UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ | ||
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended September 30, 20172021
OR
OR
☐ | ||
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ________ to ________
Commission file number 0-22345
SHORE BANCSHARES, INC.INC.
(Exact name of registrant as specified in its charter)
Maryland |
| 52-1974638 |
(State or Other Jurisdiction of | | (I.R.S. Employer |
Incorporation or Organization) | | Identification No.) |
| |
|
| | 21601 |
(Address of Principal Executive Offices) | | (Zip Code) |
(410) 763-7800
Registrant’s Telephone Number, Including Area Code
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☑☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act.
| | | | |
| | | | |
Large accelerated filer | ☐ | Accelerated filer |
| |
Non-accelerated filer |
|
| Smaller reporting company |
|
|
| Emerging growth company | ☐ | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☑☒
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate theThe number of shares outstanding of each of the issuer’s classes ofregistrant’s common stock as of the latest practicable date: 12,688,224 sharesNovember 15, 2021 was 19,805,801.
INDEX
| Page | |
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| 3 | |
| | |
| 3 | |
| | |
Consolidated Balance Sheets |
| 3 |
| | |
| 4 | |
| | |
| 5 | |
| | |
| 6 | |
| | |
| 8 | |
| | |
| ||
| 9 | |
| | |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | | 36 |
| | |
Item 3. Quantitative and Qualitative Disclosures about Market Risk |
| 51 |
| | |
| 51 | |
| | |
| 52 | |
| | |
| 52 | |
| | |
| 52 | |
| | |
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds |
| 52 |
| | |
| 53 | |
| | |
| 53 | |
| | |
| 53 | |
| | |
| 54 | |
| | |
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| ||
|
1
2
PART I – FINANCIAL INFORMATION
|
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|
|
SHORE BANCSHARES, INC. | ||||||
CONSOLIDATED BALANCE SHEETS | ||||||
(Dollars in thousands, except per share amounts) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| September 30, |
| December 31, | ||
|
| 2017 |
| 2016 | ||
ASSETS |
|
| (Unaudited) |
|
|
|
Cash and due from banks |
| $ | 22,315 |
| $ | 14,596 |
Interest-bearing deposits with other banks |
|
| 21,601 |
|
| 61,342 |
Cash and cash equivalents |
|
| 43,916 |
|
| 75,938 |
Investment securities: |
|
|
|
|
|
|
Available-for-sale, at fair value |
|
| 213,390 |
|
| 163,902 |
Held to maturity, at amortized cost - fair value of $6,451 (2017) |
|
|
|
|
|
|
and $6,806 (2016) |
|
| 6,241 |
|
| 6,704 |
|
|
|
|
|
|
|
Loans |
|
| 1,047,247 |
|
| 871,525 |
Less: allowance for credit losses |
|
| (9,295) |
|
| (8,726) |
Loans, net |
|
| 1,037,952 |
|
| 862,799 |
|
|
|
|
|
|
|
Premises and equipment, net |
|
| 23,124 |
|
| 16,558 |
Goodwill |
|
| 27,909 |
|
| 11,931 |
Other intangible assets, net |
|
| 4,831 |
|
| 1,079 |
Other real estate owned, net |
|
| 1,809 |
|
| 2,477 |
Other assets |
|
| 16,955 |
|
| 18,883 |
TOTAL ASSETS |
| $ | 1,376,127 |
| $ | 1,160,271 |
|
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
|
|
Deposits: |
|
|
|
|
|
|
Noninterest-bearing |
| $ | 326,020 |
| $ | 261,575 |
Interest-bearing |
|
| 880,175 |
|
| 735,914 |
Total deposits |
|
| 1,206,195 |
|
| 997,489 |
|
|
|
|
|
|
|
Short-term borrowings |
|
| 1,469 |
|
| 3,203 |
Other liabilities |
|
| 5,815 |
|
| 5,280 |
TOTAL LIABILITIES |
|
| 1,213,479 |
|
| 1,005,972 |
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
Common stock, par value $.01 per share; shares authorized - |
|
|
|
|
|
|
35,000,000; shares issued and outstanding - 12,686,767 (including 15,913 unvested |
|
|
|
|
|
|
restricted stock) (2017) and 12,664,797 (including 12,488 unvested restricted stock) (2016) |
|
| 127 |
|
| 127 |
Additional paid in capital |
|
| 64,949 |
|
| 64,201 |
Retained earnings |
|
| 97,626 |
|
| 90,964 |
Accumulated other comprehensive (loss) |
|
| (54) |
|
| (993) |
TOTAL STOCKHOLDERS' EQUITY |
|
| 162,648 |
|
| 154,299 |
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY |
| $ | 1,376,127 |
| $ | 1,160,271 |
See accompanying notes to Consolidated Financial Statements.
SHORE BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
| | | | | | |
| | September 30, | | December 31, | ||
(In thousands, except share and per share data) |
| 2021 |
| 2020 | ||
ASSETS |
| (Unaudited) |
| |
| |
Cash and due from banks | | $ | 18,440 | | $ | 16,666 |
Interest-bearing deposits with other banks | |
| 292,412 | |
| 170,251 |
Cash and cash equivalents | |
| 310,852 | |
| 186,917 |
Investment securities: | |
| | |
|
|
Available-for-sale, at fair value | |
| 105,125 | |
| 139,568 |
Held to maturity, at amortized cost - fair value of $247,835 (2021) and $65,828 (2020) | | | 250,501 | |
| 65,706 |
Equity securities, at fair value | |
| 1,384 | |
| 1,395 |
Restricted securities | |
| 3,189 | |
| 3,626 |
| | | | | | |
Loans | |
| 1,494,897 | |
| 1,454,256 |
Less: allowance for credit losses | |
| (15,525) | |
| (13,888) |
Loans, net | |
| 1,479,372 | |
| 1,440,368 |
| | | | | | |
Premises and equipment, net | |
| 27,011 | |
| 24,924 |
Goodwill | |
| 17,518 | |
| 17,518 |
Other intangible assets, net | |
| 1,365 | |
| 1,719 |
Other real estate owned, net | |
| 203 | |
| — |
Right-of-use assets | | | 5,512 | | | 4,795 |
Other assets | |
| 58,742 | |
| 46,779 |
TOTAL ASSETS | | $ | 2,260,774 | | $ | 1,933,315 |
| | | | | | |
LIABILITIES | |
| | |
|
|
Deposits: | |
| | |
|
|
Noninterest-bearing | | $ | 554,902 | | $ | 509,091 |
Interest-bearing | |
| 1,463,163 | |
| 1,191,614 |
Total deposits | |
| 2,018,065 | |
| 1,700,705 |
| | | | | | |
Securities sold under retail repurchase agreements | |
| 3,501 | |
| 1,050 |
Subordinated debt | |
| 24,521 | |
| 24,429 |
Total borrowings | | | 28,022 | | | 25,479 |
| | | | | | |
Lease liabilities | |
| 5,686 | |
| 4,874 |
Other liabilities | | | 7,394 | | | 7,238 |
TOTAL LIABILITIES | | | 2,059,167 | | | 1,738,296 |
| |
| | |
|
|
COMMITMENTS AND CONTINGENCIES | |
| | | | |
| | | | | | |
STOCKHOLDERS' EQUITY | |
| | | | |
Common stock, par value $.01 per share; shares authorized - 35,000,000; shares issued and outstanding - 11,752,445 (2021) and 11,783,380 (2020) | | | 118 | | | 118 |
Additional paid in capital | | | 51,641 | | | 52,167 |
Retained earnings | | | 149,620 | | | 141,205 |
Accumulated other comprehensive income | |
| 228 | |
| 1,529 |
TOTAL STOCKHOLDERS' EQUITY | |
| 201,607 | |
| 195,019 |
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | | $ | 2,260,774 | | $ | 1,933,315 |
2
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SHORE BANCSHARES, INC. | ||||||||||||
CONSOLIDATED STATEMENTS OF INCOME (Unaudited) | ||||||||||||
(Dollars in thousands, except per share amounts) | ||||||||||||
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| For Three Months Ended |
| For Nine Months Ended | ||||||||
|
| September 30, |
| September 30, | ||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 | ||||
|
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|
INTEREST INCOME |
|
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|
Interest and fees on loans |
| $ | 11,771 |
| $ | 9,398 |
| $ | 31,762 |
| $ | 27,476 |
Interest and dividends on investment securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Taxable |
|
| 1,035 |
|
| 754 |
|
| 2,799 |
|
| 2,448 |
Tax-exempt |
|
| - |
|
| 2 |
|
| 3 |
|
| 6 |
Interest on federal funds sold |
|
| - |
|
| 1 |
|
| - |
|
| 6 |
Interest on deposits with other banks |
|
| 131 |
|
| 81 |
|
| 269 |
|
| 211 |
Total interest income |
|
| 12,937 |
|
| 10,236 |
|
| 34,833 |
|
| 30,147 |
|
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|
|
INTEREST EXPENSE |
|
|
|
|
|
|
|
|
|
|
|
|
Interest on deposits |
|
| 607 |
|
| 574 |
|
| 1,656 |
|
| 1,852 |
Interest on short-term borrowings |
|
| 4 |
|
| 4 |
|
| 18 |
|
| 11 |
Total interest expense |
|
| 611 |
|
| 578 |
|
| 1,674 |
|
| 1,863 |
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INTEREST INCOME |
|
| 12,326 |
|
| 9,658 |
|
| 33,159 |
|
| 28,284 |
Provision for credit losses |
|
| 345 |
|
| 605 |
|
| 1,746 |
|
| 1,430 |
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INTEREST INCOME AFTER PROVISION |
|
|
|
|
|
|
|
|
|
|
|
|
FOR CREDIT LOSSES |
|
| 11,981 |
|
| 9,053 |
|
| 31,413 |
|
| 26,854 |
|
|
|
|
|
|
|
|
|
|
|
|
|
NONINTEREST INCOME |
|
|
|
|
|
|
|
|
|
|
|
|
Service charges on deposit accounts |
|
| 945 |
|
| 899 |
|
| 2,657 |
|
| 2,582 |
Trust and investment fee income |
|
| 389 |
|
| 358 |
|
| 1,122 |
|
| 1,073 |
Gains on sales and calls of investment securities |
|
| 5 |
|
| 30 |
|
| 5 |
|
| 31 |
Insurance agency commissions |
|
| 2,088 |
|
| 2,054 |
|
| 6,939 |
|
| 6,754 |
Other noninterest income |
|
| 998 |
|
| 666 |
|
| 2,688 |
|
| 2,149 |
Total noninterest income |
|
| 4,425 |
|
| 4,007 |
|
| 13,411 |
|
| 12,589 |
|
|
|
|
|
|
|
|
|
|
|
|
|
NONINTEREST EXPENSE |
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and wages |
|
| 5,203 |
|
| 4,346 |
|
| 14,508 |
|
| 13,245 |
Employee benefits |
|
| 1,197 |
|
| 1,009 |
|
| 3,564 |
|
| 3,087 |
Occupancy expense |
|
| 696 |
|
| 643 |
|
| 1,950 |
|
| 1,839 |
Furniture and equipment expense |
|
| 286 |
|
| 245 |
|
| 803 |
|
| 728 |
Data processing |
|
| 922 |
|
| 976 |
|
| 2,809 |
|
| 2,639 |
Directors' fees |
|
| 99 |
|
| 120 |
|
| 281 |
|
| 355 |
Amortization of other intangible assets |
|
| 115 | �� |
| 33 |
|
| 203 |
|
| 99 |
FDIC insurance premium expense |
|
| 189 |
|
| 104 |
|
| 398 |
|
| 654 |
Other real estate owned expense, net |
|
| 136 |
|
| 2 |
|
| 299 |
|
| 75 |
Legal and professional |
|
| 493 |
|
| 440 |
|
| 1,855 |
|
| 1,434 |
Other noninterest expenses |
|
| 1,384 |
|
| 1,299 |
|
| 3,900 |
|
| 3,766 |
Total noninterest expense |
|
| 10,720 |
|
| 9,217 |
|
| 30,570 |
|
| 27,921 |
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE INCOME TAXES |
|
| 5,686 |
|
| 3,843 |
|
| 14,254 |
|
| 11,522 |
Income tax expense |
|
| 2,274 |
|
| 1,432 |
|
| 5,690 |
|
| 4,379 |
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME |
| $ | 3,412 |
| $ | 2,411 |
| $ | 8,564 |
| $ | 7,143 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share - Basic |
| $ | 0.27 |
| $ | 0.19 |
| $ | 0.68 |
| $ | 0.56 |
Earnings per common share - Diluted |
|
| 0.27 |
|
| 0.19 |
|
| 0.67 |
|
| 0.56 |
Dividends paid per common share |
|
| 0.05 |
|
| 0.03 |
|
| 0.15 |
|
| 0.09 |
3
See accompanying notes to Consolidated Financial Statements.
3
SHORE BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
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SHORE BANCSHARES, INC. | ||||||||||||
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) | ||||||||||||
(Dollars in thousands) | ||||||||||||
|
| For Three Months Ended |
| For Nine Months Ended | ||||||||
|
| September 30, |
| September 30, | ||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 | ||||
|
|
|
|
|
|
|
|
|
|
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|
|
Net Income |
| $ | 3,412 |
| $ | 2,411 |
| $ | 8,564 |
| $ | 7,143 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive (loss) income: |
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding (losses) gains on available-for-sale-securities |
|
| (385) |
|
| 617 |
|
| 1,555 |
|
| 2,628 |
Tax effect |
|
| 155 |
|
| (250) |
|
| (628) |
|
| (1,062) |
Reclassification of (gains) recognized |
|
|
|
|
|
|
|
|
|
|
|
|
in net income |
|
| (5) |
|
| (30) |
|
| (5) |
|
| (31) |
Tax effect |
|
| 2 |
|
| 12 |
|
| 2 |
|
| 13 |
Amortization of unrealized loss on securities transferred from |
|
|
|
|
|
|
|
|
|
|
|
|
available-for-sale to held-to-maturity |
|
| 8 |
|
| - |
|
| 23 |
|
| - |
Tax effect |
|
| (3) |
|
| - |
|
| (8) |
|
| - |
Net of tax amount |
|
| (228) |
|
| 349 |
|
| 939 |
|
| 1,548 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive (loss) income |
|
| (228) |
|
| 349 |
|
| 939 |
|
| 1,548 |
Comprehensive income |
| $ | 3,184 |
| $ | 2,760 |
| $ | 9,503 |
| $ | 8,691 |
| | | | | | | | | | | | | |
| | For Three Months Ended | | For Nine Months Ended | | ||||||||
| | September 30, | | September 30, | | ||||||||
(In thousands, except per share data) | | 2021 |
| 2020 |
| 2021 |
| 2020 | | ||||
INTEREST INCOME | | | | | | | | | ��� | | | | |
Interest and fees on loans | | $ | 15,484 | | $ | 14,139 | | $ | 44,231 | | $ | 41,879 | |
Interest and dividends on investment securities: | |
| | | | | | | | | | | |
Taxable | |
| 1,318 | |
| 730 | |
| 3,343 | |
| 2,087 | |
Interest on deposits with other banks | | | 97 | | | 33 | | | 199 | | | 216 | |
Total interest income | |
| 16,899 | |
| 14,902 | |
| 47,773 | |
| 44,182 | |
| | | | | | | | | | | | | |
INTEREST EXPENSE | | | | | | | | | | | | | |
Interest on deposits | |
| 949 | |
| 1,470 | |
| 3,189 | |
| 5,085 | |
Interest on short-term borrowings | |
| 2 | |
| 1 | |
| 5 | |
| 4 | |
Interest on long-term borrowings | | | 359 | | | 148 | | | 1,088 | | | 261 | |
Total interest expense | |
| 1,310 | |
| 1,619 | |
| 4,282 | |
| 5,350 | |
| | | | | | | | | | | | | |
NET INTEREST INCOME | |
| 15,589 | |
| 13,283 | |
| 43,491 | |
| 38,832 | |
Provision for credit losses | |
| 290 | |
| 1,500 | |
| 1,365 | |
| 2,850 | |
| | | | | | | | | | | | | |
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES | |
| 15,299 | |
| 11,783 | |
| 42,126 | |
| 35,982 | |
| | | | | | | | | | | | | |
NONINTEREST INCOME | | | | | | | | | | | | | |
Service charges on deposit accounts | |
| 805 | |
| 647 | |
| 2,162 | |
| 2,057 | |
Trust and investment fee income | |
| 477 | |
| 381 | |
| 1,359 | |
| 1,119 | |
Gains on sales and calls of investment securities | |
| 2 | |
| — | |
| 2 | |
| 347 | |
Other noninterest income | | | 1,625 | | | 1,553 | | | 4,846 | |
| 4,179 | |
Total noninterest income | |
| 2,909 | |
| 2,581 | |
| 8,369 | |
| 7,702 | |
| | | | | | | | | | | | | |
NONINTEREST EXPENSE | | | | | | | | | | | | | |
Salaries and wages | |
| 5,091 | |
| 4,143 | |
| 13,495 | |
| 10,569 | |
Employee benefits | |
| 1,654 | |
| 1,489 | |
| 4,991 | |
| 4,746 | |
Occupancy expense | |
| 843 | |
| 774 | |
| 2,427 | |
| 2,174 | |
Furniture and equipment expense | |
| 449 | |
| 294 | |
| 1,168 | |
| 858 | |
Data processing | |
| 1,170 | |
| 1,114 | |
| 3,514 | |
| 3,195 | |
Directors' fees | |
| 147 | |
| 132 | |
| 450 | |
| 386 | |
Amortization of other intangible assets | |
| 107 | |
| 125 | |
| 353 | |
| 407 | |
FDIC insurance premium expense | |
| 245 | |
| 132 | |
| 653 | |
| 347 | |
Other real estate owned expenses, net | |
| 4 | |
| — | |
| 6 | |
| 18 | |
Legal and professional fees | |
| 428 | |
| 447 | |
| 1,592 | |
| 1,634 | |
Merger-related expenses | |
| 538 | |
| — | |
| 915 | |
| — | |
Other noninterest expenses | | | 1,259 | |
| 1,181 | |
| 3,745 | |
| 3,509 | |
Total noninterest expense | |
| 11,935 | |
| 9,831 | |
| 33,309 | |
| 27,843 | |
| | | | | | | | | | | | | |
Income before income taxes | |
| 6,273 | |
| 4,533 | |
| 17,186 | |
| 15,841 | |
Income tax expense | |
| 1,657 | |
| 1,142 | |
| 4,541 | |
| 3,997 | |
| | | | | | | | | | | | | |
NET INCOME | | $ | 4,616 | | $ | 3,391 | | $ | 12,645 | | $ | 11,844 | |
| | | | | | | | | | | | | |
Earnings per common share - Basic and diluted | | $ | 0.39 | | $ | 0.27 | | $ | 1.08 | | $ | 0.95 | |
| | | | | | | | | | | | | |
Dividends paid per common share | | $ | 0.12 | | $ | 0.12 | | $ | 0.36 | | $ | 0.36 | |
See accompanying notes to Consolidated Financial Statements.
4
SHORE BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
| | | | | | | | | | | | | |
| | For Three Months Ended | | For Nine Months Ended | | ||||||||
| | September 30, | | September 30, | | ||||||||
(In thousands) |
| 2021 |
| 2020 |
| 2021 |
| 2020 |
| ||||
Net income | | $ | 4,616 | | $ | 3,391 | | $ | 12,645 | | $ | 11,844 | |
| | | | | | | | | | | | | |
Other comprehensive (loss) income: | | | | | | | | | | | | | |
Investment securities: | | | | | | | | | | | | | |
Unrealized holding (losses) gains on available-for-sale-securities | |
| (520) | |
| (141) | |
| (1,789) | |
| 2,668 | |
Tax effect | |
| 142 | |
| 39 | |
| 488 | |
| (723) | |
| | | | | | | | | | | | | |
Reclassification of (gains) recognized in net income | |
| — | |
| — | |
| — | |
| (347) | |
Tax effect | |
| — | |
| — | |
| — | |
| 88 | |
| | | | | | | | | | | | | |
Amortization of unrealized loss on securities transferred from available-for-sale to held-to-maturity | |
| — | |
| 3 | |
| — | |
| 15 | |
Tax effect | |
| — | |
| (1) | |
| — | |
| (4) | |
Total other comprehensive (loss) income | |
| (378) | |
| (100) | |
| (1,301) | |
| 1,697 | |
Comprehensive income | | $ | 4,238 | | $ | 3,291 | | $ | 11,344 | | $ | 13,541 | |
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHORE BANCSHARES, INC. | |||||||||||||||
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited) | |||||||||||||||
For the Nine Months Ended September 30, 2017 and 2016 | |||||||||||||||
(Dollars in thousands) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
| |
|
|
|
|
| Additional |
|
|
|
| Other |
| Total | |||
|
| Common |
| Paid in |
| Retained |
| Comprehensive |
| Stockholders' | |||||
|
| Stock |
| Capital |
| Earnings |
| Income (Loss) |
| Equity | |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, January 1, 2017 |
| $ | 127 |
| $ | 64,201 |
| $ | 90,964 |
| $ | (993) |
| $ | 154,299 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
| - |
|
| - |
|
| 8,564 |
|
| - |
|
| 8,564 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income |
|
| - |
|
| - |
|
| - |
|
| 939 |
|
| 939 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation |
|
| - |
|
| 748 |
|
| - |
|
| - |
|
| 748 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared |
|
| - |
|
| - |
|
| (1,902) |
|
| - |
|
| (1,902) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, September 30, 2017 |
| $ | 127 |
| $ | 64,949 |
| $ | 97,626 |
| $ | (54) |
| $ | 162,648 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, January 1, 2016 |
| $ | 126 |
| $ | 63,815 |
| $ | 83,097 |
| $ | (71) |
| $ | 146,967 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
| - |
|
| - |
|
| 7,143 |
|
| - |
|
| 7,143 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income |
|
| - |
|
| - |
|
| - |
|
| 1,548 |
|
| 1,548 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issued for employee stock- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
based awards |
|
| - |
|
| 53 |
|
| - |
|
| - |
|
| 53 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation |
|
| 1 |
|
| 261 |
|
| - |
|
| - |
|
| 262 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared |
|
| - |
|
| - |
|
| (1,138) |
|
| - |
|
| (1,138) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, September 30, 2016 |
| $ | 127 |
| $ | 64,129 |
| $ | 89,102 |
| $ | 1,477 |
| $ | 154,835 |
See accompanying notes to Consolidated Financial Statements.
5
SHORE BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Unaudited)
For the Three and Nine months Ended September 30, 2021 and 2020
| | | | | | | | | | | | | | | |
| | | | | | | | | | | Accumulated | | | | |
| | | | | Additional | | | | | Other | | Total | |||
| | Common | | Paid in | | Retained | | Comprehensive | | Stockholders’ | |||||
(In thousands) |
| Stock |
| Capital |
| Earnings |
| Income |
| Equity | |||||
Balances, January 1, 2021 | | $ | 118 | | $ | 52,167 | | $ | 141,205 | | $ | 1,529 | | $ | 195,019 |
| | | | | | | | | | | | | | | |
Net income | |
| — | |
| — | |
| 3,998 | |
| — | |
| 3,998 |
| | | | | | | | | | | | | | | |
Other comprehensive (loss) | |
| — | |
| — | |
| — | |
| (782) | |
| (782) |
| | | | | | | | | | | | | | | |
Retirement of common stock | | | — | |
| (819) | |
| — | |
| — | |
| (819) |
| | | | | | | | | | | | | | | |
Stock-based compensation | |
| — | |
| 97 | |
| — | |
| — | |
| 97 |
| | | | | | | | | | | | | | | |
Cash dividends declared | |
| — | |
| — | |
| (1,409) | |
| — | |
| (1,409) |
| | | | | | | | | | | | | | | |
Balances, March 31, 2021 | | $ | 118 | | $ | 51,445 | | $ | 143,794 | | $ | 747 | | $ | 196,104 |
| | | | | | | | | | | | | | | |
Net Income | |
| — | |
| — | |
| 4,031 | |
| — | |
| 4,031 |
| | | | | | | | | | | | | | | |
Other comprehensive (loss) | |
| — | |
| — | |
| — | |
| (141) | |
| (141) |
| | | | | | | | | | | | | | | |
Stock-based compensation | |
| — | |
| 99 | |
| — | |
| — | |
| 99 |
| | | | | | | | | | | | | | | |
Cash dividends declared | | | — | | | — | | | (1,411) | | | — | | | (1,411) |
| | | | | | | | | | | | | | | |
Balances, June 30, 2021 | | $ | 118 | | $ | 51,544 | | $ | 146,414 | | $ | 606 | | $ | 198,682 |
| | | | | | | | | | | | | | | |
Net Income | |
| — | |
| — | |
| 4,616 | |
| — | |
| 4,616 |
| | | | | | | | | | | | | | | |
Other comprehensive (loss) | |
| — | |
| — | |
| — | |
| (378) | |
| (378) |
| | | | | | | | | | | | | | | |
Stock-based compensation | |
| — | |
| 91 | |
| — | |
| — | |
| 91 |
| | | | | | | | | | | | | | | |
Exercise of options, net of shares surrendered | | | — | | | 6 | | | — | | | — | | | 6 |
| | | | | | | | | | | | | | | |
Cash dividends declared | | | — | | | — | | | (1,410) | | | — | | | (1,410) |
| | | | | | | | | | | | | | | |
Balances, September 30, 2021 | | $ | 118 | | $ | 51,641 | | $ | 149,620 | | $ | 228 | | $ | 201,607 |
| | | | | | | | | | | | | | | |
5
6
|
|
|
|
|
|
|
SHORE BANCSHARES, INC. | ||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) | ||||||
(Dollars in thousands) | ||||||
|
|
|
|
|
|
|
|
| For Nine Months Ended | ||||
|
| September 30, | ||||
|
| 2017 |
| 2016 | ||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
Net Income |
| $ | 8,564 |
| $ | 7,143 |
Adjustments to reconcile net income to net cash provided by operating |
|
|
|
|
|
|
activities: |
|
|
|
|
|
|
Net accretion of acquisition accounting estimates |
|
| (347) |
|
| - |
Provision for credit losses |
|
| 1,746 |
|
| 1,430 |
Depreciation and amortization |
|
| 1,195 |
|
| 1,856 |
Net amortization of securities |
|
| 612 |
|
| (17) |
Stock-based compensation expense |
|
| 748 |
|
| 262 |
Deferred income tax expense |
|
| 3,075 |
|
| 4,008 |
(Gains) on sales of securities |
|
| (5) |
|
| (31) |
Losses on disposals of premises and equipment |
|
| 2 |
|
| - |
(Gains) losses on sales of other real estate owned |
|
| (3) |
|
| 125 |
Write-downs of other real estate owned |
|
| 296 |
|
| 75 |
Net changes in: |
|
|
|
|
|
|
Accrued interest receivable |
|
| (447) |
|
| (15) |
Other assets |
|
| (2,236) |
|
| (1,602) |
Accrued interest payable |
|
| (15) |
|
| (32) |
Other liabilities |
|
| 543 |
|
| (272) |
Net cash provided by operating activities |
|
| 13,728 |
|
| 12,930 |
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITES: |
|
|
|
|
|
|
Proceeds from maturities and principal payments of investment securities |
|
|
|
|
|
|
available for sale |
|
| 35,957 |
|
| 47,373 |
Proceeds from sales of securities available for sale |
|
| - |
|
| 3,961 |
Purchases of investment securities available for sale |
|
| (84,495) |
|
| (12,142) |
Proceeds from maturities and principal payments of investment securities |
|
|
|
|
|
|
held to maturity |
|
| 479 |
|
| 376 |
Net change in loans |
|
| (53,834) |
|
| (68,171) |
Purchases of premises and equipment |
|
| (1,035) |
|
| (542) |
Proceeds from sales of other real estate owned |
|
| 470 |
|
| 3,454 |
Cash received in branch acquisition (net of cash paid) |
|
| 64,045 |
|
| - |
Net cash used in investing activities |
|
| (38,413) |
|
| (25,691) |
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
Net changes in: |
|
|
|
|
|
|
Noninterest-bearing deposits |
|
| 29,883 |
|
| 26,874 |
Interest-bearing deposits |
|
| (33,584) |
|
| (10,042) |
Short-term borrowings |
|
| (1,734) |
|
| (1,672) |
Proceeds from the issuance of common stock |
|
| - |
|
| 53 |
Common stock dividends paid |
|
| (1,902) |
|
| (1,138) |
Net cash (used in) provided by financing activities |
|
| (7,337) |
|
| 14,075 |
Net (decrease) increase in cash and cash equivalents |
|
| (32,022) |
|
| 1,314 |
Cash and cash equivalents at beginning of period |
|
| 75,938 |
|
| 73,811 |
Cash and cash equivalents at end of period |
| $ | 43,916 |
| $ | 75,125 |
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | |
| | | | | | | | | | | Accumulated | | | | |
| | | | | Additional | | | | | Other | | Total | |||
| | Common | | Paid in | | Retained | | Comprehensive | | Stockholders’ | |||||
(In thousands) | | Stock |
| Capital |
| Earnings |
| Income |
| Equity | |||||
Balances, January 1, 2020 | | $ | 125 | | $ | 61,045 | | $ | 131,425 | | $ | 207 | | $ | 192,802 |
| | | | | | | | | | | | | | | |
Net Income | |
| — | |
| — | |
| 3,118 | |
| — | |
| 3,118 |
| | | | | | | | | | | | | | | |
Other comprehensive income | |
| — | |
| — | |
| — | |
| 1,251 | |
| 1,251 |
| | | | | | | | | | | | | | | |
Stock-based compensation | |
| — | |
| 61 | |
| — | |
| — | |
| 61 |
| | | | | | | | | | | | | | | |
Vesting of restricted stock, net of shares surrendered | | | — | | | (39) | | | — | | | — | | | (39) |
| | | | | | | | | | | | | | | |
Cash dividends declared | |
| — | |
| — | |
| (1,499) | |
| — | |
| (1,499) |
| | | | | | | | | | | | | | | |
Balances, March 31, 2020 | | $ | 125 | | $ | 61,067 | | $ | 133,044 | | $ | 1,458 | | $ | 195,694 |
| | | | | | | | | | | | | | | |
Net Income | |
| — | |
| — | |
| 5,335 | |
| — | |
| 5,335 |
| | | | | | | | | | | | | | | |
Other comprehensive income | |
| — | |
| — | |
| — | |
| 546 | |
| 546 |
| | | | | | | | | | | | | | | |
Stock-based compensation | |
| — | |
| 62 | |
| — | |
| — | |
| 62 |
| | | | | | | | | | | | | | | |
Cash dividends declared | |
| — | |
| — | |
| (1,503) | |
| — | |
| (1,503) |
| | | | | | | | | | | | | | | |
Balances, June 30, 2020 | | $ | 125 | | $ | 61,129 | | $ | 136,876 | | $ | 2,004 | | $ | 200,134 |
| | | | | | | | | | | | | | | |
Net Income | |
| — | |
| — | |
| 3,391 | |
| — | |
| 3,391 |
| | | | | | | | | | | | | | | |
Other comprehensive (loss) | |
| — | |
| — | |
| — | |
| (100) | |
| (100) |
| | | | | | | | | | | | | | | |
Retirement of common stock | | | (3) | | | (3,106) | | | — | | | — | | | (3,109) |
| | | | | | | | | | | | | | | |
Stock-based compensation | |
| — | |
| 67 | |
| — | |
| — | |
| 67 |
| | | | | | | | | | | | | | | |
Cash dividends declared | |
| — | |
| — | |
| (1,502) | |
| — | |
| (1,502) |
| | | | | | | | | | | | | | | |
Balances, September 30, 2020 | | $ | 122 | | $ | 58,090 | | $ | 138,765 | | $ | 1,904 | | $ | 198,881 |
| | | | | | | | | | | | | | | |
Supplemental cash flows information: |
|
|
|
|
|
|
Interest paid |
| $ | 1,738 |
| $ | 1,895 |
Income taxes paid |
| $ | 2,000 |
| $ | 588 |
Transfers from loans to other real estate owned |
| $ | 95 |
| $ | 1,599 |
Change in unrealized gains on securities available for sale |
| $ | 1,550 |
| $ | 2,596 |
Amortization of unrealized loss on securities transferred from |
|
|
|
|
|
|
available for sale to held to maturity |
| $ | 23 |
| $ | - |
|
|
|
|
|
|
|
Branch purchase: |
|
|
|
|
|
|
Tangible assets acquired (net of cash received) |
| $ | 129,188 |
| $ | - |
Identifiable intangible assets acquired |
| $ | 3,954 |
| $ | - |
Liabilities assumed |
| $ | 212,463 |
| $ | - |
See accompanying notes to Consolidated Financial Statements.
7
SHORE BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
| | | | | | |
| | For Nine Months Ended | ||||
| | September 30, | ||||
(In thousands) |
| 2021 |
| 2020 | ||
| | | | | | |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | |
Net Income | | $ | 12,645 | | $ | 11,844 |
Adjustments to reconcile net income to net cash provided by operating activities: | |
| | |
| |
Net accretion of acquisition accounting estimates | |
| (182) | |
| (307) |
Provision for credit losses | |
| 1,365 | |
| 2,850 |
Depreciation and amortization | |
| 1,937 | |
| 1,793 |
Net amortization of securities | |
| 1,034 | |
| 330 |
Amortization of debt issuance costs | | | 92 | | | 10 |
Stock-based compensation expense | |
| 287 | |
| 190 |
Deferred income tax (benefit) | | | (865) | | | (1,925) |
(Gains) on sales and calls of securities | |
| (2) | |
| (347) |
Losses on sales and disposals of premises and equipment | | | 4 | | | 40 |
Losses on sales and valuation adjustments on other real estate owned | | | 2 | | | 18 |
Fair value adjustment on equity securities | | | 24 | | | (34) |
Bank owned life insurance income | |
| (774) | |
| (908) |
Net changes in: | | | | | | |
Accrued interest receivable | | | 1,579 | | | (3,930) |
Other assets | |
| (1,342) | |
| (511) |
Accrued interest payable | |
| (446) | |
| (11) |
Other liabilities | | | 218 | | | 471 |
Net cash provided by operating activities | |
| 15,576 | |
| 9,573 |
| | | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | |
Proceeds from maturities and principal payments of investment securities available for sale | |
| 31,975 | |
| 33,272 |
Proceeds from sales and calls of investment securities available for sale | |
| — | |
| 13,019 |
Purchases of investment securities available for sale | |
| — | |
| (60,500) |
Proceeds from maturities and principal payments of investment securities held to maturity | |
| 29,046 | |
| 205 |
Purchases of securities held to maturity | | | (214,199) | |
| (11,589) |
Purchases of equity securities | |
| (13) | |
| (20) |
Net change in loans | |
| (40,437) | |
| (175,669) |
Purchases of premises and equipment | |
| (3,106) | |
| (1,786) |
Proceeds from sales of premises and equipment | |
| — | |
| 2 |
Proceeds from sales of other real estate owned | | | — | |
| 18 |
Net redemption of restricted securities | | | 437 | |
| 564 |
Purchases of bank owned life insurance | |
| (10,157) | |
| — |
Net cash (used in) investing activities | |
| (206,454) | |
| (202,484) |
| | | | | | |
| | | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES: | |
| | | | |
Net changes in: | |
| | | | |
Noninterest-bearing deposits | |
| 45,811 | |
| 108,686 |
Interest-bearing deposits | |
| 271,594 | |
| 144,186 |
Short-term borrowings | | | 2,451 | |
| (207) |
Long-term borrowings | |
| — | |
| (15,000) |
Proceeds from the issuance of subordinated debt, net of issuance costs | | | — | |
| 24,389 |
Common stock dividends paid | | | (4,230) | |
| (4,504) |
Retirement of common stock | | | (819) | |
| (3,109) |
Repurchase of shares for tax withholding on exercised options and vested restricted stock | | | — | |
| (39) |
Stock options exercised, net of shares surrendered | | | 6 | |
| — |
Net cash provided by financing activities | |
| 314,813 | | | 254,402 |
Net increase in cash and cash equivalents | |
| 123,935 | |
| 61,491 |
Cash and cash equivalents at beginning of period | |
| 186,917 | |
| 94,971 |
Cash and cash equivalents at end of period | | $ | 310,852 | | $ | 156,462 |
| | | | | | |
Supplemental cash flows information: | | | | | | |
Interest paid | | $ | 4,694 | | $ | 5,436 |
Income taxes paid | | $ | 5,037 | | $ | 6,378 |
Lease liabilities arising from right-of-use assets | | $ | 1,194 | | $ | 419 |
Unrealized (loss) gain on securities available for sale | | $ | (1,789) | | $ | 2,321 |
Transfers from loans to other real estate owned | | $ | 205 | | $ | — |
Amortization of unrealized loss on securities transferred from available for sale to held to maturity | | $ | — | | $ | 15 |
See accompanying notes to Consolidated Financial Statements.
