☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 |
June 30, 2023
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period fromto
California | 82-1751097 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
Common Stock, No Par Value |
CALB |
| ||
NASDAQ Global Select Market | ||||
(Title of class) | (Trading Symbol) | (Name of exchange on which registered) |
☐
Large accelerated filer | ☐ | Accelerated filer | ☐ | |||
Non-accelerated filer | ☐ | Smaller reporting company | ☒ | |||
Emerging growth company | ☒ |
CALIFORNIA BANCORP
INDEX TO QUARTERLY REPORT ON FORM10-Q
FOR THE QUARTER ENDED MARCH 31, 2020JUNE 30, 2023
Page | ||||||
Item 1. | Financial Statements | 3 | ||||
Item | ||||||
Management’s Discussion and Analysis of Financial Condition and Results of Operations | ||||||
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | |||||
Item | ||||||
Item 1. | ||||||
Item | Risk Factors | 44 | ||||
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | |||||
Item 3. | Defaults Upon Senior Securities | 44 | ||||
Item 4. | Mine Safety Disclosures | 44 | ||||
Item 5. | Other Information | 45 | ||||
Item 6. | Exhibits | 45 | ||||
2
ASSETS: Cash and due from banks Federal funds sold Total cash and cash equivalents Investment securities, available for sale Loans, net of allowance for losses of $11,565 and $11,075 at March 31, 2020 and December 31, 2019, respectively Premises and equipment, net Bank owned life insurance (BOLI) Goodwill and other intangible assets Accrued interest receivable and other assets Total assets LIABILITIES AND SHAREHOLDERS’ EQUITY: Deposits Non-interest bearing Interest bearing Total deposits Other borrowings Junior Subordinated debt securities Accrued interest payable and other liabilities Total liabilities Commitments and Contingencies (Note 5) Shareholders’ equity Common stock, no par value; 40,000,000 shares authorized; 8,121,848 and 8,092,966 issued and outstanding at March 31, 2020 and December 31, 2019, respectively Retained earnings Accumulated other comprehensive income, net of taxes Total shareholders’ equity Total liabilities and shareholders’ equity March 31,
2020 December 31,
2019 $ 22,792 $ 19,579 117,818 94,763 140,610 114,342 34,344 28,555 960,282 941,132 3,427 3,668 23,284 22,316 7,585 7,595 37,950 34,426 $ 1,207,482 $ 1,152,034 $ 403,248 $ 387,267 625,613 600,969 1,028,861 988,236 22,000 10,000 4,981 4,977 20,447 18,565 1,076,289 1,021,778 106,790 106,427 23,991 23,518 412 311 131,193 130,256 $ 1,207,482 $ 1,152,034
2023
2022 Cash and due from banks $ 19,763 $ 16,686 Federal funds sold 187,904 215,696 Total cash and cash equivalents 207,667 232,382 Investment securities: Available for sale, at fair value 44,867 47,012 Held to maturity, at amortized cost, net of allowance for credit losses of $58 and $0 at June 30, 2023 and December 31, 2022, respectively 106,262 108,866 Total investment securities 151,129 155,878 Loans, net of allowance for credit losses of $15,722 and $17,005 at June 30, 2023 and December 31, 2022, respectively 1,569,546 1,578,456 Premises and equipment, net 2,625 3,072 Bank owned life insurance (BOLI) 25,519 25,127 Goodwill and other intangible assets 7,452 7,472 Accrued interest receivable and other assets 41,708 39,828 Total assets $ 2,005,646 $ 2,042,215 Deposits $ 742,160 $ 811,671 Interest bearing 996,136 980,069 Total deposits 1,738,296 1,791,740 Junior subordinated debt securities 54,221 54,152 Accrued interest payable and other liabilities 28,894 24,069 Total liabilities 1,821,411 1,869,961 Commitments and Contingencies (Note 5) Shareholders’ equity Common stock, no par value; 40,000,000 shares authorized; 8,383,772 and 8,332,479 issued and outstanding at June 30, 2023 and December 31, 2022, respectively 112,167 111,257 Retained earnings 73,423 62,297 Accumulated other comprehensive loss, net of taxes (1,355 ) (1,300 ) Total shareholders’ equity 184,235 172,254 Total liabilities and shareholders’ equity $ 2,005,646 $ 2,042,215
Three Months Ended March 31, | ||||||||
2020 | 2019 | |||||||
Interest income | ||||||||
Loans | $ | 11,783 | $ | 10,954 | ||||
Federal funds sold | 329 | 209 | ||||||
Investment securities | 191 | 331 | ||||||
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Total interest income | 12,303 | 11,494 | ||||||
Interest expense | ||||||||
Deposits | 1,994 | 1,543 | ||||||
Borrowings and subordinated debt | 127 | 114 | ||||||
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Total interest expense | 2,121 | 1,657 | ||||||
Net interest income | 10,182 | 9,837 | ||||||
Provision for credit losses | 400 | 581 | ||||||
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Net interest income after provision for credit losses | 9,782 | 9,256 | ||||||
Non-interest income | ||||||||
Service charges and other fees | 970 | 625 | ||||||
Gain on the sale of SBA loans | — | 23 | ||||||
Other | 320 | 215 | ||||||
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Totalnon-interest income | 1,290 | 863 | ||||||
Non-interest expense | ||||||||
Salaries and benefits | 6,477 | 4,515 | ||||||
Premises and equipment | 1,139 | 745 | ||||||
Other | 2,791 | 2,355 | ||||||
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Totalnon-interest expense | 10,407 | 7,615 | ||||||
Income before provision for income taxes | 665 | 2,504 | ||||||
Provision for income taxes | 192 | 636 | ||||||
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Net income | $ | 473 | $ | 1,868 | ||||
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Earnings per common share | ||||||||
Basic | $ | 0.06 | $ | 0.23 | ||||
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Diluted | $ | 0.06 | $ | 0.23 | ||||
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Average common shares outstanding | 8,103,248 | 8,020,456 | ||||||
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Average common and equivalent shares outstanding | 8,169,898 | 8,102,543 | ||||||
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Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Interest income | ||||||||||||||||
Loans | $ | 23,476 | $ | 16,298 | $ | 45,948 | $ | 31,184 | ||||||||
Federal funds sold | 2,238 | 280 | 3,998 | 416 | ||||||||||||
Investment securities | 1,458 | 1,128 | 2,765 | 2,030 | ||||||||||||
Total interest income | 27,172 | 17,706 | 52,711 | 33,630 | ||||||||||||
Interest expense | ||||||||||||||||
Deposits | 7,493 | 796 | 13,515 | 1,602 | ||||||||||||
Borrowings and subordinated debt | 1,033 | 687 | 1,793 | 1,279 | ||||||||||||
Total interest expense | 8,526 | 1,483 | 15,308 | 2,881 | ||||||||||||
Net interest income | 18,646 | 16,223 | 37,403 | 30,749 | ||||||||||||
Provision for credit losses | 444 | 925 | 802 | 1,875 | ||||||||||||
Net interest income after provision for credit losses | 18,202 | 15,298 | 36,601 | 28,874 | ||||||||||||
Non-interest income | ||||||||||||||||
Service charges and other fees | 867 | 1,134 | 1,730 | 2,023 | ||||||||||||
Gain on the sale of loans | — | — | — | 1,393 | ||||||||||||
Other | 268 | 260 | 512 | 512 | ||||||||||||
Total non-interest income | 1,135 | 1,394 | 2,242 | 3,928 | ||||||||||||
Non-interest expense | ||||||||||||||||
Salaries and benefits | 7,831 | 7,146 | 15,707 | 14,239 | ||||||||||||
Premises and equipment | 1,168 | 1,267 | 2,348 | 2,569 | ||||||||||||
Professional fees | 470 | 547 | 920 | 1,139 | ||||||||||||
Data processing | 701 | 599 | 1,309 | 1,207 | ||||||||||||
Other | 1,433 | 1,260 | 3,162 | 2,581 | ||||||||||||
Total non-interest expense | 11,603 | 10,819 | 23,446 | 21,735 | ||||||||||||
Income before provision for income taxes | 7,734 | 5,873 | 15,397 | 11,067 | ||||||||||||
Provision for income taxes | 2,294 | 1,629 | 4,506 | 3,150 | ||||||||||||
Net income | $ | 5,440 | $ | 4,244 | $ | 10,891 | $ | 7,917 | ||||||||
Earnings per common share | ||||||||||||||||
Basic | $ | 0.65 | $ | 0.51 | $ | 1.30 | $ | 0.96 | ||||||||
Diluted | $ | 0.65 | $ | 0.51 | $ | 1.29 | $ | 0.94 | ||||||||
Average common shares outstanding | 8,369,907 | 8,295,014 | 8,354,564 | 8,285,950 | ||||||||||||
Average common and equivalent shares outstanding | 8,414,213 | 8,395,701 | 8,442,607 | 8,393,776 | ||||||||||||
Three Months Ended March 31, | ||||||||
2020 | 2019 | |||||||
Net Income | $ | 473 | $ | 1,868 | ||||
Other comprehensive income | ||||||||
Unrealized gains on securities available for sale | 75 | 235 | ||||||
Reclassification adjustment for realized loss on securities available for sale | 70 | — | ||||||
Tax effect | (44 | ) | (69 | ) | ||||
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Total other comprehensive income | 101 | 166 | ||||||
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Total comprehensive income | $ | 574 | $ | 2,034 | ||||
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Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Net Income | $ | 5,440 | $ | 4,244 | $ | 10,891 | $ | 7,917 | ||||||||
Other comprehensive income (loss) | ||||||||||||||||
Unrealized gains (losses) on securities available for sale, net | (315 | ) | (777 | ) | 12 | (782 | ) | |||||||||
Unrealized losses on securities transferred from available for sale to held to maturity, net | — | — | — | (281 | ) | |||||||||||
Reclassification adjustment for securities transferred from available for sale to held to maturity in prior year, net | — | — | (61 | ) | — | |||||||||||
Amortization of unrealized losses on securities transferred from available for sale to held to maturity, net | (3 | ) | 2 | (1 | ) | 4 | ||||||||||
Tax effect | 93 | 230 | (5 | ) | 316 | |||||||||||
Total other comprehensive loss | (225 | ) | (545 | ) | (55 | ) | (743 | ) | ||||||||
Total comprehensive income | $ | 5,215 | $ | 3,699 | $ | 10,836 | $ | 7,174 | ||||||||
- PART I
Accumulated Other Comprehensive Income (Loss) | Total Shareholders’ Equity | |||||||||||||||||||
Common Stock | Retained Earnings | |||||||||||||||||||
Shares | Amount | |||||||||||||||||||
Balance at December 31, 2018 | 7,993,908 | $ | 104,561 | $ | 16,517 | $ | 1 | $ | 121,079 | |||||||||||
Stock awards issued and related compensation expense | 12,638 | 172 | — | — | 172 | |||||||||||||||
Stock options exercised | 40,008 | 372 | — | — | 372 | |||||||||||||||
Net income | — | — | 1,868 | — | 1,868 | |||||||||||||||
Other comprehensive income | — | — | — | 166 | 166 | |||||||||||||||
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Balance at March 31, 2019 | 8,046,554 | $ | 105,105 | $ | 18,385 | $ | 167 | $ | 123,657 | |||||||||||
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Balance at December 31, 2019 | 8,092,966 | $ | 106,427 | $ | 23,518 | $ | 311 | $ | 130,256 | |||||||||||
Stock awards issued and related compensation expense | 25,215 | 413 | — | — | 413 | |||||||||||||||
Shares withheld to pay taxes on stock based compensation | (7,550 | ) | (133 | ) | — | — | (133 | ) | ||||||||||||
Stock options exercised | 11,217 | 83 | — | — | 83 | |||||||||||||||
Net income | — | — | 473 | — | 473 | |||||||||||||||
Other comprehensive income | — | — | — | 101 | 101 | |||||||||||||||
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Balance at March 31, 2020 | 8,121,848 | $ | 106,790 | $ | 23,991 | $ | 412 | $ | 131,193 | |||||||||||
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Common Stock | Retained | Accumulated Other Comprehensive Income | Total Shareholders’ | |||||||||||||||||
Shares | Amount | Earnings | (Loss) | Equity | ||||||||||||||||
Balance at December 31, 2022 | 8,332,479 | $ | 111,257 | $ | 62,297 | $ | (1,300 | ) | $ | 172,254 | ||||||||||
Adoption of new accounting standard | — | — | 334 | — | 334 | |||||||||||||||
Stock awards issued and related compensation expense | 34,560 | 631 | — | — | 631 | |||||||||||||||
Shares withheld to pay taxes on stock based compensation | (12,139 | ) | (285 | ) | — | — | (285 | ) | ||||||||||||
Stock options exercised | 478 | 6 | — | — | 6 | |||||||||||||||
Net income | — | — | 5,451 | — | 5,451 | |||||||||||||||
Other comprehensive income | — | — | — | 170 | 170 | |||||||||||||||
Balance at March 31, 2023 | 8,355,378 | $ | 111,609 | $ | 68,082 | $ | (1,130 | ) | $ | 178,561 | ||||||||||
Adoption of new accounting standard | — | — | (99 | ) | — | (99 | ) | |||||||||||||
Stock awards issued and related compensation expense | 32,558 | 611 | — | — | 611 | |||||||||||||||
