U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)(Mark One)
| |
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
EXCHANGE ACT OF 1934For the quarterly period ended June 30, 2020
FOR THE QUARTERLY PERIOD ENDED September 30, 2017OR
| |
☐ | 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: 000-22507
THE FIRST BANCshARES,BANCSHARES, INC.
(Exact name of Registrantregistrant as specified in its charter)
Mississippi | 64-0862173 |
(State of Incorporation) | (IRS Employer Identification No) |
6480 U.S. Highway 98 West, Suite A, Hattiesburg, Mississippi 39402
6480 U.S. Highway 98 West, Suite A, Hattiesburg, Mississippi | 39402 |
(Address of principal executive offices) | (Zip Code) |
(Address of principal executive offices) (Zip Code)
(601) 268-8998
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| | |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, par value $1.00 | FBMS | The Nasdaq Stock Market |
Indicate by check mark whether the Registrantregistrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrantregistrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes þ No ¨◻
Indicate by check mark whether the Registrantregistrant 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 þ No ¨◻
Indicate by check mark whether the Registrantregistrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ◻ | Accelerated filer | þ |
Non-accelerated filer | ◻ | Smaller Reporting Company | ◻ |
Emerging growth 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 Exchange Act).
Yes ¨◻ No þ
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Common stock, $1.00 par value, 9,179,90121,602,199 shares issued and 11,192,40121,407,517 outstanding as of NovemberAugust 3, 2017.2020.
The First Bancshares, Inc.
Form 10-Q
Quarter Ended June 30, 2020
Index
3 | ||
| 3 | |
| 4 | |
| 5 | |
| Consolidated Statements of Changes in Shareholders’ Equity - Unaudited | 6 |
| 7 | |
| 8 | |
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 35 | |
58 | ||
60 | ||
61 | ||
61 | ||
63 | ||
63 | ||
63 | ||
63 | ||
64 | ||
65 |
2
PART I - FINANCIAL INFORMATION
ITEM NO. 1-1. FINANCIAL STATEMENTS
THE FIRST BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
($ In Thousands)in thousands)
(Unaudited) | (Audited) | |||||||
September 30, | December 31, | |||||||
2017 | 2016 | |||||||
ASSETS | ||||||||
Cash and due from banks | $ | 63,668 | $ | 31,719 | ||||
Interest-bearing deposits with banks | 29,649 | 29,975 | ||||||
Federal funds sold | - | 425 | ||||||
Total cash and cash equivalents | 93,317 | 62,119 | ||||||
Securities held-to-maturity, at amortized cost | 6,000 | 6,000 | ||||||
Securities available-for-sale, at fair value | 353,035 | 243,206 | ||||||
Other securities | 9,556 | 6,593 | ||||||
Total securities | 368,591 | 255,799 | ||||||
Loans held for sale | 4,588 | 5,880 | ||||||
Loans | 1,198,193 | 867,054 | ||||||
Allowance for loan losses | (8,175 | ) | (7,510 | ) | ||||
Loans, net | 1,190,018 | 859,544 | ||||||
Premises and equipment | 46,203 | 34,624 | ||||||
Interest receivable | 5,787 | 4,358 | ||||||
Cash surrender value of bank-owned life insurance | 26,367 | 21,250 | ||||||
Goodwill | 20,443 | 13,776 | ||||||
Other real estate owned | 7,855 | 6,008 | ||||||
Other assets | 24,807 | 14,009 | ||||||
TOTAL ASSETS | $ | 1,787,976 | $ | 1,277,367 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
LIABILITIES: | ||||||||
Deposits: | ||||||||
Noninterest-bearing | $ | 308,050 | $ | 202,478 | ||||
Interest-bearing | 1,199,941 | 836,713 | ||||||
TOTAL DEPOSITS | 1,507,991 | 1,039,191 | ||||||
Interest payable | 274 | 306 | ||||||
Borrowed funds | 94,321 | 69,000 | ||||||
Subordinated debentures | 10,310 | 10,310 | ||||||
Other liabilities | 8,100 | 4,033 | ||||||
TOTAL LIABILITIES | 1,620,996 | 1,122,840 | ||||||
STOCKHOLDERS’ EQUITY: | ||||||||
Common stock, par value $1 per share, 20,000,000 shares authorized; 9,179,901 shares issued at September 30, 2017, and 9,017,891 shares issued at December 31, 2016, respectively | 9,180 | 9,018 | ||||||
Additional paid-in capital | 104,965 | 102,574 | ||||||
Retained earnings | 51,649 | 44,477 | ||||||
Accumulated other comprehensive income (loss) | 1,650 | (1,078 | ) | |||||
Treasury stock, at cost, 26,494 shares at Sept. 30, 2017 and at December 31, 2016 | (464 | ) | (464 | ) | ||||
TOTAL STOCKHOLDERS’ EQUITY | 166,980 | 154,527 | ||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 1,787,976 | $ | 1,277,367 |
| | | | | | |
| | (Unaudited) | ||||
| | June 30, | | December 31, | ||
|
| 2020 |
| 2019 | ||
ASSETS | | | | | | |
|
| |
|
| |
|
Cash and due from banks | | $ | 119,913 | | $ | 89,736 |
Interest-bearing deposits with banks | |
| 419,212 | |
| 79,128 |
Total cash and cash equivalents | |
| 539,125 | |
| 168,864 |
| | | | | | |
Securities available-for-sale, at fair value | |
| 927,205 | |
| 765,087 |
Other securities | |
| 26,059 | |
| 26,690 |
Total securities | |
| 953,264 | |
| 791,777 |
| | | | | | |
Loans held for sale | |
| 18,632 | |
| 10,810 |
Loans | |
| 3,171,535 | |
| 2,600,358 |
Allowance for loan losses | |
| (28,064) | |
| (13,908) |
Loans, net | |
| 3,162,103 | |
| 2,597,260 |
| | | | | | |
Interest receivable | |
| 24,782 | |
| 14,802 |
Premises and equipment | |
| 125,053 | |
| 104,980 |
Cash surrender value of bank-owned life insurance | |
| 73,008 | |
| 59,572 |
Goodwill | |
| 158,572 | |
| 158,572 |
Other real estate owned | |
| 5,471 | |
| 7,299 |
Other assets | |
| 43,527 | |
| 38,737 |
Total assets | | $ | 5,084,905 | | $ | 3,941,863 |
LIABILITIES AND SHAREHOLDERS’ EQUITY | |
|
| |
|
|
Liabilities: | |
|
| |
|
|
Deposits: | |
|
| |
|
|
Noninterest-bearing | | $ | 486,039 | | $ | 723,208 |
Interest-bearing | |
| 3,730,851 | |
| 2,353,325 |
Total deposits | |
| 4,216,890 | |
| 3,076,533 |
| | | | | | |
Interest payable | |
| 2,195 | |
| 2,508 |
Borrowed funds | |
| 116,005 | |
| 214,319 |
Subordinated debentures | |
| 80,756 | |
| 80,678 |
Other liabilities | |
| 41,264 | |
| 24,167 |
Total liabilities | |
| 4,457,110 | |
| 3,398,205 |
| | | | | | |
Shareholders’ equity: | |
|
| |
|
|
Common stock, par value $1 per share, 40,000,000 shares authorized; 21,589,940 shares issued at June 30, 2020, and 18,996,948 shares issued at December 31, 2019, respectively | |
| 21,590 | |
| 18,997 |
Additional paid-in capital | |
| 455,650 | |
| 409,805 |
Retained earnings | |
| 131,698 | |
| 110,460 |
Accumulated other comprehensive income | |
| 24,550 | |
| 10,089 |
Treasury stock, at cost, 194,682 shares at June 30, 2020 and 194,682 shares at December 31, 2019 | |
| (5,693) | |
| (5,693) |
Total shareholders’ equity | |
| 627,795 | |
| 543,658 |
Total liabilities and shareholders’ equity | | $ | 5,084,905 | | $ | 3,941,863 |
See Notes to Consolidated Financial Statements
3
THE FIRST BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
($ In Thousands,in thousands, except earnings and dividends per share)
(Unaudited) | (Unaudited) | |||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
INTEREST INCOME: | ||||||||||||||||
Interest and fees on loans | $ | 14,412 | $ | 9,798 | $ | 42,083 | $ | 28,146 | ||||||||
Interest and dividends on securities: | ||||||||||||||||
Taxable interest and dividends | 1,600 | 982 | 4,742 | 3,110 | ||||||||||||
Tax exempt interest | 579 | 464 | 1,764 | 1,398 | ||||||||||||
Interest on federal funds sold | 117 | 25 | 337 | 82 | ||||||||||||
TOTAL INTEREST INCOME | 16,708 | 11,269 | 48,926 | 32,736 | ||||||||||||
INTEREST EXPENSE: | ||||||||||||||||
Interest on deposits | 1,375 | 962 | 3,836 | 2,476 | ||||||||||||
Interest on borrowed funds | 398 | 240 | 1,151 | 663 | ||||||||||||
TOTAL INTEREST EXPENSE | 1,773 | 1,202 | 4,987 | 3,139 | ||||||||||||
NET INTEREST INCOME | 14,935 | 10,067 | 43,939 | 29,597 | ||||||||||||
PROVISION FOR LOAN LOSSES | 90 | 143 | 384 | 538 | ||||||||||||
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES | 14,845 | 9,924 | 43,555 | 29,059 | ||||||||||||
OTHER INCOME: | ||||||||||||||||
Service charges on deposit accounts | 902 | 606 | 2,692 | 1,847 | ||||||||||||
Other service charges and fees | 2,756 | 2,493 | 8,115 | 6,695 | ||||||||||||
TOTAL OTHER INCOME | 3,658 | 3,099 | 10,807 | 8,542 | ||||||||||||
OTHER EXPENSES: | ||||||||||||||||
Salaries and employee benefits | 7,328 | 5,645 | 23,070 | 16,194 | ||||||||||||
Occupancy and equipment | 1,390 | 1,209 | 4,108 | 3,392 | ||||||||||||
Acquisition and integration charges | 48 | - | 6,327 | - | ||||||||||||
Other | 3,122 | 2,562 | 9,551 | 7,144 | ||||||||||||
TOTAL OTHER EXPENSES | 11,888 | 9,416 | 43,056 | 26,730 | ||||||||||||
INCOME BEFORE INCOME TAXES | 6,615 | 3,607 | 11,306 | 10,871 | ||||||||||||
INCOME TAXES | 1,901 | 1,049 | 3,104 | 3,060 | ||||||||||||
NET INCOME | 4,714 | 2,558 | 8,202 | 7,811 | ||||||||||||
PREFERRED STOCK ACCRETION AND DIVIDENDS | - | 86 | - | 257 | ||||||||||||
NET INCOME APPLICABLE TO COMMON STOCKHOLDERS | $ | 4,714 | $ | 2,472 | $ | 8,202 | $ | 7,554 | ||||||||
NET INCOME APPLICABLE TO COMMON STOCKHOLDERS: | ||||||||||||||||
BASIC | $ | 0.52 | $ | 0.46 | $ | 0.90 | $ | 1.39 | ||||||||
DILUTED | 0.51 | 0.45 | 0.89 | 1.38 | ||||||||||||
DIVIDENDS PER SHARE – COMMON | 0.0375 | 0.0375 | 0.1125 | 0.1125 |
| | | | | | | | | | | | |
| | (Unaudited) | | (Unaudited) | ||||||||
| | Three Months Ended | | Six Months Ended | ||||||||
| | June 30, | | June 30, | ||||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
| | | | | | | | | | | | |
Interest and dividend income: |
| |
|
| |
|
| |
|
| |
|
Interest and fees on loans | | $ | 40,593 | | $ | 32,464 | | $ | 76,598 | | $ | 61,269 |
Interest and dividends on securities: | |
| | |
| | |
| | |
| |
Taxable interest and dividends | |
| 3,424 | |
| 4,241 | |
| 7,459 | |
| 7,832 |
Tax exempt interest | |
| 1,748 | |
| 790 | |
| 3,108 | |
| 1,548 |
Interest on federal funds sold and interest bearing deposits in other banks | |
| 34 | |
| 76 | |
| 232 | |
| 196 |
Total interest income | |
| 45,799 | |
| 37,571 | |
| 87,397 | |
| 70,845 |
| |
| | |
| | |
| | |
| |
Interest expense: | |
| | |
| | |
| | |
| |
Interest on deposits | |
| 5,219 | |
| 5,322 | |
| 10,632 | |
| 9,686 |
Interest on borrowed funds | |
| 1,400 | |
| 1,477 | |
| 3,520 | |
| 3,255 |
Total interest expense | |
| 6,619 | |
| 6,799 | |
| 14,152 | |
| 12,941 |
| | | | | | | | | | | | |
Net interest income | |
| 39,180 | |
| 30,772 | |
| 73,245 | |
| 57,904 |
| |
| | |
| | |
| | |
| |
Provision for loan losses | |
| 7,606 | |
| 791 | |
| 14,708 | |
| 1,913 |
| | | | | | | | | | | | |
Net interest income after provision for loan losses | |
| 31,574 | |
| 29,981 | |
| 58,537 | |
| 55,991 |
| |
|
| |
| | |
|
| |
|
|
Non-interest income: | |
|
| |
|
| |
|
| |
|
|
Service charges on deposit accounts | |
| 1,597 | |
| 1,918 | |
| 3,511 | |
| 3,750 |
Gain on sale of securities | | | 73 | | | 36 | | | 246 | | | 74 |
Gain on acquisition | | | 7,023 | | | — | | | 7,023 | | | — |
Gain/(loss) on sale of premises and equipment | | | 469 | | | (8) | | | 461 | | | (8) |
Other service charges and fees | |
| 6,518 | |
| 4,770 | |
| 10,913 | |
| 8,454 |
Total non-interest income | |
| 15,680 | |
| 6,716 | |
| 22,154 | |
| 12,270 |
| |
|
| |
|
| |
|
| |
|
|
Non-interest expense: | |
|
| |
|
| |
|
| |
|
|
Salaries and employee benefits | |
| 15,866 | |
| 11,615 | |
| 29,094 | |
| 22,312 |
Occupancy and equipment | |
| 3,200 | |
| 2,532 | |
| 6,118 | |
| 4,974 |
Acquisition and integration charges | |
| 2,295 | |
| 91 | |
| 3,036 | |
| 3,270 |
Other | |
| 6,709 | |
| 6,653 | |
| 13,260 | |
| 12,230 |
Total non-interest expense | |
| 28,070 | |
| 20,891 | |
| 51,508 | |
| 42,786 |
| |
|
| |
|
| |
|
| |
|
|
Income before income taxes | |
| 19,184 | |
| 15,806 | |
| 29,183 | |
| 25,475 |
| |
|
| |
|
| |
| | |
|
|
Income tax expense | |
| 2,241 | |
| 3,823 | |
| 3,929 | |
| 5,857 |
| | | | | | | | | | | | |
Net income | | $ | 16,943 | | $ | 11,983 | | $ | 25,254 | | $ | 19,618 |
| |
|
| |
|
| |
|
| |
|
|
Basic earnings per share | | $ | 0.79 | | $ | 0.70 | | $ | 1.26 | | $ | 1.20 |
Diluted earnings per share | |
| 0.79 | |
| 0.69 | |
| 1.25 | |
| 1.19 |
See Notes to Consolidated Financial Statements
4
THE FIRST BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
($ In Thousands)in thousands)
(Unaudited) | (Unaudited) | |||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Net income per consolidated statements of income | $ | 4,714 | $ | 2,558 | $ | 8,202 | $ | 7,811 | ||||||||
Other Comprehensive Income: | ||||||||||||||||
Unrealized holding gains/ (losses) arising during period on available-for-sale securities | (865 | ) | 189 | 4,391 | 3,016 | |||||||||||
Less reclassification adjustment for gains included in net income | - | (129 | ) | - | (129 | ) | ||||||||||
Unrealized holding gains/ (losses) arising during period on available- for-sale securities | (865 | ) | 60 | 4,391 | 2,887 | |||||||||||
Unrealized holding gains/ (losses) on loans held for sale | 42 | (85 | ) | 45 | 1 | |||||||||||
Income tax benefit(expense) | 322 | 13 | (1,708 | ) | (982 | ) | ||||||||||
Other comprehensive income (loss) | (501 | ) | (12 | ) | 2,728 | 1,906 | ||||||||||
Comprehensive Income | $ | 4,213 | $ | 2,546 | $ | 10,930 | $ | 9,717 |
| | | | | | | | | | | | |
| | (Unaudited) | | (Unaudited) | ||||||||
| | Three Months Ended | | Six Months Ended | ||||||||
| | June 30, | | June 30, | ||||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
| | | | | | | | | | | | |
Net income | | $ | 16,943 | | $ | 11,983 | | $ | 25,254 | | $ | 19,618 |
| | | | | | | | | | | | |
Other Comprehensive Income: | |
| | |
| | |
| | |
| |
| | | | | | | | | | | | |
Unrealized holding gains arising during the period on available-for-sale securities | |
| 10,987 | |
| 7,117 | |
| 19,615 | |
| 15,140 |
| | | | | | | | | | | | |
Reclassification adjustment for gains included in net income | | | 73 | | | 36 | | | 246 | | | 74 |
| | | | | | | | | | | | |
Unrealized holding gains arising during period on available-for-sale securities | |
| 10,914 | |
| 7,081 | |
| 19,369 | |
| 15,066 |
| | | | | | | | | | | | |
Income tax expense | |
| (2,195) | |
| (1,768) | |
| (4,908) | |
| (3,831) |
| | | | | | | | | | | | |
Other comprehensive income | |
| 8,719 | |
| 5,313 | |
| 14,461 | |
| 11,235 |
| | | | | | | | | | | | |
Comprehensive Income | | $ | 25,662 | | $ | 17,296 | | $ | 39,715 | | $ | 30,853 |
See Notes to Consolidated Financial Statements
5
THE FIRST BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’SHAREHOLDERS’ EQUITY
($ In Thousands,in thousands except per share data, unaudited)
Common Stock | Preferred Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Income(Loss) | Treasury Stock | Total | ||||||||||||||||||||||
Balance, January 1, 2016 | $ | 5,403 | $ | 17,123 | $ | 44,650 | $ | 35,625 | $ | 1,099 | $ | (464 | ) | $ | 103,436 | |||||||||||||
Net income | - | - | - | 7,811 | - | - | 7,811 | |||||||||||||||||||||
Other comprehensive income | - | - | - | - | 1,906 | - | 1,906 | |||||||||||||||||||||
Dividends on preferred stock | - | - | - | (257 | ) | - | - | (257 | ) | |||||||||||||||||||
Dividends on common stock, $0.1125 per share | - | - | - | (611 | ) | - | - | (611 | ) | |||||||||||||||||||
Issuance of preferred shares | (25 | ) | (25 | ) | ||||||||||||||||||||||||
Repurchase of restricted stock for payment of taxes | (9 | ) | - | (167 | ) | - | - | - | (176 | ) | ||||||||||||||||||
Restricted stock grant | 61 | - | (61 | ) | - | - | - | - | ||||||||||||||||||||
Compensation expense | - | - | 574 | - | - | - | 574 | |||||||||||||||||||||
Balance, Sept. 30, 2016 | $ | 5,455 | $ | 17,123 | $ | 44,996 | $ | 42,543 | $ | 3,005 | $ | (464 | ) | $ | 112,658 | |||||||||||||
Balance, January 1, 2017 | $ | 9,018 | $ | - | $ | 102,574 | $ | 44,477 | $ | (1,078 | ) | $ | (464 | ) | $ | 154,527 | ||||||||||||
Net income | - | - | - | 8,202 | - | - | 8,202 | |||||||||||||||||||||
Other comprehensive income | - | - | - | - | 2,728 | - | 2,728 | |||||||||||||||||||||
Dividends on common stock, $0.1125 per share | - | - | - | (1,030 | ) | - | - | (1,030 | ) | |||||||||||||||||||
Issuance of 89,591 common shares for GCCB acquisition | 89 | - | 2,160 | - | - | - | 2,249 | |||||||||||||||||||||
Repurchase of restricted stock for payment of taxes | (12 | ) | - | (318 | ) | - | - | - | (330 | ) | ||||||||||||||||||
Restricted stock grant | 85 | - | (85 | ) | - | - | - | - | ||||||||||||||||||||
Compensation expense | - | - | 634 | - | - | - | 634 | |||||||||||||||||||||
Balance, Sept. 30, 2017 | $ | 9,180 | $ | - | $ | 104,965 | $ | 51,649 | $ | 1,650 | $ | (464 | ) | $ | 166,980 |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | Accumulated | | | | | | | | | |
| | Common | | Additional | | | | | Other | | | | | | | | | |||||
| | Stock | | Paid-in | | Retained | | Comprehensive | | Treasury Stock | | | | |||||||||
|
| Shares | | Amount |
| Capital |
| Earnings |
| Income (Loss) |
| Shares | | Amount |
| Total | ||||||
Balance, March 31, 2019 | | 17,299,225 | | $ | 17,299 | | $ | 354,792 | | $ | 78,594 | | $ | 4,126 | | (26,494) | | $ | (464) | | $ | 454,347 |
Net income | | — | |
| — | |
| — | |
| 11,983 | |
| — | | — | |
| — | |
| 11,983 |
Common stock repurchased | | — | | | — | | | — | | | — | | | — | | (143,566) | | | (4,442) | | | (4,442) |
Other comprehensive income | | — | |
| — | |
| — | |
| — | |
| 5,313 | | — | |
| — | |
| 5,313 |
Dividends on common stock, $0.08 per share | | — | |
| — | |
| — | |
| (1,346) | |
| — | | — | |
| — | |
| (1,346) |
Issuance of restricted stock grants | | 750 | | | 1 | |
| (1) | |
| — | |
| — | | — | |
| — | |
| — |
Compensation expense | | — | | | — | |
| 426 | |
| — | |
| — | | — | |
| — | |
| 426 |
Balance, June 30, 2019 | | 17,299,975 | | $ | 17,300 | | $ | 355,217 | | $ | 89,231 | | $ | 9,439 | | (170,060) | | $ | (4,906) | | $ | 466,281 |
| |
| |
|
| |
|
| |
|
| |
|
| | | |
|
| |
|
|
Balance, March 31, 2020 | | 19,046,637 | | $ | 19,047 | | $ | 409,855 | | $ | 116,886 | | $ | 15,831 | | (194,682) | | $ | (5,693) | | $ | 555,926 |
Net income | | — | |
| — | |
| — | |
| 16,943 | |
| — | | — | |
| — | |
| 16,943 |
Common stock repurchased | | — | | | — | | | — | | | — | | | — | | — | | | — | | | — |
Other comprehensive income | | — | |
| — | |
| — | |
| — | |
| 8,719 | | — | |
| — | |
| 8,719 |
Dividends on common stock, $0.10 per share | | — | |
| — | |
| — | |
| (2,131) | |
| — | | — | |
| — | |
| (2,131) |
Issuance of common shares for SWG acquisition | | 2,546,967 | |
| 2,547 | |
| 45,311 | |
| — | |
| — | | — | |
| — | |
| 47,858 |
Repurchase of restricted stock for payment of taxes | | (2,652) | | | (3) | | | (56) | | | — | | | — | | — | | | — | | | (59) |
Issuance of restricted stock grants | | 3,750 | | | 4 | | | (4) | | | — | | | — | | — | | | — | | | — |
Restricted stock grant forfeited | | (4,762) | |
| (5) | |
| 5 | |
| — | |
| — | | — | |
| — | |
| — |
Compensation expense | | — | |
| — | |
| 539 | |
| — | |
| — | | — | |
| — | |
| 539 |
Balance, June 30, 2020 | | 21,589,940 | | $ | 21,590 | | $ | 455,650 | | $ | 131,698 | | $ | 24,550 | | (194,682) | | $ | (5,693) | | $ | 627,795 |
| | | | | | | | | | | | | | | | | | | | | | |
|
| |
| | |
| | |
| | |
| Accumulated |
| | | | |
| | | |
| | Common | | Additional | | | | | Other | | | | | | | | | |||||
| | Stock | | Paid-in | | Retained | | Comprehensive | | Treasury Stock | | | | |||||||||
| | Shares | | Amount | | Capital | | Earnings | | Income (Loss) | | Shares | | Amount | | Total | ||||||
Balance, January 1, 2019 | | 14,857,092 | | $ | 14,857 | | $ | 278,659 | | $ | 71,998 | | $ | (1,796) | | (26,494) | | $ | (464) | | $ | 363,254 |
Net income | | — | | | — | | | — | | | 19,618 | | | — | | — | | | — | | | 19,618 |
Common stock repurchased | | — | | | — | | | — | | | — | | | — | | (143,566) | | | (4,442) | | | (4,442) |
Other comprehensive income | | — | | | — | | | — | | | — | | | 11,235 | | — | | | — | | | 11,235 |
Dividends on common stock, $0.15 per share | | — | | | — | | | — | | | (2,385) | | | — | | — | | | — | | | (2,385) |
Issuance of common shares for FPB acquisition | | 2,377,501 | | | 2,378 | | | 75,842 | | | — | | | — | | — | | | — | | | 78,220 |
Issuance restricted stock grants | | 66,882 | | | 67 | | | (67) | | | — | | | — | | — | | | — | | | — |
Restricted stock grant forfeited | | (1,500) | | | (2) | | | 2 | | | — | | | — | | — | | | — | | | — |
Compensation expense | | — | | | — | | | 781 | | | — | | | — | | — | | | — | | | 781 |
Balance, June 30, 2019 | | 17,299,975 | | $ | 17,300 | | $ | 355,217 | | $ | 89,231 | | $ | 9,439 | | (170,060) | | $ | (4,906) | | $ | 466,281 |
| | | | | | | | | | | | | | | | | | | | | | |
Balance, January 1, 2020 | | 18,996,948 | | $ | 18,997 | | $ | 409,805 | | $ | 110,460 | | $ | 10,089 | | (194,682) | | $ | (5,693) | | $ | 543,658 |
Net income | | — | |
| — | |
| — | |
| 25,254 | |
| — | | — | |
| — | |
| 25,254 |
Other comprehensive income | | — | |
| — | |
| — | |
| (4,016) | |
| 14,461 | | — | |
| — | |
| 14,461 |
Dividends on common stock, $0.20 per share | | — | |
| — | |
| — | |
| — | |
| — | | — | |
| — | |
| (4,016) |
Issuance of common shares for SWG acquisition | | 2,546,967 | | | 2,547 | | | 45,311 | | | — | | | — | | — | | | — | | | 47,858 |
Issuance of restricted stock grant | | 64,430 | | | 65 | | | (65) | | | — | | | — | | — | | | — | | | — |
Repurchase of restricted stock for payment of taxes | | (13,643) | | | (14) | | | (423) | | | — | | | — | | — | | | — | | | (437) |
Restricted stock grant forfeited | | (4,762) | | | (5) | | | 5 | | | — | | | — | | — | | | — | | | — |
Compensation expense | | — | |
| — | |
| 1,017 | |
| — | |
| — | | — | |
| — | |
| 1,017 |
Balance, June 30, 2020 | | 21,589,940 | | $ | 21,590 | | $ | 455,650 | | $ | 131,698 | | $ | 24,550 | | (194,682) | | $ | (5,693) | | $ | 627,795 |
See Notes to Consolidated Financial Statements
6
THE FIRST BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ In Thousands)in thousands)
(Unaudited) | ||||||||
Nine Months Ended | ||||||||
September 30, | ||||||||
2017 | 2016 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
NET INCOME | $ | 8,202 | $ | 7,811 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Gain on sale of securities | - | (129 | ) | |||||
Depreciation, amortization and accretion | 3,455 | 2,520 | ||||||
Provision for loan losses | 384 | 538 | ||||||
Loss on sale/writedown of ORE | 743 | 111 | ||||||
Restricted stock expense | 634 | 573 | ||||||
Increase in cash value of life insurance | (532 | ) | (384 | ) | ||||
Federal Home Loan Bank stock dividends | (54 | ) | (27 | ) | ||||
Changes in: | ||||||||
Interest receivable | 256 | (61 | ) | |||||
Loans held for sale, net | 1,336 | (5,462 | ) | |||||
Interest payable | (50 | ) | 29 | |||||
Other, net | 1,738 | (2,882 | ) | |||||
NET CASH PROVIDED BY OPERATING ACTIVITIES | 16,112 | 2,637 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Maturities, calls and paydowns of available-for-sale and held-to-maturity securities | 51,879 | 37,141 | ||||||
Purchases of available-for-sale securities | (67,646 | ) | (30,294 | ) | ||||
Net purchases of other securities | (1,796 | ) | (1,433 | ) | ||||
Net increase in loans | (94,210 | ) | (84,019 | ) | ||||
Net increase in premises and equipment | (4,237 | ) | (1,055 | ) | ||||
Purchase of bank-owned life insurance | (469 | ) | (5,850 | ) | ||||
Proceeds from sale of other real estate owned | 5,759 | - | ||||||
Cash received in excess of cash paid for acquisitions | 3,413 | - | ||||||
NET CASH USED IN INVESTING ACTIVITIES | (107,307 | ) | (85,510 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Increase in deposits | 113,313 | 155,094 | ||||||
Net increase (decrease) in borrowed funds | 10,415 | (42,321 | ) | |||||
Dividends paid on common stock | (1,005 | ) | (587 | ) | ||||
Dividends paid on preferred stock | - | (257 | ) | |||||
Repurchase of restricted stock for payment of taxes | (330 | ) | (176 | ) | ||||
Issuance of preferred shares | - | (25 | ) | |||||
NET CASH PROVIDED BY FINANCING ACTIVITIES | 122,393 | 111,728 | ||||||
NET INCREASE IN CASH | 31,198 | 28,855 | ||||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | 62,119 | 41,259 | ||||||
CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | 93,317 | $ | 70,114 | ||||
SUPPLEMENTAL DISCLOSURES: | ||||||||
CASH PAYMENTS FOR INTEREST | 5,181 | 3,110 | ||||||
CASH PAYMENTS FOR INCOME TAXES | 667 | 4,277 | ||||||
LOANS TRANSFERRED TO OTHER REAL ESTATE | 836 | 2,498 | ||||||
ISSUANCE OF RESTRICTED STOCK GRANTS | 85 | 61 | ||||||
STOCK ISSUED IN CONNECTION WITH GULF COAST COMMUNITY BANK ACQUISITION | 2,249 | - |
| | | | | | |
| | (Unaudited) | ||||
| | Six months ended | ||||
| | June 30, | ||||
|
| 2020 |
| 2019 | ||
Cash flows from operating activities: |
| |
|
| |
|
Net income | | $ | 25,254 | | $ | 19,618 |
Adjustments to reconcile net income to net cash provided by operating activities: | |
| | |
| |
Depreciation, amortization and accretion | |
| 3,924 | |
| 1,297 |
Provision for loan losses | |
| 14,708 | |
| 1,913 |
Loss on sale/writedown of ORE | |
| 835 | |
| 382 |
Securities gain | | �� | (246) | | | (74) |
Acquisition gain | | | (7,023) | | | — |
(Gain)/loss on sale/writedown of premises and equipment | | | (461) | | | 8 |
Restricted stock expense | |
| 1,017 | |
| 781 |
Increase in cash value of life insurance | |
| (749) | |
| (863) |
Federal Home Loan Bank stock dividends | |
| (101) | |
| (101) |
Payments on right-of-use assets | | | (810) | | | (350) |
Residential loans originated and held for sale | | | (137,632) | | | (77,862) |
Proceeds from sale of residential loans held for sale | | | 130,024 | | | 74,090 |
Changes in: | |
| | |
| |
Interest receivable | |
| (7,623) | |
| (691) |
Interest payable | |
| (313) | |
| 191 |
Other, net | |
| 6,283 | |
| (1,183) |
Net cash from operating activities | |
| 27,087 | |
| 17,156 |
| |
|
| |
|
|
Cash flows from investing activities: | |
|
| |
|
|
Maturities, calls and paydowns of available-for-sale and held-to-maturity securities | |
| 97,688 | |
| 44,075 |
Proceeds from sales of securities available-for-sale | |
| 579 | |
| 23,003 |
Purchases of available-for-sale securities | |
| (154,432) | |
| (67,147) |
Redemptions of other securities | |
| 1,735 | |
| 292 |
Net increase in loans | |
| (176,865) | |
| (45,357) |
Net increase in premises and equipment | |
| (3,972) | |
| (4,427) |
Proceeds from sale of other real estate owned | | | 1,840 | | | 1,107 |
Proceeds from the sale of land | | | 1,416 | | | 422 |
Proceeds from the sale of other assets | | | — | | | 65 |
Purchase of bank-owned life insurance | |
| (5,800) | |
| — |
Cash received in excess of cash paid for acquisitions | | | 29,245 | | | 14,743 |
Net cash provided by (used) in investing activities | |
| (208,566) | |
| (33,224) |
| |
|
| |
|
|
Cash flows from financing activities: | |
|
| |
|
|
Increase in deposits | |
| 663,948 | |
| 61,254 |
Net decrease in borrowed funds | |
| (107,814) | |
| (31,500) |
Dividends paid on common stock | |
| (3,957) | |
| (2,367) |
Cash paid to repurchase common stock | | | — | | | (4,442) |
Repurchase of restricted stock for payment of taxes | |
| (437) | |
| — |
Net cash provided by financing activities | |
| 551,740 | |
| 22,945 |
| |
|
| |
|
|
Net change in cash and cash equivalents | |
| 370,261 | |
| 6,877 |
Beginning cash and cash equivalents | |
| 168,864 | |
| 159,107 |
Ending cash and cash equivalents | | $ | 539,125 | | $ | 165,984 |
| |
|
| |
|
|
Supplemental disclosures: | |
|
| |
|
|
Cash payments for interest | |
| 5,005 | |
| 5,008 |
Loans transferred to other real estate | |
| 553 | |
| 1,310 |
Issuance of restricted stock grants | |
| 65 | |
| 67 |
Stock issued in connection with FPB acquisition | |
| — | |
| 78,220 |
Stock issued in connection with SWG acquisition | | | 47,858 | | | — |
Dividends on restricted stock grants | | | 59 | | | 18 |
Lease liabilities arising from obtaining right-of-use assets | |
| 2,669 | |
| 4,354 |
See Notes to Consolidated Financial Statements
7
THE FIRST BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SeptemberJune 30, 2017
2020
NOTE 1 — BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial statements and the instructions to Form 10-Q of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. However, in the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the ninesix months ended SeptemberJune 30, 2017,2020, are not necessarily indicative of the results that may be expected for the year ending December 31, 2017.2020. For further information, please refer to the consolidated financial statements and footnotes thereto included in the Company's Form 10-K for the fiscal year ended December 31, 2016.2019.
NOTE 2 — SUMMARY OF ORGANIZATION
The First Bancshares, Inc., Hattiesburg, Mississippi (the "Company"), was incorporated June 23, 1995, under the laws of the State of Mississippi for the purpose of operating as a bank holding company. The Company’s primary asset is its interest in its wholly-owned subsidiary, The First, A National Banking Association (the “Bank” or “The First”).
At SeptemberJune 30, 2017,2020, the Company had approximately $1.8$5.085 billion in assets, $1.2$3.162 billion in net loans, $1.5$4.217 billion in deposits, and $167.0$627.8 million in stockholders'shareholders’ equity. For the ninesix months ended SeptemberJune 30, 2017,2020, the Company reported net income of $8.2$25.3 million. After tax merger relatedAfter-tax merger-related costs of $3.9$2.4 million were expensed during the ninesix months ended SeptemberJune 30, 2017.2020.
In eachOn May 26, 2020, the Company paid a cash dividend in the amount of $0.10 per share to shareholders of record as of the first, second, and third quartersclose of 2017,business on Thursday, May 11, 2020.
On February 21, 2020, the Company declared and paid a cash dividend in the amount of $.0375$0.10 per common share.share to shareholders of record as of the close of business on Friday, February 7, 2020.
NOTE 3 — RECENT ACCOUNTING PRONOUNCEMENTSSTANDARDS
During the six months ended June 30, 2020, there were no significant accounting pronouncements applicable to the Company that became effective.
New Accounting Standards That Have Not Yet Been Adopted
In May 2017,March 2020, the FASB issued ASU No. 2017-09, “Stock Compensation, Scope2020-04, Reference Rate Reform (Topic 848): “Facilitation of Modification Accounting.the Effects of Reference Rate Reform on Financial Reporting.” This ASU 2017-09 clarifies when changesprovides temporary optional guidance to ease the potential burden in accounting for reference rate reform. The ASU provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. It is intended to help stakeholders during the global market-wide reference rate transition period. The guidance is effective for all entities as of March 12, 2020 through December 31, 2022. The Company is assessing ASU 2020-04 and its impact on the Company’s transition away from LIBOR for its loan and other financial instruments.
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): “Simplifying the Accounting for Income Taxes.” ASU 2019-12 removes specific exceptions 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 any changegeneral principles in the value, vesting conditions or classification of the award occurs. 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. It does not changeTopic 740. This update simplifies the accounting for modifications.income taxes by eliminating certain exceptions to the guidance in ASC 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition for deferred tax liabilities for outside basis differences. The ASU 2017-09 is also improves financial statement preparers’ application for income tax-related guidance, simplifies GAAP for franchise taxes and enacted changes in tax laws or rates, and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. ASU 2019-12 will be
8
effective for interimon January 1, 2021 and annual reporting periods beginning after December 15, 2017; early adoption is permitted. ASU 2017-09 is not expected to have a material impact on the Company’s Consolidated Financial Statements.
In March 2017,June 2016, the FASB issued ASU No. 2017-08, “2016-13Premium Amortization, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Purchased Callable Debt Securities.”Financial Instruments” (“ASU 2017-08 shortens2016-13”). The FASB issued new guidance (Topic 326) to replace the amortization periodincurred loss model for loans and other financial assets with an expected loss model, which is referred to as the premiumcurrent expected credit loss (“CECL”) model. The CECL model is applicable to the measurement of credit losses on financial assets measured at amortized cost, including loan receivables and held-to-maturity debt securities. It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments) and net investments in certain purchased callableleases recognized by a lessor. In addition, the amendments in Topic 326 require credit losses on available-for-sale debt securities to the earliest call date. Currently, entities generally amortize the premiumbe presented as an adjustment of yield over the contractual life of the security.a valuation allowance rather than as a direct write-down. The ASU does not change the accounting for purchased callable debt securities held at a discount as the discountstandard will continue to be accreted to maturity. ASU 2017-08 is effective for interim and annual reporting periodsfiscal years beginning after December 15, 2018; early2019, including interim periods in those fiscal years. For calendar year-end SEC filers, it is effective for March 31, 2020 interim financial statements. For debt securities with other-than-temporary impairment (“OTTI”), the guidance will be applied prospectively. Existing purchased credit impaired (“PCI”) assets will be grandfathered and classified as purchased credit deteriorated (“PCD”) assets at the date of adoption. The assets will be grossed up for the allowance for expected credit losses for all PCD assets at the date of adoption is permitted. The guidance calls for a modified retrospective transition approach under whichand will continue to recognize the noncredit discount in interest income based on the yield of such assets as of the adoption date. Subsequent changes in expected credit losses will be recorded through the allowance. For all other assets within the scope of CECL, a cumulative-effect adjustment will be made torecognized in retained earnings as of the beginning of the first reporting period in which ASU 2017-08the guidance is adopted.effective.