8
7
Shore Bancshares, Inc.
Notes to Consolidated Financial Statements
For the Three and Nine Months Ended September 30, 20172021 and 20162020
(Unaudited)
Note 1 -– Basis of Presentation
The consolidated financial statements include the accounts of Shore Bancshares, Inc. and its subsidiariessubsidiary with all significant intercompany transactions eliminated. The consolidated financial statements conform to accounting principles generally accepted in the United States of America (“GAAP”) and to prevailing practices within the banking industry. The accompanying interim financial statements are unaudited; however, in the opinion of management all adjustments necessary to present fairly the consolidated financial position at September 30, 2017,2021, the consolidated results of income and comprehensive income for the three and nine months ended September 30, 20172021 and 2016, and2020, changes in stockholders’ equity for the three and nine months ended September 30, 2021 and 2020 and cash flows for the nine months ended September 30, 20172021 and 2016,2020, have been included. All such adjustments are of a normal recurring nature. The amounts as of December 31, 20162020 were derived from the 20162020 audited financial statements. The results of operations for the three and nine months ended September 30, 20172021 are not necessarily indicative of the results to be expected for any other interim period or for the full year. This Quarterly Report on Form 10-Q should be read in conjunction with the Annual Report of Shore Bancshares, Inc. on Form 10-K for the year ended December 31, 2016.2020. For purposes of comparability, certain immaterial reclassifications have been made to amounts previously reported to conform with the current period presentation.
When used in these notes, the term “the Company” refers to Shore Bancshares, Inc. and, unless the context requires otherwise, its consolidated subsidiaries.
Reclassification
During the period of September 30, 2017, management made an immaterial reclassification adjustment to goodwill and deferred income taxes for a transaction involving a stock-based acquisition of an insurance entity which occurred in 2007. This reclassification was deemed an immaterial correction of an error as it had no impact on total assets or earnings per share previously reported in the Consolidated Balance Sheets and Consolidated Statements of Income for any period but was necessary in order to properly reflect goodwill and deferred income taxes on the Company’s consolidated balance sheet.
Effective July 1, 2016, the Company’s two bank subsidiaries, The Talbot Bank of Easton Maryland and CNB were consolidated into one bank known as Shore United Bank. In these notes to the consolidated financial statements and the management discussion and analysis section, the term “the Bank” refers tosubsidiary, Shore United Bank unless(the “Bank”).
Risks and Uncertainties
Since the context requires stipulating results of the individual banks before the consolidation occurred.
Recent Accounting Standards
ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” amendment requires entities to recognize revenue to depict the transfer of promised goods or services tonovel coronavirus ("COVID-19") was declared a pandemic in March 2020, COVID-19 has significantly affected our communities, customers, in amounts that reflect the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 is effective for periods beginning after December 15, 2016. ASU 2015-14, “Revenue from Contracts with Customers (Topic 606) Deferral of the Effective Date”– ASU 2015-14 amendments defer the effective date of Update 2014-09 for all entities by one year. Public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. ASU 2016-08, “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations” – ASU 2016-08 amendments are intended to improve the operability and understandability of the implementation guidance on principal versus agent considerations. ASU 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing” – ASU 2016-10 amendments clarify that contractual provisions that, explicitly or implicitly, require an entity to transfer control of additional goods or services to a customer should be distinguished from contractual provisions that, explicitly or implicitly, define the attributes of a single promised license. Attributes of a promised license define the scope of a customer’s right to use or right to access an entity’s intellectual property and, therefore, do not define whether the entity satisfies its performance obligation at a point in time or over time and do not create an obligation for the entity to transfer any additional rights to use or access its intellectual property. Revenues from services provided by financial institutions that could be impacted by the new guidance includes credit card arrangements, trust and custody services and administration services for customer deposits accounts (e.g., ATM and wire transfer transactions). This update will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Adoption of the ASU is not expectedoperations. COVID-19 continues to have a significant impact onin 2021, however, the Company’s consolidatedextent of its effects are dependent upon multiple factors, such as the extent of distribution and efficacy of vaccines, COVID-19 variants, pandemic-related restrictions, and government response, among others. As a result, the ultimate effects of COVID-19 over the longer term cannot be reasonably estimated at this time. Risks and uncertainties arising from the pandemic remain, primarily concerning the ability of customers to fulfill their financial obligations to the Company as well as potential operational disruptions and the ability of the Company to generate demand for its products and services. Accordingly, estimates used in the preparation of our financial statements may be subject to significant adjustments in future periods.
Recent Accounting Standards and related disclosures. The Company’s primary sources of revenue are derived from interest and dividends earned on loans, investment securities, and other financial instruments that are not within the scope of ASU 2014-09. The Company’s revenue recognition pattern for revenue streams within the scope of ASU 2014-09, including but not limited to service charges on deposit accounts and gains/losses on the sale of OREO, is not expected to change significantly from current practice. The standard permits the use of either the full retrospective or modified retrospective transition method. The Company is currently planning to use the modified retrospective transition method which requiresOther Authoritative Guidance
8
application of ASU 2014-09 to uncompleted contracts at the date of adoption. Periods prior to the date of adoption are not retrospectively revised, but a cumulative effect of adoption is recognized for the impact of the ASU on uncompleted contracts at the date of adoption.
ASU No. 2016-01, “Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities”. This ASU, among other things, (i) requires equity investments, with certain exceptions, to be measured at fair value with changes in fair value recognized in net income, (ii) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment, (iii) eliminates the requirement for public business entities to disclose the methods and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet, (iv) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes, (v) requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments, (vi) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements and (vii) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities. ASU 2016-01 will be effective for us on January 1, 2018 and is not expected to have a significant impact on our financial statements.
ASU No. 2016-02, “Leases (Topic 842).” This ASU stipulates that a lessee should recognize the assets and liabilities that arise from leases. All leases create an asset and a liability for the lessee in accordance with FASB Concepts Statement No. 6, Elements of Financial Statement , and, therefore, recognition of those lease assets and lease liabilities represents an improvement over previous GAAP, which did not require lease assets and lease liabilities to be recognized for most leases. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. When measuring assets and liabilities arising from a lease, a lessee (and a lessor) should include payments to be made in optional periods only if the lessee is reasonably certain to exercise an option to extend the lease or not to exercise an option to terminate the lease. Similarly, optional payments to purchase the underlying asset should be included in the measurement of lease assets and lease liabilities only if the lessee is reasonably certain to exercise that purchase option. In addition, also consistent with the previous leases guidance, a lessee (and a lessor) should exclude most variable lease payments in measuring lease assets and lease liabilities, other than those that depend on an index or a rate or are in substance fixed payments. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. If a lessee makes this election, it should recognize lease expense for such leases generally on a straight-line basis over the lease term. The amendments in this ASU are effective for fiscal years after December 15, 2018, including interim periods within those fiscal years. Early application is permitted upon issuance. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Leases and lessors may not apply a full retrospective transition approach. While the Company is currently evaluating the impact of the new standard, we expect an increase to the Consolidated Balance Sheets for right-of-use assets and interest expense of the lease liabilities in the Consolidated Statements of Income, for arrangements previously accounted for as operating leases.
ASU No. 2016-09, “Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.” This ASU simplifies the treatment and accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. For public business entities, the amendments in this update are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted for any entity in any interim or annual period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. Upon adoption of ASU No. 2016-09 on January 1, 2017, the Company made an accounting policy election to recognize forfeitures of stock-based awards as they occur. The adoption of ASU No. 2016-09 did not have a material impact on our consolidated financial statements.
ASU No. 2016-13 “Financial Instruments-Credit– In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” The amendments in this ASU, will replaceamong other things, require the incurred loss impairment methodology in current GAAP with a methodology that reflectsmeasurement of all expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The amendments affect loans, debt securities, trade receivables, net investments in leases, off-balance-sheet credit exposures, reinsurance receivables, and any otherfor financial assets not excluded fromheld at the scope that have the contractual right to receive cash. The amendments broaden the information that an entity must consider in developing its expected credit loss estimate for assets measured either collectively or individually. The use of forecasted information incorporates more timely information in the estimate of expected credit losses, which will be more decision useful to users of the financial statements. It is not expected that an entity will need to create an economic forecast over the entire contractual life of long-dated financial assets. Therefore, the amendments will allow an entity to revert toreporting date based on historical loss information that is reflective of the contractual term (considering the effect of prepayments) for periods that are beyond the time frame for which the entity is able to developexperience, current conditions, and reasonable and supportable forecasts. The amendments retain manyFinancial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the disclosure amendments in Accounting Standards Update No. 2010-20, Receivables (Topic 310): Disclosures aboutloss estimation techniques applied today will still be permitted, although the Credit Quality of Financing Receivables and the Allowance for Credit Losses, updatedinputs to those techniques will change to reflect the change from an incurred loss methodology to anfull amount of expected credit loss methodology. Creditlosses. In addition, the ASU amends the accounting for credit losses on available-for-sale debt securities should be measuredand purchased financial assets with credit deterioration. The FASB has issued multiple updates to ASU 2016-13 as codified in a manner similarTopic 326, including ASU’s 2019-04, 2019-05, 2019-10, 2019-11, 2020-02, and 2020-03. These ASU’s have provided for various minor technical corrections and improvements to current GAAP. However, the amendments require that credit losses be presentedcodification as an allowance rather than a write-down. For public entities that arewell as other transition matters. Smaller reporting companies who file with the U.S. Securities and Exchange Commission (SEC) filers,and all other entities who do not file with the amendmentsSEC are effectiverequired to apply the guidance for fiscal years, and interim periods within those years, beginning after December 15, 2019, including interim periods within those fiscal years. All entities may adopt the amendments earlier
9
as of the fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company believes this ASU will have a significant impact on our consolidated financial statements and the method in which we calculate our credit losses, primarily on loans and held to maturity securities.2022. At this time, the Company has established a project management team which meets periodically
9
to discuss and assign roles and responsibilities, key tasks to complete, and a general timeline to be followed for implementation. The team has been working with an advisory consultant and has purchased a vendor model for implementation. Historical data has been collected and uploaded to the new model and the team is in the process of developing and understanding this pronouncement, evaluatingfinalizing the methodologies that will be utilized. The team is currently running a parallel simulation to its current incurred loss model. The Company is continuing to evaluate the extent of the potential impact of this pronouncementstandard and researching additional software resources that could assistcontinues to keep current on evolving interpretations and industry practices via webcasts, publications, conferences, and peer bank meetings.
Effective November 25, 2019, the SEC adopted Staff Accounting Bulletin (SAB) 119. SAB 119 updated portions of SEC interpretative guidance to align with FASB ASC 326, “Financial Instruments – Credit Losses.” It covers topics including (1) measuring current expected credit losses; (2) development, governance, and documentation of a systematic methodology; (3) documenting the implementation.results of a systematic methodology; and (4) validating a systematic methodology.
ASU No. 2016-15, “Classification2020-04 – In March 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2020-04 “Reference Rate Reform (Topic 848): Facilitation of Certain Cash Receiptsthe Effects of Reference Rate Reform on Financial Reporting.” These amendments provide temporary optional guidance to ease the potential burden in accounting for reference rate reform. The ASU provides optional expedients and Cash Payments." Current GAAP is unclearexceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference the London Inter-bank Offered Rate (“LIBOR”) or does not include specific guidance on howanother reference rate expected to classify certain transactions in the statement of cash flows. This ASUbe discontinued. It is intended to reduce diversity in practice in how eight particular transactions are classified inhelp stakeholders during the statement of cash flows. ASU No. 2016-15global market-wide reference rate transition period. The guidance is effective for interimall entities as of March 12, 2020 through December 31, 2022. Subsequently, in January 2021, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2021-01 “Reference Rate Reform (Topic 848): Scope.” This ASU clarifies that certain optional expedients and annual reporting periods beginning after December 15, 2017. Early adoption is permitted, providedexceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that allare affected by the discounting transition. The ASU also amends the expedients and exceptions in Topic 848 to capture the incremental consequences of the amendmentsscope clarification and to tailor the existing guidance to derivative instruments affected by the discounting transition. An entity may elect to apply ASU No. 2021-01 on contract modifications that change the interest rate used for margining, discounting, or contract price alignment retrospectively as of any date from the beginning of the interim period that includes March 12, 2020, or prospectively to new modifications from any date within the interim period that includes or is subsequent to January 7, 2021, up to the date that financial statements are adopted inavailable to be issued. An entity may elect to apply ASU No. 2021-01 to eligible hedging relationships existing as of the same period. Entitiesbeginning of the interim period that includes March 12, 2020, and to new eligible hedging relationships entered into after the beginning of the interim period that includes March 12, 2020. At present, the Bank has limited exposure to LIBOR based pricing. LIBOR based loans only comprise 26 loans or 7.6% of the loan portfolio. The Bank is confident it can successfully negotiate a migration to the Secured Overnight Financing Rate (“SOFR”) between now and the implementation date. The Bank will notify customers within 120 days prior to migration to SOFR. The Bank acknowledges the replacement rate will be more volatile based on different countries migrating to different indexes and limited liquidity to support the rate. The Bank further acknowledges the volatility will be greatly influenced by the support provided by the Federal Reserve.
ASU No. 2020-06 - In August 2020,the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2020-06 “Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.” The ASU simplifies accounting for convertible instruments by removing major separation models required under current U.S. GAAP. Consequently, more convertible debt instruments will be reported as a single liability instrument and more convertible preferred stock as a single equity instrument with no separate accounting for embedded conversion features. The ASU removes certain settlement conditions that are required for equity contracts to applyqualify for the guidance retrospectively. If it is impracticablederivative scope exception, which will permit more equity contracts to applyqualify for it. The ASU also simplifies the guidance retrospectivelydiluted earnings per share (EPS) calculation in certain areas. In addition, the amendment updates the disclosure requirements for an issue,convertible instruments to increase the amendments related to that issue would be applied prospectively. We adoptedinformation transparency. For public business entities, excluding smaller reporting companies, the amendments in thisthe ASU effective January 1, 2017. The adoption of ASU No. 2016-15 did not have a material impact on our consolidated financial statements.
ASU No. 2017-01 – In January 2017, FASB issued ASU No. 2017-01, Business Combinations (Topic 805)” Clarifying the Definition of a Business. The ASU clarifies the definition of a business to assist with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The amendments in this update are effective for fiscal years beginning after December 15, 2017, including2021, and interim periods within those fiscal years. The guidance is not expected to have a significant impact onFor all other entities, the Company’s financial positions, results of operations or disclosures.
ASU No. 2017-03 – In January 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2017-03, “Accounting Changes and Error Corrections (Topic 250) and Investments – Equity Method and Joint Ventures (Topic 323): Amendments to SEC Paragraphs Pursuant to Staff Announcements at the September 22, 2016 and November 17, 2016 EITF Meetings.” The ASU adds an SEC paragraph to ASUs 2014-09, 2016-02, and 2016-13 which specifies the SEC staff view that a registrant should evaluate ASUs that have not yet been adopted to determine the appropriate disclosure about the potential material effects of those ASUs on the financial statements when adopted. The guidance also specifies the SEC staff view on financial statement disclosures when the company does not know or cannot reasonably estimate the impact that adoption of the ASUsstandard will have on the financial statements. The ASU also conforms SEC guidance on accounting for tax benefits resulting from investments in affordable housing projects to the guidance in ASU 2014-01, Investments – Equity Method and Joint Ventures (Topic 323). The amendments in this update are effective upon issuance. The guidance did not have a significant impact on our consolidated financial statements.
ASU No. 2017-04 – In January 2017, FASB issued ASU No. 2017-04, “Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” The ASU simplifies measurement of goodwill and eliminates Step 2 from the goodwill impairment test. The Company should perform its goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value. The impairment charge is limited to the amount of goodwill allocated to that reporting unit. The amendments in this update are effective for fiscal years beginning after
December 15, 2019,2023, including interim periods within those fiscal years. Early adoption is permitted for goodwill impairment tests performed on testing dates after January 1, 2017.permitted. The guidance isBank does not expectedexpect the adoption of ASU 2020-06 to have a significantmaterial impact on the Company’sits (consolidated) financial positions, resultsstatements.
10
ASU No. 2017-08 –2021-04 - In March 2017,May 2021, the FASB issued ASU No. 2017-08, “Receivables2021-04, “Earnings Per Share (Topic 260), Debt - Modifications and Extinguishments (Subtopic 470-50), Compensation - Stock Compensation (Topic 718), and Derivatives and Hedging – Nonrefundable Fees and Other CostsContracts in Entity’s Own Equity (Subtopic 310-20), Premium Amortization on Purchased Callable Debt Securities.” Under current GAAP, entities normally amortize the premium as an adjustment815-40): Issuer’s Accounting for Certain Modifications or Exchanges of yield over the contractual lifeFreestanding Equity – Classified Written Call Options (a consensus of the instrument. This guidance shortensFASB Emerging Issues Task Force).” The ASU addresses how an issuer should account for modifications or an exchange of freestanding written call options classified as equity that is not within the amortization periodscope of certain callable debt securities held at a premium toanother Topic. For both public and private companies, the earliest call date. This updateASU is effective for fiscal years, and interim periods within those fiscal years beginning after December 15, 2018.2021. Transition is prospective. Early adoption is permitted. The Company does not expect the adoption of ASU No. 2017-08 is not expected2021-04 to have a material impact on the Company’sits consolidated financial statements.
ASU No. 2017-09 –2021-06 - In May 2017,August 2021, the FASB issued ASU 2021-06, “'Presentation of Financial Statements (Topic 205), Financial Services—Depository and Lending (Topic 942), and Financial Services—Investment Companies (Topic 946): Amendments to SEC Paragraphs Pursuant to SEC Final Rule Releases No. 2017-09 “Stock Compensation, Scope33-10786, Amendments to Financial Disclosures about Acquired and Disposed Businesses, and No. 33-10835, Update of Modification Accounting.” Statistical Disclosures for Bank and Savings and Loan Registrants. This ASU clarifies whenincorporates recent SEC rule changes into the FASB Codification, including SEC Final Rule Releases No. 33-10786, Amendments to Financial Disclosures about Acquired and Disposed Businesses, and No. 33-10835, Update of Statistical Disclosures for Bank and Savings and Loan Registrants”. The ASU is effective upon addition to the terms of conditions of a share-based payment award must be accounted for as modifications. Companies will apply the modification accounting guidance if the value, vesting conditions or classification of the award changes.FASB Codification. The new guidance should reduce diversity in practice and result in fewer changes to the terms of an award being accounted for as modifications, as the guidance will allow companies to make certain non-substantive changes to awards without accounting for them as modifications. ItCompany does not changeexpect the accounting for modifications.adoption of ASU No. 2017-09 is effective for interim and annual reporting periods beginning after December 15, 2017; early adoption is permitted. ASU No. 2017-09 is not expected2021-06 to have a material impact on the Company’sits consolidated financial statements.
Recent Accounting Developments
10
Note 2 – Business Combination
Northwest Bank Branch Acquisition
On May 19, 2017,In December 2020, the Bank purchased three branches from Northwest BankConsolidated Appropriations Act of 2021 (“NWBI”CAA”) located in Arbutus, Elkridge,was passed. Under Section 541 of the CAA, Congress extended or modified many of the relief programs first created by the CARES Act, including the PPP loan program and Owings Mills, Maryland. Pursuanttreatment of certain loan modifications related to the transaction,COVID-19 pandemic. The Bank participated in the Bank acquired $122.9 million in loans and $212.5 million in deposits, as well as the branch premises and equipment. In connection with its purchasesecond round of the branches from Northwest, the Bank received a cash payment from Northwest of $64.0 million, which was net of a premium paid on deposits of $17.2 million. This acquisition provides the Bank with the opportunity to enhance its footprint in Maryland by extending its branch network across the Eastern Shore to the greater Baltimore area communities of Elkridge, Owings Mills and Arbutus.
The Company has accounted for the branch purchasesPPP lending under the acquisition methodCAA, which resulted in 959 PPP loans for approximately $67.3 million.
11
The acquired assets and assumed liabilities of the NWBI branches were measured at estimated fair value. Management made significant estimates and exercised significant judgement in accounting for the acquisition of the NWBI branches. Management evaluated expected cash flows, prepayment speeds and estimated loss factors to measure fair values for loans. Deposits were valued based upon interest rates, original and remaining terms and maturities, as well as current rates for similar funds in the same markets. Premises were based on recent appraised values, whereas equipment was acquired based on the remaining book value from NWBI, which approximated fair value. Management engaged independent outside experts to provide the fair value estimates.
The following table provides the purchase price as of the acquisition date, the identifiable assets acquired and liabilities assumed at their estimated fair values, and the resulting goodwill of $15.3 million recorded from the acquisition:
(in thousands)
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The total amount of goodwill arising from this transaction of $15.3 million is expected to be deductible for tax purposes, pursuant to section 197 of the Internal Revenue Code.
11
Contents
Acquired loans
The following table outlines the contractually required payments receivable, cash flows we expect to receive, and the accretable yield for all NWBI loans as of the acquisition date.
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| Required |
| Cash Flows |
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| Carrying Value | |||
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| Payments |
| Expected To Be |
| Accretable FMV |
| of Loans | ||||
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| Receivable |
| Collected |
| Adjustments |
| Receivable | ||||
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Performing loans acquired |
| $ | 125,131 |
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| 125,131 |
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| 2,269 |
| $ | 122,862 |
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The Company recorded all loans acquired at the estimated fair value on the purchase date with no carryover of the related allowance for loan losses. The Company only acquired loans which were deemed to be performing loans with no signs of credit deterioration.
The Company determined the net discounted value of cash flows on approximately 864 performing loans totaling $125.1 million. The valuation took into consideration the loans’ underlying characteristics, including account types, remaining terms, annual interest rates, interest types, past delinquencies, timing of principal and interest payments, current market rates, loan-to-value ratios, loss exposures, and remaining balances. These performing loans were segregated into pools based on loan and payment type. The effect of this fair valuation process was a net accretable discount adjustment of $2.3 million at acquisition.
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Note 32 – Earnings Per Share
Basic earnings per common share is calculated by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per common share is calculated by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the period, adjusted for the dilutive effect of potential common stock equivalents (stock-based awards). The following table provides information relating to the calculation of earnings per common share:
| | | | | | | | | | | | |
| | For the Three Months Ended | | For the Nine Months Ended | ||||||||
| | September 30, | | September 30, | ||||||||
(In thousands, except per share data) | | 2021 | | 2020 |
| 2021 |
| 2020 | ||||
Net Income | | $ | 4,616 | | $ | 3,391 | | $ | 12,645 | | $ | 11,844 |
Weighted average shares outstanding - Basic | | | 11,752 | | | 12,483 | |
| 11,750 | |
| 12,507 |
Dilutive effect of common stock equivalents-options | | | — | | | 1 | |
| — | |
| 2 |
Weighted average shares outstanding - Diluted | | | 11,752 | | | 12,484 | |
| 11,750 | |
| 12,509 |
| | | | | | | | | | | | |
Earnings per common share - Basic and Diluted | | $ | 0.39 | | $ | 0.27 | | $ | 1.08 | | $ | 0.95 |
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| For the Nine Months Ended | ||||||||
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| September 30, | ||||||||
(In thousands, except per share data) |
| 2017 |
| 2016 |
| 2017 |
| 2016 | ||||
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Net Income |
| $ | 3,412 |
| $ | 2,411 |
| $ | 8,564 |
| $ | 7,143 |
Weighted average shares outstanding - Basic |
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| 12,687 |
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| 12,661 |
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| 12,679 |
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| 12,648 |
Dilutive effect of common stock equivalents-options |
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| 21 |
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| - |
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| 21 |
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| - |
Dilutive effect of common stock equivalents-restricted stock units |
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| 8 |
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| 15 |
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| 6 |
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| 15 |
Weighted average shares outstanding - Diluted |
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| 12,716 |
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| 12,676 |
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| 12,706 |
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| 12,663 |
Earnings per common share - Basic |
| $ | 0.27 |
| $ | 0.19 |
| $ | 0.68 |
| $ | 0.56 |
Earnings per common share - Diluted |
| $ | 0.27 |
| $ | 0.19 |
| $ | 0.67 |
| $ | 0.56 |
There were no0 weighted average common stock equivalents excluded from the calculation of diluted earnings per share for the three and nine months ended September 30, 20172021 and 2016.2020.
Note 43 – Investment Securities
The following table providestables provide information on the amortized cost and estimated fair values of investmentdebt securities.
| | | | | | | | | | | | |
|
| | |
| Gross |
| Gross |
| Estimated | |||
| | Amortized | | Unrealized | | Unrealized | | Fair | ||||
(Dollars in thousands) | | Cost | | Gains | | Losses | | Value | ||||
Available-for-sale securities: | | | | | | | | | | | | |
September 30, 2021 | | | | | | | | | | | | |
U.S. Government agencies | | $ | 18,557 | | $ | 4 | | $ | 578 | | $ | 17,983 |
Mortgage-backed | |
| 86,254 | |
| 1,634 | |
| 746 | |
| 87,142 |
Total | | $ | 104,811 | | $ | 1,638 | | $ | 1,324 | | $ | 105,125 |
| | | | | | | | | | | | |
December 31, 2020 | | | | | | | | | | | | |
U.S. Government agencies | | $ | 23,600 | | $ | 20 | | $ | 83 | | $ | 23,537 |
Mortgage-backed | |
| 113,865 | |
| 2,234 | |
| 68 | |
| 116,031 |
Total | | $ | 137,465 | | $ | 2,254 | | $ | 151 | | $ | 139,568 |
NaN available for sale securities were sold during the three and nine months ended September 30, 2021. During the three months ended September 30, 2020, 0 available for sale securities were sold. During the nine months ended September 30, 2020, the Company sold available for sale securities for proceeds of $13.0 million and recognized gross gains of $347 thousand.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Gross |
| Gross |
| Estimated | |||
|
| Amortized |
| Unrealized |
| Unrealized |
| Fair | ||||
(Dollars in thousands) |
| Cost |
| Gains |
| Losses |
| Value | ||||
Available-for-sale securities: |
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agencies |
| $ | 52,093 |
| $ | 64 |
| $ | 154 |
| $ | 52,003 |
Mortgage-backed |
|
| 160,645 |
|
| 660 |
|
| 580 |
|
| 160,725 |
Equity |
|
| 662 |
|
| - |
|
| - |
|
| 662 |
Total |
| $ | 213,400 |
| $ | 724 |
| $ | 734 |
| $ | 213,390 |
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agencies |
| $ | 34,320 |
| $ | 56 |
| $ | 58 |
| $ | 34,318 |
Mortgage-backed |
|
| 130,490 |
|
| 263 |
|
| 1,809 |
|
| 128,944 |
Equity |
|
| 652 |
|
| - |
|
| 12 |
|
| 640 |
Total |
| $ | 165,462 |
| $ | 319 |
| $ | 1,879 |
| $ | 163,902 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity securities: |
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agencies |
| $ | 1,837 |
| $ | 42 |
| $ | - |
| $ | 1,879 |
States and political subdivisions |
|
| 1,404 |
|
| 61 |
|
| - |
|
| 1,465 |
Other debt securities (1) |
|
| 3,000 |
|
| 107 |
|
| - |
|
| 3,107 |
Total |
| $ | 6,241 |
| $ | 210 |
| $ | - |
| $ | 6,451 |
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agencies |
| $ | 2,089 |
| $ | 26 |
| $ | - |
| $ | 2,115 |
States and political subdivisions |
|
| 1,615 |
|
| 76 |
|
| - |
|
| 1,691 |
Other debt securities (1) |
|
| 3,000 |
|
| - |
|
| - |
|
| 3,000 |
Total |
| $ | 6,704 |
| $ | 102 |
| $ | - |
| $ | 6,806 |
12
|
|
| | | | | | | | | | | | |
|
| | |
| Gross |
| Gross |
| Estimated | |||
| | Amortized | | Unrealized | | Unrealized | | Fair | ||||
(Dollars in thousands) | | Cost | | Gains | | Losses | | Value | ||||
Held-to-maturity securities: |
| | |
| | |
| | |
| | |
September 30, 2021 | | | | | | | | | | | | |
U.S. Government agencies | | $ | 67,772 | | $ | 26 | | $ | 556 | | $ | 67,242 |
Mortgage-backed | | | 169,802 | | | 36 | | | 2,302 | | | 167,536 |
States and political subdivisions | |
| 400 | |
| 2 | |
| — | |
| 402 |
Other debt securities | |
| 12,527 | |
| 133 | |
| 5 | |
| 12,655 |
Total | | $ | 250,501 | | $ | 197 | | $ | 2,863 | | $ | 247,835 |
| | | | | | | | | | | | |
December 31, 2020 | | | | | | | | | | | | |
U.S. Government agencies | | $ | 18,893 | | $ | 38 | | $ | 43 | | $ | 18,888 |
Mortgage-backed | | | 27,347 | | | 7 | | | 18 | | | 27,336 |
States and political subdivisions | |
| 400 | |
| 1 | |
| — | |
| 401 |
Other debt securities | |
| 19,066 | |
| 139 | |
| 2 | |
| 19,203 |
Total | | $ | 65,706 | | $ | 185 | | $ | 63 | | $ | 65,828 |
13Equity securities with an aggregate fair value of $1.4 million at September 30, 2021 and December 31, 2020 are presented separately on the balance sheet. The fair value adjustment recorded through earnings totaled $(24) thousand for the nine months ended September 30, 2021 and $34 thousand for the nine months ended September 30, 2020, respectively.
The following tables provide information about gross unrealized losses and fair value by length of time that the individual securities have been in a continuous unrealized loss position at September 30, 20172021 and December 31, 2016.2020.
| | | | | | | | | | | | | | | | | | |
| | Less than | | More than | | | | | | | ||||||||
| | 12 Months | | 12 Months | | Total | ||||||||||||
|
| Fair |
| Unrealized |
| Fair |
| Unrealized |
| Fair |
| Unrealized | ||||||
(Dollars in thousands) | | Value | | Losses | | Value | | Losses | | Value | | Losses | ||||||
September 30, 2021 | | | | | | | | | | | | | | | | | | |
Available-for-sale securities: | | | | | | | | | | | | | | | | | | |
U.S. Government agencies | | $ | 2,886 | | $ | 113 | | $ | 14,746 | | $ | 465 | | $ | 17,632 | | $ | 578 |
Mortgage-backed | |
| 37,837 | |
| 723 | |
| 3,947 | |
| 23 | |
| 41,784 | |
| 746 |
Total | | $ | 40,723 | | $ | 836 | | $ | 18,693 | | $ | 488 | | $ | 59,416 | | $ | 1,324 |
| | | | | | | | | | | | | | | | | | |
Held-to-maturity securities: | | | | | | | | | | | | | | | | | | |
U.S. Government agencies | | $ | 61,371 | | $ | 556 | | $ | — | | $ | — | | $ | 61,371 | | $ | 556 |
Mortgage-backed | | | 155,548 | | | 2,302 | | | — | | | — | | | 155,548 | | | 2,302 |
Other debt securities | | | 495 | | | 5 | | | — | | | — | | | 495 | | | 5 |
Total | | $ | 217,414 | | $ | 2,863 | | $ | — | | $ | — | | $ | 217,414 | | $ | 2,863 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Less than |
| More than |
|
|
|
|
|
| ||||||||
|
| 12 Months |
| 12 Months |
| Total | ||||||||||||
|
| Fair |
| Unrealized |
| Fair |
| Unrealized |
| Fair |
| Unrealized | ||||||
(Dollars in thousands) |
| Value |
| Losses |
| Value |
| Losses |
| Value |
| Losses | ||||||
September 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agencies |
| $ | 40,819 |
| $ | 150 |
| $ | 2,998 |
| $ | 4 |
| $ | 43,817 |
| $ | 154 |
Mortgage-backed |
|
| 60,113 |
|
| 289 |
|
| 11,086 |
|
| 291 |
|
| 71,199 |
|
| 580 |
Total |
| $ | 100,932 |
| $ | 439 |
| $ | 14,084 |
| $ | 295 |
| $ | 115,016 |
| $ | 734 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Less than |
| More than |
|
|
|
|
|
| ||||||||
|
| 12 Months |
| 12 Months |
| Total | ||||||||||||
|
| Fair |
| Unrealized |
| Fair |
| Unrealized |
| Fair |
| Unrealized | ||||||
(Dollars in thousands) |
| Value |
| Losses |
| Value |
| Losses |
| Value |
| Losses | ||||||
December 31, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agencies |
| $ | 11,926 |
| $ | 58 |
| $ | - |
| $ | - |
| $ | 11,926 |
| $ | 58 |
Mortgage-backed |
|
| 100,237 |
|
| 1,546 |
|
| 9,208 |
|
| 263 |
|
| 109,445 |
|
| 1,809 |
Equity securities |
|
| 640 |
|
| 12 |
|
| - |
|
| - |
|
| 640 |
|
| 12 |
Total |
| $ | 112,803 |
| $ | 1,616 |
| $ | 9,208 |
| $ | 263 |
| $ | 122,011 |
| $ | 1,879 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
| | | | | | | | | | | | | | | | | | |
| | Less than | | More than | | | | | | | ||||||||
| | 12 Months | | 12 Months | | Total | ||||||||||||
|
| Fair |
| Unrealized |
| Fair |
| Unrealized |
| Fair |
| Unrealized | ||||||
(Dollars in thousands) | | Value | | Losses | | Value | | Losses | | Value | | Losses | ||||||
December 31, 2020 | | | | | | | | | | | | | | | | | | |
Available-for-sale securities: | | | | | | | | | | | | | | | | | | |
U.S. Government agencies | | $ | 14,919 | | $ | 82 | | $ | 236 | | $ | 1 | | $ | 15,155 | | $ | 83 |
Mortgage-backed | |
| 11,869 | |
| 68 | |
| — | |
| — | |
| 11,869 | |
| 68 |
Total | | $ | 26,788 | | $ | 150 | | $ | 236 | | $ | 1 | | $ | 27,024 | | $ | 151 |
| | | | | | | | | | | | | | | | | | |
Held-to-maturity securities: | | | | | | | | | | | | | | | | | | |
U.S. Government agencies | | $ | 6,646 | | $ | 43 | | $ | — | | $ | — | | $ | 6,646 | | $ | 43 |
Mortgage-backed | | | 5,093 | | | 18 | | | — | | | — | | | 5,093 | | | 18 |
Other debt securities | |
| 498 | |
| 2 | |
| — | |
| — | |
| 498 | |
| 2 |
Total | | $ | 12,237 | | $ | 63 | | $ | — | | $ | — | | $ | 12,237 | | $ | 63 |
All of the securities with unrealized losses in the portfolio have modest duration risk, low credit risk, and minimal losses when compared to total amortized cost. The unrealized losses on debt securities that exist are the result of market changes in interest rates since original purchase. Because the Company does not intend to sell these securities and it is not more likely than not that the Company will be required to sell these securities before recovery of their amortized cost bases,basis, which may be at maturity for debt securities, the Company considers the unrealized losses to be temporary.