Shares withheld to pay taxes on stock based compensation | (4,164 | ) | (53 | ) | — | — | (53 | ) | ||||||||||||
Net income | — | — | 5,440 | — | 5,440 | |||||||||||||||
Other comprehensive loss | — | — | — | (225 | ) | (225 | ) | |||||||||||||
Balance at June 30, 2023 | 8,383,772 | $ | 112,167 | $ | 73,423 | $ | (1,355 | ) | $ | 184,235 | ||||||||||
- PART II
Three Months Ended March 31, | ||||||||
2020 | 2019 | |||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 473 | $ | 1,868 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Provision for loan losses | 400 | 581 | ||||||
Depreciation | 315 | 183 | ||||||
Deferred loan costs, net | 312 | 115 | ||||||
Accretion on discount of purchased loans, net | (35 | ) | (67 | ) | ||||
Stock based compensation, net | 280 | 172 | ||||||
Increase in cash surrender value of life insurance | (153 | ) | (105 | ) | ||||
Discount on retained portion of sold loans, net | (156 | ) | (6 | ) | ||||
Loss on sale of investment securities, net | 70 | — | ||||||
Gain on sale of loans, net | — | (23 | ) | |||||
Increase in accrued interest receivable and other assets | 167 | 1,020 | ||||||
Decrease in accrued interest payable and other liabilities | (1,730 | ) | (2,313 | ) | ||||
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Net cash from operating activities | (57 | ) | 1,425 | |||||
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Cash flows from investing activities: | ||||||||
Purchase of investment securities, net | (7,438 | ) | — | |||||
Proceeds from principal payments on investment securities | 1,641 | 1,652 | ||||||
Net increase in loans | (19,671 | ) | (42,529 | ) | ||||
Purchase of low income tax credit investments | (26 | ) | (197 | ) | ||||
Purchase of premises and equipment | (74 | ) | (29 | ) | ||||
Purchase of bank-owned life insurance policies | (815 | ) | — | |||||
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Net cash used in investing activities | (26,383 | ) | (41,103 | ) | ||||
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Cash flows from financing activities: | ||||||||
Net increase (decrease) in customer deposits | 40,625 | (3,079 | ) | |||||
Proceeds from short term and overnight borrowings | 12,000 | 25,000 | ||||||
Proceeds from exercised stock options | 83 | 372 | ||||||
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Net cash provided by financing activities | 52,708 | 22,293 | ||||||
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Increase (decrease) in cash and cash equivalents | 26,268 | (17,385 | ) | |||||
Cash and cash equivalents, beginning of period | 114,342 | 78,705 | ||||||
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Cash and cash equivalents, end of period | $ | 140,610 | $ | 61,320 | ||||
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Supplemental disclosure of cash flow information: | ||||||||
Transfer of SBA loans to held-for-sale from loan portfolio | $ | 0 | $ | 146 | ||||
Recording of right to use assets and operating lease liabilities | $ | 4,079 | $ | 5,052 | ||||
Cash paid during the year for: | ||||||||
Interest | $ | 2,147 | $ | 1,509 | ||||
Income taxes | $ | 164 | $ | 710 |
Common Stock | Retained | Accumulated Other Comprehensive Income | Total Shareholders’ | |||||||||||||||||
Shares | Amount | Earnings | (Loss) | Equity | ||||||||||||||||
Balance at December 31, 2021 | 8,264,300 | $ | 109,473 | $ | 41,189 | $ | 92 | $ | 150,754 | |||||||||||
Stock awards issued and related compensation expense | 11,513 | 494 | — | — | 494 | |||||||||||||||
Shares withheld to pay taxes on stock based compensation | (7,459 | ) | (173 | ) | — | — | (173 | ) | ||||||||||||
Stock options exercised | 4,200 | 55 | — | — | 55 | |||||||||||||||
Shares withheld to pay exercise price on stock options | (1,653 | ) | (34 | ) | — | — | (34 | ) | ||||||||||||
Net income | — | — | 3,673 | — | 3,673 | |||||||||||||||
Other comprehensive loss | — | — | — | (198 | ) | (198 | ) | |||||||||||||
Balance at March 31, 2022 | 8,270,901 | $ | 109,815 | $ | 44,862 | $ | (106 | ) | $ | 154,571 | ||||||||||
Stock awards issued and related compensation expense | 43,855 | 539 | — | — | 539 | |||||||||||||||
Shares withheld to pay taxes on stock based compensation | (3,153 | ) | (65 | ) | — | — | (65 | ) | ||||||||||||
Stock options exercised | 7,350 | 42 | — | — | 42 | |||||||||||||||
Shares withheld to pay exercise price on stock options | (1,792 | ) | (42 | ) | — | — | (42 | ) | ||||||||||||
Net income | — | — | 4,244 | — | 4,244 | |||||||||||||||
Other comprehensive loss | — | — | — | (545 | ) | (545 | ) | |||||||||||||
Balance at June 30, 2022 | 8,317,161 | $ | 110,289 | $ | 49,106 | $ | (651 | ) | $ | 158,744 | ||||||||||
Six Months Ended June 30, | ||||||||
2023 | 2022 | |||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 10,891 | $ | 7,917 | ||||
Adjustments to reconcile net income to net cash provided by (used for) operating activities: | ||||||||
Provision for credit losses | 802 | 1,875 | ||||||
Provision for deferred taxes | (84 | ) | 218 | |||||
Depreciation | 482 | 778 | ||||||
Deferred loan fees (costs), net | 404 | (859 | ) | |||||
Stock based compensation, net | 904 | 795 | ||||||
Increase in cash surrender value of life insurance | (350 | ) | (330 | ) | ||||
Discount on retained portion of sold loans, net | (18 | ) | (18 | ) | ||||
Gain on sale of loans | — | (1,393 | ) | |||||
(Decrease) increase in accrued interest receivable and other assets | (2,286 | ) | 2,204 | |||||
(Increase) decrease in accrued interest payable and other liabilities | 5,047 | (2,880 | ) | |||||
Net cash provided by operating activities | 15,792 | 8,307 | ||||||
Cash flows from investing activities: | ||||||||
Purchase of investment securities | — | (78,780 | ) | |||||
Proceeds from principal payments on investment securities | 4,395 | 15,271 | ||||||
Proceeds from sale of loans | — | 37,271 | ||||||
Net decrease (increase) in loans | 9,561 | (159,589 | ) | |||||
Capital calls on low income tax credit investments | (273 | ) | (437 | ) | ||||
(Purchase) redemption of Federal Home Loan Bank stock | (675 | ) | 455 | |||||
Purchase of premises and equipment | (35 | ) | (108 | ) | ||||
Purchase of bank-owned life insurance policies | (42 | ) | (46 | ) | ||||
Net cash provided by (used for) investing activities | 12,931 | (185,963 | ) | |||||
Cash flows from financing activities: | ||||||||
Net decrease in customer deposits | (53,444 | ) | (127,999 | ) | ||||
Paydown of long term borrowing, net | — | (56,387 | ) | |||||
Proceeds from short term and overnight borrowings, net | — | 50,000 | ||||||
Proceeds from exercised stock options, net | 6 | 21 | ||||||
Net cash used for financing activities | (53,438 | ) | (134,365 | ) | ||||
Decrease in cash and cash equivalents | (24,715 | ) | (312,021 | ) | ||||
Cash and cash equivalents, beginning of period | 232,382 | 470,456 | ||||||
Cash and cash equivalents, end of period | $ | 207,667 | $ | 158,435 | ||||
Supplemental disclosure of cash flow information: | ||||||||
Securities transferred from available for sale to the held to maturity classification | $ | — | $ | 49,889 | ||||
Recording of right to use assets and operating lease liabilities | $ | 6,127 | $ | — | ||||
Cash paid during the year for: | ||||||||
Interest | $ | 12,962 | $ | 3,007 | ||||
Income taxes | $ | — | $ | 2,003 |
2023.
Subsequent Events
Management has reviewed all events through the date the unaudited consolidated
Use of Estimates
Management is requiredGAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Theseperiods presented. Actual results may differ from those estimates and assumptions affect the amounts reportedused in the unaudited consolidated financial statementsConsolidated Financial Statements and related notes. Material estimates that are particularly susceptible to significant changes in the disclosures provided, and actual results could differ. Thenear term include estimates utilized to determinerelating to: the appropriatedetermination of the allowance for loan lossescredit losses; certain assets and liabilities carried at March 31, 2020 may be materially different from actual results due to theCOVID-19 pandemic. See Note 7 to the unaudited consolidated financial statementsfair value; and accounting for additional information regarding theCOVID-19 pandemic.
8
Three months ended | ||||||||
(Dollars in thousands, except per share data) | 2020 | 2019 | ||||||
Net income available to common shareholders | $ | 473 | $ | 1,868 | ||||
Weighted average basic common shares outstanding | 8,103,248 | 8,020,456 | ||||||
Add: dilutive potential common shares | 66,650 | 82,087 | ||||||
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Weighted average diluted common shares outstanding | 8,169,898 | 8,102,543 | ||||||
Basic earnings per share | $ | 0.06 | $ | 0.23 | ||||
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Diluted earnings per share | $ | 0.06 | $ | 0.23 | ||||
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Three months ended June 30, | Six months ended June 30, | |||||||||||||||
(Dollars in thousands, except per share data) | 2023 | 2022 | 2023 | 2022 | ||||||||||||
Net income available to common shareholders | $ | 5,440 | $ | 4,244 | $ | 10,891 | $ | 7,917 | ||||||||
Weighted average basic common shares outstanding | 8,369,907 | 8,295,014 | 8,354,564 | 8,285,950 | ||||||||||||
Add: dilutive potential common shares | 44,306 | 100,687 | 88,043 | 107,826 | ||||||||||||
Weighted average diluted common shares outstanding | 8,414,213 | 8,395,701 | 8,442,607 | 8,393,776 | ||||||||||||
Basic earnings per share | $ | 0.65 | $ | 0.51 | $ | 1.30 | $ | 0.96 | ||||||||
Diluted earnings per share | $ | 0.65 | $ | 0.51 | $ | 1.29 | $ | 0.94 | ||||||||
In December 2019, the Financial and Related Accounting Standards Board (“FASB”) issued “Simplifying the Accounting for Income Taxes (Topic 740)” (“ASU2019-12”) removing certain exceptions to the general principles in Accounting Standards Codification (“ASC”) 740 and clarifying and amending existing guidance to provide for more consistent application. ASU2019-12 will become effective for fiscal years beginning after December 15, 2021 and early adoption is permitted. The adoption of this standard is not expected to have a material effect on the Company’s operating results or financial condition.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The guidance requires lessees recognize the following for all leases (with the exception of short-term leases) at the commencement date: (1) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) a right-of-use asset which is an asset that represents the lessees’ right to use, or control the use of, a specified asset for the lease term. Under the new guidance, lessors accounting is largely unchanged. Certain targeted improvements were made to align, where necessary, lessor accounting with the lessee accounting model and Topic 606, Revenue from Contracts with Customers. The new guidance also requires enhanced disclosure about an entity’s leasing arrangements. The Company adopted Topic 842 onPolicies
In June 2016, the FASB issued Company adopted
9
(Dollars in thousands) | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | ||||||||||||
At March 31, 2020: | ||||||||||||||||
Residential mortgage backed and government securities | $ | 23,763 | $ | 760 | $ | — | $ | 24,523 | ||||||||
Government agencies | 2,987 | 4 | — | 2,991 | ||||||||||||
Corporate bonds | 7,009 | — | (179 | ) | 6,830 | |||||||||||
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Total available for sale securities | $ | 33,759 | $ | 764 | $ | (179 | ) | $ | 34,344 | |||||||
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| |||||||||
At December 31, 2019: | ||||||||||||||||
Residential mortgage backed and government securities | $ | 20,291 | $ | 436 | $ | (5 | ) | $ | 20,722 | |||||||
Government agencies | 7,824 | 9 | — | 7,833 | ||||||||||||
Corporate bonds | — | — | — | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total available for sale securities | $ | 28,115 | $ | 445 | $ | (5 | ) | $ | 28,555 | |||||||
|
|
|
|
|
|
|
|
Net unrealized gains on available for sale investment securities totaling $585,000 and $440,000 were recorded, net of deferred tax assets, as accumulated other comprehensive income within shareholders’ equity at March 31, 2020 and December 31, 2019, respectively.