The Company’s Allowance for Credit Loss Committee (“ACL Committee”), made up of executive and senior management from corporate administration, accounting, risk management, and credit and portfolio administration, have reviewed and approved the methodology and initial setup of the CECL Model. All historical data used in the model’s calculation, the mathematical accuracy of that calculation, and any inputs provided externally that affect the calculation have been independently validated. Internal controls necessary in maintaining accuracy to estimate an adequate reserve have been designed but not tested for operating effectiveness. The Company is currently evaluatinghad finalized the provisionsformal review and approval process and the results of its CECL estimate as of year-end but has elected to delay its adoption of ASU 2017-082016-13, as provided by the Coronavirus Aid, Relief, and Economic Security (“CARES Act”), until the date on which the national emergency related to determine the potentialnovel coronavirus (“COVID-19”) outbreak is terminated or December 31, 2020 whichever occurs first. The delayed adoption will allow extra time to document and test controls over this standard and will allow us time to provide consistent, high-quality financial information to our investors and other stakeholders. Upon adoption of ASU 2016-13, the Company has determined that the impact to the allowance for credit losses will be an increase under the new standard due to the life of loan loss estimation methodology, as well as the requirement to record an allowance on acquired loans previously recorded at fair value. As disclosed previously, it can be reasonably expected that a probable range in the reserve as a percentage of total loans after adoption of this guidance to be between 0.68% and 1.39% as of January 1, 2020.
Upon adopting ASU 2016-13, the Company will havenot record an allowance as of January 1, 2020 with respect to its available-for-sale debt securities as the majority of these securities are government agency-backed securities for which the risk of loss is minimal. In the first quarter of 2020, U.S. federal regulatory authorities issued an interim final rule that provides banking organizations that adopt CECL during the 2020 calendar year with the option to delay for two years the estimated impact of CECL on its Consolidated Financial Statements.
In January 2017,regulatory capital relative to regulatory capital determined under the FASB issued ASU No. 2017-04,“Simplifyingprior incurred loss methodology, followed by a three-year transition period to phase out the Test for Goodwill Impairment.”ASU 2017-04 removes Step 2aggregate amount of the goodwill impairment test, which requirescapital benefit provided during the initial two-year delay (i.e., a hypothetical purchase price allocation. Underfive-year transition in total). The Company has elected to delay its adoption of ASU 2016-13, as provided by the amended guidance, a goodwill impairment charge will now be recognized forCARES Act, until the amount bydate on which the carrying value of a reporting unit exceeds its fair value, notnational emergency related to exceed the carrying amount of goodwill. This guidanceCOVID-19 outbreak is effective for interim and annual periods beginning afterterminated or December 15, 2019, with early adoption permitted for any impairment tests performed after January 1, 2017.31, 2020 whichever occurs first. The Company is currently assessinghas elected to utilize the impactfive-year CECL transition. The adoption of ASU 2017-04 on its Consolidated Financial Statements.
In August 2016, the FASB issued ASU No. 2016-15,“Classification of Certain Cash Receipts and Cash Payments." Current GAAP is unclear or does not include specific guidance on how to classify certain transactions in the statement of cash flows. ASU 2016-15 is intended to reduce diversity in practice in how eight particular transactions are classified in the statement of cash flows. ASU 2016-15 is effective for interim and annual reporting periods beginning after December 15, 2017. Early adoption is permitted, provided that all of the amendments are adopted in the same period. Entities will be required to apply the guidance retrospectively. If it is impracticable to apply the guidance retrospectively for an issue, the amendments related to that issue would be applied prospectively. As this guidance only affects the classification within the statement of cash flows, ASU 2016-152016-13 is not expected to have a materialsignificant impact on the Company's Consolidated Financial Statements.
Company’s regulatory capital ratios.
In June 2016,March 2020, the Financial Accounting Standards Board (FASB)FASB issued ASU No. 2016-13, 2020-03, “Codification Improvements to Financial Instruments – Credit Losses (Topic 326): MeasurementInstruments.” This ASU makes narrow-scope improvements to various aspects of Credit Losses on Financial Instruments”(ASU 2016-13). ASU 2016-13 requires a new impairment model known asthe financial instruments guidance, including the current expected credit loss (“CECL”) which significantly changes the way impairment of financial instruments is recognized by requiring immediate recognition of estimated credit losses expected to occur over the remaining life of financial instruments. The main provisions of(CECL) standard issued in 2016. ASU 2016-13 include (1) replacing the “incurred loss” approach under current GAAP with an “expected loss” model for instruments measured at amortized cost, (2) requiring entities to record an allowance for credit losses related to available-for-sale debt securities rather than a direct write-down of the carrying amount of the investments, as is required by the other-than-temporary-impairment model under current GAAP, and (3) a simplified accounting model for purchased credit-impaired debt securities and loans. ASU 2016-13 issubsequent ASUs are effective for fiscal years, and interim and annual reporting periods beginning after December 15, 2019, although early adoption is permitted. The Company is currently assessing the impact of the adoption of ASU 2016-13 on its Consolidated Financial Statements.
In February 2016, the FASB issued ASU NO. 2016-02 “Leases (Topic 842).”ASU 2016-02 establishes a right of use model that requires a lessee to record a right of use asset and a lease liability for all leases with terms longer than 12 months. Leases will be classified as either finance or operating with classification affecting the pattern of expense recognition in the income statement. For lessors, the guidance modifies the classification criteria and the accounting for sales-type and direct financing leases. A lease will be treated as a sale if it transfers all of the risks and rewards, as well as control of the underlying asset, to the lessee. If risks and rewards are conveyed without the transfer of control, the lease is treated as a financing. If neither risks and rewards nor control is conveyed, an operating lease results. The amendments are effective forwithin those fiscal years, beginning after December 15, 2018, including interim periods within those fiscal years for public business entities. Entities are2019. This amendment is required to usebe adopted using a modified retrospective approach for leases that exist or are entered into afterwith a cumulative-effect adjustment to beginning retained earnings, as of the beginning of the earliest comparativefirst reporting period in which the financial statements, with certain practical expedients available. Early adoptionguidance is permitted. The Company is assessing the impacteffective.
9
NOTE 4 – BUSINESS COMBINATIONS
Acquisitions
Acquisitions
Iberville Bank
Southwest Financial Corporation
On January 1, 2017,April 3, 2020, the Company completed its acquisition of 100% of the common stock of Iberville Bank, Plaquemine, Louisiana, from A. Wilbert’s Sons Lumber and Shingle Co.Southwest Financial Corporation (“Iberville Parent”SWG”), and immediately thereafter merged Iberville Bank (“Iberville”), theits wholly-owned subsidiary, of Iberville Parent,Southwest Georgia Bank with and into The First. The Company paid a total consideration of $31.1$47.9 million to the SWG shareholders as consideration in the merger, which included 2,546,967 shares of Company common stock and approximately $2 thousand in cash. Approximately $2.5 million of the purchase price is being held in escrow as contingency for flood-related losses in the loan portfolio that may be incurred due to flooding in Iberville’s market area in the fall of 2016.
In connection with the acquisition, the Company recorded approximately $5.6a $7.0 million of goodwillbargain purchase gain and $2.7$4.6 million of core deposit intangible. The bargain purchase gain was generated as a result of the estimated fair value of net assets acquired exceeding the merger consideration, based on provisional fair values, which is reflected as an adjustment to retained earnings. The bargain purchase gain is considered non-taxable for income taxes purposes. The core deposit intangible iswill be amortized to be expensedexpense over 10 years.
The Company acquired Iberville’s $149.4the $394.6 million loan portfolio at an estimated fair value discount of $0.8$2.3 million. The discount represents expected credit losses, adjusted for market interest rates and liquidity adjustments.
Expenses associated with the SWG acquisition were $3.5$2.1 million and $2.3 million for the nine monththree months and six months period ended SeptemberJune 30, 2017.2020, respectively. These costs included system conversion and integrating operations charges as well asand legal and consulting expenses, which have been expensed as incurred.
The preliminary amounts of theassets acquired identifiable assets and liabilities asassumed and consideration paid in the acquisition of SWG were recorded at their estimated fair values based on management’s best estimates using information available at the date of the acquisition and are subject to adjustment for up to one year after the closing date wereof the acquisition. While the fair values are not expected to be materially different from the estimates, accounting guidance provides that an acquirer must recognize adjustments to provisional amounts that are identified during the measurement period, which runs through April 3, 2021 in respect of SWG, in the measurement period in which the adjustment amounts are determined. The acquirer must record in the financial statements, the effect on earnings of changes in depreciation, amortization or other income effects, if any, as follows:
($ In Thousands) | ||||
Purchase price: | ||||
Cash | $ | 31,100 | ||
Total purchase price | 31,100 | |||
Identifiable assets: | ||||
Cash and due from banks | 28,789 | |||
Investments | 78,613 | |||
Loans | 148,516 | |||
Core deposit intangible | 2,688 | |||
Personal and real property | 4,603 | |||
Other assets | 9,330 | |||
Total assets | 272,539 | |||
Liabilities and equity: | ||||
Deposits | 243,656 | |||
Borrowed funds | 456 | |||
Other liabilities | 2,928 | |||
Total liabilities | 247,040 | |||
Net assets acquired | 25,499 | |||
Goodwill resulting from acquisition | $ | 5,601 |
Valuationa result of changes to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. The items most susceptible to adjustment are the credit fair value adjustments have been made to securities, personal and real property, andon loans, core deposit intangible since initially reported.and the deferred income tax assets resulting from the acquisition.
10
The following table summarizes the provisional fair values of the assets acquired and liabilities assumed and the goodwill (bargain purchase gain) generated from the transaction ($ in thousands):
| | | |
Purchase price: |
| | |
Cash and stock |
| $ | 47,859 |
Total purchase price | |
| 47,859 |
| |
| |
Identifiable assets: | |
| |
Cash and due from banks | | $ | 29,247 |
Investments | |
| 89,737 |
Loans | |
| 392,292 |
Core deposit intangible | |
| 4,556 |
Personal and real property | |
| 18,558 |
Bank owned life insurance | | | 6,963 |
Other assets | |
| 2,589 |
Total assets | |
| 543,942 |
| |
| |
Liabilities and equity: | |
| |
Deposits | |
| 476,099 |
Borrowed funds | |
| 9,500 |
Other liabilities | |
| 3,461 |
Total liabilities | |
| 489,060 |
Net assets acquired | |
| 54,882 |
Bargain purchase gain | | $ | (7,023) |
The outstanding principal balance and the carrying amount of these loans included in the consolidated balance sheetsheets as of the date of acquisition and at SeptemberJune 30, 2017,2020, are as follows ($ In Thousands)in thousands):
| | | | | | | ||||
|
| April 3, 2020 |
| June 30, 2020 | ||||||
Outstanding principal balance | $ | 132,277 | | $ | 394,621 | | $ | 370,790 | ||
Carrying amount | 131,535 | |
| 392,292 | |
| 368,652 |
The following unaudited supplemental pro forma information is presented to show the Company’s estimated results assuming Iberville was acquired asPCI loans are discussed more fully in Note 10 – “Loans” of Januarythis report.
First Florida Bancorp, Inc.
On November 1, 2016. These unaudited pro forma results are not necessarily indicative of the operating results that the Company would have achieved had it completed the acquisition as of January 1, 2016 and should not be considered as representative of future operating results. Pro forma information for 2017 is not necessary because Iberville Bank is included in the Company’s results for the entire nine and three months ended September 30, 2017.
For the Three | For the Nine | |||||||
($ In Thousands) | Months Ended | Months Ended | ||||||
Performance Measures (pro forma, unaudited) | Sept. 30, 2016 | Sept. 30, 2016 | ||||||
Net interest income | $ | 12,428 | $ | 36,479 | ||||
Net income available to common shareholders | 2,667 | 8,366 | ||||||
Diluted earnings per common share | 0.49 | 1.53 |
Gulf Coast Community Bank
Also on January 1, 2017,2019, the Company completed the mergerits acquisition of Gulf Coast Community BankFirst Florida Bancorp, Inc. (“GCCB”FFB”), Pensacola,and immediately thereafter merged its wholly-owned subsidiary, First Florida Bank with and into The First. The Company issuedpaid a total consideration of $89.5 million to GCCB’sthe FFB shareholders as consideration in the merger, which included 1,682,889 shares of the Company’sCompany common stock which, for purposes of the GCCB acquisition, were valued through averaging the trading price of the Company’s common stock price over a 30 day trading period ending on the fifth business day prior to the closing of the acquisition. Fractional shares were acquired withand approximately $34.1 million in cash. The consideration was approximately $2.3 million.
In connection with the acquisition, the Company recorded approximately $1.1$40.0 million of goodwill and $1.0$3.7 million of core deposit intangible. Goodwill is not deductible for income taxes. The core deposit intangible iswill be amortized to be expensedexpense over 10 years.
The Company acquired GCCB’s $91.0the $248.9 million loan portfolio at aan estimated fair value discount of approximately $2.2$1.7 million. The discount represents expected credit losses, adjusted for market interest rates and liquidity adjustments.
Expenses associated with the FFB acquisition were $2.8 million$134 thousand and $577 thousand for the nine monththree months and six months period ended SeptemberJune 30, 2017.2020, respectively. These costs included systemssystem conversion and integrating operations charges as well asand legal and consulting expenses, which have been expensed as incurred.
The preliminary amounts of theassets acquired identifiable assets and liabilities asassumed and consideration paid in the acquisition of FFB were recorded at their estimated fair values based on management’s best estimates using information available at the date of the acquisition and are subject to adjustment for up to one year after the closing date wereof the acquisition. While the fair values are not expected to be materially different from the estimates, accounting guidance provides that an acquirer must recognize
11
adjustments to provisional amounts that are identified during the measurement period, which runs through November 1, 2020 in respect of FFB, in the measurement period in which the adjustment amounts are determined. The acquirer must record in the financial statements, the effect on earnings of changes in depreciation, amortization or other income effects, if any, as follows:
($ In Thousands) | ||||
Purchase price: | ||||
Cash and stock | $ | 2,258 | ||
Total purchase price | 2,258 | |||
Identifiable assets: | ||||
Cash and due from banks | 5,733 | |||
Investments | 13,805 | |||
Loans | 88,801 | |||
Core deposit intangible | 953 | |||
Personal and real property | 4,739 | |||
Other real estate | 7,393 | |||
Deferred tax asset | 6,693 | |||
Other assets | 468 | |||
Total assets | 128,585 | |||
Liabilities and equity: | ||||
Deposits | 111,993 | |||
Borrowed funds | 14,450 | |||
Other liabilities | 950 | |||
Total liabilities | 127,393 | |||
Net assets acquired | 1,192 | |||
Goodwill resulting from acquisition | 1,066 |
Valuationa result of changes to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. The items most susceptible to adjustment are the credit fair value adjustments have been made to securities,on loans, core deposit intangible and other real estate since initially reported. Also, certain amounts have been reclassified to conform to the classificationsdeferred income tax assets resulting from the acquisition.
The following table summarizes the provisional fair values of the Company.assets acquired and liabilities assumed and the goodwill generated from the transaction ($ in thousands):
| | | |
| | | |
| | | |
| | | |
Purchase price: |
| |
|
Cash and stock | | $ | 89,520 |
Total purchase price | |
| 89,520 |
| |
| |
Identifiable assets: | |
| |
Cash and due from banks | | | 50,169 |
Investments | |
| 122,084 |
Loans | |
| 247,263 |
Core deposit intangible | |
| 3,745 |
Personal and real property | |
| 4,991 |
Other assets | |
| 2,283 |
Total assets | |
| 430,535 |
| |
| |
Liabilities and equity: | |
| |
Deposits | |
| 373,908 |
Borrowed funds | |
| 5,527 |
Other liabilities | |
| 1,619 |
Total liabilities | |
| 381,054 |
Net assets acquired | |
| 49,481 |
Goodwill resulting from acquisition | | $ | 40,039 |
The outstanding principal balance and the carrying amount of these loans included in the consolidated balance sheetsheets as of the date of acquisition and at SeptemberJune 30, 2017,2020, are as follows ($ In Thousands)in thousands):
| | | | | | | ||||
|
| November 1, 2019 |
| June 30, 2020 | ||||||
Outstanding principal balance | $ | 67,225 | | $ | 248,916 | | $ | 211,583 | ||
Carrying amount | 67,275 | |
| 247,263 | |
| 210,427 |
PCI loans are discussed more fully in Note 10 – “Loans” of this report.
FPB Financial Corp.
On March 2, 2019, the Company completed its acquisition of FPB Financial Corp., (“FPB”), and immediately thereafter merged its wholly-owned subsidiary, Florida Parishes Bank with and into The First. The Company paid a total
12
consideration of $78.2 million to the FPB shareholders, which included 2,377,501 shares of Company common stock and $5 thousand in cash.
In connection with the acquisition, the Company recorded $28.8 million of goodwill and $6.6 million of core deposit intangible. Goodwill is not deductible for income taxes. The core deposit intangible will be amortized to expense over 10 years.
The Company acquired the $247.8 million loan portfolio at an estimated fair value discount of $3.1 million. The discount represents expected credit losses, adjusted for market interest rates and liquidity adjustments.
Expenses associated with the FPB acquisition were $0 and $63 thousands for the three months and six months period ended June 30, 2020. These costs included system conversion and integrating operations charges and legal and consulting expenses, which have been expensed as incurred. All purchase accounting adjustments related to the acquisition are final.
The outstanding principal balance and the carrying amount of these loans included in the consolidated balance sheets as of the date of acquisition and at June 30, 2020, are as follows ($ in thousands):
| | | | | | |
|
| March 2, 2019 |
| June 30, 2020 | ||
Outstanding principal balance | | $ | 247,774 | | $ | 163,908 |
Carrying amount | |
| 244,665 | |
| 162,221 |
PCI loans are discussed more fully in Note 10 – “Loans” of this report.
Supplemental Pro-Forma Financial Information
The following unaudited pro-forma financial data for the six months ended June 30, 2020 and 2019 presents supplemental information as if the SWG, FPB and FFB acquisitions had occurred on January 1, 2019. The pro-forma financial information is not necessarily indicative of the results of operations had the acquisitions been effective as of these dates.
| | | | | | |
| | Pro-Forma | | Pro-Forma | ||
| | Six months | | Six months | ||
| | ended | | ended | ||
| | June 30, | | June 30, | ||
($ in thousands) |
| 2020 |
| 2019 | ||
| | (unaudited) | | (unaudited) | ||
Net interest income | | $ | 78,802 | | $ | 80,739 |
Non-interest income | |
| 23,355 | |
| 16,430 |
Total revenue | | | 102,157 | | | 97,169 |
Income before income taxes | | | 32,118 | | | 41,083 |
Supplemental pro-forma earnings were adjusted to exclude acquisition costs incurred.
Non-credit impaired loans acquired in the acquisitions were accounted for in accordance with ASC 310-20, Receivables-Nonrefundable Fees and Other Costs. PCI loans acquired in the FPB, FFB and SWG acquisitions were accounted for in accordance with ASC 310-30 Accounting for Purchased Loans with Deteriorated Credit Quality.
NOTE 5 – PREFERRED STOCK AND WARRANT
On December 6, 2016, the Company repurchased all 17,123 shares of its CDCI Preferred Shares at fair market value $15,925,000, which equated to a discount of 7% to par, or $1,198,000.
NOTE 6 — EARNINGS APPLICABLE TO COMMON STOCKHOLDERS
SHAREHOLDERS
Basic per share data is calculated based on the weighted-average number of common shares outstanding during the reporting period. Diluted per share data includes any dilution from potential common stock outstanding, such as restricted stock grants. There were no anti-dilutive common stock equivalents excluded in the calculations.
For the Three Months Ended | ||||||||||||
September 30, 2017 | ||||||||||||
Net Income | Shares | Per | ||||||||||
(Numerator) | (Denominator) | Share Data | ||||||||||
Basic per share | $ | 4,714,000 | 9,152,674 | $ | 0.52 | |||||||
Effect of dilutive shares: | ||||||||||||
Restricted stock grants | 71,807 | |||||||||||
Diluted per share | $ | 4,714,000 | 9,224,481 | $ | 0.51 |
13
For the Nine Months Ended | ||||||||||||
September 30, 2017 | ||||||||||||
Net Income | Shares | Per | ||||||||||
(Numerator) | (Denominator) | Share Data | ||||||||||
Basic per share | $ | 8,202,000 | 9,140,375 | $ | 0.90 | |||||||
Effect of dilutive shares: | ||||||||||||
Restricted stock grants | 71,807 | |||||||||||
Diluted per share | $ | 8,202,000 | 9,212,182 | $ | 0.89 |
The following tables disclose the reconciliation of the numerators and denominators of the basic and diluted computations applicable to common shareholders ($ in thousands, except per share amount):
For the Three Months Ended | ||||||||||||
September 30, 2016 | ||||||||||||
Net Income | Shares | Per | ||||||||||
(Numerator) | (Denominator) | Share Data | ||||||||||
Basic per share | $ | 2,472,000 | 5,429,349 | $ | 0.46 | |||||||
Effect of dilutive shares: | ||||||||||||
Restricted stock grants | 50,218 | |||||||||||
Diluted per share | $ | 2,472,000 | 5,479,567 | $ | 0.45 |
For the Nine Months Ended | |||||||||||||||||||||
September 30, 2016 | |||||||||||||||||||||
Net Income | Shares | Per | |||||||||||||||||||
(Numerator) | (Denominator) | Share Data | |||||||||||||||||||
Basic per share | $ | 7,554,000 | 5,425,567 | $ | 1.39 | ||||||||||||||||
| | | | | | | | | | ||||||||||||
| | For the Three Months Ended | |||||||||||||||||||
| | June 30, 2020 | |||||||||||||||||||
| | Net Income | | Shares | | Per | |||||||||||||||
|
| (Numerator) |
| (Denominator) |
| Share Data | |||||||||||||||
| | | | | | | | | | ||||||||||||
Basic earnings per share | | $ | 16,943 |
| | 21,341,913 | | $ | 0.79 | ||||||||||||
| |
|
|
| |
| |
|
| ||||||||||||
Effect of dilutive shares: | |
|
|
| |
| |
|
| ||||||||||||
Restricted stock grants | 50,218 | |
|
|
| | 95,267 | |
|
| |||||||||||
Diluted per share | $ | 7,554,000 | 5,475,785 | $ | 1.38 | ||||||||||||||||
| | | | | | | | | | ||||||||||||
Diluted earnings per share | | $ | 16,943 |
| | 21,437,180 | | $ | 0.79 |
| | | | | | | | | |
| | For the Six Months Ended | |||||||
| | June 30, 2020 | |||||||
| | Net Income | | Shares | | Per | |||
|
| (Numerator) |
| (Denominator) |
| Share Data | |||
| | | | | | | | | |
Basic earnings per share | | $ | 25,254 |
| | 20,080,014 | | $ | 1.26 |
| | |
| | |
| | |
|
Effect of dilutive shares: | |
|
|
| |
| |
|
|
Restricted stock grants | | |
|
| | 125,453 | |
|
|
| | | | | | | | | |
Diluted earnings per share | | $ | 25,254 |
| | 20,205,467 | | $ | 1.25 |
| | | | | | | | | |
| | For the Three Months Ended | |||||||
| | June 30, 2019 | |||||||
| | Net Income | | Shares | | Per | |||
|
| (Numerator) |
| (Denominator) |
| Share Data | |||
| | | | | | | | | |
Basic earnings per share | | $ | 11,983 |
| | 17,182,049 | | $ | 0.70 |
| |
|
|
| |
| |
|
|
Effect of dilutive shares: | |
|
|
| |
| |
|
|
Restricted stock grants | |
|
|
| | 129,577 | |
|
|
| | | | | | | | | |
Diluted earnings per share | | $ | 11,983 | | | 17,311,626 | | $ | 0.69 |
| | | | | | | | | |
| | For the Six Months Ended | |||||||
| | June 30, 2019 | |||||||
| | Net Income | | Shares | | Per | |||
|
| (Numerator) |
| (Denominator) |
| Share Data | |||
| | | | | | | | | |
Basic earnings per share | | $ | 19,618 |
| | 16,414,262 | | $ | 1.20 |
| | | | | | | | | |
Effect of dilutive shares: | |
|
|
| |
| |
|
|
Restricted stock grants | |
|
|
| | 129,577 | |
|
|
Diluted earnings per share | | $ | 19,618 |
| | 16,543,839 | | $ | 1.19 |
The Company granted 73,82760,680 shares of restricted stock in the first quarter of 2017, 9,7092020 and 66,132 shares of restricted stock in the first quarter of 2019. The Company granted 3,750 shares of restricted stock in the second quarter of 2020 and 750 shares of restricted stock during the second quarter of 2017, and 750 shares during the third quarter2019.
14
NOTE 76 – COMPREHENSIVE INCOME
As presented in the Consolidated Statements of Comprehensive Income, comprehensive income includes net income and other comprehensive income. The Company’s sources of other comprehensive income are unrealized gains and losses on available-for-sale investment securities, and loans held for sale. Gains or losses on investment securities that were realized and reflected in net incomewhich are also recognized as separate components of the current period, which had previously been included in other comprehensive income as unrealized holding gains or losses in the period in which they arose, are considered to be reclassification adjustments that are excluded from other comprehensive income in the current period.equity.
NOTE 87 – FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. At SeptemberJune 30, 2017,2020, and December 31, 2016,2019, these financial instruments consisted of the following:
($ In Thousands) | September 30, 2017 | December 31, 2016 | ||||||
Commitments to extend credit | $ | 265,233 | $ | 220,252 | ||||
Standby letters of credit | 8,204 | 1,742 |
| | | | | | | | | | | | |
| | June 30, 2020 | | December 31, 2019 | ||||||||
($ in thousands) |
| Fixed Rate |
| Variable Rate |
| Fixed Rate |
| Variable Rate | ||||
Commitments to make loans | | $ | 46,062 | | $ | 1,857 | | $ | 42,774 | | $ | 5,676 |
Unused lines of credit | | | 168,444 | | | 199,259 | | | 137,966 | | | 208,728 |
Standby letters of credit | |
| 5,503 | | | 9,945 | | | 3,648 | |
| 8,475 |
Commitments to make loans are generally made for periods of 90 days or less. The fixed rate loan commitments have interest rates ranging from 0.5% to 18.0% and maturities ranging from approximately 1 year to 30 years.
NOTE 98 – FAIR VALUE DISCLOSURES AND REPORTING, THE FAIR VALUE OPTION AND FAIR VALUE MEASUREMENTS
FASB’s standards on financial instruments, and on fair value measurements and disclosures, require all entities to disclose in their financial statement footnotes the estimated fair values of financial instruments for which it is practicable to estimate fair values. In addition to disclosure requirements, FASB’s standard on investments requires that our debt securities which are classified as available-for-sale and our equity securities that have readily determinable fair values be measured and reported at fair value in our Consolidated Financial Statements. Certain impaired loans are also reported at fair value, as explained in greater detail below, and foreclosed assets are carried at the lower of cost or fair value. FASB’s standard on financial instruments permits companies to report certain other financial assets and liabilities at fair value, but we have not elected the fair value option for any of those financial instruments.
Fair value measurement and disclosure standards also establish a framework for measuring fair values. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit(exit price) in the principal or most advantageous market for the assetassets or liability in an orderly transaction between market participants on the measurement date. Further, the standards establish a fair value hierarchy that encourages an entity to maximize the use of observable inputs and limit the use of unobservable inputs when measuring fair values. The standards describeThere are three levels of inputs that may be used to measure fair values:
Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.
Level 2: Significant observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, and other inputs that are observable or can be corroborated by observable market data.
Fair value estimates are made at a specific point in time based on relevant market data and information about the financial instruments. The estimates do not reflect any premiumfactors that market participants would likely consider in pricing an asset or discount that could result from offering the Company’s entire holdings of a particular financial instrument for sale at one time, nor do they attempt to estimate the value of anticipated future business related to the instruments. In addition, the tax ramifications related to realized gains and losses could have a significant effect on fair value estimates but have not been considered in those estimates. Because no active market exists for a significant portion of our financial instruments, fair value disclosures are based on judgments regarding current economic conditions, risk characteristics of various financial instruments and other factors. The estimates are subjective and involve uncertainties and matters of significant judgment, and therefore cannot be determined with precision. Changes in assumptions could significantly alter the fair values presented. liability.
The following methods and assumptions were used by the Company to estimate its financial instrument fair values disclosed at SeptemberJune 30, 20172020 and December 31, 2016:
2019:
Loans held for sale: Since loans designated by the Company as available-for-sale are typically sold shortly after making the decision to sell them, realized gains or losses are usually recognized within the same period and |
15
fluctuations in fair values are not relevant for reporting purposes. If available-for-sale loans are held on our books for an extended period of time, the fair value of those loans is determined using quoted secondary-market prices. |
16
Estimated fair values for the Company’s financial instruments are as follows, as of the dates noted:
As of SeptemberJune 30, 2017($ In Thousands)
Fair Value Measurements | ||||||||||||||||||||
Carrying Amount | Estimated Fair | Quoted Prices (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||||||
Financial Instruments: | ||||||||||||||||||||
Assets: | ||||||||||||||||||||
Cash and cash equivalents | $ | 93,317 | $ | 93,317 | $ | 93,317 | $ | - | $ | - | ||||||||||
Securities available-for-sale | 353,035 | 353,035 | 931 | 349,770 | 2,334 | |||||||||||||||
Securities held-to-maturity | 6,000 | 7,388 | - | 7,388 | - | |||||||||||||||
Other securities | 9,556 | 9,556 | - | 9,556 | - | |||||||||||||||
Loans, net | 1,194,606 | 1,222,370 | - | - | 1,222,370 | |||||||||||||||
Bank-owned life insurance | 26,367 | 26,367 | - | 26,367 | - | |||||||||||||||
Liabilities: | ||||||||||||||||||||
Noninterest-bearing deposits | $ | 308,050 | $ | 308,050 | $ | - | $ | 308,050 | $ | - | ||||||||||
Interest-bearing deposits | 1,199,941 | 1,198,411 | - | 1,198,411 | - | |||||||||||||||
Subordinated debentures | 10,310 | 10,310 | - | - | 10,310 | |||||||||||||||
FHLB and other borrowings | 94,321 | 94,321 | - | 94,321 | - |
2020
| | | | | | | | | | | | | | | |
| | | | | | | | Fair Value Measurements | |||||||
|
| | |
| | |
| | |
| Significant |
| | | |
| | | | | | | | | | | Other | | Significant | ||
| | | | | | | | | | | Observable | | Unobservable | ||
| | Carrying | | Estimated | | Quoted Prices | | Inputs | | Inputs | |||||
($ in thousands) |
| Amount |
| Fair Value |
| (Level 1) |
| (Level 2) |
| (Level 3) | |||||
| | | | | | | | | | | | | | | |
Financial Instruments: | | | | | | | | | | | | | | | |
Assets: |
| |
|
| |
|
| |
|
| |
|
| |
|
Cash and cash equivalents | | $ | 539,125 | | $ | 539,125 | | $ | 539,125 | | $ | — | | $ | — |
Securities available-for- sale: | |
| | |
| | |
| | |
| | |
|
|
U.S. Treasury | | | 9,443 | | | 9,443 | | | 9,443 | | | — | | | — |
Obligations of U.S. government agencies and sponsored entities | |
| 100,213 | |
| 100,213 | |
| — | |
| 100,213 | |
| — |
Municipal securities | |
| 389,849 | |
| 389,849 | |
| — | |
| 378,965 | |
| 10,884 |
Mortgage- backed securities | |
| 398,818 | |
| 398,818 | |
| — | |
| 398,818 | |
| — |
Corporate obligations | |
| 28,882 | |
| 28,882 | |
| — | |
| 28,642 | |
| 240 |
Loans, net | |
| 3,162,103 | |
| 3,135,815 | |
| — | |
| — | |
| 3,135,815 |
Accrued interest receivable | |
| 24,782 | |
| 24,782 | |
| — | |
| 5,629 | |
| 19,153 |
Liabilities: | |
|
| |
|
| |
|
| |
|
| |
|
|
Noninterest-bearing deposits | | $ | 486,039 | | $ | 486,039 | | $ | — | | $ | 486,039 | | $ | — |
Interest-bearing deposits | |
| 3,730,851 | |
| 3,733,230 | |
| — | |
| 3,733,230 | |
| — |
Subordinated debentures | |
| 80,756 | |
| 73,784 | |
| — | |
| — | |
| 73,784 |
FHLB and other borrowings | |
| 116,005 | |
| 116,005 | |
| — | |
| 116,005 | |
| — |
Accrued interest payable | |
| 2,195 | |
| 2,195 | |
| — | |
| 2,195 | |
| — |
17
As of December 31, 2016($ In Thousands)
Fair Value Measurements | ||||||||||||||||||||
Carrying Amount | Estimated Fair | Quoted Prices (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||||||
Financial Instruments: | ||||||||||||||||||||
Assets: | ||||||||||||||||||||
Cash and cash equivalents | $ | 62,119 | $ | 62,119 | $ | 62,119 | $ | - | $ | - | ||||||||||
Securities available-for-sale | 243,206 | 243,206 | 940 | 240,025 | 2,241 | |||||||||||||||
Securities held-to-maturity | 6,000 | 7,394 | - | 7,394 | - | |||||||||||||||
Other securities | 6,593 | 6,593 | - | 6,593 | - | |||||||||||||||
Loans, net | 865,424 | 883,161 | - | - | 883,161 | |||||||||||||||
Bank-owned life insurance | 21,250 | 21,250 | - | 21,250 | - | |||||||||||||||
Liabilities: | ||||||||||||||||||||
Noninterest- bearing deposits | $ | 202,478 | $ | 202,478 | $ | - | $ | 202,478 | $ | - | ||||||||||
Interest-bearing deposits | 836,713 | 835,658 | - | 835,658 | - | |||||||||||||||
Subordinated debentures | 10,310 | 10,310 | - | - | 10,310 | |||||||||||||||
FHLB and other borrowings | 69,000 | 69,000 | - | 69,000 | - |
2019
Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities include highly liquid government bonds, mortgage products and exchange traded equities. If quoted market prices are not available, securities are classified within Level 2 of the valuation hierarchy, and fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flow. Level 2 securities include U. S. agency securities, mortgage-backed securities, obligations of states and political subdivisions and certain corporate, asset-backed and other securities. In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified within Level 3 of the valuation hierarchy.
| | | | | | | | | | | | | | | |
| | | | | Fair Value Measurements | ||||||||||
|
| | |
| | |
| | |
| Significant |
| | | |
| | | | | | | | | | | Other | | Significant | ||
| | | | | | | | Quoted | | Observable | | Unobservable | |||
| | Carrying | | Estimated | | Prices | | Inputs | | Inputs | |||||
($ in thousands) |
| Amount |
| Fair Value |
| (Level 1) |
| (Level 2) |
| (Level 3) | |||||
| | | | | | | | | | | | | | | |
Financial Instruments: |
| |
|
| |
|
| |
|
| |
|
| |
|
Assets: |
| |
|
| |
|
| |
|
| |
|
| |
|
Cash and cash equivalents | | $ | 168,864 | | $ | 168,864 | | $ | 168,864 | | $ | — | | $ | — |
Securities available-for-sale: | |
| | |
| | |
| | |
| | |
| |
U.S. Treasury | | | 4,894 | | | 4,894 | | | 4,894 | | | — | | | — |
Obligations of U.S. government agencies and sponsored entities | | | 77,950 | | | 77,950 | | | — | | | 77,950 | | | — |
Municipal securities | | | 258,982 | | | 258,982 | | | — | | | 248,637 | | | 10,345 |
Mortgage-backed securities | | | 395,315 | | | 395,315 | | | — | | | 395,315 | | | — |
Corporate obligations | | | 27,946 | | | 27,946 | | | — | | | 27,538 | | | 408 |
Loans, net | |
| 2,597,260 | |
| 2,560,668 | |
| — | |
| — | |
| 2,560,668 |
Accrued interest receivable | |
| 14,802 | |
| 14,802 | |
| — | |
| 4,246 | |
| 10,556 |
| | | | | | | | | | | | | | | |
Liabilities: | |
|
| |
|
| |
|
| |
|
| |
|
|
Non-interest-bearing deposits | | $ | 723,208 | | $ | 723,208 | | $ | — | | $ | 723,208 | | $ | — |
Interest-bearing deposits | |
| 2,353,325 | |
| 2,339,537 | |
| — | |
| 2,339,537 | |
| — |
Subordinated debentures | |
| 80,678 | |
| 80,330 | |
| — | |
| — | |
| 80,330 |
FHLB and other borrowings | |
| 214,319 | |
| 214,319 | |
| — | |
| 214,319 | |
| — |
Accrued interest payable | |
| 2,508 | |
| 2,508 | |
| — | |
| 2,508 | |
| — |
Assets measured at fair value on a recurring basis are summarized below:
June 30, 2020
September 30, 2017
| | | | | | | | | | | | |
| | | | | Fair Value Measurements Using | |||||||
| | | | | Quoted Prices | | | | | | | |
| | | | | in | | | | | | | |
| | | | | Active | | | | | | | |
| | | | | Markets | | Significant | | | | ||
| | | | | For | | Other | | Significant | |||
| | | | | Identical | | Observable | | Unobservable | |||
| | | | | Assets | | Inputs | | Inputs | |||
($ in thousands) |
| Fair Value |
| (Level 1) |
| (Level 2) |
| (Level 3) | ||||
Available-for-sale | | | | | | | | | | | | |
U.S. Treasury | | $ | 9,443 | | $ | 9,443 | | $ | — | | $ | — |
Obligations of U.S. Government agencies and sponsored entities | | | 100,213 | | | — | | | 100,213 | | | — |
Municipal securities | |
| 389,849 | |
| — | |
| 378,965 | |
| 10,884 |
Mortgage-backed securities | |
| 398,818 | |
| — | |
| 398,818 | |
| — |
Corporate obligations | |
| 28,882 | |
| — | |
| 28,642 | |
| 240 |
Total available-for-sale | | $ | 927,205 | | $ | 9,443 | | $ | 906,638 | | $ | 11,124 |
($ In Thousands)
Fair Value Measurements Using | ||||||||||||||||
Quoted Prices in Active For Identical | Significant Other Observable Inputs | Significant Unobservable Inputs | ||||||||||||||
Fair Value | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Obligations of U. S. Government Agencies | $ | 6,505 | $ | - | $ | 6,505 | $ | - | ||||||||
Municipal securities | 135,155 | - | 135,155 | - | ||||||||||||
Mortgage-backed securities | 193,039 | - | 193,039 | - | ||||||||||||
Corporate obligations | 17,405 | - | 15,071 | 2,334 | ||||||||||||
Other | 931 | 931 | - | - | ||||||||||||
Total | $ | 353,035 | $ | 931 | $ | 349,770 | $ | 2,334 |
18
December 31, 20162019
($ In Thousands)
| | | | | | | | | | | | |
| | | | | Fair Value Measurements Using | |||||||
| | | | | Quoted Prices | | | | | | | |
| | | | | in | | | | | | | |
| | | | | Active | | | | | | | |
| | | | | Markets | | Significant | | | | ||
| | | | | For | | Other | | Significant | |||
| | | | | Identical | | Observable | | Unobservable | |||
| | | | | Assets | | Inputs | | Inputs | |||
($ in thousands) |
| Fair Value |
| (Level 1) |
| (Level 2) |
| (Level 3) | ||||
Available-for-sale | | | | | | | | | | | | |
U.S. Treasury | | $ | 4,894 | | $ | 4,894 | | $ | — | | $ | — |
Obligations of U.S. Government agencies and sponsored entities | | | 77,950 | | | — | | | 77,950 | | | — |
Municipal securities | |
| 258,982 | |
| — | |
| 248,637 | |
| 10,345 |
Mortgage-backed securities | |
| 395,315 | |
| — | |
| 395,315 | |
| — |
Corporate obligations | |
| 27,946 | |
| — | |
| 27,538 | |
| 408 |
Total available-for-sale | | $ | 765,087 | | $ | 4,894 | | $ | 749,440 | | $ | 10,753 |
Fair Value Measurements Using | ||||||||||||||||
Quoted Prices in Active For Identical | Significant Other Observable Inputs | Significant Unobservable Inputs | ||||||||||||||
Fair Value | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Obligations of U. S. Government Agencies | $ | 9,045 | $ | - | $ | 9,045 | $ | - | ||||||||
Municipal securities | 98,822 | - | 98,822 | - | ||||||||||||
Mortgage-backed securities | 114,289 | - | 114,289 | - | ||||||||||||
Corporate obligations | 20,110 | - | 17,869 | 2,241 | ||||||||||||
Other | 940 | 940 | - | - | ||||||||||||
Total | $ | 243,206 | $ | 940 | $ | 240,025 | $ | 2,241 |
The following is a reconciliation of activity for assets measured at fair value based on significant unobservable (non-market)inputs (Level 3) information.
| | | | | | |
| | Bank-Issued | ||||
| | Trust | ||||
| | Preferred | ||||
| | Securities | ||||
($ in thousands) |
| 2020 |
| 2019 | ||
Balance, January 1 | | $ | 408 | | $ | 874 |
Unrealized loss included in comprehensive income | |
| (168) | |
| (466) |
Balance at June 30, 2020 and December 31, 2019 | | $ | 240 | | $ | 408 |
($ In Thousands)
| | | | | | |
| | Municipal Securities | ||||
($ in thousands) |
| 2020 |
| 2019 | ||
Balance, January 1 | | $ | 10,345 | | $ | 7,574 |
Unrealized gain included in comprehensive income | |
| 539 | |
| 2,771 |
Balance at June 30, 2020 and December 31, 2019 | | $ | 10,884 | | $ | 10,345 |
Bank-Issued Trust Preferred Securities | ||||||||
2017 | 2016 | |||||||
Balance, January 1 | $ | 2,241 | $ | 2,557 | ||||
Transfers into Level 3 | - | - | ||||||
Transfers out of Level 3 | - | - | ||||||
Other-than-temporary impairment loss included in earnings (loss) | - | - | ||||||
Unrealized gain (loss) included in comprehensive income | 93 | (316 | ) | |||||
Balance at September 30, 2017 and December 31, 2016 | $ | 2,334 | $ | 2,241 |
The following table presentsmethods and assumptions were used to estimate the fair values of the Company’s assets measured at fair value on a recurring basis at June 30, 2020 and December 31, 2019. The following tables present quantitative information about recurring Level 3 fair value measurements (in($ in thousands):
Trust Preferred Securities | Fair Value | Valuation Technique | Significant Unobservable Inputs | Range of Inputs | ||||||
September 30, 2017 | $ | 2,334 | Discounted cash flow | Probability of default | 1.87% - 3.50% | |||||
December 31, 2016 | $ | 2,241 | Discounted cash flow | Probability of default | 1.50% - 3.34% |
| | | | | | | | | |
|
| | |
| |
| Significant |
| |
| | Fair | | Valuation | | Unobservable | | Range of | |
Trust Preferred Securities |
| Value |
| Technique |
| Inputs |
| Inputs | |
June 30, 2020 | | $ | 240 |
| Discounted cash flow |
| Probability of default |
| 0.63% - 2.53% |
December 31, 2019 | | $ | 408 |
| Discounted cash flow |
| Probability of default |
| 2.73% - 4.15% |
| | | | | | | | | |
|
| | |
| |
| Significant |
| |
| | Fair | | Valuation | | Unobservable | | Range of | |
Municipal Securities |
| Value |
| Technique |
| Inputs |
| Inputs | |
June 30, 2020 | | $ | 10,884 |
| Discounted cash flow |
| Discount Rate |
| 0.60% - 2.95% |
December 31, 2019 | | $ | 10,345 |
| Discounted cash flow |
| Discount Rate |
| 1.50% - 4.40% |
Following is a description of the valuation methodologies used for assets measured at fair value on a non-recurring basis and recognized in the accompanying balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy.
