points) | | ||||||
+300 bp | | $ | 189,624 | | $ | (129,048) |
| (40) | | 6.50 | | (345) | |
+200 bp | |
| 231,603 | |
| (87,069) |
| (27) | | 7.70 | | (225) | |
+100 bp | |
| 286,614 | |
| (32,058) |
| (10) | | 9.20 | | (75) | |
0 bp | |
| 318,672 | |
| — |
| — | | 9.95 | | — | |
‑100 bp | |
| 350,857 | |
| 32,185 |
| 10 | | 10.66 | | 71 | |
‑200 bp | |
| 442,479 | |
| 123,807 |
| 39 | | 13.06 | | 311 | |
‑300 bp | |
| 523,486 | |
| 204,814 |
| 64 | | 15.09 | | 514 | |
Computations of prospective effects of hypothetical interest rate changes are based on an internally generated model using actual maturity and repricing schedules for the Bank'sBank’s loans and deposits, and are based on numerous assumptions, including relative levels of market interest rates, loan repayments and deposit run-offs, and should not be relied upon as indicative of actual results. Further, the computations do not contemplate any actions the Bank may undertake in response to changes in interest rates.
Management cannot accurately predict future interest rates or their effect on the Bank's NPVBank’s net present value (“NPV”) in the future. Certain shortcomings are inherent in the method of analysis presented in the computation of NPV. For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in differing degrees to changes in market interest rates. Additionally, certain assets, such as adjustable-rate loans, have an initial fixed rate period typically from one to seven years and over the remaining life of the asset changes in the interest rate are restricted. In addition, the proportion of adjustable-rate loans in the Bank'sBank’s portfolios could decrease in future periods due to refinancing activity if market interest rates remain steady in the future. Further, in the event of a change in interest rates, prepayment and early withdrawal levels could deviate significantly from those assumed in the table. Finally, the ability of many borrowers to service their adjustable-rate debt may decrease in the event of an interest rate increase.
The Company’s growth strategy has included origination of fixed-rate loans, as discussed under “Asset and Liability Management and Market Risk,” above. Through December 31, 2022, the Company reported an increase in interest rate sensitivity, as it booked above-trend loan growth in anticipation of the liquidity and interest rate risk position of the balance sheet it would acquire in the Citizens merger. With the completion of the merger, as of March 31, 2023, the Company’s interest rate sensitivity has declined somewhat as compared to June 30, 2022, as reflected in the tables above. As compared to the prior fiscal year, the Company’s interest rate sensitivity has increased somewhat, as the rapid
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and significant increase in market interest rates and above-trend loan growth prior to the Citizens merger has been partially offset with the benefit of Citizens’ asset-sensitive balance sheet.
The Bank's BoardBank’s board of Directors (the "Board")directors is responsible for reviewing the Bank'sBank’s asset and liability policies. The Board'sBank’s Asset/Liability CommitteesCommittee meets monthly to review interest rate risk and trends, as well as liquidity and capital ratios and requirements. The Bank'sBank’s management is responsible for administering the policies and determinations of the Boardsboard of directors with respect to the Bank'sBank’s asset and liability goals and strategies.
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SOUTHERN MISSOURI BANCORP, INC.
An evaluation of Southern Missouri Bancorp'sMissouri’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities and Exchange Act of 1934, as amended, (the "Act"“Act”)) as of DecemberMarch 31, 2017,2023 was carried out under the supervision and with the participation of our Chief Executive Officer, andour Chief Administrative Officer, our Chief Financial Officer, and several other members of our senior management. TheOur Chief Executive Officer, our Chief Administrative Officer, and our Chief Financial Officer concluded that, as of DecemberMarch 31, 2017,2023, the Company'sCompany’s disclosure controls and procedures were effective in ensuring that the information required to be disclosed by the Company in the reports it files or submits under the Act is (i) accumulated and communicated to management (including theour Chief Executive Officer, our Chief Administrative Officer and our Chief Financial Officer) in a timely manner, and (ii) recorded, processed, summarized and reported within the time periods specified in the SEC'sSEC’s rules and forms. There have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Act) that occurred during the quarter ended DecemberMarch 31, 2017,2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
The Company does not expect that its disclosures and procedures will prevent all errors and all fraud. A control procedure, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control procedure are met. Because of the inherent limitations in all control procedures, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any control procedure also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control procedure, misstatements due to error or fraud may occur and not be detected.
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SOUTHERN MISSOURI BANCORP, INC.
In the opinion of management, the Company is not a party to any pending claims or lawsuits that are expected to have a material effect on the Company'sCompany’s financial condition or operations. Periodically, there have been various claims and lawsuits involving the Company mainly as a defendant, such as claims to enforce liens, condemnation proceedings on properties in which the Company holds security interests, claims involving the making and servicing of real property loans and other issues incident to the Bank'sBank’s business. Aside from such pending claims and lawsuits, which are incident to the conduct of the Company'sCompany’s ordinary business, the Company is not a party to any material pending legal proceedings that would have a material effect on the financial condition or operations of the Company.