The Company purchased 3 securities for $15.1 million and sold 6 securities for total proceeds of $7.7 million during the three months ended March 31, 2020. 2022.
(Dollars in thousands) | Amortized Cost | Gross Unrealized / Unrecognized Gains | Gross Unrealized / Unrecognized Losses | Estimated Fair Value | ||||||||||||
At June 30, 2023: | ||||||||||||||||
Mortgage backed securities | $ | 16,849 | $ | 13 | $ | (856 | ) | $ | 16,006 | |||||||
Government agencies | 29,862 | — | (1,001 | ) | 28,861 | |||||||||||
Total available for sale securities | $ | 46,711 | $ | 13 | $ | (1,857 | ) | $ | 44,867 | |||||||
Mortgage backed securities | $ | 59,002 | $ | 34 | $ | (7,163 | ) | $ | 51,873 | |||||||
Government agencies | 3,077 | — | (577 | ) | 2,500 | |||||||||||
Corporate bonds | 44,183 | — | (4,419 | ) | 39,764 | |||||||||||
Total held to maturity securities, net | $ | 106,262 | $ | 34 | $ | (12,159 | ) | $ | 94,137 | |||||||
At December 31, 2022: | ||||||||||||||||
Mortgage backed securities | $ | 18,629 | $ | 26 | $ | (897 | ) | $ | 17,758 | |||||||
Government agencies | 29,809 | — | (1,043 | ) | 28,766 | |||||||||||
Corporate bonds | 430 | 58 | — | 488 | ||||||||||||
Total available for sale securities | $ | 48,868 | $ | 84 | $ | (1,940 | ) | $ | 47,012 | |||||||
Mortgage backed securities | $ | 61,363 | $ | — | $ | (7,647 | ) | $ | 53,716 | |||||||
Government agencies | 3,083 | — | (627 | ) | 2,456 | |||||||||||
Corporate bonds | 44,420 | 30 | (3,739 | ) | 40,711 | |||||||||||
Total held to maturity securities | $ | 108,866 | $ | 30 | $ | (12,013 | ) | $ | 96,883 | |||||||
June 30, 2023. The Company purchased 8 available for sale securities for $36.0 million and 11 held to maturity securities for $42.8 million during the six months ended June 30, 2022. The Company did not sell any investment securities during the six months ended June 30, 2023 and 2022.
Available for Sale | Held to Maturity | |||||||||||||||
(Dollars in thousands) | Amortized Cost | Fair Value | Amortized Cost | Fair Value | ||||||||||||
Less that one year | $ | 16,711 | $ | 16,404 | $ | 10,523 | $ | 10,547 | ||||||||
One to five years | 19,887 | 19,109 | 20,626 | 19,927 | ||||||||||||
Five to ten years | — | — | 24,178 | 21,146 | ||||||||||||
Beyond ten years | 1,589 | 1,482 | 20,692 | 16,475 | ||||||||||||
Securities not due at a single maturity date | 8,524 | 7,872 | 30,243 | 26,042 | ||||||||||||
Total investment securities | $ | 46,711 | $ | 44,867 | $ | 106,262 | $ | 94,137 | ||||||||
Available for Sale | Held to Maturity | |||||||||||||||
(Dollars in thousands) | Amortized Cost | Fair Value | Amortized Cost | Fair Value | ||||||||||||
Aaa | $ | 29,862 | $ | 28,861 | $ | 11,685 | $ | 9,544 | ||||||||
Aa1/Aa2/Aa3 | — | — | 3,077 | 2,501 | ||||||||||||
A1/A2 | — | — | 7,978 | 6,583 | ||||||||||||
BBB | — | — | 1,592 | 1,213 | ||||||||||||
Not rated | 16,849 | 16,006 | 81,930 | 74,296 | ||||||||||||
Total investment securities | $ | 46,711 | $ | 44,867 | $ | 106,262 | $ | 94,137 | ||||||||
Less Than 12 Months | More Than 12 Months | Total | ||||||||||||||||||||||
(Dollars in thousands) | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | ||||||||||||||||||
At March 31, 2020: | ||||||||||||||||||||||||
Residential mortgage backed and government securities | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
Government agencies | — | — | — | — | — | — | ||||||||||||||||||
Corporate bonds | — | — | 6,830 | (179 | ) | 6,830 | (179 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total available for sale securities | $ | — | $ | — | $ | 6,830 | $ | (179 | ) | $ | 6,830 | $ | (179 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
At December 31, 2019: | ||||||||||||||||||||||||
Residential mortgage backed and government securities | $ | 481 | $ | 5 | $ | — | $ | — | $ | 481 | $ | 5 | ||||||||||||
Government agencies | 1,598 | — | — | — | 1,598 | — | ||||||||||||||||||
Corporate bonds | — | — | — | — | — | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total available for sale securities | $ | 2,079 | $ | 5 | $ | — | $ | — | $ | 2,079 | $ | 5 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Less Than 12 Months | More Than 12 Months | Total | ||||||||||||||||||||||
(Dollars in thousands) | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | ||||||||||||||||||
At June 30, 2023: | ||||||||||||||||||||||||
Mortgage backed securities | $ | 796 | $ | (53 | ) | $ | 13,009 | $ | (803 | ) | $ | 13,805 | $ | (856 | ) | |||||||||
Government agencies | — | — | 28,860 | (1,001 | ) | 28,860 | (1,001 | ) | ||||||||||||||||
Total available for sale securities | $ | 796 | $ | (53 | ) | $ | 41,869 | $ | (1,804 | ) | $ | 42,665 | $ | (1,857 | ) | |||||||||
Mortgage backed securities | $ | — | $ | — | $ | 49,487 | $ | (7,163 | ) | $ | 49,487 | $ | (7,163 | ) | ||||||||||
Government agencies | — | — | 2,501 | (577 | ) | 2,501 | (577 | ) | ||||||||||||||||
Corporate bonds | 4,546 | (222 | ) | 35,218 | (4,197 | ) | 39,764 | (4,419 | ) | |||||||||||||||
Total held to maturity securities | $ | 4,546 | $ | (222 | ) | $ | 87,206 | $ | (11,937 | ) | $ | 91,752 | $ | (12,159 | ) | |||||||||
At December 31, 2022: | ||||||||||||||||||||||||
Mortgage backed securities | $ | 10,920 | $ | (537 | ) | $ | 4,347 | $ | (360 | ) | $ | 15,267 | $ | (897 | ) | |||||||||
Government agencies | 28,765 | (1,043 | ) | — | — | 28,765 | (1,043 | ) | ||||||||||||||||
Total available for sale securities | $ | 39,685 | $ | (1,580 | ) | $ | 4,347 | $ | (360 | ) | $ | 44,032 | $ | (1,940 | ) | |||||||||
Mortgage backed securities | $ | 32,271 | $ | (5,244 | ) | $ | 21,445 | $ | (2,403 | ) | $ | 53,716 | $ | (7,647 | ) | |||||||||
Government agencies | — | — | 2,456 | (627 | ) | 2,456 | (627 | ) | ||||||||||||||||
Corporate bonds | 14,607 | (1,143 | ) | 22,880 | (2,596 | ) | 37,487 | (3,739 | ) | |||||||||||||||
Total held to maturity securities | $ | 46,878 | $ | (6,387 | ) | $ | 46,781 | $ | (5,626 | ) | $ | 93,659 | $ | (12,013 | ) | |||||||||
10
Management believes that changesactivity in the market value since purchase are primarily attributableallowance for credit losses on held to changes in interest ratesmaturity securities for the three and relative illiquidity. Becausesix months ended June 30, 2023.
June 30, 2023 | ||||||||
(Dollars in thousands) | Three Months Ended | Six Months Ended | ||||||
Beginning balance | $ | 110 | $ | — | ||||
Adoption of new accounting standard | — | 110 | ||||||
Provision for credit losses | (52 | ) | (52 | ) | ||||
Net charge-offs | — | — | ||||||
Balance at June 31, 2023 | $ | 58 | $ | 58 | ||||
At December 31, 2019, the Company’s investment security portfolio consisted of 21 securities, two of which were in an unrealized loss position at year end. One security was a government agency by the Small Business Administration. One security was Mortgage-Backed-Securities. Management believes that changesprovision for credit losses in the market valuesecond quarter of its Mortgage-Backed-Securities since purchase are2023 was primarily attributabledriven by a reduction in the risk of default pertaining to changescertain securities in interest ratesthe held to maturity portfolio, and relative illiquidity and not credit quality. Becausewas identified as part of the Company does not intend to sell and is unlikely to be required to sell until a recovery of fair value, which may be at maturity, the Company did not consider those investments to be other-than-temporarily impaired at December 31, 2019.
comprehensive quarterly analysis.