19
Impaired Loans
Loans for which it is probable that the Company will not collect all principal and interest due according to contractual terms are measured for impairment. Allowable methods for estimating fair value include using the fair valueTable of the collateral for collateral dependent loans or, where a loan is determined not to be collateral dependent, using the discounted cash flow method.Contents
If the impaired loan is identified as collateral dependent, then the fair value method of measuring the amount of impairment is utilized. This method requires obtaining a current independent appraisal of the collateral and applying a discount factor to the value. If the impaired loan is determined not to be collateral dependent, then the discounted cash flow method is used. This method requires the impaired loan to be recorded at the present value of expected future cash flows discounted at the loan’s effective interest rate. The effective interest rate of a loan is the contractual interest rate adjusted for any net deferred loan fees or costs, or premium or discount existing at origination or acquisition of the loan. Impaired loans are classified within Level 2 of the fair value hierarchy.
Other Real Estate Owned
Other real estate owned acquired through loan foreclosure is initially recorded at fair value less estimated costs to sell, establishing a new cost basis. The adjustment at the time of foreclosure is recorded through the allowance for loan losses. Due to the subjective nature of establishing the fair value, the actual fair value of the other real estate owned or foreclosed asset could differ from the original estimate. If it is determined the fair value declines subsequent to foreclosure, a valuation allowance is recorded through non-interest expense. Operating costs associated with the assets are also recorded as non-interest expense. Gains and losses on the disposition of other real estate owned and foreclosed assets are netted and posted to other non-interest expense. Other real estate owned measured at fair value on a non-recurring basis at September 30, 2017, amounted to $7.9 million. Other real estate owned is classified within Level 2 of the fair value hierarchy.
The following table presents the fair value measurement of assets measured at fair value on a nonrecurringnon-recurring basis and the level within the fair value hierarchy in which the fair value measurements fellwere classified at SeptemberJune 30, 20172020 and December 31, 2016.2019.
June 30, 2020
($ In Thousands)
| | | | | | | | | | | | |
| | | | | Fair Value Measurements Using | |||||||
| | | | | Quoted | | | | | | | |
| | | | | Prices in | | | | | | | |
| | | | | Active | | | | | | | |
| | | | | Markets | | Significant | | | | ||
| | | | | For | | Other | | Significant | |||
| | | | | Identical | | Observable | | Unobservable | |||
| | | | | Assets | | Inputs | | Inputs | |||
($ in thousands) |
| Fair Value |
| (Level 1) |
| (Level 2) |
| (Level 3) | ||||
| | | | | | | | | | | | |
Impaired loans | | $ | 8,900 | | $ | — | | $ | — | | $ | 8,900 |
Other real estate owned | |
| 5,471 | |
| — | |
| — | |
| 5,471 |
September 30, 2017
Fair Value Measurements Using | ||||||||||||||||
Quoted Prices in Active Markets For Identical Assets | Significant Other Observable Inputs | Significant Unobservable Inputs | ||||||||||||||
Fair Value | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Impaired loans | $ | 9,885 | $ | - | $ | 9,885 | $ | - | ||||||||
Other real estate owned | 7,855 | - | 7,855 | - |
December 31, 20162019
Fair Value Measurements Using | ||||||||||||||||||||||||||||
Quoted Prices in Active Markets For Identical Assets | Significant Other Observable Inputs | Significant Unobservable Inputs | ||||||||||||||||||||||||||
Fair Value | (Level 1) | (Level 2) | (Level 3) | |||||||||||||||||||||||||
| | | | | | | | | | | | | ||||||||||||||||
| | | | | Fair Value Measurements Using | |||||||||||||||||||||||
| | | | | Quoted | | | | | | | |||||||||||||||||
| | | | | Prices in | | | | | | | |||||||||||||||||
| | | | | Active | | | | | | | |||||||||||||||||
| | | | | Markets | | Significant | | | | ||||||||||||||||||
| | | | | For | | Other | | Significant | |||||||||||||||||||
| | | | | Identical | | Observable | | Unobservable | |||||||||||||||||||
| | | | | Assets | | Inputs | | Inputs | |||||||||||||||||||
($ in thousands) |
| Fair Value |
| (Level 1) |
| (Level 2) |
| (Level 3) | ||||||||||||||||||||
| | | | | | | | | | | | | ||||||||||||||||
Impaired loans | $ | 6,128 | $ | - | $ | 6,128 | $ | - | | $ | 11,337 | | $ | — | | $ | — | | $ | 11,337 | ||||||||
Other real estate owned | 6,008 | - | 6,008 | - | |
| 7,299 | |
| — | |
| — | |
| 7,299 |
NOTE 109 - SECURITIES
The following disclosure of the estimated fair value of financial instruments is made in accordance with authoritative guidance. The estimated fair value amounts have been determined using available market information and valuation methodologies that management believes are appropriate. However, considerable judgment is necessarily required to interpret market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that could be realized in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.
A summary of the amortized cost, and estimated fair value of available-for-sale securities and held-to-maturity securities at SeptemberJune 30, 20172020 and December 31, 2016,2019 and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income (loss):
| | | | | | | | | | | | |
| | June 30, 2020 | ||||||||||
| | | | | Gross | | Gross | | | |||
| | Amortized | | Unrealized | | Unrealized | | Fair | ||||
($ in thousands) |
| Cost |
| Gains |
| Losses |
| Value | ||||
Available-for-sale securities: |
| |
|
| |
|
| |
|
| |
|
U.S. Treasury | | $ | 9,097 | | $ | 346 | | $ | — | | $ | 9,443 |
Obligations of U.S. government agencies and sponsored entities | | | 97,210 |
| | 3,014 | | | 11 | | | 100,213 |
Tax-exempt and taxable obligations of states and municipal subdivisions | |
| 377,573 |
| | 12,874 | |
| 598 | |
| 389,849 |
Mortgage-backed securities - residential | |
| 259,611 |
| | 10,255 | |
| 71 | |
| 269,795 |
Mortgage-backed securities - commercial | | | 122,802 | | | 6,273 | | | 52 | | | 129,023 |
Corporate obligations | |
| 28,047 |
| | 858 | |
| 23 | |
| 28,882 |
Total | | $ | 894,340 | | $ | 33,620 | | $ | 755 | | $ | 927,205 |
20
| | | | | | | | | | | | |
| | December 31, 2019 | ||||||||||
| | | | | Gross | | Gross | | | |||
| | Amortized | | Unrealized | | Unrealized | | Fair | ||||
($ in thousands) |
| Cost |
| Gains |
| Losses |
| Value | ||||
Available-for-sale securities: |
| |
|
| |
|
| |
|
| |
|
U.S. Treasury | | $ | 4,967 | | $ | — | | $ | 73 | | $ | 4,894 |
Obligations of U.S. government agencies sponsored entities | | | 76,699 | | | 1,475 | | | 224 | | | 77,950 |
Tax-exempt and taxable obligations of states and municipal subdivisions | |
| 253,527 | |
| 5,602 | |
| 147 | |
| 258,982 |
Mortgage-backed securities - residential | |
| 263,229 | |
| 4,726 | |
| 107 | |
| 267,848 |
Mortgage-backed securities - commercial | | | 125,292 | | | 2,398 | | | 223 | | | 127,467 |
Corporate obligations | |
| 27,877 | |
| 218 | |
| 149 | |
| 27,946 |
Total | | $ | 751,591 | | $ | 14,419 | | $ | 923 | | $ | 765,087 |
The amortized cost and fair value of debt securities are shown by contractual maturity. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date are shown separately.
| | | | | | | | | | | | |
| | June 30, 2020 | | December 31, 2019 | ||||||||
| | Available-for-Sale | | Available-for-Sale | ||||||||
| | Amortized | | Fair | | Amortized | | Fair | ||||
($ in thousands) |
| Cost |
| Value |
| Cost |
| Value | ||||
| | | | | | | | | | | | |
Due less than one year | | $ | 27,705 | | $ | 27,811 | | $ | 30,141 | | $ | 30,303 |
Due after one year through five years | |
| 120,461 | |
| 123,568 | |
| 80,119 | |
| 81,372 |
Due after five years through ten years | |
| 175,410 | |
| 183,164 | |
| 143,811 | |
| 148,085 |
Due greater than ten years | |
| 188,351 | |
| 193,844 | |
| 108,999 | |
| 110,012 |
Mortgage-backed securities - residential | |
| 259,611 | |
| 269,795 | |
| 263,229 | |
| 267,848 |
Mortgage-backed securities - commercial | | | 122,802 | | | 129,023 | | | 125,292 | | | 127,467 |
Total | | $ | 894,340 | | $ | 927,205 | | $ | 751,591 | | $ | 765,087 |
The details concerning securities classified as available-for-sale with unrealized losses as of June 30, 2020 and December 31, 2019 were as follows:
| | | | | | | | | | | | | | | | | | |
| | June 30, 2020 | ||||||||||||||||
| | Losses < 12 Months | | Losses 12 Months or > | | Total | ||||||||||||
| | | | | Gross | | | | | Gross | | | | | Gross | |||
| | Fair | | Unrealized | | Fair | | Unrealized | | Fair | | Unrealized | ||||||
($ in thousands) |
| Value |
| Losses |
| Value |
| Losses |
| Value |
| Losses | ||||||
U.S. Treasury | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — |
Obligations of U.S government agencies and sponsored entities | | | — | | | — | | | 5,566 | | | 11 | | | 5,566 | | | 11 |
Tax-exempt and taxable obligations of state and municipal subdivisions | |
| — | |
| — | |
| 20,901 | |
| 598 | |
| 20,901 | |
| 598 |
Mortgage-backed securities - residential | |
| — | |
| — | |
| 17,116 | |
| 71 | |
| 17,116 | |
| 71 |
Mortgage-backed securities - commercial | | | 4,283 | | | 1 | | | 10,724 | | | 51 | | | 15,007 | | | 52 |
Corporate obligations | |
| — | |
| — | |
| 9,664 | |
| 23 | |
| 9,664 | |
| 23 |
Total | | $ | 4,283 | | $ | 1 | | $ | 63,971 | | $ | 754 | | $ | 68,254 | | $ | 755 |
($ In Thousands)
September 30, 2017 | ||||||||||||||||
Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | |||||||||||||
Available-for-sale securities: | ||||||||||||||||
Obligations of U.S. Government agencies | $ | 6,494 | $ | 14 | $ | 3 | $ | 6,505 | ||||||||
Tax-exempt and taxable obligations of states and municipal subdivisions | 132,323 | 3,069 | 237 | 135,155 | ||||||||||||
Mortgage-backed securities | 191,869 | 1,712 | 542 | 193,039 | ||||||||||||
Corporate obligations | 18,368 | 69 | 1,032 | 17,405 | ||||||||||||
Other | 1,255 | - | 324 | 931 | ||||||||||||
$ | 350,309 | $ | 4,864 | $ | 2,138 | $ | 353,035 | |||||||||
Held-to-maturity securities: | ||||||||||||||||
Taxable obligations of states and municipal subdivisions | $ | 6,000 | $ | 1,388 | $ | - | $ | 7,388 |
21
| | | | | | | | | | | | | | | | | | |
| | December 31, 2019 | ||||||||||||||||
| | Losses < 12 Months | | Losses 12 Months or > | | Total | ||||||||||||
| | | | | Gross | | | | | Gross | | | | | Gross | |||
| | Fair | | Unrealized | | Fair | | Unrealized | | Fair | | Unrealized | ||||||
($ in thousands) |
| Value |
| Losses |
| Value |
| Losses |
| Value |
| Losses | ||||||
U.S. Treasury | | $ | — | | $ | — | | $ | 4,894 | | $ | 73 | | $ | 4,894 | | $ | 73 |
Obligations of U.S government agencies and sponsored entities | | | — | | | — | | | 22,987 | | | 224 | | | 22,987 | | | 224 |
Tax-exempt and taxable obligations of state and municipal subdivisions | |
| — | |
| — | |
| 28,235 | |
| 147 | |
| 28,235 | |
| 147 |
Mortgage-backed securities - residential | |
| — | |
| — | |
| 29,930 | |
| 107 | |
| 29,930 | |
| 107 |
Mortgage-backed securities - commercial | | | 9,306 | | | 16 | | | 19,130 | | | 207 | | | 28,436 | | | 223 |
Corporate obligations | |
| 500 | |
| — | |
| 10,572 | |
| 149 | |
| 11,072 | |
| 149 |
Total | | $ | 9,806 | | $ | 16 | | $ | 115,748 | | $ | 907 | | $ | 125,554 | | $ | 923 |
At June 30, 2020 and December 31, 2019, the Company’s securities portfolio consisted of 80 and 156 securities, respectively, which were in an unrealized loss position. The Company reviews its investment portfolio quarterly for indications of other-than-temporary impairment (“OTTI”), with attention given to securities in a continuous loss position of at least ten percent for over twelve months. Management believes that none of the losses on available-for-sale securities noted above constitutes an OTTI. The noted losses are considered temporary due to market fluctuations in available interest rates. Management considers the issuers of the securities to be financially sound, the corporate bonds are investment grade, and the collectability of all contractual principal and interest payments is reasonably expected. No OTTI losses were recognized during the six months ended June 30, 2020 or the year ended December 31, 2019.
December 31, 2016 | ||||||||||||||||
Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | |||||||||||||
Available-for-sale securities: | ||||||||||||||||
Obligations of U.S. Government agencies | $ | 9,023 | $ | 28 | $ | 6 | $ | 9,045 | ||||||||
Tax-exempt and taxable obligations of states and municipal subdivisions | 98,328 | 1,678 | 1,184 | 98,822 | ||||||||||||
Mortgage-backed securities | 114,991 | 602 | 1,304 | 114,289 | ||||||||||||
Corporate obligations | 21,274 | 66 | 1,230 | 20,110 | ||||||||||||
Other | 1,256 | - | 316 | 940 | ||||||||||||
$ | 244,872 | $ | 2,374 | $ | 4,040 | $ | 243,206 | |||||||||
Held-to-maturity securities: | ||||||||||||||||
Taxable obligations of states and municipal subdivisions | $ | 6,000 | $ | 1,394 | $ | - | $ | 7,394 |
NOTE 1110 – LOANS
The Company uses four different categories to classify loans in its portfolio based on the underlying collateral securing each loan. The loans grouped together in each category have been determined to share similar risk characteristics with respect to credit quality. Those four categories are commercial, financial and agriculture, commercial real estate, consumer real estate, installment and other;
Loans typically provide higher yields thanCommercial, financial and agriculture – Commercial, financial and agriculture loans include loans to business entities issued for commercial, industrial, or other business purposes. This type of commercial loan shares a similar risk characteristic in that unlike commercial real estate loans, repayment is largely dependent on cash flow generated from the other types of earning assets, and, thus, oneoperation of the Company's goalsbusiness.
Commercial real estate – Commercial real estate loans are grouped as such because repayment is for loans to bemainly dependent upon either the largest categorysale of the Company's earning assets. Forreal estate, operation of the quarters ended September 30, 2017business occupying the real estate, or refinance of the debt obligation. This includes both owner-occupied and December 31, 2016, averagenon-owner occupied CRE secured loans, accountedbecause they share similar risk characteristics related to these variables.
Consumer real estate – Consumer real estate loans consist primarily of loans secured by 1-4 family residential properties and/or residential lots. This includes loans for 74.1%the purpose of constructing improvements on the residential property, as well as home equity lines of credit.
Installment and 73.8%other – Installment and other loans are all loans issued to individuals that are not for any purpose related to operation of average earning assets, respectively. The Company controlsa business, and mitigates the inherent credit and liquidity risks through the composition of its loan portfolio.
not secured by real estate. Repayment on these loans is mostly dependent on personal income, which may be impacted by general economic conditions.
Generally, the Company will place a delinquent loan in nonaccrual status when the loan becomes 90 days or more past due. At the time a loan is placed in nonaccrual status, all interest which has been accrued on the loan but remains unpaid is reversed and deducted from earnings as a reduction of reported interest income. No additional interest is accrued on the loan balance until the collection of both principal and interest becomes reasonably certain.
22
The following tables summarize by class our loans classified as past due in excess of 30 days or more in addition to those loans classified as non-accrual:nonaccrual including PCI loans.
| | | | | | | | | | | | | | | | | | |
| | June 30, 2020 | ||||||||||||||||
| | | | | Past Due | | | | | | | | | | | | ||
| | Past Due | | 90 Days | | | | | | | Total | | | | ||||
| | 30 to 89 | | or More | | | | | | | Past Due, | | | | ||||
| | Days and | | and Still | | Non | | | | Non accrual | | Total | ||||||
($ in thousands) |
| Accruing |
| Accruing |
| accrual |
| PCI |
| and PCI |
| Loans | ||||||
Commercial, financial and agriculture (1) | | $ | 2,019 | | $ | 48 | | $ | 1,918 | | $ | 443 | | $ | 4,428 | | $ | 629,497 |
Commercial real estate | | | 3,191 | | | 378 | | | 22,566 | | | 3,673 | | | 29,808 | | | 1,401,079 |
Consumer real estate | | | 3,679 | | | 578 | | | 3,204 | | | 7,346 | | | 14,807 | | | 1,078,527 |
Consumer installment | | | 229 | | | 5 | | | 47 | | | 4 | | | 285 | | | 42,611 |
Lease financing receivable | |
| — | |
| — | |
| — | |
| — | |
| — | |
| 2,811 |
Obligations of states and subdivisions | |
| — | |
| — | |
| — | |
| — | |
| — | |
| 17,010 |
Total | | $ | 9,118 | | $ | 1,009 | | $ | 27,735 | | $ | 11,466 | | $ | 49,328 | | $ | 3,171,535 |
September 30, 2017
($ In thousands)
Past Due 30 to 89 Days | Past Due 90 Days or More and Still Accruing | Non- Accrual | Total Past Due and Non- Accrual | Total Loans | ||||||||||||||||
Real Estate-construction | $ | 497 | $ | 105 | $ | 98 | $ | 700 | $ | 171,609 | ||||||||||
Real Estate-mortgage | 1,630 | 180 | 2,733 | 4,543 | 377,307 | |||||||||||||||
Real Estate-non farm non-residential | 759 | - | 1,764 | 2,523 | 456,110 | |||||||||||||||
Commercial | 115 | 1,151 | 211 | 1,477 | 164,577 | |||||||||||||||
Lease Financing Rec. | - | - | - | - | 2,008 | |||||||||||||||
Obligations of states and subdivisions | - | - | - | - | 5,892 | |||||||||||||||
Consumer | 140 | - | 46 | 186 | 20,690 | |||||||||||||||
Total | $ | 3,141 | $ | 1,436 | $ | 4,852 | $ | 9,429 | $ | 1,198,193 |
Total loan balance as of June 30, 2020 includes $259.3 million in PPP loans. |
| | | | | | | | | | | | | | | | | | |
| | December 31, 2019 | ||||||||||||||||
| | | | Past Due | | | | | | | | | | | | |||
| | | | | 90 Days | | | | | | | Total | | | | |||
| | Past Due | | or More | | | | | | | Past Due, | | | | ||||
| | 30 to 89 | | and Still | | Non | | | | Non accrual | | Total | ||||||
($ in thousands) |
| Days |
| Accruing |
| accrual |
| PCI |
| and PCI |
| Loans | ||||||
Commercial, financial and agriculture | | $ | 515 | | $ | 61 | | $ | 2,137 | | $ | 97 | | $ | 2,810 | | $ | 332,600 |
Commercial real estate | | | 2,447 | | | 1,046 | | | 22,441 | | | 3,844 | | | 29,778 | | | 1,387,207 |
Consumer real estate | | | 4,569 | | | 1,608 | | | 1,902 | | | 8,148 | | | 16,227 | | | 814,282 |
Consumer installment | | | 226 | | | — | | | 260 | | | 6 | | | 492 | | | 42,458 |
Lease financing receivable | |
| — | |
| — | |
| — | |
| — | |
| — | |
| 3,095 |
Obligations of states and subdivisions | |
| — | |
| — | |
| — | |
| — | |
| — | |
| 20,716 |
Total | | $ | 7,757 | | $ | 2,715 | | $ | 26,740 | | $ | 12,095 | | $ | 49,307 | | $ | 2,600,358 |
December 31, 2016
($ In Thousands)
Past Due 30 to 89 Days | Past Due 90 Days or More and Still Accruing | Non- Accrual | Total Past Due and Non- Accrual | Total Loans | ||||||||||||||||
Real Estate-construction | $ | 204 | $ | 96 | $ | 658 | $ | 958 | $ | 109,394 | ||||||||||
Real Estate-mortgage | 2,745 | 102 | 1,662 | 4,509 | 289,640 | |||||||||||||||
Real Estate-non farm non residential | 269 | - | 909 | 1,178 | 314,359 | |||||||||||||||
Commercial | 9 | - | 2 | 11 | 129,423 | |||||||||||||||
Lease Financing Rec. | - | - | - | - | 2,204 | |||||||||||||||
Obligations of states and subdivisions | - | - | - | - | 6,698 | |||||||||||||||
Consumer | 22 | - | 33 | 55 | 15,336 | |||||||||||||||
Total | $ | 3,249 | $ | 198 | $ | 3,264 | $ | 6,711 | $ | 867,054 |
In connection with our acquisition of BCB Holding Company, Inc. in 2014, weWe acquired loans with deteriorated credit quality.quality in 2014, 2017, 2018, 2019 and 2020. These loans were recorded at estimated fair value at the acquisition date with no carryover of the related allowance for loan losses. The acquired loans were segregated as of the acquisition date between those considered to be performing (acquired non-impaired loans) and those with evidence of credit deterioration (acquired impaired(PCI loans). Acquired loans are considered to be impaired if there is evidence of credit deterioration and if it is probable, at acquisition,based on current available information, that the Company will be unable to collect all contractually required paymentscash flows as expected. If expected cash flows cannot reasonably be estimated as to what will be collected, there will not be collected.
any interest income recognized on these loans.
The following table presents information regarding the contractually required payments receivable, cash flows expected to be collected and the estimated fair value of PCI loans acquired in the BCB acquisition as of July 1, 2014, the closing date of the transaction:acquisitions from 2019 and 2020.
| | | | | | | | | | | | |
($ in thousands) |
| FPB |
| FFB |
| SWG |
| Total | ||||
Contractually required payments at acquisition | | $ | 4,715 | | $ | 947 | | $ | 882 | | $ | 6,544 |
Cash flows expected to be collected at acquisition | |
| 4,295 | |
| 955 | |
| 570 | |
| 5,820 |
Fair value of loans at acquisition | |
| 3,916 | |
| 809 | |
| 526 | |
| 5,251 |
($ In Thousands)
Commercial, financial and agricultural | Mortgage- Commercial | Mortgage- Residential | Commercial and other | Total | ||||||||||||||||
Contractually required payments | $ | 1,519 | $ | 29,648 | $ | 7,933 | $ | 976 | $ | 40,076 | ||||||||||
Cash flows expected to be collected | 1,570 | 37,869 | 9,697 | 1,032 | 50,168 | |||||||||||||||
Fair value of loans acquired | 1,513 | 28,875 | 7,048 | 957 | 38,393 |
Total outstanding acquired impairedPCI loans were $2.1$16.8 million and the related purchase accounting discount was $3.9 million as of SeptemberJune 30, 20172020, and $2.2$14.6 million and $3.3 million as of December 31, 2016.2019, respectively. The outstanding balance of these loans is the undiscounted sum of all amounts, including amounts deemed principal, interest, fees, penalties, and other under the loans, owed at the reporting date, whether or not currently due and whether or not any such amounts have been charged off.
23
Changes in the carrying amount and accretable yield for acquiredpurchased credit impaired loans were as follows at SeptemberJune 30, 20172020 and December 31, 2016:2019 ($ in thousands):
| | | | | | |
| | June 30, 2020 | | June 30, 2019 | ||
| | Accretable | | Accretable | ||
|
| Yield |
| Yield | ||
Balance at beginning of period, January 1 |
| $ | 3,714 |
| $ | 3,835 |
Additions, including transfers from non-accretable | | | 453 | | | 355 |
Accretion | |
| (296) | |
| (476) |
Balance at end of period, June 30 | | $ | 3,871 | | $ | 3,714 |
($ In Thousands)
September 30, 2017 | December 31, 2016 | |||||||||||||||
Accretable Yield | Carrying Amount of Loans | Accretable Yield | Carrying Amount of Loans | |||||||||||||
Balance at beginning of period | $ | 894 | $ | 1,305 | $ | 1,219 | $ | 1,821 | ||||||||
Accretion | (43 | ) | 43 | (325 | ) | 325 | ||||||||||
Payments received, net | - | (139 | ) | - | (841 | ) | ||||||||||
Balance at end of period | $ | 851 | $ | 1,209 | $ | 894 | $ | 1,305 |
The following tables provide additional detail of impaired loans broken out according to class as of SeptemberJune 30, 20172020 and December 31, 2016.2019. The following tables do not include PCI loans. The recorded investment included in the following tablestable represents customer balances net of any partial charge-offs recognized on the loans, net of any deferred fees and costs. As nearly all of our impaired loans at September 30, 2017 are on nonaccrual status, recordedRecorded investment excludes any insignificant amount of accrued interest receivable on loans 90-days or more past due and still accruing. The unpaid balance represents the recorded balance prior to any partial charge-offs.
SeptemberJune 30, 20172020
($ In Thousands)
Average | Interest | ||||||||||||||||||||||||||||||||||
Recorded | Income | ||||||||||||||||||||||||||||||||||
Recorded | Unpaid | Related | Investment | Recognized | |||||||||||||||||||||||||||||||
Investment | Balance | Allowance | YTD | YTD | |||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | ||||||||||||||||||||
|
| | | | | |
| | | | Average | | Interest | ||||||||||||||||||||||
| | | | | | | | | | | Recorded | | Income | ||||||||||||||||||||||
| | Recorded | | Unpaid | | Related | | Investment | | Recognized | |||||||||||||||||||||||||
($ in thousands) |
| Investment |
| Balance |
| Allowance |
| YTD |
| YTD | |||||||||||||||||||||||||
| | | | | | | | | | | | | | | | ||||||||||||||||||||
Impaired loans with no related allowance: |
| |
|
| |
|
| |
|
| |
|
| |
| ||||||||||||||||||||
Commercial installment | $ | 15 | $ | 15 | $ | - | $ | 45 | $ | - | |||||||||||||||||||||||||
Commercial, financial and agriculture | | $ | 270 | | $ | 272 | | $ | — | | $ | 266 | | $ | — | ||||||||||||||||||||
Commercial real estate | 4,383 | 4,504 | - | 3,358 | 89 | |
| 14,126 | |
| 14,417 | |
| — | |
| 13,607 | |
| — | |||||||||||||||
Consumer real estate | 2,235 | 2,437 | - | 1,826 | 63 | |
| 916 | |
| 963 | |
| — | |
| 810 | |
| 2 | |||||||||||||||
Consumer installment | 29 | 29 | - | 14 | - | |
| 8 | |
| 8 | |
| — | |
| 10 | |
| — | |||||||||||||||
Total | $ | 6,662 | $ | 6,985 | $ | - | $ | 5,243 | $ | 152 | | $ | 15,320 | | $ | 15,660 | | $ | — | | $ | 14,693 | | $ | 2 | ||||||||||
| | | | | | | | | | | | | | | | ||||||||||||||||||||
Impaired loans with a related allowance: | |
|
| |
|
| |
|
| |
|
| |
|
| ||||||||||||||||||||
Commercial installment | $ | 195 | $ | 195 | $ | 101 | $ | 115 | $ | - | |||||||||||||||||||||||||
Commercial, financial and agriculture | | $ | 1,738 | | $ | 1,746 | | $ | 1,120 | | $ | 1,988 | | $ | 1 | ||||||||||||||||||||
Commercial real estate | 2,499 | 2,499 | 237 | 2,786 | 80 | |
| 12,253 | |
| 12,567 | |
| 4,621 | |
| 12,130 | |
| 26 | |||||||||||||||
Consumer real estate | 506 | 506 | 136 | 490 | 12 | |
| 775 | |
| 803 | |
| 164 | |
| 729 | |
| 3 | |||||||||||||||
Consumer installment | 23 | 23 | 17 | 24 | - | |
| 58 | |
| 59 | |
| 19 | |
| 145 | |
| 1 | |||||||||||||||
Total | $ | 3,223 | $ | 3,223 | $ | 491 | $ | 3,415 | $ | 92 | | $ | 14,824 | | $ | 15,175 | | $ | 5,924 | | $ | 14,992 | | $ | 31 | ||||||||||
Total Impaired Loans: | |||||||||||||||||||||||||||||||||||
Commercial installment | $ | 210 | $ | 210 | $ | 101 | $ | 160 | $ | - | |||||||||||||||||||||||||
| | | | | | | | | | | | | | | | ||||||||||||||||||||
Total impaired loans: | |
|
| |
|
| |
|
| |
|
| |
|
| ||||||||||||||||||||
Commercial, financial and agriculture | | $ | 2,008 | | $ | 2,018 | | $ | 1,120 | | $ | 2,254 | | $ | 1 | ||||||||||||||||||||
Commercial real estate | 6,882 | 7,003 | 237 | 6,144 | 169 | |
| 26,379 | |
| 26,984 | |
| 4,621 | |
| 25,737 | |
| 26 | |||||||||||||||
Consumer real estate | 2,741 | 2,943 | 136 | 2,316 | 75 | |
| 1,691 | |
| 1,766 | |
| 164 | |
| 1,539 | |
| 5 | |||||||||||||||
Consumer installment | 52 | 52 | 17 | 38 | - | |
| 66 | |
| 67 | |
| 19 | |
| 155 | |
| 1 | |||||||||||||||
Total Impaired Loans | $ | 9,885 | $ | 10,208 | $ | 491 | $ | 8,658 | $ | 244 | | $ | 30,144 | | $ | 30,835 | | $ | 5,924 | | $ | 29,685 | | $ | 33 |
As of SeptemberJune 30, 2017,2020, the Company had $1.0 million$640 thousand of foreclosed residential real estate property obtained by physical possession and $0.2$2.5 million of consumer mortgage loans secured by residential real estate properties for which foreclosure proceedings are in process according to local jurisdictions.
24
December 31, 20162019
($ In Thousands)
| | | | | | | | | | | | | | | |
| | | | | | | | | | | Average | | Interest | ||
| | | | | | | | | | | Recorded | | Income | ||
| | Recorded | | Unpaid | | Related | | Investment | | Recognized | |||||
($ in thousands) |
| Investment |
| Balance |
| Allowance |
| YTD |
| YTD | |||||
| | | | | | | | | | | | | | | |
Impaired loans with no related allowance: |
| |
|
| | |
| |
|
| |
|
| |
|
Commercial, financial and agriculture | | $ | 59 | | $ | 62 | | $ | — | | $ | 294 | | $ | 7 |
Commercial real estate | |
| 13,556 | |
| 13,671 | |
| — | |
| 10,473 | |
| 591 |
Consumer real estate | |
| 542 | |
| 594 | |
| — | |
| 2,173 | |
| — |
Consumer installment | |
| 21 | |
| 21 | |
| — | |
| 23 | |
| — |
Total | | $ | 14,178 | | $ | 14,348 | | $ | — | | $ | 12,963 | | $ | 598 |
| | | | | | | | | | | | | | | |
Impaired loans with a related allowance: | |
|
| |
|
| |
|
| |
|
| |
|
|
Commercial, financial and agriculture | | $ | 2,434 | | $ | 2,434 | | $ | 1,182 | | $ | 2,039 | | $ | 13 |
Commercial real estate | |
| 12,428 | |
| 12,563 | |
| 3,021 | |
| 10,026 | |
| 49 |
Consumer real estate | |
| 639 | |
| 657 | |
| 141 | |
| 560 | |
| 3 |
Consumer installment | |
| 260 | |
| 260 | |
| 80 | |
| 164 | |
| 2 |
Total | | $ | 15,761 | | $ | 15,914 | | $ | 4,424 | | $ | 12,789 | | $ | 67 |
| | | | | | | | | | | | | | | |
Total impaired loans: | |
|
| |
|
| |
|
| |
|
| |
|
|
Commercial, financial and agriculture | | $ | 2,493 | | $ | 2,496 | | $ | 1,182 | | $ | 2,333 | | $ | 20 |
Commercial real estate | |
| 25,984 | |
| 26,234 | |
| 3,021 | |
| 20,499 | |
| 640 |
Consumer real estate | |
| 1,181 | |
| 1,251 | |
| 141 | |
| 2,733 | |
| 3 |
Consumer installment | |
| 281 | |
| 281 | |
| 80 | |
| 187 | |
| 2 |
Total Impaired Loans | | $ | 29,939 | | $ | 30,262 | | $ | 4,424 | | $ | 25,752 | | $ | 665 |
Average | Interest | |||||||||||||||||||
Recorded | Income | |||||||||||||||||||
Recorded | Unpaid | Related | Investment | Recognized | ||||||||||||||||
Investment | Balance | Allowance | YTD | YTD | ||||||||||||||||
Impaired loans with no related allowance: | ||||||||||||||||||||
Commercial installment | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||
Commercial real estate | 2,324 | 2,570 | - | 4,368 | 37 | |||||||||||||||
Consumer real estate | 329 | 329 | - | 291 | 1 | |||||||||||||||
Consumer installment | 14 | 14 | - | 9 | - | |||||||||||||||
Total | $ | 2,667 | $ | 2,913 | $ | - | $ | 4,668 | $ | 38 | ||||||||||
Impaired loans with a related allowance: | ||||||||||||||||||||
Commercial installment | $ | 153 | $ | 153 | $ | 10 | $ | 244 | $ | 9 | ||||||||||
Commercial real estate | 2,726 | 2,726 | 343 | 2,832 | 127 | |||||||||||||||
Consumer real estate | 556 | 669 | 308 | 733 | 14 | |||||||||||||||
Consumer installment | 26 | 27 | 21 | 32 | - | |||||||||||||||
Total | $ | 3,461 | $ | 3,575 | $ | 682 | $ | 3,841 | $ | 150 | ||||||||||
Total Impaired Loans: | ||||||||||||||||||||
Commercial installment | $ | 153 | $ | 153 | $ | 10 | $ | 244 | $ | 9 | ||||||||||
Commercial real estate | 5,050 | 5,296 | 343 | 7,200 | 164 | |||||||||||||||
Consumer real estate | 885 | 998 | 308 | 1,024 | 15 | |||||||||||||||
Consumer installment | 40 | 41 | 21 | 41 | - | |||||||||||||||
Total Impaired Loans | $ | 6,128 | $ | 6,488 | $ | 682 | $ | 8,509 | $ | 188 |
The following table representscash basis interest earned in the Company’s impaired loans at Septemberchart above is materially the same as the interest recognized during impairment for period ended June 30, 2017,2020 and December 31, 2016.
