Consolidated Statements of Changes in Shareholders' Equity (Unaudited)
For the Three Months Ended March 31, 20232024 and 20222023
| Preferred Stock | Common Stock | Treasury Stock | |||||||||||||||||||||||||||||
Dollars in thousands | Shares | Amount | Shares | Amount | Shares | Amount | APIC | AOCL | Retained Earnings | Total | |||||||||||||||||||||
Balance at December 31, 2022 | 82,949 | $ | 82,949 | 3,453,817 | $ | 35 | 200,933 | $ | (4,331 | ) | $ | 18,230 | $ | (40,779 | ) | $ | 104,129 | $ | 160,233 | ||||||||||||
Adoption of ASU 2016-13 | — | — | — | — | — | — | — | — | (1,578 | ) | (1,578 | ) | |||||||||||||||||||
Net Income | — | — | — | — | — | — | — | — | 2,674 | 2,674 | |||||||||||||||||||||
Other Comprehensive Income, Net of Tax | — | — | — | — | — | — | — | 5,578 | — | 5,578 | |||||||||||||||||||||
Employee Stock Purchase Plan | — | — | 326 | — | — | — | 8 | — | — | 8 | |||||||||||||||||||||
Cash Dividends on Common Stock | — | — | — | — | — | — | — | — | (423 | ) | (423 | ) | |||||||||||||||||||
Balance at March 31, 2023 | 82,949 | $ | 82,949 | 3,454,143 | $ | 35 | 200,933 | $ | (4,331 | ) | $ | 18,238 | $ | (35,201 | ) | $ | 104,802 | $ | 166,492 | ||||||||||||
| Preferred Stock | Common Stock | Treasury Stock | |||||||||||||||||||||||||||||
Dollars in thousands | Shares | Amount | Shares | Amount | Shares | Amount | APIC | AOCL | Retained Earnings | Total | |||||||||||||||||||||
Balance at December 31, 2023 | 82,949 | $ | 82,949 | 3,456,136 | $ | 35 | 227,359 | $ | (4,913 | ) | $ | 18,287 | $ | (35,050 | ) | $ | 111,054 | $ | 172,362 | ||||||||||||
Net Income | — | — | — | — | — | — | — | — | 1,753 | 1,753 | |||||||||||||||||||||
Other Comprehensive Income, Net of Tax | — | — | — | — | — | — | — | 991 | — | 991 | |||||||||||||||||||||
Employee Stock Purchase Plan | — | — | 578 | — | — | — | 14 | — | — | 14 | |||||||||||||||||||||
Treasury Stock Repurchases | — | — | — | — | 4,230 | (99 | ) | — | — | — | (99 | ) | |||||||||||||||||||
Cash Dividends on Common Stock | — | — | — | — | — | — | — | — | (452 | ) | (452 | ) | |||||||||||||||||||
Balance at March 31, 2024 | 82,949 | $ | 82,949 | 3,456,714 | $ | 35 | 231,589 | $ | (5,012 | ) | $ | 18,301 | $ | (34,059 | ) | $ | 112,355 | $ | 174,569 | ||||||||||||
| Preferred Stock | Common Stock | APIC | Treasury Stock | AOCI (Loss) | Retained Earnings | Total | |||||||||||||||||||||||||||||||||||
| Balance at December 31, 2021 | $ | — | $ | 34,538 | $ | 18,230,187 | $ | (4,330,712) | $ | 5,215,107 | $ | 96,373,405 | $ | 115,522,525 | |||||||||||||||||||||||||||
| Net Income | — | — | — | — | — | 1,549,031 | 1,549,031 | ||||||||||||||||||||||||||||||||||
| Other Comprehensive Loss, Net of Tax | — | — | — | — | (20,222,858) | — | (20,222,858) | ||||||||||||||||||||||||||||||||||
| Cash Dividends on Common Stock | — | — | — | — | — | (390,346) | (390,346) | ||||||||||||||||||||||||||||||||||
| Balance at March 31, 2022 | $ | — | $ | 34,538 | $ | 18,230,187 | $ | (4,330,712) | $ | (15,007,751) | $ | 97,532,090 | $ | 96,458,352 | |||||||||||||||||||||||||||
| Preferred Stock | Common Stock | APIC | Treasury Stock | AOCI (Loss) | Retained Earnings | Total | |||||||||||||||||||||||||||||||||||
| Balance at December 31, 2022 | $ | 82,949,000 | $ | 34,538 | $ | 18,230,187 | $ | (4,330,712) | $ | (40,778,646) | $ | 104,129,261 | $ | 160,233,628 | |||||||||||||||||||||||||||
| Adoption of ASU 2016-13 | — | — | — | — | — | (1,578,271) | (1,578,271) | ||||||||||||||||||||||||||||||||||
| Net Income | — | — | — | — | — | 2,674,100 | 2,674,100 | ||||||||||||||||||||||||||||||||||
| Other Comprehensive Income, Net of Tax | — | — | — | — | 5,577,801 | — | 5,577,801 | ||||||||||||||||||||||||||||||||||
| Employee Stock Purchase Plan | — | 3 | 8,411 | — | — | — | 8,414 | ||||||||||||||||||||||||||||||||||
| Cash Dividends on Common Stock | — | — | — | — | — | (422,917) | (422,917) | ||||||||||||||||||||||||||||||||||
| Balance at March 31, 2023 | $ | 82,949,000 | $ | 34,541 | $ | 18,238,598 | $ | (4,330,712) | $ | (35,200,845) | $ | 104,802,173 | $ | 166,492,755 | |||||||||||||||||||||||||||
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended | |||||||||
March 31, | |||||||||
Dollars in thousands | 2024 | 2023 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||||
Net Income | $ | 1,753 | $ | 2,674 | |||||
Adjustments To Reconcile Net Income To Net Cash Provided By Operating Activities: | |||||||||
Depreciation Expense | 509 | 518 | |||||||
Discount Accretion and Premium Amortization, net | 945 | 1,160 | |||||||
Provision for Credit Losses | 335 | — | |||||||
Earnings on BOLI | (173 | ) | (150 | ) | |||||
Gain on Sales of Loans | (131 | ) | (194 | ) | |||||
Amortization of Operating Lease ROU Assets | 117 | 113 | |||||||
Proceeds From Sale of Loans Held For Sale | 5,013 | 6,737 | |||||||
Origination of Loans Held For Sale | (4,020 | ) | (5,870 | ) | |||||
Increase in Accrued Interest Receivable | (516 | ) | (549 | ) | |||||
Change in Other Assets | 11,702 | (830 | ) | ||||||
Change in Lease Liabilities and Other Liabilities | 72 | 2,355 | |||||||
Net Cash Provided By Operating Activities | $ | 15,606 | $ | 5,964 | |||||
CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||||
Purchase of AFS Securities | $ | (9,328 | ) | $ | (3,487 | ) | |||
Proceeds from Paydowns and Maturities of AFS Securities | 14,903 | 18,739 | |||||||
Purchase of HTM Securities | — | (15,587 | ) | ||||||
Proceeds from Paydowns and Maturities of HTM Securities | 3,962 | 2,895 | |||||||
Purchase of FHLB Stock | (119 | ) | (8 | ) | |||||
Net Increase in Loans Receivable | (24,641 | ) | (26,764 | ) | |||||
Purchase and Improvement of Premises and Equipment | (1,585 | ) | (1,233 | ) | |||||
Net Cash Used By Investing Activities | $ | (16,808 | ) | $ | (25,445 | ) | |||
CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||||
Increase (Decrease) in Deposit Accounts | $ | 10,882 | $ | (1,412 | ) | ||||
Increase in Other Borrowings, Net | 348 | 230 | |||||||
Proceeds from FRB Borrowings | 65,000 | 324,005 | |||||||
Repayment of FRB Borrowings | (110,000 | ) | (306,710 | ) | |||||
Purchases of Treasury Stock | (99 | ) | — | ||||||
Proceeds from Employee Stock Purchase Plan | 14 | 8 | |||||||
Dividends to Common Stock Shareholders | (452 | ) | (423 | ) | |||||
Net Cash (Used) Provided By Financing Activities | $ | (34,307 | ) | $ | 15,698 | ||||
Net Decrease in Cash and Cash Equivalents | (35,509 | ) | (3,783 | ) | |||||
Cash and Cash Equivalents at Beginning of Period | 128,284 | 28,502 | |||||||
Cash and Cash Equivalents at End of Period | $ | 92,775 | $ | 24,719 | |||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | |||||||||
Cash Paid for Interest | $ | 9,796 | $ | 3,644 | |||||
Non-Cash Transactions: | |||||||||
Other Comprehensive Income | $ | 991 | $ | 5,578 | |||||
| Three Months Ended | |||||||||||
| March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||||||
| Net Income | $ | 2,674,100 | $ | 1,549,031 | |||||||
| Adjustments To Reconcile Net Income To Net Cash Provided By Operating Activities: | |||||||||||
| Depreciation Expense | 518,033 | 491,565 | |||||||||
| Discount Accretion and Premium Amortization, net | 1,160,223 | 1,975,822 | |||||||||
| Provision for Credit Losses | — | — | |||||||||
| Earnings on BOLI | (150,204) | (157,241) | |||||||||
| Gain on Sales of Loans | (193,881) | (713,893) | |||||||||
| Write Down of Land Held for Sale | — | 339,344 | |||||||||
| Amortization of Operating Lease ROU Assets | 113,053 | 106,852 | |||||||||
| Proceeds From Sale of Loans Held For Sale | 6,736,663 | 20,285,158 | |||||||||
| Origination of Loans Held For Sale | (5,870,365) | (19,118,235) | |||||||||
| Increase in Accrued Interest Receivable | (549,013) | (102,987) | |||||||||
| Other, Net | 1,525,330 | 902,012 | |||||||||
| Net Cash Provided By Operating Activities | $ | 5,963,939 | $ | 5,557,428 | |||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||||||
| Purchase of Investments AFS | $ | (3,487,262) | $ | (43,978,806) | |||||||
| Proceeds from Paydowns and Maturities of Investments AFS | 18,739,220 | 30,072,755 | |||||||||
| Purchase of Investments HTM | (15,587,496) | — | |||||||||
| Proceeds from Paydowns and Maturities of Investments HTM | 2,895,475 | 1,391,444 | |||||||||
| Purchase of FHLB Stock | (8,000) | (64,800) | |||||||||
| Increase in Loans Receivable | (26,764,068) | (5,315,638) | |||||||||
| Purchase and Improvement of Premises and Equipment | (1,233,098) | (1,223,499) | |||||||||
| Net Cash Used By Investing Activities | $ | (25,445,229) | $ | (19,118,544) | |||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||||||
| (Decrease) Increase in Deposit Accounts | $ | (1,411,787) | $ | 9,972,359 | |||||||
| Increase in Other Borrowings, Net | 229,656 | 7,466,530 | |||||||||
| Proceeds from FRB Borrowings | 324,005,000 | 109,025,000 | |||||||||
| Repayment of FRB Borrowings | (306,710,000) | (109,025,000) | |||||||||
| Proceeds from Employee Stock Purchase Plan | 8,414 | — | |||||||||
| Dividends to Common Stock Shareholders | (422,917) | (390,346) | |||||||||
| Net Cash Provided By Financing Activities | $ | 15,698,366 | $ | 17,048,543 | |||||||
| Net (Decrease) Increase in Cash and Cash Equivalents | (3,782,924) | 3,487,427 | |||||||||
| Cash and Cash Equivalents at Beginning of Period | 28,502,364 | 27,622,851 | |||||||||
| Cash and Cash Equivalents at End of Period | $ | 24,719,440 | $ | 31,110,278 | |||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | |||||||||||
| Cash Paid for Interest | $ | 3,644,472 | $ | 402,484 | |||||||
| Non-Cash Transactions: | |||||||||||
| Other Comprehensive Income (Loss) | 5,577,801 | (20,222,858) | |||||||||
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
The accompanying unaudited consolidated financial statements were prepared in accordance with instructions for Form 10-Q10-Q and accounting principles generally accepted in the United States of America ("GAAP"); therefore, they do not include all disclosures necessary for a complete presentation of financial condition, results of operations, and cash flows. Such statements are unaudited but, in the opinion of management, reflect all adjustments, which are of a normal recurring nature and necessary for a fair presentation of results for the selected interim periods. Users of financialThe information produced for interim periods are encouraged to refer to the footnotes contained in the audited consolidated financial statements appearingincluded in Security Federal Corporation’s (the “Company”) 2022 Annual Report to Shareholders which was filed as an exhibit to our Annual Report on Form 10-K10-K for the year ended December 31, 20222023 (“2022 10-K”2023 Form 10-K”) should be referred to when reviewing interim financial statements. The unaudited consolidated results of operations for the three months ended March 31, 20232024 are not necessarily indicative of the results that may be expected for the year ending December 31, 20232024 or any other period. The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
NOTE 2 - PRINCIPLES OF CONSOLIDATION
The accompanying unaudited consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Security Federal Bank (the “Bank”) and the Bank’s wholly owned subsidiaries, Security Federal Investments, Inc. ("SFINV") and Security Federal Insurance, Inc. (“SFINS”). SFINV was formed to hold investment securities and allow for better management of the securities portfolio. SFINS is an insurance agency offering auto, business, and home insurance. All significant intercompany transactions and balances have been eliminated in consolidation.
The Company has a wholly owned subsidiary, Security Federal Statutory Trust (the “Trust”), which issued and sold fixed and floating rate capital securities of the Trust. However, under current accounting guidance, the Trust is not consolidated in the Company’s financial statements. The Bank is primarily engaged in the business of accepting savings and demand deposits and originating mortgage loans and other loans to individuals and small businesses for various personal and commercial purposes.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company has adopted various accounting policies, which govern the application of accounting principles generally accepted in the United States in the preparation of our financial statements. Our significant accounting policies are described in the footnotes to the audited consolidated financial statements at December 31, 20222023 included in our 2022 Annual Report to Shareholders.2023 Form 10-K. Certain accounting policies involve significant judgments and assumptions by management, which have a material impact on the carrying value of certain assets and liabilities, and, as such, have a greater possibility of producing results that could be materially different than originally reported. We consider these accounting policies to be critical accounting policies. The judgments and assumptions we use are based on historical experience and other factors, which we believe to be reasonable under the circumstances. Because of the nature of the judgments and assumptions we make, actual results could differ from these judgments and estimates which could have a material impact on our carrying values of assets and liabilities and our results of operations. There have been no significant changes to the application of significant accounting policies since December 31, 2023.
Recent Accounting Pronouncements
The following is a summary of recent authoritative pronouncements that could affect accounting, reporting, and disclosure of financial information by the Company:
In December 2022, the Financial Accounting Standards Board (“FASB”) issued amendments to extend the period of time preparers can use the reference rate reform relief guidance under ASC Topic 848 from December 31, 2022, to December 31, 2024, to address the fact that all London Interbank Offered Rate ("LIBOR") tenors were not discontinued as of December 31, 2021, and some tenors would not be published until June 2023. The amendments are effective immediately for all entities and are applied prospectively. These amendments did not have a material effect on the Company's consolidated financial statements.
Other accounting standards that have been issued or proposed by the FASB or other standards-setting authorities are not expected to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.
NOTE 4 - EARNINGS PER SHARE
Accounting guidance specifies the computation, presentation and disclosure requirements for earnings per share (“EPS”) for entities with publicly held common stock or potential common stock such as options, warrants, convertible securities or contingent stock agreements if those securities trade in a public market. Basic EPS is computed by dividing net income by the weighted average number of common shares outstanding. Diluted EPS is computed similar to basic EPS except that the denominator is increased to include the number of additional common shares that would have been outstanding if the dilutive common shares had been issued. The dilutive effect of options outstanding under the Company’s stock option plan is reflected in diluted EPS by application of the treasury stock method. There were no stock options outstanding at March 31, 2024 or 2023; and therefore, no dilutive options were included in the calculation of diluted EPS for those periods. The following tables include a summary of the Company's basic EPS for the following:periods indicated.
Three Months Ended March 31, | |||||||||||||||||||||||
2024 | 2023 | ||||||||||||||||||||||
Dollars and shares in thousands | Income | Shares | EPS | Income | Shares | EPS | |||||||||||||||||
Basic EPS | $ | 1,753 | 3,229 | $ | 0.54 | $ | 2,674 | 3,253 | $ | 0.82 | |||||||||||||
NOTE 5 - STOCK-BASED COMPENSATION
Certain officers and directors of the Company adopted Accounting Standards Update (“ASU”) 2016-13participate in incentive and non-qualified stock option plans. Options are granted at exercise prices not less than the fair value of the Company’s common stock on the date of the grant. At March 31, 2024 and 2023, the Company had no options outstanding and there was no activity during the three months ended March 31, 2024 and 2023. At those dates, there were 50,000 options available for grants.
NOTE 6 - INVESTMENTS, AVAILABLE FOR SALE ("AFS") 326. This standard replaced the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (“CECL”) methodology. CECL requires an estimate of
AFS securities are recorded at fair market value. There was no allowance for credit losses for AFS securities as of March 31, 2024 and December 31, 2023. The amortized cost, gross unrealized gains, gross unrealized losses, and fair values of AFS securities at the remaining estimated lifedates indicated were as follows:
March 31, 2024 | ||||||||||||||||
Dollars in thousands | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||
Student Loan Pools | $ | 48,005 | $ | 104 | $ | (406 | ) | $ | 47,703 | |||||||
Small Business Administration (“SBA”) Bonds | 73,124 | 385 | (2,709 | ) | 70,800 | |||||||||||
Tax Exempt Municipal Bonds | 20,519 | 509 | (993 | ) | 20,035 | |||||||||||
Taxable Municipal Bonds | 64,649 | — | (11,897 | ) | 52,752 | |||||||||||
Mortgage-Backed Securities ("MBS") | 371,494 | 123 | (30,438 | ) | 341,179 | |||||||||||
Total AFS Securities | $ | 577,791 | $ | 1,121 | $ | (46,443 | ) | $ | 532,469 | |||||||
December 31, 2023 | ||||||||||||||||
Dollars in thousands | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||
Student Loan Pools | $ | 51,022 | $ | 72 | $ | (728 | ) | $ | 50,366 | |||||||
SBA Bonds | 79,014 | 416 | (2,677 | ) | 76,753 | |||||||||||
Tax Exempt Municipal Bonds | 21,501 | 643 | (908 | ) | 21,236 | |||||||||||
Taxable Municipal Bonds | 64,669 | — | (11,554 | ) | 53,115 | |||||||||||
MBS | 368,081 | 31 | (31,942 | ) | 336,170 | |||||||||||
Total AFS Securities | $ | 584,287 | $ | 1,162 | $ | (47,809 | ) | $ | 537,640 | |||||||
Student Loan Pools are typically 97% guaranteed by the United States government while SBA bonds are 100% backed by the full faith and credit of the financial asset using historical experience, current conditions,United States government. The majority of the Bank's MBS are issued or guaranteed by an agency of the United States government such as Ginnie Mae, or by Government Sponsored Entities ("GSEs"), including Fannie Mae and reasonableFreddie Mac. Ginnie Mae MBS are backed by the full faith and supportable forecasts and generally applies to financial assets measured atcredit of the United States government, while those issued by GSEs are not.
The amortized cost including loan receivables and held-to-maturity debtfair value of AFS securities and some off-balance sheet credit exposures such as unfunded commitmentsat March 31, 2024, are shown below by contractual maturity. Expected maturities will differ from contractual maturities because borrowers have the right to extend credit.prepay obligations with or without call or prepayment penalties. Since MBS are not due at a single maturity date, they are disclosed separately, rather than allocated over the maturity groupings below.
Dollars in thousands | March 31, 2024 | |||||||
AFS Securities: | Amortized Cost | Fair Value | ||||||
One Year or Less | $ | 38 | $ | 37 | ||||
After One – Five Years | 10,334 | 10,348 | ||||||
After Five – Ten Years | 67,860 | 63,062 | ||||||
More Than Ten Years | 128,065 | 117,843 | ||||||
MBS | 371,494 | 341,179 | ||||||
Total AFS Securities | $ | 577,791 | $ | 532,469 | ||||
The amortized cost will be presentedand fair value of AFS securities pledged as collateral for certain deposit accounts, FHLB advances, FRB, and other borrowings were $521.1 million and $479.2 million at March 31, 2024, and $533.7 million and $490.5 million at December 31, 2023, respectively.