(Dollars in thousands) | March 31, 2020 | December 31, 2019 | ||||||
Commercial and industrial | 416,308 | 389,746 | ||||||
Real estate—construction and land | 41,697 | 42,519 | ||||||
Real estate—other | 496,765 | 502,929 | ||||||
Real estate—HELOC | 995 | 982 | ||||||
Installment and other | 13,180 | 13,476 | ||||||
|
|
|
| |||||
Total loans, gross | 968,945 | 949,652 | ||||||
Deferred loan origination costs, net | 2,902 | 2,555 | ||||||
Allowance for loan losses | (11,565 | ) | (11,075 | ) | ||||
|
|
|
| |||||
Total loans, net | 960,282 | 941,132 | ||||||
|
|
|
|
(Dollars in thousands) | June 30, 2023 | December 31, 2022 | ||||||
Commercial and industrial | $ | 622,270 | $ | 634,535 | ||||
Real estate - other | 856,344 | 848,241 | ||||||
Real estate - construction and land | 60,595 | 63,730 | ||||||
SBA | 4,936 | 7,220 | ||||||
Other | 39,486 | 39,695 | ||||||
Total loans, gross | 1,583,631 | 1,593,421 | ||||||
Deferred loan origination costs, net | 1,637 | 2,040 | ||||||
Allowance for credit losses | (15,722 | ) | (17,005 | ) | ||||
Total loans, net | $ | 1,569,546 | $ | 1,578,456 | ||||
(Dollars in thousands) | Commercial and Industrial | Real Estate Construction and Land | Real Estate Other | Real Estate HELOC | Installment and Other | Total | ||||||||||||||||||
As of March 31, 2020 | ||||||||||||||||||||||||
Loans individually evaluated for impairment | $ | 5,440 | $ | — | $ | — | $ | — | $ | 344 | $ | 5,784 | ||||||||||||
Loans collectively evaluated for impairment | 410,868 | 41,697 | 496,765 | 995 | 12,836 | 963,161 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total loans | $ | 416,308 | $ | 41,697 | $ | 496,765 | $ | 995 | $ | 13,180 | $ | 968,945 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
As of December 31, 2019 | ||||||||||||||||||||||||
Loans individually evaluated for impairment | $ | 4,572 | $ | — | $ | 687 | $ | — | $ | 344 | $ | 5,603 | ||||||||||||
Loans collectively evaluated for impairment | 385,174 | 42,519 | 502,242 | 982 | 13,132 | 944,049 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total loans | $ | 389,746 | $ | 42,519 | $ | 502,929 | $ | 982 | $ | 13,476 | $ | 949,652 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
11
(Dollars in thousands) | Commercial and Industrial | Real Estate Construction and Land | Real Estate Other | Real Estate HELOC | Installment and Other | Total | ||||||||||||||||||
Three months ended March 31, 2020 | ||||||||||||||||||||||||
Beginning balance | $ | 6,708 | $ | 1,022 | $ | 3,281 | $ | 6 | $ | 58 | $ | 11,075 | ||||||||||||
Provision for loan losses | 1,045 | (292 | ) | (620 | ) | (1 | ) | 268 | 400 | |||||||||||||||
Charge-offs | — | — | — | — | — | — | ||||||||||||||||||
Recoveries | 90 | — | — | — | — | 90 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Ending balance | $ | 7,843 | $ | 730 | $ | 2,661 | $ | 5 | $ | 326 | $ | 11,565 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Individually evaluated for impairment | $ | 1,187 | $ | — | $ | — | $ | — | $ | 110 | $ | 1,297 | ||||||||||||
Collectively evaluated for impairment | 6,656 | 730 | 2,661 | 5 | 216 | 10,268 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
$ | 7,843 | $ | 730 | $ | 2,661 | $ | 5 | $ | 326 | $ | 11,565 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Three months ended March 31, 2019 | ||||||||||||||||||||||||
Beginning balance | $ | 5,578 | �� | $ | 1,493 | $ | 3,703 | $ | 16 | $ | 10 | $ | 10,800 | |||||||||||
Provision for loan losses | 378 | (373 | ) | 448 | (6 | ) | 134 | 581 | ||||||||||||||||
Charge-offs | — | — | — | — | (137 | ) | (137 | ) | ||||||||||||||||
Recoveries | 6 | — | — | — | — | 6 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Ending balance | $ | 5,962 | $ | 1,120 | $ | 4,151 | $ | 10 | $ | 7 | $ | 11,250 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Individually evaluated for impairment | $ | 14 | $ | — | $ | — | $ | — | $ | — | $ | 14 | ||||||||||||
Collectively evaluated for impairment | 5,948 | 1,120 | 4,151 | 10 | 7 | 11,236 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
$ | 5,962 | $ | 1,120 | $ | 4,151 | $ | 10 | $ | 7 | $ | 11,250 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2023.
Term Loans by Year of Origination | ||||||||||||||||||||||||
(Dollars in thousands) | 2023 | 2022 | 2021 | Prior | Revolving | Total | ||||||||||||||||||
Commercial and industrial | ||||||||||||||||||||||||
Pass | $ | 28,740 | $ | 131,962 | $ | 65,634 | $ | 94,341 | $ | 217,469 | $ | 538,146 | ||||||||||||
Special mention | 898 | 39,407 | 5,778 | 3,217 | 34,076 | 83,376 | ||||||||||||||||||
Substandard | — | — | — | 748 | — | 748 | ||||||||||||||||||
Total | $ | 29,638 | $ | 171,369 | $ | 71,412 | $ | 98,306 | $ | 251,545 | $ | 622,270 | ||||||||||||
Current period gross charge-offs | $ | — | $ | — | $ | — | $ | — | $ | 247 | $ | 247 | ||||||||||||
Real estate - other | ||||||||||||||||||||||||
Pass | $ | 13,466 | $ | 198,796 | $ | 212,367 | $ | 314,639 | $ | 91,640 | $ | 830,908 | ||||||||||||
Special mention | 697 | 3,417 | 8,570 | 7,986 | — | 20,670 | ||||||||||||||||||
Substandard | — | — | — | 4,766 | — | 4,766 | ||||||||||||||||||
Total | $ | 14,163 | $ | 202,213 | $ | 220,937 | $ | 327,391 | $ | 91,640 | $ | 856,344 | ||||||||||||
Current period gross charge-offs | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
Real estate - construction and land | ||||||||||||||||||||||||
Pass | $ | 2,514 | $ | 12,309 | $ | 44,095 | $ | — | $ | — | $ | 58,918 | ||||||||||||
Special mention | — | — | — | 1,677 | — | 1,677 | ||||||||||||||||||
Substandard | — | — | — | — | — | — | ||||||||||||||||||
Total | $ | 2,514 | $ | 12,309 | $ | 44,095 | $ | 1,677 | $ | — | $ | 60,595 | ||||||||||||
Current period gross charge-offs | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
SBA | ||||||||||||||||||||||||
Pass | $ | — | $ | 770 | $ | 104 | $ | 2,988 | $ | 130 | $ | 3,992 | ||||||||||||
Special mention | — | — | — | 147 | — | 147 | ||||||||||||||||||
Substandard | — | — | — | 797 | — | 797 | ||||||||||||||||||
Total | $ | — | $ | 770 | $ | 104 | $ | 3,932 | $ | 130 | $ | 4,936 | ||||||||||||
Current period gross charge-offs | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
Other | ||||||||||||||||||||||||
Pass | $ | 10 | $ | 1,708 | $ | — | $ | 35,005 | $ | 2,763 | $ | 39,486 | ||||||||||||
Special mention | — | — | — | — | — | — | ||||||||||||||||||
Substandard | — | — | — | — | — | — | ||||||||||||||||||
Total | $ | 10 | $ | 1,708 | $ | — | $ | 35,005 | $ | 2,763 | $ | 39,486 | ||||||||||||
Current period gross charge-offs | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
Total | ||||||||||||||||||||||||
Pass | $ | 44,730 | $ | 345,545 | $ | 322,200 | $ | 446,973 | $ | 312,002 | $ | 1,471,450 | ||||||||||||
Special mention | 1,595 | 42,824 | 14,348 | 13,027 | 34,076 | 105,870 | ||||||||||||||||||
Substandard | — | — | — | 6,311 | — | 6,311 | ||||||||||||||||||
Total | $ | 46,325 | $ | 388,369 | $ | 336,548 | $ | 466,311 | $ | 346,078 | $ | 1,583,631 | ||||||||||||
Current period gross charge-offs | $ | — | $ | — | $ | — | $ | — | $ | 247 | $ | 247 |
(Dollars in thousands) | Commercial and Industrial | Real Estate Construction and Land | Real Estate Other | Real Estate HELOC | Installment and Other | Total | ||||||||||||||||||
As of March 31, 2020 | ||||||||||||||||||||||||
Grade: | ||||||||||||||||||||||||
Pass | $ | 399,304 | $ | 39,919 | $ | 486,959 | $ | 995 | $ | 10,584 | $ | 937,761 | ||||||||||||
Special Mention | 7,254 | — | 5,188 | — | 1,495 | 13,937 | ||||||||||||||||||
Substandard | 9,750 | 1,778 | 4,618 | — | 1,101 | 17,247 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total | $ | 416,308 | $ | 41,697 | $ | 496,765 | $ | 995 | $ | 13,180 | $ | 968,945 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
As of December 31, 2019 | ||||||||||||||||||||||||
Grade: | ||||||||||||||||||||||||
Pass | $ | 378,327 | $ | 40,731 | $ | 494,314 | $ | 982 | $ | 11,382 | $ | 925,736 | ||||||||||||
Special Mention | 6,894 | 1,788 | 7,928 | — | 1,655 | 18,265 | ||||||||||||||||||
Substandard | 4,525 | — | 687 | — | 439 | 5,651 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total | $ | 389,746 | $ | 42,519 | $ | 502,929 | $ | 982 | $ | 13,476 | $ | 949,652 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
12
(Dollars in thousands) | Commercial and Industrial | Real Estate Other | Real Estate Construction and Land | SBA | Other | Total | ||||||||||||||||||
As of December 31, 2022: | ||||||||||||||||||||||||
Grade: | ||||||||||||||||||||||||
Pass | $ | 613,395 | $ | 840,993 | $ | 62,031 | $ | 6,132 | $ | 39,695 | $ | 1,562,246 | ||||||||||||
Special Mention | 18,157 | 2,602 | — | 490 | — | 21,249 | ||||||||||||||||||
Substandard | 2,983 | 4,646 | 1,699 | 598 | — | 9,926 | ||||||||||||||||||
Total | $ | 634,535 | $ | 848,241 | $ | 63,730 | $ | 7,220 | $ | 39,695 | $ | 1,593,421 | ||||||||||||
(Dollars in thousands) | 30 Days | 60 Days | 90+ Days | Non-Accrual | Current | Total | ||||||||||||||||||
As of March 31, 2020 | ||||||||||||||||||||||||
Commercial and industrial | $ | — | $ | — | $ | — | $ | 2,306 | $ | 414,002 | $ | 416,308 | ||||||||||||
Real estate: | ||||||||||||||||||||||||
Construction and land | — | — | — | — | 41,697 | 41,697 | ||||||||||||||||||
Other | — | — | — | — | 496,765 | 496,765 | ||||||||||||||||||
HELOC | — | — | — | — | 995 | 995 | ||||||||||||||||||
Installment and other | — | — | — | 344 | 12,836 | 13,180 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total loans, gross | $ | — | $ | — | $ | — | $ | 2,650 | $ | 966,295 | $ | 968,945 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
As of December 31, 2019 | ||||||||||||||||||||||||
Commercial and industrial | $ | — | $ | 1,440 | $ | — | $ | 2,409 | $ | 385,897 | $ | 389,746 | ||||||||||||
Real estate: | ||||||||||||||||||||||||
Construction and land | — | — | — | — | 42,519 | 42,519 | ||||||||||||||||||
Other | — | — | — | — | 502,929 | 502,929 | ||||||||||||||||||
HELOC | — | — | — | — | 982 | 982 | ||||||||||||||||||
Installment and other | — | — | — | 344 | 13,132 | 13,476 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total loans, gross | $ | — | $ | 1,440 | $ | — | $ | 2,753 | $ | 945,459 | $ | 949,652 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
13
(Dollars in thousands) | 30 Days | 60 Days | 90+ Days | Nonaccrual | Current | Total | ||||||||||||||||||
As of June 30, 2023: | ||||||||||||||||||||||||
Commercial and industrial | $ | 493 | $ | — | $ | — | $ | — | $ | 621,777 | $ | 622,270 | ||||||||||||
Real estate - other | — | — | — | — | 856,344 | 856,344 | ||||||||||||||||||
Real estate - construction and land | — | — | — | — | 60,595 | 60,595 | ||||||||||||||||||
SBA | — | — | — | 181 | 4,755 | 4,936 | ||||||||||||||||||
Other | — | — | — | — | 39,486 | 39,486 | ||||||||||||||||||