Sept. 30, | December 31, | |||||||
2017 | 2016 | |||||||
($ In Thousands) | ||||||||
Impaired Loans: | ||||||||
Impaired loans without a valuation allowance | $ | 6,662 | $ | 2,667 | ||||
Impaired loans with a valuation allowance | 3,223 | 3,461 | ||||||
Total impaired loans | $ | 9,885 | $ | 6,128 | ||||
Allowance for loan losses on impaired loans at period end | 491 | 682 | ||||||
Total nonaccrual loans | 4,852 | 3,264 | ||||||
Past due 90 days or more and still accruing | 1,436 | 198 | ||||||
Average investment in impaired loans | 8,658 | 8,509 |
The following table is a summary of interest recognized and cash-basis interest earned on impaired loans:
($ In Thousands) | Three Months Ended Sept. 30, 2017 | Nine Months Ended Sept. 30, 2017 | ||||||
Interest income recognized during impairment | - | - | ||||||
Cash-basis interest income recognized | 60 | 244 |
2019.
The gross interest income that would have been recorded in the period that ended if the nonaccrual loans had been current in accordance with their original terms and had been outstanding throughout the period or since origination, if held for part of the three months and ninesix months ended SeptemberJune 30, 20172020, was $90,000$381 thousand and $243,000,$758 thousand, respectively. The Company had no0 loan commitments to borrowers in non-accrualnonaccrual status at SeptemberJune 30, 20172020 and December 31, 2016.2019.
Troubled Debt Restructuring
If the Company grants a concession to a borrower in financial difficulty, the loan is classified as a troubled debt restructuring (“TDR”).
25
The following tables provide detail of TDRs at Sept. 30, 2017.
For the Three Months Ending September 30, 2017
($ In Thousands)
For the Nine Months Ending September 30, 2017
($ In Thousands)
Outstanding | ||||||||||||||||
Outstanding | Recorded | |||||||||||||||
Recorded | Investment | Interest | ||||||||||||||
Investment | Post- | Number of | Income | |||||||||||||
Pre-Modification | Modification | Loans | Recognized | |||||||||||||
Commercial installment | $ | - | $ | - | - | $ | - | |||||||||
Commercial real estate | - | - | - | - | ||||||||||||
Consumer real estate | 152 | 149 | 2 | 5 | ||||||||||||
Consumer installment | - | - | - | - | ||||||||||||
Total | $ | 152 | $ | 149 | 2 | $ | 5 |
There were no TDRstable presents loans by class modified as troubled debt restructurings (TDRs) that occurred during the three monthmonths and six months ended June 30, 2020 and 2019 ($ in thousands, except for number of loans).
| | | | | | | | |
| | Three Months Ended | ||||||
| | | | Outstanding | | Outstanding | ||
| | | | Recorded | | Recorded | ||
| | Number of | | Investment | | Investment | ||
2020 |
| Loans |
| Pre-Modification |
| Post-Modification | ||
Commercial, financial and agriculture |
| 1 |
| $ | 35 |
| $ | 35 |
Commercial real estate | | 1 | |
| 195 | |
| 195 |
Residential real estate | | — | |
| — | |
| — |
Consumer installment | | — | |
| — | |
| — |
Total | | 2 | | $ | 230 | | $ | 230 |
| | | | | | | | |
2019 |
| | | | | | ||
Commercial, financial and agriculture | | 1 | | $ | 480 | | $ | 371 |
Commercial real estate | | — | |
| — | |
| — |
Residential real estate | | — | |
| — | |
| — |
Consumer installment | | — | |
| — | |
| — |
Total | | 1 | | $ | 480 | | $ | 371 |
The TDRs presented above increased the allowance for loan losses $11 thousand and $206 thousand and resulted in 0 charge-offs for the three months period ended SeptemberJune 30, 2017. 2020 and 2019, respectively.
| | | | | | | | |
($ in thousands, except for number of loans) | | Six Months Ended | ||||||
| | | | Outstanding | | Outstanding | ||
| | | | Recorded | | Recorded | ||
| | Number of | | Investment | | Investment | ||
2020 |
| Loans |
| Pre-Modification |
| Post-Modification | ||
Commercial, financial and agriculture |
| 2 |
| $ | 47 |
| $ | 46 |
Commercial real estate | | 3 | |
| 933 | |
| 928 |
Residential real estate | | — | |
| — | |
| — |
Consumer installment | | — | |
| — | |
| — |
Total | | 5 | | $ | 980 | | $ | 974 |
| | | | | | | ||
2019 |
| | | | | | ||
Commercial, financial and agriculture | | 1 | | $ | 480 | | $ | 371 |
Commercial real estate | | — | |
| — | |
| — |
Residential real estate | | — | |
| — | |
| — |
Consumer installment | | — | |
| — | |
| — |
Total | | 1 | | $ | 480 | | $ | 371 |
The TDRs presented above increased the allowance for loan losses $49 thousand and $206 thousand and resulted in 0 charge-offs for the six months period ended June 30, 2020 and 2019, respectively.
The balance of TDRs was $7.3decreased $1.5 million to $30.5 million at SeptemberJune 30, 2017 and $4.12020 compared to $32.0 million at December 31, 2016, respectively, calculated for regulatory reporting purposes. There was $0.2 million allocated in specific reserves established with respect to these loans as of September 30, 2017.2019. As of SeptemberJune 30, 2017,2020, the Company had no additional amount committed on any loan classified as TDR.
26
The following table presents loans by class modified as troubled debt restructurings for which there was a payment default within twelve months following the modification ($ in thousands, except for number of loans).
| | | | | | | | | | |
|
| Six months ended |
| Six months ended | ||||||
| | June 30, 2020 | | June 30, 2019 | ||||||
Troubled Debt Restructurings | | Number of | | Recorded | | Number of | | Recorded | ||
That Subsequently Defaulted: |
| Loans |
| Investment |
| Loans |
| Investment | ||
| | | | | | | | | | |
Commercial, financial and agriculture | | 2 | | $ | 254 | | 3 | | $ | 782 |
Commercial real estate | | 9 | | | 15,083 | | 7 | | | 3,735 |
Consumer real estate | | — | | | — | | 2 | | | 185 |
Total |
| 11 | | $ | 15,337 |
| 12 |
| $ | 4,702 |
The modifications described above included one of the following or a combination of the following: maturity date extensions, interest only payments, amortizations were extended beyond what would be available on similar type loans, and payment waiver. No interest rate concessions were given on these loans nor were any of these loans written down. The TDRs presented above increased the allowance for loan losses $2.4 million and $143 thousand and resulted in no charge-offs for the six months period ended June 30, 2020 and 2019, respectively.
The following tables set forthrepresents the amounts and past due status for the BankCompany’s TDRs at SeptemberJune 30, 20172020 and December 31, 2016:2019:
| | | | | | | | | | | | | | | |
| | | | | | | | Past Due 90 | | | | |
| | |
June 30, 2020 | | Current | | Past Due | | days and still | | | | |
| | |||
($in thousands) |
| Loans |
| 30-89 |
| accruing |
| Nonaccrual |
| Total | |||||
Commercial, financial and agriculture | | $ | 119 | | $ | 39 | | $ | — | | $ | 1,667 | | $ | 1,825 |
Commercial real estate | |
| 4,425 | |
| 98 | |
| 109 | |
| 19,370 | |
| 24,002 |
Consumer real estate | |
| 1,844 | |
| 23 | |
| — | |
| 2,757 | |
| 4,624 |
Consumer installment | |
| 29 | |
| — | |
| — | |
| — | |
| 29 |
Total | | $ | 6,417 | | $ | 160 | | $ | 109 | | $ | 23,794 | | $ | 30,480 |
Allowance for loan losses | | $ | 110 | | $ | — | | $ | — | | $ | 3,589 | | $ | 3,699 |
($ In Thousands)
September 30, 2017 | |||||||||||||||||||||||||||||||||||
Current Loans | Past Due 30-89 | Past Due 90 days and still accruing | Non- accrual | Total
| |||||||||||||||||||||||||||||||
Commercial installment | $ | - | $ | - | $ | - | $ | 308 | $ | 308 | |||||||||||||||||||||||||
| | | | | | | | | | | | | | | | ||||||||||||||||||||
| | | | | | | | Past Due 90 | | | | |
| | |||||||||||||||||||||
December 31, 2019 | | Current | | Past Due | | days and still | | | | |
| | |||||||||||||||||||||||
($in thousands) |
| Loans |
| 30-89 |
| accruing |
| Nonaccrual |
| Total | |||||||||||||||||||||||||
Commercial, financial and agriculture | | $ | 583 | | $ | 64 | | $ | — | | $ | 1,062 | | $ | 1,709 | ||||||||||||||||||||
Commercial real estate | 3,461 | 267 | - | 1,047 | 4,775 | |
| 4,299 | |
| 809 | |
| 109 | |
| 19,991 | |
| 25,208 | |||||||||||||||
Consumer real estate | 1,099 | 88 | - | 1,011 | 2,198 | |
| 1,905 | |
| 112 | |
| 58 | |
| 2,940 | |
| 5,015 | |||||||||||||||
Consumer installment | 5 | - | - | 19 | 24 | |
| 37 | |
| — | |
| — | |
| — | |
| 37 | |||||||||||||||
Total | $ | 4,565 | $ | 355 | $ | - | $ | 2,385 | $ | 7,305 | | $ | 6,824 | | $ | 985 | | $ | 167 | | $ | 23,993 | | $ | 31,969 | ||||||||||
Allowance for loan losses | $ | 107 | $ | 14 | $ | - | $ | 122 | $ | 243 | | $ | 128 | | $ | — | | $ | — | | $ | 1,997 | | $ | 2,125 |
($ In Thousands)
December 31, 2016 | ||||||||||||||||||||
Current Loans | Past Due 30-89 | Past Due 90 days and still accruing | Non- accrual | Total | ||||||||||||||||
Commercial installment | $ | 151 | $ | - | $ | - | $ | - | $ | 151 | ||||||||||
Commercial real estate | 2,463 | - | - | 1,102 | 3,565 | |||||||||||||||
Consumer real estate | 154 | 90 | - | 122 | 366 | |||||||||||||||
Consumer installment | 6 | - | - | 23 | 29 | |||||||||||||||
Total | $ | 2,774 | $ | 90 | $ | - | $ | 1,247 | $ | 4,111 | ||||||||||
Allowance for loan losses | $ | 125 | $ | - | $ | - | $ | 40 | $ | 165 |
Internal Risk Ratings
Credit Quality Indicators
The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt, such as:as current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company uses the following definitions for risk ratings, which are consistent with the definitions used in supervisory guidance:
Pass: Loan classified as pass are deemed to possess average to superior credit quality, requiring no more than normal attention.
Special Mention.Mention: Loans classified as special mention have a potential weakness that deserves management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the Company’s credit position at some future date.
Substandard.Substandard: Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses
27
that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.
Doubtful.Doubtful: Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.
Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans.
As of SeptemberJune 30, 20172020 and December 31, 2016,2019, and based on the most recent analysis performed, the risk categoriescategory of loans by class of loans (excluding mortgage loans held for sale) werewas as follows:
| | | | | | | | | | | | | | | |
| | June 30, 2020 | |||||||||||||
| | Commercial, | | Commercial | | Consumer | | | | | | ||||
| | Financial and | | Real | | Real | | Consumer | | | | ||||
($ in thousands) |
| Agriculture |
| Estate |
| Estate |
| Installment |
| Total | |||||
Pass | | $ | 632,701 | | $ | 1,842,072 | | $ | 547,278 | | $ | 43,327 | | $ | 3,065,378 |
Special Mention | |
| 2,895 | |
| 22,980 | |
| 1,774 | |
| 26 | |
| 27,675 |
Substandard | |
| 11,822 | |
| 62,186 | |
| 14,621 | |
| 171 | |
| 88,800 |
Doubtful | |
| 598 | |
| 99 | |
| — | |
| — | |
| 697 |
Subtotal | | $ | 648,016 | | $ | 1,927,337 | | $ | 563,673 | | $ | 43,524 | | $ | 3,182,550 |
Less: | |
|
| |
|
| |
|
| |
|
| |
|
|
Unearned Discount | |
| — | |
| 11,015 | |
| — | |
| — | |
| 11,015 |
Loans, net of unearned discount | | $ | 648,016 | | $ | 1,916,322 | | $ | 563,673 | | $ | 43,524 | | $ | 3,171,535 |
| | | | | | | | | | | | | | | |
| | December 31, 2019 | |||||||||||||
| | Commercial, | | Commercial | | Consumer | | | | | | ||||
| | Financial and | | Real | | Real | | Consumer | | | | ||||
($ in thousands) |
| Agriculture |
| Estate |
| Estate |
| Installment |
| Total | |||||
Pass | | $ | 327,205 | | $ | 1,645,496 | | $ | 499,426 | | $ | 41,008 | | $ | 2,513,135 |
Special Mention | |
| 3,493 | |
| 8,876 | |
| 1,194 | |
| 21 | |
| 13,584 |
Substandard | |
| 10,972 | |
| 50,554 | |
| 13,244 | |
| 397 | |
| 75,167 |
Doubtful | |
| 16 | |
| 77 | |
| — | |
| — | |
| 93 |
Subtotal | | $ | 341,686 | | $ | 1,705,003 | | $ | 513,864 | | $ | 41,426 | | $ | 2,601,979 |
Less: | |
|
| |
|
| |
|
| |
|
| |
|
|
Unearned Discount | |
| — | |
| 1,621 | |
| — | |
| — | |
| 1,621 |
Loans, net of unearned discount | | $ | 341,686 | | $ | 1,703,382 | | $ | 513,864 | | $ | 41,426 | | $ | 2,600,358 |
September 30, 2017Allowance for Loan Losses
($ In Thousands)
Real Estate Commercial | Real Estate Mortgage | Installment and Other | Commercial, Financial and Agriculture | Total | ||||||||||||||||
Pass | $ | 746,097 | $ | 223,995 | $ | 28,184 | $ | 164,373 | $ | 1,162,649 | ||||||||||
Special Mention | 9,619 | 825 | - | 3,127 | 13,571 | |||||||||||||||
Substandard | 16,743 | 4,172 | 89 | 1,892 | 22,896 | |||||||||||||||
Doubtful | 95 | - | - | 26 | 121 | |||||||||||||||
Subtotal | 772,554 | 228,992 | 28,273 | 169,418 | 1,199,237 | |||||||||||||||
Less: | ||||||||||||||||||||
Unearned discount | 750 | 59 | - | 235 | 1,044 | |||||||||||||||
Loans, net of unearned discount | $ | 771,804 | $ | 228,933 | $ | 28,273 | $ | 169,183 | $ | 1,198,193 |
December 31, 2016
($ In Thousands)
Real Estate Commercial | Real Estate Mortgage | Installment and Other | Commercial, Financial and Agriculture | Total | ||||||||||||||||
Pass | $ | 522,949 | $ | 174,325 | $ | 21,278 | $ | 134,235 | $ | 852,787 | ||||||||||
Special Mention | 376 | 237 | - | 618 | 1,231 | |||||||||||||||
Substandard | 11,873 | 1,336 | 79 | 208 | 13,496 | |||||||||||||||
Doubtful | - | 200 | - | 40 | 240 | |||||||||||||||
Subtotal | 535,198 | 176,098 | 21,357 | 135,101 | 867,754 | |||||||||||||||
Less: | ||||||||||||||||||||
Unearned discount | 378 | 60 | - | 262 | 700 | |||||||||||||||
Loans, net of unearned discount | $ | 534,820 | $ | 176,038 | $ | 21,357 | $ | 134,839 | $ | 867,054 |
ActivityThe following table presents the activity in the allowance for loan losses by portfolio segment for the period was as follows:quarter ended June 30, 2020 and 2019:
($ In Thousands) | ||||||||
Three Months | Nine Months | |||||||
Ended | Ended | |||||||
Sept. 30, 2017 | Sept. 30, 2017 | |||||||
Balance at beginning of period | $ | 8,070 | $ | 7,510 | ||||
Loans charged-off: | ||||||||
Real Estate | (39 | ) | (259 | ) | ||||
Installment and Other | (21 | ) | (63 | ) | ||||
Commercial, Financial and Agriculture | ( - | ) | (1 | ) | ||||
Total | (60 | ) | (323 | ) | ||||
Recoveries on loans previously charged-off: | ||||||||
Real Estate | 45 | 498 | ||||||
Installment and Other | 23 | 67 | ||||||
Commercial, Financial and Agriculture | 7 | 39 | ||||||
Total | 75 | 604 | ||||||
Net recoveries | 15 | 281 | ||||||
Provision for Loan Losses | 90 | 384 | ||||||
Balance at end of period | $ | 8,175 | $ | 8,175 |
| | | | | | | | | | | | | | | | | | | | | |
| | Three months ended June 30, 2020 | |||||||||||||||||||
| | Commercial, | | | | | | | | Paycheck | | | | | |||||||
| | Financial and | | Commercial | | Consumer | | Installment | | Protection | | | | | |||||||
($ in thousands) |
| Agriculture |
| Real Estate |
| Real Estate |
| and Other |
| Program |
| Unallocated |
| Total | |||||||
Allowance for loan losses: | | | | | | | | | | | | | | | | | | | | | |
Beginning balance | | $ | 4,466 | | $ | 13,095 | | $ | 2,840 | | $ | 403 | | $ | — | | $ | — | | $ | 20,804 |
Provision for loan losses |
| | 883 |
| | 5,202 |
| | 874 |
| | 517 |
| | 130 |
| | — |
| | 7,606 |
Loans charged-off |
| | (165) |
| | (63) |
| | (87) |
| | (554) |
| | — |
| | — |
| | (869) |
Recoveries |
| | 24 |
| | 292 |
| | 114 |
| | 93 |
| | — |
| | — |
| | 523 |
Total ending allowance balance | | $ | 5,208 | | $ | 18,526 | | $ | 3,741 | | $ | 459 | | $ | 130 | | $ | — | | $ | 28,064 |
28
The following tables represent how the allowance for loan losses is allocated to a particular loan type, as well as the percentageTable of the category to total loans at September 30, 2017 and December 31, 2016.Contents
| | | | | | | | | | | | | | | | | | | | | |
| | Six months ended June 30, 2020 | |||||||||||||||||||
|
| Commercial, |
| Commercial |
| Consumer |
| Installment |
| Paycheck |
| | |
| | | |||||
| | Financial and | | Real | | Real | | and | | Protection | | | | | | | |||||
($ in thousands) | | Agriculture | | Estate | | Estate | | Other | | Program | | Unallocated | | Total | |||||||
Allowance for loan losses: |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Beginning balance | | $ | 3,043 | | $ | 8,836 | | $ | 1,694 | | $ | 296 | | $ | — | | $ | 39 | | $ | 13,908 |
Provision for loan losses | |
| 2,329 | |
| 9,725 | |
| 1,980 | |
| 583 | |
| 130 | |
| (39) | |
| 14,708 |
Loans charged-off | |
| (264) | |
| (396) | |
| (96) | |
| (613) | |
| — | |
| — | |
| (1,369) |
Recoveries | |
| 100 | |
| 361 | |
| 163 | |
| 193 | |
| — | |
| — | |
| 817 |
Total ending allowance balance | | $ | 5,208 | | $ | 18,526 | | $ | 3,741 | | $ | 459 | | $ | 130 | | $ | — | | $ | 28,064 |
| | | | | | | | | | | | | | | | | | |
| | Three months ended June 30, 2019 | ||||||||||||||||
| | Commercial, | | | | | | | | | | | ||||||
| | Financial and | | Commercial | | Consumer | | Installment | | | | | ||||||
($ in thousands) |
| Agriculture |
| Real Estate |
| Real Estate |
| and Other |
| Unallocated |
| Total | ||||||
Allowance for loan losses: | | | | | | | | | | | | | | | | | | |
Beginning balance | | $ | 1,579 | | $ | 7,271 | | $ | 204 | | $ | 2,181 | | $ | — | | $ | 11,235 |
Provision for loan losses |
| | 840 |
| | 657 |
| | 1,210 |
| | (1,964) |
| | 48 |
| | 791 |
Loans charged-off |
| | (2) |
| | (66) |
| | — |
| | (38) |
| | — |
| | (106) |
Recoveries |
| | 15 |
| | 10 |
| | 75 |
| | 71 |
| | — |
| | 171 |
Total ending allowance balance | | $ | 2,432 | | $ | 7,872 | | $ | 1,489 | | $ | 250 | | $ | 48 | | $ | 12,091 |
Allocation of the Allowance for Loan Losses
| | | | | | | | | | | | | | | | | | |
| | Six months ended June 30, 2019 | ||||||||||||||||
|
| Commercial, |
| Commercial |
| Consumer |
| Installment |
| | |
| | | ||||
| | Financial and | | Real | | Real | | and | | | | | | | ||||
($ in thousands) | | Agriculture | | Estate | | Estate | | Other | | Unallocated | | Total | ||||||
Allowance for loan losses: |
| |
|
| |
|
| |
|
| |
|
| | |
| |
|
Beginning balance | | $ | 2,060 | | $ | 6,258 | | $ | 1,743 | | $ | 201 | | $ | (197) | | $ | 10,065 |
Provision for loan losses | |
| 351 | |
| 1,666 | |
| (313) | |
| (36) | |
| 245 | |
| 1,913 |
Loans charged-off | |
| (6) | |
| (66) | |
| (42) | |
| (67) | |
| — | |
| (181) |
Recoveries | |
| 27 | |
| 14 | |
| 101 | |
| 152 | |
| — | |
| 294 |
Total ending allowance balance | | $ | 2,432 | | $ | 7,872 | | $ | 1,489 | | $ | 250 | | $ | 48 | | $ | 12,091 |
September 30, 2017 | ||||||||
($ In Thousands) | ||||||||
Amount | % of loans in each category to total loans | |||||||
Commercial Non Real Estate | $ | 1,557 | 14.1 | % | ||||
Commercial Real Estate | 4,662 | 64.4 | ||||||
Consumer Real Estate | 1,510 | 19.1 | ||||||
Consumer | 174 | 2.4 | ||||||
Secondary market reserve | 180 | - | ||||||
Unallocated | 92 | - | ||||||
Total | $ | 8,175 | 100 | % |
December 31, 2016 | ||||||||
($ In Thousands) | ||||||||
Amount | % of loans in each category to total loans | |||||||
Commercial Non Real Estate | $ | 1,118 | 15.6 | % | ||||
Commercial Real Estate | 4,071 | 61.6 | ||||||
Consumer Real Estate | 1,589 | 20.3 | ||||||
Consumer | 155 | 2.4 | ||||||
Unallocated | 577 | 0.1 | ||||||
Total | $ | 7,510 | 100 | % |
The following tables provide the ending balances in the Company'sCompany’s loans (excluding mortgage loans held for sale) and allowance for loan losses, broken down by portfolio segment as of SeptemberJune 30, 20172020 and December 31, 2016.2019. The tables also provide additional detail as to the amount of our loans and allowance that correspond to individual versus collective impairment evaluation. The impairment evaluation corresponds to the Company'sCompany’s systematic methodology for estimating its Allowance for Loan Losses. See Item No. 2
June 30, 2020,
| | | | | | | | | | | | | | | | | | | | | |
| | Commercial | | | | | | | |
| | | | | | | | | | | |
| | Financial | |
| | |
| | | Installment | | Paycheck | | | | |
| | |||
| | and | | Commercial | | Consumer | | and | | Protection | | | | | | | |||||
($ in thousands) |
| Agriculture |
| Real Estate |
| Real Estate |
| Other |
| Program |
| Unallocated |
| Total | |||||||
Loans | | |
|
| |
|
| |
|
| |
| | | | | | |
| |
|
Individually evaluated | | $ | 2,008 | | $ | 26,379 | | $ | 1,691 | | $ | 66 | | $ | — | | $ | — | | $ | 30,144 |
Collectively evaluated | |
| 645,483 | |
| 1,983,566 | |
| 452,121 | |
| 43,433 | | | — | | | — | |
| 3,124,603 |
PCI Loans | | | 525 | | | 6,369 | | | 9,869 | | | 25 | | | — | | | — | | | 16,788 |
Total | | $ | 648,016 | | $ | 2,016,314 | | $ | 463,681 | | $ | 43,524 | | $ | — | | $ | — | | $ | 3,171,535 |
| | | | | | | | | | | | | | | | | | | | | |
Allowance for Loan Losses | |
|
| |
|
| |
|
| |
|
| | | | | | | |
|
|
Individually evaluated | | $ | 1,120 | | $ | 4,621 | | $ | 164 | | $ | 19 | | $ | — | | $ | — | | $ | 5,924 |
Collectively evaluated | |
| 4,088 | |
| 13,905 | |
| 3,577 | |
| 440 | | | 130 | | | — | |
| 22,140 |
Total | | $ | 5,208 | | $ | 18,526 | | $ | 3,741 | | $ | 459 | | $ | 130 | | $ | — | | $ | 28,064 |
29
December 31, 2019,
| | | | | | | | | | | | | | | | | | | | | |
| | Commercial | | | | | | | | | | | | | | | | | | | |
| | Financial | | | | | | | | Installment | | | | | | | | | | ||
| | and | | Commercial | | Consumer | | and | | | | | | | | | | ||||
($ in thousands) |
| Agriculture |
| Real Estate |
| Real Estate |
| Other | | | | Unallocated |
| Total | |||||||
Loans | | |
|
| |
|
| |
|
| |
| | | | | | |
| |
|
Individually evaluated | | $ | 2,493 | | $ | 25,984 | | $ | 1,181 | | $ | 281 | | | | | $ | — | | $ | 29,939 |
Collectively evaluated | | | 339,003 | | | 1,773,934 | | | 398,471 | | | 41,112 | | | | | | — | | | 2,552,520 |
PCI Loans | |
| 191 | |
| 10,471 | |
| 7,204 | |
| 33 | | | | | | — | |
| 17,899 |
Total | | $ | 341,687 | | $ | 1,810,389 | | $ | 406,856 | | $ | 41,426 | | | | | $ | — | | $ | 2,600,358 |
| | | | | | | | | | | | | | | | | | | | | |
Allowance for Loan Losses | |
|
| |
|
| |
|
| |
|
| | | | | | | |
|
|
Individually evaluated | | $ | 1,182 | | $ | 3,021 | | $ | 141 | | $ | 80 | | | | | $ | — | | $ | 4,424 |
Collectively evaluated | |
| 1,861 | |
| 5,815 | |
| 1,553 | |
| 216 | | | | | | 39 | |
| 9,484 |
Total | | $ | 3,043 | | $ | 8,836 | | $ | 1,694 | | $ | 296 | | | | | $ | 39 | | $ | 13,908 |
NOTE 11 – “Management’s DiscussionREVENUE FROM CONTRACTS WITH CUSTOMERS
All of the Company’s revenue from contracts with customers within the scope of ASC 606 is recognized within non-interest income. The guidance does not apply to revenue associated with financial instruments, including loans and Analysisinvestment securities that are accounted for under other GAAP, which comprise a significant portion of Financial Condition and Results of Operations – Provision for Loan and Lease Losses” for aour revenue stream. A description of our methodology.the Company’s revenue streams accounted for under ASC 606 is as follows:
Service Charges on Deposit Accounts: The Company earns fees from deposit customers for transaction-based, account maintenance, and overdraft services. Transaction-based fees, which include services such as ATM use fees, stop payment charges, statement rendering, and ACH fees, are recognized at the time the transaction is executed at the point in time that the Company fulfills the customer’s request. Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of a month, representing the period over which the Company satisfies the performance obligation. Overdraft fees are recognized at the point in time that the overdraft occurs. Service charges on deposits are withdrawn from the customer’s account balance.
Interchange Income: The Company earns interchange fees from debit and credit card holder transactions conducted through various payment networks. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, concurrently with the transaction processing services provided by the cardholder.
Gains/Losses on Sales of OREO: The Company records a gain or loss from the sale of OREO when control of the property transfers to the buyer, which generally occurs at the time of an executed deed. When the Company finances the sale of OREO to the buyer, the Company assesses whether the buyer is committed to perform their obligations under the contract and whether the collectability of the transaction prices is probable. Once these criteria are met, the OREO asset is derecognized and the gain or loss on sale is recorded upon the transfer of control of the property to the buyer. In determining the gain or loss on the sale, the Company adjusts the transaction price and related gain (loss) on sale if a significant financing component is present.
All of the Company’s revenue from contracts with customers in the scope of ASC 606 is recognized within non-interest income. The following table presents the Company’s sources of non-interest income revenue, by operating
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segments, for the three months and six months period ended June 30, 2020 and 2019. Items outside the scope of ASC 606 are noted as such.
| | | | | | | | | | | | | | | | | | | | | | | | |
|
| Three Months Ended June 30, 2020 | | Six Months Ended June 30, 2020 | ||||||||||||||||||||
| | Commercial/ | | Mortgage | | | | | | | Commercial/ | | Mortgage | | | | | | ||||||
| | Retail | | Banking | | Holding | | | | | Retail | | Banking | | Holding | | | |||||||
($in thousands) |
| Bank |
| Division |
| Company |
| Total |
| | Bank |
| Division |
| Company |
| Total | |||||||
Non-interest income | | | | | | | | | | | | | | | | | | | | | | | | |
Service charges on deposits | | | | | | | | | | | | | | | | | | | | | | | | |
Overdraft fees | | $ | 525 | | $ | — | | $ | — | | $ | 525 | | $ | 1,580 | | $ | — | | $ | — | | $ | 1,580 |
Other | |
| 1,072 | |
| — | |
| — | |
| 1,072 | |
| 1,931 | |
| 1 | |
| — | |
| 1,932 |
Interchange income | |
| 2,394 | |
| — | |
| — | |
| 2,394 | |
| 4,380 | |
| — | |
| — | |
| 4,380 |
Investment brokerage fees | |
| 280 | |
| — | |
| — | |
| 280 | |
| 382 | |
| — | |
| — | |
| 382 |
Net gains (losses) on OREO | |
| (117) | |
| — | |
| — | |
| (117) | |
| (341) | |
| — | |
| — | |
| (341) |
Net gains (losses) on sales of securities (a) | |
| 72 | |
| — | |
| — | |
| 72 | |
| 246 | |
| — | |
| — | |
| 246 |
Gain on acquisition | | | 7,023 | | | — | | | — | | | 7,023 | | | 7,023 | | | | | | | | | 7,023 |
Gain on premises and equipment | | | 469 | | | — | | | — | | | 469 | | | 461 | | | | | | | | | 461 |
Other | |
| 1,319 | |
| 2,646 | |
| (3) | |
| 3,962 | |
| 2,266 | |
| 4,212 | |
| 13 | |
| 6,491 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total non-interest income | | $ | 13,037 | | $ | 2,646 | | $ | (3) | | $ | 15,680 | | $ | 17,928 | | $ | 4,213 | | $ | 13 | | $ | 22,154 |
| | | | | | | | | | | | | | | | | | | | | | | | |
|
| Three Months Ended June 30, 2019 | | Six Months Ended June 30, 2019 | ||||||||||||||||||||
| | Commercial/ | | Mortgage | | | | | | | Commercial/ | | Mortgage | | | | | | ||||||
| | Retail | | Banking | | Holding | | | | | Retail | | Banking | | Holding | | | |||||||
($in thousands) |
| Bank |
| Division |
| Company |
| Total |
| | Bank |
| Division |
| Company |
| Total | |||||||
Non-interest income | | | | | | | | | | | | | | | | | | | | | | | | |
Service charges on deposits | | | | | | | | | | | | | | | | | | | | | | | | |
Overdraft fees | | $ | 1,038 | | $ | — | | $ | — | | $ | 1,038 | | $ | 2,012 | | $ | 1 | | $ | — | | $ | 2,013 |
Other | |
| 880 | |
| 1 | |
| — | |
| 881 | |
| 1,738 | |
| 1 | |
| — | |
| 1,739 |
Interchange income | |
| 2,045 | |
| — | |
| — | |
| 2,045 | |
| 3,697 | |
| — | |
| — | |
| 3,697 |
Investment brokerage fees | |
| 24 | |
| — | |
| — | |
| 24 | |
| 33 | |
| — | |
| — | |
| 33 |
Net gains (losses) on OREO | |
| (18) | |
| — | |
| — | |
| (18) | |
| (28) | |
| — | |
| — | |
| (28) |
Net gains (losses) on sales of securities (a) | |
| (43) | |
| — | |
| — | |
| (43) | |
| (81) | |
| — | |
| — | |
| (81) |
Loss on premises and equipment | | | (8) | | | — | | | — | | | (8) | | | (8) | | | — | | | — | | | (8) |
Other | |
| 1,146 | |
| 1,558 | |
| 93 | |
| 2,797 | |
| 2,100 | |
| 2,467 | |
| 338 | |
| 4,905 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total non-interest income | | $ | 5,064 | | $ | 1,559 | | $ | 93 | | $ | 6,716 | | $ | 9,463 | | $ | 2,469 | | $ | 338 | | $ | 12,270 |
(a) | Not within scope of ASC 606 |
September 30, 2017
(In thousands)
Installment | Financial | |||||||||||||||
Real Estate | and Other | and Agriculture | Total | |||||||||||||
Loans | ||||||||||||||||
Individually evaluated | $ | 9,623 | $ | 52 | $ | 210 | $ | 9,885 | ||||||||
Collectively evaluated | 991,115 | 28,222 | 168,971 | 1,188,308 | ||||||||||||
Total | $ | 1,000,738 | $ | 28,374 | $ | 169,181 | $ | 1,198,193 | ||||||||
Allowance for Loan Losses | ||||||||||||||||
Individually evaluated | $ | 373 | $ | 17 | $ | 101 | $ | 491 | ||||||||
Collectively evaluated | 5,978 | 249 | 1,457 | 7,684 | ||||||||||||
Total | $ | 6,351 | $ | 266 | $ | 1,558 | $ | 8,175 |
December 31, 2016
(In thousands)
Commercial, | ||||||||||||||||
Installment | Financial | |||||||||||||||
Real Estate | and Other | and Agriculture | Total | |||||||||||||
Loans | ||||||||||||||||
Individually evaluated | $ | 5,935 | $ | 40 | $ | 153 | $ | 6,128 | ||||||||
Collectively evaluated | 704,923 | 21,317 | 134,686 | 860,926 | ||||||||||||
Total | $ | 710,858 | $ | 21,357 | $ | 134,839 | $ | 867,054 | ||||||||
Allowance for Loan Losses | ||||||||||||||||
Individually evaluated | $ | 651 | $ | 21 | $ | 10 | $ | 682 | ||||||||
Collectively evaluated | 5,009 | 711 | 1,108 | 6,828 | ||||||||||||
Total | $ | 5,660 | $ | 732 | $ | 1,118 | $ | 7,510 |
NOTE 12 – LEASES
The Company enters into leases in the normal course of business primarily for financial centers, back office operations locations and business development offices. The Company’s leases have remaining terms ranging from 1 to 11 years.
The Company includes lease extension and termination options in the lease term if, after considering relevant economic factors, it is reasonably certain the Company will exercise the option. In addition, the Company has elected to account for any non-lease components in its real estate leases as part of the associated lease component. The Company
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has also elected not to recognize leases with original lease terms of 12 months or less (short-term leases) on the Company’s balance sheet.
Leases are classified as operating or finance leases at the lease commencement date. Leases in which we are the lessee are recorded as a right-of-use assets and lease liabilities, which are included in premises and equipment and other liabilities, respectively, on our consolidated balance sheets. Lease expense for leases and short-term leases is recognized on a straight-line basis over the lease term, and is recorded in net occupancy and equipment expense in the consolidated statements of income and other comprehensive income. Right-of-use assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Right-of-use assets and lease liabilities are recognized at the lease commencement date and based on the estimated present value of lease payments over the lease term.
The Company uses its incremental borrowing rate at lease commencement to calculate the present value of lease payments when the rate implicit in a lease is not known. The Company’s incremental borrowing rate is based on the FHLB amortizing advance rate, adjusted for the lease term and other factors.
The following table details balance sheet information, as well as weighted-average lease terms and discount rates, related to leases at June 30, 2020 and December 31, 2019 ($ in thousands).
| | | | | | | |
| | June 30, 2020 | | December 31, 2019 | | ||
Right-of-use assets: |
| |
|
| |
| |
Operating leases | | $ | 5,759 | | $ | 6,518 | |
Finance leases, net of accumulated depreciation | |
| 2,780 | |
| — | |
Total right-of-use assets | | $ | 8,539 | | $ | 6,518 | |
Lease liabilities: | |
|
| |
|
| |
Operating lease | | $ | 5,759 | | $ | 6,518 | |
Finance lease | |
| 2,373 | |
| — | |
Total lease liabilities | | $ | 8,132 | | $ | 6,518 | |
Weighted average remaining lease term | | | | | | | |
Operating leases | | | 4.7 | years | | 6.2 | years |
Finance leases | | | 11.4 | years | | — | |
Weighted average discount rate | | | | | | | |
Operating leases | | | 2.6 | % | | 3.1 | % |
Finance leases | | | 2.5 | % | | — | |
The table below summarizes our net lease costs ($ in thousands):
| | | | | | | | | | | | |
|
| Three months ended | | Six months ended | ||||||||
| | June 30, | | June 30, | ||||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Operating lease cost | | $ | 424 | | $ | 228 | | $ | 802 | | $ | 350 |
Finance lease cost: | | | | | | | | | | | | |
Interest on lease liabiltiies | |
| 2 | |
| — | |
| 4 | |
| — |
Amortization of right-of-use | | | 2 | | | — | | | 4 | | | — |
Net lease cost | | $ | 428 | | $ | 228 | | $ | 810 | | $ | 350 |
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The table below summarizes the maturity of remaining lease liabilities at June 30, 2020 and December 31, 2019 ($ in thousands):
| | | | | | |
| | June 30, 2020 | ||||
|
| Operating Leases |
| Finance Leases | ||
Remaining 2020 | | $ | 802 | | $ | 95 |
2021 | |
| 1,527 | |
| 175 |
2022 | |
| 1,359 | |
| 220 |
2023 | |
| 844 | |
| 220 |
2024 | |
| 631 | |
| 220 |
Thereafter | |
| 985 | |
| 1,698 |
Total lease payments | | $ | 6,148 | | | 2,628 |
Less: Interest | |
| (389) | |
| (255) |
Present value of lease liabilities | | $ | 5,759 | | $ | 2,373 |
| | | | | |
| | December 31, 2019 | |||
|
| Operating Leases |
| Finance Leases | |
2020 | | $ | 1,643 | | — |
2021 | |
| 1,527 | | — |
2022 | | | 1,359 | | — |
2023 | | | 844 | | — |
2024 | |
| 631 | | — |
Thereafter | |
| 981 | | — |
Total lease payments | | $ | 6,985 | | — |
Less: Interest | |
| (467) | | — |
Present value of lease liabilities | | $ | 6,518 | | — |
NOTE 13 – COVID-19 UPDATE
The COVID-19 pandemic is having, and will likely continue to have, significant effects on global markets, supply chains, businesses and communities. COVID-19 is likely to impact the Company’s futures financial condition and result of operations including but not limited to additional credit loss reserves, additional collateral and/or modifications to debt obligations, liquidity, limited dividend payouts or potential shortages of personnel. Management continues to take appropriate actions to mitigate the negative impact the virus has on the Company, including restricting employee travel, directing employees to work remotely, cancelling in-person meetings and implementing our business continuity plans and protocols to the extent necessary.