There were no sales of AFS securities during the three months ended March 31, 2024 and 2023; and therefore, no proceeds from sales, gross gains or gross losses were recorded during those periods.
The following tables summarize gross unrealized losses and the related fair value, aggregated by investment category and length of time that individual AFS securities have been in a continuous unrealized loss position at the net amount expected to be collected by usingdates indicated.
March 31, 2024 | ||||||||||||||||||||||||||||
Less than 12 Months | 12 Months or More | Total | ||||||||||||||||||||||||||
Dollars in thousands | Fair Value | Unrealized Losses | # | Fair Value | Unrealized Losses | # | Fair Value | Unrealized Losses | ||||||||||||||||||||
Student Loan Pools | $ | 348 | $ | — | 1 | $ | 38,658 | $ | (406 | ) | 32 | $ | 39,006 | $ | (406 | ) | ||||||||||||
SBA Bonds | 2,208 | (6 | ) | 5 | 36,193 | (2,703 | ) | 57 | 38,401 | (2,709 | ) | |||||||||||||||||
Tax Exempt Municipal Bonds | 549 | (1 | ) | 1 | 12,827 | (992 | ) | 12 | 13,376 | (993 | ) | |||||||||||||||||
Taxable Municipal Bonds | — | — | — | 52,752 | (11,897 | ) | 59 | 52,752 | (11,897 | ) | ||||||||||||||||||
MBS | 30,103 | (176 | ) | 26 | 287,017 | (30,262 | ) | 215 | 317,120 | (30,438 | ) | |||||||||||||||||
| $ | 33,208 | $ | (183 | ) | 33 | $ | 427,447 | $ | (46,260 | ) | 375 | $ | 460,655 | $ | (46,443 | ) | ||||||||||||
December 31, 2023 | ||||||||||||||||||||||||||||
Less than 12 Months | 12 Months or More | Total | ||||||||||||||||||||||||||
Dollars in thousands | Fair Value | Unrealized Losses | # | Fair Value | Unrealized Losses | # | Fair Value | Unrealized Losses | ||||||||||||||||||||
Student Loan Pools | $ | 377 | $ | (1 | ) | 1 | $ | 43,872 | $ | (727 | ) | 34 | $ | 44,249 | $ | (728 | ) | |||||||||||
SBA Bonds | 2,200 | (5 | ) | 4 | 39,151 | (2,672 | ) | 63 | 41,351 | (2,677 | ) | |||||||||||||||||
Tax Exempt Municipal Bonds | — | — | — | 12,965 | (908 | ) | 12 | 12,965 | (908 | ) | ||||||||||||||||||
Taxable Municipal Bonds | — | — | — | 53,115 | (11,554 | ) | 59 | 53,115 | (11,554 | ) | ||||||||||||||||||
MBS | 36,069 | (434 | ) | 30 | 292,864 | (31,508 | ) | 213 | 328,933 | (31,942 | ) | |||||||||||||||||
| $ | 38,646 | $ | (440 | ) | 35 | $ | 441,967 | $ | (47,369 | ) | 381 | $ | 480,613 | $ | (47,809 | ) | ||||||||||||
At March 31, 2024 our AFS investment portfolio consisted of 510 individual AFS securities, 408 of which were in an unrealized loss position. At December 31, 2023, 416 individual AFS securities were in an unrealized loss position. The Company reviews its investment securities portfolio at least quarterly and more frequently when economic conditions warrant, assessing whether an allowance for credit loss is deemed necessary. Management’s evaluation of those securities as of March 31, 2024 is discussed below.
SBA Bonds - SBA securities are fully backed by the U.S. government. At March 31, 2024, there were 114 AFS SBA Bonds, 62 of which had unrealized losses.
MBS - At March 31, 2024, approximately 76% of the AFS MBS held by the Company were issued or guaranteed by an agency of the U.S. government such as Ginnie Mae, or by GSEs, including Fannie Mae and Freddie Mac. Ginnie Mae MBS are backed by the full faith and credit of the U.S. government, while those issued by GSEs are not. At March 31, 2024, there were 191 of these securities in an unrealized loss position. These unrealized losses are believed to be caused by the current interest rate environment. The contractual cash flows of those investments are guaranteed by an agency of the U.S. Government. Because the decline in market value is attributable to the current interest rate environment and not credit quality, and because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell.
Municipal Bonds - At March 31, 2024 there were 13 tax exempt municipal securities was not deemed material.
Accrued interest receivable on held to maturity debtAFS securities totaled $941,000$2.8 million at March 31, 20232024 and was excluded from the estimate of credit losses.
NOTE 7 - INVESTMENTS, HELD TO MATURITY ("HTM")
HTM securities are recorded at amortized cost. The amortized cost, gross unrealized gains, gross unrealized losses, and fair values of HTM securities at the dates indicated were as follows:
March 31, 2024 | ||||||||||||||||
Dollars in thousands | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||
US Treasury Bonds | $ | 23,904 | $ | — | $ | (249 | ) | $ | 23,655 | |||||||
FHLB Bond | 1,000 | — | (2 | ) | 998 | |||||||||||
Student Loan Pools | 15,995 | 392 | — | 16,387 | ||||||||||||
SBA Bonds | 10,282 | 378 | — | 10,660 | ||||||||||||
Taxable Municipal Bonds | 965 | — | (32 | ) | 933 | |||||||||||
MBS | 106,939 | 385 | (5,019 | ) | 102,305 | |||||||||||
Total HTM Securities | $ | 159,085 | $ | 1,155 | $ | (5,302 | ) | $ | 154,938 | |||||||
December 31, 2023 | ||||||||||||||||
Dollars in thousands | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||
US Treasury Bonds | $ | 23,874 | $ | — | $ | (278 | ) | $ | 23,596 | |||||||
FHLB Bond | 1,000 | — | — | 1,000 | ||||||||||||
Student Loan Pools | 16,881 | 278 | — | 17,159 | ||||||||||||
SBA Bonds | 11,305 | 493 | — | 11,798 | ||||||||||||
Taxable Municipal Bonds | 962 | — | (28 | ) | 934 | |||||||||||
MBS | 109,050 | 96 | (5,093 | ) | 104,053 | |||||||||||
Total HTM Securities | $ | 163,072 | $ | 867 | $ | (5,399 | ) | $ | 158,540 | |||||||
At March 31, 2024, the amortized cost and fair value of HTM securities that were pledged as collateral for certain deposit accounts, FHLB advances and FRB and other borrowings were $104.0 million and $100.3 million, compared to an amortized cost and fair value of $107.5 million and $103.8 million at December 31, 2023 respectively.
At March 31, 2024, HTM securities had a combined book value of $159.1 million and an average book yield of 4.81%, which was calculated by multiplying the carrying value of each HTM security by its yield and dividing the sum by the total carrying value. The following table includes a summary of the amortized cost and average book yield of HTM securities by contractual maturity at March 31, 2024. Since MBS do not have fixed maturity dates, they are disclosed separately.
Dollars in thousands | Carrying Value | Average Book Yield | ||||||
HTM Securities: | ||||||||
Due in one year or less | $ | 11,991 | 2.94 | % | ||||
Due after one year through five years | 14,957 | 3.78 | % | |||||
Due after five years through ten years | 5,268 | 7.11 | % | |||||
Due after ten years | 19,930 | 7.10 | % | |||||
MBS | 106,939 | 4.62 | % | |||||
Total HTM Securities | $ | 159,085 | 4.81 | % |
The following tables show gross unrealized losses, fair value, and length of time that individual HTM investment securities have been in a continuous unrealized loss position at the dates indicated.
March 31, 2024 | ||||||||||||||||||||||||
Less than 12 Months | 12 Months or More | Total | ||||||||||||||||||||||
Dollars in thousands | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | ||||||||||||||||||
US Treasury Bonds | $ | — | $ | — | $ | 23,655 | $ | (249 | ) | $ | 23,655 | $ | (249 | ) | ||||||||||
FHLB Bond | 998 | (2 | ) | — | — | 998 | (2 | ) | ||||||||||||||||
Taxable Municipal Bonds | — | — | 933 | (32 | ) | 933 | (32 | ) | ||||||||||||||||
MBS | 3,023 | (44 | ) | 56,505 | (4,975 | ) | 59,528 | (5,019 | ) | |||||||||||||||
| $ | 4,021 | $ | (46 | ) | $ | 81,093 | $ | (5,256 | ) | $ | 85,114 | $ | (5,302 | ) | ||||||||||
December 31, 2023 | ||||||||||||||||||||||||
Less than 12 Months | 12 Months or More | Total | ||||||||||||||||||||||
Dollars in thousands | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | ||||||||||||||||||
US Treasury Bonds | $ | — | $ | — | $ | 23,596 | $ | (278 | ) | $ | 23,596 | $ | (278 | ) | ||||||||||
Taxable Municipal Bonds | — | — | 934 | (28 | ) | 934 | (28 | ) | ||||||||||||||||
MBS | 40,732 | (458 | ) | 58,731 | (4,635 | ) | 99,463 | (5,093 | ) | |||||||||||||||
| $ | 40,732 | $ | (458 | ) | $ | 83,261 | $ | (4,941 | ) | $ | 123,993 | $ | (5,399 | ) | ||||||||||
At March 31, 2024 and December 31, 2023, 49 and 55 individual HTM securities were in a loss position, including 43 and 42 securities that were in a loss position for greater than 12 months, respectively. The Company believes, based on industry analyst reports and credit ratings, that the deterioration in value was attributable to changes in market interest rates and was not in the credit quality of the issuer. The Company has the ability and intent to hold these securities to maturity.
The estimate of expected credit losses on HTM securities is primarily based on the ratings assigned to the securities by debt rating agencies and the average of the annual historical loss rates associated with those ratings. The Company then multiplies those loss rates, as adjusted for any modifications to reflect current conditions and reasonable and supportable forecasts as considered necessary, by the remaining lives of each individual security to arrive at a lifetime expected loss amount. Additionally, private label collateralized mortgage obligation ("CMO")CMO securities which are not explicitly or implicitly guaranteed by the U.S. government are evaluated utilizing underlying pool data such as historical loss rates, loan-to-value ratios and credit enhancement data. See "Note 7 - Investments Held
At March 31, 2024, the Company held an amortized cost and fair value of $14.1 million and $13.8 million in HTM private label CMO securities, compared to Maturity" with regards to the held to maturity portfolio major security types.
Dollars in thousands | Amortized Cost | |||
Taxable Municipal Bond | ||||
AA | $ | 965 | ||
Total Taxable Municipal Bond | $ | 965 | ||
Private Label MBS | ||||
AAA | $ | 7,260 | ||
A | 1,566 | |||
Not Rated | 3,634 | |||
Total Private Label MBS | $ | 12,460 | ||
As of March 31, 2024, there waswere no allowance for credit loss related to the available for sale portfolio.
NOTE 4 - EARNINGS PER SHARE
| Three Months Ended March 31, | |||||||||||||||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||||||||||||||
| Income | Shares | EPS | Income | Shares | EPS | ||||||||||||||||||||||||||||||
| Basic EPS | $ | 2,674,100 | 3,253,112 | $ | 0.82 | $ | 1,549,031 | 3,252,884 | $ | 0.48 | |||||||||||||||||||||||||
| March 31, 2023 | |||||||||||||||||||||||
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||||||||||
| Student Loan Pools | $ | 57,131,715 | $ | 6,090 | $ | 1,303,979 | $ | 55,833,826 | |||||||||||||||
| Small Business Administration (“SBA”) Bonds | 94,018,900 | 508,204 | 2,831,043 | 91,696,061 | |||||||||||||||||||
| Tax Exempt Municipal Bonds | 21,550,469 | 593,719 | 1,224,676 | 20,919,512 | |||||||||||||||||||
| Taxable Municipal Bonds | 64,729,848 | — | 11,794,778 | 52,935,070 | |||||||||||||||||||
| Mortgage-Backed Securities ("MBS") | 350,265,323 | 39,438 | 30,619,157 | 319,685,604 | |||||||||||||||||||
| Total Available For Sale | $ | 587,696,255 | $ | 1,147,451 | $ | 47,773,633 | $ | 541,070,073 | |||||||||||||||
| December 31, 2022 | |||||||||||||||||||||||
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||||||||||
| Student Loan Pools | $ | 60,854,658 | $ | 11,647 | $ | 1,709,323 | $ | 59,156,982 | |||||||||||||||
| SBA Bonds | 102,292,600 | 584,290 | 3,246,923 | 99,629,967 | |||||||||||||||||||
| Tax Exempt Municipal Bonds | 22,536,806 | 405,341 | 1,631,819 | 21,310,328 | |||||||||||||||||||
| Taxable Municipal Bonds | 65,249,883 | — | 14,480,144 | 50,769,739 | |||||||||||||||||||
| MBS | 353,223,361 | 29,861 | 33,971,954 | 319,281,268 | |||||||||||||||||||
| Total Available For Sale | $ | 604,157,308 | $ | 1,031,139 | $ | 55,040,163 | $ | 550,148,284 | |||||||||||||||
| March 31, 2023 | |||||||||||
| Investments AFS: | Amortized Cost | Fair Value | |||||||||
| One Year or Less | $ | 17,789 | $ | 17,640 | |||||||
| After One – Five Years | 4,587,262 | 4,529,933 | |||||||||
| After Five – Ten Years | 74,277,652 | 70,811,848 | |||||||||
| More Than Ten Years | 158,548,229 | 146,025,048 | |||||||||
| MBS AFS | 350,265,323 | 319,685,604 | |||||||||
| Total AFS | $ | 587,696,255 | $ | 541,070,073 | |||||||
| March 31, 2023 | ||||||||||||||||||||||||||
| Less than 12 Months | 12 Months or More | Total | ||||||||||||||||||||||||
| Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | |||||||||||||||||||||
| Student Loan Pools | $ | 6,532,605 | $ | 96,105 | $ | 44,272,894 | $ | 1,207,874 | $ | 50,805,499 | $ | 1,303,979 | ||||||||||||||
| SBA Bonds | 3,627,220 | 18,733 | 44,567,268 | 2,812,310 | 48,194,488 | 2,831,043 | ||||||||||||||||||||
| Tax Exempt Municipal Bonds | 519,710 | 9,017 | 12,819,506 | 1,215,659 | 13,339,216 | 1,224,676 | ||||||||||||||||||||
| Taxable Municipal Bonds | — | — | 52,935,070 | 11,794,778 | 52,935,070 | 11,794,778 | ||||||||||||||||||||
| MBS | 19,109,549 | 801,062 | 298,058,704 | 29,818,095 | 317,168,253 | 30,619,157 | ||||||||||||||||||||
| $ | 29,789,084 | $ | 924,917 | $ | 452,653,442 | $ | 46,848,716 | $ | 482,442,526 | $ | 47,773,633 | |||||||||||||||
| December 31, 2022 | ||||||||||||||||||||||||||
| Less than 12 Months | 12 Months or More | Total | ||||||||||||||||||||||||
| Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | |||||||||||||||||||||
| Student Loan Pools | $ | 24,768,260 | $ | 637,963 | $ | 30,684,124 | $ | 1,071,360 | $ | 55,452,384 | $ | 1,709,323 | ||||||||||||||
| SBA Bonds | 8,403,975 | 120,766 | 45,969,373 | 3,126,157 | 54,373,348 | 3,246,923 | ||||||||||||||||||||
| Tax Exempt Municipal Bonds | 8,050,944 | 718,645 | 4,929,289 | 913,174 | 12,980,233 | 1,631,819 | ||||||||||||||||||||
| Taxable Municipal Bonds | 14,427,796 | 3,196,761 | 36,341,943 | 11,283,383 | 50,769,739 | 14,480,144 | ||||||||||||||||||||
| MBS | 146,016,464 | 11,132,554 | 170,578,059 | 22,839,400 | 316,594,523 | 33,971,954 | ||||||||||||||||||||
| $ | 201,667,439 | $ | 15,806,689 | $ | 288,502,788 | $ | 39,233,474 | $ | 490,170,227 | $ | 55,040,163 | |||||||||||||||
| March 31, 2023 | |||||||||||||||||||||||
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||||||||||
| US Treasury Bonds | $ | 34,600,540 | $ | — | $ | 486,165 | $ | 34,114,375 | |||||||||||||||
| FHLB Bond | 1,000,000 | — | 4,852 | 995,148 | |||||||||||||||||||
| Student Loan Pools | 18,494,187 | 100,836 | 67,488 | 18,527,535 | |||||||||||||||||||
| SBA Bonds | 15,448,896 | 716,125 | — | 16,165,021 | |||||||||||||||||||
| Taxable Municipal Bonds | 954,460 | — | 42,860 | 911,600 | |||||||||||||||||||
| MBS | 109,680,425 | 47,045 | 4,588,424 | 105,139,046 | |||||||||||||||||||
| Total Held To Maturity | $ | 180,178,508 | $ | 864,006 | $ | 5,189,789 | $ | 175,852,725 | |||||||||||||||
| December 31, 2022 | |||||||||||||||||||||||
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||||||||||
| US Treasury Bonds | $ | 34,511,849 | $ | — | $ | 682,198 | $ | 33,829,651 | |||||||||||||||
| FHLB Bond | 1,000,000 | — | 1,360 | 998,640 | |||||||||||||||||||
| Student Loan Pools | 16,387,997 | 88,489 | 59,090 | 16,417,396 | |||||||||||||||||||
| SBA Bonds | 3,521,293 | 162,235 | — | 3,683,528 | |||||||||||||||||||
| Taxable Municipal Bonds | 951,864 | — | 60,134 | 891,730 | |||||||||||||||||||
| MBS | 111,064,613 | 29,194 | 5,451,179 | 105,642,628 | |||||||||||||||||||
| Total HTM | $ | 167,437,616 | $ | 279,918 | $ | 6,253,961 | $ | 161,463,573 | |||||||||||||||
| March 31, 2023 | ||||||||||||||||||||||||||
| Less than 12 Months | 12 Months or More | Total | ||||||||||||||||||||||||
| Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | |||||||||||||||||||||
| US Treasury Bonds | $ | 34,114,375 | $ | 486,165 | $ | — | $ | — | $ | 34,114,375 | $ | 486,165 | ||||||||||||||
| FHLB Bond | 995,148 | 4,852 | — | — | 995,148 | 4,852 | ||||||||||||||||||||
| Student Loan Pools | 4,790,881 | 67,488 | — | — | 4,790,881 | 67,488 | ||||||||||||||||||||
| Taxable Municipal Bonds | 911,600 | 42,860 | — | — | 911,600 | 42,860 | ||||||||||||||||||||
| MBS | 72,819,297 | 2,070,120 | 13,895,073 | 2,518,304 | 86,714,370 | 4,588,424 | ||||||||||||||||||||
| $ | 113,631,301 | $ | 2,671,485 | $ | 13,895,073 | $ | 2,518,304 | $ | 127,526,374 | $ | 5,189,789 | |||||||||||||||
| December 31, 2022 | ||||||||||||||||||||||||||
| Less than 12 Months | 12 Months or More | Total | ||||||||||||||||||||||||
| Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | |||||||||||||||||||||
| US Treasury Bonds | $ | 33,829,651 | $ | 682,198 | $ | — | $ | — | $ | 33,829,651 | $ | 682,198 | ||||||||||||||
| FHLB Bond | 998,640 | 1,360 | — | — | 998,640 | 1,360 | ||||||||||||||||||||
| Student Loan Pools | 6,520,050 | 59,090 | — | — | 6,520,050 | 59,090 | ||||||||||||||||||||
| Taxable Municipal Bonds | 891,730 | 60,134 | — | — | 891,730 | 60,134 | ||||||||||||||||||||
| MBS | 88,351,096 | 3,145,166 | 9,334,438 | 2,306,013 | 97,685,534 | 5,451,179 | ||||||||||||||||||||
| $ | 130,591,167 | $ | 3,947,948 | $ | 9,334,438 | $ | 2,306,013 | $ | 139,925,605 | $ | 6,253,961 | |||||||||||||||
Loans receivable, net, consisted of the following as of the dates indicated below:
| March 31, 2023 | December 31, 2022 | ||||||||||
| Real Estate Loans: | |||||||||||
| Construction | $ | 108,716,018 | $ | 112,793,694 | |||||||
| Residential Mortgage | 131,958,557 | 110,056,973 | |||||||||
| Commercial | 255,314,563 | 252,154,475 | |||||||||
| Commercial and Agricultural Loans | 34,864,923 | 30,647,975 | |||||||||
| Consumer Loans: | |||||||||||
| Home Equity Lines of Credit (HELOC) | 32,017,283 | 31,736,676 | |||||||||
| Other Consumer | 24,185,686 | 23,598,110 | |||||||||
| Total Loans Held for Investment, Gross | 587,057,030 | 560,987,903 | |||||||||
| Less: | |||||||||||
| Allowance for Credit Losses | 12,126,810 | 11,177,753 | |||||||||
| Deferred Loan Fees | 740,511 | 806,238 | |||||||||
| 12,867,321 | 11,983,991 | ||||||||||
| Total Loans Receivable, Net | $ | 574,189,709 | $ | 549,003,912 | |||||||
Dollars in thousands | March 31, 2024 | December 31, 2023 | ||||||
Real Estate Loans: | ||||||||
Construction | $ | 114,769 | $ | 104,508 | ||||
Residential Mortgage | 187,146 | 172,883 | ||||||
Commercial | 267,585 | 264,802 | ||||||
Commercial and Agricultural Loans | 28,919 | 33,286 | ||||||
Consumer Loans: | ||||||||
Home Equity Lines of Credit ("HELOC") | 36,201 | 34,497 | ||||||
Other Consumer | 24,512 | 24,520 | ||||||
Total Loans Held for Investment, Gross | 659,132 | 634,496 | ||||||
Less: | ||||||||
Allowance for Credit Losses | 12,842 | 12,569 | ||||||
Deferred Loan Fees | 387 | 365 | ||||||
| 13,229 | 12,934 | |||||||
Total Loans Receivable, Net | $ | 645,903 | $ | 621,562 |
Credit Quality Indicators
The Company uses acategorizes loans into risk based approachcategories based on relevant information regarding the followingborrowers' ability to pay off their loan in accordance with its terms. This information includes, but is not limited to, current financial and credit quality measures when analyzing the loan portfolio: pass, caution, special mention,documentation, payment history, public information and substandard. These indicatorscurrent economic trends, among other factors. Risk ratings are used to rate the credit quality of loans for the purposes of determining the Company’sBank’s allowance for credit losses. The following definitions are used for credit quality risk ratings:
Pass loans are loans- Loans that are performing and are deemed adequately protected by the net worth of the borrower or the underlying collateral value. These loans are considered to have the least amount of risk in terms of determining the allowance for credit losses.