Total loans, gross | $ | 493 | $ | — | $ | — | $ | 181 | $ | 1,582,957 | $ | 1,583,631 | ||||||||||||
As of December 31, 2022: | ||||||||||||||||||||||||
Commercial and industrial | $ | — | $ | — | $ | — | $ | 1,028 | $ | 633,507 | $ | 634,535 | ||||||||||||
Real estate - other | 3,160 | — | — | — | 845,081 | 848,241 | ||||||||||||||||||
Real estate - construction and land | — | — | — | — | 63,730 | 63,730 | ||||||||||||||||||
SBA | — | — | — | 222 | 6,998 | 7,220 | ||||||||||||||||||
Other | — | — | — | — | 39,695 | 39,695 | ||||||||||||||||||
Total loans, gross | $ | 3,160 | $ | — | $ | — | $ | 1,250 | $ | 1,589,011 | $ | 1,593,421 | ||||||||||||
(Dollars in thousands) | Recorded Investment | Unpaid Principal Balance | Average Recorded Investment | |||||||||
As of June 30, 2023: | ||||||||||||
SBA | $ | 181 | $ | 856 | $ | 202 | ||||||
Total individually evaluated loans | $ | 181 | $ | 856 | $ | 202 | ||||||
As of December 31, 2022: | ||||||||||||
Commercial and industrial | $ | 1,028 | $ | 1,678 | $ | 1,028 | ||||||
SBA | 222 | 896 | 227 | |||||||||
Total individually evaluated loans | $ | 1,250 | $ | 2,574 | $ | 1,255 | ||||||
(Dollars in thousands) | Residential Property | Business Assets | Total Nonaccrual Loans | |||||||||
As of June 30, 2023: | ||||||||||||
SBA | $ | 181 | $ | — | $ | 181 | ||||||
Total individually evaluated loans | $ | 181 | $ | — | $ | 181 | ||||||
As of December 31, 2022: | ||||||||||||
Commercial and industrial | $ | — | $ | 1,028 | $ | 1,028 | ||||||
SBA | 222 | — | 222 | |||||||||
Total individually evaluated loans | $ | 222 | $ | 1,028 | $ | 1,250 | ||||||
Incurred Loss | ||||||||||||||||
CECL | December 31, 2022 | |||||||||||||||
June 30, 2023 | ||||||||||||||||
(Dollars in thousands) | Nonaccrual Loans with No Allowance | Nonaccrual Loans with an Allowance | Total Nonaccrual Loans | Nonaccrual Loans | ||||||||||||
Commercial and industrial | $ | — | $ | — | $ | — | $ | 1,028 | ||||||||
SBA | 181 | — | 181 | 222 | ||||||||||||
Total individually evaluated loans | $ | 181 | $ | — | $ | 181 | $ | 1,250 | ||||||||
(Dollars in thousands) | Recorded Investment | Unpaid Principal Balance | Related Allowance | Average Recorded Investment | Interest Income Recognized | |||||||||||||||
As of March 31, 2020 | ||||||||||||||||||||
With no related allowance recorded: | ||||||||||||||||||||
Commercial and industrial | $ | 1,677 | $ | 1,685 | $ | — | $ | 1,728 | $ | 35 | ||||||||||
With an allowance recorded: | ||||||||||||||||||||
Commercial and industrial | $ | 3,782 | $ | 5,682 | $ | 1,187 | $ | 5,715 | $ | 25 | ||||||||||
Installment and other | $ | 356 | $ | 631 | $ | 110 | $ | 1,925 | $ | — | ||||||||||
Total: | ||||||||||||||||||||
Commercial and industrial | $ | 5,459 | $ | 7,367 | $ | 650 | $ | 7,443 | $ | 60 | ||||||||||
Installment and other | $ | 356 | $ | 631 | $ | 110 | $ | 1,925 | $ | — | ||||||||||
As of December 31, 2019 | ||||||||||||||||||||
With no related allowance recorded: | ||||||||||||||||||||
Commercial and industrial | $ | 1,847 | $ | 1,860 | $ | — | $ | 1,282 | $ | 68 | ||||||||||
Real estate- other | $ | 689 | $ | 687 | $ | — | $ | 700 | $ | 52 | ||||||||||
Installment and other | $ | 291 | $ | 294 | $ | — | $ | 1,723 | $ | — | ||||||||||
With an allowance recorded: | ||||||||||||||||||||
Commercial and industrial | $ | 2,725 | $ | 4,623 | $ | 600 | $ | 4,620 | $ | 56 | ||||||||||
Installment and other | $ | 41 | $ | 200 | $ | 50 | $ | 203 | $ | 15 | ||||||||||
Total: | ||||||||||||||||||||
Commercial and industrial | $ | 4,572 | $ | 6,483 | $ | 600 | $ | 5,902 | $ | 124 | ||||||||||
Real estate- other | $ | 689 | $ | 687 | $ | — | $ | 700 | $ | 52 | ||||||||||
Installment and other | $ | 332 | $ | 494 | $ | 50 | $ | 1,926 | $ | 15 |
2022.
(Dollars in thousands) | Commercial and Industrial | Real Estate Other | Real Estate Construction and Land | SBA | Other | Total | ||||||||||||||||||
As of December 31, 2022: | ||||||||||||||||||||||||
Gross loans: | ||||||||||||||||||||||||
Loans individually evaluated for impairment | $ | 1,028 | $ | — | $ | — | $ | 222 | $ | — | $ | 1,250 | ||||||||||||
Loans collectively evaluated for impairment | 633,507 | 848,241 | 63,730 | 6,998 | 39,695 | 1,592,171 | ||||||||||||||||||
Total gross loans | $ | 634,535 | $ | 848,241 | $ | 63,730 | $ | 7,220 | $ | 39,695 | $ | 1,593,421 | ||||||||||||
Allowance for loan losses: | ||||||||||||||||||||||||
Loans individually evaluated for impairment | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
Loans collectively evaluated for impairment | 10,620 | 5,322 | 884 | 132 | 47 | 17,005 | ||||||||||||||||||
Total allowance for loan losses | $ | 10,620 | $ | 5,322 | $ | 884 | $ | 132 | $ | 47 | $ | 17,005 | ||||||||||||
2022. The recorded investment in impaired loansprovision for credit losses of $340,000 for the second quarter of 2023 was primarily the result of changes in the tables above excludes accruedforecast assumptions utilized in the CECL model. In addition to changes in forecast assumptions, the provision for credit losses of $804,000 for the six months ended June 30, 2023 was impacted by the recognition of net charge-offs of $247,000 during the first quarter of 2023.
(Dollars in thousands) | Commercial and Industrial | Real Estate Other | Real Estate Construction and Land | SBA | Other | Total | ||||||||||||||||||
Three months ended June 30, 2023: | ||||||||||||||||||||||||
Beginning balance | $ | 10,719 | $ | 2,943 | $ | 743 | $ | 42 | $ | 935 | $ | 15,382 | ||||||||||||
Provision for credit losses | 84 | 27 | (6 | ) | (2 | ) | 237 | 340 | ||||||||||||||||
Charge-offs | — | — | — | — | — | — | ||||||||||||||||||
Recoveries | — | — | — | — | — | — | ||||||||||||||||||
Ending balance | $ | 10,803 | $ | 2,970 | $ | 737 | $ | 40 | $ | 1,172 | $ | 15,722 | ||||||||||||
Alowance for credit losses / gross loans | 1.74 | % | 0.35 | % | 1.22 | % | 0.81 | % | 2.97 | % | 0.99 | % | ||||||||||||
Net recoveries (charge-offs) / gross loans | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | ||||||||||||
Three months ended June 30, 2022: | ||||||||||||||||||||||||
Beginning balance | $ | 8,876 | $ | 5,080 | $ | 783 | $ | 283 | $ | 10 | $ | 15,032 | ||||||||||||
Provision for loan losses | 650 | 163 | 124 | (10 | ) | (2 | ) | 925 | ||||||||||||||||
Charge-offs | — | — | — | — | — | — | ||||||||||||||||||
Recoveries | — | — | — | — | — | — | ||||||||||||||||||
Ending balance | $ | 9,526 | $ | 5,243 | $ | 907 | $ | 273 | $ | 8 | $ | 15,957 | ||||||||||||
Alowance for loan losses / gross loans | 1.62 | % | 0.66 | % | 1.44 | % | 2.05 | % | 0.02 | % | 1.06 | % | ||||||||||||
Net recoveries (charge-offs) / gross loans | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | ||||||||||||
Six months ended June 30, 2023 | ||||||||||||||||||||||||
Beginning balance | $ | 10,620 | $ | 5,322 | $ | 884 | $ | 132 | $ | 47 | $ | 17,005 | ||||||||||||
Adoption of new accounting standard | (1,566 | ) | (1,725 | ) | 1 | (91 | ) | 1,541 | (1,840 | ) | ||||||||||||||
Provision for credit losses | 1,996 | (627 | ) | (148 | ) | (1 | ) | (416 | ) | 804 | ||||||||||||||
Charge-offs | (247 | ) | — | — | — | — | (247 | ) | ||||||||||||||||
Recoveries | — | — | — | — | — | — | ||||||||||||||||||
Ending balance | $ | 10,803 | $ | 2,970 | $ | 737 | $ | 40 | $ | 1,172 | $ | 15,722 | ||||||||||||
Alowance for credit losses / gross loans | 1.74 | % | 0.35 | % | 1.22 | % | 0.81 | % | 2.97 | % | 0.99 | % | ||||||||||||
Net recoveries (charge-offs) / gross loans | -0.04 | % | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | -0.02 | % | ||||||||||||
Six months ended June 30, 2022 | ||||||||||||||||||||||||
Beginning balance | $ | 8,552 | $ | 4,524 | $ | 681 | $ | 309 | $ | 15 | $ | 14,081 | ||||||||||||
Provision for loan losses | 973 | 719 | 226 | (36 | ) | (7 | ) | 1,875 | ||||||||||||||||
Charge-offs | — | — | — | — | — | — | ||||||||||||||||||
Recoveries | 1 | — | — | — | — | 1 | ||||||||||||||||||
Ending balance | $ | 9,526 | $ | 5,243 | $ | 907 | $ | 273 | $ | 8 | $ | 15,957 | ||||||||||||
Alowance for loan losses / gross loans | 1.62 | % | 0.66 | % | 1.44 | % | 2.05 | % | 0.02 | % | 1.06 | % | ||||||||||||
Net recoveries (charge-offs) / gross loans | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % |
Trouble Debt Restructurings
the allowance for credit losses is adjusted by the same amount.
the financial effect of the modification.
(Dollars in thousands) | Amortized Cost | % of Total Portfolio Segment | Financial Effect | |||||||
SBA | $ | 51 | 0.01 | % | Term Extension - extended forbearance expiration from March 31, 2023 to July 1, 2023 | |||||
Total modified loans | $ | 51 | ||||||||
The Company had no troubled debt restructuringsloan modifications resulting from a borrower experiencing financial difficulties with a subsequent payment default within twelve months following the modification during the three and six months ended March 31, 2020 and 2019.
For additional information regarding the impact of COVID-19, see footnote 7
14
This FHLB short term borrowing was paid in full at maturity. Also, in March 2023, the Company secured a $50.0 million FHLB short term borrowing maturing on May 1, 2023 at a fixed rate of 5.02%. This FHLB short term borrowing was paid in full at maturity.
2022.
There were no borrowings outstanding under this arrangement at June 30, 2023 and December 31, 2022.
cost.
(Dollars in thousands) | Due in One Year Or Less | Over One Year But Less Than Five Years | Over Five Years | Total | ||||||||||||
Unfunded fixed rate loan commitments: | ||||||||||||||||
Interest rate less than or equal to 4.00% | $ | 18,141 | $ | 4,203 | $ | 4,369 | $ | 26,713 | ||||||||
Interest rate between 4.00% and 5.00% | — | 7,437 | 107 | 7,544 | ||||||||||||
Interest rate greater than or equal to 5.00% | 4,087 | 2,566 | 2,871 | 9,524 | ||||||||||||
Total unfunded fixed rate loan commitments | $ | 22,228 | $ | 14,206 | $ | 7,347 | $ | 43,781 | ||||||||
15
The following table presents the balance and activity in the allowance for credit losses for unfunded loan commitments for the three and six months ended June 30, 2023.
June 30, 2023 | ||||||||
(Dollars in thousands) | Three Months Ended | Six Months Ended | ||||||
Beginning balance | $ | 1,721 | $ | 430 | ||||
Adoption of new accounting standard | — | 1,397 | ||||||
Provision for credit losses | 156 | 50 | ||||||
Balance at June 30, 2023 | $ | 1,877 | $ | 1,877 | ||||
(Dollars in thousands) | March 31, 2020 | |||
Operating lease cost (cost resulting form lease payments) | $ | 621 | ||
Operating lease – operating cash flows (fixed payments) | $ | 491 | ||
Operating lease – ROU assets | $ | 9,867 | ||
Operating lease – liabilities | $ | 12,119 | ||
Weighted average lease term – operating leases | 4.8 years | |||
Weighted average discount rate – operating leases | 2.58 | % |
leases for the six months ended, and as of, June 30, 2023.