The pandemic is having an adverse impact on certain industries the Company serves, including hotels, restaurants, retail, convenience stores, healthcare, and direct energy. As of June 30, 2020, the Company’s aggregate outstanding exposure in these segments was $625.2 million, and loan modifications resulting from COVID-19 were approximately $436.1 million. While it is not yet possible to know the full effect that the pandemic will have on the economy, or to what extent this crisis will impact the Company, all available current industry statistics and internal monitoring of loan repayment ability and payment forgiveness across the portfolio has been analyzed in an attempt to understand the correlation with asset quality and degree of possible deterioration.
Because of the significant uncertainties related to the ultimate duration of the COVID-19 pandemic and its potential effects on customers, and on the national and local economy as a whole, its full impact cannot be known or reasonably be estimated, including the impact on our loan portfolio. It is unknown how long the adverse conditions associated with the COVID-19 pandemic will last and what the complete financial effect will be to the Company. It is reasonably possible that estimates made in the financial statements could be materially and adversely impacted in the near term as a result of these conditions, including the determination of the allowance for loan losses, fair value of financial instruments, impairment of goodwill and other intangible assets and income taxes.
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NOTE 14 – SUBSEQUENT EVENTS/OTHER
Subsequent events have been evaluated by management through the date the financial statements were issued.
On October 24, 2017, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Southwest Banc Shares, Inc., an Alabama corporation (“Southwest”), whereby Southwest will be merged with and into the Company. Pursuant to and simultaneously with entering into the Merger Agreement, The First, and Southwest’s wholly owned subsidiary bank, First Community Bank (“First Community Bank”), entered into a Plan of Bank Merger whereby First Community Bank will be merged with and into The First immediately following the merger of SWBS with and into the Company. At September 30, 2017, First Community Bank had total assets of approximately $391.6 million.
On October 31, 2017, the Company completed a sale of an aggregate of 2,012,500 shares of its common stock in a public offering. Net proceeds after underwriting discounts and estimated expenses were approximately $55.2 million. The Company intends to use the net proceeds from the offering to fund the cash portion of the purchase price for the Company’s previously announced acquisition of Southwest, to fund other potential future acquisitions, and for general corporate purposes, including the repayment of debt and to support organic growth.
NOTE 1315 – RECLASSIFICATION
Certain amounts in the 20162019 financial statements have been reclassified for comparative purposes to conform to the current period financial statement presentation.
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PART I - FINANCIAL INFORMATION
ITEM NO. 2
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD LOOKING STATEMENTS
This QuarterlyCertain statements made or incorporated by reference in this Report on Form 10-Q containswhich are not statements of historical fact, including those under “Management's Discussion and Analysis of Financial Condition and Results of Operations,” and elsewhere in this Report, constitute forward-looking statements within the meaning of, and subject to the Privateprotections of, Section 27A of the Securities Litigation Reform Act of 1995. Words1933, as amended (the “Securities Act”) and Section 21E Securities of the Exchange Act of 1934 (the “Exchange Act”). Forward-looking statements include statements with respect to the Company’s beliefs, plans, objectives, goals, targets, expectations, anticipations, assumptions, estimates, intentions and future performance and involve known and unknown risks, many of which are beyond the Company’s control and which may cause the Company’s actual results, performance or achievements or the financial services industry or economy generally, to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements.
All statements other than statements of historical fact are forward-looking statements. You can identify these forward-looking statements through the Company’s use of words such as “believes,” “anticipates,” “expects,” “may,” “will,” “assumes,” “predicts,” “could,” “should,” “would,” “intends,” “anticipates,“targets,” “estimates,” “projects,” “plans,” “believes,” “seeks,” “estimates”“potential” and variations of suchother similar words and similar expressions are intended to identify such forward-looking statements. Suchof the future or otherwise regarding the outlook for the Company’s future business and financial performance and/or the performance of the financial services industry and economy in general. Forward-looking statements are based on currently available informationthe current beliefs and expectations of the Company’s management and are subject to varioussignificant risks and uncertaintiesuncertainties. Actual results may differ materially from those contemplated by such forward-looking statements. A number of factors could cause actual results to differ materially from those contemplated by the forward-looking statements in this document. Many of these factors are beyond the Company’s ability to control or predict. The most recent factor that could cause future results to differ materially from those anticipated by our forward-looking statements include the negative impact of COVID-19 pandemic on our financial statements, including our ability to continue our business activities in certain communities we serve, the duration of the pandemic and its continued effects on financial markets, a reduction in financial transaction and business activities resulting in decreased deposits and reduced loan originations, increases in unemployment rates impacting our borrowers’ ability to repay their loans, our ability to manage liquidity in a rapidly changing and unpredictable market, additional interest rate changes by the Federal Reserve and other government actions in response to the pandemic including additional quarantines, regulations or laws enacted to counter the effects of the COVID-19 pandemic on the economy. Other factors that could cause actual results to differ materially from the Company’s present expectations. Factors that might cause such differencesthose indicated by forward-looking statements include, but are not limited to: competitive pressures among financial institutions increasing significantly; economic conditions, either nationally or locally, in areas in which the Company conducts operations being less favorable than expected; legislation or regulatory changes which adversely affect the ability of the consolidated Company to conduct business combinations or new operations; and risks related to, the proposed acquisitionfollowing:
● | the negative impacts and disruptions resulting from the outbreak of COVID-19 on the economies and communities we serve, which has had and may continue to have an adverse impact on our business operations and performance, and could have a negative impact on our credit portfolio, stock price, borrowers and the economy as a whole both globally and domestically; |
● | government or regulatory responses to the COVID-19 pandemic; |
● | the costs and effects of litigation, investigations, inquiries or similar matters, or adverse facts and developments related thereto, including the costs and effects of litigation related to our participation in government stimulus programs associated with the COVID-19 pandemic; |
● | reduced earnings due to higher credit losses generally and specifically because losses in the sectors of our loan portfolio secured by real estate are greater than expected due to economic factors, including declining real estate values, increasing interest rates, increasing unemployment, or changes in payment behavior or other factors; |
● | general economic conditions, either nationally or regionally and especially in our primary service area, becoming less favorable than expected resulting in, among other things, a deterioration in credit quality; |
● | adverse changes in asset quality and resulting credit risk-related losses and expenses; |
35
● | ability of borrowers to repay loans, which can be adversely affected by a number of factors, including changes in economic conditions, adverse trends or events affecting business industry groups, reductions in real estate values or markets, business closings or lay-offs, natural disasters, public health emergencies and international instability; |
● | current or future legislation, regulatory changes or changes in monetary, tax or fiscal policy that adversely affect the businesses in which we or our customers or our borrowers are engaged, including the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank Act”), the Federal Reserve’s actions with respect to interest rates, the capital requirements promulgated by the Basel Committee on Banking Supervision (“Basel Committee”), potential impacts from the Tax Cuts and Jobs Act, the CARES Act of 2020, uncertainty relating to calculation of LIBOR and other regulatory responses to economic conditions; |
● | changes in political conditions or the legislative or regulatory environment; |
● | the adequacy of the level of our allowance for credit losses and the amount of loan loss provisions required to replenish the allowance in future periods; |
● | reduced earnings due to higher credit losses because our loans are concentrated by loan type, industry segment, borrower type, or location of the borrower or collateral; |
● | changes in the interest rate environment which could reduce anticipated or actual margins; |
● | increased funding costs due to market illiquidity, increased competition for funding, higher interest rates, and increased regulatory requirements with regard to funding; |
● | results of examinations by our regulatory authorities, including the possibility that the regulatory authorities may, among other things, require us to increase our allowance for loan losses through additional loan loss provisions or write-down of our assets; |
● | the rate of delinquencies and amount of loans charged-off; |
● | the impact of our efforts to raise capital on our financial position, liquidity, capital, and profitability; |
● | risks and uncertainties relating to not successfully closing and integrating the currently contemplated or completed acquisitions within our currently expected timeframe and other terms; |
● | significant increases in competition in the banking and financial services industries; |
● | changes in the securities markets; |
● | loss of consumer confidence and economic disruptions resulting from national disasters or terrorist activities; |
● | our ability to retain our existing customers, including our deposit relationships; |
● | changes occurring in business conditions and inflation; |
● | changes in technology or risks to cybersecurity; |
● | changes in deposit flows; |
● | changes in accounting principles, policies, or guidelines, including the impact of the new CECL standard; |
● | our ability to maintain adequate internal control over financial reporting; |
36
● | risks related to the continued use, availability and reliability of LIBOR and other “benchmark” rates; and |
● | other risks and uncertainties detailed from time to time in our filings with the Securities and Exchange Commission (“SEC”). |
We have based our forward-looking statements on our current expectations about future events. Although we believe that the proposed transaction does not close when expected or at all because required regulatory or other approvals and other conditions to closing are not received or satisfied on a timely basis or at all, the terms of the proposed transaction may need to be modified to satisfy such approvals or conditions,expectations reflected in and the riskassumptions underlying our forward-looking statements are reasonable, we cannot guarantee that anticipated benefits fromthese expectations will be achieved or the proposed transaction are not realized in the time frame anticipated or at all as a result of changes in general economic and market conditions.assumptions will be accurate. The Company disclaims any obligation to update such factors or to publicly announce the results of any revisions to any of the forward-looking statements included herein to reflect future events or developments. FurtherAdditional information concerning these risks and uncertainties is contained in Item 1A. Risk Factors in our Annual Report on The First Bancshares, Inc. is availableForm 10-K for the year ended December 31, 2019, in itsthis Quarterly Report on Form 10Q, and in our other filings with the Securities and Exchange Commission, available at the SEC’s website, http://www.sec.gov.
www.sec.gov.
CRITICAL ACCOUNTING POLICIES
The Company’s financial statements are prepared in accordance with accounting principles generally accepted in the United States. The financial information and disclosures contained within those statements are significantly impacted by Management’s estimates and judgments, which are based on historical experience and incorporate various assumptions that are believed to be reasonable under current circumstances. Actual results may differ from those estimates under divergent conditions.
Critical accounting policies are those that involve the most complex and subjective decisions and assessments, and have the greatest potential impact on the Company’s stated results of operations. In Management’s opinion, the Company’s critical accounting policies deal with the following areas: the establishment of the allowance for loan and lease losses (referred to as the “allowance for loan losses” or the “ALLL”), as explained in detail in Note 1110 - Loans to the Consolidated Financial Statements and in the “Provision for Loan and Lease Losses” and “Allowance for Loan and Lease Losses” sections of this Item No. 22. – Management’s Discussion and Analysis of Financial Condition and Results of Operations; the valuation of impaired loans and foreclosed assets, as discussed in Note 1110 - Loans to the Consolidated Financial Statements; income taxes and deferred tax assets and liabilities, especially with regard to the ability of the Company to recover deferred tax assets as discussed in the “Provision for Income Taxes” and “Other Assets” sections of this Item No. 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations; and goodwill and other intangible assets, which are evaluated annually for impairment, and for which we have determined that no impairment exists, as discussed in the “Other Assets” section of this Item No. 22. – Management’s Discussion and Analysis of Financial Condition and Results of Operations. Critical accounting policies are evaluated on an ongoing basis to ensure that the Company’s financial statements incorporate our most recent expectations with regard to those areas.
As a result of the Company’s immediate response to COVID-19, including loan modifications/payment deferral programs and the Paycheck Protection Program, as well as acquisition and integration of SWG, and increased uncertainty related to certain judgments and estimates, the Company has elected to temporarily defer or suspend the application of two provisions of U.S. Generally Accepted Accounting Principles (GAAP), as allowed by the CARES Act, which was signed into law by the President on March 27, 2020. Sections 4013 and 4014 of the CARES Act provide the Company with temporary relief from troubled debt restructurings and from CECL, which the Company believes prudent to elect in these challenging times to allow us time to provide consistent, high-quality financial information to our investors and other stakeholders.
OVERVIEW OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS SUMMARY
ThirdSecond quarter 20172020 compared to thirdsecond quarter 2016
2019
The Company reported net income available to common shareholders of $4.7$16.9 million for the three months ended SeptemberJune 30, 2017,2020, compared with net income available to common shareholders of $2.5$12.0 million for the same period last year. For the second quarter of 2020, fully diluted earnings per share were $0.79, compared to $0.69 for the second quarter of 2019.
37
Operating net earnings, a non-GAAP financial measure, for the second quarter of 2020 totaled $11.2 million compared to $12.1 million for the second quarter of 2019, a decrease of $817 thousand or 6.8%. The net, after tax, provision change in the quarter comparison was $5.2 million, which accounted for the decrease. Operating net earnings for the second quarter of 2020 excludes merger-related costs of $1.8 million, net of tax, a bargain purchase gain related to the SWG acquisition of $7.0 million and a gain on sale of land of $ 463 thousand, net of tax. Operating net earnings for the second quarter of 2019 excludes merger-related costs of $68 thousand, net of tax. Operating earnings per share were $0.52 on a fully diluted basis for the second quarter 2020, compared to $0.70 for the same period in 2019, excluding the merger-related costs and income described above. See reconciliation of non-GAAP financial measures provided below.
Net interest income increased to $14.9$39.2 million, or 48.4%27.3%, for the three months ended SeptemberJune 30, 2017,2020, compared to $10.1$30.8 million for the same period in 2016. Quarterly average earning assets at September 30, 2017,2019. The increase was due to interest income earned on a higher volume of loans. Fully tax equivalent (“FTE”) net interest income, which is a non-GAAP measure, totaled $39.8 million and $31.0 million for the second quarter of 2020 and 2019, respectively. FTE net interest income increased $486.2$8.7 million or 43.7% andin the prior year quarterly average interest-bearing liabilitiescomparison due to increased $368.7 million or 39.9% whenloan volume. Purchase accounting adjustments accounted for $550 thousand of the difference in net interest income for the second quarter comparisons. Second quarter 2020 FTE net interest margin, which is a non-GAPP measure, of 3.63% included 21 basis points related to purchase accounting adjustments compared to September 30, 2016.4.07% for the same quarter in 2019, which included 23 basis points related to purchase accounting adjustments. Excluding the purchase accounting adjustments, the net interest margin decreased 42 basis points in prior year quarterly comparison.
NoninterestNon-interest income for the three months ended SeptemberJune 30, 2017,2020, was $3.7$15.7 million compared to $3.1$6.7 million for the same period in 2016,2019, reflecting an increase of $0.6$9.0 million or 18.0%133.5%. ThisMortgage income increased $1.1 million in prior year quarterly comparison primarily due to an increase was composedin mortgage loan volume. The Company recorded a $7.0 million bargain purchase gain on the SWG acquisition as well as a $463 thousand, net of increases in servicetax, gain on the sale of land.
Pre-tax, pre-provision operating earnings, a non-GAAP measure which excludes acquisition charges, treasury awards, gains from the bargain purchase of SWG and interchange fee income.sale of land, increased 28.5% to $21.4 million for the quarter ended June 30, 2020 as compared to $16.7 million for the second quarter of 2019. See reconciliation of non-GAAP financial measures provided below.
TheProvision for loan losses totaled $7.6 million for the quarter ended June 30, 2020, an increase of $6.8 million, or 861.6% as compared to $791 thousand for the second quarter of 2019. $6.6 million of the $7.6 million provision for loan losses was $90,000loss expense for the three monthsquarter ended SeptemberJune 30, 2017, compared with $143,000 for2020 was related to the same period in 2016.economic effects of COVID-19. The allowance for loan losses of $8.2$28.1 million at SeptemberJune 30, 2017 (approximately 0.68%2020 or 0.88% of total loans and 1.16% of loans including valuation accounting adjustmentsis based on acquired loans)our methodology and is considered by management to be adequate to cover losses inherent in the loan portfolio. See “Provision“Allowance for Loan and Lease Losses” in this Item No. 22. – Management’s Discussion and Analysis of Financial Condition and Results of Operations for more information on this evaluation.
NoninterestNon-interest expense increased by $2.5was $28.1 million or 26.3% for the three months ended SeptemberJune 30, 2017,2020, an increase of $7.2 million or 34.4%, when compared with the same period in 2016. The largest2019. Excluding the net increase was related to salaries and benefitsin acquisition charges of $1.7$2.2 million for the quarterly comparison, non-interest expense increased $5.0 million in the second quarter of 2020, of which $1.4$3.9 million was attributable to the operations of FFB and SWG, as compared to second quarter of 2019.
Investment securities totaled $953.3 million, or 18.7% of total assets at June 30, 2020, versus $622.8 million, or 17.9% of total assets at June 30, 2019. The average balance of investment securities increased employment associated with$284.2 million in prior year quarterly comparison, primarily as a result of the acquisitions of IbervilleFFB and GCCB.SWG. The average tax equivalent yield on investment securities decreased 85 basis points to 2.55% from 3.40% in prior year quarterly comparison. The investment portfolio had a net unrealized gain of $32.9 million at June 30, 2020 as compared to a net unrealized gain of $12.6 million at June 30, 2019.
The FTE average yield on all earning assets decreased 73 basis points in prior year quarterly comparison, from 4.96% for the second quarter of 2019 to 4.23% for the second quarter of 2020. Average interest expense decreased 49 basis points from 1.16% for the second quarter of 2019 to 0.67% for the second quarter of 2020. Cost of all deposits averaged 52 basis points for the second quarter of 2020 compared to 77 basis points for the second quarter of 2019.
38
First ninesix months of 20172020 compared to first ninesix months of 2016
2019
The Company reported net income available to common shareholders of $8.2$25.3 million for the ninesix months ended SeptemberJune 30, 2017,2020, compared with net income available to common shareholders of $7.8$19.6 million for the same period last year. After tax merger relatedOperating net earnings decreased $1.9 million, or 8.5%, from $22.0 million at June 30, 2019 to $20.1 million at June 30, 2020. Provision for loan losses increased $12.8 million for the year-over-year comparison. Operating net earnings excludes merger-related costs of $3.9$ 2.4 million, net of tax, $7.0 million bargain purchase gain and a gain on the sale of land of $463 thousand, net of tax, for the year-to-date period ending June 30, 2020, and merger-related costs of $2.5 million, net of tax, and income of $174 thousand, net of tax, related to the Financial Assistance Award from the U.S. Department of the Treasury, for the year-to-date period ending June 30, 2019. Operating earnings per share were expensed during$1.00 on a fully diluted basis for six-month period ending June 30, 2020, compared to $1.33 for the first nine monthssame period in 2019, excluding the merger-related costs and income described above. See reconciliation of 2017.
non-GAAP financial measures provided below.
Net interest income increased to $43.9$73.2 million, or 48.5%26.5%, for the ninesix months ended SeptemberJune 30, 2017,2020, compared to $29.6$57.9 million for the same period in 2016.2019. This increase was primarily due to interest earned on a high volume of loans. Average earning assets at SeptemberJune 30, 2017,2020, increased $461.3$889.5 million, or 42.1%29.1%, and average interest-bearing liabilities increased $360.0 million$1.261 billion, or 39.6%53.8%, when compared to the first nine months of 2016.December 31, 2019.
NoninterestNon-interest income for the ninesix months ended SeptemberJune 30, 2017,2019, was $10.8$22.2 million compared to $8.5$12.3 million for the same period in 2016,2019, reflecting an increase of $2.3$9.9 million or 26.5%80.6%. This increase consists of $0.2 million of increased mortgageExcluding the grants and gains mentioned above, non-interest income increased service charges of $0.8$2.5 million in year-over-year comparison. Mortgage income increased $1.7 million and increased interchange fee income of $0.8 million.
increased $684 thousand in the year-over-year comparison.
The provision for loan losses was $0.4$14.7 million for the ninesix months ended SeptemberJune 30, 2017,2020, compared with $0.5$1.9 million for the same period in 2016.2019. The allowance for loan losses of $8.2$28.1 million at SeptemberJune 30, 20172020 (approximately 0.68%0.88% of total loans and 1.16% of loans including valuation accounting adjustments on acquired loans) is considered by management to be adequate to cover losses inherent in the loan portfolio. Total valuation accounting adjustments totaled $11.5 million on acquired loans. See “Provision“Allowance for Loan and Lease Losses” in this Item No. 22. – Management’s Discussion and Analysis of Financial Condition and Results of Operations for more information on this evaluation.
NoninterestNon-interest expense increased by $16.3was $51.5 million for the six months ended June 30, 2020, an increase of $8.7 million or 61.1% for the nine months ended September 30, 2017,20.4%, when compared with the same period in 2016. $6.92019. $5.8 million of the increase was attributable to salaries and benefits, of which $5.4 million relatesis related to the acquisition,operations of FFB and also includes $6.3 million in one-time merger related charges.SWG.
FINANCIAL CONDITION
The First represents the primary asset of the Company. The First reported total assets of $1.8$5.076 billion at SeptemberJune 30, 20172020 compared to $1.3$3.935 billion at December 31, 2016,2019, an increase of $0.5$1.1 billion. Loans increased $331.1$564.8 million to $1.2$3.162 billion, or 38.2%21.8%, during the first ninesix months of 2017.2020. Deposits at SeptemberJune 30, 2017,2020 totaled $1.5$4.233 billion compared to $1.0$3.082 billion at December 31, 2016. The First acquired loans of $237.3 million and deposits of $355.6 million as a result of the acquisitions of Iberville and GCCB during the first quarter of 2017. See Note 4 – Business Combinations.2019.
For the nine monthsix months period ended SeptemberJune 30, 2017,2020, The First reported net income of $9.7$29.3 million compared to $8.7$23.3 million for the ninesix months ended SeptemberJune 30, 2016.2019. Merger charges, net of tax, equaled $3.4$2.4 million for the first ninesix months of 2017.2020 as compared to $2.5 million for the first six months of 2019.
CORONAVIRUS (COVID-19) IMPACT
NONPERFORMING ASSETS AND RISK ELEMENTSIn March 2020, the World Health Organization recognized the novel Coronavirus Disease 2019 (“COVID-19”) as a pandemic. The spread of COVID-19 has created a global public health crisis that has resulted in unprecedented uncertainty, volatility and disruption in financial markets and in governmental, commercial and consumer activity in the United States and globally. In response to the outbreak, federal and state authorities in the U.S. introduced various measures to try to limit or slow the spread of the virus, including travel restrictions, nonessential business closures, stay-at-home orders, and strict social distancing and shelter in place. These actions, together with responses to the pandemic by businesses and individuals, have resulted in rapid decreases in commercial and consumer activity, temporary closures of
39
many businesses that have led to a loss of revenues and a rapid increase in unemployment, material decreases in oil and gas prices and in business valuations, disrupted global supply chains, market downturns and volatility, changes in consumer behavior related to pandemic fears, related emergency response legislation and an expectation that Federal Reserve policy will maintain a low interest rate environment for the foreseeable future. These disruptions may result in a decline in demand for banking products or services, including loans and deposits, which could impact our future financial condition, result of operations and liquidity.
Diversification withinThe impacts of the COVID-19 pandemic on the economy and the banking industry are rapidly evolving and the future effects are unknown at this time. The Company is working to adapt to the changing environment and proactively plan for contingencies. To that end, the Company has and is taking steps to protect the health of our employees and to work with our customers experiencing difficulties as a result of this virus. The Company has many non-branch personnel working remotely. All of our branches are open, and we are servicing our clients with limited lobby access by appointment only. We have also been working through loan modifications and payment deferral programs to assist affected customers, and have increased our allowance for loan and lease losses.
The pandemic is having an adverse impact on certain industries the Company serves, including hotels, restaurants, retail, convenience stores, healthcare, and direct energy. As of June 30, 2020, the Company’s aggregate outstanding exposure in these segments was $625.2 million, or 19.7% of total loans. While it is not yet possible to know the full effect that the pandemic will have on the economy, or to what extent this crisis will impact the Company, all available current industry statistics and internal monitoring of loan repayment ability and payment forgiveness across the portfolio has been analyzed in an attempt to understand the correlation with asset quality and degree of possible deterioration. This analysis of the possibility of increasing credit losses resulted in the need for a higher than normal provision expense to provide the required allowance reserve for this situation. Based on management’s current assessment of the increased inherent risk in the loan portfolio, the provision for loan and leases losses as of June 30, 2020 totaled $14.7 million of which 12.2 million was related to the anticipated economic effects of COVID-19. If economic conditions continue to worsen, further funding to the allowance may be required in future periods.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (“CARES Act”) was signed into law. The CARES Act is an important meansa $2 trillion stimulus package that is intended to provide relief to U.S businesses and consumers struggling as a result of reducing inherent lending risks. At September 30, 2017, The First had no concentrations of ten percent or more of total loans in any single industry or any geographical area outside its immediate market areas, which include Mississippi, Louisiana, Alabama and Florida.
At September 30, 2017, The First had loans past due as follows:
($ In Thousands) | ||||
Past due 30 through 89 days | $ | 3,141 | ||
Past due 90 days or more and still accruing | 1,436 |
The accrual of interest is discontinued on loans which become ninety days past due (principal and/or interest), unless the loans are adequately secured andpandemic. A provision in the processCARES Act includes a $349 billion fund for the creation of collection. Nonaccrualthe Paycheck Protection Program (“PPP”) through the Small Business Administration (“SBA”) and Treasury Department. The PPP is intended to provide loans totaled $4.9 million at September 30, 2017,to small businesses to pay their employees, rent, mortgage interest, and utilities. The loans may be forgiven conditioned upon the client providing payroll deductions evidencing their compliant use of funds and otherwise complying with the terms of the program. The PPP was amended in April to include an increaseadditional $320 billion in funding. On June 5, 2020, President Trump signed into law the Paycheck Protection Program Flexibility Act of $1.6 million2020 (“PPPFA”) that amends the CARES Act. The PPPFA extended the covered period in which to use PPP loans, extended the forgiveness period from December 31, 2016.
Other real estate owned is carried at fair value, determined by an appraisal, less estimatedeight weeks to a maximum of 24 weeks and increased flexibility for small businesses that have had issues with rehiring employees and attempting to fill vacant positions due to COVID-19. The program reduced the proportion of proceeds that must be spent on payroll costs from 75% to sell. Other real estate owned totaled $7.9 million at September 30, 2017.
A loan is classified as a restructured loan60%. In addition, the PPFA also extended the payment deferral period for the PPP loans until the date when the following two conditions are present: First,amount of loan forgiveness is determined and remitted to the borrowerlender. For PPP recipients who do not apply for forgiveness, the loan deferral period is experiencing financial difficulty10 months after the applicable forgiveness period ends.
As of June 30, 2020, we have loan modifications resulting from COVID-19 of approximately $436.1 million and second,approximately 3,158 PPP loans approved through the creditor grants a concession it would not otherwise consider butSBA for the borrower’s financial difficulties. At September 30, 2017, the Bank had $7.3 million in loans that were modified as troubled debt restructurings, of which $4.7 million were performing as agreed with modified terms.$259.3 million.
EARNINGS PERFORMANCE
The Company earns income from two primary sources. The first is net interest income, which is interest income generated by earning assets less interest expense on deposits and other borrowed money. The second is non-interest income, which primarily consists of customer service charges and fees as well as mortgage income but also comes from non-customer sources such as bank-owned life insurance. The majority of the Company’s non-interest expense is comprised of operating costs that facilitate offering a full range of banking services to our customers.
40
Net interest incomeNET INTEREST INCOME AND NET INTEREST MARGIN
Net interest income increased by $4.9$8.4 million, or 48.4%27.3%, for the thirdsecond quarter of 20172020 relative to the thirdsecond quarter of 2016.2019. The increase was due to interest income earned on a higher volume of loans. The level of net interest income we recognize in any given period depends on a combination of factors including the average volume and yield for interest-earning assets, the average volume and cost of interest-bearing liabilities, and the mix of products which comprise the Company’s earning assets, deposits, and other interest-bearing liabilities. Net interest income is also impacted by the reversal of interest for loans placed on non-accrualnonaccrual status during the reporting period, and the recovery of interest on loans that had been on non-accrualnonaccrual and were paid off, sold or returned to accrual status.
The following tables depict, for the periods indicated, certain information related to the average balance sheet and average yields on assets and average costs of liabilities. Such yields are derived by dividing income or expense by the average balance of the corresponding assets or liabilities. Average balances have been derived from daily averages.
Average Balances, Tax Equivalent Interest and Yields/Rates
| | | | | | | | | | | | | | | | | |
($in thousands) |
| Three Months Ended |
| Three Months Ended |
| ||||||||||||
| | June 30, 2020 | | June 30, 2019 |
| ||||||||||||
| | | | | Tax | | | | | | | Tax | | |
| ||
| | Avg. | | Equivalent | | Yield/ | | Avg. | | Equivalent | | Yield/ | | ||||
| | Balance | | interest | | Rate | | Balance | | interest | | Rate |
| ||||
Earning Assets: |
| |
|
| |
|
|
|
| |
|
| |
|
|
| |
Taxable securities | | $ | 605,626 | | $ | 3,439 |
| 2.27 | % | $ | 497,988 | | $ | 4,227 |
| 3.40 | % |
Tax exempt securities | |
| 300,922 | |
| 2,340 |
| 3.11 | % |
| 124,367 | |
| 1,058 |
| 3.40 | % |
Total investment securities | |
| 906,548 | |
| 5,779 |
| 2.55 | % |
| 622,355 | |
| 5,285 |
| 3.40 | % |
Interest bearing deposits in | |
|
| |
|
|
|
| |
|
| |
|
|
|
| |
other banks | |
| 321,559 | |
| 19 |
| 0.02 | % |
| 89,936 | |
| 90 |
| 0.40 | % |
Loans | |
| 3,156,524 | |
| 40,593 |
| 5.14 | % |
| 2,337,583 | |
| 32,464 |
| 5.56 | % |
Total earning assets | |
| 4,384,631 | |
| 46,391 |
| 4.23 | % |
| 3,049,874 | |
| 37,839 |
| 4.96 | % |
Other assets | |
| 528,989 | |
| |
|
| |
| 410,520 | |
|
|
|
| |
Total assets | | $ | 4,913,620 | | | |
|
| | $ | 3,460,394 | |
|
|
|
| |
| | | | | | | | | | | | | | | | | |
Interest-bearing liabilities: | |
|
| |
|
|
|
| |
|
| |
|
|
|
| |
Deposits | | $ | 3,746,535 | | $ | 5,219 |
| 0.56 | % | $ | 2,231,462 | | $ | 5,363 |
| 0.95 | % |
Borrowed funds | |
| 116,270 | |
| 224 |
| 0.77 | % |
| 37,760 | |
| 288 |
| 3.05 | % |
Subordinated debentures | |
| 80,736 | |
| 1,176 |
| 5.83 | % |
| 80,579 | |
| 1,188 |
| 5.90 | % |
Total interest-bearing liabilities | |
| 3,943,541 | |
| 6,619 |
| 0.67 | % |
| 2,349,801 | |
| 6,799 |
| 1.16 | % |
Other liabilities | |
| 362,952 | |
| |
|
| |
| 655,628 | |
|
|
|
| |
Shareholders’ equity | |
| 607,127 | |
| |
|
| |
| 454,965 | |
|
|
|
| |
Total liabilities and | |
|
| |
|
|
|
| | | | |
|
|
|
| |
shareholders’ equity | | $ | 4,913,620 | | | |
|
| | $ | 3,460,394 | |
|
|
|
| |
| | | | | | | | | | | | | | | | | |
Net interest income | | | | | $ | 39,180 |
|
| |
|
| | $ | 30,772 |
|
| |
Net interest margin | |
| | |
| | | 3.57 | % |
|
| |
|
|
| 4.04 | % |
Net interest income (FTE)* | | | | | $ | 39,772 | | 3.56 | % |
| | | $ | 31,040 |
| 3.81 | % |
Net interest margin (FTE)* | |
| | |
| | | 3.63 | % |
|
| |
|
|
| 4.07 | % |
Three Months Ended | Three Months Ended | |||||||||||||||||||||||
September 30, 2017 | September 30, 2016 | |||||||||||||||||||||||
Avg. | Tax Equivalent | Yield/ | Avg. | Tax Equivalent | Yield/ | |||||||||||||||||||
($ In Thousands) | Balance | interest | Rate | Balance | interest | Rate | ||||||||||||||||||
Earning Assets: | ||||||||||||||||||||||||
Taxable | ||||||||||||||||||||||||
securities | $ | 280,441 | $ | 1,601 | 2.28 | % | $ | 177,154 | $ | 965 | 2.18 | % | ||||||||||||
Tax exempt securities | 93,716 | 876 | 3.74 | % | 77,073 | 704 | 3.65 | % | ||||||||||||||||
Total investment securities | 374,157 | 2,477 | 2.65 | % | 254,227 | 1,669 | 2.63 | % | ||||||||||||||||
Fed funds sold | 36,591 | 113 | 1.24 | % | 10,356 | 25 | 0.97 | % | ||||||||||||||||
Interest bearing deposits in other banks | 3,463 | 3 | 0.35 | % | 11,961 | 16 | 0.54 | % | ||||||||||||||||
Loans | 1,185,493 | 14,412 | 4.86 | % | 836,931 | 9,798 | 4.68 | % | ||||||||||||||||
Total earning assets | 1,599,704 | 17,005 | 4.25 | % | 1,113,475 | 11,508 | 4.13 | % | ||||||||||||||||
Other assets | 172,698 | 119,559 | ||||||||||||||||||||||
Total assets | $ | 1,772,402 | $ | 1,233,034 | ||||||||||||||||||||
Interest-bearing liabilities: | ||||||||||||||||||||||||
Deposits | $ | 1,204,614 | $ | 1,375 | 0.46 | % | $ | 850,442 | $ | 962 | 0.45 | % | ||||||||||||
Repo | 4,891 | 38 | 3.11 | % | 5,000 | 49 | 3.92 | % | ||||||||||||||||
Fed funds purchased | 3,816 | 19 | 1.99 | % | 1,926 | 5 | 1.04 | % | ||||||||||||||||
FHLB and FTN | 68,041 | 300 | 1.76 | % | 55,337 | 106 | 0.77 | % | ||||||||||||||||
Subordinated debentures | 10,310 | 41 | 1.59 | % | 10,310 | 80 | 3.10 | % | ||||||||||||||||
Total interest-bearing liabilities | 1,291,672 | 1,773 | 0.55 | % | 923,015 | 1,202 | 0.52 | % | ||||||||||||||||
Other liabilities | 316,275 | 198,889 | ||||||||||||||||||||||
Stockholders’ equity | 164,455 | 111,130 | ||||||||||||||||||||||
Total liabilities and stockholders’ equity | $ | 1,772,402 | $ | 1,233,034 | ||||||||||||||||||||
Net interest income (FTE)* | $ | 15,232 | 3.70 | % | $ | 10,306 | 3.61 | % | ||||||||||||||||
Net interest Margin (FTE)* | 3.81 | % | 3.70 | % |
*See reconciliation of Non-GAAP financial measures.
41
| | | | | | | | | | | | | | | | | |
($in thousands) |
| Six Months Ended |
| Six Months Ended |
| ||||||||||||
| | June 30, 2020 | | June 30, 2019 |
| ||||||||||||
| | | | | Tax | | | | | | | Tax | | |
| ||
| | Avg. | | Equivalent | | Yield/ | | Avg. | | Equivalent | | Yield/ | | ||||
| | Balance | | interest | | Rate | | Balance | | interest | | Rate |
| ||||
Earning Assets: |
| |
|
| |
|
|
|
| |
|
| |
|
|
| |
Taxable securities | | $ | 583,120 | | $ | 7,383 |
| 2.53 | % | $ | 466,708 | | $ | 7,808 |
| 3.35 | % |
Tax exempt securities | |
| 262,567 | |
| 4,161 |
| 3.17 | % |
| 121,117 | |
| 2,073 |
| 3.42 | % |
Total investment securities | |
| 845,687 | |
| 11,544 |
| 2.73 | % |
| 587,825 | |
| 9,881 |
| 3.36 | % |
Interest bearing deposits in | |
|
| |
|
|
|
| |
|
| |
|
|
|
| |
other banks | |
| 225,768 | |
| 308 |
| 0.27 | % |
| 92,590 | |
| 220 |
| 0.48 | % |
Loans | |
| 2,879,431 | |
| 76,598 |
| 5.32 | % |
| 2,253,009 | |
| 61,268 |
| 5.44 | % |
Total earning assets | |
| 3,950,886 | |
| 88,450 |
| 4.48 | % |
| 2,933,424 | |
| 71,369 |
| 4.87 | % |
Other assets | |
| 501,170 | |
| |
|
| |
| 387,003 | |
|
|
|
| |
Total assets | | $ | 4,452,056 | | | |
|
| | $ | 3,320,427 | |
|
|
|
| |
| | | | | | | | | | | | | | | | | |
Interest-bearing liabilities: | |
|
| |
|
|
|
| |
|
| |
|
|
|
| |
Deposits | | $ | 3,394,533 | | $ | 10,632 |
| 0.63 | % | $ | 2,128,661 | | $ | 9,686 |
| 0.91 | % |
Borrowed funds | |
| 130,768 | |
| 1,141 |
| 1.75 | % |
| 61,731 | |
| 834 |
| 2.70 | % |
Subordinated debentures | |
| 80,716 | |
| 2,379 |
| 5.89 | % |
| 80,560 | |
| 2,421 |
| 6.01 | % |
Total interest-bearing liabilities | |
| 3,606,017 | |
| 14,152 |
| 0.78 | % |
| 2,270,952 | |
| 12,941 |
| 1.14 | % |
Other liabilities | |
| 268,821 | |
| |
|
| |
| 626,705 | |
|
|
|
| |
Shareholders’ equity | |
| 577,218 | |
| |
|
| |
| 422,770 | |
|
|
|
| |
Total liabilities and | |
|
| |
|
|
|
| | | | |
|
|
|
| |
shareholders’ equity | | $ | 4,452,056 | | | |
|
| | $ | 3,320,427 | |
|
|
|
| |
| | | | | | | | | | | | | | | | | |
Net interest income | | | | | $ | 73,245 |
|
| |
|
| | $ | 57,904 |
|
| |
Net interest margin | |
| | |
| | | 3.71 | % |
|
| |
|
|
| 3.95 | % |
Net interest income (FTE)* | | | | | $ | 74,298 | | 3.69 | % |
| | | $ | 58,428 |
| 3.72 | % |
Net interest margin (FTE)* | |
| | |
| | | 3.76 | % |
|
| |
|
|
| 3.98 | % |
Average Balances, Tax Equivalent Interest and Yields/Rates
YTD September 30, 2017 | YTD September 30, 2016 | |||||||||||||||||||||||
Avg. | Tax Equivalent | Yield/ | Avg. | Tax Equivalent | Yield/ | |||||||||||||||||||
($ In Thousands) | Balance | interest | Rate | Balance | interest | Rate | ||||||||||||||||||
Earning Assets: | ||||||||||||||||||||||||
Taxable securities | $ | 265,320 | $ | 4,742 | 2.38 | % | $ | 184,313 | $ | 3,055 | 2.21 | % | ||||||||||||
Tax exempt securities | 92,040 | 2,668 | 3.87 | % | 77,385 | 2,118 | 3.65 | % | ||||||||||||||||
Total investment securities | 357,360 | 7,410 | 2.76 | % | 261,698 | 5,173 | 2.64 | % | ||||||||||||||||
Fed funds sold | 42,372 | 330 | 1.04 | % | 2,377 | 82 | 4.60 | % | ||||||||||||||||
Interest bearing deposits in other banks | 4,356 | 7 | 0.21 | % | 23,626 | 56 | 0.32 | % | ||||||||||||||||
Loans | 1,153,694 | 42,083 | 4.86 | % | 808,821 | 28,146 | 4.64 | % | ||||||||||||||||
Total earning assets | 1,557,782 | 49,830 | 4.26 | % | 1,096,522 | 33,457 | 4.07 | % | ||||||||||||||||
Other assets | 190,337 | 116,252 | ||||||||||||||||||||||
Total assets | $ | 1,748,119 | $ | 1,212,774 | ||||||||||||||||||||
Interest-bearing liabilities: | ||||||||||||||||||||||||
Deposits | $ | 1,188,919 | $ | 3,836 | 0.43 | % | $ | 824,065 | $ | 2,476 | 0.40 | % | ||||||||||||
Repo | 4,892 | 134 | 3.65 | % | 5,000 | 145 | 3.87 | % | ||||||||||||||||
Fed funds purchased | 2,211 | 29 | 1.75 | % | 1,867 | 15 | 1.07 | % | ||||||||||||||||
FHLB and FTN | 63,094 | 817 | 1.73 | % | 68,170 | 342 | 0.67 | % | ||||||||||||||||
Subordinated debentures | 10,310 | 171 | 2.21 | % | 10,310 | 162 | 2.10 | % | ||||||||||||||||
Total interest- bearing liabilities | 1,269,426 | 4,987 | 0.52 | % | 909,412 | 3,140 | 0.46 | % | ||||||||||||||||
Other liabilities | 319,451 | 196,289 | ||||||||||||||||||||||
Stockholders’ equity | 159,242 | 107,073 | ||||||||||||||||||||||
Total liabilities and stockholders’ equity | $ | 1,748,119 | $ | 1,212,774 | ||||||||||||||||||||
Net interest income (FTE)* | $ | 44,842 | 3.74 | % | $ | 30,317 | 3.61 | % | ||||||||||||||||
Net interest Margin (FTE)* | 3.84 | % | 3.69 | % |
*See reconciliation of Non-GAAP financial measures.