Caution - Loans that are graded as substandarddo not currently expose the Company to sufficient risk to warrant adverse classification but possess weaknesses.
Special Mention - Loans that do not currently expose the Company to sufficient risk to warrant adverse classification but possess more weaknesses than Caution loans.
Substandard - Loans that are considered to have the most risk. These loans typically have an identified weakness or weaknesses and are inadequately protected by the net worth of the borrower or collateral value. All loans 90 days or more past due are automatically classified in this category. The caution
Doubtful - Loans that have all the weaknesses of Substandard loans and special mention categories fall in between the passthose weaknesses make collection or liquidation highly questionable and substandard gradesimprobable based on current conditions and consistvalues.
Loss - Loans that are considered uncollectible and of loanssuch little values that do their continuance as assets is not currently expose the Company to sufficient risk to warrant adverse classification but possess weaknesses.
The following table presentstables present the Company's recorded investment in loans by credit quality indicators by year of origination as of March 31, 2023.
| Term Loans by Year of Origination | |||||||||||||||||||||||||||||||||||
| Dollars in Thousands | 2023 | 2022 | 2021 | 2020 | 2019 | Prior | Revolving | Total | |||||||||||||||||||||||||||
| Real Estate - Construction | |||||||||||||||||||||||||||||||||||
| Pass | $ | 3,095 | $ | 19,223 | $ | 9,564 | $ | 2,232 | $ | 760 | $ | 40,313 | $ | 4,999 | $ | 80,186 | |||||||||||||||||||
| Caution | 286 | 6,875 | 2,497 | 288 | 431 | 15,645 | — | 26,022 | |||||||||||||||||||||||||||
| Special Mention | — | 30 | 39 | — | — | 1,426 | — | 1,495 | |||||||||||||||||||||||||||
| Substandard | — | — | — | 140 | — | 873 | — | 1,013 | |||||||||||||||||||||||||||
| Total | 3,381 | 26,128 | 12,100 | 2,660 | 1,191 | 58,257 | 4,999 | 108,716 | |||||||||||||||||||||||||||
| Current period gross write-offs | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
| Real Estate - Mortgage | |||||||||||||||||||||||||||||||||||
| Pass | 6,970 | 24,756 | 11,602 | 15,090 | 4,297 | 27,695 | 10,441 | 100,851 | |||||||||||||||||||||||||||
| Caution | 2,754 | 8,559 | 5,016 | 1,609 | 1,606 | 5,501 | 8 | 25,053 | |||||||||||||||||||||||||||
| Special Mention | 1,338 | 159 | 914 | 362 | — | 250 | — | 3,023 | |||||||||||||||||||||||||||
| Substandard | — | — | 206 | 244 | 52 | 2,530 | — | 3,032 | |||||||||||||||||||||||||||
| Total | 11,062 | 33,474 | 17,738 | 17,305 | 5,955 | 35,976 | 10,449 | 131,959 | |||||||||||||||||||||||||||
| Current period gross write-offs | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
| Real Estate - Commercial | |||||||||||||||||||||||||||||||||||
| Pass | 4,380 | 39,104 | 43,477 | 14,467 | 21,036 | 77,045 | 2,112 | 201,621 | |||||||||||||||||||||||||||
| Caution | 1,363 | 3,945 | 3,346 | 6,302 | 7,214 | 20,659 | 100 | 42,929 | |||||||||||||||||||||||||||
| Special Mention | — | 844 | 464 | 792 | 243 | 3,426 | — | 5,769 | |||||||||||||||||||||||||||
| Substandard | — | 72 | 61 | — | — | 4,863 | — | 4,996 | |||||||||||||||||||||||||||
| Total | 5,743 | 43,965 | 47,348 | 21,561 | 28,493 | 105,993 | 2,212 | 255,315 | |||||||||||||||||||||||||||
| Current period gross write-offs | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
| Commercial and Agricultural | |||||||||||||||||||||||||||||||||||
| Pass | 2,010 | 8,074 | 8,882 | 808 | 598 | 3,325 | 3,918 | 27,613 | |||||||||||||||||||||||||||
| Caution | 2,122 | 1,703 | 1,693 | 86 | 25 | 519 | 544 | 6,692 | |||||||||||||||||||||||||||
| Special Mention | 16 | 52 | 90 | 20 | 1 | 105 | — | 284 | |||||||||||||||||||||||||||
| Substandard | — | 24 | 47 | 14 | 15 | 76 | 100 | 276 | |||||||||||||||||||||||||||
| Total | 4,148 | 9,853 | 10,712 | 928 | 639 | 4,025 | 4,562 | 34,865 | |||||||||||||||||||||||||||
| Current period gross write-offs | — | — | 16 | — | — | — | — | 16 | |||||||||||||||||||||||||||
| Home Equity Lines of Credit | |||||||||||||||||||||||||||||||||||
| Pass | — | — | — | — | — | — | 26,274 | 26,274 | |||||||||||||||||||||||||||
| Caution | — | — | — | — | — | — | 4,658 | 4,658 | |||||||||||||||||||||||||||
| Special Mention | — | — | — | — | — | — | 501 | 501 | |||||||||||||||||||||||||||
| Substandard | — | — | — | — | — | — | 584 | 584 | |||||||||||||||||||||||||||
| Total | — | — | — | — | — | — | 32,017 | 32,017 | |||||||||||||||||||||||||||
| Current period gross write-offs | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
| Consumer loans | |||||||||||||||||||||||||||||||||||
| Pass | 2,190 | 5,626 | 2,623 | 1,221 | 357 | 335 | 4,576 | 16,928 | |||||||||||||||||||||||||||
| Caution | 1,080 | 2,957 | 1,355 | 764 | 332 | 89 | 269 | 6,846 | |||||||||||||||||||||||||||
| Special Mention | — | 142 | 22 | — | — | — | 6 | 170 | |||||||||||||||||||||||||||
| Substandard | — | 59 | 84 | 53 | 31 | 10 | 5 | 242 | |||||||||||||||||||||||||||
| Total | 3,270 | 8,784 | 4,084 | 2,038 | 720 | 434 | 4,856 | 24,186 | |||||||||||||||||||||||||||
| Current period gross write-offs | — | 10 | — | — | — | — | 25 | 35 | |||||||||||||||||||||||||||
| Total Loans | $ | 27,604 | $ | 122,204 | $ | 91,982 | $ | 44,492 | $ | 36,998 | $ | 204,685 | $ | 59,095 | $ | 587,058 | |||||||||||||||||||
| March 31, 2024 | ||||||||||||||||||||||||||||||||
Term Loans by Year of Origination | ||||||||||||||||||||||||||||||||
Dollars in thousands | 2024 | 2023 | 2022 | 2021 | 2020 | Prior | Revolving | Total | ||||||||||||||||||||||||
Real Estate - Construction | ||||||||||||||||||||||||||||||||
Pass | $ | 13,423 | $ | 36,314 | $ | 17,113 | $ | 15,269 | $ | 1,476 | $ | 1,946 | $ | 5,413 | $ | 90,954 | ||||||||||||||||
Caution | 1,644 | 4,053 | 12,753 | 571 | 38 | 662 | 316 | 20,037 | ||||||||||||||||||||||||
Special Mention | 36 | — | 28 | — | — | 1,555 | — | 1,619 | ||||||||||||||||||||||||
Substandard | — | 143 | — | 331 | 129 | 1,552 | 4 | 2,159 | ||||||||||||||||||||||||
Total Real Estate - Construction | 15,103 | 40,510 | 29,894 | 16,171 | 1,643 | 5,715 | 5,733 | 114,769 | ||||||||||||||||||||||||
Current Period Gross Write-Offs | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Real Estate - Residential | ||||||||||||||||||||||||||||||||
Pass | 4,783 | 29,442 | 40,601 | 11,319 | 14,015 | 25,737 | 9,651 | 135,548 | ||||||||||||||||||||||||
Caution | 1,861 | 15,588 | 10,808 | 6,277 | 4,547 | 5,473 | 144 | 44,698 | ||||||||||||||||||||||||
Special Mention | 217 | 2,283 | 157 | 426 | 388 | 227 | — | 3,698 | ||||||||||||||||||||||||
Substandard | — | 572 | — | 615 | — | 2,015 | — | 3,202 | ||||||||||||||||||||||||
Total Real Estate - Residential | 6,861 | 47,885 | 51,566 | 18,637 | 18,950 | 33,452 | 9,795 | 187,146 | ||||||||||||||||||||||||
Current Period Gross Write-Offs | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Real Estate - Commercial | ||||||||||||||||||||||||||||||||
Pass | 847 | 18,720 | 47,539 | 51,776 | 16,349 | 68,756 | 4,119 | 208,106 | ||||||||||||||||||||||||
Caution | 352 | 12,173 | 4,161 | 4,587 | 5,139 | 20,741 | 168 | 47,321 | ||||||||||||||||||||||||
Special Mention | — | 211 | 895 | 448 | 406 | 5,415 | — | 7,375 | ||||||||||||||||||||||||
Substandard | — | — | 339 | 55 | — | 4,389 | — | 4,783 | ||||||||||||||||||||||||
Total Real Estate - Commercial | 1,199 | 31,104 | 52,934 | 56,866 | 21,894 | 99,301 | 4,287 | 267,585 | ||||||||||||||||||||||||
Current Period Gross Write-Offs | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Commercial and Agricultural | ||||||||||||||||||||||||||||||||
Pass | 1,190 | 4,471 | 4,510 | 2,759 | 590 | 1,946 | 4,616 | 20,082 | ||||||||||||||||||||||||
Caution | 422 | 3,606 | 1,285 | 1,656 | 29 | 190 | 718 | 7,906 | ||||||||||||||||||||||||
Special Mention | — | 445 | 14 | 23 | 2 | 90 | 100 | 674 | ||||||||||||||||||||||||
Substandard | — | 11 | — | 81 | — | 59 | 106 | 257 | ||||||||||||||||||||||||
Total Commercial and Agricultural | 1,612 | 8,533 | 5,809 | 4,519 | 621 | 2,285 | 5,540 | 28,919 | ||||||||||||||||||||||||
Current Period Gross Write-Offs | — | — | — | — | — | — | 21 | 21 | ||||||||||||||||||||||||
Home Equity Lines of Credit | ||||||||||||||||||||||||||||||||
Pass | — | — | — | — | — | — | 29,581 | 29,581 | ||||||||||||||||||||||||
Caution | — | — | — | — | — | — | 5,695 | 5,695 | ||||||||||||||||||||||||
Special Mention | — | — | — | — | — | — | 351 | 351 | ||||||||||||||||||||||||
Substandard | — | — | — | — | — | — | 574 | 574 | ||||||||||||||||||||||||
Total Home Equity Lines of Credit | — | — | — | — | — | — | 36,201 | 36,201 | ||||||||||||||||||||||||
Current Period Gross Write-Offs | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Other Consumer | ||||||||||||||||||||||||||||||||
Pass | 2,107 | 5,158 | 3,459 | 1,339 | 611 | 179 | 5,115 | 17,968 | ||||||||||||||||||||||||
Caution | 572 | 2,135 | 1,753 | 791 | 395 | 166 | 269 | 6,081 | ||||||||||||||||||||||||
Special Mention | 29 | 72 | 116 | — | — | — | 5 | 222 | ||||||||||||||||||||||||
Substandard | — | 74 | 32 | 79 | 37 | 8 | 11 | 241 | ||||||||||||||||||||||||
Total Other Consumer | 2,708 | 7,439 | 5,360 | 2,209 | 1,043 | 353 | 5,400 | 24,512 | ||||||||||||||||||||||||
Current Period Gross Write-Offs | — | 6 | — | 4 | 6 | 4 | 21 | 41 | ||||||||||||||||||||||||
Total Loans | $ | 27,483 | $ | 135,471 | $ | 145,563 | $ | 98,402 | $ | 44,151 | $ | 141,106 | $ | 66,956 | $ | 659,132 | ||||||||||||||||
Total Current Period Gross Write-Offs | $ | - | $ | 6 | $ | - | $ | 4 | $ | 6 | $ | 4 | $ | 42 | $ | 62 | ||||||||||||||||
December 31, 2023 | ||||||||||||||||||||||||||||||||
Term Loans by Year of Origination | ||||||||||||||||||||||||||||||||
Dollars in thousands | 2023 | 2022 | 2021 | 2020 | 2019 | Prior | Revolving | Total | ||||||||||||||||||||||||
Real Estate - Construction | ||||||||||||||||||||||||||||||||
Pass | $ | 31,811 | $ | 21,125 | $ | 15,431 | $ | 1,518 | $ | 617 | $ | 1,322 | $ | 5,089 | $ | 76,913 | ||||||||||||||||
Caution | 4,073 | 14,381 | 1,192 | 3,148 | 275 | 333 | 150 | 23,552 | ||||||||||||||||||||||||
Special Mention | — | 29 | — | — | 1,072 | 457 | — | 1,558 | ||||||||||||||||||||||||
Substandard | 143 | 310 | 333 | 133 | 1,474 | 92 | — | 2,485 | ||||||||||||||||||||||||
Total Real Estate - Construction | 36,027 | 35,845 | 16,956 | 4,799 | 3,438 | 2,204 | 5,239 | 104,508 | ||||||||||||||||||||||||
Current Period Gross Write-Offs | — | — | — | — | — | 1 | — | 1 | ||||||||||||||||||||||||
Real Estate - Residential | ||||||||||||||||||||||||||||||||
Pass | 28,352 | 36,426 | 12,290 | 14,164 | 3,991 | 22,239 | 9,708 | 127,170 | ||||||||||||||||||||||||
Caution | 15,050 | 10,397 | 5,954 | 1,497 | 1,546 | 4,134 | 149 | 38,727 | ||||||||||||||||||||||||
Special Mention | 2,291 | 158 | 430 | 394 | — | 190 | — | 3,463 | ||||||||||||||||||||||||
Substandard | 574 | — | 618 | — | 48 | 2,283 | — | 3,523 | ||||||||||||||||||||||||
Total Real Estate - Residential | 46,267 | 46,981 | 19,292 | 16,055 | 5,585 | 28,846 | 9,857 | 172,883 | ||||||||||||||||||||||||
Current Period Gross Write-Offs | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Real Estate - Commercial | ||||||||||||||||||||||||||||||||
Pass | 12,702 | 48,077 | 49,377 | 16,593 | 17,806 | 52,848 | 2,375 | 199,778 | ||||||||||||||||||||||||
Caution | 16,951 | 4,880 | 4,212 | 5,197 | 12,831 | 8,468 | 20 | 52,559 | ||||||||||||||||||||||||
Special Mention | 213 | 900 | 452 | 408 | — | 5,485 | 100 | 7,558 | ||||||||||||||||||||||||
Substandard | — | 342 | 57 | — | — | 4,508 | — | 4,907 | ||||||||||||||||||||||||
Total Real Estate - Commercial | 29,866 | 54,199 | 54,098 | 22,198 | 30,637 | 71,309 | 2,495 | 264,802 | ||||||||||||||||||||||||
Current Period Gross Write-Offs | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Commercial and Agricultural | ||||||||||||||||||||||||||||||||
Pass | 4,763 | 5,991 | 6,672 | 643 | 348 | 2,128 | 4,205 | 24,750 | ||||||||||||||||||||||||
Caution | 3,732 | 1,131 | 1,715 | 67 | 16 | 207 | 816 | 7,684 | ||||||||||||||||||||||||
Special Mention | 458 | 22 | 100 | 9 | 7 | 90 | — | 686 | ||||||||||||||||||||||||
Substandard | — | — | — | 1 | — | 62 | 103 | 166 | ||||||||||||||||||||||||
Total Commercial and Agricultural | 8,953 | 7,144 | 8,487 | 720 | 371 | 2,487 | 5,124 | 33,286 | ||||||||||||||||||||||||
Current Period Gross Write-Offs | — | — | 16 | — | — | — | — | 16 | ||||||||||||||||||||||||
Home Equity Lines of Credit | ||||||||||||||||||||||||||||||||
Pass | — | — | — | — | — | — | 27,192 | 27,192 | ||||||||||||||||||||||||
Caution | — | — | — | — | — | — | 6,290 | 6,290 | ||||||||||||||||||||||||
Special Mention | — | — | — | — | — | — | 401 | 401 | ||||||||||||||||||||||||
Substandard | — | — | — | — | — | — | 614 | 614 | ||||||||||||||||||||||||
Total Home Equity Lines of Credit | — | — | — | — | — | — | 34,497 | 34,497 | ||||||||||||||||||||||||
Current Period Gross Write-Offs | — | — | — | — | — | — | 1 | 1 | ||||||||||||||||||||||||
Other Consumer | ||||||||||||||||||||||||||||||||
Pass | 6,543 | 3,874 | 1,580 | 740 | 190 | 63 | 4,922 | 17,912 | ||||||||||||||||||||||||
Caution | 2,316 | 1,975 | 911 | 468 | 137 | 51 | 295 | 6,153 | ||||||||||||||||||||||||
Special Mention | 77 | 123 | — | — | — | — | 6 | 206 | ||||||||||||||||||||||||
Substandard | 67 | 36 | 73 | 48 | 10 | 6 | 9 | 249 | ||||||||||||||||||||||||
Total Other Consumer | 9,003 | 6,008 | 2,564 | 1,256 | 337 | 120 | 5,232 | 24,520 | ||||||||||||||||||||||||
Current Period Gross Write-Offs | — | 23 | 17 | 17 | — | 11 | 89 | 157 | ||||||||||||||||||||||||
Total Loans | $ | 130,116 | $ | 150,177 | $ | 101,397 | $ | 45,028 | $ | 40,368 | $ | 104,966 | $ | 62,444 | $ | 634,496 | ||||||||||||||||
Total Current Period Gross Write-Offs | $ | - | $ | 23 | $ | 33 | $ | 17 | $ | - | $ | 12 | $ | 90 | $ | 175 | ||||||||||||||||
| December 31, 2022 | Pass | Caution | Special Mention | Substandard | Total Loans | ||||||||||||||||||||||||
| Construction Real Estate | $ | 91,564,058 | $ | 18,837,894 | $ | 2,013,824 | $ | 377,918 | $ | 112,793,694 | |||||||||||||||||||
| Residential Real Estate | 84,028,037 | 22,372,649 | 887,874 | 2,768,413 | 110,056,973 | ||||||||||||||||||||||||
| Commercial Real Estate | 196,063,300 | 47,821,422 | 3,270,916 | 4,998,837 | 252,154,475 | ||||||||||||||||||||||||
| Commercial and Agricultural | 25,383,994 | 4,593,283 | 371,071 | 299,627 | 30,647,975 | ||||||||||||||||||||||||
| Consumer HELOC | 25,693,252 | 5,018,419 | 401,550 | 623,455 | 31,736,676 | ||||||||||||||||||||||||
| Other Consumer | 16,515,206 | 6,725,317 | 178,638 | 178,949 | 23,598,110 | ||||||||||||||||||||||||
| Total | $ | 439,247,847 | $ | 105,368,984 | $ | 7,123,873 | $ | 9,247,199 | $ | 560,987,903 | |||||||||||||||||||
Past Due and Nonaccrual Loans
The tables below present an age analysis of past due balances by loan category at the dates indicated.