(Dollars in thousands) | June 30, 2023 | |||
Operating lease cost (cost resulting from lease payments) | $ | 981 | ||
Operating lease - operating cash flows (fixed payments) | $ | 787 | ||
Operating lease right-of-use | $ | 9,712 | ||
Operating lease liabilities (other liabilities) | $ | 11,348 | ||
Weighted average lease term - operating leases | 4.5 years | |||
Weighted average discount rate - operating leases | 4.55 | % |
(Dollars in thousands) | March 31, 2020 | |||
2020 | $ | 1,914 | ||
2021 | 2,431 | |||
2022 | 2,441 | |||
2023 | 1,497 | |||
2024 | 1,456 | |||
Thereafter | 3,291 | |||
|
| |||
Total undiscounted cash flows | 13,030 | |||
Discount on cash flows | (911 | ) | ||
|
| |||
Total lease liability | $ | 12,119 | ||
|
|
June 30, 2023.
(Dollars in thousands) | June 30, 2023 | |||
2023 | $ | 866 | ||
2024 | 2,414 | |||
2025 | 2,486 | |||
2026 | 2,451 | |||
2027 | 1,402 | |||
Thereafter | 3,140 | |||
Total undiscounted cash flows | 12,759 | |||
Discount on cash flows | (1,411 | ) | ||
Total lease liability | $ | 11,348 | ||
Rent expense included in premises and equipment expense totaled $981,000 and $983,000 for the six months ended June 30, 2023 and 2022, respectively.
For additional information regarding the impact of COVID-19, see footnote 7
operations.
16
The carrying amounts and estimated fair values of financial instruments at March 31, 2020June 30, 2023 and December 31, 20192022 are as follows:
Carrying Amount | Fair Value Measurements | |||||||||||||||||||
(Dollars in thousands) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||
As of March 31, 2020 | ||||||||||||||||||||
Financial assets: | ||||||||||||||||||||
Cash and due from banks | $ | 140,610 | $ | 140,610 | $ | — | $ | — | $ | 140,610 | ||||||||||
Securities available for sale | 34,344 | — | 34,344 | — | 34,344 | |||||||||||||||
Loans, net | 960,282 | — | — | 951,928 | 951,928 | |||||||||||||||
Accrued interest receivable | 3,247 | — | 109 | 3,138 | 3,247 | |||||||||||||||
Financial liabilities: | ||||||||||||||||||||
Deposits | $ | 1,028,861 | $ | 884,043 | $ | 145,310 | $ | — | $ | 1,029,353 | ||||||||||
Other borrowings | 22,000 | — | — | 22,539 | 22,539 | |||||||||||||||
Subordinated debt | 4,981 | — | — | 5,103 | 5,103 | |||||||||||||||
Accrued interest payable | 376 | — | 300 | 76 | 376 | |||||||||||||||
As of December 31, 2019 | ||||||||||||||||||||
Financial assets: | ||||||||||||||||||||
Cash and due from banks | $ | 114,342 | $ | 114,342 | $ | — | $ | — | $ | 114,342 | ||||||||||
Securities available for sale | 28,555 | — | 28,555 | — | 28,555 | |||||||||||||||
Loans, net | 941,132 | — | — | 940,944 | 940,944 | |||||||||||||||
Accrued interest receivable | 3,398 | — | 168 | 3,230 | 3,398 | |||||||||||||||
Financial liabilities: | ||||||||||||||||||||
Deposits | $ | 988,236 | $ | 870,495 | $ | 121,136 | $ | — | $ | 991,631 | ||||||||||
Other borrowings | 10,000 | — | — | 10,032 | 10,032 | |||||||||||||||
Subordinated debt | 4,977 | — | — | 5,112 | 5,112 | |||||||||||||||
Accrued interest payable | 400 | — | 326 | 74 | 400 |
Carrying Amount | Fair Value Measurements | |||||||||||||||||||
(Dollars in thousands) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||
As of June 30, 2023: | ||||||||||||||||||||
Financial assets: | ||||||||||||||||||||
Cash and cash equivalents | $ | 207,667 | $ | 207,667 | $ | — | $ | — | $ | 207,667 | ||||||||||
Investment securities: | ||||||||||||||||||||
Available for sale | 44,867 | — | 44,687 | — | 44,687 | |||||||||||||||
Held to m aturity | 106,262 | 86,750 | 7,387 | 94,137 | ||||||||||||||||
Loans, net | 1,569,546 | — | — | 1,503,599 | 1,503,599 | |||||||||||||||
Accrued interest receivable | 7,289 | — | 957 | 6,292 | 7,249 | |||||||||||||||
Financial liabilities: | ||||||||||||||||||||
Deposits | $ | 1,738,296 | $ | 1,405,104 | $ | 333,711 | $ | — | $ | 1,738,815 | ||||||||||
Subordinated debt | 54,221 | — | — | 49,378 | 49,378 | |||||||||||||||
Accrued interest payable | 4,047 | — | 3,379 | 668 | 4,047 | |||||||||||||||
As of December 31, 2022: | ||||||||||||||||||||
Financial assets: | ||||||||||||||||||||
Cash and due from banks | $ | 232,382 | $ | 232,382 | $ | — | $ | — | $ | 232,382 | ||||||||||
Investment securities: | ||||||||||||||||||||
Available for sale | 47,012 | — | 47,012 | — | 47,012 | |||||||||||||||
Held to m aturity | 108,866 | 89,433 | 7,450 | 96,883 | ||||||||||||||||
Loans, net | 1,578,456 | — | 1,519,903 | 1,519,903 | ||||||||||||||||
Accrued interest receivable | 7,769 | — | 926 | 6,843 | 7,769 | |||||||||||||||
Financial liabilities: | ||||||||||||||||||||
Deposits | $ | 1,791,740 | $ | 1,520,502 | $ | 271,178 | $ | — | $ | 1,791,680 | ||||||||||
Other borrowings | — | — | — | — | — | |||||||||||||||
Subordinated debt | 54,152 | — | — | 49,027 | 49,027 | |||||||||||||||
Accrued interest payable | 1,678 | — | 1,007 | 671 | 1,678 |
For securities where market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators, resulting in Level 3 classification.
Loans—
Impaired loans—Impaired Loans are generally classified using Level 3 inputs.
17
Deposits—Deposits - The fair values disclosed for demand deposits (e.g., interest andFair values of fixed rateFor time certificates of deposit, are calculation of the estimated remaining cash flows waswere discounted, based on current rates for similar instruments in market, to the date of the valuation to calculatedetermine the fair value (premium)/discount on the portfolio that applies interest rates currently being offered on certificates for the San Francisco Bay Area to a schedule of aggregated expected monthly maturities on time deposits resulting inand accordingly are classified as Level 2 classification.
2.
18
(Dollars in thousands) | Fair Value | Level 1 | Level 2 | Level 3 | ||||||||||||
As of March 31, 2020 | ||||||||||||||||
Investments available for sale: | ||||||||||||||||
Residential mortgage backed and government securities | $ | 24,523 | $ | — | $ | 24,523 | $ | — | ||||||||
Government agencies | 2,991 | — | 2,991 | — | ||||||||||||
Corporate bonds | 6,830 | — | 6,830 | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total assets measured at fair value on a recurring basis | $ | 34,344 | $ | — | $ | 34,344 | $ | — | ||||||||
|
|
|
|
|
|
|
| |||||||||
As of December 31, 2019 | ||||||||||||||||
Investments available for sale: | ||||||||||||||||
Residential mortgage backed and government securities | $ | 20,722 | $ | — | $ | 20,722 | $ | — | ||||||||
Government agencies | 7,833 | — | 7,833 | — | ||||||||||||
Corporate bonds | — | — | — | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total assets measured at fair value on a recurring basis | $ | 28,555 | $ | — | $ | 28,555 | $ | — | ||||||||
|
|
|
|
|
|
|
|
basis as of June 30, 2023 and December 31, 2022.
(Dollars in thousands) | Fair Value | Level 1 | Level 2 | Level 3 | ||||||||||||
As of June 30, 2023: | ||||||||||||||||
Investments available for sale: | ||||||||||||||||
Mortgage backed securities | $ | 16,006 | $ | — | $ | 16,006 | $ | — | ||||||||
Government agencies | 28,861 | — | 28,861 | — | ||||||||||||
Total assets measured at fair value on a recurring basis | $ | 44,867 | $ | — | $ | 44,867 | $ | — | ||||||||
As of December 31, 2022: | ||||||||||||||||
Investments available for sale: | ||||||||||||||||
Mortgage backed securities | $ | 17,758 | $ | — | $ | 17,758 | $ | — | ||||||||
Government agencies | 28,766 | — | 28,766 | — | ||||||||||||
Corporate bonds | 488 | — | 488 | — | ||||||||||||
Total assets measured at fair value on a recurring basis | $ | 47,012 | $ | — | $ | 47,012 | $ | — | ||||||||
Additionally, there were no assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) at June 30, 2023 and December 31, 2022.
Carrying Amount | Fair Value Measurements | |||||||||||||||
(Dollars in thousands) | Level 1 | Level 2 | Level 3 | |||||||||||||
As of March 31, 2020 | ||||||||||||||||
Impaired loans—Commercial | $ | 2,112 | $ | — | $ | — | $ | 2,112 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Total assets measured at fair value on anon-recurring basis | $ | 2,112 | $ | — | $ | — | $ | 2,112 | ||||||||
|
|
|
|
|
|
|
| |||||||||
As of December 31, 2019 | ||||||||||||||||
Impaired loans—Commercial | $ | 3,475 | $ | — | $ | — | $ | 3,475 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Total assets measured at fair value on anon-recurring basis | $ | 3,475 | $ | — | $ | — | $ | 3,475 | ||||||||
| �� |
|
|
|
|
|
|
2022.
Carrying Amount | Fair Value Measurements | |||||||||||||||
(Dollars in thousands) | Level 1 | Level 2 | Level 3 | |||||||||||||
As of June 30, 2023: | ||||||||||||||||
Individually evaluated loans - SBA | $ | 181 | $ | — | $ | — | $ | 181 | ||||||||
Total assets measured at fair value on a non-recurring basis | $ | 181 | $ | — | $ | — | $ | 181 | ||||||||
As of December 31, 2022: | ||||||||||||||||
Impaired loans - Commercial | $ | 1,028 | $ | — | $ | — | $ | 1,028 | ||||||||
Impaired loans - SBA | 222 | — | — | 222 | ||||||||||||
Total assets measured at fair value on a non-recurring basis | $ | 1,250 | $ | — | $ | — | $ | 1,250 | ||||||||
19
7. BUSINESS IMPACT OFCOVID-19
COVID-19
In December 2019, a novel strain of coronavirus, COVID-19, was reported in Wuhan, China. The COVID-19 virus continues to aggressively spread globally and has spread to over 185 countries, including all 50 states in the United States. A prolonged COVID-19 outbreak, or any other epidemic that harms the global economy, U.S. economy, or the economies in which we operate could adversely affect our operations. While the spread of the COVID-19 virus has minimally impacted our operations as of March 31, 2020, it has caused significant economic disruption throughout the United States as state and local governments issued “shelter at home” orders along with the closing of non-essential businesses. The potential financial impact is unknown at this time. However, if these actions are sustained, it may adversely impact several industries within our geographic footprint and impair the ability of our customers to fulfill their contractual obligations to the Company. This could result in a material adverse effect on our business operations, asset valuations, financial condition, and results of operations. Material adverse impacts may include all or a combination of valuation impairments for investments, loans, and intangible assets.
Loan Portfolio
As a result of the novel coronavirusCOVID-19, the Company has granted payment deferments through the date of this filing on over 400 loans with an aggregate outstanding balance of approximately $365.0 million and aggregate monthly principal and interest payments of approximately $3.7 million. The payment deferments have been granted initially for up to 90 days, and the Company will consider an additional 90 days based on the circumstances on both a macro and micro level at the time.