Interest Rate Sensitivity – September 30, 2017
Net Interest Income at Risk | Market Value of Equity | |||||||||||||||
Change in Interest Rates | % Change from Base | Policy Limit | % Change from Base | Policy Limit | ||||||||||||
Up 400 bps | 17.9 | % | -20.0 | % | 31.8 | % | -40.0 | % | ||||||||
Up 300 bps | 13.6 | % | -15.0 | % | 26.2 | % | -30.0 | % | ||||||||
Up 200 bps | 9.1 | % | -10.0 | % | 19.2 | % | -20.0 | % | ||||||||
Up 100 bps | 4.6 | % | -5.0 | % | 10.7 | % | -10.0 | % | ||||||||
Down 100 bps | -6.4 | % | -5.0 | % | -13.6 | % | -10.0 | % | ||||||||
Down 200 bps | -9.0 | % | -10.0 | % | -13.1 | % | -20.0 | % |
42
NON-INTEREST INCOME AND NON-INTEREST EXPENSE
The following table provides details on the Company’s non-interest income and non-interest expense for the three and six months ended June 30, 2020 and 2019:
| | | | | | | | | | | | | | | | | | | | | | |
($in thousands) |
| Three Months Ended |
| Six Months Ended | | |||||||||||||||||
EARNINGS STATEMENT | | 6/30/20 | | % of Total | | 6/30/19 | | % of Total |
| | 6/30/20 | | % of Total | | 6/30/19 | | % of Total |
| ||||
Non-interest income: | |
| | |
| |
| | |
|
| |
| | |
| |
| | |
|
|
Service charges on deposit accounts | | $ | 1,597 |
| 10.2 | % | $ | 1,918 |
| 28.6 | % | | $ | 3,511 |
| 15.8 | % | $ | 3,750 |
| 30.6 | % |
Mortgage fee income | |
| 2,646 |
| 16.9 | % |
| 1,559 |
| 23.2 | % | |
| 4,213 |
| 19.0 | % |
| 2,469 |
| 20.1 | % |
Interchange fee income | |
| 2,395 |
| 15.3 | % |
| 2,045 |
| 30.5 | % | |
| 4,380 |
| 19.8 | % |
| 3,697 |
| 30.1 | % |
Gain (loss) on securities , net | |
| 73 |
| 0.5 | % |
| 36 |
| 0.5 | % | |
| 246 |
| 1.1 | % |
| 74 |
| 0.6 | % |
Financial assistance award | |
| — |
| — | |
| — |
| — | % | |
| — |
| — | |
| 233 |
| 1.9 | % |
Gain on acquisition | | | 7,023 | | 44.7 | | | — | | — | | | | 7,023 | | 31.7 | | | — | | — | |
Gain on sale of land | | | 620 | | 3.9 | | | — | | — | | | | 620 | | 2.8 | | | — | | — | |
Other charges and fees | |
| 1,326 |
| 8.5 | % |
| 1,158 |
| 17.2 | % | |
| 2,161 |
| 9.8 | % |
| 2,047 |
| 16.7 | % |
Total non-interest income | | $ | 15,680 |
| 100 | % | $ | 6,716 |
| 100 | % | | $ | 22,154 |
| 100 | % | $ | 12,270 |
| 100 | % |
| | | | | | | | | | | | | | | | | | | | | | |
Non-interest expense: | |
|
|
|
| |
|
|
|
| | |
|
|
|
| |
|
|
|
| |
Salaries and employee benefits | | | 15,866 |
| 56.5 | % | | 11,615 |
| 55.7 | % | | | 29,094 |
| 56.4 | % | | 22,312 |
| 52.2 | % |
Occupancy expense | |
| 3,200 |
| 11.4 | % |
| 2,532 |
| 12.1 | % | |
| 6,118 |
| 11.9 | % |
| 4,974 |
| 11.6 | % |
FDIC premiums | |
| 237 |
| 0.8 | % |
| 426 |
| 2.0 | % | |
| 384 |
| 0.7 | % |
| 374 |
| 0.9 | % |
Marketing | |
| 25 |
| 0.1 | % |
| 160 |
| 0.8 | % | |
| 239 |
| 0.5 | % |
| 335 |
| 0.8 | % |
Amortization of core deposit intangibles | |
| 1,052 |
| 3.8 | % |
| 796 |
| 3.8 | % | |
| 1,990 |
| 3.9 | % |
| 1,513 |
| 3.5 | % |
Other professional services | |
| 984 |
| 3.5 | % |
| 980 |
| 4.7 | % | |
| 1,858 |
| 3.6 | % |
| 1,900 |
| 4.4 | % |
Other non-interest expense | |
| 4,411 |
| 15.7 | % |
| 4,291 |
| 20.5 | % | |
| 8,790 |
| 17.1 | % |
| 8,108 |
| 19.0 | % |
Acquisition and integration charges | |
| 2,295 |
| 8.2 | % |
| 91 |
| 0.4 | % | |
| 3,035 |
| 5.9 | % |
| 3,270 |
| 7.6 | % |
Total non-interest expense | | $ | 28,070 |
| 100 | % | $ | 20,891 |
| 100 | % | | $ | 51,508 |
| 100 | % | $ | 42,786 |
| 100 | % |
LIQUIDITYPROVISION FOR INCOME TAXES
The Company sets aside a provision for income taxes on a monthly basis. The amount of the provision is determined by first applying the Company’s statutory income tax rates to estimated taxable income, which is pre-tax book income adjusted for permanent differences, and then subtracting available tax credits if applicable. Permanent differences include but are not limited to tax-exempt interest income, bank-owned life insurance cash surrender value income, and certain book expenses that are not allowed as tax deductions.
The Company’s provision for income taxes was $2.2 million or 11.7% of earnings before income taxes compared to $3.8 million or 24.2% of earnings before income taxes for the same period in 2019. The decrease in the effective tax rate for 2020 is attributed to the $7.0 million, non-taxable, bargain purchase gain related to the SWG acquisition and the CARES Act that was signed into law on March 27, 2020. The Act includes several significant provisions for corporations including increasing the amount of deductible interest under section 163(j), allowing companies to carryback certain net operating losses, and increasing the amount of net operating loss that corporations can use to offset income.
The provision for the six months ended June 30, 2020 was $3.9 million or 13.5% of earnings before income taxes compared to $5.9 million or 22.9% of earnings before income taxes for the same period in 2019.
43
BALANCE SHEET ANALYSIS
EARNING ASSETS
The Company’s interest-earning assets are comprised of investments and loans, and the composition, growth characteristics, and credit quality of both are significant determinants of the Company’s financial condition. Investments are analyzed in the section immediately below, while the loan and lease portfolio and other factors affecting earning assets are discussed in the sections following investments.
INVESTMENTS
The Company’s investments can at any given time consist of debt securities and marketable equity securities (together, the “investment portfolio”), investments in the time deposits of other banks, surplus interest-earning balances in our Federal Reserve Bank (“FRB”) account, and overnight fed funds sold. Surplus FRB balances and federal funds sold to correspondent banks represent the temporary investment of excess liquidity. The Company’s investments serve several purposes: 1) they provide liquidity to even out cash flows from the loan and deposit activities of customers; 2) they provide a source of pledged assets for securing public deposits, bankruptcy deposits and certain borrowed funds which require collateral; 3) they constitute a large base of assets with maturity and interest rate characteristics that can be changed more readily than the loan portfolio to better match changes in the deposit base and other funding sources of the Company; 4) they are another interest-earning option for surplus funds when loan demand is light; and 5) they can provide partially tax exempt income. Total securities, excluding other securities, totaled $927.2 million, or 18.2% of total assets at June 30, 2020 compared to $765.1 million, or 19.4% of total assets at December 31, 2019.
There were no federal funds sold at June 30, 2020 and December 31, 2019; and interest-bearing balances at other banks increased to $419.2 million at June 30, 2020 from $79.0 million at December 31, 2019. The Company’s investment portfolio increased $161.5 million, or 20.4%, to a total fair market value of $953.3 million at June 30, 2020 compared to December 31, 2019, $88.7 million of which was due to the acquisition of SWG during April 2020, as well as an increase in the fair market value of $19.4 million. The Company’s investments are classified as “available-for-sale” to allow maximum flexibility with regard to interest rate risk and liquidity management.
Refer to the tables shown in Note 9 – Securities to the Consolidated Financial Statements for information on the Company’s amortized cost and fair market value of its investment portfolio by investment type.
LOAN AND CAPITAL RESOURCESLEASE PORTFOLIO
The Company’s gross loans and leases, excluding the associated allowance for loan losses and including loans held for sale, totaled $3.190 billion at June 30, 2020, an increase of $579.0 million, or 22.2%, from December 31, 2019. The acquisition of SWG accounted for approximately $392.3 million, net of fair value marks, of the increase. The Company also saw an increase in the commercial, financial, and agriculture loan portfolio of $259.3 million related to PPP loans.
We began receiving requests from our borrowers for loan and lease deferrals in March. Payment modifications include the deferral of principal payments or the deferral of principal and interest payments for terms generally 90-180 days. Requests are evaluated individually and approved modifications are based on the unique circumstances of each borrower. As of SeptemberJune 30, 2017, cash2020, we have modified approximately 879 loans for $436.1 million, of which 837 loans for $397.0 million were modified to defer monthly principal and cash equivalentsinterest payments and 42 loans for $39.1 were $93.3modified from monthly principal and interest payments to interest only. The Company began accepting PPP applications in April and as of June 30, 2020 we have approximately 3,158 loans approved through the SBA for $259.3 million.
44
The following table shows the composition of the loan portfolio by category ($ in thousands):
| | | | | | | | | | | | |
| | Composition of Loan Portfolio | | |||||||||
| | June 30, 2020 | | December 31, 2019 |
| |||||||
| | | | | Percent | | | | | Percent | | |
|
| Amount |
| of Total |
| Amount |
| of Total |
| |||
Loans held for sale | | $ | 18,632 |
| | 0.6 | % | $ | 10,810 |
| 0.4 | % |
Commercial, financial and agricultural | |
| 629,497 |
| | 19.7 | % |
| 332,600 |
| 12.7 | % |
Real estate - commercial | |
| 1,163,897 |
| | 36.5 | % |
| 1,028,012 |
| 39.4 | % |
Real estate - residential | |
| 978,372 |
| | 30.7 | % |
| 814,282 |
| 31.2 | % |
Real estate - construction | |
| 337,337 |
| | 10.6 | % |
| 359,195 |
| 13.8 | % |
Lease financing receivable | |
| 2,811 |
| | 0.1 | % |
| 3,095 |
| 0.1 | % |
Obligations of states and subdivisions | |
| 17,010 |
| | 0.5 | % |
| 20,716 |
| 0.8 | % |
Consumer and other | |
| 42,611 |
| | 1.3 | % |
| 42,458 |
| 1.6 | % |
Total loans | |
| 3,190,167 |
| | 100 | % |
| 2,611,168 |
| 100 | % |
Allowance for loan losses | |
| (28,065) |
| | | |
| (13,908) |
|
| |
Net loans | | $ | 3,162,102 | | | | | $ | 2,597,260 |
|
| |
In the context of this discussion, a "real estate residential loan" is defined as any loan, other than a loan for construction purposes, secured by real estate, regardless of the purpose of the loan. The Company follows the common practice of financial institutions in its market area by obtaining a security interest in real estate whenever possible, in addition to any other available collateral. This collateral is taken to reinforce the likelihood of the ultimate repayment of the loan and tends to increase the magnitude of the real estate loan portfolio component. Generally, the Company limits its loan-to-value ratio to 80%. Management attempts to maintain a conservative philosophy regarding its underwriting guidelines and believes that the risk elements of its loan portfolio have been reduced through strategies that diversify the lending mix.
Loans held for sale consist of mortgage loans originated by the Bank and investment securities repricingsold into the secondary market. Associated servicing rights are not retained. Commitments from investors to purchase the loans are obtained upon origination.
LOAN CONCENTRATIONS
Diversification within the loan portfolio is an important means of reducing inherent lending risk. At June 30, 2020, The First had no concentrations of ten percent or maturing within one yearmore of total loans in any single industry or less were approximately $373.1any geographical area outside its immediate market areas, which include Mississippi, Louisiana, Alabama, Florida and Georgia.
NON-PERFORMING ASSETS
Non-performing assets are comprised of loans for which the Company is no longer accruing interest, and foreclosed assets including mobile homes and OREO. Loans are placed on nonaccrual status when they become ninety days past due (principal and/or interest), unless the loans are adequately secured and in the process of collection. Nonaccrual loans, including PCI loans, totaled $39.2 million at SeptemberJune 30, 2017. Approximately $265.22020, an increase of $400 thousand from December 31, 2019.
Other real estate owned is carried at fair value, determined by an appraisal, less estimated costs to sell. Other real estate owned totaled $5.5 million at June 30, 2020 as compared to $7.3 million at December 31, 2019.
A loan is classified as a restructured loan when the following two conditions are present: first, the borrower is experiencing financial difficulty and second, the creditor grants a concession it would not otherwise consider but for the borrower’s financial difficulty. At June 30, 2020, the Bank had $30.5 million in loan commitments could fund withinloans that were classified as TDRs, of which $6.4 million were performing as agreed with modified terms. At December 31, 2019, the next three months and other commitments, primarily standby lettersBank had $32.0 million in loans that were classified as TDRs of credit, totaled $8.2which $6.8 million were performing as agreed with modified terms. TDRs may be classified as either non-performing or performing loans depending on their accrual status. As of June 30, 2020, $24.1 million in loans categorized as TDRs were classified as non-performing as compared to $25.1 million at September 30, 2017.December 31, 2019.
45
On October 31, 2017, the Company completed a saleTable of an aggregate of 2,012,500 shares of its common stock in a public offering. Net proceeds after underwriting discounts and estimated expenses were approximately $55.2 million. Contents
The Company intends to use the net proceeds from the offering to fund the cash portion of the purchase pricefollowing table, which includes PCI loans, presents comparative data for the Company’s previously announced acquisition of Southwest, to fund other potential future acquisitions,non-performing assets and for general corporate purposes, including the repayment of debt and to support organic growth.
Total consolidated equity capital at September 30, 2017, was $167.0 million, or approximately 9.3% of total assets. The Company currently has adequate capital positions to meet the minimum capital requirements for all regulatory agencies. The Company’s capital ratiosperforming TDRs as of September 30, 2017, were as follows:the dates noted:
| | | | | | | |
($in thousands) |
| 6/30/20 |
| 12/31/19 |
| ||
| | | | | | | |
Nonaccrual Loans |
| |
|
| |
| |
| | | | | | | |
Real Estate: |
| |
|
| |
| |
1-4 Family residential construction | | $ | — | | $ | — | |
Other Construction/land | |
| 2,324 | |
| 1,548 | |
1-4 family residential revolving/open-end | |
| 1,301 | |
| 998 | |
1-4 family residential closed-end | |
| 9,247 | |
| 8,986 | |
Nonfarm, nonresidential, owner-occupied | |
| 20,173 | |
| 20,157 | |
Nonfarm, nonresidential, other nonfarm nonresidential | |
| 3,743 | |
| 4,647 | |
Total Real Estate | |
| 36,788 | |
| 36,336 | |
Commercial and industrial | |
| 2,361 | |
| 2,234 | |
Loans to individuals – other | |
| 52 | |
| 265 | |
Total Nonaccrual Loans | |
| 39,201 | |
| 38,835 | |
| | | | | | | |
Other real-estate owned | |
| 5,471 | |
| 7,299 | |
| | | | | | | |
Total Non-performing Assets | | $ | 44,672 | | $ | 46,134 | |
Performing TDRs | | $ | 6,417 | | $ | 6,824 | |
Total non-performing assets as a % of total loans & leases net of unearned income | |
| 1.41 | % |
| 1.77 | % |
Total nonaccrual loans as a % of total loans & leases net of unearned income | |
| 1.24 | % |
| 1.49 | % |
OnNon-performing assets totaled $44.7 million at June 30, 2006,2020, compared to $46.1 million at December 31, 2019, a decrease of $1.4 million. The Company issued $4,124,000ALLL/total loans ratio was 0.88% at June 30, 2020, and 0.53% at December 31, 2019. The increase in the ALLL/total loans ratio is primarily attributable to an increase in the ALLL due to concerns with the anticipated economic effects of floating rate junior subordinated deferrable interest debenturesCOVID-19, as discussed under the heading “Allowance for Loan and Lease Losses” below. Total valuation accounting adjustments total $12.1 million on acquired loans. The ratio of annualized net charge-offs (recoveries) to total loans was 0.04% for the quarter ended June 30, 2020 compared to (0.002)% at December 31, 2019.
The First Bancshares Statutory Trust 2 in whichfollowing table represents the Company owns allCompany’s impaired loans, excluding PCI loans, as of the common equity. The debentures are the sole asset of the Trust. The Trust issued $4,000,000 of Trust Preferred Securities (TPSs) to investors. The Company’s obligations under the debentures and related documents, taken together, constitute a full and unconditional guarantee by the Company of the Trust’s obligations under the preferred securities. The preferred securities are redeemable by the Company at its option. The preferred securities must be redeemed upon maturity of the debentures in 2036. Interest on the preferred securities is the three month London Interbank Offer Rate (LIBOR) plus 1.65% and is payable quarterly. The terms of the subordinated debentures are identical to those of the preferred securities. On July 27, 2007, The Company issued $6,186,000 of floating rate junior subordinated deferrable interest debentures to The First Bancshares Statutory Trust 3 in which the Company owns all of the common equity. The debentures are the sole asset of Trust 3. The Trust issued $6,000,000 of Trust Preferred Securities (TPSs) to investors. The Company’s obligations under the debentures and related documents, taken together, constitute a full and unconditional guarantee by the Company of the Trust’s obligations under the preferred securities. The preferred securities are redeemable by the Company at its option. The preferred securities must be redeemed upon maturity of the debentures in 2037. Interest on the preferred securities is the three month LIBOR plus 1.40% and is payable quarterly. The terms of the subordinated debentures are identical to those of the preferred securities. In accordance with the authoritative guidance, the trusts are not included in the consolidated financial statements.dates noted:
| | | | | | |
($in thousands) |
| June 30, |
| December 31, | ||
| | 2020 | | 2019 | ||
Impaired Loans: |
| |
|
| |
|
Impaired loans without a valuation allowance | | $ | 15,320 | | $ | 14,178 |
Impaired loans with a valuation allowance | |
| 14,824 | |
| 15,761 |
Total impaired loans | | $ | 30,144 | | $ | 29,939 |
Allowance for loan losses on impaired loans at period end | |
| 5,924 | |
| 4,424 |
| | | | | | |
Total nonaccrual loans | | $ | 27,809 | | $ | 29,939 |
| | | | | | |
Past due 90 days or more and still accruing | |
| 1,009 | |
| 2,715 |
Average investment in impaired loans | |
| 29,685 | |
| 26,195 |
PROVISIONALLOWANCE FOR LOAN AND LEASE LOSSES
The Company has developed policies and procedures for evaluating the overall quality of its credit portfolio and the timely identification of potential problem loans. Management’s judgment as to the adequacy of the allowance for credit losses is based upon a number of assumptions about future events which it believes to be reasonable, but which may not prove to be accurate, particularly givenaccurate. The level of this allowance is dependent upon a number of factors, including the Company’s growthtotal amount of past due loans, general economic conditions, and management’s assessment of potential losses. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant change. Ultimately, losses may vary from current
46
estimates and future additions to the economy.allowance may be necessary. Thus, there can be no assurance that charge-offs in future periods will not exceed the allowance for loan losses or that additional increases in the allowance for loan loss allowancelosses will not be required.
Management evaluates the adequacy of the allowance for loan losses quarterly and makes provisions for loan losses based on this evaluation.
The Company’s allowance consists of two parts. The first part is determined in accordance with authoritative guidance issued by the FASB regarding contingencies.the allowance. The Company’s determination of this part of the allowance is based upon quantitative and qualitative factors. AThe Company uses a loan loss history based upon the prior seventen years is utilized in determiningto determine the appropriate allowance. Historical loss factors are determined by risk ratedcriticized and uncriticized loans by loan type. These historical loss factors are applied to the loans by loan type to determine an indicated allowance. The loss factors of peer groups are considered in the determination of the allowance and are used to assist in the establishment of a long-term loss history for areas in which this data is unavailable and incorporated into the qualitative factors to be considered. The historical loss factors may also be modified based upon other qualitative factors including but not limited to local and national economic conditions, trends of delinquent loans, changes in lending policies and underwriting standards, concentrations, and management’s knowledge of the loan portfolio. These factors require judgment uponon the part of management and are based upon state and national economic reports received from various institutions and agencies including the Federal Reserve Bank, United States Bureau of Economic Analysis, Bureau of Labor Statistics, meetings with the Company’s loan officers and loan committee,committees, and data and guidance received or obtained from the Company’s regulatory authorities.
The second part of the allowance is determined in accordance with authoritative guidance issued by the FASB regarding loan impairment.impaired loans. Impaired loans are determined based upon a review by internal loan review and senior management.
loan officers. Impaired loans are loans for which the Bank does not expect to receive contractual interest and/or principal by the due date. A specific allowance is assigned to each loan determined to be impaired based upon the value of the loan’s underlying collateral. Appraisals are used by management to determine the value of the collateral.
The sum of the two parts constitutes management’s best estimate of an appropriate allowance for loan losses. WhenOn a quarterly basis, the estimated allowance is determined it isand presented to the Company’s audit committee for review and approval on a quarterly basis.
approval.
A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.
Impairment is measured on a loan by loan basis, and a specific allowance is assigned to each loan determined to be impaired. Impaired loans not deemed collateral dependent are analyzed according to the ultimate repayment source, whether that is cash flow from the borrower, guarantor or some other source of repayment. Impaired loans are deemed collateral dependent if, in the Company’s opinion, the ultimate source of repayment will be generated from the liquidation of collateral.
The Company discontinues accrual of interest on loans when management believes, after considering economic and business conditions and collection efforts, that a borrower’s financial condition is such that the collection of interest is doubtful. Generally, the Company will place a delinquent loan in nonaccrual status when the loan becomes 90 days or more past due. At the time a loan is placed in nonaccrual status, all interest which has been accrued on the loan but remains unpaid is reversed and deducted from earnings as a reduction of reported interest income. No additional interest is accrued on the loan balance until the collection of both principal and interest becomes reasonably certain.
NON-INTEREST INCOME AND NON-INTEREST EXPENSE
The following table provides details onAt June 30, 2020, the Company’s non-interest income and non-interest expenseconsolidated allowance for the three month and nine month period ended September 30, 2017 and 2016:
($ In Thousands) | Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||||||||
EARNINGS STATEMENT | 9/30/17 | % of Total | 9/30/16 | % of Total | 9/30/17 | % of Total | 9/30/16 | % of Total | ||||||||||||||||||||||||
Non-interest income: | ||||||||||||||||||||||||||||||||
Service charges on deposit accounts | $ | 902 | 24.7 | % | $ | 606 | 19.6 | % | $ | 2,692 | 24.9 | % | $ | 1,847 | 21.6 | % | ||||||||||||||||
Mortgage income | 1,276 | 34.9 | % | 1,399 | 45.1 | % | 3,400 | 31.5 | % | 3,228 | 37.8 | % | ||||||||||||||||||||
Interchange fee income | 935 | 25.6 | % | 666 | 21.5 | % | 2,797 | 25.9 | % | 1,991 | 23.3 | % | ||||||||||||||||||||
Gain (loss) on securities, net | - | - | - | - | 129 | 1.5 | % | |||||||||||||||||||||||||
Other charges and fees | 545 | 14.8 | % | 428 | 13.8 | % | 1,918 | 17.7 | % | 1,347 | 15.8 | % | ||||||||||||||||||||
Total non-interest income | $ | 3,658 | 100 | % | $ | 3,099 | 100 | % | $ | 10,807 | 100 | % | $ | 8,542 | 100 | % | ||||||||||||||||
Non-interest expense: | ||||||||||||||||||||||||||||||||
Salaries and employee benefits | $ | 7,327 | 61.6 | % | $ | 5,645 | 60.0 | % | $ | 22,577 | 52.4 | % | $ | 16,194 | 60.6 | % | ||||||||||||||||
Occupancy expense | 1,390 | 11.7 | % | 1,209 | 12.8 | % | 4,108 | 9.5 | % | 3,392 | 12.7 | % | ||||||||||||||||||||
FDIC premiums | 355 | 3.0 | % | 254 | 2.7 | % | 887 | 2.1 | % | 755 | 2.8 | % | ||||||||||||||||||||
Marketing | 50 | 0.4 | % | 76 | 0.8 | % | 218 | 0.5 | % | 280 | 1.0 | % | ||||||||||||||||||||
Amortization of core deposit intangibles | 160 | 1.3 | % | 100 | 1.1 | % | 491 | 1.1 | % | 294 | 1.1 | % | ||||||||||||||||||||
Other professional services | 320 | 2.7 | % | 461 | 4.9 | % | 1,201 | 2.8 | % | 1,013 | 3.8 | % | ||||||||||||||||||||
Other non-interest expense | 2,238 | 18.8 | % | 1,671 | 17.7 | % | 7,247 | 16.8 | % | 4,802 | 18.0 | % | ||||||||||||||||||||
Acquisition and integration charges | 48 | 0.5 | % | - | - | 6,327 | 14.8 | % | - | - | ||||||||||||||||||||||
Total non-interest expense | $ | 11,888 | 100 | % | $ | 9,416 | 100 | % | $ | 43,056 | 100 | % | $ | 26,730 | 100 | % |
Noninterest income increased $0.6loan losses was approximately $28.1 million, or 18.0% as compared to third quarter 2016. The largest increases in noninterest income were increases in service charges and interchange fee income. Third quarter 2017 noninterest expense increased $2.5 million, or 26.3% as compared to third quarter 2016. The largest increase in noninterest expense, other than acquisition charges, was related to salaries and benefits0.88% of $1.7 million of which $1.4 million is related to increased employment as a result of the acquisitions.
Noninterest expense increased $16.3 million in year-over-year comparison consisting of increases in salaries and benefits of $6.9 million of which $5.4 million relates to the acquisitions.
PROVISION FOR INCOME TAXES
The Company sets aside a provision for income taxes on a monthly basis. The amount of the provision is determined by first applying the Company’s statutory income tax rates to estimated taxable income, which is pre-tax book income adjusted for permanent differences, and then subtracting available tax credits if applicable. Permanent differences include but are not limited to tax-exempt interest income, bank-owned life insurance cash surrender value income, and certain book expenses that are not allowed as tax deductions.
The Company’s provision for income taxes was $3.1 million for the year through September 30, 2017, and remained unchanged when compared to same period of 2016.
BALANCE SHEET ANALYSIS
EARNING ASSETS
The Company’s interest-earning assets are comprised of investments andoutstanding loans and the composition, growth characteristics, and credit quality of both are significant determinants of the Company’s financial condition. Investments are analyzed in the section immediately below, while the loan and lease portfolio and other factors affecting earning assets are discussed in the sections following investments.
INVESTMENTS
The Company’s investments can at any given time consist of debt securities and marketable equity securities (together, the “investment portfolio”), investments in the time deposits of other banks, surplus interest-earning balances in our Federal Reserve Bank (“FRB”) account, and overnight fed funds sold. Surplus FRB balances and fed funds sold to correspondent banks represent the temporary investment of excess liquidity. The Company’s investments serve several purposes: 1) they provide liquidity to even out cash flows from the loan and deposit activities of customers; 2) they provide a source of pledged assets for securing public deposits, bankruptcy deposits and certain borrowed funds which require collateral; 3) they constitute a large base of assets with maturity and interest rate characteristics that can be changed more readily than the loan portfolio, to better match changes in the deposit base and other funding sources of the Company; 4) they are another interest-earning option for surplus funds when loan demand is light; and 5) they can provide partially tax exempt income. Total securities, excluding other securities, totaled $359.0 million, or 20.1% of total assets at September 30, 2017, compared to $249.2 million, or 19.5% of total assets at December 31,2016.
We had no fed funds sold at September 30, 2017 and $0.4 million of fed funds sold at December 31, 2016; and interest-bearing balances at other banks decreased to $29.6 million at September 30, 2017 from $30.0 million at December 31, 2016 primarily due to a decrease in our Federal Reserve Bank account. The Company’s investment portfolio increased $92.4 million due to acquisitions to a total fair market value of $360.4 million at September 30, 2017, reflecting an increase of $109.8 million, or 43.8%, for the first nine months of 2017. The Company carries investments principally at their fair market values. The Company holds a small amount of “held-to-maturity” investments with a fair market value of $7.4 million at September 30, 2017 as compared to $7.4 million at December 31, 2016. All other investment securities are classified as “available-for-sale” to allow maximum flexibility with regard to interest rate risk and liquidity management.
Refer to table shown in NOTE 10 - SECURITIES for information on the Company’s amortized cost and fair market value of its investment portfolio by investment type.
LOAN AND LEASE PORTFOLIO
The Company’s gross loans and leases, excluding the associated allowance for losses and including loans held for sale, totaled $1.203 billion at September 30, 2017, an increase of $329.8 million, or 37.8%, sincesale. At December 31, 2016.2019, the allowance for loan losses amounted to approximately $13.9 million, which was 0.53% of outstanding loans excluding loans held for sale. The acquisitions accountedprovision for approximately $237.3 million loan losses is a charge to earnings to maintain the allowance for loan losses at a level consistent with management’s assessment
47
of the increase. At September 30, 2017, the company had direct energy related loans of $20.2 million, representing 1.7% of the total loan portfolio. A majority of the outstanding are secured by marine assets that operate in the Gulf of Mexico, which are under term contracts to major operators tied primarily to oil and gas production.
A distribution of the Company’s loans showing the balance and percentage of loans by type is presented for the noted periods in the table below. The balances shown are before deferred or unamortized loan origination, extension, or commitment fees, and deferred origination costs.
The following table shows the compositioncollectability of the loan portfolio by category:
Compositionin light of Loan Portfolio
Sept. 30, 2017 | December 31, 2016 | |||||||||||||||
Amount | Percent Total | Amount | Percent of | |||||||||||||
($ In Thousands) | ||||||||||||||||
Mortgage loans held for sale | $ | 4,588 | 0.4 | % | $ | 5,880 | 0.6 | % | ||||||||
Commercial, financial and agricultural | 164,577 | 13.7 | 129,423 | 14.8 | ||||||||||||
Real Estate: | ||||||||||||||||
Mortgage-commercial | 456,110 | 37.9 | 314,359 | 36.0 | ||||||||||||
Mortgage-residential | 377,307 | 31.4 | 289,640 | 33.2 | ||||||||||||
Construction | 171,609 | 14.3 | 109,394 | 12.5 | ||||||||||||
Lease financing receivable | 2,008 | 0.2 | 2,204 | 0.3 | ||||||||||||
Obligations of states and subdivisions | 5,892 | 0.5 | 6,698 | 0.8 | ||||||||||||
Consumer and other | 20,690 | 1.6 | 15,336 | 1.8 | ||||||||||||
Total loans | 1,202,781 | 100 | % | 872,934 | 100 | % | ||||||||||
Allowance for loan losses | (8,175 | ) | (7,510 | ) | ||||||||||||
Net loans | $ | 1,194,606 | $ | 865,424 |
Incurrent economic conditions and market trends. During the contextfirst quarter of this discussion, a "real estate mortgage loan" is defined as any loan, other than a loan for construction purposes, secured by real estate, regardless2020, the World Health Organization declared the spread of the purposeCOVID-19 virus to be a global pandemic. That has caused significant disruptions to the U.S. economy across all industries. With the number of diagnosed cases of the loan. The Company follows the common practice of financial institutions in the Company’s market area of obtaining a security interest in real estate whenever possible, in addition to any other available collateral. This collateral is taken to reinforce the likelihood of the ultimate repayment of the loan and tends to increase the magnitude of the real estate loan portfolio component. Generally, the Company limits its loan-to-value ratio to 80%. Management attempts to maintain a conservative philosophy regarding its underwriting guidelines and believes that the risk elements of its loan portfolio have been reduced through strategies that diversify the lending mix.
Loans held for sale consist of mortgage loans originated by the Bank and sold into the secondary market. Commitments from investors to purchase the loans are obtained upon origination.
NONPERFORMING ASSETS
Nonperforming assets are comprised of loans for which the Company is no longer accruing interest, and foreclosed assets including mobile homes and OREO. If the Company grants a concession to a borrower in financial difficulty, the loan falls into the category of a troubled debt restructuring (“TDR”). TDRs may be classified as either nonperforming or performing loans depending on their accrual status. The following table presents comparative data for the Company’s nonperforming assets and performing TDRs as of the dates noted:
Nonperforming Assets and Performing Troubled Debt Restructurings
($ In Thousands)
NON-ACCRUAL LOANS | ||||||||||||
Real Estate: | 9/30/17 | 12/31/16 | 9/30/16 | |||||||||
1-4 family residential construction | $ | - | $ | 300 | $ | - | ||||||
Other construction/land | 98 | 358 | 2,788 | |||||||||
1-4 family residential revolving/open-end | 61 | 200 | 317 | |||||||||
1-4 family residential closed-end | 2,672 | 1,463 | 1,652 | |||||||||
Nonfarm, nonresidential, owner-occupied | 625 | 587 | 598 | |||||||||
Nonfarm, nonresidential, other nonfarm nonresidential | 1,139 | 322 | 336 | |||||||||
TOTAL REAL ESTATE | 4,595 | 3,230 | 5,691 | |||||||||
Commercial and industrial | 211 | 2 | 72 | |||||||||
Loans to individuals - other | 46 | 33 | 36 | |||||||||
TOTAL NON-ACCRUAL LOANS | 4,852 | 3,265 | 5,799 | |||||||||
Other real estate owned | 7,855 | 6,008 | 4,670 | |||||||||
TOTAL NON-PERFORMING ASSETS | $ | 12,707 | $ | 9,273 | $ | 10,469 | ||||||
Performing TDRs | $ | 4,676 | $ | 2,774 | $ | 2,903 | ||||||
Total non-performing assets as a % of total loans & leases net of unearned income | 1.06 | % | 1.06 | % | 1.21 | % | ||||||
Total non-accrual loans as a % of total loans & leases net of unearned income | 0.40 | % | 0.37 | % | 0.67 | % |
Nonperforming assets totaled $12.7 million at September 30, 2017, compared to $9.3 million at December 31, 2016. The increase of $3.4 million is attributable to the acquisitions with associated fair value marks. The ALLL/total loans ratio was 0.68% at September 30, 2017 and .87% at December 31, 2016. Including valuation accounting adjustments on acquired loans, the total valuation plus ALLL was 1.16% of loans at September 30, 2017. The ratio of annualized net charge-offs (recoveries) to total loans was (0.005)% for the quarter ended September 30, 2017 compared to (0.04)% for the quarter ended September 30, 2016. As noted in our first quarter 2015 10-Q, the Company had been notified that a recovery of $941,000 was more likely than not expected during 2015. We received the first installmentvirus rising during the second quarter, it is still impossible to foresee how long the pandemic will last and what effect it will have on the economy, or to what extent this crisis will impact the Company. All available industry statistics and trends, as well as internal tracking of 2015 which totaled $481,000loan repayment ability and payment forgiveness across the second installment duringportfolio is being analyzed in an attempt to understand the third quartercorrelation with asset quality and degree of 2015 which totaled $241,000. The remaining balancepossible deterioration. This ongoing analysis of $219,000 was receivedthe possibility of increasing credit losses resulted in 2016.
ALLOWANCE FOR LOAN AND LEASE LOSSES
The allowancethe need for loan and lease losses is established through a provision expense similar to what was taken in the first quarter that will continue to provide an adequate allowance reserve for loan and lease losses. It is maintainedthis situation. If economic conditions continue to worsen, further funding to the allowance may be required in future periods. The Company maintains the allowance at a level that management believes is adequate to absorb probable incurred losses inherent in the remaining loan portfolio. Specifically, identifiable and quantifiable losses are immediately charged offcharged-off against the allowance; recoveries are generally recorded only when sufficient cash payments are received subsequent to the charge off. The Company’s provision for loan losses was $14.7 million at June 30, 2020, $3.7 million at December 31, 2019 and $1.9 million at June 30, 2019. The overall allowance for loan losses results from consistent application of our loan loss reserve methodology as described above. At June 30, 2020, management believes the allowance is appropriate and has been derived from consistent application of our methodology. Should any of the factors considered by management in evaluating the appropriateness of the allowance for loan losses change, management’s estimate of inherent losses in the portfolio could also change, which would affect the level of future provisions for loan losses.