Except for the risk factor set forth below, there have been no material changes to the risk factors set forth in Part I, Item 1A of the Company'sCompany’s Annual Report on Form 10-K for the year ended June 30, 2017.
Recent negative events in the financial services industry, primarily involving regional banks, have caused general uncertainty and concern regarding the adequacy of liquidity of the financial services industry. While the Company relies on a number of funding sources to meet potential liquidity needs, our business strategies are largely based on access to funding from customer deposits and supplemental funding provided by wholesale or other secondary liquidity sources. Deposit levels may be affected by various industry factors, including interest rates paid by competitors, general interest rate levels, returns available to customers on alternative investments, conditions in the financial services industry specifically and general economic conditions that impact the amount of liquidity in the economy and savings levels, and also by factors that impact customers’ perception of our financial condition, capital and liquidity levels. This uncertainty may drive deposit outflows, increased borrowing and funding costs, and increased competition for liquidity, any of which could have a material adverse impact on our financial performance or financial condition. Despite the challenges, our focus remains on the fundamentals that have served us well during our 135-year history.
Item 2
: Unregistered Sales of Equity Securities and Use of ProceedsOn May 20, 2021, the Company announced its intention to repurchase up to 445,000 shares of its common stock, or approximately 5.0% of its 8.9 million then-outstanding common shares. The shares will be purchased at prevailing market prices in the open market or in privately negotiated transactions, subject to availability and general market conditions. Repurchased shares will be held as treasury shares to be used for general corporate purposes.
The following table summarizes the Company’s stock repurchase activity for each month during the three months ended March 31, 2023.
| | | | | | | | | |
| | | | Total | | ||||
| | | | Average | | Purchased as Part of | | Maximum Number | |
| | Total # | | Price | | Publicly | | of | |
| | of Shares | | Paid Per | | Announced | | May Yet | |
| | Purchased | | Share | | Program | | Purchased (1) | |
01/01/23 - 01/31/23 period | — | | $ | — | — | 306,375 | |||
02/01/23 - 02/28/23 period | — | | — | — | 306,375 | ||||
03/01/23 - 03/31/23 period | — | | — | — | 306,375 |
(1) | Represents the remaining shares available for purchase as of the last calendar day of the month shown. |
Item 3
: Defaults upon Senior SecuritiesNot applicable
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Exhibit | Document | ||||
3.1(i) | | ||||
3.1(i)A | | ||||
3.1(i)B | | ||||
3.1(ii) | | ||||
3.2 | | ||||
4 | | ||||
10 | | Material Contracts: | |||
| 1. | ||||
| 2. | ||||
| 3. | ||||
| | 4. | 1994 Stock Option and Incentive Plan (attached to the | ||
| | 5. | Management Recognition and Development Plan (attached to the | ||
| 6. | Employment Agreements | |||
| |||||
| (ii) | ||||
| 7. | Director’s Retirement Agreements | |||
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| |||||
| (iv) | ||||
| (v) | ||||
| (vi) | ||||
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| | 9. | Change-in-Control Agreements | ||
| | ||||
| (i) | ||||
| | | (ii) | ||
| | | (iii) | ||
| | | (iv) | ||
| | | (v) | ||
| | | (vi) | ||
| | | (vii) | ||
| | | (viii) | Amended and Restated Change-in-Control Agreement with Martin Weishaar | |
| | | (ix) | ||
| | 10. | |||
| | ||||
14 | | ||||
21 | | ||||
31.1 | | ||||
31.2 | | Rule 13a-14(a) Certification of Chief Administrative Officer | |||
31.3 | | ||||
32 | | Certification pursuant to Section 906 of Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350) | |||
101 | | Includes the following financial and related information from Southern Missouri Bancorp, Inc.’s Quarterly Report on Form 10-Q as of and for the quarter ended March 31, | |||
104 | | The cover page from this Quarterly Report on Form 10-Q, formatted in Inline XBRL. |
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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | |
SOUTHERN MISSOURI BANCORP, INC. | |||
Registrant | |||
Date: | /s/ Greg A. Steffens | ||
Greg A. Steffens | |||
Chairman & Chief Executive Officer | |||
(Principal Executive Officer) | |||
Date: | /s/ Matthew T. Funke | ||
Matthew T. Funke | |||
President & Chief Administrative Officer | |||
(Principal Financial Officer) | |||
Date: May 10, 2023 | /s/ Lora L. Daves | ||
Lora L. Daves | |||
Executive Vice President & Chief Financial Officer | |||
(Principal |
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