The Company is also participating in the SBA Paycheck Protection Program (PPP). Key Features of the PPP include:
24-month term
Interest-rate of 1%, deferred payments for the first6-months
The loan will be fully forgiven if the funds are used for payroll costs, interest on mortgages, rent, and utilities (due to likely high subscription, at least 75% of the forgiven amount must have been used for payroll). No collateral or personal guarantees are required. Neither the government nor lenders will charge any fees.
Forgiveness is based on the employer maintaining or quickly rehiring employees and maintaining salary levels. Forgiveness will be reduced if full-time headcount declines, or if salaries and wages decrease.
Loans are guaranteed by the United States Treasury Department.
The Company has approved approximately 720 PPP loan applications from new and existing clients, totaling over $370.0 million.
The Company is not acting as an agent but will be receiving the full fee provided by the SBA for making these types of loans.
Goodwill
The company completed an impairment analysis of Goodwill as of March 31, 2020 and has determined there was no impairment.
As part of the Company’s assessment of goodwill impairment, management considered coronavirusCOVID-19 and determined that the significant change in the general economic environment and financial markets represents an interim impairment indicator that will require continued evaluation. As a result, there is a reasonable possibility that goodwill impairment could occur in the near term.
20
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following is a discussion of our financial condition at March 31, 2020June 30, 2023 and December 31, 20192022 and our results of operations for the three and six months ended March 31, 2020June 30, 2023 and 2019,2022, and should be read in conjunction with our audited consolidated financial statements set forth in our Annual Report on Form10-K for the year ended December 31, 20192022 that was filed with the Securities and Exchange Commission (the “SEC”) on April 14, 2020March 24, 2023 (our “Annual Report”) and with the accompanying unaudited notes to consolidated financial statements set forth in this Quarterly Report on Form10-Q for the quarterly period ended March 31, 2020June 30, 2023 (this “Report”). Because we conduct all of our material business operations through our bank subsidiary, California Bank of Commerce, the discussion and analysis relates to activities primarily conducted by the Bank.
Forward Looking Statements
Statements contained in this Report that are not historical facts or that discuss our expectations, beliefs or views regarding future events, such as our future operations or future financial performance, or financial or other trends in our business or in the markets in which we operate, and our future plans constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. Often, they include words such as “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate,” “project,” “forecast,” or words of similar meaning, or future or conditional verbs such as “will,” “would,” “should,” “could,” or “may.” The information contained in such forward-looking statements is based on current information available to us and on assumptions that we make about future economic and market conditions and other events over which we do not have control. In addition, our business and the markets in which we operate are subject to a number of risks and uncertainties. Such risks and uncertainties, and the occurrence of events in the future or changes in circumstances that had not been anticipated, could cause our financial condition or actual operating results in the future to differ materially from our expected financial condition or operating results that are set forth in the forward-looking statements contained in this Report and could, therefore, also affect the price performance of our shares.
In addition to the risk of incurring loan losses and provision for loancredit losses, which is an inherent risk of the banking business, these risks and uncertainties include, but are not limited to, the following: deteriorating economic conditions and macroeconomic factors such as unemployment rates and the volume of bankruptcies, as well as changes in monetary, fiscal or tax policy, to address the impact of COVID-19, any of which could cause us to incur additional loan losses and adversely affect our results of operations in the future; the risk that the credit quality of our borrowers declines; potential declines in the value of the collateral for secured loans; the risk of a recession in the United States economy, and domestic or international economic conditions, which could cause us to incur additional loancredit losses and adversely affect our results of operations in the future; the risk that our interest margins and, therefore, our net interest income will be adversely affected by changes in prevailing interest rates;rates, which may adversely affect our interest margins, net interest income and the value of our investment securities; the risk that we will not be able to manage our liquidity, interest rate or operational risks effectively, in which event our operating results or financial condition could be harmed; risks associated with seeking new client relationships and maintaining existing client relationships; the impacts of inflation; and the prospect of changes in government regulation of banking and other financial services organizations, which could impact our costs of doing business and restrict our ability to take advantage of business and growth opportunities. Many of the foregoing risks and uncertainties are, and will be, exacerbated by the COVID-19 pandemic and any worsening of the global business and economic environment as a result. Readers of this Report are encouraged to review the additional information regarding these and other risks and uncertainties to which our business is subject that is contained in Part I, Item 1A of our Annual Report and in Part II, Item 1A of this Report, as such information may be updated from time to time in subsequent Quarterly Reports on Form 10-Q thatfilings we filemay make with the SEC. We urge you to read those risk factors in conjunction with your review of the following discussion and analysis of our results of operations for the three and six months ended, and our financial condition at, March 31, 2020.June 30, 2023.
Due to the risks and uncertainties we face, readers are cautioned not to place undue reliance on the forward-looking statements contained in this Report, which speak only as of the date of this Report, or to make predictions about future performance based solely on historical financial performance. We also disclaim any obligation to update forward-looking statements contained in this Report as a result of new information, future events or otherwise, except as may otherwise be required by law.
28
Overview
California BanCorp (the “Company”“Company,” “we” or “us”), a California corporation headquartered in Oakland, California, is the bank holding company for its wholly-owned subsidiary California Bank of Commerce (the “Bank”). The Bank conducts its business from its headquarters in Lafayette, California. The Company has 2a full service branchesbranch in California located in Contra Costa County and Santa Clara County and 34 loan production offices in California located in Alameda County, Contra Costa County, Sacramento County, and SacramentoSanta Clara County.
Selected Financial Data
The following tables set forth the Company’s selected historical consolidated financial data for the periods and as of the dates indicated. You should read this information together with the Company’s audited consolidated financial statements included in our Annual Report and the unaudited consolidated financial statements and related notes included elsewhere in this Report. The selected historical consolidated financial data as of and for the three months ended March 31, 2020 and 2019 are derived from our unaudited consolidated financial statements, which are included elsewhere in this Quarterly Report on Form10-Q. The Company’s historical results for any prior period are not necessarily indicative of future performance.
21
Three months ended March 31, | ||||||||
(Dollars in thousands, except per share data) | 2020 | 2019 | ||||||
Income Statement Data: | ||||||||
Interest income | $ | 12,303 | $ | 11,494 | ||||
Interest expense | 2,121 | 1,657 | ||||||
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Net interest income | 10,182 | 9,837 | ||||||
Provision for credit losses | 400 | 581 | ||||||
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Net interest income after provision for credit losses | 9,782 | 9,256 | ||||||
Other income | 1,290 | 863 | ||||||
Other expenses | 10,407 | 7,615 | ||||||
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Income before taxes | 665 | 2,504 | ||||||
Income taxes | 192 | 636 | ||||||
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Net income | $ | 473 | $ | 1,868 | ||||
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Per Share Data: | ||||||||
Basic earnings per share | $ | 0.06 | $ | 0.23 | ||||
Diluted earnings per share | $ | 0.06 | $ | 0.23 | ||||
Performance Measures: | ||||||||
Return on average assets | 0.16 | % | 0.76 | % | ||||
Return on average equity | 1.45 | % | 6.18 | % | ||||
Net interest margin | 3.80 | % | 4.26 | % | ||||
Efficiency ratio | 90.72 | % | 71.17 | % | ||||
(Dollars in thousands) | March 31, 2020 | December 31, 2019 | ||||||
Balance Sheet Data: | ||||||||
Assets | $ | 1,207,482 | $ | 1,152,034 | ||||
Loans, net | $ | 960,282 | $ | 941,132 | ||||
Deposits | $ | 1,028,861 | $ | 988,236 | ||||
Shareholders’ equity | $ | 131,193 | $ | 130,256 | ||||
Asset Quality Data: | ||||||||
Allowance for loan losses / gross loans | 1.19 | % | 1.17 | % | ||||
Allowance for loan losses / nonperforming loans | 436.42 | % | 402.29 | % | ||||
Nonperforming assets / total assets | 0.22 | % | 0.24 | % | ||||
Nonperforming loans / gross loans | 0.27 | % | 0.29 | % | ||||
Capital Adequacy Measures (Bank): | ||||||||
Tier I leverage ratio | 11.36 | % | 10.44 | % | ||||
Tier I risk-based capital ratio | 11.33 | % | 10.38 | % | ||||
Total risk-based capital ratio | 12.77 | % | 11.79 | % |
Critical Accounting Policies
Our unaudited consolidated financial statements are prepared in accordance with GAAP and with general practices within the financial services industry. Application of these principles requires management to make complex and subjective estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under current circumstances. These assumptions form the basis for our judgments about the carrying values of assets and liabilities that are not readily available from independent, objective sources. We evaluate our estimates on an ongoing basis. Use of alternative assumptions may have resulted in significantly different estimates. Actual results may differ from these estimates.
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Our most significant accounting policies are described in Note 1 to our audited financial statements for the year ended December 31, 2019,2022, included in our Annual Report on Form10-K and in Note 1 to our unaudited financial statements, which are included elsewhere in this Quarterly Report onForm 10-Q.
COVID-19
TheCOVID-19 pandemic has caused a substantial disruption to the economy, as well as a heightened level of uncertainty about the scope and longevity of its impact. In response to the pandemic, we have implemented a multi-pronged approach to address the challenges caused by the effects of this pandemic. Our approach includes ensuring the safety of our employees and the communities that we serve and developing new and temporarily revised programs that are responsive to the needs of our loan and deposit customers. As we continue to closely monitorCOVID-19 developments, we remain focused on our ability to navigate these challenging conditions and the underlying strength and stability of our Company. For information regarding the specific business impact to the Company regardingCOVID-19, see Note 7 of the unaudited consolidated financial statements, which are included elsewhere in this Quarterly Report on Form10-Q.
Results of Operations:Operations – Three Months Ended June 30, 2023 and 2022:
Overview
For the three months ended March 31, 2020,June 30, 2023 and June 30, 2022, net income was $473,000 compared$5.4 million and $4.2 million, respectively, representing an increase of $1.2 million, or 28%. Compared to $1.9 million for the same period last year. Theyear, net interest income after the provision for credit losses increased by $2.9 million, which was offset by a decrease in non-interest income of $1.4 million, or 75%, was primarily attributable to$259,000, an increase in operating expensesnon-interest expense of $2.8 million, or 37%, partially offset by$784,000 and an increase in in net interest income of $345,000, or 4%, an increase innon-interest income of $427,000 or 49%, and a reduction ofthe provision for income taxes of $444,000, or 70%.$665,000.
Net Interest Income and Margin
Net interest income, the difference between interest earned on loans and investments and interest paid on deposits and borrowings, is the principal component of the Company’s earnings. Net interest income is affected by changes in the nature and volume of earning assets and interest-bearing liabilities held during the quarter, as well as the rates earned on such assets and the rates paid on interest bearing liabilities.
Net interest income for the three months ended March 31, 2020,June 30, 2023, was $10.2$18.6 million, an increase of $345,000,$2.4 million, or 4% over $9.815% from $16.2 million for the same period in 2019.2022. The increase in net interest income was primarily dueattributable to growth in averagethe rising interest rate environment combined with a more favorable mix of higher yielding earning assets offset, in part, by lower average yields.an increase in the cost of total deposits. Net interest margin increased by 28 basis points to 3.93% for the three months ended June 30, 2023, compared to 3.65% for the three months ended June 30, 2022.
Average total interest-earning assets increased by $140.5 million, or 15% to $1.08were $1.90 billion in the firstsecond quarter of 2020 from $936.9 million2023 compared to $1.78 billion for the same period during 2019.2022. The increase in total interest-earning assets was primarily due to growth of the loan portfolio. For the three months ended March 31, 2020, growth in average deposits outpaced growth in average loans when compared to the same period of 2019 as the Company worked to strengthen liquidity. Average deposit balances for the three months ended March 31, 2020 grew $145.3 million, or 17%, from the quarter ended March 31, 2019, while average loans grew $93.0 million, or 11%, for the same period. As a result, the average loan to deposit ratio for the first quarter of 2020 was 95.2% down from 100.5% for the first quarter of 2019 andJune 30, 2023, the yield on average earning assets decreased 39increased 175 basis points to 4.59%5.73% from 4.98%.