There were 19 available-for-sale securities and NaN held-to-maturity securities in an unrealized loss position at September 30, 2021.
The following table provides information on the amortized cost and estimated fair values of investment securities by maturity date at September 30, 2017.2021.
| | | | | | | | | | | | |
| | Available for sale | | Held to maturity | ||||||||
|
| Amortized |
| | |
| Amortized |
| | | ||
(Dollars in thousands) | | Cost | | Fair Value | | Cost | | Fair Value | ||||
Due in one year or less | | $ | — | | $ | — | | $ | 2,921 | | $ | 2,954 |
Due after one year through five years | |
| 799 | |
| 825 | |
| 9,982 | |
| 9,959 |
Due after five years through ten years | |
| 51,665 | |
| 52,410 | |
| 55,874 | |
| 55,560 |
Due after ten years | |
| 52,347 | |
| 51,890 | |
| 181,724 | |
| 179,362 |
Total | | $ | 104,811 | | $ | 105,125 | | $ | 250,501 | | $ | 247,835 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Available for sale |
| Held to maturity | ||||||||
|
| Amortized |
| Estimated |
| Amortized |
| Estimated | ||||
(Dollars in thousands) |
| Cost |
| Fair Value |
| Cost |
| Fair Value | ||||
Due in one year or less |
| $ | 9,000 |
| $ | 8,996 |
| $ | - |
| $ | - |
Due after one year through five years |
|
| 40,973 |
|
| 40,831 |
|
| 902 |
|
| 946 |
Due after five years through ten years |
|
| 34,242 |
|
| 34,241 |
|
| 3,502 |
|
| 3,626 |
Due after ten years |
|
| 128,523 |
|
| 128,660 |
|
| 1,837 |
|
| 1,879 |
|
|
| 212,738 |
|
| 212,728 |
|
| 6,241 |
|
| 6,451 |
Equity securities |
|
| 662 |
|
| 662 |
|
| - |
|
| - |
Total |
| $ | 213,400 |
| $ | 213,390 |
| $ | 6,241 |
| $ | 6,451 |
The maturity dates for debt securities are determined using contractual maturity dates.
14
Note 54 – Loans and Allowance for Credit Losses
The Company makes residential mortgage, commercial and consumer loans to customers primarily in Talbot County, Queen Anne’s County, Kent County, Caroline County, Dorchester County, Worcester County, Baltimore County and
14
Howard County in Maryland, Kent County, Delaware and Accomack County, Virginia. The following table provides information about the principal classes of the loan portfolio at September 30, 20172021 and December 31, 2016.2020.
| | | | | | | |
(Dollars in thousands) |
| September 30, 2021 |
| December 31, 2020 |
| ||
Construction | | $ | 130,590 | | $ | 106,760 | |
Residential real estate | |
| 460,890 | |
| 443,542 | |
Commercial real estate | |
| 663,894 | |
| 661,232 | |
Commercial | |
| 145,217 | |
| 211,256 | |
Consumer | |
| 94,306 | |
| 31,466 | |
Total loans | |
| 1,494,897 | |
| 1,454,256 | |
Allowance for credit losses | |
| (15,525) | |
| (13,888) | |
Total loans, net | | $ | 1,479,372 | | $ | 1,440,368 | |
|
|
|
|
|
|
|
(Dollars in thousands) |
| September 30, 2017 |
| December 31, 2016 | ||
Construction |
| $ | 106,617 |
| $ | 84,002 |
Residential real estate |
|
| 387,722 |
|
| 325,768 |
Commercial real estate |
|
| 454,626 |
|
| 382,681 |
Commercial |
|
| 91,799 |
|
| 72,435 |
Consumer |
|
| 6,483 |
|
| 6,639 |
Total loans |
|
| 1,047,247 |
|
| 871,525 |
Allowance for credit losses |
|
| (9,295) |
|
| (8,726) |
Total loans, net |
| $ | 1,037,952 |
| $ | 862,799 |
Loans are stated at their principal amount outstanding net of any purchase premiums,premiums/discounts, deferred fees and costs. Loans included deferred fees, net of costs, of $376 thousand and discounts on acquired loans of $577 thousand at September 30, 2021. Loans included deferred costs, net of deferred fees, of $632$622 thousand and discounts on acquired loans of $2.0 million at September 30, 2017. Loans included deferred costs, net of deferred fees, of $509$754 thousand at December 31, 2016.2020. At September 30, 2021 and December 31, 2020, included in total loans were $40.5 million and $52.3 million in loans, respectively, acquired as part of the NWBI branch acquisition in 2017. Interest income on loans is accrued at the contractual rate based on the principal amount outstanding. feesFees charged and costs capitalized for originating loans are being amortized substantially on the interest method over the term of the loan. A loan is placed on nonaccrual (i.e., interest income is no longer accrued) when it is specifically determined to be impaired or when principal or interest is delinquent for 90 days or more, unless the loan is well secured and in the process of collection. Any unpaid interest previously accrued on those loans is reversed from income.
Interest payments received on nonaccrual loans are applied as a reduction of the loan principal balance unless collectability of the principal amount is reasonably assured, in which case interest is recognized on a cash basis. Loans are returned to accrual status when all principal and interest amounts contractually due are brought current and future payments are reasonably assured.
A loan is considered impaired if it is probable that the Company will not collect all principal and interest payments according to the loan’s contractual terms.terms when due. An impaired loan may show deficiencies in the borrower’s overall financial condition, payment history, support available from financial guarantors and/or the fair market value of collateral. The impairment of a loan is measured at the present value of expected future cash flows using the loan’s effective interest rate, or at the loan’s observable market price or the fair value of the collateral if the loan is collateral dependent. Generally, the Company measures impairment on such loans by reference to the fair value of the collateral. Once the amount of impairment has been determined, the uncollectible portion is charged off. IncomeLoan payments received on nonaccrual impaired loans isare generally applied to the outstanding principal balance. In certain circumstances, income may be recognized on a cash basis, and payments are first applied against the principal balance outstanding (i.e., placing impaired loans on nonaccrual status).basis. Generally, interest income is not recognized on impaired loans unless the likelihood of further loss is remote. The allowance for credit losses may include specific reserves related to impaired loans. Specific reserves remain until charge offs are made. Impaired loans do not include groups of smaller balance homogenous loans such as residential mortgage and consumer installment loans that are evaluated collectively for impairment. Reserves for probable credit losses related to these loans are based on historical loss ratios and are included in the formula portion of the allowance for credit losses. See additional discussion under the caption “Critical Accounting Policies” in Management’s Discussion and Analysis of Financial Condition and Results of Operations.
A loan is considered a troubled debt restructuring (“TDR”)TDR if a borrower is experiencing financial difficulties and a creditor has granted a concession. Concessions may include interest rate reductions or below market interest rates, principal forgiveness, restructuring amortization schedules and other actions intended to minimize potential losses. Loans are identified to be restructured when signs of impairment arise such as borrower interest rate reduction request, slowness to pay, or when an inability to repay becomes evident. The terms being offered are evaluated to determine if they are more liberal than those that would be indicated by policy or industry standards for similar, untroubled credits. In those situations where the terms or the interest rates are considered to be more favorable than industry standards or the Bank’s current underwriting guidelines of the Company’s banking subsidiary, Shore United Bank (the “Bank”), the loan is classified as a TDR. All loans designated as TDRs are considered impaired loans and may be on either accrual or nonaccrual status. In instances where the loan has been placed on nonaccrual status, six consecutive months of timely payments are required prior to returning the loan to accrual status.
15
All loans classified as TDRs which are restructured and accrue interest under revised terms require a full and comprehensive review of the borrower’s financial condition, capacity for repayment, realistic assessment of collateral values, and the assessment of risk entered into any workout agreement. Current financial information on the borrower, guarantor, and underlying collateral is analyzed to determine if it supports the ultimate collection of principal and interest. For commercial loans, the cash flows are analyzed, both for the underlying project and globally. For consumer loans, updated salary, credit history and cash flow information is obtained. Current market conditions are also considered. Following a full analysis, the determination of the appropriate loan structure is made.
In April 2020, the Company began its participation in the Paycheck Protection Program (“PPP”). The PPP commenced subsequent to the passage of the Coronavirus Aid, Relief and Economic Security (“CARES”) Act in March 2020, and was later expanded by the Paycheck Protection Program and Health Care Enhancement Act of April 2020. The PPP was designed to provide U.S. small businesses with cash-flow assistance during the COVID-19 pandemic through loans that are fully guaranteed by the Small Business Administration (“SBA”) which may be forgiven upon satisfaction of certain criteria. In December 2020, the Consolidated Appropriations Act of 2021 (“CAA”) was passed. Under Section 541 of the CAA, Congress extended or modified many of the relief programs first created by the CARES Act, including the PPP loan program and treatment of certain loan modifications related to the COVID-19 pandemic. This extension of PPP lending expired on May 31, 2021. Under both the CARES and CAA, the Company funded 2,454 loans for a cumulative balance of $196.3 million. As of September 30, 2021, the Company held PPP loans with a total outstanding balance of $41.5 million, which is included in the commercial loan segment in the table above. The decrease is due to repayment and forgiveness received as of September 30, 2021. As compensation for originating the loans, the Company received lender processing fees from the SBA, which were deferred, along with the related loan origination costs. These net fees are being accreted to interest income over the remaining contractual lives of the loans. Upon forgiveness of a PPP loan and repayment by the SBA, which may be prior to the loan’s maturity, the remainder of any unrecognized net fees are recognized as interest income.
In the normal course of banking business, risks related to specific loan categories are as follows:
Construction loans – Construction loans generallyare offered primarily to builders and individuals to finance the construction of residential real estate for builders and individuals for single familysingle-family dwellings. In addition, the Bank periodically finances the construction of commercial projects. Credit risk factors include the borrower’s ability to successfully complete the construction on time and within budget, changing market conditions which could affect the value and marketability of projects, changes in the borrower’s ability or willingness to repay the loan and potentially rising interest rates which can impact both the borrower’s ability to repay and the collateral value.
Residential real estate – Residential real estate loans are typically made to consumers and are secured by residential real estate. Credit risk arises from the borrower’s continuing financial stability, which can be adversely impacted by job loss, divorce, illness, or personal bankruptcy, among other factors. Also impacting credit risk would be a shortfall in the value of the residential real estate in relation to the outstanding loan balance in the event of a default or subsequent liquidation of the real estate collateral.
Commercial real estate – Commercial real estate loans consist of both loans secured by owner occupied properties and non-owner occupied properties where an established banking relationship exists and involves investment properties for warehouse, retail, and office space with a history of occupancy and cash flow. These loans are subject to adverse changes in the local economy and commercial real estate markets. Credit risk associated with owner occupied properties arises from the borrower’s financial stability and the ability of the borrower and the business to repay the loan. Non-owner occupied properties carry the risk of a tenant’s deteriorating credit strength, lease expirations in soft markets and sustained vacancies which can adversely impact cash flow.
Commercial – Commercial loans are secured or unsecured loans for business purposes. Loans are typically secured by accounts receivable, inventory, equipment and/or other assets of the business. Credit risk arises from the successful operation of the business which may be affected by competition, rising interest rates, regulatory changes and adverse conditions in the local and regional economy.
16
Consumer – Consumer loans include home equity loans and lines, installment loans and personal lines of credit. Credit risk is similar to residential real estate loans above as it is subject to the borrower’s continuing financial stability and the value of the collateral securing the loan.
16
The following tables include impairment information relating to loans and the allowance for credit losses as of September 30, 20172021 and December 31, 2016.2020.
| | | | | | | | | | | | | | | | | | |
|
| | |
| Residential |
| Commercial |
| | |
| | |
| | | ||
(Dollars in thousands) | | Construction | | real estate | | real estate | | Commercial | | Consumer | | Total | ||||||
September 30, 2021 | | | | | | | | | | | | | | | | | | |
Loans individually evaluated for impairment | | $ | 324 | | $ | 4,007 | | $ | 5,397 | | $ | 227 | | $ | — | | $ | 9,955 |
Loans collectively evaluated for impairment | |
| 130,266 | |
| 456,883 | |
| 658,497 | |
| 144,990 | |
| 94,306 | |
| 1,484,942 |
Total loans | | $ | 130,590 | | $ | 460,890 | | $ | 663,894 | | $ | 145,217 | | $ | 94,306 | | $ | 1,494,897 |
| | | | | | | | | | | | | | | | | | |
Allowance for credit losses allocated to: | | | | | | | | | | | | | | | | | | |
Loans individually evaluated for impairment | | $ | — | | $ | 84 | | $ | — | | $ | — | | $ | — | | $ | 84 |
Loans collectively evaluated for impairment | |
| 2,621 | |
| 3,814 | |
| 5,527 | |
| 1,852 | |
| 1,627 | |
| 15,441 |
Total allowance | | $ | 2,621 | | $ | 3,898 | | $ | 5,527 | | $ | 1,852 | | $ | 1,627 | | $ | 15,525 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Residential |
| Commercial |
|
|
|
|
|
| |||||
(Dollars in thousands) |
| Construction |
| real estate |
| real estate |
| Commercial |
| Consumer |
| Total | ||||||
September 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans individually |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
evaluated for impairment |
| $ | 6,986 |
| $ | 7,190 |
| $ | 5,265 |
| $ | 341 |
| $ | - |
| $ | 19,782 |
Loans collectively |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
evaluated for impairment |
|
| 99,631 |
|
| 380,532 |
|
| 449,361 |
|
| 91,458 |
|
| 6,483 |
|
| 1,027,465 |
Total loans |
| $ | 106,617 |
| $ | 387,722 |
| $ | 454,626 |
| $ | 91,799 |
| $ | 6,483 |
| $ | 1,047,247 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for credit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
losses allocated to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans individually |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
evaluated for impairment |
| $ | 589 |
| $ | 251 |
| $ | 35 |
| $ | - |
| $ | - |
| $ | 875 |
Loans collectively |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
evaluated for impairment |
|
| 1,652 |
|
| 1,792 |
|
| 2,849 |
|
| 1,804 |
|
| 323 |
|
| 8,420 |
Total allowance |
| $ | 2,241 |
| $ | 2,043 |
| $ | 2,884 |
| $ | 1,804 |
| $ | 323 |
| $ | 9,295 |
| | | | | | | | | | | | | | | | | | |
|
| | |
| Residential |
| Commercial |
| | |
| | |
| | | ||
(Dollars in thousands) | | Construction | | real estate | | real estate | | Commercial | | Consumer | | Total | ||||||
December 31, 2020 | | | | | | | | | | | | | | | | | | |
Loans individually evaluated for impairment | | $ | 331 | | $ | 5,722 | | $ | 6,917 | | $ | 258 | | $ | 28 | | $ | 13,256 |
Loans collectively evaluated for impairment | |
| 106,429 | |
| 437,820 | |
| 654,315 | |
| 210,998 | |
| 31,438 | |
| 1,441,000 |
Total loans | | $ | 106,760 | | $ | 443,542 | | $ | 661,232 | | $ | 211,256 | | $ | 31,466 | | $ | 1,454,256 |
| | | | | | | | | | | | | | | | | | |
Allowance for credit losses allocated to: | | | | | | | | | | | | | | | | | | |
Loans individually evaluated for impairment | | $ | — | | $ | 135 | | $ | 78 | | $ | — | | $ | — | | $ | 213 |
Loans collectively evaluated for impairment | |
| 2,022 | |
| 3,564 | |
| 5,348 | |
| 2,089 | |
| 652 | |
| 13,675 |
Total allowance | | $ | 2,022 | | $ | 3,699 | | $ | 5,426 | | $ | 2,089 | | $ | 652 | | $ | 13,888 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Residential |
| Commercial |
|
|
|
|
|
| |||||
(Dollars in thousands) |
| Construction |
| real estate |
| real estate |
| Commercial |
| Consumer |
| Total | ||||||
December 31, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans individually |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
evaluated for impairment |
| $ | 8,007 |
| $ | 7,778 |
| $ | 6,088 |
| $ | - |
| $ | 99 |
| $ | 21,972 |
Loans collectively |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
evaluated for impairment |
|
| 75,995 |
|
| 317,990 |
|
| 376,593 |
|
| 72,435 |
|
| 6,540 |
|
| 849,553 |
Total loans |
| $ | 84,002 |
| $ | 325,768 |
| $ | 382,681 |
| $ | 72,435 |
| $ | 6,639 |
| $ | 871,525 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for credit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
losses allocated to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans individually |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
evaluated for impairment |
| $ | 1,639 |
| $ | 317 |
| $ | 185 |
| $ | - |
| $ | - |
| $ | 2,141 |
Loans collectively |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
evaluated for impairment |
|
| 1,148 |
|
| 1,636 |
|
| 2,425 |
|
| 1,145 |
|
| 231 |
|
| 6,585 |
Total allowance |
| $ | 2,787 |
| $ | 1,953 |
| $ | 2,610 |
| $ | 1,145 |
| $ | 231 |
| $ | 8,726 |
17
The following tables provide information on impaired loans and any related allowance by loan class as of September 30, 20172021 and December 31, 2016.2020. The difference between the unpaid principal balance and the recorded investment is the amount of partial charge-offs that have been taken.taken and interest paid on nonaccrual loans that has been applied to principal.
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
|
| | |
| Recorded |
| Recorded |
| | |
| | | | | | | | | ||
| | Unpaid | | investment | | investment | | | | | Quarter-to-date | | Year-to-date | | Interest | ||||||
| | principal | | with no | | with an | | Related | | average recorded | | average recorded | | recorded | |||||||
(Dollars in thousands) | | balance | | allowance | | allowance | | allowance | | investment | | investment | | investment | |||||||
September 30, 2021 | | | | | | | | | | | | | | | | | | | | | |
Impaired nonaccrual loans: | | | | | | | | | | | | | | | | | | | | | |
Construction | | $ | 297 | | $ | 297 | | $ | — | | $ | — | | $ | 297 | | $ | 297 | | $ | — |
Residential real estate | |
| 899 | |
| 817 | |
| — | |
| — | |
| 959 | |
| 1,191 | |
| — |
Commercial real estate | |
| 2,504 | |
| 2,116 | |
| — | |
| — | |
| 2,150 | |
| 2,459 | |
| — |
Commercial | |
| 385 | |
| 227 | |
| — | |
| — | |
| 230 | |
| 241 | |
| — |
Consumer | |
| — | | | — | | | — | | | — | | | — | | | 12 | | | — |
Total | | $ | 4,085 | | $ | 3,457 | | $ | — | | $ | — | | $ | 3,636 | | $ | 4,200 | | $ | — |
| | | | | | | | | | | | | | | | | | | | | |
Impaired accruing TDRs: | | | | | | | | | | | | | | | | | | | | | |
Construction | | $ | 27 | | $ | 27 | | $ | — | | $ | — | | $ | 28 | | $ | 31 | | $ | 2 |
Residential real estate | |
| 2,863 | |
| 1,754 | |
| 1,109 | |
| 84 | |
| 2,871 | |
| 3,252 | |
| 118 |
Commercial real estate | |
| 2,860 | |
| 2,860 | |
| — | |
| — | |
| 2,913 | |
| 2,994 | |
| 67 |
Commercial | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Consumer | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Total | | $ | 5,750 | | $ | 4,641 | | $ | 1,109 | | $ | 84 | | $ | 5,812 | | $ | 6,277 | | $ | 187 |
| | | | | | | | | | | | | | | | | | | | | |
Other impaired accruing loans: | | | | | | | | | | | | | | | | | | | | | |
Construction | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — |
Residential real estate | |
| 327 | |
| 327 | |
| — | |
| — | |
| 328 | |
| 513 | |
| 7 |
Commercial real estate | |
| 421 | |
| 421 | |
| — | |
| — | |
| 421 | |
| 470 | |
| 10 |
Commercial | |
| — | |
| — | |
| — | |
| — | |
| — | |
| 17 | |
| — |
Consumer | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Total | | $ | 748 | | $ | 748 | | $ | — | | $ | — | | $ | 749 | | $ | 1,000 | | $ | 17 |
| | | | | | | | | | | | | | | | | | | | | |
Total impaired loans: | | | | | | | | | | | | | | | | | | | | | |
Construction | | $ | 324 | | $ | 324 | | $ | — | | $ | — | | $ | 325 | | $ | 328 | | $ | 2 |
Residential real estate | |
| 4,089 | |
| 2,898 | |
| 1,109 | |
| 84 | |
| 4,158 | |
| 4,956 | |
| 125 |
Commercial real estate | |
| 5,785 | |
| 5,397 | |
| — | |
| — | |
| 5,484 | |
| 5,923 | |
| 77 |
Commercial | |
| 385 | |
| 227 | |
| — | |
| — | |
| 230 | |
| 258 | |
| — |
Consumer | |
| — | |
| — | |
| — | |
| — | |
| — | |
| 12 | |
| — |
Total | | $ | 10,583 | | $ | 8,846 | | $ | 1,109 | | $ | 84 | | $ | 10,197 | | $ | 11,477 | | $ | 204 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Recorded |
|
| Recorded |
|
|
| Quarter-to- |
| Year-to-date |
|
|
| ||||
|
| Unpaid |
|
| investment |
|
| investment |
|
|
| date average |
| average |
| Interest | |||||
|
| principal |
|
| with no |
|
| with an |
| Related |
| recorded |
| recorded |
| income | |||||
(Dollars in thousands) |
| balance |
|
| allowance |
|
| allowance |
| allowance |
| investment |
| investment |
| recognized | |||||
September 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired nonaccrual loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction |
| $ | 3,035 |
| $ | 125 |
| $ | 2,828 |
| $ | 548 |
| $ | 2,890 |
| $ | 3,253 |
| $ | - |
Residential real estate |
|
| 2,736 |
|
| 2,439 |
|
| 126 |
|
| 23 |
|
| 2,840 |
|
| 3,573 |
|
| - |
Commercial real estate |
|
| 1,075 |
|
| 430 |
|
| - |
|
| - |
|
| 489 |
|
| 627 |
|
| - |
Commercial |
|
| 425 |
|
| 341 |
|
| - |
|
| - |
|
| 344 |
|
| 153 |
|
| - |
Consumer |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 55 |
|
| - |
Total |
| $ | 7,271 |
| $ | 3,335 |
| $ | 2,954 |
| $ | 571 |
| $ | 6,563 |
| $ | 7,661 |
| $ | - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired accruing TDRs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction |
| $ | 4,033 |
| $ | 3,098 |
| $ | 935 |
| $ | 41 |
| $ | 4,034 |
| $ | 4,086 |
| $ | 82 |
Residential real estate |
|
| 4,625 |
|
| 2,190 |
|
| 2,435 |
|
| 228 |
|
| 3,691 |
|
| 3,620 |
|
| 117 |
Commercial real estate |
|
| 4,835 |
|
| 4,094 |
|
| 741 |
|
| 35 |
|
| 4,841 |
|
| 4,872 |
|
| 145 |
Commercial |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Consumer |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Total |
| $ | 13,493 |
| $ | 9,382 |
| $ | 4,111 |
| $ | 304 |
| $ | 12,566 |
| $ | 12,578 |
| $ | 344 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total impaired loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction |
| $ | 7,068 |
| $ | 3,223 |
| $ | 3,763 |
| $ | 589 |
| $ | 6,924 |
| $ | 7,339 |
| $ | 82 |
Residential real estate |
|
| 7,361 |
|
| 4,629 |
|
| 2,561 |
|
| 251 |
|
| 6,531 |
|
| 7,193 |
|
| 117 |
Commercial real estate |
|
| 5,910 |
|
| 4,524 |
|
| 741 |
|
| 35 |
|
| 5,330 |
|
| 5,499 |
|
| 145 |
Commercial |
|
| 425 |
|
| 341 |
|
| - |
|
| - |
|
| 344 |
|
| 153 |
|
| - |
Consumer |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 55 |
|
| - |
Total |
| $ | 20,764 |
| $ | 12,717 |
| $ | 7,065 |
| $ | 875 |
| $ | 19,129 |
| $ | 20,239 |
| $ | 344 |
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| September 30, 2016 | |||||||
|
|
|
|
| Recorded |
|
| Recorded |
|
|
|
| Quarter-to- |
| Year-to-date |
|
|
| |||
|
| Unpaid |
|
| investment |
|
| investment |
|
|
| date average |
| average |
| Interest | |||||
|
| principal |
|
| with no |
|
| with an |
| Related |
| recorded |
| recorded |
| income | |||||
(Dollars in thousands) |
| balance |
|
| allowance |
|
| allowance |
| allowance |
| investment |
| investment |
| recognized | |||||
December 31, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired nonaccrual loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction |
| $ | 7,247 |
| $ | - |
| $ | 3,818 |
| $ | 1,621 |
| $ | 5,361 |
| $ | 6,022�� |
| $ | - |
Residential real estate |
|
| 4,013 |
|
| 1,957 |
|
| 1,946 |
|
| 166 |
|
| 4,012 |
|
| 3,406 |
|
| - |
Commercial real estate |
|
| 1,801 |
|
| 959 |
|
| 193 |
|
| 117 |
|
| 2,177 |
|
| 2,265 |
|
| - |
Commercial |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 108 |
|
| 143 |
|
| - |
Consumer |
|
| 99 |
|
| 99 |
|
| - |
|
| - |
|
| 99 |
|
| 109 |
|
| - |
Total |
| $ | 13,160 |
| $ | 3,015 |
| $ | 5,957 |
| $ | 1,904 |
| $ | 11,757 |
| $ | 11,945 |
| $ | - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired accruing TDRs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction |
| $ | 4,189 |
| $ | 3,479 |
| $ | 710 |
| $ | 18 |
| $ | 4,213 |
| $ | 4,166 |
| $ | 74 |
Residential real estate |
|
| 3,875 |
|
| 2,829 |
|
| 1,046 |
|
| 151 |
|
| 4,100 |
|
| 4,900 |
|
| 149 |
Commercial real estate |
|
| 4,936 |
|
| 1,573 |
|
| 3,363 |
|
| 68 |
|
| 4,982 |
|
| 5,137 |
|
| 127 |
Commercial |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Consumer |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Total |
| $ | 13,000 |
| $ | 7,881 |
| $ | 5,119 |
| $ | 237 |
| $ | 13,295 |
| $ | 14,203 |
| $ | 350 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total impaired loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction |
| $ | 11,436 |
| $ | 3,479 |
| $ | 4,528 |
| $ | 1,639 |
| $ | 9,574 |
| $ | 10,188 |
| $ | 74 |
Residential real estate |
|
| 7,888 |
|
| 4,786 |
|
| 2,992 |
|
| 317 |
|
| 8,112 |
|
| 8,306 |
|
| 149 |
Commercial real estate |
|
| 6,737 |
|
| 2,532 |
|
| 3,556 |
|
| 185 |
|
| 7,159 |
|
| 7,402 |
|
| 127 |
Commercial |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 108 |
|
| 143 |
|
| - |
Consumer |
|
| 99 |
|
| 99 |
|
| - |
|
| - |
|
| 99 |
|
| 109 |
|
| - |
Total |
| $ | 26,160 |
| $ | 10,896 |
| $ | 11,076 |
| $ | 2,141 |
| $ | 25,052 |
| $ | 26,148 |
| $ | 350 |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
|
| | |
| Recorded |
| Recorded |
| | |
| September 30, 2020 | |||||||||
| | Unpaid | | investment | | investment | | | | | Quarter-to-date | | Year-to-date | | Interest | ||||||
| | principal | | with no | | with an | | Related | | average recorded | | average recorded | | income | |||||||
(Dollars in thousands) | | balance | | allowance | | allowance | | allowance | | investment | | investment | | recognized | |||||||
December 31, 2020 | | | | | | | | | | | | | | | | | | | | | |
Impaired nonaccrual loans: | | | | | | | | | | | | | | | | | | | | | |
Construction | | $ | 297 | | $ | 297 | | $ | — | | $ | — | | $ | 297 | | $ | 231 | | $ | — |
Residential real estate | |
| 1,665 | |
| 1,585 | |
| — | |
| — | |
| 2,306 | |
| 2,910 | |
| — |
Commercial real estate | |
| 4,288 | |
| 3,220 | |
| 67 | |
| 67 | ��� |
| 4,498 | |
| 6,235 | |
| — |
Commercial | |
| 401 | |
| 258 | |
| — | |
| — | |
| 355 | |
| 429 | |
| — |
Consumer | |
| 28 | |
| 28 | |
| — | |
| — | |
| 9 | |
| 3 | |
| — |
Total | | $ | 6,679 | | $ | 5,388 | | $ | 67 | | $ | 67 | | $ | 7,465 | | $ | 9,808 | | $ | — |
| | | | | | | | | | | | | | | | | | | | | |
Impaired accruing TDRs: | | | | | | | | | | | | | | | | | | | | | |
Construction | | $ | 34 | | $ | 34 | | $ | — | | $ | — | | $ | 37 | | $ | 38 | | $ | 2 |
Residential real estate | |
| 3,845 | |
| 2,617 | |
| 1,228 | |
| 135 | |
| 3,886 | |
| 3,940 | |
| 120 |
Commercial real estate | |
| 3,118 | |
| 2,479 | |
| 639 | |
| 11 | |
| 3,357 | |
| 3,379 | |
| 70 |
Commercial | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Consumer | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Total | | $ | 6,997 | | $ | 5,130 | | $ | 1,867 | | $ | 146 | | $ | 7,280 | | $ | 7,357 | | $ | 192 |
| | | | | | | | | | | | | | | | | | | | | |
Other impaired accruing loans: | | | | | | | | | | | | | | | | | | | | | |
Construction | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 33 | | $ | — |
Residential real estate | |
| 292 | |
| 292 | |
| — | |
| — | |
| 389 | |
| 393 | |
| 1 |
Commercial real estate | |
| 512 | |
| 512 | |
| — | |
| — | |
| 830 | |
| 854 | |
| 3 |
Commercial | |
| — | |
| — | |
| — | |
| — | |
| 42 | |
| 18 | |
| — |
Consumer | |
| — | |
| — | |
| — | |
| — | |
| 19 | |
| 12 | |
| — |
Total | | $ | 804 | | $ | 804 | | $ | — | | $ | — | | $ | 1,280 | | $ | 1,310 | | $ | 4 |
| | | | | | | | | | | | | | | | | | | | | |
Total impaired loans: | | | | | | | | | | | | | | | | | | | | | |
Construction | | $ | 331 | | $ | 331 | | $ | — | | $ | — | | $ | 334 | | $ | 302 | | $ | 2 |
Residential real estate | |
| 5,802 | |
| 4,494 | |
| 1,228 | |
| 135 | |
| 6,581 | |
| 7,243 | |
| 121 |
Commercial real estate | |
| 7,918 | |
| 6,211 | |
| 706 | |
| 78 | |
| 8,685 | |
| 10,468 | |
| 73 |
Commercial | |
| 401 | |
| 258 | |
| — | |
| — | |
| 397 | |
| 447 | |
| — |
Consumer | |
| 28 | |
| 28 | |
| — | |
| — | |
| 28 | |
| 15 | |
| — |
Total | | $ | 14,480 | | $ | 11,322 | | $ | 1,934 | | $ | 213 | | $ | 16,025 | | $ | 18,475 | | $ | 196 |
19
The following tables provide a roll-forward for troubled debt restructuringsTDRs as of September 30, 20172021 and September 30, 2016.2020.