| March 31, 2023 | |||||||||||||||||||||||||||||||||||
30-59 Days Past Due | 60-89 Days Past Due | 90 Days or More Past Due | Total Past Due | Current | Total Loans Receivable | ||||||||||||||||||||||||||||||
| Construction Real Estate | $ | 2,848,456 | $ | 421,916 | $ | 205,057 | $ | 3,475,429 | $ | 105,240,589 | $ | 108,716,018 | |||||||||||||||||||||||
| Residential Real Estate | 1,076,722 | 103,930 | 266,093 | 1,446,745 | 130,511,812 | 131,958,557 | |||||||||||||||||||||||||||||
| Commercial Real Estate | 649,004 | 95,678 | 349,906 | 1,094,588 | 254,219,975 | 255,314,563 | |||||||||||||||||||||||||||||
| Commercial and Agricultural | 24,811 | 5,538 | 45,349 | 75,698 | 34,789,225 | 34,864,923 | |||||||||||||||||||||||||||||
| Consumer HELOC | 285,415 | 47,683 | 76,325 | 409,423 | 31,607,860 | 32,017,283 | |||||||||||||||||||||||||||||
| Other Consumer | 183,626 | 58,143 | 27,530 | 269,299 | 23,916,387 | 24,185,686 | |||||||||||||||||||||||||||||
| Total | $ | 5,068,034 | $ | 732,888 | $ | 970,260 | $ | 6,771,182 | $ | 580,285,848 | $ | 587,057,030 | |||||||||||||||||||||||
| December 31, 2022 | |||||||||||||||||||||||||||||||||||
30-59 Days Past Due | 60-89 Days Past Due | 90 Days or More Past Due | Total Past Due | Current | Total Loans Receivable | ||||||||||||||||||||||||||||||
| Construction Real Estate | $ | — | $ | — | $ | 100,472 | $ | 100,472 | $ | 112,693,222 | $ | 112,793,694 | |||||||||||||||||||||||
| Residential Real Estate | 1,557,114 | — | 471,430 | 2,028,544 | 108,028,429 | 110,056,973 | |||||||||||||||||||||||||||||
| Commercial Real Estate | 2,670,997 | 89,342 | 354,406 | 3,114,745 | 249,039,730 | 252,154,475 | |||||||||||||||||||||||||||||
| Commercial and Agricultural | 5,683 | 2,113 | 55,468 | 63,264 | 30,584,711 | 30,647,975 | |||||||||||||||||||||||||||||
| Consumer HELOC | 199,414 | — | 74,159 | 273,573 | 31,463,103 | 31,736,676 | |||||||||||||||||||||||||||||
| Other Consumer | 271,774 | 78,566 | 17,321 | 367,661 | 23,230,449 | 23,598,110 | |||||||||||||||||||||||||||||
| Total | $ | 4,704,982 | $ | 170,021 | $ | 1,073,256 | $ | 5,948,259 | $ | 555,039,644 | $ | 560,987,903 | |||||||||||||||||||||||
March 31, 2024 | ||||||||||||||||||||||||
30-59 Days | 60-89 Days | 90 Days or | Total Loans | |||||||||||||||||||||
Dollars in thousands | Past Due | Past Due | More Past Due | Total Past Due | Current | Receivable | ||||||||||||||||||
Construction Real Estate | $ | 551 | $ | — | $ | 631 | $ | 1,182 | $ | 113,587 | $ | 114,769 | ||||||||||||
Residential Real Estate | 1,381 | 137 | 61 | 1,579 | 185,567 | 187,146 | ||||||||||||||||||
Commercial Real Estate | 262 | 14 | 607 | 883 | 266,702 | 267,585 | ||||||||||||||||||
Commercial and Agricultural | 369 | 59 | 2 | 430 | 28,489 | 28,919 | ||||||||||||||||||
Consumer HELOC | 147 | 97 | 21 | 265 | 35,936 | 36,201 | ||||||||||||||||||
Other Consumer | 162 | 74 | 84 | 320 | 24,192 | 24,512 | ||||||||||||||||||
Total | $ | 2,872 | $ | 381 | $ | 1,406 | $ | 4,659 | $ | 654,473 | $ | 659,132 | ||||||||||||
December 31, 2023 | ||||||||||||||||||||||||
30-59 Days | 60-89 Days | 90 Days or | Total Loans | |||||||||||||||||||||
Dollars in thousands | Past Due | Past Due | More Past Due | Total Past Due | Current | Receivable | ||||||||||||||||||
Construction Real Estate | $ | 971 | $ | — | $ | 643 | $ | 1,614 | $ | 102,894 | $ | 104,508 | ||||||||||||
Residential Real Estate | 1,103 | 47 | 240 | 1,390 | 171,493 | 172,883 | ||||||||||||||||||
Commercial Real Estate | 500 | 519 | 336 | 1,355 | 263,447 | 264,802 | ||||||||||||||||||
Commercial and Agricultural | 81 | 1 | 2 | 84 | 33,202 | 33,286 | ||||||||||||||||||
Consumer HELOC | 347 | 64 | 21 | 432 | 34,065 | 34,497 | ||||||||||||||||||
Other Consumer | 273 | 138 | 46 | 457 | 24,063 | 24,520 | ||||||||||||||||||
Total | $ | 3,275 | $ | 769 | $ | 1,288 | $ | 5,332 | $ | 629,164 | $ | 634,496 | ||||||||||||
At March 31, 20232024 and December 31, 2022,2023, the Company did not have any loans that were 90 days or more past due and still accruing interest. The Company'sOur strategy is to work with itsour borrowers to reach acceptable payment plans while protecting itsour interests in the existing collateral. In the event an acceptable arrangement cannot be reached, the Company we may have to acquire these properties through foreclosure or other means and subsequently sell, develop, or liquidate them.
The following table shows non-accrualnonaccrual loans by category at the dates indicated.
| CECL | Incurred Loss | ||||||||||||||||
| March 31, 2023 | December 31, 2022 | ||||||||||||||||
| Nonaccrual Loans with No Allowance | Nonaccrual Loans with an Allowance | Total Nonaccrual Loans | Nonaccrual Loans | ||||||||||||||
| Construction Real Estate | $ | 217,970 | $ | — | $ | 217,970 | $ | 114,630 | |||||||||
| Residential Real Estate | 1,505,185 | — | 1,505,185 | 1,544,762 | |||||||||||||
| Commercial Real Estate | 4,220,087 | — | 4,220,087 | 4,281,975 | |||||||||||||
| Commercial and Agricultural | 101,142 | — | 101,142 | 112,652 | |||||||||||||
| Consumer HELOC | 188,266 | — | 188,266 | 188,540 | |||||||||||||
| Other Consumer | 35,549 | — | 35,549 | 28,671 | |||||||||||||
| Total Nonaccrual Loans | $ | 6,268,199 | $ | — | $ | 6,268,199 | $ | 6,271,230 | |||||||||
March 31, 2024 | December 31, 2023 | |||||||||||||||||||||||
Nonaccrual Loans | Nonaccrual Loans | Total | Nonaccrual Loans | Nonaccrual Loans | Total | |||||||||||||||||||
Dollars in thousands | with No Allowance | with an Allowance | Nonaccrual Loans | with No Allowance | with an Allowance | Nonaccrual Loans | ||||||||||||||||||
Construction Real Estate | $ | 836 | $ | — | $ | 836 | $ | 868 | $ | — | $ | 868 | ||||||||||||
Residential Real Estate | 1,213 | — | 1,213 | 1,307 | — | 1,307 | ||||||||||||||||||
Commercial Real Estate | 3,989 | — | 3,989 | 4,125 | — | 4,125 | ||||||||||||||||||
Commercial and Agricultural | 73 | — | 73 | 50 | — | 50 | ||||||||||||||||||
Consumer HELOC | 402 | — | 402 | 413 | — | 413 | ||||||||||||||||||
Other Consumer | 122 | — | 122 | 62 | — | 62 | ||||||||||||||||||
Total Nonaccrual Loans | $ | 6,635 | $ | — | $ | 6,635 | $ | 6,825 | $ | — | $ | 6,825 | ||||||||||||
The Company did not recognize any interest income on nonaccrual loans during the three months ended March 31, 2024 and 2023.
The following table represents the accrued interest receivables written off by reversing interest income during the three months ended March 31, 2024 and 2023:
For the Three Months Ended March 31, | ||||||||
Dollars in thousands | 2024 | 2023 | ||||||
Construction Real Estate | $ | — | $ | 3 | ||||
Residential Real Estate | 4 | 1 | ||||||
Commercial Real Estate | 5 | — | ||||||
Commercial and Agricultural | — | 1 | ||||||
Consumer HELOC | — | — | ||||||
Other Consumer | 2 | — | ||||||
Total | $ | 11 | $ | 5 | ||||
Allowance for Credit Losses
The following table showstables show the activity in the allowance for credit losses on loans by category for the three months ended March 31, 2023 under the CECL methodology:
| Three Months Ended March 31, 2023 | |||||||||||||||||||||||
| Real Estate | Consumer | ||||||||||||||||||||||
| Construction | Residential | Commercial | Commercial and Agricultural | HELOC | Other | Total | |||||||||||||||||
| Beginning Balance | $ | 2,323,397 | $ | 2,124,835 | $ | 4,804,282 | $ | 874,092 | $ | 598,807 | $ | 452,340 | $ | 11,177,753 | |||||||||
| Adjustment to allowance for adoption of ASU 2016-13 | 263,737 | 461,879 | (340,492) | 112,452 | 107,548 | 179,070 | 784,194 | ||||||||||||||||
| Provision for credit losses | (245,136) | 477,263 | (204,984) | 154,789 | (56,733) | 39,801 | 165,000 | ||||||||||||||||
| Charge-Offs | — | — | — | (15,880) | — | (34,940) | (50,820) | ||||||||||||||||
| Recoveries | 3,960 | 8,400 | 5,016 | 5,300 | 21,904 | 6,103 | 50,683 | ||||||||||||||||
| Ending Balance | $ | 2,345,958 | $ | 3,072,377 | $ | 4,263,822 | $ | 1,130,753 | $ | 671,526 | $ | 642,374 | $ | 12,126,810 | |||||||||
Three Months Ended March 31, 2024 | ||||||||||||||||||||||||||||
| Real Estate | Commercial and | Consumer | ||||||||||||||||||||||||||
Dollars in thousands | Construction | Residential | Commercial | Agricultural | HELOC | Other | Total | |||||||||||||||||||||
Beginning Balance | $ | 1,828 | $ | 3,551 | $ | 5,052 | $ | 808 | $ | 731 | $ | 599 | $ | 12,569 | ||||||||||||||
Provision for (Reversal of) Credit Losses | 162 | 302 | (120 | ) | (88 | ) | 30 | 14 | 300 | |||||||||||||||||||
Charge-Offs | — | — | — | (21 | ) | — | (41 | ) | (62 | ) | ||||||||||||||||||
Recoveries | — | 1 | — | — | — | 34 | 35 | |||||||||||||||||||||
Ending Balance | $ | 1,990 | $ | 3,854 | $ | 4,932 | $ | 699 | $ | 761 | $ | 606 | $ | 12,842 | ||||||||||||||
Three Months Ended March 31, 2023 | ||||||||||||||||||||||||||||
Real Estate | Commercial and | Consumer | ||||||||||||||||||||||||||
Dollars in thousands | Construction | Residential | Commercial | Agricultural | HELOC | Other | Total | |||||||||||||||||||||
Beginning Balance | $ | 2,323 | $ | 2,125 | $ | 4,804 | $ | 874 | $ | 599 | $ | 452 | $ | 11,177 | ||||||||||||||
Adjustment to Allowance for Credit Loss on Adoption of ASU 2016-13 | 264 | 462 | (340 | ) | 112 | 108 | 179 | 785 | ||||||||||||||||||||
(Reversal of) Provision for Loan Losses | (245 | ) | 477 | (205 | ) | 155 | (57 | ) | 40 | 165 | ||||||||||||||||||
Charge-Offs | — | — | — | (16 | ) | — | (35 | ) | (51 | ) | ||||||||||||||||||
Recoveries | 4 | 8 | 5 | 5 | 22 | 6 | 50 | |||||||||||||||||||||
Ending Balance | $ | 2,346 | $ | 3,072 | $ | 4,264 | $ | 1,130 | $ | 672 | $ | 642 | $ | 12,126 | ||||||||||||||
Allowance for Credit Losses and Collateral Dependent Loans
The Company has certain loans for which repayment is dependent upon the operation or sale of collateral, as the borrower is experiencing financial difficulty. The underlying collateral can vary based upon the type of loan. The following provides more detail about the types of collateral that secure collateral dependent loans:
• | Commercial real estate loans can be secured by either owner occupied commercial real estate or non-owner occupied investment commercial real estate. Typically, owner occupied commercial real estate loans are secured by office buildings, warehouses, manufacturing facilities and other commercial and industrial properties occupied by operating companies. Non-owner occupied commercial real estate loans are generally secured by office buildings and complexes, retail facilities, multifamily complexes, land under development, industrial properties, as well as other commercial or industrial real estate. |
| • | Construction real estate loans are typically secured by commercial and residential lots. | |
| • | Commercial and agricultural business loans are primarily secured by business equipment, furniture and fixtures, inventory and receivables. | |
• | Residential real estate loans are typically secured by first mortgages, and in some cases could be secured by a second mortgage. |
• | Home equity lines of credit are generally secured by second mortgages on residential real estate property. |
• | Consumer loans are generally secured by automobiles, motorcycles, recreational vehicles and other personal property. Some consumer loans are unsecured and have no underlying collateral. |
The following table detailssummarizes the amortized cost of collateral dependent loans:
| Three Months Ended March 31, 2022 | |||||||||||||||||||||||
| Real Estate | Consumer | ||||||||||||||||||||||
| Construction | Residential | Commercial | Commercial and Agricultural | HELOC | Other | Total | |||||||||||||||||
| Beginning Balance | $ | 2,401,196 | $ | 1,663,423 | $ | 4,832,440 | $ | 1,241,828 | $ | 517,512 | $ | 430,765 | $ | 11,087,164 | |||||||||
| Provision for Loan Losses | (73,215) | (44,818) | 81,527 | (22,242) | 35,182 | 23,566 | — | ||||||||||||||||
| Charge-Offs | — | — | — | — | — | (31,871) | (31,871) | ||||||||||||||||
| Recoveries | 8,602 | 9,711 | 18,981 | 23,333 | 2,709 | 10,334 | 73,670 | ||||||||||||||||
| Ending Balance | $ | 2,336,583 | $ | 1,628,316 | $ | 4,932,948 | $ | 1,242,919 | $ | 555,403 | $ | 432,794 | $ | 11,128,963 | |||||||||
| Allowance For Loan Losses | Loans Receivable | ||||||||||||||||||||||
| December 31, 2022 | Individually Evaluated For Impairment | Collectively Evaluated For Impairment | Total | Individually Evaluated For Impairment | Collectively Evaluated For Impairment | Total | |||||||||||||||||
| Construction Real Estate | $ | — | $ | 2,323,397 | $ | 2,323,397 | $ | 114,630 | $ | 112,679,064 | $ | 112,793,694 | |||||||||||
| Residential Real Estate | — | 2,124,835 | 2,124,835 | 1,089,308 | 108,967,665 | 110,056,973 | |||||||||||||||||
| Commercial Real Estate | — | 4,804,282 | 4,804,282 | 4,281,702 | 247,872,773 | 252,154,475 | |||||||||||||||||
| Commercial and Agricultural | — | 874,092 | 874,092 | 31,446 | 30,616,529 | 30,647,975 | |||||||||||||||||
| Consumer HELOC | — | 598,807 | 598,807 | 48,792 | 31,687,884 | 31,736,676 | |||||||||||||||||
| Other Consumer | — | 452,340 | 452,340 | — | 23,598,110 | 23,598,110 | |||||||||||||||||
| Total | $ | — | $ | 11,177,753 | $ | 11,177,753 | $ | 5,565,878 | $ | 555,422,025 | $ | 560,987,903 | |||||||||||
| December 31, 2022 | |||||||||||||||||||||||
| Impaired Loans | Recorded Investment | Unpaid Principal Balance | Related Allowance | ||||||||||||||||||||
| Construction Real Estate | $ | 114,630 | $ | 114,630 | $ | — | |||||||||||||||||
| Residential Real Estate | 1,089,308 | 1,626,308 | — | ||||||||||||||||||||
| Commercial Real Estate | 4,281,702 | 4,281,702 | — | ||||||||||||||||||||
| Commercial and Agricultural | 31,446 | 926,446 | — | ||||||||||||||||||||
| Consumer HELOC | 48,792 | 48,792 | — | ||||||||||||||||||||
| Other Consumer | — | — | — | ||||||||||||||||||||
| Total | $ | 5,565,878 | $ | 6,997,878 | $ | — | |||||||||||||||||
Recognized | |||||||||||||||||
Dollars in thousands | March 31, 2024 | December 31, 2023 | |||||
Construction Real Estate | $ | 631 | $ | 643 | |||
Residential Real Estate | 416 | 668 | |||||
Commercial Real Estate | 3,746 | 3,567 | |||||
Commercial and Agricultural | — | — | |||||
Consumer HELOC | 322 | 332 | |||||
Total Loans | $ | 5,115 | $ | 5,210 | |||
Modifications to Borrowers Experiencing Financial Difficulty
The allowance for credit losses incorporates an estimate of lifetime expected credit losses and is recorded on each asset upon asset origination or acquisition. The starting point for the estimate of the allowance for credit losses is historical loss information, which includes losses from modifications of receivables to borrowers experiencing financial difficulty. An assessment of whether a borrower is experiencing financial difficulty is made on the date of a modification.