48
The table that follows summarizes the activity in the allowance for loan and lease losses for the noted periods:periods ($ in thousands):
Allowance for Loan and Lease Losses
($ In Thousands)
3 months ended | 3 months ended | 9 months ended | 9 months ended | For the Year Ended | ||||||||||||||||
9/30/17 | 9/30/16 | 9/30/17 | 9/30/16 | 12/31/16 | ||||||||||||||||
Balances: | ||||||||||||||||||||
Average gross loans & leases outstanding during period: | $ | 1,185,493 | $ | 836,931 | $ | 1,153,694 | $ | 808,821 | $ | 820,881 | ||||||||||
Gross Loans & leases outstanding at end of period | 1,202,781 | 863,803 | 1,202,781 | 863,803 | 872,934 | |||||||||||||||
Allowance for Loan and Lease Losses: | ||||||||||||||||||||
Balance at beginning of period | $ | 8,070 | $ | 7,259 | $ | 7,510 | $ | 6,747 | $ | 6,747 | ||||||||||
Provision charged to expense | 90 | 143 | 384 | 538 | 625 | |||||||||||||||
Charge-offs: | ||||||||||||||||||||
Real Estate- | ||||||||||||||||||||
1-4 family residential construction | - | - | 32 | - | - | |||||||||||||||
Other construction/land | 39 | - | 111 | 67 | 274 | |||||||||||||||
1-4 family revolving, open-ended | - | - | 67 | - | 134 | |||||||||||||||
1-4 family closed-end | - | 130 | 49 | 219 | 219 | |||||||||||||||
Nonfarm, nonresidential, owner-occupied | - | - | - | - | - | |||||||||||||||
Total Real Estate | 39 | 130 | 259 | 286 | 627 | |||||||||||||||
Commercial and industrial | - | - | 1 | 6 | 71 | |||||||||||||||
Credit cards | - | - | - | 1 | 6 | |||||||||||||||
Automobile loans | 12 | 20 | 30 | 29 | 37 | |||||||||||||||
Loans to individuals - other | - | - | - | - | - | |||||||||||||||
All other loans | 9 | 6 | 33 | 25 | 30 | |||||||||||||||
Total | 60 | 156 | 323 | 347 | 771 | |||||||||||||||
Recoveries: | ||||||||||||||||||||
Real Estate- | ||||||||||||||||||||
1-4 family residential construction | - | - | - | - | - | |||||||||||||||
Other construction/land | 24 | 108 | 274 | 191 | 229 | |||||||||||||||
1-4 family revolving, open-ended | - | 3 | 51 | 17 | 17 | |||||||||||||||
1-4 family closed-end | 16 | 105 | 160 | 194 | 502 | |||||||||||||||
Nonfarm, nonresidential, owner-occupied | 5 | 1 | 13 | 6 | 7 | |||||||||||||||
Total Real Estate | 45 | 217 | 498 | 408 | 755 | |||||||||||||||
Commercial and industrial | 7 | 3 | 39 | 83 | 84 | |||||||||||||||
Credit cards | - | 1 | - | 1 | 2 | |||||||||||||||
Automobile loans | 4 | - | 11 | 1 | 1 | |||||||||||||||
Loans to individuals - other | 7 | 5 | 21 | 10 | 12 | |||||||||||||||
All other loans | 12 | 9 | 35 | 40 | 55 | |||||||||||||||
Total | 75 | 235 | 604 | 543 | 909 | |||||||||||||||
Net loan charge offs (recoveries) | (15 | ) | (79 | ) | (281 | ) | (196 | ) | (138 | ) | ||||||||||
Balance at end of period | $ | 8,175 | $ | 7,481 | $ | 8,175 | $ | 7,481 | $ | 7,510 | ||||||||||
RATIOS | ||||||||||||||||||||
Net Charge-offs (recoveries) to average Loans & Leases(annualized) | (0.005 | )% | (0.04 | )% | (0.03 | )% | (0.03 | )% | (0.02 | )% | ||||||||||
Allowance for Loan Losses to gross Loans & Leases at end of period | 0.68 | % | 0.87 | % | 0.68 | % | 0.87 | % | 0.86 | % | ||||||||||
Net Loan Charge-offs (recoveries) to provision for loan losses | (16.67 | )% | (55.24 | )% | (73.18 | )% | (36.43 | )% | (22.08 | )% |
49
| | | | | | | | | | | | | | | | |
|
| Three Months |
| Three Months |
| Six Months |
| Six Months |
| For the Year |
| |||||
| | Ended | | Ended | | Ended | | Ended | | Ended | | |||||
Balances: | | 6/30/20 | | 6/30/19 | | 6/30/20 | | 6/30/19 | | 12/31/19 |
| |||||
Average gross loans & leases outstanding during |
| |
|
| |
|
| |
|
| |
|
| |
| |
period: | | $ | 3,156,524 | | $ | 2,337,583 | | $ | 2,879,432 | | $ | 2,253,009 | | $ | 2,341,202 | |
Gross loans & leases outstanding at end of | |
|
| |
|
| |
|
| |
|
| |
|
| |
period: | |
| 3,190,167 | |
| 2,360,595 | |
| 3,190,167 | |
| 2,360,595 | |
| 2,611,168 | |
Allowance for Loan and Lease Losses: | |
|
| |
|
| |
|
| |
|
| |
|
| |
Balance at beginning of period | | $ | 20,804 | | $ | 11,235 | | $ | 13,908 | | $ | 10,065 | | $ | 10,065 | |
Provision charged to expense | |
| 7,606 | |
| 791 | |
| 14,708 | |
| 1,913 | |
| 3,738 | |
Charge-offs: | |
|
| |
|
| |
|
| |
|
| |
|
| |
Real Estate- | |
|
| |
|
| |
|
| |
|
| |
|
| |
1-4 family residential construction | |
| — | |
| — | |
| — | |
| — | |
| — | |
Other construction/land | |
| 13 | |
| 66 | |
| 13 | |
| 66 | |
| — | |
1-4 family revolving, open-ended | |
| 87 | |
| — | |
| 87 | |
| — | |
| 54 | |
1-4 family closed-end | |
| — | |
| — | |
| 9 | |
| 42 | |
| 109 | |
Nonfarm, nonresidential, owner-occupied | |
| 50 | |
| — | |
| 383 | |
| — | |
| 54 | |
Total Real Estate | |
| 150 | |
| 66 | |
| 492 | |
| 108 | |
| 217 | |
Commercial and industrial | |
| 165 | |
| 2 | |
| 264 | |
| 6 | |
| 141 | |
Credit cards | |
| — | |
| — | |
| — | |
| — | |
| 33 | |
Automobile loans | |
| 204 | |
| 10 | |
| 225 | |
| 11 | |
| 48 | |
Loans to individuals - other | |
| 93 | |
| 28 | |
| 121 | |
| 56 | |
| — | |
All other loans | |
| 257 | |
| — | |
| 267 | |
| — | |
| 225 | |
Total | |
| 869 | |
| 106 | |
| 1,369 | |
| 181 | |
| 664 | |
Recoveries: | |
|
| |
|
| |
|
| |
|
| |
|
| |
Real Estate- | |
|
| |
|
| |
|
| |
|
| |
|
| |
1-4 family residential construction | |
| 24 | |
| — | |
| 24 | |
| — | |
| — | |
Other construction/land | |
| 7 | |
| 8 | |
| 16 | |
| 14 | |
| 129 | |
1-4 family revolving, open-ended | |
| 1 | |
| 9 | |
| 26 | |
| 10 | |
| 19 | |
1-4 family closed-end | |
| 89 | |
| 66 | |
| 113 | |
| 85 | |
| 221 | |
Nonfarm, nonresidential, owner-occupied | |
| 285 | |
| 2 | |
| 345 | |
| 6 | |
| 13 | |
Total Real Estate | |
| 406 | |
| 85 | |
| 524 | |
| 115 | |
| 382 | |
Commercial and industrial | |
| 24 | |
| 15 | |
| 100 | |
| 27 | |
| 85 | |
Credit cards | |
| — | |
| 1 | |
| — | |
| 1 | |
| 3 | |
Automobile loans | |
| 10 | |
| 9 | |
| 43 | |
| 22 | |
| 40 | |
Loans to individuals - other | |
| 20 | |
| 18 | |
| 41 | |
| 30 | |
| 72 | |
All other loans | |
| 63 | |
| 44 | |
| 109 | |
| 99 | |
| 187 | |
Total | |
| 523 | |
| 172 | |
| 817 | |
| 294 | |
| 769 | |
Net loan charge offs (recoveries) | |
| 346 | |
| (65) | |
| 552 | |
| (113) | |
| (105) | |
Balance at end of period | | $ | 28,064 | | $ | 12,091 | | $ | 28,064 | | $ | 12,091 | | $ | 13,908 | |
| | | | | | | | | | | | | | | | |
RATIOS | |
|
| |
|
| |
|
| |
|
| |
|
| |
Net Charge-offs (recoveries) to average loans & | |
|
| |
|
| |
|
| |
| �� | |
|
| |
leases (annualized) | |
| 0.04 | % |
| (0.011) | % |
| 0.03 | % |
| (0.01) | % |
| (0.004) | % |
Allowance for loan losses to gross loans & | |
|
| |
|
| |
|
| |
|
| |
|
| |
leases at end of period | |
| 0.88 | % |
| 0.51 | % |
| 0.88 | % |
| 0.51 | % |
| 0.53 | % |
Net Loan Charge-offs (recoveries) to provision | |
|
| |
|
| |
|
| |
|
| |
|
| |
for loan losses | |
| 4.55 | % |
| (8.22) | % |
| 3.75 | % |
| (5.91) | % |
| (2.81) | % |
50
OFF-BALANCE SHEET ARRANGEMENTS
The Company maintains commitmentsfollowing tables represent how the allowance for loan losses is allocated to extend credit ina particular loan type, as well as the normal coursepercentage of business, as long as there are no violations of conditions established in the outstanding contractual arrangements. Unused commitmentscategory to extend credit totaled $265.2 milliontotal loans at SeptemberJune 30, 20172020 and $220.3 million at December 31, 2016, although it is not likely that all of those commitments will ultimately be drawn down. Unused commitments represented approximately 22.1% of gross loans outstanding at September 30, 2017 and 25.2% at December 31, 2016, with the increase due in part to higher commitments in commercial and industrial loans. The Company also had undrawn letters of credit issued to customers totaling $8.2 million at September 30, 2017 and $1.7 million at December 31, 2016. The effect on the Company’s revenues, expenses, cash flows and liquidity from the unused portion2019.
Allocation of the commitments to provide credit cannot be reasonably predicted because there is no guarantee that the lines of credit will ever be used. However, the “Liquidity” section in this Form 10-Q outlines resources available to draw upon should we be required to fund a significant portion of unused commitments. For more information regarding the Company’s off-balance sheet arrangements, see NOTE 8 to the consolidated financial statements.Allowance for Loan Losses
| | | | | | |
($in thousands) |
| June 30, 2020 |
| |||
| | | | | % of loans |
|
| | | | | in each |
|
| | | | | category to |
|
| | Amount | | total loans |
| |
Commercial, financial and agriculture | | $ | 5,208 |
| 18.6 | % |
Commercial real estate | |
| 18,526 |
| 66.0 | % |
Consumer real estate | |
| 3,741 |
| 13.3 | % |
Installment and other | |
| 459 |
| 1.6 | % |
Paycheck Protection Program | | | 130 | | 0.5 | % |
Unallocated | |
| — |
| — | |
Total | | $ | 28,064 |
| 100 | % |
| | | | | | |
($in thousands) |
| December 31, 2019 |
| |||
| | | | | % of loans |
|
| | | | | in each |
|
| | | | | category to |
|
| | Amount | | total loans |
| |
Commercial, financial and agriculture | | $ | 3,043 |
| 13.1 | % |
Commercial real estate | |
| 8,836 |
| 65.5 | % |
Consumer real estate | |
| 1,694 |
| 19.8 | % |
Installment and other | |
| 296 |
| 1.6 | % |
Unallocated | |
| 39 |
| — | |
Total | | $ | 13,908 |
| 100 | % |
In addition to unused commitments to provide credit, the Company is utilizing a $82.0 million letter of credit issued by the Federal Home Loan Bank (“FHLB”) on the Company’s behalf as security as of September 30, 2017. That letter of credit is backed by loans which are pledged to the FHLB by the Company.
OTHER ASSETS
The Company’s balance of non-interest earning cash and due from banks was $63.7$119.9 million at SeptemberJune 30, 20172020 and $31.7$89.7 million at December 31, 2016.2019. The balance of cash and due from banks depends on the timing of collection of outstanding cash items (checks), the level of cash maintained on hand at our branches, and our reserve requirement among other things, and is subject to significant fluctuation in the normal course of business. While cash flows are normally predictable within limits, those limits are fairly broad and the Company manages its short-term cash position through the utilization of overnight loans to and borrowings from correspondent banks, including the Federal Reserve Bank and the Federal Home Loan Bank.Bank (“ FHLB”). Should a large “short” overnight position persistpersists for any length of time, the Company typically raises money through focused retail deposit gathering efforts or by adding brokered time deposits. If a “long” position is prevalent, the Company will let brokered deposits or other wholesale borrowings roll off as they mature, or might invest excess liquidity in higher-yielding, longer-term bonds.
Total equityother securities increased $3.0 milliondecreased $631 thousand due to an increasea decrease in FHLB stock and federal reserve stock. The Company’s net premises and equipment at SeptemberJune 30, 20172020 was $46.2$125.1 million and $34.6$105.0 million at December 31, 2016; the result being2019; an increase of $11.6$20.1 million, or 33.4%19.1% for the first ninesix months of 2017.2020. The increase is attributed to the recording of a $3.1 million finance lease in the first quarter of 2020 and $18.6 million of acquired premises and equipment related to the SWG acquisition. Included in the acquisition of IbervilleSWG was $4.0$7.0 million in bank-owned life insurance, creating a balance of $26.4$73.1 million at SeptemberJune 30, 2017. Bank-owned life insurance is also discussed above in the “Non-Interest Income and Non-Interest Expense” section.2020, an increase of $13.4 million when compared to December 31, 2019. Goodwill increased by $6.7at June 30, 2020 remained unchanged at $158.6 million during the period, as a result of the acquisitions, ending the first nine months of 2017 with a balance of $20.4 million.when compared to December 31, 2019. Other intangible assets, consisting primarily of the Company’s core deposit intangible (“CDI”), increased by $3.1$2.6 million as of June 30, 2020, as compared to December 31, 2019. The Company recorded 4.6 million in CDI related to the SWG acquisition and recognized CDI amortization expense of 2.0 million during the six months ended June 30, 2020.
51
Goodwill and indefinite-lived intangible assets are tested for impairment at least annually, and more frequently if events or changes in circumstances indicate that it is more likely than not that the asset is impaired. During the first quarter of 2020, management determined that the deterioration in the general economic conditions as a result of the COVID-19 pandemic represented a triggering event prompting an evaluation of goodwill impairment. Based on the analyses performed in the first quarter of 2020, we determined that goodwill was not impaired. Due to the ongoing economic uncertainty present at the end of the second quarter, the Company prepared a Step 1 goodwill impairment analysis as of June 30, 2020. In testing goodwill for impairment, the Company compared the estimated fair value of its reporting unit to its carrying amount, including goodwill. The estimated fair value of the reporting unit exceeded its book value. At this time, we do not believe there exists any impairment to goodwill and intangible assets, long-lived assets, or available-for-sale securities due to the acquisitions. The Company’sCOVID-19 pandemic. In addition, in future periods the Company will be required to evaluate the impact of COVID-19 on the carrying value of certain of its assets, including goodwill, and other intangibleto conduct impairments tests on those assets, are evaluated annually for potentialwhich may result in impairment and pursuant tocharges on these assets in future periods that analysis management has determined that no impairment exists as of September 30, 2017.
could be material.
Other real estate owned increaseddecreased by $1.8 million, or 30.7% during25.0%, to $5.5 million at June 30, 2020 as compared to December 31, 2019.
OFF-BALANCE SHEET ARRANGEMENTS
The Company maintains commitments to extend credit in the first nine monthsnormal course of 2017. This increase comesbusiness, as long as there are no violations of conditions established in the outstanding contractual arrangements. Unused commitments to extend credit totaled $418.6 million at June 30, 2020 and $410.3 million at December 31, 2019, although it is not likely that all of those commitments will ultimately be drawn down. Unused commitments represented approximately 13.1% of gross loans at June 30, 2020 and 15.8% at December 31, 2019. The Company also had undrawn similar standby letters of credit to customers totaling $15.4 million at June 30, 2020 and $12.1 million at December 31, 2019. The effect on the Company’s revenues, expenses, cash flows and liquidity from the acquisitionunused portion of GCCB. Seethe commitments to provide credit cannot be reasonably predicted because there is no guarantee that the lines of credit will ever be used. However, the “Liquidity” section in this Form 10-Q outlines resources available to draw upon should we be required to fund a significant portion of unused commitments. For more information regarding the Company’s off-balance sheet arrangements, see Note 47 – Financial Instruments with Off-Balance Risk to the Consolidated Financial Statements.
In addition to unused commitments to provide credit, the Company is utilizing a $5.0 million letter of credit issued by the FHLB on the Company’s behalf as of June 30, 2020. That letter of credit is backed by loans which are pledged to the FHLB by the Company.
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY
Liquidity management refers to the Company’s ability to maintain cash flows that are adequate to fund operations and meet other obligations and commitments in a timely and cost-effective manner. Detailed cash flow projections are reviewed by management on a monthly basis, with various scenarios applied to assess its ability to meet liquidity needs under adverse conditions. Liquidity ratios are also calculated and reviewed on a regular basis. While those ratios are merely indicators and are not measures of actual liquidity, they are closely monitored and we are focused on maintaining adequate liquidity resources to draw upon should unexpected needs arise.
The Company, on occasion, experiences cash needs as the result of loan growth, deposit outflows, asset purchases or liability repayments. To meet short-term needs, the Company can borrow overnight funds from other financial institutions, draw advances through FHLB lines of credit, or solicit brokered deposits if deposits are not immediately obtainable from local sources. The net availability on lines of credit from the FHLB totaled $1.081 billion at June 30, 2020. Furthermore, funds can be obtained by drawing down the Company’s correspondent bank deposit accounts, or by liquidating unpledged investments or other readily saleable assets. In addition, the Company can raise immediate cash for temporary needs by selling under agreement to repurchase those investments in its portfolio which are not pledged as collateral. As of June 30, 2020, the market value of unpledged debt securities plus pledged securities in excess of current pledging requirements comprised $351.3 million of the Company’s investment balances, compared to $348.3 million at December 31, 2019. Other forms of balance sheet liquidity include but are not necessarily limited to any outstanding
52
federal funds sold and vault cash. The Company has a higher level of actual balance sheet liquidity than might otherwise be the case, since it utilizes a letter of credit from the FHLB rather than investment securities for certain pledging requirements. That letter of credit, which is backed by loans that are pledged to the FHLB by the Company, totaled $100.0 million at June 30, 2020.
The Company’s liquidity ratio as of June 30, 2020 was 22.3%, as compared to internal liquidity policy guidelines of 10% minimum. Other liquidity ratios reviewed include the following along with policy guidelines:
| | | | | | |
|
| |
| Policy |
| Policy |
| | June 30, 2020 | | Maximum | | Compliance |
Loans to Deposits (including FHLB advances) |
| 72.9 | % | 90.0 | % | In Policy |
Net Non-core Funding Dependency Ratio |
| (3.3) | % | 20.0 | % | In Policy |
Fed Funds Purchased / Total Assets |
| 0.0 | % | 10.0 | % | In Policy |
FHLB Advances / Total Assets |
| 2.2 | % | 20.0 | % | In Policy |
FRB Advances / Total Assets |
| 0.0 | % | 10.0 | % | In Policy |
Pledged Securities to Total Securities |
| 67.0 | % | 90.0 | % | In Policy |
Continued growth in core deposits and relatively high levels of potentially liquid investments have had a positive impact on our liquidity position in recent periods, but no assurance can be provided that our liquidity will continue at current robust levels.
As of June 30, 2020, cash and cash equivalents were $539.1 million. In addition, loans and investment securities repricing or maturing within one year or less were approximately $700.9 million at June 30, 2020. Approximately $418.6 million in loan commitments could fund within the next three months and other commitments, primarily commercial and similar letters of credit, totaled $15.4 million at June 30, 2020.
Management continually evaluates our liquidity position and currently believes the Company has adequate funding to meet our financial needs. During March 2020, in response to COVID-19, the Federal Reserve lowered the primary credit rate by 150 basis points to 0.25 percent and extended terms to 90 days to enhance market liquidity and encourage use of the discount window. In addition, the Federal Reserve announced it would begin quantitative easing, or large-scale asset purchases, consisting primarily of Treasury securities and mortgage-backed securities to stem the effects of the pandemic on the financial markets. A prolonged outbreak of the COVID-19 pandemic could cause a widespread liquidity crisis, and the availability of these funds or the options to sell securities currently held could be hindered. The full impact and duration of COVID-19 on our business is unknown but if it continues to curtail economic activity, it could impact our ability to obtain funding and result in the reduction of or the cessation of dividends.
The Company’s primary uses of funds are ordinary operating expenses and shareholder dividends, and its primary source of funds is dividends from the Bank since the Company does not conduct regular banking operations. Both the Company and the Bank are subject to legal and regulatory limitations on dividend payments, as outlined in Item 1. Business Combinations.– Supervision and Regulation in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.
DEPOSITS AND INTEREST BEARING LIABILITIES
DEPOSITS
Deposits are another key balance sheet component impacting the Company’s net interest margin and other profitability metrics. Deposits provide liquidity to fund growth in earning assets, and the Company’s net interest margin is improved to the extent that growth in deposits is concentrated in less volatile and typically less costly non-maturity deposits such as demand deposit accounts, NOW accounts, savings accounts, and money market demand accounts. Information concerning average balances and rates paid by deposit type for the three-month periods ended SeptemberJune 30, 20172020 and 20162019 is included in the Average Balances, Tax Equivalent Interest and Yield/Rates tables appearing above, inunder the section titledheading “Net Interest Income and Net Interest Margin.” The Company implemented Deposit Reclassification at the beginning of 2020. This program reclassifies non-interest bearing deposits and NOW deposit balances to money market accounts. This program reduces our reserve balance required at the Federal Reserve Bank of Atlanta and provides additional funds for liquidity or lending. At quarter end June 30, 2020, $703.7 million in non-interest deposit balances and $746.1 million in NOW deposit
53
accounts were reclassified as money market accounts. A distribution of the Company’s reclassed deposits showing the balance and percentage of total deposits by type is presented for the noted periods in the following table.
| | | | | | | | | | | | ||||||||
Deposit Distribution |
| June 30, 2020 |
| December 31, 2019 |
| ||||||||||||||
($ In Thousands) | Sept. 30, 2017 | December 31, 2016 | |||||||||||||||||
| | | | | Percent of | | | | | Percent of | | ||||||||
($in thousands) | | Amount | | Total | | Amount | | Total |
| ||||||||||
Non-interest bearing demand deposits | $ | 308,050 | $ | 202,478 | | $ | 486,039 | | 11.5 | % | $ | 723,208 | | 23.5 | % | ||||
NOW accounts and Other | 639,802 | 430,903 |
| | 601,195 |
| 14.3 | % | | 941,598 |
| 30.7 | % | ||||||
Money Market accounts | 157,219 | 113,253 |
| | 2,089,832 |
| 49.6 | % | | 462,810 |
| 15.0 | % | ||||||
Savings accounts | 135,373 | 69,540 |
| | 362,159 |
| 8.6 | % | | 287,200 |
| 9.3 | % | ||||||
Time Deposits of less than $250,000 | 209,714 | 162,797 |
| | 499,406 |
| 11.8 | % | | 479,386 |
| 15.6 | % | ||||||
Time Deposits of $250,000 or more | 57,833 | 60,220 |
| | 178,259 |
| 4.2 | % | | 182,331 |
| 5.9 | % | ||||||
Total deposits | $ | 1,507,991 | $ | 1,039,191 | | $ | 4,216,890 |
| 100 | % | $ | 3,076,533 |
| 100 | % | ||||
Percentage of Total Deposits | |||||||||||||||||||
Non-interest bearing demand deposits | 20.4 | % | 19.5 | % | |||||||||||||||
NOW accounts and other | 42.4 | % | 41.5 | % | |||||||||||||||
Money Market accounts | 10.5 | % | 10.9 | % | |||||||||||||||
Savings accounts | 9.0 | % | 6.7 | % | |||||||||||||||
Time Deposits of less than $250,000 | 13.9 | % | 15.6 | % | |||||||||||||||
Time Deposits of $250,000 or more | 3.8 | % | 5.8 | % | |||||||||||||||
Total | 100 | % | 100 | % |
As of June 30, 2020, deposits increased by $1.140 billion, or 37.1% to $4.217 billion from $3.077 billion at December 31, 2019. The acquisition of SWG accounted for approximately $476.1 million, including fair value marks, or 41.7% of the increase. Transaction account balances were above normal as of June 30, 2020 due to PPP loan proceeds.
OTHER INTEREST-BEARING LIABILITIES
The Company’s non-deposit borrowings may, at any given time, include fedfederal funds purchased from correspondent banks, borrowings from the Federal Home Loan Bank,FHLB, advances from the Federal Reserve Bank, securities sold under agreements to repurchase, and/or junior subordinated debentures. The Company uses short-term FHLB advances and fedfederal funds purchased on uncommitted lines to support liquidity needs created by seasonal deposit flows, to temporarily satisfy funding needs from increased loan demand, and for other short-term purposes. The FHLB line is committed, but the amount of available credit depends on the level of pledged collateral.
Total non-deposit interest-bearing liabilities increaseddecreased by $25.3$98.2 million, or 31.9%33.3%, in the first ninesix months of 2017,2020, due in part to an increasea decrease in notes payable to the FHLB. Repurchase agreements decreased $5.0FHLB of $95.3 million. The Company had junior subordinated debentures totaling $10.3$80.8 million at SeptemberJune 30, 20172020 and $80.7 million December 31, 2016, in the form2019, which consists of long-term borrowings from trust subsidiaries formed specifically to issue trust preferred securities.
securities and of 10 and 15 year subordinated notes issued by the Company in 2018.
OTHER NON-INTEREST BEARING LIABILITIES
Other liabilities are principally comprised of accrued interest payable, lease liabilities and other accrued but unpaid expenses. Other liabilities increased by $4.0$16.8 million, or 100.8%62.9%, during the first ninesix months of 2017, due to the2020. The increase in other accrued but unpaid expenses.
liquidityliabilities is comprised of a finance lease added during the first quarter of 2020 of $2.7 million, a $7.5 million increase in deferred taxes and market RisK MANAGEMENT
LIQUIDITY
Liquidity management refers$5.4 million increase in federal tax payable. For more information regarding the Company’s leases, see Note 12 – Leases to the Company’s ability to maintain cash flows that are adequate to fund operations and meet other obligations and commitments in a timely and cost-effective manner. Detailed cash flow projections are reviewed by management on a monthly basis, with various scenarios applied to assess our ability to meet liquidity needs under adverse conditions. Liquidity ratios are also calculated and reviewed on a regular basis. While those ratios are merely indicators and are not measures of actual liquidity, they are closely monitored and we are focused on maintaining adequate liquidity resources to draw upon should unexpected needs arise.Consolidated Financial Statements.
The Company, on occasion, experiences cash needs as the result of loan growth, deposit outflows, asset purchases or liability repayments. To meet short-term needs, the Company can borrow overnight funds from other financial institutions, draw advances via FHLB lines of credit, or solicit brokered deposits if deposits are not immediately obtainable from local sources. The net availability on lines of credit from the FHLB totaled $414.1 million at September 30, 2017. Furthermore, funds can be obtained by drawing down the Company’s correspondent bank deposit accounts, or by liquidating unpledged investments or other readily saleable assets. In addition, the Company can raise immediate cash for temporary needs by selling under agreement to repurchase those investments in its portfolio which are not pledged as collateral. As of September 30, 2017, the market value of unpledged debt securities plus pledged securities in excess of current pledging requirements comprised $95.6 million of the Company’s investment balances, compared to $101.2 million at December 31, 2016. The increase in unpledged securities from September, 2017 compared to December 2016 is primarily due to an increase in portfolio assets. Other forms of balance sheet liquidity include but are not necessarily limited to any outstanding fed funds sold and vault cash. The Company has a higher level of actual balance sheet liquidity than might otherwise be the case, since we utilize a letter of credit from the FHLB rather than investment securities for certain pledging requirements. That letter of credit, which is backed by loans that are pledged to the FHLB by the Company, totaled $82.0 million at September 30, 2017. Management is of the opinion that available investments and other potentially liquid assets, along with the standby funding sources it has arranged, are more than sufficient to meet the Company’s current and anticipated short-term liquidity needs.
The Company’s liquidity ratio as of September 30, 2017 was 14.1%, as compared to internal policy guidelines of 10% minimum. Other liquidity ratios reviewed include the following along with policy guidelines:
Sept. 30, 2017 | Policy Maximum | Policy Compliance | ||||||||
Loans to Deposits (including FHLB advances) | 75.0 | % | 90.0 | % | In Policy | |||||
Net Non-core Funding Dependency Ratio | 6.0 | % | 20.0 | % | In Policy | |||||
Fed Funds Purchased / Total Assets | 0.0 | % | 10.0 | % | In Policy | |||||
FHLB Advances / Total Assets | 4.4 | % | 20.0 | % | In Policy | |||||
FRB Advances / Total Assets | 0.0 | % | 10.0 | % | In Policy | |||||
Pledged Securities to Total Securities | 72.0 | % | 90.0 | % | In Policy |
Continued growth in core deposits and relatively high levels of potentially liquid investments have had a positive impact on our liquidity position in recent periods, but no assurance can be provided that our liquidity will continue at current robust levels.
The holding company’s primary uses of funds are ordinary operating expenses and stockholder dividends, and its primary source of funds is dividends from the Bank since the holding company does not conduct regular banking operations. Management anticipates that the Bank will have sufficient earnings to provide dividends to the holding company to meet its funding requirements for the foreseeable future. Both the holding company and the Bank are subject to legal and regulatory limitations on dividend payments, as outlined in Item 5(c) Dividends in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.
INTEREST RATE RISK MANAGEMENT
Market risk arises from changes in interest rates, exchange rates, commodity prices and equity prices. The Company does not engage in the trading of financial instruments, nor does it have exposure to currency exchange rates. Our market risk exposure is primarily that of interest rate risk, and we have established policies and procedures to monitor and limit our earnings and balance sheet exposure to changes in interest rates. The principal objective of interest rate risk management is to manage the financial components of the Company’s balance sheet in a manner that will optimize the risk/reward equation for earnings and capital under a variety of interest rate scenarios.
To identify areas of potential exposure to interest rate changes, we utilize commercially available modeling software to perform earnings simulations and calculate the Company’s market value of portfolio equity under varying interest rate scenarios every month. The model imports relevant information for the Company’s financial instruments and incorporates Management’s assumptions on pricing, duration, and optionality for anticipated new volumes. Various rate scenarios consisting of key rate and yield curve projections are then applied in order to calculate the expected effect of a given interest rate change on interest income, interest expense, and the value of the Company’s financial instruments. The rate projections can be shocked (an immediate and parallel change in all base rates, up or down), ramped (an incremental increase or decrease in rates over a specified time period), economic (based on current trends and econometric models) or stable (unchanged from current actual levels).
We use seven standard interest rate scenarios in conducting our 12-month net interest income simulations: “static,” upward shocks of 100, 200, 300 and 400 basis points, and downward shocks of 100, and 200 basis points. Pursuant to policy guidelines, we typically attempt to limit the projected decline in net interest income relative to the stable rate scenario to no more than 5% for a 100 basis point (bp) interest rate shock, 10% for a 200 bp shock, 15% for a 300 bp shock, and 20% for a 400 bp shock. As of September 30, 2017, the Company had the following estimated net interest income sensitivity profile, without factoring in any potential negative impact on spreads resulting from competitive pressures or credit quality deterioration:
September 30, 2017 | Net Interest Income at Risk – Sensitivity Year 1 | |||||||||||||||||||||||||||
($ In Thousands) | -200 bp | -100 bp | STATIC | +100 bp | +200 bp | +300 bp | +400 bp | |||||||||||||||||||||
Net Interest Income | $ | 53,060 | $ | 54,580 | $ | 58,067 | $ | 59,791 | $ | 61,432 | $ | 63,091 | $ | 64,615 | ||||||||||||||
Dollar Change | -5,007 | -3,487 | 1,724 | 3,365 | 5,024 | 6,548 | ||||||||||||||||||||||
NII @ Risk - Sensitivity Y1 | -8.6 | % | -6.0 | % | 3.0 | % | 5.8 | % | 8.7 | % | 11.3 | % |
If there were an immediate and sustained downward adjustment of 200 basis points in interest rates, all else being equal, net interest income over the next twelve months would likely be approximately $5.0 million lower than in a stable interest rate scenario, for a negative variance of 8.6%. The unfavorable variance increases if rates were to drop below 200 basis points, due to the fact that certain deposit rates are already relatively low (on NOW accounts and savings accounts, for example), and will hit a natural floor of close to zero while non-floored variable-rate loan yields continue to drop. This effect would be exacerbated by accelerated prepayments on fixed-rate loans and mortgage-backed securities when rates decline, although rate floors on some of our variable-rate loans partially offset other negative pressures. While management believes that further interest rate reductions are highly unlikely, the potential percentage drop in net interest income exceeds our internal policy guidelines in declining interest rate scenarios and we will continue to monitor our interest rate risk profile and take corrective action as deemed appropriate.
Net interest income would likely improve by $3.4 million, or 5.8%, if interest rates were to increase by 200 basis points relative to a stable interest rate scenario, with the favorable variance expanding the higher interest rates rise. The initial increase in rising rate scenarios will be limited to some extent by the fact that some of our variable-rate loans are currently at rate floors, resulting in a re-pricing lag while base rates are increasing to floored levels, but the Company still appears well-positioned to benefit from a material upward shift in the yield curve.
The Company’s one year cumulative GAP ratio is approximately 220.3%, which means that there are more assets repricing than liabilities within the first year. The Company is “asset-sensitive.” These results are based on cash flows from assumptions of assets and liabilities that reprice (maturities, likely calls, prepayments, etc.) Typically, the net interest income of asset-sensitive companies should improve with rising rates and decrease with declining rates.
In addition to the net interest income simulations shown above, we run stress scenarios modeling the possibility of no balance sheet growth, the potential runoff of “surge” core deposits which flowed into the Company in the most recent economic cycle, and potential unfavorable movement in deposit rates relative to yields on earning assets. Even though net interest income will naturally be lower with no balance sheet growth, the rate-driven variances projected for net interest income in a static growth environment are similar to the changes noted above for our standard projections. When a greater level of non-maturity deposit runoff is assumed or unfavorable deposit rate changes are factored into the model, projected net interest income in declining rate and flat rate scenarios does not change materially relative to standard growth projections. However, the benefit we would otherwise experience in rising rate scenarios is minimized and net interest income remains relatively flat.
The economic value (or “fair value”) of financial instruments on the Company’s balance sheet will also vary under the interest rate scenarios previously discussed. The difference between the projected fair value of the Company’s financial assets and the fair value of its financial liabilities is referred to as the economic value of equity (“EVE”), and changes in EVE under different interest rate scenarios are effectively a gauge of the Company’s longer-term exposure to interest rate risk. Fair values for financial instruments are estimated by discounting projected cash flows (principal and interest) at projected replacement interest rates for each account type, while the fair value of non-financial accounts is assumed to equal their book value for all rate scenarios. An economic value simulation is a static measure utilizing balance sheet accounts at a given point in time, and the measurement can change substantially over time as the characteristics of the Company’s balance sheet evolve and interest rate and yield curve assumptions are updated.
The change in economic value under different interest rate scenarios depends on the characteristics of each class of financial instrument, including stated interest rates or spreads relative to current or projected market-level interest rates or spreads, the likelihood of principal prepayments, whether contractual interest rates are fixed or floating, and the average remaining time to maturity. As a general rule, fixed-rate financial assets become more valuable in declining rate scenarios and less valuable in rising rate scenarios, while fixed-rate financial liabilities gain in value as interest rates rise and lose value as interest rates decline. The longer the duration of the financial instrument, the greater the impact a rate change will have on its value. In our economic value simulations, estimated prepayments are factored in for financial instruments with stated maturity dates, and decay rates for non-maturity deposits are projected based on historical patterns and Management’s best estimates. The table below shows estimated changes in the Company’s EVE as of September 30, 2017, under different interest rate scenarios relative to a base case of current interest rates:
Balance Sheet Shock | ||||||||||||||||||||||||||||
($ In Thousands) | -200 bp | -100 bp | STATIC (Base) | +100 bp | +200 bp | +300 bp | +400 bp | |||||||||||||||||||||
Market Value of Equity | $ | 389,176 | $ | 387,021 | $ | 447,973 | $ | 495,850 | $ | 533,964 | $ | 565,223 | $ | 590,236 | ||||||||||||||
Change in EVE from base | -58,797 | -60,952 | 47,877 | 85,991 | 117,250 | 142,263 | ||||||||||||||||||||||
% Change | -13.1 | % | -13.6 | % | 10.7 | % | 19.2 | % | 26.2 | % | 31.8 | % | ||||||||||||||||
Policy Limits | -20.0 | % | -10.0 | % | -10.0 | % | -20.0 | % | -30.0 | % | -40.0 | % |
The table shows that our EVE will generally deteriorate in declining rate scenarios, but should benefit from a parallel shift upward in the yield curve. As noted previously, however, Management believes that the potential for a significant rate decline is low. We also run stress scenarios for EVE to simulate the possibility of higher loan prepayment rates, unfavorable changes in deposit rates, and higher deposit decay rates. Model results are highly sensitive to changes in assumed decay rates for non-maturity deposits, in particular.
CAPITAL RESOURCES
At SeptemberJune 30, 20172020, the Company had total stockholders’shareholders’ equity of $167.0$627.8 million, comprised of $9.2$21.6 million in common stock, less than $0.1$5.7 million in treasury stock, $105.0$455.7 million in surplus, $51.6$131.7 million in undivided profits $1.7and $24.6 million in accumulated comprehensive income foron available-for-sale securities. Total stockholders’shareholders’ equity at the end of 20162019 was $154.5$543.7 million. The increase of $12.5$84.1 million, or 8.1%15.5%, in stockholders’shareholders’ equity during the first ninesix months of 20172020 is comprised of capital added viathrough net earnings of $8.2$25.3 million, $2.7a $14.5 million increase in accumulated comprehensive income for available-for-sale securities and 2.22.5 million shares of common stock issued for the purchase of GCCB,SWG, offset by $1.0$4.0 million in cash dividends paid.
On May 7, 2020, the Company announced the renewal of its share repurchase program that previously expired on December 31, 2019. Under the program, the Company may, but is not required to, from time to time repurchase up to $15 million of shares of its common stock in any manner determined appropriate by the Company’s management. The actual timing and method of any purchases, the target number of shares and the maximum price (or range of prices) under the program, will be determined by management at its discretion and will depend on a number of factors, including the
54
market price of the Company’s common stock, general market and economic conditions, and applicable legal and regulatory requirements. The renewed share repurchase program has an expiration date of December 31, 2020, and has been approved by the Company’s regulators.