| | | | | | | | | | | | | | | | | | | | | | | | |
|
| 1/1/2021 |
| | |
| | |
| | |
| | |
| | |
| 9/30/2021 |
| | | ||
| | TDR | | New | | Disbursements | | Charge- | | Reclassifications/ | | | | | TDR | | Related | |||||||
(Dollars in thousands) | | Balance | | TDRs | | (Payments) | | offs | | Transfer In/(Out) | | Payoffs | | Balance | | Allowance | ||||||||
For nine months ended | | | | | | | | | | | | | | | | | | | | | | | | |
September 30, 2021 | | | | | | | | | | | | | | | | | | | | | | | | |
Accruing TDRs | | | | | | | | | | | | | | | | | | | | | | | | |
Construction | | $ | 34 | | $ | — | | $ | (7) | | $ | — | | $ | — | | $ | — | | $ | 27 | | $ | — |
Residential real estate | |
| 3,845 | |
| — | |
| (82) | |
| — | |
| — | |
| (900) | |
| 2,863 | |
| 84 |
Commercial real estate | |
| 3,118 | |
| — | |
| (258) | |
| — | |
| — | |
| — | |
| 2,860 | |
| — |
Commercial | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Consumer | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Total | | $ | 6,997 | | $ | — | | $ | (347) | | $ | — | | $ | — | | $ | (900) | | $ | 5,750 | | $ | 84 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Nonaccrual TDRs | | | | | | | | | | | | | | | | | | | | | | | | |
Construction | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — |
Residential real estate | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Commercial real estate | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Commercial | |
| 258 | |
| — | |
| (31) | |
| — | |
| — | |
| — | |
| 227 | |
| — |
Consumer | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Total | | $ | 258 | | $ | — | | $ | (31) | | $ | — | | $ | — | | $ | — | | $ | 227 | | $ | — |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total | | $ | 7,255 | | $ | — | | $ | (378) | | $ | — | | $ | — | | $ | (900) | | $ | 5,977 | | $ | 84 |
| | | | | | | | | | | | | | | | | | | | | | | | |
|
| 1/1/2020 |
| | |
| | |
| | |
| | |
| | |
| 9/30/2020 |
|
| | ||
| | TDR | | New | | Disbursements | | Charge- | | Reclassifications/ | | | | | TDR | | Related | |||||||
(Dollars in thousands) | | Balance | | TDRs | | (Payments) | | offs | | Transfer In/(Out) | | Payoffs | | Balance | | Allowance | ||||||||
For nine months ended | | | | | | | | | | | | | | | | | | | | | | | | |
September 30, 2020 | | | | | | | | | | | | | | | | | | | | | | | | |
Accruing TDRs | | | | | | | | | | | | | | | | | | | | | | | | |
Construction | | $ | 41 | | $ | — | | $ | (5) | | $ | — | | $ | — | | $ | — | | $ | 36 | | $ | — |
Residential real estate | |
| 4,041 | |
| — | |
| (80) | |
| — | |
| — | |
| (83) | |
| 3,878 | |
| 142 |
Commercial real estate | |
| 3,419 | |
| — | |
| (66) | |
| — | |
| — | |
| — | |
| 3,353 | |
| 14 |
Commercial | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Consumer | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Total | | $ | 7,501 | | $ | — | | $ | (151) | | $ | — | | $ | — | | $ | (83) | | $ | 7,267 | | $ | 156 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Nonaccrual TDRs | | | | | | | | | | | | | | | | | | | | | | | | |
Construction | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — |
Residential real estate | |
| 1,393 | |
| — | |
| (51) | |
| — | |
| — | |
| (1,342) | |
| — | |
| — |
Commercial real estate | |
| — | |
| 1,506 | |
| (401) | |
| — | |
| — | |
| — | |
| 1,105 | |
| — |
Commercial | |
| 299 | |
| — | |
| (30) | |
| — | |
| — | |
| — | |
| 269 | |
| — |
Consumer | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Total | | $ | 1,692 | | $ | 1,506 | | $ | (482) | | $ | — | | $ | — | | $ | (1,342) | | $ | 1,374 | | $ | — |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total | | $ | 9,193 | | $ | 1,506 | | $ | (633) | | $ | — | | $ | — | | $ | (1,425) | | $ | 8,641 | | $ | 156 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1/1/2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 9/30/2017 |
|
|
| ||
|
| TDR |
| New |
| Disbursements |
| Charge |
| Reclassifications/ |
|
|
| TDR |
| Related | ||||||||
(Dollars in thousands) |
| Balance |
| TDRs |
| (Payments) |
| offs |
| Transfer In/(Out) |
| Payoffs |
| Balance |
| Allowance | ||||||||
For nine months ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accruing TDRs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction |
| $ | 4,189 |
| $ | - |
| $ | (22) |
| $ | - |
| $ | - |
| $ | (134) |
| $ | 4,033 |
| $ | 41 |
Residential real estate |
|
| 3,875 |
|
| - |
|
| (120) |
|
| (89) |
|
| 1,411 |
|
| (452) |
|
| 4,625 |
|
| 228 |
Commercial real estate |
|
| 4,936 |
|
| - |
|
| (101) |
|
| - |
|
| - |
|
| - |
|
| 4,835 |
|
| 35 |
Commercial |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Consumer |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Total |
| $ | 13,000 |
| $ | - |
| $ | (243) |
| $ | (89) |
| $ | 1,411 |
| $ | (586) |
| $ | 13,493 |
| $ | 304 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonaccrual TDRs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction |
| $ | 3,818 |
| $ | - |
| $ | (882) |
| $ | - |
| $ | (108) |
| $ | - |
| $ | 2,828 |
| $ | 548 |
Residential real estate |
|
| 1,603 |
|
| - |
|
| (66) |
|
| - |
|
| (1,411) |
|
| - |
|
| 126 |
|
| 23 |
Commercial real estate |
|
| 83 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 83 |
|
| - |
Commercial |
|
| - |
|
| 345 |
|
| (4) |
|
| - |
|
| - |
|
| - |
|
| 341 |
|
| - |
Consumer |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Total |
| $ | 5,504 |
| $ | 345 |
| $ | (952) |
| $ | - |
| $ | (1,519) |
| $ | - |
| $ | 3,378 |
| $ | 571 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
| $ | 18,504 |
| $ | 345 |
| $ | (1,195) |
| $ | (89) |
| $ | (108) |
| $ | (586) |
| $ | 16,871 |
| $ | 875 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1/1/2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 9/30/2016 |
|
|
| ||
|
| TDR |
| New |
| Disbursements |
| Charge |
| Reclassifications/ |
|
|
| TDR |
| Related | ||||||||
(Dollars in thousands) |
| Balance |
| TDRs |
| (Payments) |
| offs |
| Transfer In/(Out) |
| Payoffs |
| Balance |
| Allowance | ||||||||
For nine months ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accruing TDRs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction |
| $ | 4,069 |
| $ | - |
| $ | 130 |
| $ | - |
| $ | - |
| $ | - |
| $ | 4,199 |
| $ | 21 |
Residential real estate |
|
| 5,686 |
|
| 565 |
|
| (375) |
|
| - |
|
| (1,595) |
|
| (179) |
|
| 4,102 |
|
| 154 |
Commercial real estate |
|
| 5,740 |
|
| 495 |
|
| (689) |
|
| (117) |
|
| (458) |
|
| - |
|
| 4,971 |
|
| 89 |
Commercial |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Consumer |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Total |
| $ | 15,495 |
| $ | 1,060 |
| $ | (934) |
| $ | (117) |
| $ | (2,053) |
| $ | (179) |
| $ | 13,272 |
| $ | 264 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonaccrual TDRs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction |
| $ | 4,960 |
| $ | 2,570 |
| $ | (2,012) |
| $ | (263) |
| $ | - |
| $ | - |
| $ | 5,255 |
| $ | 810 |
Residential real estate |
|
| 445 |
|
| - |
|
| (294) |
|
| - |
|
| 1,595 |
|
| - |
|
| 1,746 |
|
| 25 |
Commercial real estate |
|
| - |
|
| - |
|
| - |
|
| (258) |
|
| 458 |
|
| - |
|
| 200 |
|
| 112 |
Commercial |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Consumer |
|
| 23 |
|
| - |
|
| (23) |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Total |
| $ | 5,428 |
| $ | 2,570 |
| $ | (2,329) |
| $ | (521) |
| $ | 2,053 |
| $ | - |
| $ | 7,201 |
| $ | 947 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
| $ | 20,923 |
| $ | 3,630 |
| $ | (3,263) |
| $ | (638) |
| $ | - |
| $ | (179) |
| $ | 20,473 |
| $ | 1,211 |
20
There were 0 loans modified and considered to be TDRs during the three months ended September 30, 2021 and September 30, 2020. The following tables provide information on loans that were modified and considered to be TDRs during the nine months ended September 30, 20172021 and September 30, 2016.2020.
| | | | | | | | | | | |
|
| |
| Premodification |
| Postmodification |
| |
| ||
| | | | outstanding | | outstanding | | |
| ||
| | Number of | | recorded | | recorded | | Related | |||
(Dollars in thousands) | | contracts | | investment | | investment | | allowance | |||
TDRs: | | | | | | | | | | | |
For nine months ended | | | | | | | | | | | |
September 30, 2021 | | | | | | | | | | | |
Construction |
| — | | $ | — | | $ | — |
| $ | — |
Residential real estate |
| — | |
| — | |
| — |
|
| — |
Commercial real estate |
| — | |
| — | |
| — |
|
| — |
Commercial |
| — | |
| — | |
| — |
|
| — |
Consumer |
| — | |
| — | |
| — |
|
| — |
Total |
| — | | $ | — | | $ | — |
| $ | — |
| | | | | | | | | | | |
For nine months ended | | | | | | | | | | | |
September 30, 2020 | | | | | | | | | | | |
Construction |
| — | | $ | — | | $ | — |
| $ | — |
Residential real estate |
| — | |
| — | |
| — |
|
| — |
Commercial real estate |
| 1 | |
| 1,535 | |
| 1,506 |
|
| — |
Commercial |
| — | |
| — | |
| — |
|
| — |
Consumer |
| — | |
| — | |
| — |
|
| — |
Total |
| 1 | | $ | 1,535 | | $ | 1,506 |
| $ | — |
Since the beginning of the pandemic and through September 30, 2021, the Company had executed principal and/or interest deferrals on outstanding loan balances of $221.1 million. As of September 30, 2021, the Company had no COVID related deferrals remaining. These deferrals were not considered TDRs based on the relief provisions of the CARES Act and CAA or recent interagency regulatory guidance.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Premodification |
| Postmodification |
|
|
| ||
|
|
|
| outstanding |
| outstanding |
|
|
| ||
|
| Number of |
| recorded |
| recorded |
| Related | |||
(Dollars in thousands) |
| contracts |
| investment |
| investment |
| allowance | |||
TDRs: |
|
|
|
|
|
|
|
|
|
|
|
For nine months ended |
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
Construction |
| - |
| $ | - |
| $ | - |
| $ | - |
Residential real estate |
| - |
|
| - |
|
| - |
|
| - |
Commercial real estate |
| 1 |
|
| 760 |
|
| 755 |
|
| - |
Commercial |
| 1 |
|
| 462 |
|
| 345 |
|
| - |
Consumer |
| - |
|
| - |
|
| - |
|
| - |
Total |
| 2 |
| $ | 1,222 |
| $ | 1,100 |
| $ | - |
|
|
|
|
|
|
|
|
|
|
|
|
For nine months ended |
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016 |
|
|
|
|
|
|
|
|
|
|
|
Construction |
| - |
| $ | - |
| $ | - |
| $ | - |
Residential real estate |
| 3 |
|
| 667 |
|
| 699 |
|
| - |
Commercial real estate |
| 1 |
|
| 495 |
|
| 495 |
|
| - |
Commercial |
| - |
|
| - |
|
| - |
|
| - |
Consumer |
| - |
|
| - |
|
| - |
|
| - |
Total |
| 4 |
| $ | 1,162 |
| $ | 1,194 |
| $ | - |
DuringThere were 0 TDRs which subsequently defaulted within 12 months of modification for the three and nine months ended September 30, 2017, there was one new TDR2021 and one previously recorded TDR which was modified. The new TDR consisted of a reduction in principal, whereas, the previously recorded TDR consisted of a change in maturity date.
The following tables provide information on TDRs that defaulted within twelve months of restructuring during the nine months ended September 30, 2017 and September 30, 2016.2020. Generally, a loan is considered in default when principal or interest is past due 90 days or more, the loan is placed on nonaccrual, the loan is charged off, or there is a transfer to OREO or repossessed assets.
|
|
|
|
|
|
|
|
|
|
| Number of |
| Recorded |
| Related | ||
(Dollars in thousands) |
| contracts |
| investment |
| allowance | ||
TDRs that subsequently defaulted: |
|
|
|
|
|
|
|
|
For nine months ended |
|
|
|
|
|
|
|
|
September 30, 2017 |
|
|
|
|
|
|
|
|
Construction |
| - |
| $ | - |
| $ | - |
Residential real estate |
| 1 |
|
| 89 |
|
| - |
Commercial real estate |
| - |
|
| - |
|
| - |
Commercial |
| - |
|
| - |
|
| - |
Consumer |
| - |
|
| - |
|
| - |
Total |
| 1 |
| $ | 89 |
| $ | - |
|
|
|
|
|
|
|
|
|
For nine months ended |
|
|
|
|
|
|
|
|
September 30, 2016 |
|
|
|
|
|
|
|
|
Construction |
| 1 |
| $ | 263 |
| $ | - |
Residential real estate |
| - |
|
| - |
|
| - |
Commercial real estate |
| 2 |
|
| 375 |
|
| - |
Commercial |
| - |
|
| - |
|
| - |
Consumer |
| - |
|
| - |
|
| - |
Total |
| 3 |
| $ | 638 |
| $ | - |
21
Management uses risk ratings as part of its monitoring of the credit quality in the Company’s loan portfolio. Loans that are identified as special mention, substandard or doubtful are adversely rated. TheyThese loans and the pass/watch loans are assigned higher risk ratingsqualitative factors than favorably rated loans in the calculation of the formula portion of the allowance for credit losses. At September 30, 2017,2021, there were no0 nonaccrual loans classified as special mention or doubtful and $6.3$3.5 million of nonaccrual loans were identifiedclassified as substandard. Similarly, at December 31, 2016,2020, there were no0 nonaccrual loans classified as special mention or doubtful and $9.0$5.5 million of nonaccrual loans were identifiedclassified as substandard.
21
The following tables provide information on loan risk ratings as of September 30, 20172021 and December 31, 2016.2020.
| | | | | | | | | | | | | | | | | | |
|
| | |
| | |
| Special |
| | |
| | | |
|
| |
(Dollars in thousands) | | Pass/Performing | | Pass/Watch | | Mention | | Substandard | | Doubtful | | Total | ||||||
September 30, 2021 | | | | | | | | | | | | | | | | | | |
Construction | | $ | 101,708 | | $ | 26,670 | | $ | 1,915 | | $ | 297 | | $ | — | | $ | 130,590 |
Residential real estate | |
| 423,355 | |
| 34,664 | |
| 1,767 | |
| 1,104 | |
| — | |
| 460,890 |
Commercial real estate | |
| 514,583 | |
| 137,759 | |
| 4,985 | |
| 6,567 | |
| — | |
| 663,894 |
Commercial | |
| 127,807 | |
| 16,885 | |
| 286 | |
| 239 | |
| — | |
| 145,217 |
Consumer | |
| 94,143 | |
| 161 | |
| — | |
| 2 | |
| — | |
| 94,306 |
Total | | $ | 1,261,596 | | $ | 216,139 | | $ | 8,953 | | $ | 8,209 | | $ | — | | $ | 1,494,897 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
|
|
|
|
| Special |
|
|
|
|
|
| ||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | |||||||||||||||
|
| | |
| | |
| Special |
| | |
| | | |
|
| ||||||||||||||||
(Dollars in thousands) |
| Pass/Performing |
| Mention |
| Substandard |
| Doubtful |
| Total | | Pass/Performing | | Pass/Watch | | Mention | | Substandard | | Doubtful | | Total | |||||||||||
September 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
December 31, 2020 | | | | | | | | | | | | | | | | | | | |||||||||||||||
Construction |
| $ | 97,304 |
| $ | 3,127 |
| $ | 6,186 |
| $ | - |
| $ | 106,617 | | $ | 81,926 | | $ | 22,547 | | $ | 1,990 | | $ | 297 | | $ | — | | $ | 106,760 |
Residential real estate |
|
| 376,600 |
|
| 5,509 |
|
| 5,613 |
|
| - |
|
| 387,722 | |
| 401,494 | |
| 36,759 | |
| 2,946 | |
| 2,343 | |
| — | |
| 443,542 |
Commercial real estate |
|
| 438,694 |
|
| 6,780 |
|
| 9,152 |
|
| - |
|
| 454,626 | |
| 514,524 | |
| 133,892 | |
| 3,504 | |
| 9,312 | |
| — | |
| 661,232 |
Commercial |
|
| 90,680 |
|
| 660 |
|
| 459 |
|
| - |
|
| 91,799 | |
| 182,166 | |
| 25,870 | |
| 2,948 | |
| 272 | |
| — | |
| 211,256 |
Consumer |
|
| 6,483 |
|
| - |
|
| - |
|
| - |
|
| 6,483 | |
| 31,221 | |
| 215 | |
| — | |
| 30 | |
| — | |
| 31,466 |
Total |
| $ | 1,009,761 |
| $ | 16,076 |
| $ | 21,410 |
| $ | - |
| $ | 1,047,247 | | $ | 1,211,331 | | $ | 219,283 | | $ | 11,388 | | $ | 12,254 | | $ | — | | $ | 1,454,256 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Special |
|
|
|
|
|
| ||||
(Dollars in thousands) |
| Pass/Performing |
| Mention |
| Substandard |
| Doubtful |
| Total | |||||
December 31, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction |
| $ | 72,641 |
| $ | 4,195 |
| $ | 7,166 |
| $ | - |
| $ | 84,002 |
Residential real estate |
|
| 312,242 |
|
| 6,646 |
|
| 6,880 |
|
| - |
|
| 325,768 |
Commercial real estate |
|
| 363,461 |
|
| 10,939 |
|
| 8,281 |
|
| - |
|
| 382,681 |
Commercial |
|
| 71,313 |
|
| 857 |
|
| 265 |
|
| - |
|
| 72,435 |
Consumer |
|
| 6,540 |
|
| - |
|
| 99 |
|
| - |
|
| 6,639 |
Total |
| $ | 826,197 |
| $ | 22,637 |
| $ | 22,691 |
| $ | - |
| $ | 871,525 |
The following tables provide information on the aging of the loan portfolio as of September 30, 20172021 and December 31, 2016.2020.
| | | | | | | | | | | | | | | | | | | | | | |
| | Accruing | | | | | | |
| |||||||||||||
|
| | |
| 30‑59 days |
| 60‑89 days |
| Greater than |
| Total |
| | |
| | |
| ||||
(Dollars in thousands) | | Current | | past due | | past due | | 90 days | | past due | | Nonaccrual | | Total |
| |||||||
September 30, 2021 | | | | | | | | | | | | | | | | | | | | | | |
Construction | | $ | 130,266 | | $ | — | | $ | 27 | | $ | — | | $ | 27 | | $ | 297 | | $ | 130,590 | |
Residential real estate | |
| 458,790 | |
| 530 | |
| 425 | |
| 327 | |
| 1,282 | |
| 818 | |
| 460,890 | |
Commercial real estate | |
| 661,208 | |
| 149 | |
| — | |
| 421 | |
| 570 | |
| 2,116 | |
| 663,894 | |
Commercial | |
| 144,979 | |
| — | |
| 12 | |
| — | |
| 12 | |
| 226 | |
| 145,217 | |
Consumer | |
| 94,170 | |
| 105 | |
| 31 | |
| — | |
| 136 | |
| — | |
| 94,306 | |
Total | | $ | 1,489,413 | | $ | 784 | | $ | 495 | | $ | 748 | | $ | 2,027 | | $ | 3,457 | | $ | 1,494,897 | |
Percent of total loans | |
| 99.6 | % |
| 0.1 | % |
| — | % |
| 0.1 | % |
| 0.2 | % |
| 0.2 | % |
| 100.0 | % |
| | | | | | | | | | | | | | | | | | | | | | |
| | Accruing | | | | | | |
| |||||||||||||
|
| | |
| 30‑59 days | | 60‑89 days | | Greater than | | Total | | | |
| | |
| ||||
(Dollars in thousands) | | Current | | past due | | past due | | 90 days | | past due | | Nonaccrual | | Total |
| |||||||
December 31, 2020 | | | | | | | | | | | | | | | | | | | | | | |
Construction | | $ | 106,463 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 297 | | $ | 106,760 | |
Residential real estate | |
| 440,210 | |
| 517 | |
| 938 | |
| 292 | |
| 1,747 | |
| 1,585 | |
| 443,542 | |
Commercial real estate | |
| 657,066 | |
| 367 | |
| — | |
| 512 | |
| 879 | |
| 3,287 | |
| 661,232 | |
Commercial | |
| 210,704 | |
| 226 | |
| 68 | |
| — | |
| 294 | |
| 258 | |
| 211,256 | |
Consumer | |
| 31,318 | |
| 119 | |
| 1 | |
| — | |
| 120 | |
| 28 | |
| 31,466 | |
Total | | $ | 1,445,761 | | $ | 1,229 | | $ | 1,007 | | $ | 804 | | $ | 3,040 | | $ | 5,455 | | $ | 1,454,256 | |
Percent of total loans | |
| 99.3 | % |
| 0.1 | % |
| 0.1 | % |
| 0.1 | % |
| 0.3 | % |
| 0.4 | % |
| 100.0 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accruing |
|
|
|
|
|
|
|
| |||||||||||||||||
|
|
|
|
|
| 30-59 days |
| 60-89 days |
| Greater than |
| Total |
|
|
|
|
|
|
|
| ||||||||
(Dollars in thousands) |
| Current |
| past due |
| past due |
| 90 days |
| past due |
| Nonaccrual |
| Total | ||||||||||||||
September 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction |
| $ | 103,606 |
|
| $ | 58 |
|
| $ | - |
|
| $ | - |
|
| $ | 58 |
|
| $ | 2,953 |
|
| $ | 106,617 |
|
Residential real estate |
|
| 383,913 |
|
|
| 572 |
|
|
| 667 |
|
|
| 5 |
|
|
| 1,244 |
|
|
| 2,565 |
|
|
| 387,722 |
|
Commercial real estate |
|
| 451,789 |
|
|
| 2,407 |
|
|
| - |
|
|
| - |
|
|
| 2,407 |
|
|
| 430 |
|
|
| 454,626 |
|
Commercial |
|
| 91,225 |
|
|
| 202 |
|
|
| 31 |
|
|
| - |
|
|
| 233 |
|
|
| 341 |
|
|
| 91,799 |
|
Consumer |
|
| 6,478 |
|
|
| - |
|
|
| 5 |
|
|
| - |
|
|
| 5 |
|
|
| - |
|
|
| 6,483 |
|
Total |
| $ | 1,037,011 |
|
| $ | 3,239 |
|
| $ | 703 |
|
| $ | 5 |
|
| $ | 3,947 |
|
| $ | 6,289 |
|
| $ | 1,047,247 |
|
Percent of total loans |
|
| 99.0 | % |
|
| 0.3 | % |
|
| 0.1 | % |
|
| - | % |
|
| 0.4 | % |
|
| 0.6 | % |
|
| 100.0 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accruing |
|
|
|
|
|
|
|
| |||||||||||||||||
|
|
|
|
|
| 30-59 days |
| 60-89 days |
| Greater than |
| Total |
|
|
|
|
|
|
|
| ||||||||
(Dollars in thousands) |
| Current |
| past due |
| past due |
| 90 days |
| past due |
| Nonaccrual |
| Total | ||||||||||||||
December 31, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction |
| $ | 80,079 |
|
| $ | - |
|
| $ | 105 |
|
| $ | - |
|
| $ | 105 |
|
| $ | 3,818 |
|
| $ | 84,002 |
|
Residential real estate |
|
| 317,992 |
|
|
| 1,778 |
|
|
| 2,095 |
|
|
| - |
|
|
| 3,873 |
|
|
| 3,903 |
|
|
| 325,768 |
|
Commercial real estate |
|
| 375,552 |
|
|
| 3,219 |
|
|
| 2,758 |
|
|
| - |
|
|
| 5,977 |
|
|
| 1,152 |
|
|
| 382,681 |
|
Commercial |
|
| 72,272 |
|
|
| 19 |
|
|
| 134 |
|
|
| 10 |
|
|
| 163 |
|
|
| - |
|
|
| 72,435 |
|
Consumer |
|
| 6,515 |
|
|
| 13 |
|
|
| 2 |
|
|
| 10 |
|
|
| 25 |
|
|
| 99 |
|
|
| 6,639 |
|
Total |
| $ | 852,410 |
|
| $ | 5,029 |
|
| $ | 5,094 |
|
| $ | 20 |
|
| $ | 10,143 |
|
| $ | 8,972 |
|
| $ | 871,525 |
|
Percent of total loans |
|
| 97.8 | % |
|
| 0.6 | % |
|
| 0.6 | % |
|
| - | % |
|
| 1.2 | % |
|
| 1.0 | % |
|
| 100.0 | % |
22
Management evaluates the adequacyTable of the allowance for credit losses at least quarterly and adjusts the provision for credit losses based on this analysis. Contents
The following tables provide a summary of the activity in the allowance for credit losses allocated by loan class for the three months and nine months ended September 30, 20172021 and 2016.September 30, 2020. Allocation of a portion of the allowance to one loan class does not preclude its availability to absorb losses in other loan classes.
| | | | | | | | | | | | | | | | | | |
|
| | |
| Residential |
| Commercial |
| | |
| | |
|
| | ||
(Dollars in thousands) | | Construction | | real estate | | real estate | | Commercial | | Consumer | | Total | ||||||
For three months ended | | | | | | | | | | | | | | | | | | |
September 30, 2021 | | | | | | | | | | | | | | | | | | |
Allowance for credit losses: | | | | | | | | | | | | | | | | | | |
Beginning Balance | | $ | 2,574 | | $ | 3,812 | | $ | 5,600 | | $ | 1,879 | | $ | 1,223 |
| $ | 15,088 |
| | | | | | | | | | | | | | | | | | |
Charge-offs | |
| — | |
| — | |
| — | |
| (55) | |
| (1) |
| | (56) |
Recoveries | |
| 161 | |
| 9 | |
| — | |
| 26 | |
| 7 |
| | 203 |
Net (charge-offs) recoveries | |
| 161 | |
| 9 | |
| — | |
| (29) | |
| 6 |
| | 147 |
| | | | | | | | | | | | | | | | | | |
Provision | |
| (114) | |
| 77 | |
| (73) | |
| 2 | |
| 398 |
| | 290 |
Ending Balance | | $ | 2,621 | | $ | 3,898 | | $ | 5,527 | | $ | 1,852 | | $ | 1,627 |
| $ | 15,525 |
| | | | | | | | | | | | | | | | | | |
|
| | |
| Residential |
| Commercial |
| | |
| | |
|
| | ||
(Dollars in thousands) | | Construction | | real estate | | real estate | | Commercial | | Consumer | | Total | ||||||
For three months ended | | | | | | | | | | | | | | | | | | |
September 30, 2020 | | | | | | | | | | | | | | | | | | |
Allowance for credit losses: |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Beginning Balance | | $ | 1,497 | | $ | 2,639 | | $ | 4,097 | | $ | 2,355 | | $ | 502 | | $ | 11,090 |
| | | | | | | | | | | | | | | | | | |
Charge-offs | |
| — | |
| (10) | |
| (1) | |
| (89) | |
| (1) | |
| (101) |
Recoveries | |
| 5 | |
| 199 | |
| 1 | |
| 81 | |
| 2 | |
| 288 |
Net (charge-offs) recoveries | |
| 5 | |
| 189 | |
| — | |
| (8) | |
| 1 | |
| 187 |
| | | | | | | | | | | | | | | | | | |
Provision | |
| 56 | |
| 456 | |
| 1,002 | |
| (126) | |
| 112 | |
| 1,500 |
Ending Balance | | $ | 1,558 | | $ | 3,284 | | $ | 5,099 | | $ | 2,221 | | $ | 615 | | $ | 12,777 |
Management re-evaluated the allowance methodology during the third quarter
23
| | | | | | | | | | | | | | | | | | |
|
| | |
| Residential |
| Commercial |
| | |
| | |
|
| | ||
(Dollars in thousands) | | Construction | | real estate | | real estate | | Commercial | | Consumer | | Total | ||||||
For nine months ended | | | | | | | | | | | | | | | | | | |
September 30, 2021 | | | | | | | | | | | | | | | | | | |
Allowance for credit losses: | | | | | | | | | | | | | | | | | | |
Beginning Balance | | $ | 2,022 | | $ | 3,699 | | $ | 5,426 | | $ | 2,089 | | $ | 652 |
| $ | 13,888 |
| | | | | | | | | | | | | | | | | | |
Charge-offs | |
| — | |
| — | |
| — | |
| (162) | |
| (5) |
| | (167) |
Recoveries | |
| 171 | |
| 72 | |
| 64 | |
| 122 | |
| 10 |
| | 439 |
Net (charge-offs) recoveries | |
| 171 | |
| 72 | |
| 64 | |
| (40) | |
| 5 |
| | 272 |
| | | | | | | | | | | | | | | | | | |
Provision | |
| 428 | |
| 127 | |
| 37 | |
| (197) | |
| 970 |
| | 1,365 |
Ending Balance | | $ | 2,621 | | $ | 3,898 | | $ | 5,527 | | $ | 1,852 | | $ | 1,627 |
| $ | 15,525 |
| | | | | | | | | | | | | | | | | | |
|
| | |
| Residential |
| Commercial |
| | |
| | |
|
| | ||
(Dollars in thousands) | | Construction | | real estate | | real estate | | Commercial | | Consumer | | Total | ||||||
For nine months ended | | | | | | | | | | | | | | | | | | |
September 30, 2020 | | | | | | | | | | | | | | | | | | |
Allowance for credit losses: |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Beginning Balance | | $ | 1,576 | | $ | 2,501 | | $ | 4,032 | | $ | 1,929 | | $ | 469 | | $ | 10,507 |
| | | | | | | | | | | | | | | | | | |
Charge-offs | |
| — | |
| (201) | |
| (601) | |
| (208) | |
| (8) | |
| (1,018) |
Recoveries | |
| 13 | |
| 206 | |
| — | |
| 205 | |
| 14 | |
| 438 |
Net (charge-offs) recoveries | |
| 13 | |
| 5 | |
| (601) | |
| (3) | |
| 6 | |
| (580) |
| | | | | | | | | | | | | | | | | | |
Provision | |
| (31) | |
| 778 | |
| 1,668 | |
| 295 | |
| 140 | |
| 2,850 |
Ending Balance | | $ | 1,558 | | $ | 3,284 | | $ | 5,099 | | $ | 2,221 | | $ | 615 | | $ | 12,777 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Residential |
| Commercial |
|
|
|
|
|
|
|
| ||||||
(Dollars in thousands) |
| Construction |
| real estate |
| real estate |
| Commercial |
| Consumer |
| Unallocated |
| Total | |||||||
For three months ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for credit losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning Balance |
| $ | 2,349 |
| $ | 2,096 |
| $ | 2,802 |
| $ | 1,652 |
| $ | 233 |
| $ | - |
| $ | 9,132 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs |
|
| - |
|
| (70) |
|
| (100) |
|
| (99) |
|
| (18) |
|
| - |
|
| (287) |
Recoveries |
|
| 11 |
|
| 11 |
|
| 8 |
|
| 67 |
|
| 8 |
|
| - |
|
| 105 |
Net charge-offs |
|
| 11 |
|
| (59) |
|
| (92) |
|
| (32) |
|
| (10) |
|
| - |
|
| (182) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision |
|
| (119) |
|
| 6 |
|
| 174 |
|
| 184 |
|
| 100 |
|
| - |
|
| 345 |
Ending Balance |
| $ | 2,241 |
| $ | 2,043 |
| $ | 2,884 |
| $ | 1,804 |
| $ | 323 |
| $ | - |
| $ | 9,295 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Residential |
| Commercial |
|
|
|
|
|
|
|
| ||||||
(Dollars in thousands) |
| Construction |
| real estate |
| real estate |
| Commercial |
| Consumer |
| Unallocated |
| Total | |||||||
For three months ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for credit losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning Balance |
| $ | 1,744 |
| $ | 2,035 |
| $ | 2,871 |
| $ | 677 |
| $ | 206 |
| $ | 825 |
| $ | 8,358 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs |
|
| (9) |
|
| (407) |
|
| - |
|
| (139) |
|
| (13) |
|
| - |
|
| (568) |
Recoveries |
|
| 8 |
|
| 121 |
|
| 10 |
|
| 79 |
|
| 1 |
|
| - |
|
| 219 |
Net charge-offs |
|
| (1) |
|
| (286) |
|
| 10 |
|
| (60) |
|
| (12) |
|
| - |
|
| (349) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision |
|
| 275 |
|
| 331 |
|
| 306 |
|
| 300 |
|
| (40) |
|
| (567) |
|
| 605 |
Ending Balance |
| $ | 2,018 |
| $ | 2,080 |
| $ | 3,187 |
| $ | 917 |
| $ | 154 |
| $ | 258 |
| $ | 8,614 |
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Residential |
| Commercial |
|
|
|
|
|
|
|
| ||||||
(Dollars in thousands) |
| Construction |
| real estate |
| real estate |
| Commercial |
| Consumer |
| Unallocated |
| Total | |||||||
For nine months ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for credit losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning Balance |
| $ | 2,787 |
| $ | 1,953 |
| $ | 2,610 |
| $ | 1,145 |
| $ | 231 |
| $ | - |
| $ | 8,726 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs |
|
| (54) |
|
| (393) |
|
| (100) |
|
| (870) |
|
| (33) |
|
| - |
|
| (1,450) |
Recoveries |
|
| 27 |
|
| 32 |
|
| 27 |
|
| 167 |
|
| 20 |
|
| - |
|
| 273 |
Net charge-offs |
|
| (27) |
|
| (361) |
|
| (73) |
|
| (703) |
|
| (13) |
|
| - |
|
| (1,177) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision |
|
| (519) |
|
| 451 |
|
| 347 |
|
| 1,362 |
|
| 105 |
|
| - |
|
| 1,746 |
Ending Balance |
| $ | 2,241 |
| $ | 2,043 |
| $ | 2,884 |
| $ | 1,804 |
| $ | 323 |
| $ | - |
| $ | 9,295 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Residential |
| Commercial |
|
|
|
|
|
|
|
| ||||||
(Dollars in thousands) |
| Construction |
| real estate |
| real estate |
| Commercial |
| Consumer |
| Unallocated |
| Total | |||||||
For nine months ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for credit losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning Balance |
| $ | 1,646 |
| $ | 2,181 |
| $ | 2,999 |
| $ | 558 |
| $ | 156 |
| $ | 776 |
| $ | 8,316 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs |
|
| (263) |
|
| (525) |
|
| (503) |
|
| (264) |
|
| (23) |
|
| - |
|
| (1,578) |
Recoveries |
|
| 24 |
|
| 188 |
|
| 20 |
|
| 201 |
|
| 13 |
|
| - |
|
| 446 |
Net charge-offs |
|
| (239) |
|
| (337) |
|
| (483) |
|
| (63) |
|
| (10) |
|
| - |
|
| (1,132) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision |
|
| 611 |
|
| 236 |
|
| 671 |
|
| 422 |
|
| 8 |
|
| (518) |
|
| 1,430 |
Ending Balance |
| $ | 2,018 |
| $ | 2,080 |
| $ | 3,187 |
| $ | 917 |
| $ | 154 |
| $ | 258 |
| $ | 8,614 |
24
Foreclosure Proceedings
ConsumerThere were 0 consumer mortgage loans collateralized by residential real estate property that were in the process of foreclosure totaled $620 thousand and $687 thousand as of September 30, 20172021 and December 31, 2016,2020, respectively. At September 30, 2017, there were 2There was 1 residential properties heldreal estate property included in the balance of other real estate owned totaling $203 thousand at September 30, 2021 and $0 compared to 3 residential properties totaling $92 thousand at December 31, 2016.
2020.
All accruing TDRs were in compliance with their modified termsterms. Both performing and there arenon-performing TDRs had no further commitments associated with these loansthem as of September 30, 20172021 and December 31, 2016.2020.
Note 5 – Leases
Lease liabilities represent the Company’s obligation to make lease payments and are presented at each reporting date as the net present value of the remaining contractual cash flows. Cash flows are discounted at the Company’s incremental borrowing rate in effect at the commencement date of the lease. Right-of-use assets represent the Company’s right to use the underlying asset for the lease term and are calculated as the sum of the lease liability and if applicable, prepaid rent, initial direct costs and any incentives received from the lessor.
The Company’s long-term lease agreements are classified as operating leases. Certain leases offer the option to extend the lease term and the Company has included such extensions in its calculation of the lease liabilities to the extent the options are reasonably certain of being exercised. The lease agreements do not provide for residual value guarantees and have no restrictions or covenants that would impact dividends or require incurring additional financial obligations.
During the second quarter of 2021, one of the Company’s long-term branch leases was reassessed by management and it was determined that it was not reasonably certain that the options to renew would be exercised after the initial lease term of 10 years. This resulted in a shorter lease term and a reduction of the lease liability and right-to-use assets as compared to the first quarter of 2021 when the lease was initially placed into service.
24
The following tables present information about the Company’s leases:
| | | | | | | | |
(Dollars in thousands) | | September 30, 2021 |
| | December 31, 2020 |
| ||
Lease liabilities | | $ | 5,686 | | | $ | 4,874 | |
Right-of-use assets | | $ | 5,512 | | | $ | 4,795 | |
Weighted average remaining lease term | |
| 9.85 | years | |
| 10.49 | years |
Weighted average discount rate | |
| 2.83 | % | |
| 2.89 | % |
| | | | | | | | | | | | |
| | For the Three Months Ended | | For the Nine Months Ended | ||||||||
Lease cost (in thousands) | | September 30, 2021 | | September 30, 2020 | | September 30, 2021 | | September 30, 2020 | ||||
Operating lease cost | | $ | 207 | | $ | 177 | | $ | 601 | | $ | 534 |
Short-term lease cost | |
| — | |
| — | |
| — | |
| — |
Total lease cost | | $ | 207 | | $ | 177 | | $ | 601 | | $ | 534 |
| | | | | | | | | | | | |
Cash paid for amounts included in the measurement of lease liabilities | | $ | 174 | | $ | 168 | | $ | 505 | | $ | 498 |
A maturity analysis of operating lease liabilities and reconciliation of the undiscounted cash flows to the total of operating lease liabilities is as follows:
| | | |
| | As of | |
Lease payments due (in thousands) | | September 30, 2021 | |
Three months ending December 31, 2021 | | $ | 192 |
Twelve months ending December 31, 2022 | | | 772 |
Twelve months ending December 31, 2023 | |
| 740 |
Twelve months ending December 31, 2024 | |
| 709 |
Twelve months ending December 31, 2025 | | | 573 |
Twelve months ending December 31, 2026 | | | 568 |
Thereafter | | | 3,033 |
Total undiscounted cash flows | | $ | 6,587 |
Discount | | | 901 |
Lease liabilities | | $ | 5,686 |
Note 6 – Goodwill and Other Intangibles
On May 19, 2017, the Bank acquired three branches located in Arbutus, Owings Mills and Elkridge, Maryland from NWBI. The purchase of these branches resulted in core deposit intangibles of $4.0 million and goodwill of $15.3 million.