Loan modifications made tofor borrowers experiencing financial difficulty istypically have their impact already included infactored into the allowance for credit losses because oflosses. This is due to the measurement methodologies used to estimatein estimating the allowance,allowance. Consequently, a change to the allowance for credit losses is generally not recorded upon modification. Occasionally, the Company modifies loans by providing principal forgiveness on certain of its real estate loans. When principal forgiveness is provided, the amortized cost basis of the asset is written off against the allowance for credit losses. The amount of the principal forgiveness is deemed to be uncollectible; therefore, that portion of the loan is written off, resulting in a reduction of the amortized cost basis and a corresponding adjustment to the allowance for credit losses.
In some cases, the Company will modify a certain loan by providing multiple types of concessions. Typically, one type of concession, such as a term extension, is granted initially. If the borrower continues to experience financial difficulty, another concession, such as principal forgiveness, may be granted. As such multiple types of modifications may have been made on the same loan within the current reporting period each much be reported. The combination is at least two of the following: a term extension, principal forgiveness, and interest rate reduction.
As of March 31, 2023 2024 and 2022,2023, there were no loans modified with borrowers experiencing financial difficulty for which there was a payment default within 12 months of the restructuring date. The Company considers any loan 30 days or more past due to be in default.
Allowance for Credit Losses - Unfunded Commitments
The Company maintains an allowance for off-balance sheetcredit losses - unfunded commitments for credit exposures such as unfunded balances for existing lines of credit and commitments to extend future credit, as well as both standby and commercial letters of credit when there is a contractual obligation to extend credit and when this extension of credit is not unconditionally cancellable (i.e., commitment cannot be canceled at any time). The allowance for off-balance sheet credit exposureslosses - unfunded commitments is adjusted as athrough the provision for (reversal of) credit loss expense.losses. The estimate includes consideration of the likelihood that funding will occur, which is based on a historical funding study derived from internal information, and an estimate of expected credit losses on commitments expected to be funded over its estimated life, which are the same loss rates that are used in computing the allowance for credit losses on loans, and are discussed in this Note 8.loans. The allowance for credit losses for- unfunded loan commitments of $1.0 million$894,000 and $0$859,000 at March 31, 20232024 and December 31, 2022,2023, respectively, is separately classified on the balance sheet within "Other Liabilities."
The following table presentstables present the balance and activity in the allowance for credit losses for- unfunded loan commitments for the three months ended March 31, 2024 and 2023.
For the Three Months Ended March 31, | ||||||||
Allowance for Credit Losses - Unfunded Commitments (Dollars in thousands) | 2024 | 2023 | ||||||
Beginning Balance | $ | 859 | $ | — | ||||
Adjustment for adoption of ASU 2016-13 | - | 1,214 | ||||||
Provision (reversal of provision) for unfunded commitments | 35 | (165 | ) | |||||
Ending Balance | $ | 894 | $ | 1,049 | ||||
NOTE 9 - DEPOSITS
Deposits outstanding at the dates indicated are summarized below by account type as follows:
| Deposit Account Type | March 31, 2023 | December 31, 2022 | ||||||||||||
| Checking | $ | 474,947,532 | $ | 510,983,509 | ||||||||||
| Money Market | 348,562,043 | 348,833,623 | ||||||||||||
| Savings | 102,392,660 | 108,237,098 | ||||||||||||
| Certificates of Deposit | 182,771,274 | 142,031,066 | ||||||||||||
| Total | $ | 1,108,673,509 | $ | 1,110,085,296 | ||||||||||
Deposit Account Type (Dollars in thousands) | March 31, 2024 | December 31, 2023 | ||||||
Checking | $ | 448,422 | $ | 473,936 | ||||
Money Market | 428,751 | 401,992 | ||||||
Savings | 88,130 | 88,319 | ||||||
Certificates of Deposit | 240,576 | 230,750 | ||||||
Total | $ | 1,205,879 | $ | 1,194,997 | ||||
The BankCompany had $5.2 million and $5.0 million in brokered deposits, which are included in checking and money market deposits above, at March 31, 20232024 and December 31, 2022. In addition, the Bank had $6.0 million2023, respectively, and $6.0$6.5 million in brokered time deposits,certificates of deposit at both March 31, 2024 and $68,000December 31, 2023. In addition, $246,000 and $98,000,$57,000, in deposit account overdrafts that were reclassified to loans at March 31, 20232024 and December 31, 2022,2023, respectively.
Certificates of deposits that met or exceeded the FDIC insurance limit of $250,000$250,000 were $49.1$58.5 million and $30.3$50.2 million at March 31, 20232024 and December 31, 2022,2023, respectively. All deposits that met or exceeded the FDIC insurance limit totaled $310.2$332.6 million and $350.1$327.7 million at March 31, 20232024 and December 31, 2022,2023, respectively.
The amounts and scheduled maturities of all certificates of deposit at the dates indicated were as follows:
Dollars in thousands | March 31, 2024 | December 31, 2023 | ||||||
Within 1 Year | $ | 200,101 | $ | 198,325 | ||||
After 1 Year, Within 2 Years | 25,743 | 16,568 | ||||||
After 2 Years, Within 3 Years | 7,812 | 9,487 | ||||||
After 3 Years, Within 4 Years | 2,284 | 2,636 | ||||||
After 4 Years, Within 5 Years | 4,636 | 3,734 | ||||||
Total Certificates of Deposit | $ | 240,576 | $ | 230,750 |
| March 31, 2023 | December 31, 2022 | ||||||||||
| Within 1 Year | $ | 133,984,928 | $ | 97,163,169 | |||||||
| After 1 Year, Within 2 Years | 36,761,162 | 31,550,543 | |||||||||
| After 2 Years, Within 3 Years | 6,189,086 | 6,465,582 | |||||||||
| After 3 Years, Within 4 Years | 2,680,079 | 3,177,916 | |||||||||
| After 4 Years, Within 5 Years | 3,156,019 | 3,673,856 | |||||||||
| Total Certificates of Deposit | $ | 182,771,274 | $ | 142,031,066 | |||||||
NOTE 10 - BORROWINGS
The Company had $27.8$74.2 million in outstanding borrowings under the Federal Reserve Bank Term Funding Program (“BTFP”) with a weighted average borrowing rate of 4.88% at March 31, 2024 compared to $119.2 million in outstanding borrowings under the BTFP with a weighted average borrowing rate of 4.60% at December 31, 2023. During the first quarter of 2023, the Company elected to participate in the BTFP, allowing the Company to refinance its existing borrowings from the FRB discount window to receive a lower fixed rate. Advances made under the BTFP were for up to one year and were extended at the one year overnight index swap ("OIS") rate as of the day the advance is made plus 10 basis points. The interest rate was fixed for the term of the advance on the day the advance is made. To determine the rate, the BTFP uses the fixed OIS rate based on the effective federal funds rate for a one-year maturity. Effective January 24, 2024, the FRB announced that future advances under the BTFP through its expiration on March 11, 2024, would be no lower than the interest rate on reserve balances in effect on the date the advance is made. Depository institutions may borrow from the FRB discount window for periods as long as 90 days, and borrowings are prepayable and renewable by the borrower daily. At March 31, 2024, the Company had pledged as collateral for these borrowings investment securities with an amortized cost and fair value of $369.7 million and $27.6$340.2 million, compared to an amortized cost and fair value of $381.0 million and $350.6 million at December 31, 2023, respectively.
During the third quarter of 2023, the Company entered the FRB’s Borrower-In-Custody ("BIC") program, which allows for the pledging of various loan types to secure FRB borrowings. As of March 31, 2024, the Company had pledged loan collateral for FRB borrowings with an amortized cost and collateral value of $91.6 million and $67.1 million at March 31, 2024, and $93.5 million and $65.5 million at December 31, 2023, respectively. The Company had no borrowings outstanding under the BIC program at March 31, 2024.
The Company had $19.5 million and $19.2 million in other borrowings at March 31, 20232024 and December 31, 2022,2023, respectively. These borrowings consist of short-term repurchase agreements with certain commercial demand deposit customers for sweep accounts. The repurchase agreements typically mature within one to three days and the interest rate paid on these borrowings floats monthly with money market type rates. The interest rate paid on the repurchase agreements was 1.39%1.49% at March 31, 2023 compared to 0.75% at 2024 and December 31, 2022.2023. Collateral pledged by the Company for these repurchase agreements consisted of investments with a combined amortized cost and fair value of $53.0$43.2 million and $50.3$40.7 million at March 31, 20232024, and $52.3$53.6 million and $49.8$44.1 million at December 31, 2022,2023, respectively.
The Company had $61.4 million in outstanding borrowings under the BTFP with a weighted average borrowing rate of 4.39% at March 31, 2023 compared to $44.1 million in borrowings from the discount window of the Federal Reserve Bank of Atlanta at with a weighted average borrowing rate of 4.50% at December 31, 2022. Depository institutions may borrow from the discount window for periods as long as 90 days, and borrowings are prepayable and renewable by the borrower on a daily basis. At March 31, 2023, the Company had pledged as collateral for these borrowings investment securities with an amortized cost and fair value of $169.5 million and $157.3 million, compared to an amortized cost and fair value of $72.6 million and $69.2 million, respectively, at December 31, 2022, respectively.
NOTE 11 - SUBORDINATED DEBENTURES
Junior Subordinated Debentures
In September 2006, Security Federal Statutory Trust (the "Trust"), issued and sold fixed and floating rate capital securities of the Trust (the “Capital Securities”). The Trust used the net proceeds from the sale of the Capital Securities to purchase a like amount of junior subordinated debentures (the “Debentures”) of the Company which are reported on the Consolidated Balance Sheets as junior subordinated debentures. TheAs a result of the discontinuation of LIBOR, effective June 30, 2023, the Capital Securities accruetransitioned from its floating rate of three month LIBOR plus 170 basis points to a replacement floating rate of three month Secured Overnight Financing Rate ("SOFR") as adjusted by the relevant spread adjustment of 0.26161 plus 170 basis points. At March 31, 2024, this was a rate per annum equal to 7.29%. As of December 31, 2023, the Capital Securities accrued and paypaid distributions at a floating rate of three month LIBOR plus 170 basis points annually which was a rate per annum equal to 6.57% at March 31, 2023 compared to 6.47% at December 31, 2022. 7.35%.
The distribution rate payable on the Capital Securities is cumulative and payable quarterly in arrears. The Capital Securities mature or are mandatorily redeemable upon maturity on December 15, 2036, or upon earlier optional redemption as provided in the indenture. The Company has had the right to redeem the Capital Securities in whole or in part since September 15, 2011.
Subordinated Debentures
In November 2019, the Company sold and issued to certain institutional investors $17.5 million in aggregate principal amount of 5.25% fixed-to-floating rate subordinated notes due 2029 (the “10-Year“10-Year Notes”) and $12.5 million in aggregate principal amount of 5.25% fixed-to-floating rate subordinated notes due 2034 (the “15-Year“15-Year Notes”, and together with the 10-Year10-Year Notes, the “Notes”).
The 10-Year10-Year Notes have a stated maturity of November 22, 2029, and bear interest at a fixed rate of 5.25% per year, from and including November 22, 2019 but excluding November 22, 2024. FromIn accordance with the terms of the 10-Year Notes, from and including November 22, 2024 to but excluding the maturity date or early redemption date, the interest rate on the 10-Year Notes shall reset semi-annually to an interest rate equal to the then-current three-monththree-month LIBOR rate plus 369 basis points.
The 15-Year15-Year Notes have a stated maturity of November 22, 2034, and bear interest at a fixed rate of 5.25% per year, from and including November 22, 2019 but excluding November 22, 2029. FromIn accordance with the terms of the 15-Year Notes, from and including November 22, 2029 to but excluding the maturity date or early redemption date, the interest rate foron the 15-Year15-Year Notes shall reset semi-annually to an interest rate equal to the then-current three-monththree-month LIBOR rate plus 357 basis points. The Notes are payable semi-annually in arrears on
As a result of the discontinuation of LIBOR effective June 1 and December 1 of each year commencing June 1, 2020.
The Notes are payable semi-annually in arrears on June 1 and December 1 of each year commencing June 1, 2020.
The Notes are not subject to redemption at the option of the holder and may be redeemed by the Company only under certain limited circumstances prior to November 22, 2024, with respect to the 10-Year10-Year Notes, and November 22, 2029, with respect to the 15-Year15-Year Notes. The Company may redeem the 10-Year10-Year Notes and the 15-Year15-Year Notes at its option, in whole at any time, or in part from time to time, after November 22, 2024 and November 22, 2029, respectively. The Notes are unsecured, subordinated obligations of the Company and rank junior in right to payment to the Company’s current and future senior indebtedness, and each Note is equal in right to payment with respect to the other Notes.
The Notes have been structured to qualify as Tier 2 capital for the Company under applicable regulatory guidelines. The Company used the net proceeds from the sale of the Notes to fund the redemption of the convertible senior debentures and for general corporate purposes to support future growth.
During the year ended December 31, 2022 the Company repurchased $1.0 million in principal of the 10-Year10-Year Notes and $2.5 million in principal of the 15-Year15-Year Notes, leaving an aggregate remaining principal balance of $16.5 million and $10.0 million, respectively.
NOTE 12 - REGULATORY MATTERS
The Bank, as a state-chartered, federally insured savings bank, is subject to the capital requirements established by the FDIC. Under the FDIC's capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank's assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weighting and other factors.
The Company is a bank holding company registered with the Board of Governors of the Federal Reserve System (the "Federal Reserve").Reserve. Bank holding companies are subject to capital adequacy requirements of the Federal Reserve under the Bank Holding Company Act of 1956, as amended, and the regulations of the Federal Reserve. For a bank holding company with less than $3.0$3.0 billion in assets, the capital guidelines apply on a bank only basis and the Federal Reserve expects the holding company's subsidiary banks to be well-capitalized under the prompt corrective action regulations.
Based on its capital levels at March 31, 2023,2024, the Bank exceeded all regulatory capital requirements as of that date. Consistent with the Bank's goals to operate a sound and profitable organization, it is the Bank's policy to maintain a "well-capitalized" status under the regulatory capital categories of the FDIC. Based on capital levels at March 31, 2023,2024, the Bank was considered to be "well-capitalized" under applicable regulatory requirements. Management monitors the capital levels to provide for current and future business opportunities and to maintain the Bank's "well-capitalized" status.
The tables below provide the Bank’s regulatory capital requirements and actual results at the dates indicated.
| Actual | For Capital Adequacy | To Be "Well-Capitalized" | |||||||||||||||||||||||||||||||||
| Amount | Ratio | Amount | Ratio | Amount | Ratio | ||||||||||||||||||||||||||||||
| March 31, 2023 | (Dollars in Thousands) | ||||||||||||||||||||||||||||||||||
| Tier 1 Risk-Based Core Capital (To Risk Weighted Assets) | $ | 142,406 | 17.9% | $ | 47,863 | 6.0% | $ | 63,817 | 8.0% | ||||||||||||||||||||||||||
| Total Risk-Based Capital (To Risk Weighted Assets) | 152,417 | 19.1% | 63,817 | 8.0% | 79,772 | 10.0% | |||||||||||||||||||||||||||||
| Common Equity Tier 1 Capital (To Risk Weighted Assets) | 142,406 | 17.9% | 35,897 | 4.5% | 51,852 | 6.5% | |||||||||||||||||||||||||||||
| Tier 1 Leverage (Core) Capital (To Adjusted Tangible Assets) | 142,406 | 10.4% | 54,811 | 4.0% | 68,513 | 5.0% | |||||||||||||||||||||||||||||
| December 31, 2022 | |||||||||||||||||||||||||||||||||||
| Tier 1 Risk-Based Core Capital (To Risk Weighted Assets) | $ | 141,452 | 17.8% | $ | 47,714 | 6.0% | $ | 63,619 | 8.0% | ||||||||||||||||||||||||||
| Total Risk-Based Capital (To Risk Weighted Assets) | 151,408 | 19.0% | 63,619 | 8.0% | 79,523 | 10.0% | |||||||||||||||||||||||||||||
| Common Equity Tier 1 Capital (To Risk Weighted Assets) | 141,452 | 17.8% | 35,785 | 4.5% | 51,690 | 6.5% | |||||||||||||||||||||||||||||
| Tier 1 Leverage (Core) Capital (To Adjusted Tangible Assets) | 141,452 | 10.4% | 54,372 | 4.0% | 67,965 | 5.0% | |||||||||||||||||||||||||||||
Actual | For Capital Adequacy | To Be "Well-Capitalized" | ||||||||||||||||||||||
Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||||||||
March 31, 2024 | (Dollars in thousands) | |||||||||||||||||||||||
Tier 1 Risk-Based Core Capital (To Risk Weighted Assets) | $ | 151,693 | 18.0 | % | $ | 50,523 | 6.0 | % | $ | 67,364 | 8.0 | % | ||||||||||||
Total Risk-Based Capital (To Risk Weighted Assets) | 162,258 | 19.3 | % | 67,364 | 8.0 | % | 84,205 | 10.0 | % | |||||||||||||||
Common Equity Tier 1 Capital (To Risk Weighted Assets) | 151,693 | 18.0 | % | 37,892 | 4.5 | % | 54,734 | 6.5 | % | |||||||||||||||
Tier 1 Leverage (Core) Capital (To Adjusted Tangible Assets) | 151,693 | 9.9 | % | 61,213 | 4.0 | % | 76,517 | 5.0 | % | |||||||||||||||
December 31, 2023 | ||||||||||||||||||||||||
Tier 1 Risk-Based Core Capital (To Risk Weighted Assets) | $ | 150,129 | 18.2 | % | $ | 49,391 | 6.0 | % | $ | 65,854 | 8.0 | % | ||||||||||||
Total Risk-Based Capital (To Risk Weighted Assets) | 160,457 | 19.5 | % | 65,854 | 8.0 | % | 82,318 | 10.0 | % | |||||||||||||||
Common Equity Tier 1 Capital (To Risk Weighted Assets) | 150,129 | 18.2 | % | 37,043 | 4.5 | % | 53,506 | 6.5 | % | |||||||||||||||
Tier 1 Leverage (Core) Capital (To Adjusted Tangible Assets) | 150,129 | 9.8 | % | 61,076 | 4.0 | % | 76,345 | 5.0 | % | |||||||||||||||
In addition to the minimum capital requirements, the Bank must maintain a capital conservation buffer, which consists of additional Common Equity Tier 1 capital greater than 2.5% of risk weighted assets above the required minimum levels in order to avoid limitations on paying dividends, repurchasing shares, and paying discretionary bonuses.bonuses. At March 31, 2023,2024, the Bank’s conservation buffer was 11.1%11.3%.
NOTE 13 - FAIR VALUE OF FINANCIAL INSTRUMENTS
GAAP requires the Company to disclose fair value of financial instruments measured at amortized cost on the balance sheet and to measure that fair value using an exit price notion, the price that would be received for an asset or paid to transfer a liability, in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date under current market conditions. Accounting guidance emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, the guidance establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy). The following three levels of inputs may be used to measure fair value:
Level 1 - | |||||
Quoted Market Price in Active Markets Valuation is based upon quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company | |||||
Level 2 - | Significant Other Observable Inputs Valuation is based upon quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates, foreign exchange rates, and yield curves that are observable at commonly quoted intervals. Level 2 assets and liabilities include debt securities with quoted prices that are traded less frequently than exchange-traded instruments, mortgage-backed securities, municipal bonds, corporate debt securities and derivative contracts whose value is determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data. This category generally includes certain derivative contracts. | ||||
Level 3 - | Significant Unobservable Inputs Valuation is generated from model-based techniques that use at least one significant assumption based on unobservable inputs for the asset or liability, which are typically based on an entity’s own assumptions, as there is little, if any, related market activity. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability. | ||||
The following is a description of the valuation methodologies used for assets and liabilities recorded at fair value.
AFS Investment Securities AFS
AFS securities are recordedrecorded at fair value on a recurring basis. At March 31, 2023,2024, the Company’s investment portfolio was comprised of student loan pools, government and agency bonds, MBS issued by government agencies or GSEs, private label CMO securities and municipal securities. Fair value measurement is based upon prices obtained from third party pricing services that use independent pricing models which rely on a variety of factors including reported trades, broker/dealer quotes, benchmark yields, economic and industry events and other relevant market information. As a result, these securities are classified as Level 2.