The Company uses a variety of measures to evaluate its capital adequacy, including risk-based capital and leverage ratios that are calculated separately for the Company and the Bank. Management reviews these capital measurements on a quarterly basis and takes appropriate action to help ensure that they meet or surpass established internal and external guidelines. As permitted by the regulators for financial institutions that are not deemed to be “advanced approaches” institutions, the Company has elected to opt out of the Basel III requirement of the standards initially adopted by the Basal Committee on Banking Supervision in December 2010 (which standards are commonly referred to as “Basel III”) to include accumulated other comprehensive income in risk-based capital. The following table sets forth the Company’s and the Bank’s regulatory capital ratios as of the dates indicated.
| | | | | | | |
|
| |
| |
| Minimum |
|
| | June 30, | | December 31, | | Required to be |
|
Regulatory Capital Ratios The First, A National Banking Association | | 2020 | | 2019 | | Well Capitalized |
|
Common Equity Tier 1 Capital Ratio |
| 15.0 | % | 15.1 | % | 6.5 | % |
Tier 1 Capital Ratio |
| 15.0 | % | 15.1 | % | 8.0 | % |
Total Capital Ratio |
| 15.9 | % | 15.6 | % | 10.0 | % |
Tier 1 Leverage Ratio |
| 10.2 | % | 11.8 | % | 5.0 | % |
Regulatory Capital Ratios
| | | | | | |
|
| |
| |
| Minimum |
| | June 30, | | December 31, | | Required to be |
Regulatory Capital Ratios The First Bancshares, Inc. | | 2020 | | 2019 | | Well Capitalized |
Common Equity Tier 1 Capital Ratio* |
| 13.1 | % | 12.5 | % | N/A |
Tier 1 Capital Ratio** |
| 13.6 | % | 13.0 | % | N/A |
Total Capital Ratio |
| 16.5 | % | 15.8 | % | N/A |
Tier 1 Leverage Ratio |
| 9.2 | % | 10.3 | % | N/A |
The First, ANBA
Sept. 30, 2017 | December 31, 2016 | Minimum Required to be Well Capitalized | ||||||||||
Common Equity Tier 1 Capital Ratio | 12.1 | % | 16.2 | % | 6.5 | % | ||||||
Tier 1 Capital Ratio | 12.1 | % | 16.2 | % | 8.0 | % | ||||||
Total Capital Ratio | 12.7 | % | 17.0 | % | 10.0 | % | ||||||
Tier 1 Leverage Ratio | 9.5 | % | 13.1 | % | 5.0 | % |
Regulatory Capital Ratios
The First Bancshares, Inc.
Sept. 30, 2017 | December 31, 2016 | Minimum Required to be Well Capitalized | ||||||||||
Common Equity Tier 1 Capital Ratio* | 10.3 | % | 13.8 | % | 6.5 | % | ||||||
Tier 1 Capital Ratio** | 11.0 | % | 14.7 | % | 8.0 | % | ||||||
Total Capital Ratio | 11.6 | % | 15.5 | % | 10.0 | % | ||||||
Tier 1 Leverage Ratio | 8.6 | % | 11.9 | % | 5.0 | % |
* The numerator does not include Preferred Stock and Trust Preferred.
** The numerator includes Trust Preferred.
Regulatory capital ratios slightly decreased from December 31, 2016 to September 30, 2017 as asset growth outpaced capital formation. Our capital ratios remain very strong relative to the median for peer financial institutions, and at SeptemberJune 30, 20172020 were well above the threshold for the Company and the Bank to be classified as “well capitalized,” the highest rating of the categories defined under the Bank Holding Company Act and the Federal Deposit Insurance Corporation Improvement Act of 1991. Basel III rules require a “capital conservation buffer” for both the Company and the Bank. The capital conservation buffer is subject to a three year phase-in period that began January 1, 2016 and was fully phased-in on January 1, 2019 at 2.5%. Under this guidance banking institutions with a CETI, Tier 1 Capital Ratio and Total Risk Based Capital above the minimum regulatory adequate capital ratios but below the capital conservation buffer will face constraints on their ability to pay dividends, repurchase equity and pay discretionary bonuses to executive officers, based on the amount of the shortfall.
The Company has elected to delay its adoption of ASU 2016-13, as provided by the CARES Act, until the date on which the national emergency related to the COVID-19 outbreak is terminated or December 31, 2020 whichever occurs first. In the first quarter of 2020, U.S. federal regulatory authorities issued an interim final rule that provides banking organizations that adopt CECL during the 2020 calendar year with the option to delay for two years the estimated impact of CECL on regulatory capital relative to regulatory capital determined under the prior incurred loss methodology, followed by a three-year transition period to phase out the aggregate amount of the capital benefit provided during the initial two-year delay (i.e., a five-year transition in total). The Company has elected to utilize the five-year CECL transition.
As of June 30, 2020, management believes that each of the Bank and the Company met all capital adequacy requirements to which they are subject. We do not foresee any circumstances that would cause the Company or the Bank to be less than well capitalized, although no assurance can be given that this will not occur.
Total consolidated equity capital at June 30, 2020 was $627.8 million, or approximately 12.3% of total assets. The Company currently has adequate capital to meet the minimum capital requirements for all regulatory agencies.
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On June 30, 2006, The Company issued $4,124,000 of floating rate junior subordinated deferrable interest debentures to The First Bancshares Statutory Trust 2 (“Trust 2”) in which the Company owns all of the common equity. The debentures are the sole asset of the Trust. Trust 2 issued $4,000,000 of Trust Preferred Securities (“TPSs”) to investors. The Company’s obligations under the debentures and related documents, taken together, constitute a full and unconditional guarantee by the Company of Trust 2’s obligations under the preferred securities. The preferred securities are redeemable by the Company at its option. The preferred securities must be redeemed upon maturity of the debentures in 2036. Interest on the preferred securities is the three month London Interbank Offer Rate (LIBOR) plus 1.65% and is payable quarterly. The terms of the subordinated debentures are identical to those of the preferred securities.
On July 27, 2007, The Company issued $6,186,000 of floating rate junior subordinated deferrable interest debentures to The First Bancshares Statutory Trust 3 (“Trust 3”) in which the Company owns all of the common equity. The debentures are the sole asset of Trust 3. The Trust issued $6,000,000 of TPSs to investors. The Company’s obligations under the debentures and related documents, taken together, constitute a full and unconditional guarantee by the Company of the Trust 3’s obligations under the preferred securities. The preferred securities are redeemable by the Company at its option. The preferred securities must be redeemed upon maturity of the debentures in 2037. Interest on the preferred securities is the three month LIBOR plus 1.40% and is payable quarterly. The terms of the subordinated debentures are identical to those of the preferred securities.
In 2018, the Company acquired FMB’s Capital Trust 1 (“Trust 1”), which consisted of $6.1 million of floating rate junior subordinated deferrable interest debentures in which the Company owns all of the common equity. The debentures are the sole asset of Trust 1. Trust 1 issued $6,000,000 of TPSs to investors. The Company’s obligations under the debentures and related documents, taken together, constitute a full and unconditional guarantee by the Company of the Trust 1’s obligations under the preferred securities. The preferred securities are redeemable by the Company at its option. The preferred securities must be redeemed upon maturity of the debentures in 2033. Interest on the preferred securities is the three month LIBOR plus 2.85% and is payable quarterly. The terms of the subordinated debentures are identical to those of the preferred securities.
In accordance with the provisions of ASC Topic 810, Consolidation, the trusts are not included in the consolidated financial statements.
Subordinated Notes
On April 30, 2018, The Company entered into two Subordinated Note Purchase Agreements pursuant to which the Company sold and issued $24 million in aggregate principal amount of 5.875% fixed-to-floating rate subordinated notes due 2028 and $42 million in aggregate principal amount of 6.40% fixed-to-floating rate subordinated notes due 2033 (collectively, the “Notes”).
The Notes are not convertible into or exchangeable for any other securities or assets of the Company or any of its subsidiaries. The Notes are not subject to redemption at the option of the holder. Principal and interest on the Notes are subject to acceleration only in limited circumstances. The Notes are unsecured, subordinated obligations of the Company and rank junior in right to payment to the Company’s current and future senior indebtedness, and each Note is pari passu in right to payment with respect to the other Notes.
Reconciliation of Non-GAAP Financial Measures
We report net interest incomeOur accounting and net interest margin on a fully tax equivalent, or FTE, basis, which calculations are not in accordance withreporting policies conform to generally accepted accounting principles or GAAP.(“GAAP”) in the United States and prevailing practices in the banking industry. However, certain non-GAAP measures are used by management to supplement the evaluation of our performance. This Quarterly Report on Form 10-Q includes operating net earnings, operating earnings per share, fully tax equivalent (“FTE”) net interest income, FTE net interest margin and tangible book value per common share. The Company believes that the non-GAAP financial measures included in this Quarterly Report on Form 10-Q allow management and investors to understand and compare results in a more consistent manner for the periods presented herein. The tax equivalent adjustment to net interest income recognizes the income tax savings when comparing taxable and tax-exempt assets and assumes a 34%25.3% tax rate. Management believes that it is a standard practice in the banking industry to present net interest income and net interest margin on a fully tax equivalent basis, and believes it enhances the comparability of income and expenses arising from taxable and nontaxable sources. Net interest incomeNon-GAAP financial measures should be considered supplemental and net interest margin on a fully tax equivalent basis should not be viewed as a substitute for net interest income or net interest margin provided in accordance with GAAP. See reconciliationthe Company’s results reported
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in accordance with GAAP for the periods presented, and other bank holding companies may define or calculate these measures differently. These non-GAAP financial measures should not be considered in isolation and do not purport to be an alternative to net income, earnings per share, net interest income, net interest margin, (FTE)book value per common share or other GAAP financial measures as a measure of operating performance. A reconciliation of these non-GAAP financial measures to net interest margin calculated in accordance withthe most comparable GAAP below:measure is provided below.
Operating Net Earnings
| | | | | | | | | | | | |
($in thousands) |
| Three Months |
| Three Months |
| Six Months |
| Six Months | ||||
| | Ended | | Ended | | Ended | | Ended | ||||
| | June 30, | | June 30, | | June 30, | | June 30, | ||||
| | 2020 | | 2019 | | 2020 | | 2019 | ||||
Net income available to common | |
| | |
| | |
| | |
| |
shareholders | | $ | 16,943 | | $ | 11,983 | | $ | 25,254 | | $ | 19,618 |
Effect of acquisition charges | |
| 2,295 | |
| 91 | |
| 3,035 | |
| 3,270 |
Tax on acquisition charges | |
| (518) | |
| (23) | |
| (683) | |
| (735) |
Gain on acquisition and sale of land | | | (7,643) | | | — | | | (7,643) | | | — |
Tax on gain from the sale of land | | | 157 | | | — | | | 157 | | | — |
Treasury awards | |
| — | |
| — | |
| — | |
| (233) |
Tax on Treasury awards | |
| — | |
| — | |
| — | |
| 59 |
Net earnings available to common | |
|
| |
|
| |
|
| |
|
|
shareholders, operating | | $ | 11,234 | | $ | 12,051 | | $ | 20,120 | | $ | 21,979 |
Operating Earnings per Share
| | | | | | | | | | | | |
($in thousands) |
| Three Months |
| Three Months |
| Six Months |
| Six Months | ||||
| | Ended | | Ended | | Ended | | Ended | ||||
| | June 30, | | June 30, | | June 30, | | June 30, | ||||
| | 2020 | | 2019 | | 2020 | | 2019 | ||||
Book value per common share | | $ | 29.34 | | $ | 27.22 | | $ | 58.83 | | $ | 53.52 |
Effect of intangible assets per share | |
| 8.94 | |
| 8.50 | |
| 18.91 | |
| 17.01 |
Tangible book value per common share | | $ | 20.40 | | $ | 18.72 | | $ | 39.92 | | $ | 36.51 |
| | | | | | | | | | | | |
Diluted earnings per share | | | 0.79 | | | 0.69 | | | 1.25 | | | 1.19 |
Effect of acquisition charges | |
| 0.11 | |
| 0.01 | |
| 0.15 | |
| 0.19 |
Tax on acquisition charges | |
| (0.03) | |
| — | |
| (0.03) | |
| (0.04) |
Effect of gain on acquisition and gain on land | | | (0.36) | | | — | | | (0.38) | | | — |
Tax on gain from the sale of land | | | 0.01 | | | — | | | 0.01 | | | — |
Effect of Treasury Awards | |
| — | |
| — | |
| — | |
| (0.01) |
Tax on Treasury Awards | |
| — | |
| — | |
| — | |
| — |
Diluted earnings per share, operating | | $ | 0.52 | | $ | 0.70 | | $ | 1.00 | | $ | 1.33 |
Net Interest Income Fully Tax Equivalent
($ In Thousands) | Three Months | Three Months | |||||||||||||||||||
Ended | Ended | ||||||||||||||||||||
Sept. 30, 2017 | Sept. 30, 2016 | ||||||||||||||||||||
| | | | | | | | | | | | | | ||||||||
($in thousands) |
| Three Months |
| Three Months |
| Six Months |
| Six Months |
| ||||||||||||
| | Ended | | Ended | | Ended | | Ended |
| ||||||||||||
| | June 30, | | June 30, | | June 30, | | June 30, |
| ||||||||||||
| | 2020 | | 2019 | | 2020 | | 2019 |
| ||||||||||||
| | | | | | | | | | | | | | ||||||||
Net interest income | $ | 14,935 | $ | 10,067 | | $ | 39,180 | | $ | 30,772 | | $ | 73,245 | | $ | 57,904 | | ||||
Tax exempt investment income | (579 | ) | (465 | ) | |
| (1,748) | |
| (790) | |
| (3,108) | |
| (1,548) | | ||||
Taxable investment income | 876 | 704 | |
| 2,340 | |
| 1,058 | |
| 4,161 | |
| 2,073 | | ||||||
Net interest income fully tax equivalent | $ | 15,232 | $ | 10,306 | | $ | 39,772 | | $ | 31,040 | | $ | 74,298 | | $ | 58,428 | | ||||
Net interest income fully tax equivalent | $ | 15,232 | $ | 10,306 | |||||||||||||||||
| | | | | | | | | | | | | | ||||||||
Average earning assets | $ | 1,599,704 | $ | 1,113,475 | | $ | 4,384,631 | | $ | 3,049,874 | | $ | 3,950,886 | | $ | 2,933,424 | | ||||
Net interest margin fully tax equivalent | 3.81 | % | 3.70 | % | |
| 3.63 | % |
| 4.07 | % |
| 3.76 | % |
| 3.98 | % |
($ In Thousands) | ||||||||
YTD | YTD | |||||||
Sept. 30, 2017 | Sept. 30, 2016 | |||||||
Net interest income | $ | 43,939 | $ | 29,597 | ||||
Tax exempt investment income | (1,765 | ) | (1,398 | ) | ||||
Taxable investment income | 2,668 | 2,118 | ||||||
Net interest income fully tax equivalent | $ | 44,842 | $ | 30,317 | ||||
Net interest income fully tax equivalent | $ | 44,842 | $ | 30,317 | ||||
Average earning assets | $ | 1,557,782 | $ | 1,096,522 | ||||
Net interest margin fully tax equivalent | 3.84 | % | 3.69 | % |
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PART I - FINANCIAL INFORMATIONPre-Tax Pre-Provision Operating Earnings
| | | | | | | | | | | | |
($in thousands) |
| Three Months |
| Three Months |
| Six Months |
| Six Months | ||||
| | Ended | | Ended | | Ended | | Ended | ||||
| | June 30, | | June 30, | | June 30, | | June 30, | ||||
| | 2020 | | 2019 | | 2020 | | 2019 | ||||
| | | | | | | | | | | | |
Earnings before income taxes | | $ | 19,184 | | $ | 15,806 | | $ | 29,182 | | $ | 25,475 |
Acquisition charges | |
| 2,295 | |
| 91 | |
| 3,035 | |
| 3,270 |
Provision for loan losses | |
| 7,606 | |
| 791 | |
| 14,708 | |
| 1,914 |
Treasury Awards and gains | |
| (7,643) | |
| — | |
| (7,643) | |
| (233) |
Pre-Tax, Pre-Provision Operating Earnings | | $ | 21,442 | | $ | 16,688 | | $ | 39,282 | | $ | 30,426 |
ITEM NO. 3
3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk arises from changes in interest rates, exchange rates, commodity prices and equity prices. The Company does not engage in the trading of financial instruments, nor does it have exposure to currency exchange rates. Our market risk exposure is primarily that of interest rate risk, and we have established policies and procedures to monitor and limit our earnings and balance sheet exposure to changes in interest rates. The principal objective of interest rate risk management is to manage the financial components of the Company’s balance sheet in a manner that will optimize the risk/reward equation for earnings and capital under a variety of interest rate scenarios.
To identify areas of potential exposure to interest rate changes, we utilize commercially available modeling software to perform earnings simulations and calculate the Company’s market value of portfolio equity under varying interest rate scenarios every month. The model imports relevant information for the Company’s financial instruments and incorporates Management’s assumptions on pricing, duration, and optionality for anticipated new volumes. Various rate scenarios consisting of key rate and yield curve projections are then applied in order to calculate the expected effect of a given interest rate change on interest income, interest expense, and the value of the Company’s financial instruments. The rate projections can be shocked (an immediate and parallel change in all base rates, up or down), ramped (an incremental increase or decrease in rates over a specified time period), economic (based on current trends and econometric models) or stable (unchanged from current actual levels).
The information concerning quantitativefollowing table shows the estimated changes in net interest income at risk and qualitative disclosures about market risk is included in Part I, Item 2 above. See “Management’s Discussion and Analysisvalue of Financial Condition and Results of Operations – Liquidity and Market Risk Management.”equity along with policy limits:
| | | | | | | | | |
|
| Net Interest |
|
|
|
|
| ||
| | Income at Risk | | Market Value of Equity |
| ||||
| | % Change | | | | % Change | | |
|
Change in Interest Rates | | from Base | | Policy Limit | | from Base | | Policy Limit |
|
Up 400 bps |
| 12.1 | % | -20.0 | % | 54.4 | % | -40.0 | % |
Up 300 bps |
| 10.4 | % | -15.0 | % | 47.5 | % | -30.0 | % |
Up 200 bps |
| 7.6 | % | -10.0 | % | 36.5 | % | -20.0 | % |
Up 100 bps |
| 4.2 | % | -5.0 | % | 21.0 | % | -10.0 | % |
Down 100 bps |
| (2.0) | % | -5.0 | % | 2.3 | % | -10.0 | % |
Down 200 bps |
| (3.3) | % | -10.0 | % | 11.3 | % | -20.0 | % |
We use seven standard interest rate scenarios in conducting our 12-month net interest income simulations: “static,” upward shocks of 100, 200, 300 and 400 basis points, and downward shocks of 100, and 200 basis points. Pursuant to policy guidelines, we typically attempt to limit the projected decline in net interest income relative to the stable rate scenario to no more than 5% for a 100 basis point (bp) interest rate shock, 10% for a 200 bp shock, 15% for a 300 bp shock, and 20% for a 400 bp shock. As of June 30, 2020, the Company had the following estimated net interest income
58
PART I - FINANCIAL INFORMATION
sensitivity profile, without factoring in any potential negative impact on spreads resulting from competitive pressures or credit quality deterioration:
| | | | | | | | | | | | | | | |
June 30, 2020 | | Net Interest Income at Risk – Sensitivity Year 1 |
| ||||||||||||
($in thousands) |
| -200 bp |
| -100 bp |
| STATIC |
| +100 bp |
| +200 bp |
| +300 bp |
| +400 bp |
|
Net Interest Income |
| 131,277 | | 132,982 | | 135,751 | | 141,425 | | 146,101 | | 149,860 | | 152,182 | |
Dollar Change |
| (4,474) | | (2,769) | | | | 5,674 | | 10,350 | | 14,109 | | 16,431 | |
NII @ Risk - Sensitivity Y1 |
| (3.3) | % | (2.0) | % | | | 4.2 | % | 7.6 | % | 10.4 | % | 12.1 | % |
Policy Limits |
| -10.0 | % | -5.0 | % | | | -5.0 | % | -10.0 | % | -15.0 | % | -20.0 | % |
If there were an immediate and sustained downward adjustment of 200 basis points in interest rates, all else being equal, net interest income over the next twelve months would likely be approximately $4.5 million lower than in a stable interest rate scenario, for a negative variance of 3.3%. The unfavorable variance increases if rates were to drop below 200 basis points, due to the fact that certain deposit rates are already relatively low (on NOW accounts and savings accounts, for example), and will hit a natural floor of close to zero while non-floored variable-rate loan yields continue to drop. This effect would be exacerbated by accelerated prepayments on fixed-rate loans and mortgage-backed securities when rates decline, although rate floors on some of our variable-rate loans partially offset other negative pressures. The potential percentage drop in net interest income exceeds our internal policy guidelines in declining interest rate scenarios and we will continue to monitor our interest rate risk profile and take corrective action as deemed appropriate.
Net interest income would likely improve by $10.4 million, or 7.6%, if interest rates were to increase by 200 basis points relative to a stable interest rate scenario, with the favorable variance expanding the higher interest rates rise. The initial increase in rising rate scenarios will be limited to some extent by the fact that some of our variable-rate loans are currently at rate floors, resulting in a re-pricing lag while base rates are increasing to floored levels, but the Company would expect to benefit from a material upward shift in the yield curve.
The Company’s one year cumulative GAP ratio is approximately 157.8%, which means that there are more assets repricing than liabilities within the first year. The Company is “asset-sensitive.” These results are based on cash flows from assumptions of assets and liabilities that reprice (maturities, likely calls, prepayments, etc.). Typically, the net interest income of asset-sensitive financial institutions should improve with rising rates and decrease with declining rates.
If interest rates change in the modeled amounts, our assets and liabilities may not perform as anticipated. Measuring interest rate risk has inherent limitations including model assumptions. For example, changes in market indices as modeled in conjunction with changes in the shapes of the yield curves could result in different net interest income. We consider many factors in monitoring our interest rate risk, and management adjusts strategies for the balance sheet and earnings as needed.
In addition to the net interest income simulations shown above, we run stress scenarios modeling the possibility of no balance sheet growth, the potential runoff of “surge” core deposits, which flowed into the Company in the most recent economic cycle, and potential unfavorable movement in deposit rates relative to yields on earning assets. Even though net interest income will naturally be lower with no balance sheet growth, the rate-driven variances projected for net interest income in a static growth environment are similar to the changes noted above for our standard projections. When a greater level of non-maturity deposit runoff is assumed or unfavorable deposit rate changes are factored into the model, projected net interest income in declining rate and flat rate scenarios does not change materially relative to standard growth projections. However, the benefit we would otherwise experience in rising rate scenarios is minimized and net interest income remains relatively flat.
The economic value (or “fair value”) of financial instruments on the Company’s balance sheet will also vary under the interest rate scenarios previously discussed. The difference between the projected fair value of the Company’s financial assets and the fair value of its financial liabilities is referred to as the economic value of equity (“EVE”), and changes in EVE under different interest rate scenarios are effectively a gauge of the Company’s longer-term exposure to interest rate risk. Fair values for financial instruments are estimated by discounting projected cash flows (principal and interest) at projected replacement interest rates for each account type, while the fair value of non-financial accounts is assumed to equal their book value for all rate scenarios. An economic value simulation is a static measure utilizing balance sheet accounts at a given point in time, and the measurement can change substantially over time as the characteristics of the Company’s balance sheet evolve and interest rate and yield curve assumptions are updated.
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The change in economic value under different interest rate scenarios depends on the characteristics of each class of financial instrument, including stated interest rates or spreads relative to current or projected market-level interest rates or spreads, the likelihood of principal prepayments, whether contractual interest rates are fixed or floating, and the average remaining time to maturity. As a general rule, fixed-rate financial assets become more valuable in declining rate scenarios and less valuable in rising rate scenarios, while fixed-rate financial liabilities gain in value as interest rates rise and lose value as interest rates decline. The longer the duration of the financial instrument, the greater the impact a rate change will have on its value. In our economic value simulations, estimated prepayments are factored in for financial instruments with stated maturity dates, and decay rates for non-maturity deposits are projected based on historical patterns and Management’s best estimates. The table below shows estimated changes in the Company’s EVE as of June 30, 2020, under different interest rate scenarios relative to a base case of current interest rates:
| | | | | | | | | | | | | | | |
| Balance Sheet Shock |
| |||||||||||||
| | | | | | STATIC | | | | | | | | | |
($in thousands) |
| -200 bp |
| -100 bp |
| (Base) |
| +100 bp |
| +200 bp |
| +300 bp |
| +400 bp |
|
Market Value of Equity | | 819,571 | | 753,564 | | 736,578 | | 891,267 | | 1,005,671 | | 1,086,373 | | 1,138,344 | |
Change in EVE from base |
| 82,993 | | 16,986 | | | | 154,689 | | 269,093 | | 349,795 | | 401,766 | |
% Change |
| 11.3 | % | 2.3 | % | | | 21.0 | % | 36.5 | % | 47.5 | % | 54.4 | % |
Policy Limits |
| -20.0 | % | -10.0 | % | | | -10.0 | % | -20.0 | % | -30.0 | % | -40.0 | % |
The table shows that our EVE will generally deteriorate in declining rate scenarios, but should benefit from a parallel shift upward in the yield curve. We also run stress scenarios for EVE to simulate the possibility of higher loan prepayment rates, unfavorable changes in deposit rates, and higher deposit decay rates. Model results are highly sensitive to changes in assumed decay rates for non-maturity deposits, in particular.
ITEM NO. 4
4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of SeptemberJune 30, 2017,2020, (the “Evaluation Date”), we carried out an evaluation, under the supervision of and with the participation of our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e)and 15d-15(e) promulgated under the SecuritiesExchange Act. Disclosure controls and procedures are controls and procedures designed to ensure that information required to be disclosed by us in reports filed or submitted under the Exchange Act of 1934, as amended. Based on this evaluation, asis recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Evaluation Date,SEC, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that as of the Evaluation Date, our disclosure controls and procedures are effective to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms.
Changes in Internal Controls
Control over Financial Reporting
There have been no changes significant or otherwise, in our internal controlscontrol over financial reporting, that occurredas such term is defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act, during the fiscal quarter ended SeptemberJune 30, 2017,2020 that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.
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PART II – OTHER INFORMATION
ITEM 1:1. LEGAL PROCEEDINGS
The Company is involved in various legal proceedings in the normal course of business. Management does not believe, based on currently available information, that the outcome of any such proceedings will have a material adverse effect on our financial condition or results of operations.
ITEM 1A. RISK FACTORS
The following represents a material change in our risk factors from those disclosed in Part I - “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019.
ITEM 1A: RISK FACTORS
There were no material changesThe novel coronavirus, COVID-19, may adversely affect our business, financial condition, results of operations and our liquidity in the Company’s risk factors since December 31, 2016, other than as set forth below:
Shareholder approvalshort term and for the proposed mergerforeseeable future.
In March 2020, the outbreak of SouthwestCOVID-19 caused by a novel strain of the coronavirus was recognized as a pandemic by the World Health Organization. Shortly thereafter, the President of the United States declared a National Emergency throughout the United States attributable to such outbreak. The outbreak has become increasingly widespread in the United States, including in the markets in which we operate. The Company has taken a number of steps to assess the effects, and mitigate the adverse consequences to its businesses, of the outbreak; though the magnitude of the impact remains to be seen, the Company’s business will likely be adversely impacted by the outbreak of COVID-19.
As previously disclosed in Part I - Item IA - Risk Factors” of the Company’s 2019 Form 10-K, the Company’s operations and profitability are impacted by business and economic conditions generally, as well as those in the primary banking markets in which it operates. The COVID-19 pandemic has resulted in historic job losses and decreases in economic activity. While the duration and full extent of job losses and magnitude of economic dislocation are not yet known, it is clear that they may impact the ability of individuals and businesses to make payments, adversely affect the value of underlying collateral and the ability of guarantors to make payments in the case of default, which may decrease demand for the Company’s products and services and otherwise adversely impact the Company’s financial condition, results of operations and business.
The United States and various state and local governments have implemented various programs designed to aid individuals and businesses, but the impact of, and extent to which, these efforts will be successful cannot be determined at this time. We have participated in some of these programs, including PPP, and likely will continue to participate in and facilitate such programs. Such programs have been developed and implemented rapidly, often with little immediate guidance from regulatory authorities, creating uncertainty regarding the rules for participating in and intofacilitating these programs in a compliant manner. Since the opening of the PPP, many banks have been subject to litigation regarding the process and procedures that such banks used in processing applications for the PPP and claims related to agent fees. We may experience losses as a result of our participation in and facilitation of PPP and similar government stimulus and relief programs, including losses arising from fraud, litigation or regulatory action.
Federal, state and local governments have mandated or encouraged financial services companies to make accommodations to borrowers and other customers affected by the COVID-19 pandemic. Legal and regulatory responses to concerns about the COVID-19 pandemic could result in additional regulation or restrictions affecting the conduct of our business in the future. In addition to the potential affects from negative economic conditions noted above, the Company may notinstituted a program to help COVID-19 impacted customers. This program includes waiving NSF fees, offering payment deferment and other loan relief, as appropriate, for customers impacted by COVID-19. The Company’s liquidity could be receivednegatively impacted if a significant number of customers apply and regulatory consents or approvals may not be received, may take longer than expected or impose conditions thatare approved for the deferral of payments. In addition, if these deferrals are not presently anticipated.
Before the merger may be completed, Southwest’s shareholders must approve the transaction and such shareholder approval may not be received. In addition, various approvals or consents must be obtained from the Federal Reserve, the OCC, and other bank, securities, antitrust and other regulatory authorities. These regulators may impose conditions on consummation of the merger or require changes to the terms of the merger. Although we do not currently expect that any such conditions or changes would be imposed, there can be no assurance that they will not be, and such conditions or changes could haveeffective in mitigating the effect of delaying the effective time of the merger or imposing additional costs on or limiting our revenues following the merger. Furthermore, such conditions or changes may constitute a burdensome condition that may allow us to terminate the merger agreement and we may exercise our right to terminate the merger agreement. There can be no assurance as to whether the regulatory approvals will be received, the timing of those approvals, or whether any conditions will be imposed.
We may fail to realize the anticipated cost savings and other financial benefits of the proposed acquisition of SouthwestCOVID-19 on the anticipated schedule, if at all.
The Company and Southwest have historically operated independently. The success of the merger of Southwest with and into The Company will depend, in part, on our ability to successfully combine our businesses. To realize the anticipated benefits of the merger, after the effective time of the merger, we expect to integrate Southwest’s business into our own. WeCompany’s customers, it may face significant challenges in integrating Southwest’s operations in a timely and efficient manner and in retaining personnel from these two banks that we consider to be key personnel. We anticipate that we will achieve cost savings from the merger when the two companies have been fully integrated, however achieving the anticipated cost savings and financial benefits of the mergers will depend, in part, on whether we can successfully integrate these businesses. Actual growth and cost savings, if achieved, may be lower than what we expect and may take longer to achieve than anticipated. It is possible that the integration process could result in the loss of key employees, the disruption of each company’s ongoing businesses or inconsistencies in standards, controls, procedures, and policies that adversely affect our ability to maintain relationships with clients, customers, depositors and employees or to achieve the anticipated benefits of the merger. In addition, integration efforts following the mergers will require the dedication of significant management resources, which may temporarily distract management’s attention from the day-to-day business of the combined company. Any inability to realize the full extent of, or any of, the anticipated cost savings and financial benefits of the mergers, as well as any delays encountered in the integration process, could have an adverse effect on theits business and results of operations more substantially over a longer period of time.
COVID-19 presents a significant risk to our loan portfolio. Timely loan repayment and the value of collateral supporting the loans are affected by the strength of our borrower’s business. Concern about the spread of COVID-19 has caused and is likely to continue to cause business shutdowns, limitations on commercial activity and financial transactions,
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labor shortages, supply chain interruptions, increased unemployment and commercial property vacancy rates, reduced profitability and ability for property owners to make mortgage payments, and overall economic and financial market instability, all of which may cause our customers to be unable to make scheduled loan payments. If the effects of COVID-19 result in widespread and sustained repayment shortfalls on loans in our portfolio, we could incur significant delinquencies, foreclosures and credit losses, particularly if the available collateral is insufficient to cover our exposure. The future effects of COVID-19 on economic activity could negatively affect the collateral values associated with our existing loans, the ability to liquidate the real estate collateral securing our residential and commercial real estate loans, our ability to maintain loan origination volume and to obtain additional financing, the future demand for or profitability of our lending and services, and the financial condition and credit risk of our customers. Further, in the event of delinquencies, regulatory changes and policies designed to protect borrowers may slow or prevent us from making our business decisions or may result in a delay in our taking certain remediation and collection actions, such as foreclosure. Approximately 20% of our loan portfolio also includes exposure to sectors that are expected to be subject to increased risk from COVID-19, including hotels, restaurants, retail, convenience stores, healthcare, and direct energy.
As a result of the combined company,adverse impact of COVID-19 on our customers, we have faced and may continue to face a decrease in demand for certain products, reduced access to our branches by our customers, and disruptions in the operations of its vendors. The pandemic could also result in recognition of additional credit losses in the Company’s loan portfolios and increase its allowance for credit losses as both businesses and consumers are negatively impacted by the economic downturn. In addition, in future periods the Company will be required to evaluate the impact of COVID-19 on the carrying value of certain of its assets, including goodwill, and to conduct impairments tests on those assets, which may affectresult in impairment charges on these assets in future periods that could be material.
Effective March 2020, the market priceFederal Reserve lowered the primary credit rate by 150 basis points to 0.25 percent to mitigate the effects of the COVID-19 pandemic and to support the liquidity and stability of banking institutions as they serve the increased demand for credit. We expect a long duration of reduced interest rates to negatively impact our net interest income, margin, cost of borrowing and future profitability and to have a material adverse effect on our financial results for the remainder of 2020.
In order to protect the health of our common stock.customers and employees, and to comply with applicable government restrictions, we have modified our business practices, including restricting employee travel, directing many employees to work remotely, cancelling in-person meetings and implementing our business continuity plans and protocols to the extent necessary. In compliance with social distancing mandates and recommendations issued by federal, state and local governments to combat the spread of the virus, our branches are servicing clients primarily through drive-thrus with limited lobby access by appointment only. We may take further such actions that we determine are in the best interest of our employees, customers and communities or as may be required by government order. These precautions could impact demand for the Company’s products and services.
As many of our employees are required to work from home, our internal controls over financial reporting could also be negatively affected as the remote working environment could necessitate new processes, procedures, and controls. The increased reliance on remote access to information systems also increases the Company’s exposure to potential cybersecurity breaches and could impact the Company’s productivity. Additionally, the Company’s business customers are increasingly required to work remotely as well and may not have appropriately secured remote networks may be more vulnerable to cyber-attacks or phishing schemes that could also affect us. Furthermore, if a large proportion of the Company’s key employees were to contract COVID-19 or be quarantined as a result of the virus, then the Company’s operations could be adversely impacted and its business continuity plans may not prove effective.
We will incur significant transaction and merger-related costs in connection with the proposed acquisition of Southwest.
We have incurred and expect to incur a number of non-recurring costs associated with the proposed acquisition of Southwest. These costs and expenses include fees paid to financial, legal and accounting advisors, severance, retention bonus and other potential employment-related costs, filing fees, printing expenses and other related charges. SomeAny of these costsoccurrences could have a material adverse effect on the Company’s financial condition, results of operations and business. The extent to which the pandemic impacts the Company’s results will depend on future developments, which are payable by us regardlesshighly uncertain and cannot be predicted, including the duration of whether the acquisition is completed. There are also a large number of processes, policies, procedures, operations, technologiespandemic, government and systems that must be integrated in connection withregulatory responses to the mergerpandemic, new information which may emerge concerning its severity and the integration of the two companies’ businesses. While we have assumed that a certain level of expenses would be incurred in connection with the acquisition, thereactions necessary to contain it or address its impact, among others. Behavioral changes are many factors beyond our control that could affect the total amount or the timing of the integrationnot fully known and implementation expenses.
There may also be additional unanticipated significant costs in connection with the acquisition that we may not recoup. These costs and expenses could reduce the realization of efficiencies, strategic benefits and additional income we expect to achieve from the acquisition. Although we expect that these benefits will offset the transaction expenses and implementation costs over time, the net benefit may not be achieved in the near term or at all.temporary.
For additional information onThe potential effects of COVID-19 also could impact and heighten many of our risk factors refer toincluded in Part I Item- “Item 1A. “RiskRisk Factors” of thein our Annual Report on Form 10-K for the year ended December 31, 2019. Including, but not limited to: risks associated with information technology and systems, including service interruptions or security breaches;
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disruptions in services provided by third parties; our ability to hire or retain key personnel; the Securitiesanalytical and Exchange Commissionforecasting models we use to estimate our loan losses and to measure the fair value of our financial instruments; general political or economic conditions in the U.S.; economic conditions in the geographic areas in which we operate; funding to provide liquidity; the failure to maintain an effective system of disclosure controls and procedures, including internal control over financial reporting; the value of our goodwill and other intangible assets; our susceptibility to fraud; the impact of governmental regulation and supervision; the soundness of other financial institutions; volatility in our stock price. However, as the COVID-19 situation is unprecedented and continuously evolving, the potential impacts to our risk factors that are further described in our Annual Report on March 16, 2017.Form 10-K for the year ended December 31, 2019, remain uncertain.
ITEM 2:2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table provides information with respect to purchases of common stock of the Company made during the three months ended June 30, 2020, by the Company or any “affiliated purchaser” of the Company as defined in Rule 10b-18(a)(3) under the Exchange Act:
| | | | | | | | | |
| | Current Program | |||||||
|
| |
| | |
| |
| Maximum |
| | | | | | | | | Number of |
| | | | | | | | | Shares that |
| | | | | | | Total Number of | | May Yet Be |
| | | | | | | Shares Purchased | | Purchased |
| | Total | | Average | | as Part of Publicly | | Under the | |
| | Number of | | Price Paid | | Announced Plans | | Plans or | |
Period | | Shares Purchased | | Per Share | | or Programs | | Programs | |
April 2020 |
| 176 | | $ | 19.07 |
| — |
| — |
May 2020 |
| 282 | |
| 18.32 |
| — |
| — |
June 2020 |
| 2,194 | |
| 22.90 |
| — |
| — |
Total |
| 2,652 | | $ | 20.10 |
| — |
| — |
The shares listed above represents shares withheld by the Company in order to satisfy employee tax obligations for vesting of restricted stock awards.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 3: DEFAULTS UPON SENIOR SECURITIES
4. MINE SAFETY DISCLOSURES
Not applicable
ITEM 5. OTHER INFORMATION
ITEM 4: (REMOVED AND RESERVED)
Item 5: Other Information
Not applicable
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ITEM 6. EXHIBITS
ITEM 6: EXHIBITS -
(a)Exhibits
| ||
| 101.INS XBRL Instance Document | |
| ||
101.SCH | XBRL Taxonomy Extension Schema | |
| ||
101.CAL | XBRL Taxonomy Extension Calculation Linkbase | |
| ||
101.DEF | XBRL Taxonomy Extension Definition Linkbase | |
| ||
101.LAB | XBRL Taxonomy Extension Label Linkbase | |
| ||
101.PRE | XBRL Taxonomy Extension Presentation Linkbase |
* Filed herewith.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
THE FIRST BANCSHARES, INC. | ||
(Registrant) | ||
/s/ M. RAY (HOPPY) COLE, JR. | ||
August 10, 2020 | M. Ray (Hoppy) Cole, Jr. | |
(Date) | Chief Executive Officer | |
/s/ DONNA T. (DEE DEE) LOWERY | ||
August 10, 2020 | Donna T. (Dee Dee) Lowery, Executive | |
(Date) | Vice President and Chief Financial Officer |
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