The gross carrying amountCompany concluded there was no impairment of goodwill during its annual fourth quarter assessment in 2020. Following the fourth quarter evaluation, management evaluated the events and accumulated amortizationcircumstances that could indicate that goodwill may be impaired and concluded that an interim test was not necessary. The Company will continue to monitor the impact of COVID-19 on the Company as well as the financial markets in evaluating the necessity of interim testing during 2021.
25
The following table provides information on the significant components of goodwill and other acquired intangible assets is as follows:at September 30, 2021 and December 31, 2020.
| | | | | | | | | | | | | | | |
September 30, 2021 | |||||||||||||||
| | | | | | | | | | | | | | Weighted | |
| | Gross | | Accumulated | | | | | Net | | Average | ||||
| | Carrying | | Impairment | | Accumulated | | Carrying | | Remaining Life | |||||
(Dollars in thousands) |
| Amount |
| Charges |
| Amortization |
| Amount | | (in years) | |||||
| | | | | | | | | | | | | | | |
Goodwill | | $ | 19,728 | | $ | (1,543) | | $ | (667) | | $ | 17,518 | | | — |
| | | | | | | | | | | | | | | |
Other intangible assets | | | | | | | | | | | | | | | |
Amortizable | | | | | | | | | | | | | | | |
Core deposit intangible | | $ | 3,954 | | $ | — | | $ | (2,589) | | $ | 1,365 | | | 3.5 |
Total other intangible assets | | $ | 3,954 | | $ | — | | $ | (2,589) | | $ | 1,365 | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
December 31, 2020 | |||||||||||||||
| | | | | | | | | | | | | | Weighted | |
|
| Gross |
| | Accumulated | | | |
| Net | | Average | |||
|
| Carrying |
| Impairment |
| | Accumulated |
| Carrying | | Remaining Life | ||||
(Dollars in thousands) |
| Amount |
| Charges |
| | Amortization |
| Amount | | (in years) | ||||
| | | | | | | | | | | | | | | |
Goodwill | | $ | 19,728 | | $ | (1,543) | | $ | (667) | | $ | 17,518 | | | — |
| | | | | | | | | | | | | | | |
Other intangible assets | | | | | | | | | | | | | | | |
Amortizable | | | | | | | | | | | | | | | |
Core deposit intangible | | $ | 3,954 | | $ | — | | $ | (2,235) | | $ | 1,719 | |
| 4.7 |
Total other intangible assets | | $ | 3,954 | | $ | — | | $ | (2,235) | | $ | 1,719 | | | |
| | | | | | | | | | | | | | | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted |
|
| Gross |
| Accumulated |
|
|
|
| Net |
| Average | |||
|
| Carrying |
| Impairment |
| Accumulated |
| Carrying |
| Remaining Life | ||||
(Dollars in thousands) |
| Amount |
| Charges |
| Amortization |
| Amount |
| (in years) | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
| $ | 31,213 |
| $ | (2,637) |
| $ | (667) |
| $ | 27,909 |
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortizable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employment agreements |
| $ | 440 |
| $ | - |
| $ | (440) |
| $ | - |
| - |
Insurance expirations |
|
| 1,270 |
|
| - |
|
| (1,268) |
|
| 2 |
| 0.0 |
Customer relationships |
|
| 795 |
|
| (95) |
|
| (473) |
|
| 227 |
| 4.9 |
Core deposit intangible |
|
| 3,954 |
|
| - |
|
| (132) |
|
| 3,822 |
| 9.7 |
|
|
| 6,459 |
|
| (95) |
|
| (2,313) |
|
| 4,051 |
|
|
Unamortizable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade name |
|
| 780 |
|
| - |
|
| - |
|
| 780 |
| - |
Total other intangible assets |
| $ | 7,239 |
| $ | (95) |
| $ | (2,313) |
| $ | 4,831 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted |
|
| Gross |
| Accumulated |
|
|
|
| Net |
| Average | |||
|
| Carrying |
| Impairment |
| Accumulated |
| Carrying |
| Remaining Life | ||||
(Dollars in thousands) |
| Amount |
| Charges |
| Amortization |
| Amount |
| (in years) | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
| $ | 15,235 |
| $ | (2,637) |
| $ | (667) |
| $ | 11,931 |
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortizable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employment agreements |
| $ | 440 |
| $ | - |
| $ | (440) |
| $ | - |
| - |
Insurance expirations |
|
| 1,270 |
|
| - |
|
| (1,233) |
|
| 37 |
| 0.4 |
Customer relationships |
|
| 795 |
|
| (95) |
|
| (438) |
|
| 262 |
| 5.6 |
|
|
| 2,505 |
|
| (95) |
|
| (2,111) |
|
| 299 |
|
|
Unamortizable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade name |
|
| 780 |
|
| - |
|
| - |
|
| 780 |
| - |
Total other intangible assets |
| $ | 3,285 |
| $ | (95) |
| $ | (2,111) |
| $ | 1,079 |
|
|
25
The aggregate amortization expense was $353 thousand for the nine months ended September 30, 2021 and $407 thousand for the nine months ended September 30, 2020.
At September 31, 2017,30, 2021, estimated future remaining amortization for amortizing intangibles within the years ending December 31, wasis as follows:
| | | |
(Dollars in thousands) | | Amortization | |
2021 | | $ | 108 |
2022 | |
| 389 |
2023 | |
| 317 |
2024 | |
| 246 |
2025 | |
| 174 |
2026 | | | 102 |
Thereafter | | | 29 |
Total amortizing intangible assets | | $ | 1,365 |
26
|
|
|
|
(Dollars in thousands) |
|
|
|
2017 |
| $ | 282 |
2018 |
|
| 442 |
2019 |
|
| 442 |
2020 |
|
| 395 |
2021 |
|
| 439 |
Thereafter |
|
| 2,051 |
Total amortizing intangible assets |
| $ | 4,051 |
Note 7 – Other Assets
The Company had the following other assets at September 30, 20172021 and December 31, 2016.2020.
| | | | | | | |
| | September 30, | | December 31, | | ||
(Dollars in thousands) |
| 2021 |
| 2020 |
| ||
Accrued interest receivable | | $ | 5,037 | | $ | 6,616 | |
Deferred income taxes | |
| 5,307 | |
| 4,442 | |
Prepaid expenses | |
| 1,649 | |
| 1,472 | |
Cash surrender value on life insurance | |
| 41,949 | |
| 31,018 | |
Income taxes receivable | | | 68 | | | 156 | |
Other assets | |
| 4,732 | |
| 3,075 | |
Total | | $ | 58,742 | | $ | 46,779 | |
|
|
|
|
|
|
|
(Dollars in thousands) |
| September 30, 2017 |
| December 31, 2016 | ||
Nonmarketable investment securities |
| $ | 3,069 |
| $ | 1,650 |
Accrued interest receivable |
|
| 3,122 |
|
| 2,675 |
Deferred income taxes, net |
|
| 2,628 |
|
| 7,040 |
Prepaid expenses |
|
| 1,528 |
|
| 1,148 |
Cash surrender value on life insurance |
|
| 671 |
|
| 2,589 |
Other assets |
|
| 5,937 |
|
| 3,781 |
Total |
| $ | 16,955 |
| $ | 18,883 |
26
The following table provides information on significant components of the Company’s deferred tax assets and liabilities as of September 30, 20172021 and December 31, 2016.2020.
| | | | | | |
|
| September 30, | | December 31, | ||
(Dollars in thousands) |
| 2021 |
| 2020 | ||
Deferred tax assets: |
| |
|
| |
|
Allowance for credit losses | | $ | 4,156 | | $ | 3,721 |
Write-downs of other real estate owned | |
| 12 | |
| 12 |
Nonaccrual loan interest | |
| 281 | |
| 367 |
Other | |
| 2,461 | |
| 2,152 |
Total deferred tax assets | |
| 6,910 | |
| 6,252 |
Less valuation allowance | | | (327) | | | (169) |
Deferred tax assets, net of valuation allowance | | | 6,583 | | | 6,083 |
Deferred tax liabilities: | |
|
| |
|
|
Depreciation | |
| 176 | |
| 177 |
Acquisition accounting adjustments | |
| 735 | |
| 580 |
Deferred capital gain on branch sale | |
| 182 | |
| 187 |
Unrealized gains on available-for-sale securities | |
| 78 | |
| 567 |
Other | | | 105 | | | 130 |
Total deferred tax liabilities | |
| 1,276 | |
| 1,641 |
Net deferred tax assets | | $ | 5,307 | | $ | 4,442 |
|
|
|
|
|
|
|
|
| September 30, |
| December 31, | ||
(Dollars in thousands) |
| 2017 |
| 2016 | ||
Deferred tax assets: |
|
|
|
|
|
|
Allowance for credit losses |
| $ | 3,712 |
| $ | 3,486 |
Reserve for off-balance sheet commitments |
|
| 121 |
|
| 122 |
Net operating loss carry forward |
|
| 842 |
|
| 2,232 |
Write-downs of other real estate owned |
|
| 310 |
|
| 387 |
Deferred income |
|
| 127 |
|
| 1,011 |
Unrealized losses on available-for-sale securities |
|
| 4 |
|
| 672 |
Unrealized losses on available-for-sale securities transferred |
|
|
|
|
|
|
to held to maturity |
|
| 33 |
|
| - |
AMT Credits |
|
| - |
|
| 869 |
Amortization on loans FMV adjustment |
|
| 194 |
|
| - |
Other |
|
| 982 |
|
| 1,192 |
Total deferred tax assets |
|
| 6,325 |
|
| 9,971 |
Deferred tax liabilities: |
|
|
|
|
|
|
Depreciation |
|
| 159 |
|
| 239 |
Amortization on loans FMV adjustment |
|
| - |
|
| 156 |
Purchase accounting adjustments |
|
| 2,927 |
|
| 2,019 |
Deferred capital gain on branch sale |
|
| 347 |
|
| 401 |
Other |
|
| 264 |
|
| 116 |
Total deferred tax liabilities |
|
| 3,697 |
|
| 2,931 |
Net deferred tax assets |
| $ | 2,628 |
| $ | 7,040 |
Note 8 - Subordinated Debt
On August 25, 2020, the Company entered into Subordinated Note Purchase Agreements with certain Purchasers pursuant to which the Company issued and sold $25.0 million in aggregate principal amount with an initial interest rate of 5.375% Fixed-to-Floating Rate Subordinated Notes due September 1, 2030.
The Company’s deferred tax assets consistCompany has and continues to use the net proceeds of grossthis offering for general corporate purposes, organic growth and to support the Bank’s regulatory capital ratios. The Notes were structured to qualify as Tier 2 capital for regulatory capital purposes and bear an initial interest rate of 5.375% until September 1, 2025, with interest during this period payable semi-annually in arrears. From and including September 1, 2025, to but excluding the maturity date or early redemption date, the interest rate will reset quarterly to an annual floating rate equal to three-month SOFR, plus 526.5 basis points, with interest during this period payable quarterly in arrears. The Notes are redeemable by the Company at its option, in whole or in part, on or after September 1, 2025. Initial debt issuance costs were $611 thousand. The debt balance of $24.5 million is presented net operating loss carryovers for state tax purposes of $15.7 million that will be used to offset taxable income in future periods. The Company’s state net operating loss carryovers will begin to expire in the year ended December 31, 2026 with limited amounts available through December 31, 2034.
No valuation allowance on these deferred tax assets was recordedunamortized issuance costs of $479 thousand at September 30, 2017 and December 31, 2016 as management believes it is more likely than not that all deferred tax assets will be realized.2021.
27
Note 89 – Other Liabilities
The Company had the following other liabilities at September 30, 20172021 and December 31, 2016.2020.
| | | | | | | |
(Dollars in thousands) |
| September 30, 2021 |
| December 31, 2020 |
| ||
Accrued interest payable | | $ | 201 | | $ | 647 | |
Deferred compensation liability | |
| 4,180 | |
| 2,905 | |
Other liabilities | |
| 3,013 | |
| 3,686 | |
Total | | $ | 7,394 | | $ | 7,238 | |
|
|
|
|
|
|
|
(Dollars in thousands) |
| September 30, 2017 |
| December 31, 2016 | ||
Accrued interest payable |
| $ | 59 |
| $ | 74 |
Other accounts payable |
|
| 4,146 |
|
| 2,461 |
Deferred compensation liability |
|
| 1,197 |
|
| 1,444 |
Other liabilities |
|
| 413 |
|
| 1,301 |
Total |
| $ | 5,815 |
| $ | 5,280 |
Note 910 - Stock-Based Compensation
At the 2016 annual meeting, stockholders approved the Shore Bancshares, Inc. 2016 Stock and Incentive Plan (“2016 Equity Plan”), replacing the Shore Bancshares, Inc. 2006 Stock and Incentive Plan (“2006 Equity Plan”), which expired on that date. The Company may issue shares of common stock or grant other equity-based awards pursuant to the 2016 Equity Plan. Stock-based awards granted to date generally are time-based, vest in equal installments on each anniversary of the grant date and range over a one-one- to five-year period of time, and, in the case of stock options, expire 10 years from the grant date. As part of the 2016 Equity Plan, a performance equity incentive award program, known as the “Long-term incentive plan” allows participating officers of the Company to earn incentive awards of performance share/restricted stock units if certain pre-determined targets are achieved at the end of a three-year performance cycle. Stock-based compensation expense based on the grant date fair value is recognized ratably over the requisite service period for all awards and reflects forfeitures as they occur. The 2016 Equity Plan originally reserved 750,000 shares of common stock for grant, and 709,873581,822 shares remained available for grant at September 30, 2017.
2021.
The following tables provide information on stock-based compensation expense for the three and nine months ended September 30, 20172021 and 2016.2020.
| | | | | | | | | | | | | |
| | For Three Months Ended | | For Nine Months Ended | | ||||||||
| | September 30, | | September 30, | | ||||||||
(Dollars in thousands) |
| 2021 |
| 2020 |
| 2021 |
| 2020 |
| ||||
Stock-based compensation expense | | $ | 91 | | $ | 67 | | $ | 287 | | $ | 190 | |
Excess tax benefits related to stock-based compensation | |
| 2 | |
| — | |
| 3 | |
| 11 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For Three Months Ended |
|
| For Nine Months Ended | ||||||||
|
| September 30, |
|
| September 30, | ||||||||
(Dollars in thousands) |
| 2017 |
| 2016 |
|
| 2017 |
| 2016 | ||||
Stock-based compensation expense |
| $ | 158 |
| $ | 85 |
|
| $ | 748 |
| $ | 262 |
Excess tax benefits related to stock-based |
|
|
|
|
|
|
|
|
|
|
|
|
|
compensation |
|
| 15 |
|
| 12 |
|
|
| 26 |
|
| 25 |
| | | | | | | |
| | September 30, | | ||||
(Dollars in thousands) |
| 2021 |
| 2020 |
| ||
Unrecognized stock-based compensation expense | | $ | 120 | | $ | 143 | |
Weighted average period unrecognized expense is expected to be recognized | |
| 0.3 | years |
| 0.5 | years |
|
|
|
|
|
|
|
|
|
|
| September 30, | ||||||
(Dollars in thousands) |
| 2017 |
| 2016 | ||||
Unrecognized stock-based compensation |
|
|
|
|
|
|
|
|
expense |
| $ | 1,147 |
|
| $ | 132 |
|
Weighted average period unrecognized |
|
|
|
|
|
|
|
|
expense is expected to be recognized |
|
| 1.3 | years |
|
| 0.6 | years |
28
The following table summarizes restricted stock award activity for the Company under the 2016 Equity Plan for the nine months ended September 30, 2017 and 2016.2021.
| | | | | |
| | Nine Months Ended September 30, 2021 | |||
| | | | Weighted Average | |
| | Number of | | Grant Date | |
|
| Shares |
| Fair Value | |
Nonvested at beginning of period |
| 24,505 | | $ | 13.78 |
Granted |
| 24,583 | |
| 13.34 |
Vested |
| (18,040) | |
| 13.74 |
Forfeited |
| (1,423) | |
| 13.34 |
Nonvested at end of period |
| 29,625 | | $ | 13.38 |
|
|
|
|
|
|
|
|
| Nine Months Ended September 30, 2017 |
| |||
|
|
|
| Weighted Average |
| |
|
| Number of |
| Grant Date |
| |
|
| Shares |
| Fair Value |
| |
Nonvested at beginning of period |
| 17,066 |
| $ | 11.46 |
|
Granted |
| 21,470 |
|
| 16.69 |
|
Vested |
| (22,623) |
|
| 13.66 |
|
Cancelled |
| - |
|
| - |
|
Nonvested at end of period |
| 15,913 |
| $ | 12.49 |
|
The fair value of restricted stock awards that vested during the first nine months of 20172021 and 20162020 was $309$268 thousand and $204$254 thousand, respectively.
28
Restricted stock units (RSUs) are similar to restricted stock, except the recipient does not receive the stock immediately, but instead receives it upon the terms and conditionsTable of the Company’s long-term incentive plans which are subject to performance milestones achieved at the end of a three-year period. Each RSU cliff vests at the end of the three-year period and entitles the recipient to receive one share of common stock on a specified issuance date. The recipient does not have any stockholder rights, including voting rights, with respect to the shares underlying awarded RSUs until the recipient becomes the holder of those shares.
During 2017, the Company entered into a long-term incentive program agreement with officers of the Company and its subsidiaries to award RSUs based on a performance metric to be achieved as of December 31, 2019. These awards will cliff vest on this date, in which the final number of common shares to be issued will be determined. The range of RSUs which could potentially be awarded at the end of the performance cycle is between 12,703 shares and 50,830 shares, assuming a certain performance metric is met. The table below presents management’s evaluation of the probable number of common stock awards to be issued at the end of the performance cycle.
During 2016, the Company entered into a long-term incentive program agreement with officers of the Company and its subsidiaries to award RSUs based on a performance metric to be achieved as of December 31, 2018. These awards will cliff vest on this date, in which the final number of common shares to be issued will be determined. The range of RSUs which could potentially be awarded at the end of the performance cycle is between 12,214 shares and 48,871 shares, assuming a certain performance metric is met. In addition, two members of the long-term incentive plan from 2015 forfeited their RSUs due to leaving the Company before the end of the vesting period. The table below presents management’s evaluation of the probable number of common stock awards to be issued at the end of the performance cycle.
During 2015, the Company entered into a long-term incentive program agreement with officers of the Company and its subsidiaries to award RSUs based on performance metrics to be achieved as of December 31, 2017. These awards will cliff vest on this date, in which the final number of common shares to be issued will be determined. The range of RSUs which could potentially be awarded at the end of the performance cycle is between 10,953 shares and 43,821 shares, assuming certain performance metrics are met. The table below presents management’s evaluation of the probable number of common stock awards to be issued at the end of the performance cycle.
29
Contents
The following table summarizes restricted stock units activity based on management’s evaluation of the probable number of common stock awards to be issued at the end of the performance cycle for the Company under the 2016 and 2006 Equity Plans for the nine months ended September 30, 2017 and 2016.
|
|
|
|
|
|
|
|
| Nine Months Ended September 30, 2017 |
| |||
|
|
|
| Weighted Average |
| |
|
| Number of |
| Grant Date |
| |
|
| Shares |
| Fair Value |
| |
Outstanding at beginning of period |
| 46,342 |
| $ | 10.64 |
|
Granted |
| 25,410 |
|
| 16.57 |
|
Vested |
| - |
|
| - |
|
Forfeited |
| - |
|
| - |
|
Outstanding at end of period |
| 71,752 |
| $ | 12.01 |
|
The following table summarizes stock option activity for the Company under the 2016 Equity Plan for the nine months ended September 30, 2017 and 2016.2021.
| | | | | |
| | Nine Months Ended September 30, 2021 | |||
| | | | Weighted Average | |
| | Number of | | Grant Date | |
|
| Shares |
| Exercise Price | |
Outstanding at beginning of period |
| 2,709 | | $ | 6.64 |
Granted |
| — | |
| — |
Exercised |
| (2,009) | |
| 6.64 |
Expired/Cancelled |
| (700) | |
| 6.64 |
Outstanding at end of period |
| — | | $ | — |
| | | | | |
Exercisable at end of period |
| — | | $ | — |
|
|
|
|
|
|
|
|
| Nine Months Ended September 30, 2017 |
| |||
|
|
|
| Weighted Average |
| |
|
| Number of |
| Grant Date |
| |
|
| Shares |
| Exercise Price |
| |
Outstanding at beginning of period |
| 62,086 |
| $ | 8.29 |
|
Granted |
| 1,202 |
|
| 10.99 |
|
Exercised |
| (859) |
|
| 6.64 |
|
Expired/Cancelled |
| - |
|
| - |
|
Outstanding at end of period |
| 62,429 |
| $ | 8.36 |
|
|
|
|
|
|
|
|
Exercisable at end of period |
| 61,828 |
| $ | 8.34 |
|
The weighted average fair value ofThere were 0 stock options granted during the three and nine months ended September 30, 20172021 and September 30, 2016 was $10.99and $5.03, respectively. The Company estimates the fair value of options using the Black-Scholes valuation model with weighted average assumptions for dividend yield, expected volatility, risk-free interest rate and expected lives (in years). The expected dividend yield is calculated by dividing the total expected annual dividend payout by the average stock price. The expected volatility is based on historical volatility of the underlying securities. The risk-free interest rate is based on the Federal Reserve Bank’s constant maturities daily interest rate in effect at grant date. The expected contract life of the options represents the period of time that the Company expects the awards to be outstanding based on historical experience with similar awards. The following weighted average assumptions were used as inputs to the Black-Scholes valuation model for options granted in 2017 and 2016.2020.
|
|
|
|
|
|
|
|
| 2017 |
| 2016 | ||
Dividend yield |
| 0.84 | % |
| 0.73 | % |
Expected volatility |
| 64.80 | % |
| 38.60 | % |
Risk-free interest rate |
| 2.42 | % |
| 1.75 | % |
Expected contract life (in years) |
| 10 years |
|
| 10 years |
|
At the end of the third quarter of 2017, the aggregate intrinsic value of the options outstanding under the 2016 Equity Plan was $517 thousand based on the $16.65 market value per share of the Company’s common stock at September 30, 2017. Similarly, the aggregate intrinsic value of the options exercisable was $514 thousand at September 30, 2017. The intrinsic value on options exercised during the nine months ended September 30, 2017 was $8 thousand based on the $15.89 market value per share of the Company’s common stock at January 30, 2017. The intrinsic value on options exercised in 2016 was $2 thousand based on the $11.35 market value per share of the Company’s common stock at February 8, 2016. At September 30, 2017, the weighted average remaining contract life of options outstanding was 6.4 years.
30
Note 1011 – Accumulated Other Comprehensive Income
The Company records unrealized holding gains (losses), net of tax, on investment securities available for sale as accumulated other comprehensive income (loss), a separate component of stockholders’ equity. The following table provides information on the changes in the components of accumulated other comprehensive income (loss) for the nine months ended September 30, 20172021 and 2016.2020.
| | | | | | | | | |
|
| | |
| Unrealized gains |
|
| | |
| | | | (losses) on securities | | | |||
| | Unrealized | | transferred from | | Accumulated | |||
| | gains (losses) on | | Available-for-sale | | other | |||
| | available for sale | | to | | comprehensive | |||
(Dollars in thousands) | | securities | | Held-to-maturity | | income (loss) | |||
Balance, December 31, 2020 | | $ | 1,529 | | $ | — | | $ | 1,529 |
Other comprehensive loss | |
| (1,300) | |
| — | |
| (1,300) |
Reclassification of gains recognized | | | (1) | |
| — | |
| (1) |
Balance, September 30, 2021 | | $ | 228 | | $ | — | | $ | 228 |
| | | | | | | | | |
Balance, December 31, 2019 | | $ | 218 | | $ | (11) | | $ | 207 |
Other comprehensive income | |
| 1,945 | |
| 11 | |
| 1,956 |
Reclassification of (gain) recognized | |
| (259) | |
| — | |
| (259) |
Balances, September 30, 2020 | | $ | 1,904 | | $ | — | | $ | 1,904 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
| Unrealized gains |
|
|
| |
|
|
|
|
| (losses) on securities |
|
|
| |
|
| Unrealized |
| transferred from |
| Accumulated | |||
|
| gains (losses) on |
| Available-for-sale |
| other | |||
|
| available for sale |
| to |
| comprehensive | |||
(Dollars in thousands) |
| securities |
| Held-to-maturity |
| income (loss) | |||
Balance, December 31, 2016 |
| $ | (931) |
| $ | (62) |
| $ | (993) |
Other comprehensive income |
|
| 927 |
|
| 15 |
|
| 942 |
Reclassification of (gains) recognized |
|
| (3) |
|
| - |
|
| (3) |
Balance, September 30, 2017 |
| $ | (7) |
| $ | (47) |
| $ | (54) |
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2015 |
| $ | (71) |
| $ | - |
| $ | (71) |
Other comprehensive income |
|
| 1,566 |
|
| - |
|
| 1,566 |
Reclassification of (gains) recognized |
|
| (18) |
|
| - |
|
| (18) |
Balances, September 30, 2016 |
| $ | 1,477 |
| $ | - |
| $ | 1,477 |
Note 1112 – Fair Value Measurements
Accounting guidance under GAAP defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. This accounting guidance also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Securities available for sale are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other assets on a nonrecurring basis, such as impaired loans, loans held for sale and other real estate owned (foreclosed assets). These nonrecurring fair value adjustments typically involve application of lower of cost or market accounting or write-downs of individual assets.
29
Under fair value accounting guidance, assets and liabilities are grouped at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine their fair values. These hierarchy levels are:
Level 1 inputs – Unadjusted quoted prices in active markets for identical assets or liabilities that the entity has the ability to access at the measurement date.
Level 2 inputs – Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals.
Level 3 inputs – Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.
Below is a discussion on the Company’s assets measured at fair value on a recurring basis.
Investment Securities Available for Sale
Fair value measurement for investment securities available for sale is based on quoted prices from an independent pricing service. The fair value measurements consider observable data that may include present value of future cash flows, prepayment assumptions, credit loss assumptions and other factors. The Company classifies its investments in U.S. Treasury securities, if any, as Level 1 in the fair value hierarchy, and it classifies its investments in U.S. Government agencies securities and mortgage-backed securities issued or guaranteed by U.S. Government sponsored entities as Level 2.
Equity Securities
31
Fair value measurement for equity securities is based on quoted market prices retrieved by the Company via on-line resources. Although these securities have readily available fair market values, the Company determined that they should be classified as level 2 investments in the fair value hierarchy due to not being considered traded in a highly active market.
The tables below present the recorded amount of assets measured at fair value on a recurring basis at September 30, 20172021 and December 31, 2016. No2020. NaN assets were transferred from one hierarchy level to another during the first nine months of 20172021 or 2016.2020.
| | | | | | | | | | | | |
| | | | | | | | Significant | | | | |
| | | | | | | | Other | | Significant | ||
| | | | | Quoted | | Observable | | Unobservable | |||
| | | | | Prices | | Inputs | | Inputs | |||
(Dollars in thousands) |
| Fair Value |
| (Level 1) |
| (Level 2) |
| (Level 3) | ||||
September 30, 2021 |
| |
|
| |
|
| |
|
| |
|
Securities available for sale: |
| |
|
| |
|
| |
|
| |
|
U.S. Government agencies | | $ | 17,983 | | $ | — | | $ | 17,983 | | $ | — |
Mortgage-backed | |
| 87,142 | |
| — | |
| 87,142 | |
| — |
| |
| 105,125 | |
| — | |
| 105,125 | |
| — |
| | | | | | | | | | | | |
Equity | |
| 1,384 | |
| — | |
| 1,384 | |
| — |
Total | | $ | 106,509 | | $ | — | | $ | 106,509 | | $ | — |
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Significant |
|
|
| |
|
|
|
|
|
|
|
| Other |
| Significant | ||
|
|
|
|
| Quoted |
| Observable |
| Unobservable | |||
|
|
|
|
| Prices |
| Inputs |
| Inputs | |||
(Dollars in thousands) |
| Fair Value |
| (Level 1) |
| (Level 2) |
| (Level 3) | ||||
September 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agencies |
| $ | 52,003 |
| $ | - |
| $ | 52,003 |
| $ | - |
Mortgage-backed |
|
| 160,725 |
|
| - |
|
| 160,725 |
|
| - |
Equity |
|
| 662 |
|
| - |
|
| 662 |
|
| - |
Total |
| $ | 213,390 |
| $ | - |
| $ | 213,390 |
| $ | - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Significant |
|
|
| |
|
|
|
|
|
|
|
| Other |
| Significant | ||
|
|
|
|
| Quoted |
| Observable |
| Unobservable | |||
|
|
|
|
| Prices |
| Inputs |
| Inputs | |||
(Dollars in thousands) |
| Fair Value |
| (Level 1) |
| (Level 2) |
| (Level 3) | ||||
December 31, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agencies |
| $ | 34,318 |
| $ | - |
| $ | 34,318 |
| $ | - |
Mortgage-backed |
|
| 128,944 |
|
| - |
|
| 128,944 |
|
| - |
Equity |
|
| 640 |
|
| - |
|
| 640 |
|
| - |
Total |
| $ | 163,902 |
| $ | - |
| $ | 163,902 |
| $ | - |
| | | | | | | | | | | | |
| | | | | | | | Significant | | | | |
| | | | | | | | Other | | Significant | ||
| | | | | Quoted | | Observable | | Unobservable | |||
| | | | | Prices | | Inputs | | Inputs | |||
(Dollars in thousands) |
| Fair Value |
| (Level 1) |
| (Level 2) |
| (Level 3) | ||||
December 31, 2020 |
| |
|
| |
|
| |
|
| |
|
Securities available for sale: |
| |
|
| |
|
| |
|
| |
|
U.S. Government agencies | | $ | 23,537 | | $ | — | | $ | 23,537 | | $ | — |
Mortgage-backed | |
| 116,031 | |
| — | |
| 116,031 | |
| — |
| |
| 139,568 | |
| — | |
| 139,568 | |
| — |
| | | | | | | | | | | | |
Equity | |
| 1,395 | |
| — | |
| 1,395 | |
| — |
Total | | $ | 140,963 | | $ | — | | $ | 140,963 | | $ | — |
Below is a discussion on the Company’s assets measured at fair value on a nonrecurring basis.
Impaired Loans
Loans are considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement.agreement when due. Loan impairment is measured using the present value of expected cash flows, the loan’s observable market price or the fair value of the collateral (less selling costs) if the loans are collateral dependent and these are considered Level 3 in the fair value hierarchy. Collateral may be real estate and/or business assets including equipment, inventory and/or accounts receivable. The value of business equipment, inventory and accounts receivable, discounted on management’s review and analysis. Appraised and reported values may be discounted based on management’s historical knowledge, changes in market conditions from the time of valuation, and/or management’s expertise and knowledge of the client and the client’s business.
Impaired loans are reviewed and evaluated on at least a quarterly basis for additional impairment and adjusted accordingly, based on the factors identified above. Valuation techniques are consistent with those techniques applied in prior periods.
Other Real Estate Owned (Foreclosed Assets)
Foreclosed assets are adjusted for fair value upon transfer of loans to foreclosed assets.assets establishing a new cost basis. Subsequently, foreclosed assets are carried at the lower of carrying value andor fair value. The estimated fair value for foreclosed assets included in Level 3 are determined by independent market based appraisals and other available market information, less costs to sell, that may be reduced further based on market expectations or an executed sales agreement. If the fair value of the collateral deteriorates subsequent to the initial recognition, the Company records the foreclosed asset as a non-recurring Level 3 adjustment. Valuation techniques are consistent with those techniques applied in prior periods.
32
31
The following tables below presentset forth the recorded amount ofCompany’s financial and nonfinancial assets measured atsubject to fair value adjustments (impairment) on a nonrecurring basis at September 30, 20172021 and December 31, 2016.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Quantitative Information about Level 3 Fair Value Measurements | ||||||||||
(Dollars in thousands) |
| Fair Value |
| Valuation Technique |
| Unobservable Input |
| Range | ||||
September 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
Nonrecurring measurements: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans |
| $ | 6,190 |
|
| Appraisal of collateral | 1 |
| Appraisal adjustments | 2 |
| 20% - 30% |
|
|
|
|
|
|
|
|
| Liquidation expense | 2 |
| 5% - 10% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other real estate owned |
| $ | 1,809 |
|
| Appraisal of collateral | 1 |
| Appraisal adjustments | 2 |
| 20% - 30% |
|
|
|
|
|
|
|
|
| Liquidation expense | 2 |
| 5% - 10% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Quantitative Information about Level 3 Fair Value Measurements | ||||||||||
(Dollars in thousands) |
| Fair Value |
| Valuation Technique |
| Unobservable Input |
| Range | ||||
December 31, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
Nonrecurring measurements: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans |
| $ | 8,935 |
|
| Appraisal of collateral | 1 |
| Appraisal adjustments | 2 |
| 20% - 30% |
|
|
|
|
|
|
|
|
| Liquidation expense | 2 |
| 5% - 10% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other real estate owned |
| $ | 2,477 |
|
| Appraisal of collateral | 1 |
| Appraisal adjustments | 2 |
| 20% - 30% |
|
|
|
|
|
|
|
|
| Liquidation expense | 2 |
| 5% - 10% |
|
| |||||
|
| |||||
The following information relates to the estimated fair values of financial assets and liabilities2020, that are reportedvalued at the lower of cost or market. Assets are classified in their entirety based on the Company’s consolidated balance sheets at their carrying amounts. The discussion below describes the methods and assumptions usedlowest level of input that is significant to estimate the fair value of each class of financial asset and liability for which it is practicable to estimate that value.measurement.
| | | | | | | | | | | |
| | Quantitative Information about Level 3 Fair Value Measurements | |||||||||
| | | | | | | | | | | Weighted |
(Dollars in thousands) |
| Fair Value |
| Valuation Technique |
| Unobservable Input |
| Range |
| Average (3) | |
September 30, 2021 |
| |
|
|
| |
| |
| |
|
Nonrecurring measurements: |
| |
|
|
| |
| |
| |
|
| | | | | | | | | | | |
Impaired loans | | $ | 617 |
| Appraisal of collateral | (1) | Liquidation expense | (2) | 10% | | (10%) |
| | | | | | | | | | | |
Impaired loans | | $ | 408 |
| Discounted cash flow analysis | (1) | Discount rate | | 4% - 7.25% | | (6%) |
| | | | | | | | | | | |
Other real estate owned | | $ | 203 |
| Appraisal of collateral | (1) | Appraisal adjustments | (2) | 0% - 19% | | (1%) |
Cash and Cash Equivalents
| | | | | | | | | | | |
| | Quantitative Information about Level 3 Fair Value Measurements | |||||||||
| | | | | | | | | | | Weighted |
(Dollars in thousands) |
| Fair Value |
| Valuation Technique |
| Unobservable Input |
| Range | | Average (3) | |
December 31, 2020 |
| |
|
|
| |
| | | |
|
Nonrecurring measurements: |
| |
|
|
| |
| | | |
|
| | | | | | | | | | | |
Impaired loans | | $ | 610 |
| Appraisal of collateral | (1) | Liquidation expense | (2) | 10% | | (10%) |
| | | | | | | | | | | |
Impaired loans | | $ | 1,110 |
| Discounted cash flow analysis | (1) | Discount rate | | 6% - 7.25% | | (6%) |
Cash equivalents include interest-bearing deposits with other banks and federal funds sold. For these short-term instruments, the carrying amount is a reasonable estimate of fair value.
Investment Securities Held to Maturity
For all investments in debt securities, fair values are based on quoted prices. If a quoted price is not available, fair
33
Loans
The fair values of categories of fixed rate loans,qualitative factors such as commercial loans, residential real estate,economic conditions and estimated liquidation expenses. The range and weighted average of liquidation expenses and other consumer loans,appraisal adjustments are estimatedpresented as a percent of the appraisal.