Mortgage Loans Held for Sale
The Company originates fixed rate residential loans on a servicing released basis in the secondary market. Loans closed but not yet settled with the FHLMC or other investors are carried in the Company’s loans held for sale portfolio. These loans are fixed rate residential loans that have been originated in the Company’s name and have closed. Virtually all of these loans have commitments to be purchased by investors and the majority of these loans were locked in by price with the investors on the same day or shortly thereafter that the loan was locked in with the Company’s customers. Therefore, these loans present very little market risk for the Company. The Company usually delivers a commitment to, and receives funding from, the investor within 30 days. Commitments to sell these loans to the investor are considered derivative contracts and are sold to investors on a “best efforts" basis. The Company is not obligated to deliver a loan or pay a penalty if a loan is not delivered to the investor. As a result of the short-term nature of these derivative contracts, the fair value of the mortgage loans held for sale in most cases is the same as the value of the loan amount at its origination
Land Held for Sale
Land held for sale is reported at the lower of the carrying amount or fair value less costs to sell. Fair value is based upon independent market prices, appraised values of the collateral or management’s estimation of the value of the collateral less estimated selling costs. The Company records land held for sale as nonrecurring level Level 3.
Collateral Dependent Loans
The Company does not record loans held for investment at fair value on a recurring basis. However, from time to time, the Company designates individually evaluated loans with higher risk as collateral dependent loans and an allowance for credit losses is established as necessary. Collateral dependent loans are loans for which the repayment is expected to be provided substantially through the operation or sale of the collateral and the borrower is experiencing financial difficulty. These loans do not share common risk characteristics and are not included within the collectively evaluated loans for determining the allowance for credit losses. Under CECL, for collateral dependent loans, the Company has adopted the practical expedient to measure the allowance for credit losses based on the fair value of collateral. The allowance for credit losses is calculated on an individual loan basis based on the shortfall between the fair value of the loan's collateral, which is adjusted for estimated costs to sell, and amortized cost. If the fair value of the collateral exceeds the amortized cost, no allowance is required.
Fair value is estimated using one of the following methods: fair value of the collateral less estimated costs to sell, discounted cash flows, or market value of the loan based on similar debt. The fair value of the collateral less estimated costs to sell is the most frequently used method. Typically, the Company reviews the most recent appraisal and if it is over 24 months old will request a new third party appraisal. Depending on the particular circumstances surrounding the loan, including the location of the collateral, the date of the most recent appraisal and the value of the collateral relative to the recorded investment in the loan, management may order an independent appraisal immediately or, in some instances, may elect to perform an internal analysis. Specifically, as an example, in situations where the collateral on a nonperforming commercial real estate loan is out of the Company’s primary market area, management would typically order an independent appraisal immediately, at the earlier of the date the loan becomes nonperforming or immediately following the determination that the loan is collateral dependent. However, as a second example, on a nonperforming commercial real estate loan where management is familiar with the property and surrounding areas and where the original appraisal value far exceeds the recorded investment in the loan, management may perform an internal analysis whereby the previous appraisal value would be reviewed and adjusted for current conditions including recent sales of similar properties in the area and any other relevant economic trends. These valuations are reviewed at a minimum on a quarterly basis.
Those collateral dependent loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. At March 31, 2023,2024, all collateral dependent loans were evaluated based on the fair value of the collateral. Loans where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy. The Company records collateral dependent loans as nonrecurring Level 3.
Other Real Estate Owned
Fair value adjustments to OREO are recorded at the lower of the carrying amount of the loan or the fair value of the collateral, less selling costs. Any write-downs based on the asset’s fair value at the date of acquisition are charged to the allowance for credit losses. After foreclosure, management periodically performs valuations such that the real estate is carried at the lower of its new cost basis or fair value, net of estimated costs to sell. Foreclosed assets are recorded as nonrecurring Level 3.
The table below presents the balances of assets measured at fair value on a recurring basis were as follows at the dates indicated:
| March 31, 2023 | December 31, 2022 | ||||||||||||||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||||||||||||
| Student Loan Pools | $ | — | $ | 55,833,826 | $ | — | $ | — | $ | 59,156,982 | $ | — | |||||||||||||||||||||||
| SBA Bonds | — | 91,696,061 | — | — | 99,629,967 | — | |||||||||||||||||||||||||||||
| Tax Exempt Municipal Bonds | — | 20,919,512 | — | — | 21,310,328 | — | |||||||||||||||||||||||||||||
| Taxable Municipal Bonds | — | 52,935,070 | — | — | 50,769,739 | — | |||||||||||||||||||||||||||||
| MBS | — | 319,685,604 | — | — | 319,281,268 | — | |||||||||||||||||||||||||||||
| Total | $ | — | $ | 541,070,073 | $ | — | $ | — | $ | 550,148,284 | $ | — | |||||||||||||||||||||||
March 31, 2024 | December 31, 2023 | |||||||||||||||||||||||
Dollars in thousands | Level 1 | Level 2 | Level 3 | Level 1 | Level 2 | Level 3 | ||||||||||||||||||
Student Loan Pools | $ | — | $ | 47,703 | $ | — | $ | — | $ | 50,366 | $ | — | ||||||||||||
SBA Bonds | — | 70,800 | — | — | 76,753 | — | ||||||||||||||||||
Tax Exempt Municipal Bonds | — | 20,035 | — | — | 21,236 | — | ||||||||||||||||||
Taxable Municipal Bonds | — | 52,752 | — | — | 53,115 | — | ||||||||||||||||||
MBS | — | 341,179 | — | — | 336,170 | — | ||||||||||||||||||
Total | $ | — | $ | 532,469 | $ | — | $ | — | $ | 537,640 | $ | — | ||||||||||||
There were no liabilities measured at fair value on a recurring basis at March 31, 20232024 or December 31, 2022.
The Company may be required, from time to time, to measure certain assets at fair value on a nonrecurring basis. These include assets that are measured at the lower of cost or market that were recognized at fair value below cost at the end of the period. The tables below present assets measured at fair value on a nonrecurring basis at the dates indicated, aggregated by the level in the fair value hierarchy within which those measurements fall.
| March 31, 2023 | |||||||||||||||||||||||
| Assets: | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||
| Mortgage Loans Held For Sale | $ | — | $ | 240,841 | $ | — | $ | 240,841 | |||||||||||||||
Collateral Dependent Loans (1) | — | — | 5,579,551 | 5,579,551 | |||||||||||||||||||
| Other Real Estate Owned | — | — | 119,700 | 119,700 | |||||||||||||||||||
| Land Held for Sale | — | — | 1,096,614 | 1,096,614 | |||||||||||||||||||
| Total | $ | — | $ | 240,841 | $ | 6,795,865 | $ | 7,036,706 | |||||||||||||||
| December 31, 2022 | |||||||||||||||||||||||
| Assets: | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||
| Mortgage Loans Held For Sale | $ | — | $ | 913,258 | $ | — | $ | 913,258 | |||||||||||||||
Collateral Dependent Loans (1) | — | — | 5,565,878 | 5,565,878 | |||||||||||||||||||
| Other Real Estate Owned | — | — | 119,700 | 119,700 | |||||||||||||||||||
| Land Held for Sale | — | — | 1,096,614 | 1,096,614 | |||||||||||||||||||
| Total | $ | — | $ | 913,258 | $ | 6,782,192 | $ | 7,695,450 | |||||||||||||||
March 31, 2024 | ||||||||||||||||
Assets (Dollars in thousands): | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Mortgage Loans Held For Sale | $ | — | $ | 104 | $ | — | $ | 104 | ||||||||
Collateral Dependent Loans | — | — | 5,115 | 5,115 | ||||||||||||
Land Held for Sale | — | — | 938 | 938 | ||||||||||||
Total | $ | — | $ | 104 | $ | 6,053 | $ | 6,157 | ||||||||
December 31, 2023 | ||||||||||||||||
Assets (Dollars in thousands): | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Mortgage Loans Held For Sale | $ | — | $ | 967 | $ | — | $ | 967 | ||||||||
Collateral Dependent Loans | — | — | 5,210 | 5,210 | ||||||||||||
Land Held for Sale | — | — | 938 | 938 | ||||||||||||
Total | $ | — | $ | 967 | $ | 6,148 | $ | 7,115 | ||||||||
There were no specific reserves at March 31, 2023 and December 31, 2022.
For Level 3 assets measured at fair value on a recurring or non-recurring basis at the dates indicated, the significant unobservable inputs used in the fair value measurements were as follows:
Range of Inputs | |||||||
Level 3 Assets | Valuation Technique | Significant Unobservable Inputs | March 31, 2024 | December 31, 2023 | |||
| Land Held for Sale | Appraised Value/Comparable Sales | Discounts to appraised values for estimated holding or selling costs | 10% | 10% | |||
Collateral Dependent Loans | Appraised Value | Discounts to appraised values for estimated holding and/or selling costs or age of appraisal | 10% | - | 12% | 10% - 12% | |
| Range of Inputs | |||||||||||||||||
| Level 3 Assets | Valuation Technique | Significant Unobservable Inputs | March 31, 2023 | December 31, 2022 | |||||||||||||
| Land Held for Sale | Appraised Value/Comparable Sales | Discounts to appraised values for estimated holding or selling costs | 10% | 10% | |||||||||||||
| Collateral Dependent Loans | Appraised Value | Discounts to appraised values for estimated holding and/or selling costs or age of appraisal | 8% - 13% | 8% - 13% | |||||||||||||
| Other Real Estate Owned | Appraised Value/Comparable Sales | Discounts to appraised values for estimated holding or selling costs | 30% | 30% | |||||||||||||
For assets and liabilities not presented on the balance sheet at fair value, the following methods are used to determine fair value:
Cash and Cash Equivalents
—The carrying amount of these financial instruments approximates fair value. All mature within 90 days and do not present unanticipated credit concerns.Certificates of Deposit with Other Banks
—Fair value is based on market prices for similar assets.HTM Securities—HTM
Loans Receivable, Net
—The fair value of loans is estimated using an exit price notion. The exit price notion uses a discounted cash flows technique to calculate the present value of expected future cash flows for a financial instrument andFHLB Stock
—The fair value approximates the carrying value.Deposits
—The fair value of demand deposits, savings accounts, and money market accounts is the amount payable on demand at the reporting date. The fair value of fixed-maturity certificates of deposits is estimated by discounting the future cash flows using rates currently offered for deposits of similar remaining maturities.FHLB Advances and Borrowings from the FRB
—Fair value is estimated using discounted cash flows with current market rates for borrowings with similar terms. The Company had no outstanding FHLB advances as of March 31,Other Borrowed Money
—The carrying value of these short term borrowings approximates fair value.Subordinated Debentures
—The fair value is estimated by discounting the future cash flows using the current rates at which similar debenture offerings with similar terms and maturities would be issued by similar institutions. As discount rates are based on current debenture rates as well as management estimates, the fair values presented may not be indicative of the value negotiated in an actual sale.Junior Subordinated Debentures
—The carrying value of junior subordinated debentures approximates fair value.The following tables provide a summary of the carrying value and estimated fair value of the Company’s financial instruments at the dates indicated presented in accordance with the applicable accounting guidance.
| March 31, 2023 | Carrying | Fair Value | |||||||||||||||||||||
| Amount | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||
| Financial Assets: | Dollars in thousands | ||||||||||||||||||||||
| Cash and Cash Equivalents | $ | 24,719 | $ | 24,719 | $ | — | $ | — | |||||||||||||||
| Certificates of Deposits with Other Banks | 1,100 | — | 1,100 | — | |||||||||||||||||||
| Investment Securities AFS | 541,070 | — | 541,070 | — | |||||||||||||||||||
| Investment Securities HTM | 180,179 | — | 175,853 | — | |||||||||||||||||||
| Loans Receivable, Net | 574,190 | — | — | 557,843 | |||||||||||||||||||
| FHLB Stock | 659 | 659 | — | — | |||||||||||||||||||
| Land Held for Sale | 1,097 | — | — | 1,097 | |||||||||||||||||||
| Financial Liabilities: | |||||||||||||||||||||||
| Deposits: | |||||||||||||||||||||||
| Checking, Savings & Money Market Accounts | $ | 925,902 | $ | 925,902 | $ | — | $ | — | |||||||||||||||
| Certificates of Deposits | 182,771 | — | 179,810 | — | |||||||||||||||||||
| Borrowings from FRB | 61,375 | 61,191 | — | — | |||||||||||||||||||
| Other Borrowed Money | 27,818 | 27,818 | — | — | |||||||||||||||||||
| Subordinated Debentures | 26,500 | — | 24,135 | — | |||||||||||||||||||
| Junior Subordinated Debentures | 5,155 | — | 5,155 | — | |||||||||||||||||||
March 31, 2024 | Carrying | Fair Value | ||||||||||||||||||
Amount | Total | Level 1 | Level 2 | Level 3 | ||||||||||||||||
Financial Assets: | (Dollars in thousands) | |||||||||||||||||||
Cash and Cash Equivalents | $ | 92,775 | $ | 92,775 | $ | 92,775 | $ | — | $ | — | ||||||||||
Certificates of Deposits with Other Banks | 2,350 | 2,350 | — | 2,350 | — | |||||||||||||||
AFS Securities | 532,469 | 532,469 | — | 532,469 | — | |||||||||||||||
HTM Securities | 159,085 | 154,938 | — | 154,938 | — | |||||||||||||||
Loans Receivable, Net | 645,903 | 630,093 | — | — | 630,093 | |||||||||||||||
FHLB Stock | 1,041 | 1,041 | 1,041 | — | — | |||||||||||||||
Financial Liabilities: | ||||||||||||||||||||
Deposits: | ||||||||||||||||||||
Checking, Savings & Money Market Accounts | $ | 965,303 | $ | 965,303 | $ | 965,303 | $ | — | $ | — | ||||||||||
Certificates of Deposits | 240,576 | 238,946 | — | 238,946 | — | |||||||||||||||
Borrowings from FRB | 74,200 | 73,874 | 73,874 | — | — | |||||||||||||||
Other Borrowed Money | 19,528 | 19,528 | 19,528 | — | — | |||||||||||||||
Subordinated Debentures | 26,500 | 23,432 | — | 23,432 | — | |||||||||||||||
Junior Subordinated Debentures | 5,155 | 5,155 | — | 5,155 | — | |||||||||||||||
| December 31, 2022 | Carrying | Fair Value | |||||||||||||||||||||
| Amount | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||
| Financial Assets: | Dollars in thousands | ||||||||||||||||||||||
| Cash and Cash Equivalents | $ | 28,502 | $ | 28,502 | $ | — | $ | — | |||||||||||||||
| Certificates of Deposits with Other Banks | 1,100 | — | 1,100 | — | |||||||||||||||||||
| Investment Securities AFS | 550,148 | — | 550,148 | — | |||||||||||||||||||
| Investment Securities HTM | 167,438 | — | 161,464 | — | |||||||||||||||||||
| Loans Receivable, Net | 549,917 | — | — | 528,174 | |||||||||||||||||||
| FHLB Stock | 651 | 651 | — | — | |||||||||||||||||||
| Land Held for Sale | 1,097 | — | — | 1,097 | |||||||||||||||||||
| Financial Liabilities: | |||||||||||||||||||||||
| Deposits: | |||||||||||||||||||||||
| Checking, Savings & Money Market Accounts | $ | 968,054 | $ | 968,054 | $ | — | $ | — | |||||||||||||||
| Certificates of Deposits | 142,031 | — | 138,382 | — | |||||||||||||||||||
| Borrowings from FRB | 44,080 | 44,071 | — | — | |||||||||||||||||||
| Other Borrowed Money | 27,588 | 27,588 | — | — | |||||||||||||||||||
| Subordinated Debentures | 26,500 | — | 24,435 | — | |||||||||||||||||||
| Junior Subordinated Debentures | 5,155 | — | 5,155 | — | |||||||||||||||||||
December 31, 2023 | Carrying | Fair Value | ||||||||||||||||||
Amount | Total | Level 1 | Level 2 | Level 3 | ||||||||||||||||
Financial Assets: | (Dollars in thousands) | |||||||||||||||||||
Cash and Cash Equivalents | $ | 128,284 | $ | 128,284 | $ | 128,284 | $ | — | $ | — | ||||||||||
Certificates of Deposits with Other Banks | 2,350 | 2,350 | — | 2,350 | — | |||||||||||||||
AFS Securities | 537,640 | 537,640 | — | 537,640 | — | |||||||||||||||
HTM Securities | 163,072 | 158,540 | — | 158,540 | — | |||||||||||||||
Loans Receivable, Net | 621,562 | 610,410 | — | — | 610,410 | |||||||||||||||
FHLB Stock | 922 | 922 | 922 | — | — | |||||||||||||||
Financial Liabilities: | ||||||||||||||||||||
Deposits: | ||||||||||||||||||||
Checking, Savings & Money Market Accounts | $ | 964,247 | $ | 964,247 | $ | 964,247 | $ | — | $ | — | ||||||||||
Certificates of Deposits | 230,750 | 229,278 | — | 229,278 | — | |||||||||||||||
Borrowings from FRB | 119,200 | 118,926 | 118,926 | — | — | |||||||||||||||
Other Borrowed Money | 19,180 | 19,180 | 19,180 | — | — | |||||||||||||||
Subordinated Debentures | 26,500 | 23,036 | — | 23,036 | — | |||||||||||||||
Junior Subordinated Debentures | 5,155 | 5,155 | — | 5,155 | — | |||||||||||||||
At March 31, 2023,2024, the BankCompany had $165.0$162.9 million in off-balanceoff-balance sheet financial commitments. These commitments are to originate loans and unused consumer lines of credit and credit card lines. Because these obligations are based on current market rates, if funded, the original princip
Because no active market exists for a significant portion of the Bank’sCompany’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, current interest rates and prepayment trends, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in any of these assumptions used in calculating fair value would also significantly affect the estimates. Fair value estimates are based on existing on- and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. For example, the BankCompany has significant assets and liabilities that are not considered financial assets or liabilities including deposit franchise values, loan servicing portfolios, deferred tax liabilities, and premises and equipment.
In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of these estimates. The Company has used management’s best estimate of fair value on the above assumptions. Thus, the fair values presented may not be the amounts which could be realized in an immediate sale or settlement of the instrument. In addition, any income taxes or other expenses that would be incurred in an actual sale or settlement are not taken into consideration in the fair value presented.
NOTE 14 - NON-INTEREST INCOME
Revenue Recognition
The Company only applies the five-stepfive-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of Topic 606, the Company assesses the goods or services that are promised within each contract and identifies those that contain performance obligations, and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.
Service Fees on Deposit Accounts
ATM and Check Card Fee Income
Trust Income
Gains/Losses on OREO Sales
The following table presents the Company's non-interest income for the periods indicated. All of the Company’s revenue from contracts with customers within the scope of ASC 606 is recognized in non-interest income, with the exception ofexcept for gains on the sale of OREO, which are included in non-interest expense when applicable.
Three Months Ended March 31, | ||||||||
Dollars in thousands | 2024 | 2023 | ||||||
Non-interest income: | ||||||||
Gain on Sale of Loans (1) | $ | 131 | $ | 194 | ||||
Service Fees on Deposit Accounts | 319 | 270 | ||||||
Commissions From Insurance Agency (1) | 183 | 163 | ||||||
Trust Income | 522 | 382 | ||||||
BOLI Income (1) | 173 | 150 | ||||||
ATM and Check Card Fee Income | 822 | 802 | ||||||
Other (1) | 171 | 240 | ||||||
Total non-interest income | $ | 2,321 | $ | 2,201 | ||||
(1)Not within the scope of ASC 606 |
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||
| Non-interest income: | |||||||||||||||||||||||
Gain on Sale of Loans (1) | $ | 193,881 | $ | 713,893 | |||||||||||||||||||
| Service Fees on Deposit Accounts | 269,613 | 257,491 | |||||||||||||||||||||
Commissions From Insurance Agency (1) | 162,799 | 139,504 | |||||||||||||||||||||
| Trust Income | 382,208 | 364,746 | |||||||||||||||||||||
BOLI Income (1) | 150,204 | 157,241 | |||||||||||||||||||||
| ATM and Check Card Fee Income | 802,022 | 717,267 | |||||||||||||||||||||
Other (1) | 239,650 | 253,182 | |||||||||||||||||||||
| Total non-interest income | $ | 2,200,377 | $ | 2,603,324 | |||||||||||||||||||
(1) Not within the scope of ASC 606 | |||||||||||||||||||||||
NOTE 15 - LEASES
The Company has operating leases on six of its branches. During the three months ended March 31, 2023,2024, the Company made cash payments in the amount of $128,000$130,000 for operating leases. The lease expense recognized during this period was $128,000$128,000 and was recorded in occupancy expense within the Consolidated Statements of Income. The lease liability had a net decrease of $111,000.$119,000. At March 31, 20232024, the Bank Company had ROU assets of $1.7$1.3 million and a lease liability of $1.8$1.3 million recorded on its consolidated balance sheet compared to ROU assets of $1.9$1.4 million and a lease liability of $1.9$1.4 million at December 31, 2022.2023. The lease agreements have maturity dates ranging from 20232024 through 2028, some of which include options for multiple five or ten year extensions. At March 31, 2023, t2024he, the remaining weighted average lease term was 3.862.94 years and the weighted average discount rate used was 3.2%.
At March 31, 2023, m
Dollars in thousands | ||||
Remainder of 2024 | $ | 392 | ||
2025 | 475 | |||
2026 | 363 | |||
2027 | 148 | |||
2028 | 10 | |||
Total undiscounted lease payments | 1,388 | |||
Less: effect of discounting | (65 | ) | ||
Present value of estimated lease payments (lease liability) | $ | 1,323 | ||
| Remainder of 2023 | $ | 389,688 | |||
| 2024 | 522,147 | ||||
| 2025 | 474,815 | ||||
| 2026 | 363,428 | ||||
| 2027 | 149,301 | ||||
| Thereafter | 10,371 | ||||
| Total undiscounted lease payments | 1,909,750 | ||||
| Less: effect of discounting | (116,161) | ||||
| Present value of estimated lease payments (lease liability) | $ | 1,793,589 | |||
NOTE 16 - PREFERRED STOCK
On May 24, 2022, the Company entered into a Letter Agreement (“Agreement”) with the U.S. Department of Treasury under the Emergency Capital Investment Program (“ECIP”). Established by the Consolidated Appropriations Act, 2021, the ECIP was created to encourage low- and moderate-income community financial institutions and minority depository institutions to provide loans, grants, and forbearance for small businesses, minority-owned businesses, and consumers, especially low-income and underserved communities, including counties with persistent poverty, that may be disproportionately impacted by the economic effect of the COVID-19COVID-19 pandemic by providing direct and indirect capital investments in low- and moderate-income community financial institutions.
Pursuant to the Agreement, the Company agreed to issue and sell 82,949 shares of Preferred Stock for an aggregate purchase price of $82.9 million in cash.
This ECIP investment is treated as tier 1 capital. The Preferred Stock bears no dividend for the first24 months following the investment date. Thereafter, the dividend rate will be adjusted, not higher than 2%, based on the lending growth criteria listed in the Agreement. After the tenth anniversary of the investment date, the dividend rate will be fixed based on the average annual amount of lending in years 2 through 10. Dividends will be payable quarterly in arrears on March 15, June 15, September 15, and December 15.The Preferred Stock may be redeemed at the option of the Company on or after the fifth anniversary of issuance (or earlier in the event of loss of regulatory capital treatment), subject to the approval of the appropriate federal banking regulator and in accordance with the federal banking agencies’ regulatory capital regulations. The Preferred Stock is reported on the Consolidated Balance Sheets as Senior Non-Cumulative Perpetual Preferred Stock, Series ECIP.
NOTE 17 - SUBSEQUENT EVENTS
Subsequent events are events or transactions that occur after the balance sheet date but before financial statements are issued. Recognized subsequent events are events or transactions that provide additional evidence about conditions that existed at the date of the balance sheet, including estimates inherent in the process of preparing financial statements. NonrecognizedNon-recognized subsequent events are events that provide evidence about conditions that did not exist at the date of the balance sheet but arose after that date. Management has reviewed all events occurring through the date the consolidated financial statements were available to be issued and determined that there were no subsequent events requiring accrual or disclosure.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
When we refer to “Security Federal” in this report, we are referring to Security Federal Corporation. When we refer to the “Bank” in this report, we are referring to Security Federal Bank, the wholly owned subsidiary of Security Federal. As used in this report, the terms “we,” “our,” “us,” and “Company” refer to Security Federal Corporation and its consolidated subsidiary, Security Federal Bank, unless the context indicates otherwise.
Forward-Looking Statements and “Safe Harbor”“Safe Harbor” statement under the Private Securities Litigation Reform Act of 1995
Certain matters discussed in this Quarterly Report on Form 10-Q may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to our financial condition, results of operations, plans, objectives, future performance or business. Forward-looking statements are not statements of historical fact, are based on certain assumptions and are generally identified by use of the words "believes," "expects," "anticipates," "estimates," "forecasts," "intends," "plans," "targets," "potentially," "probably," "projects," "outlook" or similar expressions or future or conditional verbs such as "may," "will," "should," "would" and "could." Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, assumptions and statements about, among other things, expectations of the business environment in which we operate, projections of future performance or financial items, perceived opportunities in the market, potential future credit experience, and statements regarding our mission and vision. These forward-looking statements are based upon current management expectations and may, therefore, involve risk and uncertainties. Our actual results, performance, or achievements may differ materially from those suggested, expressed, or implied by forward-looking statements as a result of a wide variety or range of factors, including, but not limited to:
• | potential adverse impacts to economic conditions in our local market areas, other markets where the Company has lending relationships, or other aspects of the Company's business operations or financial markets, including, without limitation, as a result of employment levels, labor shortages and the effects of inflation, a potential recession or slowed economic growth; | ||
| • | changes in the interest rate environment, including the recent increases in the Board of Governors of the Federal Reserve System (the “Federal Reserve”) benchmark rate and duration at which such increased interest rate levels are maintained, which could adversely affect our revenues and expenses, the value of assets and obligations, and the availability and cost of capital and liquidity; |
• | the impact of continuing high inflation and the current and future monetary policies of the Federal Reserve in response thereto; |
• | the effects of any federal government shutdown; |
• | the credit risks of lending activities, including changes in the level and trend of loan delinquencies and write-offs and changes in our allowance for credit losses and provision for credit losses that may be affected by deterioration in the housing and commercial real estate markets which may lead to increased losses and non-performing assets in our loan portfolio, and may result in our allowance for credit losses not being adequate to cover actual losses, and require us to materially increase our allowance for credit losses; |
• | changes in general economic conditions, either nationally or in our market areas; |
• | changes in the levels of general interest rates, and the relative differences between short and long term interest rates, deposit interest rates, our net interest margin and funding sources; |
• | unexpected outflows of uninsured deposits may require us to sell investment securities at a loss; |
• | fluctuations in the demand for loans, the number of unsold homes, land and other properties and fluctuations in real estate values in our market areas; |
• | secondary market conditions for loans and our ability to originate loans for sale and sell loans in the secondary market; |
| • | the impact of bank failures or adverse developments at other banks and related negative press about the banking industry in general on investor and depositor sentiment; |
• | results of examinations of the Federal Reserve and the Bank by the Federal Deposit Insurance Corporation ("FDIC") and the South Carolina State Board of Financial Institutions, or other regulatory authorities, including the possibility that any such regulatory authority may, among other things, require us to increase our reserve for credit losses, write-down assets, change our regulatory capital position or affect our ability to borrow funds or maintain or increase deposits, or impose additional requirements or restrictions on us, any of which could adversely affect our liquidity and earnings; |
• | legislative or regulatory changes that adversely affect our business, including changes in banking, securities and tax law, and in regulatory policies and principles, or the interpretation of regulatory capital or other rules; |
• | our ability to attract and retain deposits; |
• | our ability to control operating costs and expenses; |
• | our ability to implement our business strategies; |
• | the use of estimates in determining the fair value of certain of our assets, which estimates may prove to be incorrect and result in significant declines in valuation; |
• | difficulties in reducing risks associated with the loans on our balance sheet; |
• | staffing fluctuations in response to product demand or the implementation of corporate strategies that affect our workforce and potential associated charges; |
• | disruptions, security breaches, or other adverse events, failures or interruptions in, or attacks on, our information technology systems or on the third-party vendors who perform several of our critical processing; |
• | our ability to attract and retain key members of our senior management team; |
• | costs and effects of litigation, including settlements and judgments; |
• | our ability to manage loan delinquency rates; |
• | increased competitive pressures among financial services companies; |
• | changes in consumer spending, borrowing and savings habits; |
• | the availability of resources to address changes in laws, rules, or regulations or to respond to regulatory actions; |
• | our ability to pay dividends on our common stock; |
• | the quality and composition of our securities portfolio and the impact of any adverse changes in the securities markets; |
• | inability of key third-party providers to perform their obligations to us; |
• | changes in accounting policies and practices, as may be adopted by the financial institution regulatory agencies or the FASB, including additional guidance and interpretation on accounting issues and details of the implementation of new accounting methods; |
• | the effects of climate change, severe weather events, natural disasters, pandemics, epidemics and other public health crises, acts of war or terrorism, civil unrest and other external events on our business; |
• | other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing, products and services; and |
• | other risks described elsewhere in this document and in the Company's other reports filed with or furnished to the Securities and Exchange Commission, including its Annual Report on Form 10-K for the year ended December 31, 2023 (“2023 Form 10-K”). |
Any of the forward-looking statements that we make in this quarterly report on Form 10-Q and in other public reports and statements we make may turn out to be inaccurate as a result of our beliefs and assumptions we make in connection with the factors set forth above or because of other unidentified and unpredictable factors. Because of these and other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements and you should not rely on such statements. The Company undertakes no obligation to publish revised forward-looking statements to reflect the occurrence of unanticipated events or circumstances after the date hereof. These factors could cause our actual results for 20232024 and beyond to differ materially from those expressed in any forward-looking statements by or on behalf of us, and could negatively affect the Company’s consolidated financial condition, consolidated results of operations, liquidity and stock price performance.
| Increase (Decrease) | |||||||||||||||||||||||
| March 31, 2023 | December 31, 2022 | $ | % | ||||||||||||||||||||
| Cash and Cash Equivalents | $ | 24,719,440 | $ | 28,502,364 | $ | (3,782,924) | (13.3) | % | |||||||||||||||
| Certificates of Deposits with Other Banks | 1,100,045 | 1,100,045 | — | — | |||||||||||||||||||
| Investments AFS | 541,070,073 | 550,148,284 | (9,078,211) | (1.7) | |||||||||||||||||||
| Investments HTM | 180,178,508 | 167,437,616 | 12,740,892 | 7.6 | |||||||||||||||||||
| Total Loans Receivable, Net | 574,430,550 | 549,917,170 | 24,513,380 | 4.5 | |||||||||||||||||||
| Accrued Interest Receivable | 5,359,687 | 4,810,674 | 549,013 | 11.4 | |||||||||||||||||||
| OREO | 119,700 | 119,700 | — | — | |||||||||||||||||||
| Operating Lease ROU Assets | 1,747,944 | 1,860,997 | (113,053) | (6.1) | |||||||||||||||||||
| Land Held for Sale | 1,096,614 | 1,096,614 | — | — | |||||||||||||||||||
| Premises and Equipment, Net | 28,674,858 | 27,959,793 | 715,065 | 2.6 | |||||||||||||||||||
| FHLB Stock | 658,600 | 650,600 | 8,000 | 1.2 | |||||||||||||||||||
| BOLI | 27,468,302 | 27,318,098 | 150,204 | 0.5 | |||||||||||||||||||
| Goodwill | 1,199,754 | 1,199,754 | — | — | |||||||||||||||||||
| Other Assets | 18,269,716 | 19,244,454 | (974,738) | (5.1) | |||||||||||||||||||
| Total Assets | $ | 1,406,093,791 | $ | 1,381,366,163 | $ | 24,727,628 | 1.8% | ||||||||||||||||
Increase (Decrease) | ||||||||||||||||
Dollars in thousands | March 31, 2024 | December 31, 2023 | $ | % | ||||||||||||
Cash and Cash Equivalents | $ | 92,775 | $ | 128,284 | $ | (35,509 | ) | (27.7 | )% | |||||||
Certificates of Deposits with Other Banks | 2,350 | 2,350 | — | — | ||||||||||||
AFS Securities | 532,469 | 537,640 | (5,171 | ) | (1.0 | ) | ||||||||||
HTM Securities | 159,085 | 163,072 | (3,987 | ) | (2.4 | ) | ||||||||||
Total Loans Receivable, Net | 646,007 | 622,529 | 23,478 | 3.8 | ||||||||||||
Accrued Interest Receivable | 6,028 | 5,512 | 516 | 9.4 | ||||||||||||
Operating Lease ROU Assets | 1,285 | 1,402 | (117 | ) | (8.3 | ) | ||||||||||
Land Held for Sale | 938 | 938 | — | — | ||||||||||||
Premises and Equipment, Net | 29,713 | 28,637 | 1,076 | 3.8 | ||||||||||||
FHLB Stock | 1,041 | 922 | 119 | 12.9 | ||||||||||||
BOLI | 28,126 | 27,954 | 172 | 0.6 | ||||||||||||
Goodwill | 1,200 | 1,200 | — | — | ||||||||||||
Other Assets | 17,197 | 29,231 | (12,034 | ) | (41.2 | ) | ||||||||||
Total Assets | $ | 1,518,214 | $ | 1,549,671 | $ | (31,457 | ) | (2.0 | )% | |||||||
AFS securities decreased $5.2 million or 1.0%to $180.2$532.5 million at March 31, 20232024 from $167.4$537.6 million at December 31, 2022.
Total loans receivable, net, including loans held for sale, increased $24.5$23.5 million or 4.5%3.8% to $574.4$646.0 million at March 31, 20232024 from $549.9$622.5 million at December 31, 2022,2023, primarily due to an increase in residential mortgage commercial real estate, commercial and agricultural loans originated during the period. All held for investment loan balances increased during the first quarter of 2023 with the exception of constructionthree months ended March 31, 2024, except for commercial and agricultural loans, which decreased $4.1$4.4 million or 3.6%13.1% to $108.7$28.9 million at March 31, 20232024 from $112.8$33.3 million at December 31, 2022.2023. Construction loans increased $10.3 million or 9.8% to $114.8 million at March 31, 2024 from $104.5 million at December 31, 2023. Residential mortgage loans increased $14.3 million or 8.3% to $187.1 million at March 31, 2024 from $172.9 million at December 31, 2023. Commercial real estate loans increased $3.2$2.8 million or 1.3%1.1% to $255.3$267.6 million at March 31, 20232024 from $252.2$264.8 million at December 31, 2022. Residential mortgage loans2023. Consumer home equity lines of credit increased $21.9$1.7 million or 19.9%4.9% to $132.0$36.2 million at March 31, 20232024 from $110.1$34.5 million at December 31, 2022. Consumer HELOC increased $281,000 or 0.9% to $32.0 million at March 31, 2023 from $31.7 million at December 31, 2022.. Other consumer loans increased $588,000 or 2.5% to $24.2remained flat at $24.5 million at March 31, 2023 from $23.6 million at 2024 and December 31, 2022.2023. Loans held for sale decreased $672,000$863,000 or 73.6%600.0% to $241,000$104,000 at March 31, 20232024 from $913,000$967,000 at December 31, 2022.
Premises and equipment, net increased $1.1 million or 3.8% to $29.7 million at March 31, 2024 from $28.6 million at December 31, 2023 as a result of the opening of a new branch which opened in April 2023, as well as improvements made to existing branches.
Other assets decreased $975,000$12.0 million or 5.1%41.2% to $18.3$17.2 million at March 31, 20232024 from $19.2$29.2 million at December 31, 2022. The decrease2023, primarily due to an outstanding receivable on a matured investment security as of December 31, 2023 that was primarily the result of a $1.4 million decrease in net deferred taxes, which was related to decreased unrealized lossesreceived in the investment portfoliofirst quarter of 2024.
Liabilities
Deposit Accounts
Total deposits increased $10.9 million or 0.9% to $1.21 billion at March 31, 2023.
The Bank had $61.4 $74.2 million in borrowings from the Federal Reserve Bank of Atlanta (“FRB”) at March 31, 2023,2024, compared to $44.1$119.2 million at December 31, 20222023. During the first quarter of 2023, the Bank elected to participate in the Federal ReserveReserve's Bank Term Funding Program (“BTFP”) program,, allowing the Bank to refinance its existing FRB borrowings. The Bank also had $27.8$19.5 million in other borrowings at March 31, 2023,2024, compared to $27.6$19.2 million and December 31, 2022,2023, which consisted of short-term repurchase agreements with certain commercial demand deposit customers for sweep accounts. For additional information, see “Note 10 – Borrowings” of the Notes to Consolidated Financial Statements included in Part I. Item 1 of this report.
Results of Operations for the Quarters Ended March 31, 20232024 and 2022
Net income increased $1.1decreased $921,000, or 34.4%, to $1.8 million or 72.6%$0.54 per basic common share for the quarter ended March 31, 2024, compared to $2.7 million or $0.82 per basic common share for the quarter ended March 31, 2023 compared to $1.5 million or $0.48 per basic common share for the quarter ended March 31, 2022.. The increasedecrease in net income was primarily due to an increasethe result of a decrease in net interest income as a result of increased market interest ratescombined with higher provisions for credit losses and to a lesser extent, higher average balances of investments and loans receivable, net. Since March 2022, in response to inflation, the Federal Open Market Committee (“FMOC”) of the Federal Reserve has increased the target range for the federal funds rate by 475 basis points, including 50 basis points during the first quarter of 2023, to a range of 4.75% to 5.00% as of March 31, 2023. As it seeks to control inflation without creating a recession, the FOMC has indicated further increases are may be implemented during calendar 2023.
Net Interest Income
The following table compares detailed average balances, average yields on interest-earning assets, average costs of interest-bearing liabilities and the resulting changes in interest income and expense for the three months ended March 31, 20232024 and 2022.2023. The average balances were derived from the daily balances throughout the periods indicated. The average yields or costs were calculated by dividing the income or expense by the average balance of the corresponding assets or liabilities. Nonaccrual loans are included in earning assets in the following table. Loan yields have been reduced to reflect the negative impact on our earnings of loans on nonaccrual status. Interest income from non-taxable investments is calculated on a tax equivalent basis, which recognizes the income tax savings when comparing taxable and tax-exempt assets and was calculated using the effective tax rate for the quarters ended March 31, 2024 and 2023.