Restricted Securities
The restricted security category is comprised of FHLB and Federal Reserve Bank stock. These stocks are classified as restricted securities because their ownership is restricted to certain types of entities and they lack a market. When the FHLB or Federal Reserve Bank repurchases stock, they repurchase at the stock’s book value. Therefore, the carrying amounts of restricted securities approximate fair value.
Bank Owned Life Insurance
The carrying value of bank owned life insurance approximates fair value. The Company records these policies at their cash surrender value, which is estimated using information provided by insurance carriers.
Deposits and Short-Term Borrowings
The fair values of demand deposits, savings accounts, and certain money market deposits are the amounts payable on demand at the reporting date. Therelative fair value of fixed-maturity certificatesthe instruments.
32
The carrying amount of short-term borrowings is a reasonable estimate of fair value. The fair values of securities sold under agreements to repurchase (included in short-term borrowings)amounts and long-term debt are estimated using the rates offered for similar borrowings.
Commitments to Extend Credit and Standby Letters of Credit
The majority of the Company’s commitments to grant loans and standby letters of credit are written to carry current market interest rates if converted to loans. In general, commitments to extend credit and letters of credit are not assignable by the Company or the borrower, so they generally have value only to the Company and the borrower. Therefore, it is impractical to assign any value to these commitments.
The following table provides information on the estimated fair values of the Company’s financial assets and liabilities thatinstruments not carried at fair value on the Company’s Consolidated Balance Sheets are reportedpresented in the balance sheets at their carrying amounts. The financial assetsfollowing table. Fair values for September 30, 2021 and liabilities have been segregated by their classification level in the fair value hierarchy.December 31, 2020 were estimated using an exit price notion.
| | | | | | | | | | | | |
| | September 30, 2021 |
| December 31, 2020 | ||||||||
| | | | | Estimated | | | | | Estimated | ||
| | Carrying | | Fair | | Carrying | | Fair | ||||
(Dollars in thousands) |
| Amount |
| Value |
| Amount |
| Value | ||||
Financial assets |
| |
|
| |
|
| |
|
| |
|
Level 1 inputs |
| |
|
| |
|
| |
|
| |
|
Cash and cash equivalents | | $ | 310,852 | | $ | 310,852 | | $ | 186,917 | | $ | 186,917 |
| | | | | | | | | | | | |
Level 2 inputs | |
|
| |
|
| |
|
| |
|
|
Investment securities held to maturity | | $ | 250,501 | | $ | 247,835 | | $ | 65,706 | | $ | 65,828 |
Restricted securities | |
| 3,189 | |
| 3,189 | |
| 3,626 | |
| 3,626 |
Cash surrender value on life insurance | |
| 41,949 | |
| 41,949 | |
| 31,018 | |
| 31,018 |
| | | | | | | | | | | | |
Level 3 inputs | |
|
| |
|
| |
|
| |
|
|
Loans, net | | $ | 1,479,372 | | $ | 1,475,793 | | $ | 1,440,368 | | $ | 1,436,292 |
| | | | | | | | | | | | |
Financial liabilities | |
|
| |
|
| |
|
| |
|
|
Level 2 inputs | |
|
| |
|
| |
|
| |
|
|
Deposits: | |
|
| |
|
| |
|
| |
|
|
Noninterest-bearing demand | | $ | 554,902 | | $ | 554,902 | | $ | 509,091 | | $ | 509,091 |
Checking plus interest | |
| 515,796 | |
| 515,796 | |
| 446,243 | |
| 446,243 |
Money market | |
| 443,270 | |
| 443,270 | |
| 292,974 | |
| 292,974 |
Savings | |
| 220,346 | |
| 220,346 | |
| 177,524 | |
| 177,524 |
Club | |
| 1,490 | |
| 1,490 | |
| 392 | |
| 392 |
Certificates of deposit, $100,000 or more | |
| 140,390 | |
| 141,610 | |
| 129,623 | |
| 131,271 |
Other time | |
| 141,871 | |
| 142,450 | |
| 144,858 | |
| 146,137 |
Securities sold under retail repurchase agreement | |
| 3,501 | |
| 3,501 | |
| 1,050 | |
| 1,050 |
Subordinated debt | | | 24,521 | | | 26,903 | | | 24,429 | |
| 25,745 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| September 30, 2017 |
| December 31, 2016 | ||||||||
|
|
|
|
| Estimated |
|
|
|
| Estimated | ||
|
| Carrying |
| Fair |
| Carrying |
| Fair | ||||
(Dollars in thousands) |
| Amount |
| Value |
| Amount |
| Value | ||||
Financial assets |
|
|
|
|
|
|
|
|
|
|
|
|
Level 1 inputs |
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 43,916 |
| $ | 43,916 |
| $ | 75,938 |
| $ | 75,938 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 2 inputs |
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities held to maturity |
| $ | 6,241 |
| $ | 6,451 |
| $ | 6,704 |
| $ | 6,806 |
Restricted securities |
|
| 3,069 |
|
| 3,069 |
|
| 1,650 |
|
| 1,650 |
Bank owned life insurance |
|
| 107 |
|
| 107 |
|
| 105 |
|
| 105 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 3 inputs |
|
|
|
|
|
|
|
|
|
|
|
|
Loans, net |
|
| 1,037,952 |
|
| 1,036,002 |
|
| 862,799 |
|
| 867,594 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Level 2 inputs |
|
|
|
|
|
|
|
|
|
|
|
|
Deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing demand |
| $ | 326,020 |
| $ | 326,020 |
| $ | 261,575 |
| $ | 261,575 |
Checking plus interest |
|
| 227,973 |
|
| 227,973 |
|
| 203,724 |
|
| 203,724 |
Money market |
|
| 221,589 |
|
| 221,589 |
|
| 181,871 |
|
| 181,871 |
Savings |
|
| 154,180 |
|
| 154,180 |
|
| 90,051 |
|
| 90,051 |
Club |
|
| 1,565 |
|
| 1,565 |
|
| 393 |
|
| 393 |
Certificates of deposit, $100,000 or more |
|
| 113,618 |
|
| 112,271 |
|
| 120,602 |
|
| 119,914 |
Other time |
|
| 161,250 |
|
| 158,320 |
|
| 139,273 |
|
| 135,940 |
Short-term borrowings |
|
| 1,469 |
|
| 1,469 |
|
| 3,203 |
|
| 3,203 |
34
Note 1213 – Financial Instruments with Off-Balance Sheet Risk
In the normal course of business, to meet the financial needs of its customers, the Bank is a party to financial instruments with off-balance sheet risk. These financial instruments include commitments to extend credit and standby letters of credit. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. Letters of credit and other commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Because many of the letters of credit and commitments are expected to expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements.
The following table provides information on commitments outstanding at September 30, 20172021 and December 31, 2016.2020.
| | | | | | |
(Dollars in thousands) |
| September 30, 2021 |
| December 31, 2020 | ||
Commitments to extend credit | | $ | 298,389 | | $ | 248,607 |
Letters of credit | |
| 7,557 | |
| 7,944 |
Total | | $ | 305,946 | | $ | 256,551 |
|
|
|
|
|
|
|
(Dollars in thousands) |
| September 30, 2017 |
| December 31, 2016 | ||
Commitments to extend credit |
| $ | 220,271 |
| $ | 178,233 |
Letters of credit |
|
| 8,335 |
|
| 8,024 |
Total |
| $ | 228,606 |
| $ | 186,257 |
Note 14 – Revenue Recognition
Topic 606 does not apply to revenue associated with financial instruments, including revenue from loans and securities. Topic 606 is applicable to noninterest revenue streams such as trust and asset management income, deposit related fees, interchange fees and merchant income. Noninterest revenue streams in-scope of Topic 606 are discussed below.
33
Service Charges on Deposit Accounts
Service charges on deposit accounts consist of account analysis fees (i.e., net fees earned on analyzed business and public checking accounts), monthly service fees, check orders, and other deposit account related fees. The Company’s performance obligation for account analysis fees and monthly service fees is generally satisfied, and the related revenue recognized, over the period in which the service is provided.
Check orders and other deposit account related fees are largely transactional based, and therefore, the Company’s performance obligation is satisfied, and related revenue recognized, at a point in time. Payment for service charges on deposit accounts is primarily received immediately or at the end of the month through a direct charge to customers’ accounts.
Note 13 – Segment Reporting
Trust and Investment Fee Income
Trust and investment fee income are primarily comprised of fees earned from the management and administration of trusts and other customer assets. The Company’s performance obligation is generally satisfied over time and the resulting fees are recognized monthly, based upon the month-end market value of the assets under management and the applicable fee rate. Payment is generally received a few days after month end through a direct charge to customers’ accounts. The Company operates two primary business segments: Community Bankingdoes not earn performance-based incentives.
Optional services such as real estate sales and Insurance Products and Services. Through the Community Banking business, the Company providestax return preparation services to consumers and small businesses in Maryland, Delaware and Virginia through its 21 branch network and 2 loan production offices. Community banking activities include small business services, retail brokerage, trust services and consumer banking products and services. Loan productsare also available to consumers include mortgage, home equity, automobile, marine,existing trust and installment loans,asset management customers. The Company’s performance obligation for these transactional-based services is generally satisfied, and related revenue recognized, at a point in time (i.e., as incurred). Payment is received shortly after services are rendered.
Other Noninterest Income
Other noninterest income consists of: fees, exchange, other service charges, safety deposit box rental fees, and other miscellaneous revenue streams. Fees and other service charges are primarily comprised of debit and credit card income, ATM fees, merchant services income, and other service charges. Debit and credit card income is primarily comprised of interchange fees earned whenever the Company’s debit and credit cards are processed through card payment networks such as Visa. ATM fees are primarily generated when a Company cardholder uses a non-Company ATM or a non-Company cardholder uses a Company ATM. Merchant services income mainly represents fees charged to merchants to process their debit and credit card transactions, in addition to account management fees. Other service charges include revenue from processing wire transfers, bill pay service, cashier’s checks, and other securedservices. The Company’s performance obligation for fees, exchange, and unsecured personal lines of credit. Small business lending includes commercial mortgages, real estate development loans, equipmentother service charges are largely satisfied, and operating loans, as well as secured and unsecured lines of credit, credit cards, accounts receivable financing arrangements, and merchant card services.
Throughrelated revenue recognized, when the Insurance Products and Services business, the Company provides a full range of insurance products and services to businesses and consumersare rendered or upon completion. Payment is typically received immediately or in the Company’s market areas. Products include propertyfollowing month. Safe deposit box rental fees are charged to the customer on an annual basis and casualty, life, marine, individual healthrecognized upon receipt of payment. The Company determined that rentals and long-term care insurance. Pension and profit sharing plans and retirement plans for executives and employees are available to suitrenewals of safe deposit boxes will be recognized on a monthly basis consistent with the needsduration of individual businesses.
35
the performance obligation.
The following table includes selected financial informationpresents noninterest income from continuing operations, segregated by business segmentsrevenue streams in-scope and out-of-scope of Topic 606, for the firstthree and nine months ended September 30, 2021 and 2020.
| | | | | | | | | | | | | |
| | For Three Months Ended | | For Nine Months Ended | | ||||||||
| | September 30, | | September 30, | | ||||||||
(Dollars in thousands) |
| 2021 |
| 2020 |
| 2021 |
| 2020 | | ||||
Noninterest Income |
| |
|
| |
|
| |
|
| |
|
|
In-scope of Topic 606: |
| |
|
| |
|
| |
|
| |
|
|
Service charges on deposit accounts | | $ | 805 | | $ | 647 | | $ | 2,162 | | $ | 2,057 | |
Trust and investment fee income | |
| 477 | |
| 381 | |
| 1,359 | |
| 1,119 | |
Interchange income | | | 1,016 | | | 808 | | | 2,922 | | | 2,169 | |
Other noninterest income | |
| 358 | |
| 455 | |
| 1,119 | |
| 1,141 | |
Noninterest Income (in-scope of Topic 606) | |
| 2,656 | |
| 2,291 | |
| 7,562 | |
| 6,486 | |
Noninterest Income (out-of-scope of Topic 606) | |
| 253 | |
| 290 | |
| 807 | |
| 1,216 | |
Total Noninterest Income | | $ | 2,909 | | $ | 2,581 | | $ | 8,369 | | $ | 7,702 | |
34
Contract Balances
A contract asset balance occurs when an entity performs a service for a customer before the customer pays consideration (resulting in a contract receivable) or before payment is due (resulting in a contract asset). A contract liability balance is an entity’s obligation to transfer a service to a customer for which the entity has already received payment (or payment is due) from the customer. The Company’s noninterest revenue streams are largely based on transactional activity, or standard month-end revenue accruals such as asset management fees based on month-end market values. Consideration is often received immediately or shortly after the Company satisfies its performance obligation and 2016.revenue is recognized. The Company does not typically enter into long-term revenue contracts with customers, and therefore, does not experience significant contract balances. As of September 30, 2021, and December 31, 2020, the Company did not have any significant contract balances.
Note 15 – Subsequent Event
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Community |
| Insurance Products |
| Parent |
| Consolidated | ||||
(Dollars in thousands) |
| Banking |
| and Services |
| Company |
| Total | ||||
2017 |
|
|
|
|
|
|
|
|
|
|
|
|
Interest Income |
| $ | 34,761 |
| $ | (1) |
| $ | 73 |
| $ | 34,833 |
Interest Expense |
|
| (1,674) |
|
| - |
|
| - |
|
| (1,674) |
Provision for credit losses |
|
| (1,746) |
|
| - |
|
| - |
|
| (1,746) |
Noninterest income |
|
| 6,111 |
|
| 7,300 |
|
| - |
|
| 13,411 |
Noninterest expense |
|
| (18,651) |
|
| (6,035) |
|
| (5,884) |
|
| (30,570) |
Net intersegment (expense) income |
|
| (5,500) |
|
| (84) |
|
| 5,584 |
|
| - |
Income (loss) before taxes |
|
| 13,301 |
|
| 1,180 |
|
| (227) |
|
| 14,254 |
Income tax (expense) benefit |
|
| (5,309) |
|
| (472) |
|
| 91 |
|
| (5,690) |
Net Income (loss) |
| $ | 7,992 |
| $ | 708 |
| $ | (136) |
| $ | 8,564 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets, September 30, 2017 |
| $ | 1,359,930 |
| $ | 9,909 |
| $ | 6,289 |
| $ | 1,376,127 |
|
|
|
|
|
|
|
|
|
|
|
|
|
2016 |
|
|
|
|
|
|
|
|
|
|
|
|
Interest Income |
| $ | 29,957 |
| $ | - |
| $ | 190 |
| $ | 30,147 |
Interest Expense |
|
| (1,863) |
|
| - |
|
| - |
|
| (1,863) |
Provision for credit losses |
|
| (1,430) |
|
| - |
|
| - |
|
| (1,430) |
Noninterest income |
|
| 5,749 |
|
| 6,840 |
|
| - |
|
| 12,589 |
Noninterest expense |
|
| (15,874) |
|
| (5,205) |
|
| (6,842) |
|
| (27,921) |
Net intersegment (expense) income |
|
| (6,027) |
|
| (566) |
|
| 6,593 |
|
| - |
Income (loss) before taxes |
|
| 10,512 |
|
| 1,069 |
|
| (59) |
|
| 11,522 |
Income tax (expense) benefit |
|
| (3,973) |
|
| (424) |
|
| 18 |
|
| (4,379) |
Net Income (loss) |
| $ | 6,539 |
| $ | 645 |
| $ | (41) |
| $ | 7,143 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets, September 30, 2016 |
| $ | 1,129,427 |
| $ | 9,647 |
| $ | 18,792 |
| $ | 1,157,866 |
On March 3, 2021, the Company and Severn Bancorp, Inc. (“Severn”) entered into a definitive agreement for the Company to acquire the Maryland-based Severn. On September 27, 2021, the Company and Severn received regulatory approval from the Office of the Comptroller of the Currency to convert Shore United Bank to a national bank and, for Severn to be merged with and into Shore United Bank, National Association. The Company also received regulatory approval from the Federal Reserve Bank of Richmond for Severn to be merged with and into the Company. On October 22, 2021, the shareholders of the Company and Severn approved the merger of Severn with and into the Company, with the Company as the surviving corporation. The transaction closed on October 31, 2021, and as of that date, Severn had approximately, $1.3 billion in total assets, $950.0 million in total deposits and $589.6 million in total loans.
Under the terms of the agreement, Severn shareholders received 0.6207 shares of Shore common stock and $1.59 in cash for each share of Severn common stock. The following table represents the consideration paid by the Company to acquire Severn:
| | | |
(Dollars in thousands) |
| | |
Purchase Price: | | | |
Shore Bancshares, Inc common stock paid at closing price of $18.48 | | $ | 148,827 |
Cash consideration | | | 20,630 |
Cash consideration for Severn options | |
| 310 |
Total purchase price | | $ | 169,767 |
36
35
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Unless the context clearly suggests otherwise, references to “the Company”, “we”, “our”, and “us” in the remainder of this report are to Shore Bancshares, Inc. and its consolidated subsidiaries.
subsidiary.
Forward-Looking Information
PortionsThis Quarterly Report on Form 10-Q contains forward-looking statements. These forward-looking statements reflect our current views with respect to, among other things, future events and our financial performance. These statements are often, but not always, made through the use of words or phrases such as “may,” “should,” “could,” “predict,” “potential,” “believe,” “will likely result,” “expect,” “continue,” “will,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “project,” “projection,” “forecast,” “goal,” “target,” “would,” “aim” and “outlook,” or the negative version of those words or other comparable words or phrases of a future or forward-looking nature. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about our industry and management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. The inclusion of these forward-looking statements should not be regarded as a representation by us or any other person that such expectations, estimates and projections will be achieved. Accordingly, we caution you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions and uncertainties that are difficult to predict. New risks and uncertainties may emerge from time to time, and it is not possible for us to predict their occurrence. In addition, we cannot assess the impact of each risk and uncertainty on our business or the extent to which any risk or uncertainty, or combination of risks and uncertainties, may cause actual results to differ materially from those contained in any forward-looking statements.
Further, given its ongoing and dynamic nature, it is difficult to predict the full impact of the novel coronavirus (“COVID-19”) outbreak on our business. The extent of such impact will depend on future developments, which are highly uncertain, including when the coronavirus can be controlled and abated and when and how the economy may be fully reopened. As the result of the COVID-19 pandemic and the related adverse local and national economic consequences, we could be subject to any of the following risks, any of which could have a material, adverse effect on our business, financial condition, liquidity, and results of operations: the demand for our products and services may decline, making it difficult to grow assets and income; if the economy is unable to substantially reopen, and high levels of unemployment continue for an extended period of time, loan delinquencies, problem assets, and foreclosures may increase, resulting in increased charges and reduced income; collateral for loans, especially real estate, may decline in value, which could cause loan losses to increase; our allowance for loan losses may increase if borrowers experience financial difficulties, which will adversely affect our net income; the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us; as the result of the decline in the Federal Reserve’s target federal funds rate to near 0%, the yield on our assets may decline to a greater extent than the decline in our cost of interest-bearing liabilities, reducing our net interest margin and spread and reducing net income; our cybersecurity risks are increased as the result of an increase in the number of employees working remotely; and FDIC premiums may increase if the agency experiences additional resolution costs.
If one or more of the factors affecting our forward-looking information and statements proves incorrect, then our actual results, performance or achievements could differ materially from those expressed in, or implied by, forward-looking information and statements contained in this Quarterly Report on Form 10-Q contain forward-lookingand other reports and registration statements within the meaning of The Private Securities Litigation Reform Act of 1995. Statements that are not historical in nature, including statements that include the words “anticipate”, “estimate”, “should”, “expect”, “believe”, “intend”, and similar expressions, are expressions about our confidence, policies, and strategies, the adequacy of capital levels, and liquidity and are not guarantees of future performance. Such forward-looking statements involve certain risks and uncertainties, including economic conditions, competition in the geographic and business areas in which we operate, inflation, fluctuations in interest rates, legislation, and governmental regulation. These risks and uncertainties are described in detail in the section of the periodic reports that Shore Bancshares, Inc. filesfiled by us with the Securities and Exchange Commission (the “SEC”(“SEC”) entitled. For information on the factors that could cause actual results to differ from the expectations stated in the forward- looking statements, see “Risk Factors” (seeunder Part I, Item 1A of Part IIour 2020 Form 10-K and other reports as filed with the SEC.
Any forward-looking statement speaks only as of the date of this report, and Item 1A of Part I of the Annual Report of Shore Bancshares, Inc. on Form 10-K for the year ended December 31, 2016 (the “2016 Annual Report”)). Actual results may differ materially from such forward-looking statements, and we assume nodo not undertake any obligation to publicly update or review any forward-looking statements at any timestatement, whether because of new information, future developments or otherwise, except as required by law.
36
Introduction
The following discussion and analysis is intended as a review of significant factors affecting the Company’s financial condition and results of operations for the periods indicated. This discussion and analysis should be read in conjunction with the unaudited consolidated financial statements and related notes presented elsewhere in this report, as well as the audited consolidated financial statements and related notes included in the 20162020 Annual Report.
Shore Bancshares, Inc. is the largest independent financial holding company headquartered on the Eastern Shore of Maryland. It is the parent company of Shore United Bank. The Bank operates 21 full service22 full-service branches in Baltimore County, Howard County, Kent County, Queen Anne’s County, Talbot County, Caroline County, Dorchester County and DorchesterWorcester County in Maryland, Kent County, Delaware and Accomack County, Virginia. The Company engages in the insurance businesstrust and wealth management services through an insurance producer firm, The Avon-Dixon Agency, LLC, (“Avon-Dixon”) with two specialty lines, Elliott Wilson Insurance (Trucking) and Jack Martin Associates (Marine); and an insurance premium finance company, Mubell Finance, LLC (“Mubell”) (Avon-Dixon and Mubell are collectively referred to as the “Insurance Subsidiaries”). Avon-Dixon and Mubell are wholly-owned subsidiariesWye Financial Partners, a division of Shore Bancshares,United Bank.
As discussed in Note 15 to the consolidated financial statements, the Company recently completed its acquisition of Annapolis-based Severn Bancorp, Inc. (“Severn”). The Company engagesacquisition of Severn will expand the Company’s footprint in the trust services business through the trust department at Shore United Bank under the trade name Wye Financial & Trust.Annapolis and Anne Arundel County market areas, among others, and provide additional banking resources to our customers, including but not limited to, a robust secondary market mortgage banking line of business.
The shares of common stock of Shore Bancshares, Inc. are listed on the NASDAQ Global Select Market under the symbol “SHBI”.
Shore Bancshares, Inc. maintains an Internet site at www.shorebancshares.com on which it makes available free of charge its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to the foregoing as soon as reasonably practicable after these reports are electronically filed with, or furnished to, the SEC.
COVID-19 Pandemic
The outbreak of COVID-19 has led to adverse impacts on economic conditions and created uncertainty in financial markets. Correspondingly, in early March 2020, the Company began preparing for potential disruptions and government limitations of activity in the markets in which we serve. Our team activated our Business Continuity Program and was able to quickly execute on multiple initiatives to adjust our operations to protect the health and safety of our employees and clients. Since the beginning of the crisis, we have been in close contact with our clients, assessing the level of impact on their businesses, and providing relief programs according to each client’s specific situation and qualifications. We have also enhanced awareness of digital banking offerings, expanded services at our drive through locations, and allowed customers to make appointments in the branch for critical services. The Company’s branches remain open and have taken steps to comply with various government directives regarding “social distancing,” as well as, enhanced cleaning and disinfecting of all surface areas to protect its clients and employees.
Small Business Administration’s Paycheck Protection Program
We established our process for participating in the Small Business Administration’s Paycheck Protection Program (“PPP”) that enabled our clients to utilize this valuable resource beginning in April 2020. Loans under the PPP are designed to provide assistance for small businesses during the COVID-19 pandemic to help meet the costs associated with payroll, mortgage interest, rent and utilities. These loans are guaranteed by the SBA and forgiveness of the loans, by the SBA, is granted to the borrower if the borrower uses at least 60% of the funds to cover payroll costs and benefits. Forgiveness is also based on the small business maintaining or quickly rehiring their employees and maintaining salary levels for their employees. Loans under the PPP do not require any collateral or personal guarantees, as such, these loans are included in the Company’s commercial loans segment. The first round of PPP lending resulted in 1,495 loans for $129.0 million, of which 1,447 loans have been forgiven or paid down in the amount of $125.9 million as of September 30, 2021. The second round of PPP lending which began in 2021, resulted in 959 loans for $67.3 million, of which 597 loans have been forgiven or paid down in the amount of $28.9 million. As of September 30, 2021, the Company had 410 PPP loans totaling $41.5 million that were outstanding, inclusive of loans issued during both the first and second rounds of the PPP. This has allowed us to further strengthen and deepen our client relationships, while positively impacting thousands of individuals.
37
We are also closely monitoring the credit quality of the loan portfolio and monitor lines of credit draws for deviation from normal activity to improve loan performance and reduce credit risk.
Short-term Modifications for Borrowers
In keeping with regulatory guidance to work with borrowers during this unprecedented situation and as outlined in Section 4013 of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) and the Consolidated Appropriations Act of 2021 (“CAA”), the Company is providing modifications where appropriate, including interest only payments or payment deferrals for clients that could be adversely affected by the COVID-19 pandemic. Section 4013 of the CARES Act and CAA addressed COVID-19 related modifications and specified that such modifications made on loans that were current as of December 31, 2019 are not TDRs. In accordance with interagency guidance issued in April 2020 and December 2020, short-term modifications made to borrowers affected by the COVID-19 pandemic and governmental shutdown orders, such as payment deferrals, fee waivers and extensions of repayment terms, do not need to be identified as TDRs if the loans were current at the time a modification plan was implemented. Since the beginning of the pandemic and through September 30, 2021, the Company had executed principal and/or interest deferrals on outstanding loan balances of $221.1 million. As of September 30, 2021, the Company had no COVID related loan deferrals remaining.
Liquidity
We are vigilantly monitoring our liquidity position on an ongoing basis. The Company has several available sources of on and off-balance sheet liquidity. Currently, the Company has not needed to tap into these available liquidity sources due to payment deferrals by customers, funding of PPP loans, or organic loan growth. Additional discussion on our liquidity as of the report date is reflected in the “Liquidity and Capital Resources” section of management’s discussion and analysis.
Share Repurchases
The Company currently has a share repurchase program, in which $542 thousand remains available until expirations on December 31, 2021. The Board of directors and management will re-evaluate the need for an additional stock repurchase program based on the market price of the Company’s stock, capital position, and necessary regulatory approvals.
Dividends and Capital
We currently expect to maintain our quarterly cash dividend based on our strong capital position. At September 30, 2021, the Bank exceeded all the capital requirements to which it was subject, and based on the most recent notification from its primary federal regulator is considered to be well-capitalized. There are no conditions or events since that notification that management believes would change the Bank’s classification. We are closely monitoring our capital position and are taking appropriate steps to ensure our level of capital remains strong. Our capital, while significant, may deteriorate in future periods due to the impact of the pandemic and limit our ability to pay dividends.
Critical Accounting Policies
OurThe Company’s consolidated financial statements are prepared in accordance with GAAP. The financial information containedGAAP and follow general practices within the industries in which it operates. Application of these principles requires management to make estimates, assumptions, and judgments that affect the amounts reported in the financial statements is, to a significant extent, financial information that isand accompanying notes. These estimates, assumptions, and judgments are based on measuresinformation available as of the date of the financial effectsstatements; accordingly, as this information changes, the financial statements could reflect different estimates, assumptions, and judgments. Certain policies inherently have a greater reliance on the use of transactionsestimates, assumptions, and eventsjudgments and as such have a greater possibility of producing results that have already occurred. A varietycould be materially different than originally reported.
The most significant accounting policies that the Company follows are presented in Note 1 of factors could affect the ultimate value that is obtained either when earning income, recognizing an expense, recovering an asset or relieving a liability.2020 Annual Report. These policies, along with the disclosures presented in the notes to the financial statements and in this discussion, provide information on how significant assets and liabilities are valued in the financial statements and how those values are determined. Based on the valuation techniques used and the sensitivity of financial statement amounts to the methods,
38
assumptions, and estimates underlying those amounts, management has determined that the accounting policies with respect to the allowance for credit losses goodwill and other intangible assets, deferred tax assets, and fair valuegoodwill are critical accounting policies. These policies are considered critical because they relate to accounting areas that require the most subjective or complex judgments, and, as such, could be most subject to revision as new information becomes available.
Allowance for Credit Losses
The allowance for credit losses is anrepresents management’s estimate of thecredit losses that may be sustainedinherent in the loan portfolio. The allowance is based on two basic principles of accounting: (i) Topic 450, “ Contingencies ”,portfolio as of the Financial Accounting Standards Board’s Accounting Standards Codification (“ASC”), which requires that losses be accrued when they are probablebalance sheet date. Determining the amount of occurring and estimable; and (ii) ASC Topic 310, “ Receivables ”, which requires that losses be accrued based on the differences between the loan balance and the value of collateral, present value of future cash flows or values that are observable in the secondary market. Management uses many factors to estimate the inherent loss that may be present in our loan portfolio, including economic conditions and trends, the value and adequacy of collateral, the volume and mix of the loan portfolio, and our internal loan processes. Actual losses could differ significantly from management’s estimates. In addition, GAAP itself may change from one previously acceptable method to another. Although the economics of transactions would be the same, the timing of events that would impact the transactions could change.
37
Three basic components comprise our allowance for credit losses: (i) the specific allowance; (ii) the formula allowance; and (iii) the unallocated allowance. Each component is determined based on estimates that can and do change when the actual events occur. The specific allowance is established against impaired loans (i.e., nonaccrual loans and troubled debt restructurings (“TDRs”)) based on our assessment of the losses that may be associated with the individual loans. The specific allowance remains until charge-offs are made. An impaired loan may show deficiencies in the borrower’s overall financial condition, payment history, support available from financial guarantors and/or the fair market value of collateral. The formula allowance is used to estimate the loss on internally risk-rated loans, exclusive of those identified as impaired. Loans are grouped by type (construction, residential real estate, commercial real estate, commercial or consumer). Each loan type is assigned allowance factors based on management’s estimate of the risk, complexity and size of individual loans within a particular category. Loans identified as special mention, substandard, and doubtful are adversely rated. These loans are assigned higher allowance factors than favorably rated loans due to management’s concerns regarding collectability or management’s knowledge of particular elements regarding the borrower. The unallocated allowance captures losses that have impacted the portfolio but have yet to be recognized in either the specific or formula allowance.
Management has significant discretion in making the adjustments inherent in the determination of the provision and allowance for credit losses including in connection with the valuation of collateral, the estimation ofis considered a borrower’s prospects of repayment,critical accounting estimate because it requires significant judgment and the establishmentuse of estimates related to the amount and timing of expected future cash flows on impaired loans, estimated losses on pools of similar loans based on historical loss experience, and consideration of current economic trends and conditions and other factors, all of which may be susceptible to significant change. The loan portfolio also represents the largest asset type on the consolidated balance sheets. Note 1 to the 2020 Annual Report describes the methodology used to determine the allowance for credit losses. A discussion of the allowance determination and factors in the formula allowance and unallocated allowance components of the allowance. The establishment of allowance factors is a continuing exercise, based on management’s ongoing assessment of the totality of all factors, including, but not limited to, delinquencies, loss history, trends in volume and terms of loans, effects ofdriving changes in lending policy, the experience and depth of management, national and local economic trends, concentrations of credit, the quality of the loan review system and the effect of external factors such as competition and regulatory requirements, and their impact on the portfolio. Allowance factors may change from period to period, resulting in an increase or decrease in the amount of the provision or allowance based on the same volume and classification of loans. Changes in allowance factors will have a direct impact on the amount of the provision, and a corresponding effect on net income. Errors in management’s perception and assessment of these factors and their impact on the portfolio could resultfor credit losses is included in the allowance not being adequate to cover losses in the portfolio,Provision for Credit Losses and may result in additional provisions or charge-offs.
Goodwill and Other Intangible AssetsAllowance for Credit Losses sections below.
Goodwill represents the excess of the cost of an acquisition over the fair value of the net assets acquired. Other intangible assets represent purchased assets that also lack physical substance but can be distinguished from goodwill because of contractual or other legal rights or because the asset is capable of being sold or exchanged either on its own or in combination with a related contract, asset or liability. Goodwill and other intangible assets are required to be recorded at fair value. Determining fair value is subjective, requiring the use of estimates, assumptions and management judgment. Goodwill and other intangible assets with indefinite lives areis tested at least annually for impairment, usually during the thirdfourth quarter, or on an interim basis if circumstances dictate. Intangible assets that have finite lives are amortized over their estimated useful lives and also are subject to impairment testing. Impairment testing requires a qualitative assessment or that the fair value of each of the Company’s reporting units be compared to the carrying amount of its net assets, including goodwill. The Company’s reporting units were identified based on an analysis of each of its individual operating segments (i.e., the Bank and Insurance Subsidiaries). If the fair value of a reporting unit is less than book value, an expense may be required to write down the related goodwill or purchased intangibles to record an impairment loss.
Fair Value
The Company measures certain financial assets and liabilities at fair value, with the measurements made on a recurring or nonrecurring basis. Significant financial instruments measured at fair value on a recurring basis are investment securities. Impaired loans and other real estate owned are significant financial instruments measured at fair value on a nonrecurring basis. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. In determining fair value, As of September 30, 2021, the Company is requiredhad only one banking reporting unit.
As previously noted, the Company acquired Severn Bancorp, Inc. during the 4th quarter of 2021. The Company’s 2021 Annual Report on Form 10-K will also include the critical accounting policies related to maximize the useits acquisition of observable inputs and minimize the use of unobservable inputs, reducing subjectivity.
38
Severn.
OVERVIEW
The Company reported net income of $3.4$4.6 million for the third quarter of 2017,2021, or diluted income per common share of $0.39, compared to net income of $3.4 million, or diluted income per common share of $0.27, compared tofor the third quarter of 2020. For the second quarter of 2021, the Company reported net income of $2.4$4.0 million, or diluted income per common share of $0.19,$0.34. When comparing net income for the third quarter of 2016. For2021 to the third quarter of 2020, net income increased $1.2 million, primarily due to increases in net interest income of $2.3 million and noninterest income of $328 thousand, combined with a lower provision for credit losses of $1.2 million. These improvements to net income were partially offset by an increase in almost all expense line items, adding $2.1 million to noninterest expense. When comparing the third quarter of 2021 to the second quarter of 2017,2021, the net income increased $586 thousand, due to an increase in net interest income of $1.5 million and lower provision for credit losses of $360 thousand, which was partially offset by an increase in noninterest expense of $1.1 million. In addition, merger-related expenses were recorded for the second and third quarters of 2021 of $377 thousand and $538 thousand, respectively.
For the first nine months of 2021, the Company reported net income of $2.4$12.6 million, or diluted income per common share of $0.19. When comparing the third quarter of 2017$1.08, compared to the third quarter of 2016, the primary reasons for improved net income were increases in net interest income of $2.7 million, noninterest income of $418 thousand and a reduction in provision for credit losses of $260 thousand, partially offset by an increase in noninterest expenses of $1.5 million. When comparing the third quarter of 2017 to the second quarter of 2017, the higher net income was primarily attributable to increases in net interest income of $1.4 million, noninterest income of $246 thousand, and a reduction in provision for credit losses of $629 thousand, partially offset by an increase in noninterest expenses of $521 thousand. These increases were a direct result of operating the three branches acquired from NWBI for a full quarter. The reduction in provision for credit losses was due to a large charge-off in the second quarter of 2017 which was the result of one borrowing relationship.
For the first nine months of 2017, the Company reported net income of $8.6$11.8 million, or diluted income per common share of $0.67, compared to net income of $7.1 million, or diluted income per common share of $0.56,$0.95, for the first nine months of 2016. Earnings improved2020. When comparing net income for the first nine months of 2021 to the first nine months of 2020, net income increased $801 thousand, primarily due to increases in net interest income of $4.9$4.7 million and noninterest income of $822$667 thousand, partially offset by increases incombined with a lower provision for credit losses of $316 thousand and$1.5 million. These improvements to net income were partially offset by an increase in almost all expense line items, adding $5.5 million to noninterest expense. In addition, total merger-related expenses of $2.6 million, of which $977 thousand related to acquisition costs fromfor the branch purchase. first nine months were $915 thousand.
RESULTS OF OPERATIONS
Net Interest Income
Tax-equivalent net interest income is net interest income adjusted for the tax-favored status of income from certain loans and investments. As shown in the table below, tax-equivalent net interest income was $12.4$15.6 million for the third quarter
39
of 2021 and $13.3 million for the third quarter of 2017 and $9.7 million for the third quarter of 2016.2020. Tax-equivalent net interest income was $11.0$14.1 million for the second quarter of 2017.2021. The increase in net interest income forwhen comparing the third quarter of 2017 when compared2021 to the third quarter of 2016 was primarily due to an increase in interest income of $2.7 million, or 26.1%, partially offset by an increase in interest expense of $33 thousand, or 6.1%. The increase in net interest income compared to2020 and the second quarter of 20172021, was primarily due to an increasethe result of higher interest and fees on loans and income from taxable investment securities, coupled with a decrease in interest income of $1.5 million, or 12.9%, partially offset by an increase in interest expense of $62 thousand, or 11.3%.expense. Net interest margin is tax-equivalent net interest income (annualized) divided by average earning assets. The net interest margin increasedfor the third quarter of 2021 was 2.99%, which was a decrease of 18bps when compared to 3.17% for the third quarter of 2020 and an increase of 8bps when compared to 2.91% for the second quarter of 2021. The decline in net interest margin in the third quarter of 2017 to 3.79%2021 when compared to both the third quarter of 20162020, was significantly impacted by excess liquidity and the decrease in yields of taxable investment securities. The increase in net interest margin when compared to the second quarter of 20172021, was primarily due to improvement in the yields on earning assets, specifically loans of 3.54%14bps, and 3.73%, respectively.the continued decrease in rates paid on interest-bearing deposits. Without excess liquidity of $200 million, the margin for the third quarter of 2021 would have been 3.31%.
Interest Income
On a tax-equivalent basis, interest income increased $2.7$2.0 million, or 26.1%13.4%, for the third quarter of 20172021 when compared to the third quarter of 2016.2020. The increase was primarily due to a $2.4 million, or 24.9%,the result of higher interest and fees on loans and income from investment securities. The primary driver for the increase in interest income and fees on loans. This increaseloans was due to a $197.6 million, or 23.6% increase in the higher average balancevolume of loans which primarily resulted from the purchase of $122.9$80.6 million in loans from NWBI in the second quarter of 2017 and organic loan growth of $70.2 million. Thea higher average yield on loans increased 4 bps, which increased from 4.50% to 4.54%, primarily due to the higher yielding loan portfolio acquired from NWBI relative to the Bank’s legacy portfolio. In addition, interest and dividends on taxable investment securities increased $280 thousand, or 37.1%, duringof 13bps, partially impacted by PPP forgiveness in the third quarter of 2017 compared to the same period last year, primarily the result2021. The average balance of investment securities increased $198.2 million, providing $588 thousand of additional income, despite a $28.4 million, or 14.9% increasedecrease in the average balanceyield of taxable investment securities which was partially funded by the excess cash received from the branch purchase.
56bps.
On a tax-equivalent basis, interest income increased $1.5$1.4 million, or 12.9%8.8%, for the third quarter of 20172021 when compared to the second quarter of 2017.2021. The increase was primarily due to a $1.3 million, or 12.7%, increase in interest income and fees on loans. This increase was due to a $81.5 million, or 8.6% increaseresult of growth in the average balance in loans of loans due to the full quarter impact of the loans acquired from NWBI. The$42.6 million and a higher average yield on loans increased 12 bps, which increased from 4.42% to 4.54%.of 14bps, partially impacted by PPP forgiveness in the third quarter of 2021. In addition, interest and dividends on taxable investment securities increased $97 thousand, or 104%,were purchased during the third quarter of 2017 compared to the linked quarter, primarily the result2021, resulting in a higher average balance in these securities of a $20.5$48.1 million or 10.4% increaseand improvement in the average balanceyield of taxable investment securities.
5bps, which provided $224 thousand of additional income.
Interest Expense
Interest expense increased $33decreased $309 thousand, or 5.7%19.0%, when comparing the third quarter of 20172021 to the third quarter of 2016.2020. The increasedecrease in interest expense from the third quarter of 2020 was a result of the decrease in the average rate paid on interest-bearing deposits of 27bps.This decrease in interest expense was due to an increasepartially offset by the issuance of subordinated debt late in the average balance of total interest-bearing deposits of $150.5 million, or 20.3%, primarily the result of the acquisition of interest-bearing deposits from NWBI amounting to $177.9 million in the secondthird quarter of 2017,2020 which had a balanceadded $211 thousand of $186.0 million at September 30, 2017. Despite the significant increase in average interest-bearing deposits, the rates paid on these deposits declined 4 bps. The average balance on noninterest-bearing deposits increased $75.4 million, or 30.8%, and the average balance on short-term borrowings decreased $4.8 million, or 67.9%, all of which resulted in a lower cost of fundingadditional expense for the third quarter of 20172021 when compared to the third quarter of 2016.2020.
Interest expense increased $62decreased $116 thousand, or 11.3%8.1%, when comparing the third quarter of 20172021 to the second quarter of 2017.2021. The increasedecrease in interest expense on deposits was due to an increasea 6bps decline in the average balance of total interest-bearing deposits of $98.4 million, or 12.4%, primarily the result of a full quarter impact of the deposits acquired from NWBI, while the average rate paid on interest-bearing deposits, remained unchanged. Interest expense on short-term borrowings declined $7 thousand, or 63.6% which contributed to a 1bp decline in the overall costspecifically time deposits.
40
Table of funds when comparing the third quarter 2017 to the second quarter 2017.
39
Contents
The following table presentstables present the distribution of the average consolidated balance sheets, interest income/expense, and annualized yields earned and rates paid for the three months ended September 30, 20172021 and 2016.2020.
| | | | | | | | | | | | | | | | | | |
| | For Three Months Ended | | For Three Months Ended | | | ||||||||||||
| | September 30, 2021 | | September 30, 2020 | | | ||||||||||||
|
| Average |
| Income(1)/ |
| Yield/ |
| Average |
| Income(1)/ |
| Yield/ |
| | ||||
(Dollars in thousands) | | Balance | | Expense | | Rate | | Balance | | Expense | | Rate | | | ||||
Earning assets |
| |
|
| |
|
|
|
| |
|
| |
|
|
|
| |
Loans (2), (3) | | $ | 1,487,281 | | $ | 15,518 |
| 4.14 | % | $ | 1,406,683 | | $ | 14,173 |
| 4.01 | % | |
Investment securities: | |
|
| |
|
|
|
| |
| | |
|
|
|
| | |
Taxable | |
| 334,205 | |
| 1,318 |
| 1.58 | |
| 136,017 | |
| 730 |
| 2.14 | | |
Interest-bearing deposits | |
| 250,019 | |
| 97 |
| 0.15 | |
| 127,494 | |
| 33 |
| 0.10 | | |
Total earning assets | |
| 2,071,505 | |
| 16,933 |
| 3.24 | % |
| 1,670,194 | |
| 14,936 |
| 3.56 | % | |
Cash and due from banks | |
| 19,453 | |
|
|
|
| |
| 18,860 | |
|
|
|
| | |
Other assets | |
| 108,989 | |
|
|
|
| |
| 94,755 | |
|
|
|
| | |
Allowance for credit losses | |
| (15,499) | |
|
|
|
| |
| (11,865) | |
|
|
|
| | |
Total assets | | $ | 2,184,448 | |
|
|
|
| | $ | 1,771,944 | |
|
|
|
| | |
| | | | | | | | | | | | | | | | | | |
Interest-bearing liabilities | |
|
| |
|
|
|
| |
|
| |
|
|
|
| | |
Demand deposits | | $ | 462,950 | |
| 165 |
| 0.14 | % | $ | 370,922 | |
| 174 |
| 0.19 | % | |
Money market and savings deposits | |
| 644,330 | |
| 295 |
| 0.18 | |
| 442,322 | |
| 229 |
| 0.21 | | |
Certificates of deposit $100,000 or more | |
| 136,059 | |
| 243 |
| 0.71 | |
| 127,983 | |
| 539 |
| 1.68 | | |
Other time deposits | |
| 142,777 | |
| 246 |
| 0.68 | |
| 148,223 | |
| 528 |
| 1.42 | | |
Interest-bearing deposits | |
| 1,386,116 | |
| 949 |
| 0.27 | |
| 1,089,450 | |
| 1,470 |
| 0.54 | | |
Securities sold under retail repurchase agreements and short-term FHLB advances | |
| 2,718 | |
| 2 |
| 0.29 | |
| 1,575 | |
| 1 |
| 0.25 | | |
Advances from FHLB - short-term | | | — | | | — | | — | | | — | |
| — |
| — | | |
Advances from FHLB - long-term | | | — | | | — | | — | | | — | |
| — |
| — | | |
Subordinated debt | |
| 24,504 | |
| 359 |
| 5.81 | |
| 9,859 | |
| 148 |
| 5.97 | | |
Total interest-bearing liabilities | |
| 1,413,338 | |
| 1,310 |
| 0.37 | % |
| 1,100,884 | | | 1,619 |
| 0.59 | % | |
Noninterest-bearing deposits | |
| 557,109 | |
|
|
|
| |
| 458,622 | |
|
|
|
| | |
Other liabilities | |
| 13,120 | |
|
|
|
| |
| 11,359 | |
|
|
|
| | |
Stockholders’ equity | |
| 200,881 | |
|
|
|
| |
| 201,079 | |
|
|
|
| | |
Total liabilities and stockholders’ equity | | $ | 2,184,448 | |
|
|
|
| | $ | 1,771,944 | |
|
|
|
| | |
| | | | | | | | | | | | | | | | | | |
Net interest spread | |
|
| | $ | 15,623 |
| 2.87 | % |
|
| | $ | 13,317 |
| 2.97 | % | |
Net interest margin | |
|
| |
|
|
| 2.99 | % |
|
| |
|
|
| 3.17 | % | |
| | | | | | | | | | | | | | | | | | |
Tax-equivalent adjustment | | | | | | | | | | | | | | | | | | |
Loans | | | | | $ | 34 | | | | | | | $ | 34 | | | | |
Total | | | | | $ | 34 | | | | | | | $ | 34 | | | | |
| (1) | All amounts are reported on a tax-equivalent basis computed using the statutory federal income tax rate of 21.0%, exclusive of nondeductible interest expense. |
| (2) | Average loan balances include nonaccrual loans. |
| (3) | Interest income on loans includes accreted loan fees, net of costs and accretion of discounts on acquired loans, which are included in the yield calculations. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For Three Months Ended |
| For Three Months Ended | ||||||||||||||
|
| September 30, 2017 |
| September 30, 2016 | ||||||||||||||
|
| Average |
| Income(1)/ |
| Yield/ |
| Average |
| Income(1)/ |
| Yield/ | ||||||
(Dollars in thousands) |
| Balance |
| Expense |
| Rate |
| Balance |
| Expense |
| Rate | ||||||
Earning assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans (2), (3) |
| $ | 1,034,553 |
| $ | 11,830 |
| 4.54 | % |
| $ | 836,955 |
| $ | 9,469 |
| 4.50 | % |
Investment securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable |
|
| 218,675 |
|
| 1,035 |
| 1.89 |
|
|
| 190,265 |
|
| 754 |
| 1.59 |
|
Tax-exempt |
|
| - |
|
| - |
| - |
|
|
| 210 |
|
| 3 |
| 5.30 |
|
Federal funds sold |
|
| - |
|
| - |
| - |
|
|
| 511 |
|
| 1 |
| 0.37 |
|
Interest-bearing deposits |
|
| 42,204 |
|
| 131 |
| 1.23 |
|
|
| 64,164 |
|
| 81 |
| 0.50 |
|
Total earning assets |
|
| 1,295,432 |
|
| 12,996 |
| 3.98 | % |
|
| 1,092,105 |
|
| 10,308 |
| 3.75 | % |
Cash and due from banks |
|
| 16,232 |
|
|
|
|
|
|
|
| 15,678 |
|
|
|
|
|
|
Other assets |
|
| 75,611 |
|
|
|
|
|
|
|
| 52,836 |
|
|
|
|
|
|
Allowance for credit losses |
|
| (9,300) |
|
|
|
|
|
|
|
| (8,310) |
|
|
|
|
|
|
Total assets |
| $ | 1,377,975 |
|
|
|
|
|
|
| $ | 1,152,309 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits |
| $ | 224,180 |
|
| 132 |
| 0.23 | % |
| $ | 199,116 |
|
| 58 |
| 0.12 | % |
Money market and savings deposits |
|
| 378,711 |
|
| 113 |
| 0.12 |
|
|
| 268,183 |
|
| 86 |
| 0.13 |
|
Certificates of deposit $100,000 or more |
|
| 123,538 |
|
| 154 |
| 0.50 |
|
|
| 125,265 |
|
| 192 |
| 0.61 |
|
Other time deposits |
|
| 164,459 |
|
| 208 |
| 0.50 |
|
|
| 147,780 |
|
| 238 |
| 0.64 |
|
Interest-bearing deposits |
|
| 890,888 |
|
| 607 |
| 0.27 |
|
|
| 740,344 |
|
| 574 |
| 0.31 |
|
Short-term borrowings |
|
| 2,274 |
|
| 4 |
| 0.62 |
|
|
| 7,075 |
|
| 4 |
| 0.25 |
|
Total interest-bearing liabilities |
|
| 893,162 |
|
| 611 |
| 0.27 | % |
|
| 747,419 |
|
| 578 |
| 0.31 | % |
Noninterest-bearing deposits |
|
| 320,006 |
|
|
|
|
|
|
|
| 244,596 |
|
|
|
|
|
|
Other liabilities |
|
| 5,256 |
|
|
|
|
|
|
|
| 6,309 |
|
|
|
|
|
|
Stockholders' equity |
|
| 159,551 |
|
|
|
|
|
|
|
| 153,985 |
|
|
|
|
|
|
Total liabilities and stockholders' equity |
| $ | 1,377,975 |
|
|
|
|
|
|
| $ | 1,152,309 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest spread |
|
|
|
| $ | 12,385 |
| 3.71 | % |
|
|
|
| $ | 9,730 |
| 3.44 | % |
Net interest margin |
|
|
|
|
|
|
| 3.79 | % |
|
|
|
|
|
|
| 3.54 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax-equivalent adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans |
|
|
|
| $ | 59 |
|
|
|
|
|
|
| $ | 72 |
|
|
|
Investment securities |
|
|
|
|
| - |
|
|
|
|
|
|
|
| 1 |
|
|
|
Total |
|
|
|
| $ | 59 |
|
|
|
|
|
|
| $ | 73 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) All amounts are reported on a tax-equivalent basis computed using the statutory federal income tax rate of 35.0%, exclusive of the alternative minimum tax rate and | ||||||||||||||||||
nondeductible interest expense. | ||||||||||||||||||
(2) Average loan balances include nonaccrual loans. | ||||||||||||||||||
(3) Interest income on loans includes amortized loan fees, net of costs, and all are included in the yield calculations. | ||||||||||||||||||
Net Interest Income
Tax-equivalent net interest income increased $4.9$4.7 million, or 17.3%12.0%, during the nine months ended September 30, 20172021 compared to the nine months ended September 30, 2016.2020. The increase inhigher net interest income was primarily due to an increase in interest income of $4.7$3.6 million, or 15.6%8.1% and a decrease in interest expense on interest-bearing deposits of $189 thousand,$1.9 million, or 10.1%20.0%. These positive variances,Despite the improved results, compression in the margin was due to lower yields on total earning assets. This resulted in an improveda net interest margin of 3.75%2.97% for the nine months ended September 30, 20172021 compared to 3.54%3.35% for the nine months ended September 30, 2016.2020.
Interest Income
On a tax-equivalent basis, interest income increased $4.7$3.6 million, or 15.6%8.1%, for the nine months ended September 30, 20172021 when compared to the nine months ended September 30, 2016.2020. The increase was primarily due to a $4.3higher interest and fees
41
on loans of $2.4 million, or 15.7%,5.6% and taxable investment securities of $1.3 million, or 60.2%. The increase in interest income and fees on loans. This increaseloans was due to a $144.9 million, or 17.9% increase in thehigher average balance of loans resulting from the purchase of $122.9$112.7 million,
40
or 8.4%, which included forgiveness on PPP loans in loans from NWBI2021. The increase in the second quarter of 2017 and organic loan growth of $59.2 million. The average yield on loans declined 8 bps, which decreased from 4.54% to 4.46%. In addition, interest and dividends on taxable investment securities increased $350 thousand, or 14.3%,
during the first nine months of 2017 comparedwas due to the same period last year, primarily the result ofa higher average yields on taxable investmentbalance in these securities of 27bps.$158.6 million, or 127.4%, despite the decline in the average yield of such securities of 66bps.
Interest Expense
Interest expense decreased $189 thousand,$1.1 million, or 10.1%20.0%, when comparing the nine months ended September 30, 20172021 to the nine months ended September 30, 2016.2020. The decrease in interest expense was due to decreasesa decline in the average raterates paid on interest-bearing deposits of 6bps33bps and the average balanceelimination of long-term advances from FHLB. These improvements were partially offset by the addition of subordinated debt, issued in short-term borrowingsthe third quarter of $2.4 million, or 37.3%. The average balance of total interest-bearing deposits increased $68.7 million, or 9.3%2020, which added $940 thousand in interest expense when comparing the first nine months of 2017compared to the first nine months of 2016, primarily the result2020.
42
The following table presentstables present the distribution of the average consolidated balance sheets, interest income/expense, and annualized yields earned and rates paid for the nine months ended September 30, 20172021 and 2016.2020.
| | | | | | | | | | | | | | | | | |
| | For Nine Months Ended | | For Nine Months Ended | | ||||||||||||
| | September 30, 2021 | | September 30, 2020 | | ||||||||||||
|
| Average |
| Income(1)/ |
| Yield/ |
| Average |
| Income(1)/ |
| Yield/ |
| ||||
(Dollars in thousands) | | Balance | | Expense | | Rate | | Balance | | Expense | | Rate | | ||||
Earning assets |
| |
|
| |
|
|
|
| |
|
| |
|
|
|
|
Loans (2), (3) | | $ | 1,461,083 | | $ | 44,339 |
| 4.06 | % | $ | 1,348,362 | | $ | 41,987 |
| 4.16 | % |
Investment securities: | |
|
| |
|
|
|
| |
|
| |
|
|
|
| |
Taxable | |
| 283,104 | |
| 3,343 |
| 1.58 | |
| 124,487 | |
| 2,087 |
| 2.24 | |
Interest-bearing deposits | |
| 219,540 | |
| 199 |
| 0.12 | |
| 81,125 | |
| 216 |
| 0.36 | |
Total earning assets | |
| 1,963,727 | |
| 47,881 |
| 3.26 | % |
| 1,553,974 | |
| 44,290 |
| 3.81 | % |
Cash and due from banks | |
| 18,536 | |
|
|
|
| |
| 18,302 | |
|
|
|
| |
Other assets | |
| 107,174 | |
|
|
|
| |
| 91,642 | |
|
|
|
| |
Allowance for credit losses | |
| (14,802) | |
|
|
|
| |
| (11,042) | |
|
|
|
| |
Total assets | | $ | 2,074,635 | |
|
|
|
| | $ | 1,652,876 | |
|
|
|
| |
| | | | | | | | | | | | | | | | | |
Interest-bearing liabilities | |
|
| |
|
|
|
| |
|
| |
|
|
|
| |
Demand deposits | | $ | 435,678 | |
| 453 |
| 0.14 | % | $ | 318,083 | |
| 714 |
| 0.30 | % |
Money market and savings deposits | |
| 591,959 | |
| 777 |
| 0.18 | |
| 426,570 | |
| 941 |
| 0.29 | |
Certificates of deposit $100,000 or more | |
| 134,080 | |
| 998 |
| 1.00 | |
| 129,319 | |
| 1,723 |
| 1.78 | |
Other time deposits | |
| 143,832 | |
| 961 |
| 0.89 | |
| 149,841 | |
| 1,708 |
| 1.52 | |
Interest-bearing deposits | |
| 1,305,549 | |
| 3,189 |
| 0.33 | |
| 1,023,813 | |
| 5,086 |
| 0.66 | |
Securities sold under retail repurchase agreements and federal funds purchased | |
| 2,695 | |
| 5 |
| 0.25 | |
| 1,613 | |
| 4 |
| 0.33 | |
Advances from FHLB - long-term | | | — | |
| — |
| — | |
| 5,255 | |
| 113 |
| 2.87 | |
Subordinated debt | |
| 24,474 | |
| 1,088 |
| 5.94 | |
| 3,310 | |
| 148 |
| 5.97 | |
Total interest-bearing liabilities | |
| 1,332,718 | |
| 4,282 |
| 0.43 | % |
| 1,033,991 | |
| 5,351 |
| 0.69 | % |
Noninterest-bearing deposits | |
| 531,199 | |
|
|
|
| |
| 410,702 | |
|
|
|
| |
Other liabilities | |
| 12,631 | |
|
|
|
| |
| 10,088 | |
|
|
|
| |
Stockholders’ equity | |
| 198,087 | |
|
|
|
| |
| 198,095 | |
|
|
|
| |
Total liabilities and stockholders’ equity | | $ | 2,074,635 | |
|
|
|
| | $ | 1,652,876 | |
|
|
|
| |
| | | | | | | | | | | | | | | | | |
Net interest spread | |
|
| | $ | 43,599 |
| 2.83 | % |
|
| | $ | 38,939 |
| 3.12 | % |
Net interest margin | |
|
| |
|
|
| 2.97 | % |
|
| |
|
|
| 3.35 | % |
| | | | | | | | | | | | | | | | | |
Tax-equivalent adjustment | | | | | | | | | | | | | | | | | |
Loans | | | | | $ | 108 | | | | | | | $ | 107 | | | |
Total | | | | | $ | 108 | | | | | | | $ | 107 | | | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For Nine Months Ended |
| For Nine Months Ended | ||||||||||||||
|
| September 30, 2017 |
| September 30, 2016 | ||||||||||||||
|
| Average |
| Income(1)/ |
| Yield/ |
| Average |
| Income(1)/ |
| Yield/ | ||||||
(Dollars in thousands) |
| Balance |
| Expense |
| Rate |
| Balance |
| Expense |
| Rate | ||||||
Earning assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans (2), (3) |
| $ | 956,694 |
| $ | 31,941 |
| 4.46 | % |
| $ | 811,747 |
| $ | 27,608 |
| 4.54 | % |
Investment securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable |
|
| 198,383 |
|
| 2,799 |
| 1.88 |
|
|
| 203,016 |
|
| 2,448 |
| 1.61 |
|
Tax-exempt |
|
| 116 |
|
| 5 |
| 5.41 |
|
|
| 210 |
|
| 8 |
| 5.30 |
|
Federal funds sold |
|
| - |
|
| - |
| - |
|
|
| 2,347 |
|
| 6 |
| 0.34 |
|
Interest-bearing deposits |
|
| 34,506 |
|
| 269 |
| 1.04 |
|
|
| 55,837 |
|
| 211 |
| 0.50 |
|
Total earning assets |
|
| 1,189,699 |
|
| 35,014 |
| 3.93 | % |
|
| 1,073,157 |
|
| 30,281 |
| 3.77 | % |
Cash and due from banks |
|
| 14,988 |
|
|
|
|
|
|
|
| 15,554 |
|
|
|
|
|
|
Other assets |
|
| 61,537 |
|
|
|
|
|
|
|
| 54,850 |
|
|
|
|
|
|
Allowance for credit losses |
|
| (9,072) |
|
|
|
|
|
|
|
| (8,459) |
|
|
|
|
|
|
Total assets |
| $ | 1,257,152 |
|
|
|
|
|
|
| $ | 1,135,102 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits |
| $ | 206,033 |
|
| 279 |
| 0.18 | % |
| $ | 192,803 |
|
| 173 |
| 0.12 | % |
Money market and savings deposits |
|
| 325,660 |
|
| 300 |
| 0.12 |
|
|
| 262,818 |
|
| 258 |
| 0.13 |
|
Certificates of deposit $100,000 or more |
|
| 121,508 |
|
| 467 |
| 0.51 |
|
|
| 129,060 |
|
| 647 |
| 0.67 |
|
Other time deposits |
|
| 151,179 |
|
| 610 |
| 0.54 |
|
|
| 151,032 |
|
| 774 |
| 0.68 |
|
Interest-bearing deposits |
|
| 804,380 |
|
| 1,656 |
| 0.28 |
|
|
| 735,713 |
|
| 1,852 |
| 0.34 |
|
Short-term borrowings |
|
| 3,997 |
|
| 18 |
| 0.59 |
|
|
| 6,372 |
|
| 11 |
| 0.24 |
|
Total interest-bearing liabilities |
|
| 808,377 |
|
| 1,674 |
| 0.28 | % |
|
| 742,085 |
|
| 1,863 |
| 0.34 | % |
Noninterest-bearing deposits |
|
| 285,324 |
|
|
|
|
|
|
|
| 235,448 |
|
|
|
|
|
|
Other liabilities |
|
| 5,109 |
|
|
|
|
|
|
|
| 6,131 |
|
|
|
|
|
|
Stockholders' equity |
|
| 158,342 |
|
|
|
|
|
|
|
| 151,438 |
|
|
|
|
|
|
Total liabilities and stockholders' equity |
| $ | 1,257,152 |
|
|
|
|
|
|
| $ | 1,135,102 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest spread |
|
|
|
| $ | 33,340 |
| 3.65 | % |
|
|
|
| $ | 28,418 |
| 3.43 | % |
Net interest margin |
|
|
|
|
|
|
| 3.75 | % |
|
|
|
|
|
|
| 3.54 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax-equivalent adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans |
|
|
|
| $ | 179 |
|
|
|
|
|
|
| $ | 132 |
|
|
|
Investment securities |
|
|
|
|
| 2 |
|
|
|
|
|
|
|
| 2 |
|
|
|
Total |
|
|
|
| $ | 181 |
|
|
|
|
|
|
| $ | 134 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) All amounts are reported on a tax-equivalent basis computed using the statutory federal income tax rate of 35.0%, exclusive of the alternative minimum tax rate and | ||||||||||||||||||
nondeductible interest expense. | ||||||||||||||||||
(2) Average loan balances include nonaccrual loans. | ||||||||||||||||||
(3) Interest income on loans includes amortized loan fees, net of costs, and all are included in the yield calculations. | ||||||||||||||||||
| (1) | All amounts are reported on a tax-equivalent basis computed using the statutory federal income tax rate of 21.0%, exclusive of nondeductible interest expense. |
| (2) | Average loan balances include nonaccrual loans. |
| (3) | Interest income on loans includes accreted loan fees, net of costs and accretion of discounts on acquired loans, which are included in the yield calculations. |
41
Noninterest Income
Total noninterest income for the third quarter of 20172021 increased $418$328 thousand, or 10.4%12.7%, when compared to the third quarter of 2016.2020. The increase from the third quarter of 2016 was due to higher2020 included all lines of business, but predominately service charges and fees on deposit accounts, higher trust and investment fee income higher insurance agency commissions and a positive result on an insurance agency investment recorded in other income, partially offset by higher recognized gains on investment securities in the third quarter of 2016.debit card interchange fees. Noninterest income increased $246$6 thousand, or 5.9%less than 1%, when compared to the second quarter of 2017 mainly2021 primarily due to higher service charges on deposit accounts, foralmost entirely offset by the absence of a full quarter on the deposits acquireddebit card incentive received in the branch purchase, higher insurance agency commissions and an increase on an insurance agency investment included in other noninterest income.second quarter of 2021.
Total noninterest income for the nine months ended September 30, 20172021, increased $822$667 thousand, or 6.5%8.7%, when compared to the same period in 2016.2020. The increase was in noninterest income primarily due to increasesconsisted of higher trust and investment fee income, deposit related fees and service charges on other bank services, partially off-set by lower gains on securities year over year. The increase in insurance agency commissions of $185 thousanddeposit related fees and other noninterest incomebank service charges has been impacted by the growth in
43
new accounts and balances of deposits, as well as a return to a more normalized local economy and consumer demand for products and services of $241 thousand and positive earnings from an insurance investment of $274 thousand.
in 2021.
Noninterest Expense
Total noninterest expense for the third quarter of 20172021 increased $1.5$2.1 million, or 16.3%21.4%, when compared to the third quarter of 2016. The increase in noninterest expenses for the third quarter of 2017 compared to the third quarter of 2016 was primarily due to operating three additional branches, acquisition costs2020 and increases in employee benefits due to the higher insurance premiums paid for group insurance and higher salaries and wages due to pay increases implemented in the first quarter of 2017. Total noninterest expenses increased $521 thousand,$1.1 million, or 5.1%9.7%, when compared to the second quarter of 2017.2021. The increase in noninterest expense when compared to both the third quarter of 2020 and second quarter of 2021 was primarily due to a fulldriven by salary and wages being deferred in the third quarter of operating three additional branches acquired in2020 and the second quarter of 2017. The branch purchase resulted in2021, the result of originating first and second round PPP loans, combined with additional accruals related to incentive payouts and bonuses for employees. In addition, increases in salaryemployee benefits, furniture and wages, employee benefits,fixtures, and FDIC insurance premiumcontributed to the higher expense which were partially offset by lower legal and professional fees which were elevatedbase in the secondthird quarter of 2021. Employee benefits increased due to higher supplemental executive retirement plan costs in the third quarter of 2021, while furniture and fixtures increased due to renovations of an existing bank branch. FDIC insurance premiums have increased due to the acquisition.growth in deposit accounts in 2021. Merger-related expenses due to the acquisition of Severn remained a significant variance when comparing the comparative third quarters of 2021 and 2020.
Total noninterest expense for the nine months ended September 30, 20172021, increased $2.6$5.5 million, or 9.5%19.6%, when compared to the same period in 2016.2020. The increase was primarilymainly the result of the absence of the deferral in salaries and wages due to PPP loan originations in 2020, accruals related to incentive payouts and bonuses, higher data processing costs, FDIC insurance premiums and occupancy costs. The higher occupancy costs are associated with a new branch lease in Ocean City, Maryland which will open in 2022. In addition, the Company recorded merger-related expenses of $915 thousand for the first nine months of 2021 due to the branch purchase in the second quarteracquisition of 2017 which resulted in acquisition costs of $977 thousand and the cost of operating those branches for four months. In addition, higher salaries/wages and employee benefits resulted in increased non-interest expenses which were partially offset by a decrease in FDIC insurance premiums.Severn.
Provision for Credit Losses
The provision for credit losses was $345$290 thousand for the third quarter of 2017, $6052021, $1.5 million for the third quarter of 2020 and $650 thousand for the second quarter of 2021. The ratio of the allowance for credit losses to period-end loans was 1.04% at September 30, 2021, 0.95% at December 31, 2020 and 1.02% at June 30, 2021. Excluding PPP loans, the ratio of the allowance for credit losses to period-end loans was 1.07% at September 30, 2021, higher than the 1.04% at December 31, 2020 and slightly lower than the 1.09% at June 30, 2021. The primary driver of the increased percentage of the allowance to total loans, excluding PPP loans, as compared to December 31, 2020, was significant loan originations within segments of the portfolio which carry higher reserves. The decrease in the percentage of the allowance to total loans, excluding PPP loans, as compared to June 30, 2021, was due slightly reduced pandemic qualitative factors within the allowance model. The Company reported net recoveries in the third quarter of 2021 of $147 thousand, compared to net recoveries of $187 thousand for the third quarter of 20162020 and $974net recoveries of $125 thousand for the second quarter of 2017. The lower level of provision for credit losses when comparing the third quarter of 2017 to both the third quarter of 2016 and the second quarter of 2017 was driven by lower charge-offs and improved credit quality.2021.
The provision for credit losses for the nine months ended September 30, 20172021, and 20162020 was $1.7$1.4 million and $1.4$2.9 million, respectively, while net recoveries were $272 thousand and net charge-offs were $1.2 million and $1.1 million,$580 thousand, respectively. The increasedecrease in the provision for credit losses primarily occurredwas the result of lower charge-offs in 2021, overall improved credit quality and a slight reduction in pandemic related qualitative factors. The ratio of allowance to total loans increased from 0.95% at December 31, 2020, to 1.04% at September 30, 2021. Excluding PPP loans, the ratio of the allowance for credit losses to period-end loans was 1.07% at September 30, 2021, higher than the 1.04% at December 31, 2020. The primary drivers for the increase in the second quarterpercentage of 2017 dueallowance for credit losses to total loans were significant originations within the partial charge-offconstruction and consumer loan portfolios, which require a higher level of a negotiated restructured commercial loan. allowance than certain other segments of the portfolio.The ratio of annualized net charge-offsrecoveries to average loans was 0.16%0.07% for the first nine months of September 30, 2017 and 0.19%2021, compared to annualized net charge-offs of 0.06% for the same period in 2016.first nine months of 2020. Management will continue to evaluate the adequacy of the allowance for credit losses as more economic data becomes available and as changes within the Company’s portfolio are known.
Income Taxes
For the third quarter of 2017 and 2016, the
The Company reported income tax expense of $2.3$1.7 million and $1.4 million, respectively, while the effective tax rate was 40.0% and 37.3%, respectively. The increase in tax rates for the third quarter of 20172021, $1.1 million for the third quarter of 2020 and $1.4 million for the second quarter of 2021. Income tax expense increased when compared to both the same period in 2016 wasthird
44
quarter of 2020 and second quarter of 2021 due to higher pretax income.pre-tax earnings. The effective tax rate for the second and third quarters of 2021 was 26.4% and was 25.2% for the third quarter of 2020. Income taxestax expense for the nine months ended September 30, 2017 increased $1.3 million, or 29.9%, when2021, compared to the same period in 2016.nine months ended September 30, 2020, increased $544 thousand due to higher pre-tax earnings. The increase was primarily due higher taxable income of $2.7 million which increasedeffective tax rates from 38.0% in the prior period to 39.9% for the 2017 period. rate at September 30, 2021 and September 30, 2020 were 26.4% and 25.2%, respectively.
ANALYSIS OF FINANCIAL CONDITION
Loans
Loans totaled $1.0$1.495 billion at September 30, 20172021 and $871.5 million$1.454 billion at December 31, 2016,2020, an increase of $175.5$40.6 million, or 20.2%2.8%. The significantExcluding PPP loans, the increase in total loans was primarily$121.9 million, or 9.2%, due to significant loan growth late in the second and third quarters of 2021. The increase in loans, excluding PPP loans, was comprised of increases in consumer loans of $62.8 million, or 199.7%, construction loans of $23.8 million, or 22.3%, residential real estate loans of $17.3 million, or 3.9%, commercial loans of $15.2 million, or 7.2%, and commercial real estate loans of $2.7 million, or less than 1%. Construction loans included deferred fees, net of deferred costs, of $376 thousand and discounts on acquired from NWBIloans of $122.9 million, which had a balance of $116.5 million$577 thousand at September 30, 2017. Excluding the loans acquired from NWBI, total loans increased $58.8 million, or 6.7%. The most significant categories which increased organically were construction of $18.8 million, residential real estate of $18.6 million and commercial of $18.6 million. Loans included2021, compared to deferred costs, net of deferred fees, of $632$622 thousand and discounts on acquired loans of $2.0$754 thousand at December 31, 2020. Outstanding PPP loans totaled $41.5 million at September 30, 2017. Loans included deferred costs, net of deferred fees, of $509 thousand2021 and $122.8 million at December 31, 2016.2020, a decrease of $81.3 million or 66.2%. The decrease was primarily due to forgiveness on first and second round PPP loans originated in 2020 and 2021. We do not engage in foreign or subprime lending activities. See Note 4, “Loans and Allowance for Credit Losses”, in the Notes to Consolidated Financial Statements and below under the caption “Allowance for Credit Losses” for additional information.