Quarter Ended March 31, | ||||||||||||||||||||||||
2024 | 2023 | |||||||||||||||||||||||
Dollars in thousands | Average Balance | Interest | Yield/ Rate (1) | Average Balance | Interest | Yield/ Rate (1) | ||||||||||||||||||
Interest-Earning Assets: | ||||||||||||||||||||||||
Loans Receivable, Net | $ | 646,395 | $ | 9,560 | 5.92 | % | $ | 570,125 | $ | 7,410 | 5.20 | % | ||||||||||||
Taxable Investments | 678,030 | 7,500 | 4.42 | 698,974 | 6,610 | 3.78 | ||||||||||||||||||
Non-taxable Investments | 20,400 | 178 | 3.50 | 21,087 | 197 | 3.74 | ||||||||||||||||||
Deposits with other Banks | 111,870 | 1,510 | 5.40 | 3,585 | 34 | 3.84 | ||||||||||||||||||
Total Interest-Earning Assets | $ | 1,456,695 | $ | 18,748 | 5.15 | % | $ | 1,293,771 | $ | 14,251 | 4.41 | % | ||||||||||||
Interest-Bearing Liabilities: | ||||||||||||||||||||||||
Checking, Savings & Money Market Accounts | $ | 717,245 | $ | 4,657 | 2.60 | % | $ | 672,122 | $ | 2,293 | 1.36 | % | ||||||||||||
Certificates Accounts | 235,730 | 2,227 | 3.78 | 163,806 | 622 | 1.52 | ||||||||||||||||||
Total Interest-Bearing Deposits | 952,975 | 6,884 | 2.89 | 835,928 | 2,915 | 1.39 | ||||||||||||||||||
Other Borrowings (2) | 134,182 | 1,410 | 4.20 | 77,501 | 627 | 3.24 | ||||||||||||||||||
Junior Subordinated Debentures | 5,155 | 95 | 7.42 | 5,155 | 84 | 6.49 | ||||||||||||||||||
Subordinated Debentures | 26,500 | 348 | 5.25 | 26,500 | 348 | 5.25 | ||||||||||||||||||
Total Interest-Bearing Liabilities | $ | 1,118,812 | $ | 8,737 | 3.12 | % | $ | 945,084 | $ | 3,974 | 1.68 | % | ||||||||||||
Net Interest Rate Spread | 2.03 | % | 2.73 | % | ||||||||||||||||||||
Tax Equivalent Net Interest Income/Margin | $ | 10,011 | 2.75 | % | $ | 10,277 | 3.18 | % | ||||||||||||||||
Less: tax equivalent adjustment | 29 | 34 | ||||||||||||||||||||||
Net Interest Income | $ | 9,982 | $ | 10,243 | ||||||||||||||||||||
(1) | Annualized |
(2) | Includes FRB borrowings and repurchase agreements. |
Net interest income decreased $261,000 or 2.6% to $10.0 million during the quarter ended March 31, 2024, compared to $10.2 million for the same quarter in 2023. During the quarter ended March 31, 2024, average interest-earning assets increased $162.9 million or 12.6% to $1.46 billion from $1.29 billion for the same quarter in 2023, while average interest-bearing liabilities increased $173.7 million or 18.4% to $1.1 billion for the quarter ended March 31, 2024 from $945.1 million for the comparable quarter in 2023. The Company's net interest margin was 2.75% for the quarter ended March 31, 2024 compared to 3.18% for the comparable quarter in 2023. The Company's net interest spread on a tax equivalent basis was 2.03% for the quarter ended March 31, 2024 compared to 2.73% for the quarter ended March 31, 2023 and 2022.
| Quarter Ended March 31, | ||||||||||||||||||||||||||||||||
| 2023 | 2022 | |||||||||||||||||||||||||||||||
| (Dollars in thousands) | Average Balance | Interest | Yield/ Rate (1) | Average Balance | Interest | Yield/ Rate (1) | ||||||||||||||||||||||||||
| Interest-Earning Assets: | ||||||||||||||||||||||||||||||||
| Loans Receivable, Net | $ | 570,125 | $ | 7,410 | 5.20 | % | $ | 516,382 | $ | 6,097 | 4.72 | % | ||||||||||||||||||||
| Taxable Investments | 698,974 | 6,610 | 3.78 | 681,785 | 2,426 | 1.42 | ||||||||||||||||||||||||||
| Non-taxable Investments | 21,087 | 197 | 3.74 | 24,151 | 226 | 3.74 | ||||||||||||||||||||||||||
| Deposits with other Banks | 3,585 | 34 | 3.84 | 2,404 | 2 | 0.37 | ||||||||||||||||||||||||||
| Total Interest-Earning Assets | $ | 1,293,771 | $ | 14,251 | 4.41 | % | $ | 1,224,722 | $ | 8,751 | 2.86 | % | ||||||||||||||||||||
| Interest-Bearing Liabilities: | ||||||||||||||||||||||||||||||||
| Checking, Savings & Money Market Accounts | $ | 672,122 | $ | 2,293 | 1.36 | % | $ | 695,774 | $ | 223 | 0.13 | % | ||||||||||||||||||||
| Certificates Accounts | 163,806 | 622 | 1.52 | 160,215 | 122 | 0.34 | ||||||||||||||||||||||||||
| Total Interest-Bearing Deposits | 835,928 | 2,915 | 1.39 | 855,989 | 345 | 0.16 | ||||||||||||||||||||||||||
Other Borrowings (2) | 77,501 | 627 | 3.24 | 49,356 | 30 | 0.24 | ||||||||||||||||||||||||||
| Junior Subordinated Debentures | 5,155 | 84 | 6.49 | 5,155 | 26 | 2.02 | ||||||||||||||||||||||||||
| Subordinated Debentures | 26,500 | 348 | 5.25 | 30,000 | 394 | 5.25 | ||||||||||||||||||||||||||
| Total Interest-Bearing Liabilities | $ | 945,084 | $ | 3,974 | 1.68 | % | $ | 940,500 | $ | 795 | 0.34 | % | ||||||||||||||||||||
| Net Interest Rate Spread | 2.73 | % | 2.52 | % | ||||||||||||||||||||||||||||
| Tax Equivalent Net Interest Income/Margin | $ | 10,277 | 3.18 | % | $ | 7,956 | 2.60 | % | ||||||||||||||||||||||||
| Less: tax equivalent adjustment | 34 | 51 | ||||||||||||||||||||||||||||||
| Net Interest Income | $ | 10,243 | $ | 7,905 | ||||||||||||||||||||||||||||
Total tax-equivalent interest income increased $2.3$4.5 million or 29.6%31.6% to $10.2$18.7 million duringfor the quarter ended March 31, 2023,2024 compared to $7.9$14.3 million for the same quarterperiod in 2022. During the quarter ended March 31, 2023 average interest-earning assets.
Interest income on loans increased $69.0$2.2 million or 5.6%29.0% to $1.3 billion from $1.2 billion for the same quarter in 2022, while average interest-bearing liabilities increased $4.6 million or 0.5% to $945.1$9.6 million for the quarter ended March 31, 20232024 from $940.5 million for the comparable quarter in 2022. The Company's net interest margin was 3.18% for the quarter ended March 31, 2023 compared to 2.60% for the comparable quarter in 2022. The Company's net interest spread on a tax equivalent basis was 2.73% for the quarter ended March 31, 2023 compared to 2.52% for the quarter ended March 31, 2022.
Interest income from taxable investments increased $4.2 million$890,000 or 172.5%13.5% to $6.6$7.5 million during the quarter ended March 31, 20232024, from $2.4$6.6 million for the first quarter of 2022,2023, due to a $17.2 million increase in the average balance of taxable investments combined with a 23664 basis point increase in the average yield to 3.78%.4.42%, reflecting higher market interest rates, which was partially offset by a $20.9 million decrease in the average balance of taxable investments. Tax equivalent interest income from non-taxable investments decreased $29,000$19,000 to $197,000$178,000 during the quarter ended March 31, 20232024 primarily due to a $687,000 decrease in the average balance of non-taxable investments.
Interest Expense
Total interest expense increased $3.2$4.7 million or 399.9%119.8% to $8.7 million for the quarter ended March 31, 2024 compared to $4.0 million for the quarter ended March 31, 2023 compared to $795,000 for the same quarter in 20222023 due to an increase in market interest rates combined with a $4.6$173.7 million increase in the average balance of these liabilities.
Interest expense on deposits increased $2.6$4.0 million to $2.9$6.9 million for the quarter ended March 31, 20232024, from $345,000$2.9 million for the first quarter of 2022,2023, due to an increase of 123150 basis points in the average cost partially offset bycombined with a $20.1$117.0 million decreaseincrease in the average balance of interest-bearing deposit accounts, reflecting growth in higher cost money market and certificate of deposit accounts. Interest expense on FRB and other borrowings increased $598,000 during$783,000 to $1.4 million for the quarter ended March 31, 2024, from $627,000 for the first quarter of 2023, due to a $28.1$56.7 million increase in the average balance of these liabilities combined with an increase of 30096 basis points in the average cost of these liabilities. Interest expense on the junior subordinated debentures increased due to increased floating interest rates reflecting higher market interest rates.
The amount of the provision is determined by management’s on-going monthly analysis of the loan portfolio and the adequacy of the allowance for credit losses.losses for loans and unfunded commitments is determined by management’s on-going monthly analysis. The Company has policies and procedures in place for evaluating and monitoring the overall credit quality of the loan portfolio and for timely identification of potential problem loans including internal and external loan reviews. The adequacy of the allowance for credit losses is reviewed monthly by the Asset Classification Committee and quarterly by the Board of Directors. Management’s review of the adequacy of the allowance includes three main components.
On January 1, 2023, the Company adopted Accounting Standards Update 2016-13 Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments Accounting Standards Codification 326, which replaced the incurred loss methodology with the current expected credit loss (“CECL”) methodology. CECL requires an analysisestimate of loss potential in various homogeneous segmentscredit losses for the remaining estimated life of the financial asset using historical experience, current conditions, and reasonable and supportable forecasts and generally applies to financial assets measured at amortized cost, including loan portfolio based on historical trendsreceivables and held-to-maturity debt securities, and some off-balance sheet credit exposures such as unfunded commitments to extend credit. Financial assets measured at amortized cost will be presented at the risk inherentnet amount expected to be collected by using an allowance for credit losses. The transition adjustment of the adoption of CECL included an increase in each loan category. The Company calculates the allowance for credit losses for each pool usingon loans of $784,000, which is presented as a remaining life loss methodology with a two quarter reasonable and supportable forecast periodreduction to total loans outstanding, and an immediate reversion period. Management believes that the Company’s historical loss experience provides the best basis for its assessment of expected credit losses to determine the allowance for credit losses. The Company uses its own internal data to measure historical credit loss experience within the pools with similar risk characteristics over an economic cycle. The Company then forecasts the calculated historical loss rates over the calculated remaining life of loans by pool. The second component of management’s monthly analysis is the specific review and evaluation of significant individually evaluated collateral dependent loans identified through the Company’s internal monitoring system. These loans do not share common risk characteristics and
The allowanceCompany recorded $300,000 in provision for credit losses is calculated on an individual loan basis based on the shortfall between the fair value of the loan's collateral, which is adjustedloans and $35,000 in provision for liquidation costs/discounts, and amortized cost. If the fair value of the collateral exceeds the amortized cost, no allowance is required. The third component is an analysis of changes in qualitative factors that may affect the portfolio, including but not limited to: relevant economic trends that could impact borrowers’ ability to repay, industry trends, changes in the volume and composition of the portfolio, credit concentrations, or lending policies and the experience and ability of the staff and Board of Directors.
Non-Interest Income
Non-interest income decreased $403,000increased $120,000 or 15.5%5.5% to $2.3 million for the quarter ended March 31, 2024 compared to $2.2 million for the quarter ended March 31, 2023 compared to $2.6 million for the quarter ended March 31, 2022.. The decreaseincrease was primarily due to a $520,000$140,000 increase in trust income during the quarter ended March 31, 2024 when compared to the quarter ended March 31, 2023, which was partially offset by a decrease in gain on sale of loans reflecting the decline in originations of loans held for sale following recent market interest rate increases. In addition, BOLI income and other non-interest income decreased $7,000 and $14,000, respectively, during the quarter ended March 31, 2023 when compared to the quarter ended March 31, 2022. These decreases were partially offset by increases in all other non-interest income line items with the largest increase occurring in ATM and check card fee income, which increased $85,000 or 11.8% to $802,000 during the quarter ended March 31, 2023 when compared to the quarter ended March 31, 2022, due to a new interchange service provider that pays the Bank more fees per transaction. For additional details of the changes in non-interest income, see “Note 14 - Non-Interest Income” of the Notes to Consolidated Financial Statements included in Part I. Item 1 of this report.
| Quarter Ended March 31, | Increase (Decrease) | |||||||||||||||||||
| 2023 | 2022 | $ | % | |||||||||||||||||
| Compensation and Employee Benefits | $ | 5,240,796 | $ | 5,056,620 | $ | 184,176 | 3.6 | % | ||||||||||||
| Occupancy | 806,434 | 712,786 | 93,648 | 13.1 | ||||||||||||||||
| Advertising | 244,595 | 260,333 | (15,738) | (6.0) | ||||||||||||||||
| Depreciation and Maintenance of Equipment | 620,156 | 720,661 | (100,505) | (13.9) | ||||||||||||||||
| FDIC Insurance Premiums | 90,306 | 112,042 | (21,736) | (19.4) | ||||||||||||||||
| Write down of Land Held for Sale | — | 339,344 | (339,344) | (100.0) | ||||||||||||||||
| Consulting | 213,335 | 164,750 | 48,585 | 29.5 | ||||||||||||||||
| Debit Card Expense | 336,646 | 283,789 | 52,857 | 18.6 | ||||||||||||||||
| Data Processing | 280,036 | 67,052 | 212,984 | 317.6 | ||||||||||||||||
| Other | 1,198,284 | 877,467 | 320,817 | 36.6 | ||||||||||||||||
| Total Non-Interest Expense | $ | 9,030,588 | $ | 8,594,844 | $ | 435,744 | 5.1 | % | ||||||||||||
Non-Interest Expense
Non-interest expense increased $184,000$604,000 or 3.6%6.7% to $5.2$9.6 million for the quarter ended March 31, 2023 when2024 compared to $9.0 million for the quarter ended March 31, 20222023. The following table summarizes the changes in non-interest expense:
Quarter Ended March 31, | Increase (Decrease) | |||||||||||||||
Dollars in thousands | 2024 | 2023 | $ | % | ||||||||||||
Compensation and Employee Benefits | $ | 5,542 | $ | 5,241 | $ | 301 | 5.7 | % | ||||||||
Occupancy | 813 | 807 | 6 | 0.7 | % | |||||||||||
Advertising | 275 | 245 | 30 | 12.2 | % | |||||||||||
Depreciation and Maintenance of Equipment | 475 | 598 | (123 | ) | (20.6 | )% | ||||||||||
FDIC Insurance Premiums | 163 | 90 | 73 | 81.1 | % | |||||||||||
Consulting | 172 | 213 | (41 | ) | (19.2 | )% | ||||||||||
Debit Card Expense | 339 | 337 | 2 | 0.6 | % | |||||||||||
Data Processing | 339 | 316 | 23 | 7.3 | % | |||||||||||
Other | 1,517 | 1,184 | 333 | 28.1 | % | |||||||||||
Total Non-Interest Expense | $ | 9,635 | $ | 9,031 | $ | 604 | 6.7 | % | ||||||||
The increase in non-interest expense was primarily due to general annual costincreases in all non-interest expense line items except for depreciation and maintenance of livingequipment and consulting expense during the first quarter of 2024.
Most of the increases an increase in non-interest expenses during the numberfirst quarter of full time equivalent employees as a result of our newest branch added in 2023 and the2024 were due to overall growth of the Company. Occupancy expense and other non-interest expense also increased during the first quarter of 2023 due toCompany, increased operations and the addition of our newest branch located in Augusta, Georgia.
Provision For Income Taxes
The provision for income taxes increased $375,000decreased $159,000 or 102.7%21.5% to $739,000$580,000 for the quarter ended March 31, 20232024, from $365,000$739,000 for the same period in 20222023, due to higherlower net income before taxes in 2023.the 2024 period. Pre-tax net income was $3.7$2.3 million for the quarter ended March 31, 20232024 compared to $1.9$3.4 million for the first quarter of 2022.2023. The Company’s combined federal and state effective income tax rate was 21.7%24.9% and 19.1%21.7% for the quarters ended March 31, 20232024 and 2022,2023, respectively.
Other
The U.S. Department of the Treasury’s Community Development Financial Institutions ("CDFI") Fund released a revised CDFI Certification Application on December 7, 2023. All currently certified CDFIs will be required to reapply for certification using the revised version of the Certification Application by December 20, 2024. The Company is currently in the process of evaluating the revised Certification Application requirements and completing its recertification as a CDFI. No assurance can be given as to whether the Company will receive approval of its certification to continue as a CDFI.
We actively analyze and manage liquidity with the objective of maintaining an adequate level of liquidity and to ensure the availability of sufficient cash flows to support loan growth, fund deposit withdrawals, fund operations, and satisfy other financial commitments. See the “Consolidated Statements of Cash Flows” contained in Item 1 – Financial Statements, herein.
The Bank's primary sources of funds include deposits, scheduled loan and investment securities repayments, including interest payments, maturities and sales of loans and investment securities, advances from the FRB, and cash flow generated from operations. The sources of funds, together with retained earnings and equity, are used to make loans, acquire investment securities and other assets, and fund continuing operations. While maturities and the scheduled amortization of loans are a predictable source of funds, deposit flows and mortgage repayments are greatly influenced by the level of interest rates, economic conditions, and competition. Management believes that the Company’s current liquidity position and its forecasted operating results are sufficient to fund all of its existing commitments. The Bank had $165.1$162.9 million in unused commitments to extend credit and standby letters of credit at March 31, 2023.2024.
In addition, in June 2023, the Company announced that its Board of Directors approved a share repurchase program for the purchase of up to three percent, or approximately 97,612 shares, of the Company’s outstanding common stock as of that date. In general, stock-repurchase plans allow us to proactively manage our capital position and return excess capital to shareholders. During the quarter ended March 31, 2024, the Company repurchased 4,230 shares of its common stock at an aggregate cost of $97,290, leaving 66,956 shares available for further repurchase under the June 2023 stock repurchase program at March 31, 2024. The repurchase program does not obligate the Company to purchase any particular number of shares. For additional information, see Part II, Item 2 - “Unregistered Sales of Equity Securities and Use of Proceeds.”
At March 31, 2024, the Bank exceeded all regulatory capital requirements with Common Equity Tier 1 Capital (CET1), Tier 1 leverage-based capital, Tier 1 risk-based capital, and total risk-based capital ratios of 17.85%18.0%, 10.39%9.9%, 17.85%18.0%, and 19.11%19.3%, respectively.To be categorized as “well capitalized” under the prompt corrective action provisions the Bank must maintain minimum CET1, total risk based capital, Tier 1 risk-based capital and Tier 1 leverage capital ratios of 6.5%, 10.0%, 8.0% and 5.0%, respectively. In addition to the minimum capital requirements, the Bank must maintain a capital conservation buffer, which consists of additional CET1 capital greater than 2.5% of risk weighted assets above the required minimum levels in order to avoid limitations on paying dividends, repurchasing shares, and paying discretionary bonuses. At March 31, 20232024 the Bank’s conservation buffer wawas 11.3%s 11.1%. ForFor additional details, see “Note 12 - Regulatory Matters” of the Notes to Consolidated Financial Statements included in Part I. Item 1 of this report.
The Company’sprofitability is affected by fluctuations in the market interest rate. Management’s goal is to maintain a reasonable balance between exposure to interest rate fluctuations and earnings. A sudden and substantial increase or decrease in interest rates may adversely impact the Company’s earnings to the extent that the interest rates on interest-earning assets and interest-bearing liabilities do not change at the same rate, to the same extent or on the same basis. The Company monitors the impact of changes in interest rates on its net interest income using a test that measures the impact on net interest income and net portfolio value of an immediate change in interest rates in 100 basis point increments. Net portfolio value is defined as the net present value of assets, liabilities, and off-balance sheet contracts. There were no material changes in information concerning market risk from the information provided in the Company’s 20222023 Form 10-K.
For the three months ended March 31, 2023,2024, the Bank's interest rate spread, defined as the average yield on interest-earning assets less the average rate paid on interest-bearing liabilities, was 2.73%2.03%.
(a) | Evaluation of Disclosure Controls and Procedures: An evaluation of the Company’s disclosure controls and procedures (as defined in Rule 13a - 15(e) of the Securities Exchange Act of 1934 (“Act”)) was carried out under the supervision and with the participation of the Company’s Chief Executive Officer, Chief Financial Officer and several other members of the Company’s senior management as of the end of the period covered by this quarterly report. The Company’s Chief Executive Officer and Chief Financial Officer concluded that at March 31, 2024 the Company’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 the Company’s management (including the Chief Executive Officer and Chief Financial Officer) in a timely manner, and (ii) recorded, processed, summarized and reported within the time period specified in the Securities and Exchange Commission’s rules and forms. |
(b) | Changes in Internal Control over Financial Reporting: There have been no significant changes in our internal control over financial reporting during the quarter ended March 31, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. |