Our loan portfolio has a commercial real estate loan concentration, which is generally defined as a combination of certain construction and commercial real estate loans. Construction loans were $106.6$130.6 million, or 10.2%8.7% of total loans, at September 30, 2017, higher than the $84.02021 and $106.8 million, or 9.6%7.3% of total loans, at December 31, 2016.2020. Commercial real estate loans were $454.6$663.9 million, or 43.4%44.4% of total loans, at September 30, 2017,2021, compared to $382.7$661.2 million, or 43.9%45.5% of total loans, at December 31, 2016.2020.
The federal banking regulators have issued guidance for those institutions which are deemed to have concentrations in commercial real estate lending. Pursuant to the supervisory criteria contained in the guidance for identifying institutions with a potential commercial real estate concentration risk, institutions which have (1) total reported loans for construction, land development, and other land acquisitions which represent
42
100% or more of an institution’s total risk-based capital; or (2) total non-owner occupied commercial real estate loans representing 300% or more of the institution’s total risk-based capital and the institution’s non-owner occupied commercial real estate loan portfolio (including construction) has increased 50% or more during the prior 36 months are identified as having potential commercial real estate concentration risk. Institutions which are deemed to have concentrations in commercial real estate lending are expected to employ heightened levels of risk management with respect to their commercial real estate portfolios, and may be required to hold higher levels of capital. The Company, like many community banks, has a concentration in commercial real estate loans, and the Company has experienced significant growth in its commercial real estate portfolio in recent years. At September 30, 2017,2021, non-owner-occupied commercial real estate loans (including construction, land and land development loans) represented 269.9%301.6% of total risk basedrisk-based capital. At such time, construction, land and land development loans represented 79.4%61.8% of total risk basedrisk-based capital.
The commercial real estate portfolio (including construction) has increased 95.3%45.2% during the prior 36 months. Management has extensive experience in commercial real estate lending, and has implemented and continues to maintain heightened risk management procedures, andas well as strong underwriting criteria with respect to its commercial real estate portfolio. Monitoring practices include periodic stress testing analysis to evaluate changes to cash flows, owing to interest rate increases and declines in net operating income. We may be required to maintain higher levels of capital as a result of our commercial real estate concentrations, which could require us to obtain additional capital andor be required to sell/participate portions of loans, which may adversely affect shareholder returns.
45
Allowance for Credit Losses
We have established an allowance for credit losses, which is increased by provisions charged against earnings and recoveries of previously charged-off debtsloans and is decreased by current period charge-offs of uncollectible debts.loans. Management evaluates the adequacy of the allowance for credit losses at least quarterly and adjusts the provision for credit losses based on this analysis. The evaluation of the adequacy of the allowance for credit losses is based primarily on a risk rating system of individual loans, as well as on a collective evaluation of smaller balance homogenous loans, each grouped by loan type. Each loan type is assigned allowance factors based on criteria such as past credit loss experience, local economic and industry trends, and other measures which may impact collectability. Please refer to the discussion above under the caption “Critical Accounting Policies” for an overview of the underlying methodology management employs to maintain the allowance.
Net charge-offsThe allowance for credit losses was $15.5 million at September 30, 2021, $13.9 million at December 31, 2020 and $15.1 million at June 30, 2021. There were $182net recoveries of $147 thousand for the third quarter of 20172021, compared to net recoveries of $61 thousand for the fourth quarter of 2020 and $349net recoveries of $125 thousand for the second quarter of 2021. The ratio of annualized net recoveries to average loans was 0.04% for the third quarter of 2016. 2021, compared to annualized net recoveries of 0.02% for the fourth quarter of 2020 and 0.03% for the second quarter of 2021.
Management remains focused on its efforts to dispose of problem loans and to prudently charge-off nonperforming assetsloans to enable the Company to continue to improve its overall credit quality. The allowance for credit losses as a percentage of period-end loans was 0.89% as of September 30, 2017 and 1.00% for both December 31, 2016 and September 30, 2016. The decrease in such ratio1.04% at September 30, 2017 was due to2021 and 0.95% at December 31, 2020. Excluding PPP loans, the performing loans acquired inratio of theNWBI transaction with no associated allowance since they were recorded at fair value. The allowance for credit losses as a percentage ofto period-end loans excluding the acquired loans from NWBI was 1.00%as 1.07% at September 30, 2017.2021, higher than the 1.04% at December 31, 2020. The increase in the percentage of the allowance to total loans at September 30, 2021, compared to December 31, 2020, was primarily due to significant loan growth in the second and third quarters of 2021 as previously discussed. Management currently believes that the provision for credit losses and the resulting allowance were adequate to provide for probable losses inherent in our loan portfolio at September 30, 2017.2021.
43
46
The following table presentstables present a summary of the activity in the allowance for credit losses at or for the three and nine months ended September 30, 20172021 and 2016.2020.
| | | | | | | | | | | | | |
| | For the Three Months Ended September 30, | |||||||||||
| | 2021 | | | 2020 | ||||||||
| | | | Percentage of net | | | | | Percentage of net | ||||
| | | | charge-offs (recoveries) | | | | | charge-offs (recoveries) | ||||
| | | | (annualized) to | | | | | (annualized) to | ||||
| | | | average loans | | | | | average loans | ||||
| | Net (charge-offs) | | outstanding | | | Net (charge-offs) | | outstanding | ||||
(Dollars in thousands) |
| recoveries |
| during the year | | | recoveries |
| during the year | ||||
Construction | | $ | 161 | | (0.49) | % | | | $ | 5 | | (0.02) | % |
Residential real estate | |
| 9 | | (0.01) | | | |
| 189 | | (0.17) | |
Commercial real estate | |
| — | | - | | | |
| — | | - | |
Commercial | |
| (29) | | 0.08 | | | |
| (8) | | 0.01 | |
Consumer | |
| 6 | | (0.03) | | | |
| 1 | | (0.01) | |
Total | | $ | 147 | | (0.04) | % | | | $ | 187 | | (0.05) | % |
| | | | | | | | | | | | | |
Average loans outstanding during the period | | $ | 1,487,281 | | | | | | $ | 1,406,683 | | | |
Allowance for credit losses at period end as a percentage of total period end loans (1) | |
| | | 1.04 | % | | |
| | | 0.91 | % |
Allowance for credit losses at period end as a percentage of average loans (2) | |
| | | 1.04 | % | | |
| | | 0.90 | % |
Allowance for credit losses at period end as a percentage of period end nonaccrual loans | |
| | | 449.09 | % | | |
| | | 183.42 | % |
| (1) | At September 30, 2021, the loan balances used to calculate the ratio include PPP loans of $41.5 million. Excluding PPP loans, the ratio is 1.07%. At September 30, 2020, the loan balances used to calculate the ratio included PPP loans of $126.7 million. Excluding PPP loans, the ratio is 0.98%. |
| (2) | At September 30, 2021, the quarter-to-date average loan balances used to calculate the ratio include PPP loans of $63.9 million. Excluding PPP loans, the ratio is 1.09%. At September 30, 2020, the quarter-to-date average loan balances used to calculate the ratio included PPP loans of $125.7 million. Excluding PPP loans, the ratio is 1.00%. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| At or for Three Months |
|
| At or for Nine Months |
| ||||||||||
|
| Ended September 30, |
|
| Ended September 30, |
| ||||||||||
(Dollars in thousands) |
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| |||
Allowance balance - beginning of period |
| $ | 9,132 |
|
| $ | 8,358 |
|
| $ | 8,726 |
|
| $ | 8,316 |
|
Charge-offs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction |
|
| - |
|
|
| (9) |
|
|
| (54) |
|
|
| (263) |
|
Residential real estate |
|
| (70) |
|
|
| (407) |
|
|
| (393) |
|
|
| (525) |
|
Commercial real estate |
|
| (100) |
|
|
| - |
|
|
| (100) |
|
|
| (503) |
|
Commercial |
|
| (99) |
|
|
| (139) |
|
|
| (870) |
|
|
| (264) |
|
Consumer |
|
| (18) |
|
|
| (13) |
|
|
| (33) |
|
|
| (23) |
|
Total |
|
| (287) |
|
|
| (568) |
|
|
| (1,450) |
|
|
| (1,578) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoveries: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction |
|
| 11 |
|
|
| 8 |
|
|
| 27 |
|
|
| 24 |
|
Residential real estate |
|
| 11 |
|
|
| 121 |
|
|
| 32 |
|
|
| 188 |
|
Commercial real estate |
|
| 8 |
|
|
| 10 |
|
|
| 27 |
|
|
| 20 |
|
Commercial |
|
| 67 |
|
|
| 79 |
|
|
| 167 |
|
|
| 201 |
|
Consumer |
|
| 8 |
|
|
| 1 |
|
|
| 20 |
|
|
| 13 |
|
Totals |
|
| 105 |
|
|
| 219 |
|
|
| 273 |
|
|
| 446 |
|
Net charge-offs |
|
| (182) |
|
|
| (349) |
|
|
| (1,177) |
|
|
| (1,132) |
|
Provision for credit losses |
|
| 345 |
|
|
| 605 |
|
|
| 1,746 |
|
|
| 1,430 |
|
Allowance balance - end of period |
| $ | 9,295 |
|
| $ | 8,614 |
|
| $ | 9,295 |
|
| $ | 8,614 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average loans outstanding during the period |
| $ | 1,034,553 |
|
| $ | 836,955 |
|
| $ | 956,694 |
|
| $ | 811,747 |
|
Net charge-offs (annualized) as a percentage of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
average loans outstanding during the period |
|
| 0.07% |
|
|
| 0.17% |
|
|
| 0.16% |
|
|
| 0.19% |
|
Allowance for credit losses at period end as a |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
percentage of total period end loans |
|
| 0.89% |
|
|
| 1.00% |
|
|
| 0.89% |
|
|
| 1.00% |
|
47
| | | | | | | | | | | | | |
| | For the Nine Months Ended September 30, | |||||||||||
| | 2021 | | | 2020 | ||||||||
| | | | Percentage of net | | | | | Percentage of net | ||||
| | | | charge-offs (recoveries) | | | | | charge-offs (recoveries) | ||||
| | | | (annualized) to | | | | | (annualized) to | ||||
| | | | average loans | | | | | average loans | ||||
| | Net (charge-offs) | | outstanding | | | Net (charge-offs) | | outstanding | ||||
(Dollars in thousands) |
| recoveries |
| during the year | | | recoveries |
| during the year | ||||
Construction | | $ | 171 | | (0.19) | % | | | $ | 13 | | (0.02) | % |
Residential real estate | |
| 72 | | (0.02) | | | |
| 5 | | - | |
Commercial real estate | |
| 64 | | (0.01) | | | |
| (601) | | 0.13 | |
Commercial | |
| (40) | | 0.03 | | | |
| (3) | | - | |
Consumer | |
| 5 | | (0.01) | | | |
| 6 | | (0.02) | |
Total | | $ | 272 | | (0.02) | % | | | $ | (580) | | 0.05 | % |
| | | | | | | | | | | | | |
Average loans outstanding during the period | | $ | 1,461,083 | | | | | | $ | 1,348,362 | | | |
Allowance for credit losses at period end as a percentage of total period end loans (1) | |
| | | 1.04 | % | | |
| | | 0.90 | % |
Allowance for credit losses at period end as a percentage of average loans (2) | |
| | | 1.06 | % | | |
| | | 0.95 | % |
Allowance for credit losses at period end as a percentage of period end nonaccrual loans | |
| | | 449.09 | % | | |
| | | 183.42 | % |
| (1) | At September 30, 2021, the loan balances used to calculate the ratio include PPP loans of $41.5 million. Excluding PPP loans, the ratio is 1.07%. At September 30, 2020, the loan balances used to calculate the ratio included PPP loans of $126.7 million. Excluding PPP loans, the ratio is 0.98%. |
| (2) | At September 30, 2021, the year-to-date average loan balances used to calculate the ratio include PPP loans of $103.9 million. Excluding PPP loans, the ratio is 1.14%. At September 30, 2020, the year-to-date average loan balances used to calculate the ratio included PPP loans of $72.2 million. Excluding PPP loans, the ratio is 1.00%. |
Nonperforming Assets and Accruing TDRs
As shown in the following table, nonperforming assets decreased $3.4were $4.4 million to $8.1and $6.3 million at September 30, 2017 from $11.5 million at2021 and December 31, 2016,2020, respectively. The balance of nonperforming assets decreased primarily due to decreasesa decline in nonaccrual loans of $2.7$2.0 million, and otheror 36.6%. Accruing troubled debt restructurings (“TDRs”) decreased $1.2 million, or 17.8%, over the same time period.Other real estate owned of $668 thousand. Accruing TDRsproperties increased $493to $203 thousand to $13.5 million at September 30, 2017 from $13.0 million$0 at December 31, 2016. This increase was primarily due to a significant nonaccrual TDR being upgraded to an accruing TDR during the third quarter of 2017. 2020.The ratio of nonaccrual loans and accruing TDRs to total loans decreased to 0.60%0.62% at September 30, 20172021 from 1.03%0.86% at December 31, 2016 which was primarily due to the acquired performing loans from NWBI. Excluding the acquired loans from NWBI the ratio of nonaccrual loans to total loans decreased to 0.68% at September 30, 2017.
2020.
The Company continues to focus on the resolution of its nonperforming and problem loans.assets. The efforts to accomplish this goal include frequently contacting borrowers until the delinquency is cured or until an acceptable payment plan has been agreed upon; obtaining updated appraisals; provisioning for credit losses; charging-off loans; transferring loans to other real estate owned; aggressively marketing other real estate owned; and selling loans.owned. The reduction of nonperforming and problem loansassets is and will continue to be a high priority for the Company.
44
48
The following table summarizes our nonperforming assets and accruing TDRs at September 30, 20172021 and December 31, 2016.2020.
| | | | | | | | |
(Dollars in thousands) |
| September 30, 2021 |
| December 31, 2020 |
| | ||
Nonperforming assets |
| |
|
| |
|
|
|
Nonaccrual loans | | $ | 3,457 | | $ | 5,455 | | |
Total loans 90 days or more past due and still accruing | |
| 748 | |
| 804 | | |
Other real estate owned | |
| 203 | |
| — | | |
Total nonperforming assets | | $ | 4,408 | | $ | 6,259 | | |
| | | | | | | | |
Total accruing TDRs | | $ | 5,750 | | $ | 6,997 | | |
| | | | | | | | |
As a percent of total loans: | |
|
| |
|
| | |
Nonaccrual loans | |
| 0.23 | % |
| 0.38 | % | |
Accruing TDRs | |
| 0.38 | % |
| 0.48 | % | |
Nonaccrual loans and accruing TDRs | |
| 0.62 | % |
| 0.86 | % | |
| | | | | | | | |
As a percent of total loans and other real estate owned: | |
|
| |
|
| | |
Nonperforming assets | |
| 0.29 | % |
| 0.43 | % | |
Nonperforming assets and accruing TDRs | |
| 0.68 | % |
| 0.91 | % | |
| | | | | | | | |
As a percent of total assets: | |
|
| |
|
| | |
Nonaccrual loans | |
| 0.15 | % |
| 0.28 | % | |
Nonperforming assets | |
| 0.19 | % |
| 0.32 | % | |
Accruing TDRs | |
| 0.25 | % |
| 0.36 | % | |
Nonperforming assets and accruing TDRs | |
| 0.45 | % |
| 0.69 | % | |
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
| September 30, 2017 |
| December 31, 2016 | ||||
Nonperforming assets |
|
|
|
|
|
|
|
|
Nonaccrual loans |
|
|
|
|
|
|
|
|
Construction |
| $ | 2,953 |
|
| $ | 3,818 |
|
Residential real estate |
|
| 2,565 |
|
|
| 3,903 |
|
Commercial real estate |
|
| 430 |
|
|
| 1,152 |
|
Commercial |
|
| 341 |
|
|
| - |
|
Consumer |
|
| - |
|
|
| 99 |
|
Total nonaccrual loans |
|
| 6,289 |
|
|
| 8,972 |
|
Loans 90 days or more past due and still accruing |
|
|
|
|
|
|
|
|
Construction |
|
| - |
|
|
| - |
|
Residential real estate |
|
| 5 |
|
|
| - |
|
Commercial real estate |
|
| - |
|
|
| - |
|
Commercial |
|
| - |
|
|
| 10 |
|
Consumer |
|
| - |
|
|
| 10 |
|
Total loans 90 days or more past due and still accruing |
|
| 5 |
|
|
| 20 |
|
Other real estate owned |
|
| 1,809 |
|
|
| 2,477 |
|
Total nonperforming assets |
| $ | 8,103 |
|
| $ | 11,469 |
|
|
|
|
|
|
|
|
|
|
Accruing TDRs |
|
|
|
|
|
|
|
|
Construction |
| $ | 4,033 |
|
| $ | 4,189 |
|
Residential real estate |
|
| 4,625 |
|
|
| 3,875 |
|
Commercial real estate |
|
| 4,835 |
|
|
| 4,936 |
|
Commercial |
|
| - |
|
|
| - |
|
Consumer |
|
| - |
|
|
| - |
|
Total accruing TDRs |
| $ | 13,493 |
|
| $ | 13,000 |
|
|
|
|
|
|
|
|
|
|
Total nonperforming assets and accruing TDRs |
| $ | 21,596 |
|
| $ | 24,469 |
|
|
|
|
|
|
|
|
|
|
As a percent of total loans: |
|
|
|
|
|
|
|
|
Nonaccrual loans |
|
| 0.60 | % |
|
| 1.03 | % |
Accruing TDRs |
|
| 1.29 | % |
|
| 1.49 | % |
Nonaccrual loans and accruing TDRs |
|
| 1.89 | % |
|
| 2.52 | % |
|
|
|
|
|
|
|
|
|
As a percent of total loans and other real estate owned: |
|
|
|
|
|
|
|
|
Nonperforming assets |
|
| 0.77 | % |
|
| 1.31 | % |
Nonperforming assets and accruing TDRs |
|
| 2.06 | % |
|
| 2.80 | % |
|
|
|
|
|
|
|
|
|
As a percent of total assets: |
|
|
|
|
|
|
|
|
Nonaccrual loans |
|
| 0.46 | % |
|
| 0.77 | % |
Nonperforming assets |
|
| 0.59 | % |
|
| 0.99 | % |
Accruing TDRs |
|
| 0.98 | % |
|
| 1.12 | % |
Nonperforming assets and accruing TDRs |
|
| 1.57 | % |
|
| 2.11 | % |
Investment Securities
The investment portfolio is comprised of debt and equity securities. Debt securities that are classified as either available for sale or held to maturity. Investment securities available for sale are stated at estimated fair value based on quoted prices. They represent securities which may be sold as part of the asset/liability management strategy or in response to changing interest rates. Net unrealized holding gains and losses on these securities are reported net of related income taxes as accumulated other comprehensive income, a separate component of stockholders’ equity.
Investment securities in the held to maturity category are stated at cost adjusted for amortization of premiums and accretion of discounts. We have the intent and current ability to hold such securities until maturity. At September 30, 2017 and December 31, 2016, 97%2021, 29.8% of the portfolio of debt securities was classified as available for sale and 3%70.2% was classified as held to maturity. With the exception of municipal securities, our general practice ismaturity, compared to classify all newly-purchased securities as available for sale.68.0% and 32.0% respectively, at December 31, 2020. See Note 3 - Investment Securities,– “Investment Securities”, in the Notes to Consolidated Financial Statements for additional details on the composition of our investment portfolio.
45
Investment securities including restricted stock totaled $219.6$360.2 million at September 30, 2017,2021, a $49.0$149.9 million, or 28.7%71.3%, increase since December 31, 2016.2020. The increase was primarily due to utilizing the net cash receivedpurchases of held to maturity securities of $214.2 million, partially offset by proceeds from maturities and sales of available for sale securities and held to maturity securities of $32.0 million and $29.0 million, respectively, during 2021. Due to the NWBI branch acquisitionexcess liquidity experienced in 2020 and 2021, the Company strategically purchased short duration held to purchase available-for-sale securities.maturity securities and subordinated debt of other banks which earn significantly higher average yields than interest-bearing deposits with other banks. As loan demand begins to strengthen, the Company will redeploy proceeds from maturities and paydowns, as well as excess liquidity to fund loan growth. At the end of September 2017, 75.3%30, 2021, 82.9% of the securities available for sale were mortgage-backed and 24.4%17.1% were U.S. Government agencies, compared to 78.7%,83.1% and 20.9%16.9%, respectively, at year-end 2016.2020. At September 30, 2021, 67.6% of the securities held to maturity were mortgage-backed, 27.1% were U.S. Government agencies and 5.3% were other debt securities, compared to 41.5%, 28.7% and 29.2%, respectively, at year-end 2020. Our investments in mortgage-backed securities are issued or guaranteed by U.S. Government agencies or government-sponsored agencies.
49
Deposits
Total deposits at September 30, 2017 were $1.22021 amounted to $2.02 billion, a $208.7an increase of $317.4 million, or 20.9%18.7%, increase when compared to the level at December 31, 2016. 2020. The increase was primarily the result of the acquisition of three branches from NWBI which contributed $212.5 million in total deposits which had a balanceconsisted of $199.9increases in the following categories: Savings and money market accounts of $193.1 million, at September 30, 2017. Excluding the deposits acquired from the branch purchase, the Company experienced increases inchecking accounts of $69.6 million, noninterest-bearing deposits of $50.6$45.8 million and interest-bearing checking deposits of $21.7 million, partially offset by declines in money market and savings deposits of $22.6 million andother time deposits of $40.8$8.9 million.
The significant movement within deposit accounts continues to be impacted by direct government stimulus payments to our customers and new account openings.
Short-Term Borrowings
Short-term borrowings at September 30, 2017 and December 31, 2016 were $1.5 million and $3.2 million, respectively. The decrease in short-term borrowings was the result of utilizing cash received in the branch acquisition to reduce these borrowings which tend to have higher rates than core deposits. Short-term borrowings generally consistconsisted of securities sold under agreements to repurchase, which increased by $2.5 million, or 233.4%, to $3.5 million at September 30, 2021 when compared to December 31, 2020. Securities sold under agreements to repurchase are issued in conjunction with cash management services for commercial depositors,depositors. Other short-term borrowings may consist of overnight borrowingsborrowing from correspondent banks and short-termor advances from the Federal Home Loan Bank (the “FHLB”).FHLB. Short-term advances are defined as those with original maturities of one year or less. At September 30, 20172021 and December 31, 2016,2020, the Company had no outstanding short-term or long-term advances with FHLB.
Long-Term Debt
The Company uses long-term borrowings included only repurchase agreements.
to meet longer term liquidity needs, specifically to fund loan growth when liquidity from deposit growth is not sufficient. On August 25, 2020, the Company entered into Subordinated Note Purchase Agreements with certain purchasers pursuant to which the Company issued and sold $25.0 million in aggregate principal amount with an initial interest rate of 5.375% Fixed-to-Floating Rate Subordinated Notes due September 1, 2030.
Liquidity and Capital Resources
We derive liquidity through increased customer deposits, maturities innon-reinvestment of the cash flow from the investment portfolio, loan repayments, borrowings and income from earning assets. As seen in the Consolidated Statements of Cash Flows in the Financial Statements, the net decreaseincrease in cash and cash equivalents was $32.0$123.9 million for the first nine months of 20172021 compared to an increase in cash of $1.3$61.5 million for the first nine months of 2016.2020. The decreaseincrease in cash and cash equivalents in 20172021 was mainly due to receiving excess cash from the NWBI branch transactionsignificant increase in deposits, the direct result of new account openings, government stimulus and significant increases in municipal accounts. The Company expects these funds to be utilized over the coming months, which was used to purchase available-for-sale securities and paydown short-term borrowings.
may result in deposit balance fluctuations.
To the extent that deposits are not adequate to fund customer loan demand, liquidity needs can be met in the short-term funds markets throughfund markets. The Bank has arrangements with other correspondent banks. The Bank hadbanks whereby it has $15 million available in federal funds lines of credit and a reverse repurchase agreement available on ato meet any short-term basis from correspondent banks at September 30, 2017 and December 31, 2016.needs which may not otherwise be funded by the Bank’s portfolio of readily marketable investments that can be converted to cash. The Bank is also a member of the FHLB, which provides another source of liquidity. Through the FHLB, the Bank had credit availabilitycollateral pledged of approximately $222.0$299.2 million and $205.1$316.7 million at September 30, 20172021 and December 31, 2016,2020, respectively. These lines of credit are paid for monthly on a fee basis of 0.425%. The Bank has pledged, under a blanket lien, all qualifying residential and commercial real estate loans under borrowing agreements with the FHLB. Management is not aware of any demands, commitments, events or uncertainties that are likely to materially affect our future ability to maintain liquidity at satisfactory levels.
Total stockholders’ equity increased $8.3$6.6 million to $162.6$201.6 million, or 3.4%, at September 30, 20172021 when compared to December 31, 20162020 primarily due to the current year’s earnings.retained earnings, partially offset by dividends paid during the first nine months of 2021 and the change in fair value of available-for-sale securities recorded in accumulated other comprehensive income.
CBLR
On September 17, 2019, the FDIC finalized a rule that introduces an optional simplified measure of capital adequacy for qualifying community banking organizations (i.e., the community bank leverage ratio (“CBLR”) framework), as required by the Economic Growth, Regulatory Relief and Consumer Protection Act. The CBLR framework is designed
50
to reduce burden by removing the requirements for calculating and reporting risk-based capital ratios for qualifying community banking organizations that opt into the framework.
On April 6, 2020, in a joint statement, the FDIC, Federal Reserve and the Office of Comptroller of the Currency (“OCC”), issued two interim final rules regarding temporary changes to the CBLR framework to implement provisions of the CARES Act. Under the interim final rules, the community bank leverage ratio was reduced to 8% beginning in the second quarter and for the remainder of calendar year 2020, 8.5% for calendar year 2021, and 9% thereafter. In order to qualify for the CBLR framework, a community banking organization must have a tier 1 leverage ratio of greater than 8%, less than $10 billion in total consolidated assets, and limited amounts of off-balance-sheet exposures and trading assets and liabilities. A qualifying community banking organization that opts into the CBLR framework and meets all requirements under the framework will be considered to have met the well-capitalized ratio requirements under the Prompt Corrective Action regulations and will not be required to report or calculate risk-based capital. The Company has not opted-in to the CBLR framework.
Basel III
The FRBUnder final Federal Reserve and the FDIC approved the final rules implementing the Basel Committee on Banking Supervision's (“BCBS”)Supervision’s capital guidelines for U.S. banks. Under the final rules,banks minimum requirements increased for both the quantity and quality of capital held by the Company.Bank. The rules included a new common equity Tier 1Basel III capital standards substantially revised the risk based capital requirements applicable to risk-weighted assets minimum ratio of 4.5%, raisebank holding companies and their depository institution subsidiaries, including the minimum ratiodefinitions and the components of Tier 1 capital toand Total Capital, the method of evaluating risk-weighted assets, from 4.0% to 6.0%, requireinstitutions of a minimum ratio of Total Capital to risk-weighted assets of 8.0%, and require a minimum Tier 1 leverage ratio of 4.0%. A new capital conservation buffer, comprised of common equity Tier 1and other matters affecting regulatory capital was also established above the regulatory minimum capital requirements. This capital conservation buffer became effective as of January 1, 2016 at 0.625% of risk-weighted assets and will increase each subsequent year by an additional 0.625% until reaching its final level of 2.5% on January 1, 2019.ratios. Strict eligibility criteria for regulatory capital instruments were also implemented under the final rules. The final rules also revise the definition and calculation of Tier 1 capital, Total Capital, and risk-weighted assets.
The phase-in period for the final rules became effective for the CompanyBank on January 1, 2015, with full compliance with all of the final rules’ requirements phased in over a multi-year schedule, to bewhich was fully phased-in byphased in on January 1, 2019. As of September 30, 2017,2021, the Company'sBank’s capital levels remained characterized as "well-capitalized"“well-capitalized” under the new rules.
46
The following tables present the applicable capital ratios for Shore Bancshares, Inc. and Shore United Bank as of September 30, 20172021 and December 31, 2016.2020.
| | | | | | | | | | | | |
|
| Tier 1 |
| Common Equity |
| Tier 1 |
| Total |
| |||
| | leverage | | Tier 1 | | risk-based | | risk-based |
| |||
September 30, 2021 | | ratio | | ratio | | capital ratio | | capital ratio |
| |||
Shore United Bank |
| | 9.04 | % | | 12.90 | % | | 12.90 | % | 13.94 | % |
| | | | | | | | | | | | |
|
| Tier 1 |
| Common Equity |
| Tier 1 |
| Total | | |||
|
| leverage |
| Tier 1 |
| risk-based |
| risk-based | | |||
December 31, 2020 |
| ratio |
| ratio |
| capital ratio |
| capital ratio | | |||
Shore United Bank |
| | 9.73 | % | | 13.21 | % | | 13.21 | % | 14.25 | % |
During the first quarter of 2017, Shore Bancshares, Inc. contributed $10.5 million in capital to its bank subsidiary, Shore United Bank, in preparation for the branch acquisition in the second quarter of 2017. Of the $10.5 million contributed, $10.2 million consisted of mortgage-backed securities and $300 thousand consisted of cash.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Tier 1 |
|
| Common Equity |
|
| Tier 1 |
|
| Total |
|
|
| leverage |
|
| Tier 1 |
|
| risk-based |
|
| risk-based |
|
September 30, 2017 |
| ratio |
|
| ratio |
|
| capital ratio |
|
| capital ratio |
|
Company |
| 9.72 | % |
| 12.13 | % |
| 12.13 | % |
| 13.02 | % |
Shore United Bank |
| 9.31 | % |
| 11.60 | % |
| 11.60 | % |
| 12.50 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Tier 1 |
|
| Common Equity |
|
| Tier 1 |
|
| Total |
|
|
| leverage |
|
| Tier 1 |
|
| risk-based |
|
| risk-based |
|
December 31, 2016 |
| ratio |
|
| ratio |
|
| capital ratio |
|
| capital ratio |
|
Company |
| 12.31 | % |
| 15.78 | % |
| 15.78 | % |
| 16.79 | % |
Shore United Bank |
| 10.88 | % |
| 13.84 | % |
| 13.84 | % |
| 14.86 | % |
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Our primary market risk is interest rate fluctuation and management has procedures in place to evaluate and mitigate this risk. This risk and these procedures are discussed in Item 7 of Part II of the 20162020 Annual Report under the caption “Market Risk Management and Interest Sensitivity”. Management believes that there have been no material changes in our market risks, the procedures used to evaluate and mitigate these risks, or our actual and simulated sensitivity positions since December 31, 2016.2020.
Item 4. Controls and Procedures.
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that Shore Bancshares, Inc. files under the Securities Exchange Act of 1934, as amended (“Exchange Act”) with the SEC, such as this Quarterly Report, is recorded, processed, summarized and reported within the time periods specified in those rules and forms, and that such information is accumulated and communicated to management, including Shore Bancshares, Inc.’s principal executive officer (“CEO”PEO”) and its principal accountingfinancial officer (“PAO”PFO”), as appropriate, to
51
allow for timely decisions regarding required disclosure. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.
An evaluation of the effectiveness of these disclosure controls and procedures as of September 30, 20172021 was carried out under the supervision and with the participation of management, including the CEOPEO and the PAO.PFO. Based on that evaluation, the Company’s management, including the CEOPEO and the PAO,PFO, has concluded that our disclosure controls and procedures are, in fact, effective at the reasonable assurance level at September 30, 2017.
2021.
There was no change in our internal control over financial reporting during the third quarter of 20172021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
47
From time to time the Company may become involved in legal proceedings. At the present time, there are no proceedings which the Company believes will have a material adverse impact on the financial condition or earnings of the Company.
The section titled Risk Factors in Part I, Item 1A of our 2020 Form 10-K includes a discussion of the many risks and uncertainties towe face, any one or more of which could have a material adverse effect on our business, results of operations, financial condition (including capital and operations are subject are discussedliquidity), or prospects or the value of or return on an investment in detail in Item 1A of Part I of the 2016 Annual Report.Company. Management does not believe that any material changes in our risk factors have occurred since they were last disclosed in our 20162020 Annual Report.
Item 2. Unregistered Sales of EquityEquity Securities and Use of Proceeds
None.On November 24, 2020, the Company announced a stock repurchase program which was approved by the Board and authorized management to repurchase up to $5.0 million of the Company’s common stock. There were no purchases of the Company’s common stock during the second quarter of 2021.The stock repurchase program is currently suspended due to the recent announcement of our merger with Severn.
The following table provides information with respect to purchases made by or on behalf of us or any “affiliated purchaser” (as defined in Rule 10b-18(a)(3) under the Exchange Act) of our common stock during the third quarter of 2021.
| | | | | | | | | | | | |
Stock Repurchase Plan $5.0 million (2020-2021) | | | | | | Total Number of | | Maximum Dollar Value | ||||
| | Total Number | | Average Price | | Shares Purchased as Part | | Of Shares that May Yet Be | ||||
| | Of Shares | | Paid Per | | of the Publicly Announced | | Purchased Under the | ||||
Period |
| Purchased |
| Share |
| Plans or Programs |
| Plans or Programs | ||||
July 1, 2021 to July 31, 2021 | | | — | | $ | — | | | — | | $ | 541,973 |
August 1, 2021 to August 31, 2021 | |
| — | |
| — | |
| — | |
| 541,973 |
September 1, 2021 to September 30, 2021 | | | — | | | — | | | — | | | 541,973 |
Total | | | — | | $ | — | | | — | | | |
52
Item 3. Defaults Upon Senior Securities
None
Item 4. Mine Safety Disclosures
Not Applicable
None
53
Item 6.E Exhibits.
Exhibit | Description | |
| | |
2.1 | | |
| | |
3.1(i) | | |
| | |
3.1(ii) | | |
| | |
3.1(iii) | | |
| | |
3.2 | | |
| | |
4.1 | | |
| | |
4.2 | | |
| | |
31.1 | | |
| | |
31.2 | | |
| | |
32 | | Certification pursuant to Section 906 of the Sarbanes-Oxley Act (furnished herewith). |
| | |
101 | | Inline Interactive Data File |
| | |
101.INS | | Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) |
| | |
101.SCH | | Inline XBRL Taxonomy Extension Schema (filed herewith) |
| | |
101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase (filed herewith) |
| | |
101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase (filed herewith) |
| | |
101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase (filed herewith) |
| | |
101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase (filed herewith) |
54
| | |
104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
The exhibits filed or furnished with this quarterly report are shown on the Exhibit List that follows the signatures to this report, which list is incorporated herein by reference.
SIGNATURES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | | |
|
| SHORE BANCSHARES, INC. |
| |
|
|
|
| |
Date: November |
| By: | /s/ Lloyd L. Beatty, Jr. |
|
|
|
| Lloyd L. Beatty, Jr. |
|
|
|
| President & Chief Executive Officer |
|
|
|
| (Principal Executive Officer) |
|
|
|
|
| |
Date: November |
| By: | /s/ Edward C. Allen |
|
|
|
| Edward C. Allen |
|
|
|
|
|
|
|
|
| (Principal |
|
48
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| ||
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| |
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| |
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49