In addition,3.98% for the averagequarter ended June 30, 2022. The yield on total average gross loans in the three months ended March 31, 2020June 30, 2023 was 4.98%5.97%, a decreaserepresenting an increase of 19151 basis points compared to 5.17%4.46% in the same period one year earlier. For the three months ended June 30, 2023 compared to the same period in 2022, the yield on average federal funds sold increased 449 basis points to 5.26% from 0.77%, and the yield on average investment securities increased 121 basis points to 3.83% from 2.62%.
For the three months ended June 30, 2023, average loans increased $112.6 million, or 8%, from the quarter ended June 30, 2022 while average interest-bearing deposit balances increased $132.9 million, or 16%, from the same quarter in the prior year. Average non-interest bearing deposits for the second quarter of 2023 decreased $16.3 million, or 2%, from the same period in the prior year. The average loan to deposit ratio for the second quarter of 2023 was 93.68% compared to 93.46% for the second quarter of 2022.
29
Of the $145.3$112.6 million increase in average totalloan balances year over year, average commercial and real estate loans increased by $50.8 million and $85.6 million, respectively, as a result of organic growth. These increases were offset by a decrease in average SBA loans of $21.4 million primarily due to PPP loan forgiveness and a decrease in other loans of $2.4 million.
Of the $132.9 million increase in average interest-bearing deposit balances year over year, $42.9$172.4 million was attributable to noninterest-bearingtime deposits, offset by a decrease in money market and $102.4savings accounts of $27.5 million, was attributable to interest-bearing deposits.and a decrease in demand accounts of $12.0 million. The cost of interest-bearing deposits was 1.28%3.11% during the quarter ended March 31, 2020June 30, 2023 compared to 1.20%0.38% in the same quarter one year earlier. In addition, the overall cost of average total deposit balances increased by 7158 basis points to 0.80%1.78% in the firstsecond quarter of 20202023 compared to 0.73%0.20% in the firstsecond quarter of 2019.2022.
As a result, the net interest margin decreased by 46 basis points to 3.80% for the three months ended March 31, 2020, compared to 4.26% for the three months ended March 31, 2019.
23
The following table shows the composition of average earning assets and average funding sources, average yields and rates, and the net interest margin for the quarters ended March 31, 2020June 30, 2023 and 2019.2022.
Three months ended March 31, | Three months ended June 30, | |||||||||||||||||||||||||||||||||||||||||||||||
(Dollars in thousands) | 2020 | 2019 | ||||||||||||||||||||||||||||||||||||||||||||||
2023 | 2022 | |||||||||||||||||||||||||||||||||||||||||||||||
Average Balance | Yields or Rates | Interest Income/ Expense | Average Balance | Yields or Rates | Interest Income/ Expense | Average Balance | Yields or Rates | Interest Income/ Expense | Average Balance | Yields or Rates | Interest Income/ Expense | |||||||||||||||||||||||||||||||||||||
ASSETS | ||||||||||||||||||||||||||||||||||||||||||||||||
Interest earning assets: | ||||||||||||||||||||||||||||||||||||||||||||||||
Loans (1) | $ | 952,303 | 4.98 | % | $ | 11,783 | $ | 859,326 | 5.17 | % | $ | 10,954 | $ | 1,577,529 | 5.97 | % | $ | 23,476 | $ | 1,464,922 | 4.46 | % | $ | 16,298 | ||||||||||||||||||||||||
Federal funds sold | 96,834 | 1.37 | % | 329 | 34,883 | 2.43 | % | 209 | 170,608 | 5.26 | % | 2,238 | 145,329 | 0.77 | % | 280 | ||||||||||||||||||||||||||||||||
Investment securities | 28,294 | 2.72 | % | 191 | 42,719 | 3.14 | % | 331 | 152,781 | 3.83 | % | 1,458 | 172,766 | 2.62 | % | 1,128 | ||||||||||||||||||||||||||||||||
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Total interest earning assets | 1,077,431 | 4.59 | % | 12,303 | 936,928 | 4.98 | % | 11,494 | 1,900,918 | 5.73 | % | 27,172 | 1,783,017 | 3.98 | % | 17,706 | ||||||||||||||||||||||||||||||||
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Noninterest-earning assets: | ||||||||||||||||||||||||||||||||||||||||||||||||
Cash and due from banks | 21,729 | 17,124 | 19,207 | 19,735 | ||||||||||||||||||||||||||||||||||||||||||||
All other assets (2) | 68,643 | 41,310 | 63,752 | 61,444 | ||||||||||||||||||||||||||||||||||||||||||||
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TOTAL | $ | 1,167,803 | $ | 995,362 | $ | 1,983,877 | $ | 1,864,196 | ||||||||||||||||||||||||||||||||||||||||
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LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||||||||||||||||||||||||||||||||||||||
Interest-bearing liabilities: | ||||||||||||||||||||||||||||||||||||||||||||||||
Deposits: | ||||||||||||||||||||||||||||||||||||||||||||||||
Demand | $ | 23,747 | 0.12 | % | $ | 7 | $ | 26,405 | 0.09 | % | $ | 6 | $ | 30,346 | 0.16 | % | 12 | $ | 42,380 | 0.08 | % | $ | 8 | |||||||||||||||||||||||||
Money market and savings | 476,493 | 1.19 | % | 1,412 | 399,753 | 1.07 | % | 1,053 | 609,200 | 2.50 | % | 3,793 | 636,692 | 0.37 | % | 582 | ||||||||||||||||||||||||||||||||
Time | 124,705 | 1.85 | % | 575 | 96,382 | 2.04 | % | 484 | 326,291 | 4.53 | % | 3,688 | 153,859 | 0.54 | % | 206 | ||||||||||||||||||||||||||||||||
Other | 15,070 | 3.39 | % | 127 | 10,744 | 4.30 | % | 114 | 90,188 | 4.59 | % | 1,033 | 119,970 | 2.30 | % | 687 | ||||||||||||||||||||||||||||||||
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Total interest-bearing liabilities | 640,015 | 1.33 | % | 2,121 | 533,284 | 1.26 | % | 1,657 | 1,056,025 | 3.24 | % | 8,526 | 952,901 | 0.62 | % | 1,483 | ||||||||||||||||||||||||||||||||
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Noninterest-bearing liabilities: | ||||||||||||||||||||||||||||||||||||||||||||||||
Demand deposits | 375,039 | 332,114 | 718,171 | 734,481 | ||||||||||||||||||||||||||||||||||||||||||||
Accrued expenses and other liabilities | 21,406 | 7,298 | 26,441 | 19,139 | ||||||||||||||||||||||||||||||||||||||||||||
Shareholders’ equity | 131,343 | 122,666 | 183,240 | 157,675 | ||||||||||||||||||||||||||||||||||||||||||||
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TOTAL | $ | 1,167,803 | $ | 995,362 | $ | 1,983,877 | $ | 1,864,196 | ||||||||||||||||||||||||||||||||||||||||
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Net interest income and margin (3) | 3.80 | % | $ | 10,182 | 4.26 | % | $ | 9,837 | 3.93 | % | $ | 18,646 | 3.65 | % | $ | 16,223 | ||||||||||||||||||||||||||||||||
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(1) | Nonperforming loans are included in average loan balances. No adjustment has been made for these loans in the calculation of yields. Interest income on loans includes amortization of net deferred loan |
(2) | Other noninterest-earning assets includes the allowance for credit losses of |
(3) | Net interest margin is net interest income divided by total interest-earning assets. |
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The following table shows the effect of the interest differential of volume and rate changes for the quarters ended March 31, 2020June 30, 2023 and 2019.2022. The change in interest due to both rate and volume has been allocated in proportion to the relationship of absolute dollar amounts of change in each.
Three Months Ended June 30, | ||||||||||||
2023 vs. 2022 | ||||||||||||
Increase (Decrease) Due to | ||||||||||||
Change in: | ||||||||||||
Average | Average | Net | ||||||||||
(Dollars in thousands) | Volume | Rate | Change | |||||||||
Interest income: | ||||||||||||
Loans | $ | 1,676 | $ | 5,502 | $ | 7,178 | ||||||
Federal funds sold | 332 | 1,626 | 1,958 | |||||||||
Investment securities | (191 | ) | 521 | 330 | ||||||||
Interest expense: | ||||||||||||
Deposits | ||||||||||||
Demand | (5 | ) | 9 | 4 | ||||||||
Money market and savings | (171 | ) | 3,382 | 3,211 | ||||||||
Time | 1,949 | 1,533 | 3,482 | |||||||||
Other borrowings | (341 | ) | 687 | 346 | ||||||||
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Net interest income | $ | 385 | $ | 2,038 | $ | 2,423 | ||||||
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Three Months Ended March, 31 2020 vs. 2019 | ||||||||||||
Increase (Decrease) Due to Change in: | ||||||||||||
(Dollars in thousands) | Average Volume | Average Rate | Net Change | |||||||||
Interest income: | ||||||||||||
Loans | $ | 1,022 | $ | (193 | ) | $ | 829 | |||||
Federal funds sold | 218 | (98 | ) | 120 | ||||||||
Investment securities | (98 | ) | (42 | ) | (140 | ) | ||||||
Interest expense: | ||||||||||||
Deposits | ||||||||||||
Demand | (1 | ) | 2 | 1 | ||||||||
Money market and savings | 225 | 134 | 359 | |||||||||
Time | 136 | (45 | ) | 91 | ||||||||
Other borrowings | 37 | (24 | ) | 13 | ||||||||
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Net interest income | $ | 745 | $ | (400 | ) | $ | 345 | |||||
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Interest Income
Interest income increased by $809,000$9.5 million in the firstsecond quarter of 20202023 compared to the same period of 2019,2022, primarily due to volume growth in average earning assets, and in particular an increase in the prime rate which generated higher yields on our loan portfolio combined with PPP loans that were forgiven by the SBA being replaced with higher yielding commercial and real estate other loans, partially offset by a decrease in amortization of net fees collected on PPP loans. The increase in interestprime rate at June 30, 2023 and June 30, 2022 was 8.25% and 4.75%, respectively. Interest earned on our loan portfolio of $829,000$23.5 million in the firstsecond quarter of 20202023 represented an increase of $7.2 million, or 44%, compared to $16.3 million for the firstsecond quarter of 2019 was comprised2022.
Additionally, the Company benefited from a more favorable mix of $1.0other earning assets. Interest earned on federal funds sold of $2.2 million attributablefor the three months ended June 30, 2023 compared to an approximate $93.0 million increase in average loans outstanding, offset by approximately $193,000 attributable to$280,000 for the decreasesame period in the yieldprior year. Interest earned on loansinvestment securities of $1.5 million for the three months ended June 30, 2023 compared to 4.98% from 5.17%.$1.1 million for the three months ended June 30, 2022.
Interest Expense
Interest expense increased by $464,000$7.1 million in the firstsecond quarter of 20202023 compared to the same period of 2019,2022, primarily due to the effect of increased rates paid on interest-bearing deposits and the overall growth in the volumeother borrowings, combined with a higher level of average interest-bearing deposits and borrowings to fund earning asset growth.deposits. The average rate paid on interest-bearing liabilities in the firstsecond quarter of 20202023 compared to the same period one year earlier increased 7262 basis pointspoint to 1.33%3.24% from 1.26%0.62%.
Provision for Credit Losses
We made provisionsThe provision for loancredit losses of $400,000 and $581,000$444,000 for the three months ended MarchJune 30, 2023 was comprised of $340,000 pertaining to the ACL on loans and $156,000 pertaining to the ACL for unfunded loan commitments, partially offset by a release of reserves pertaining to the ACL for held to maturity securities of $52,000.
The provision for credit losses on loans of $444,000 for the second quarter of 2023 compared to a provision for loan losses of $925,000 for the second quarter of 2022. The Company had no loan charge-offs or recoveries during the second quarters of 2023 and 2022. The allowance for credit losses on loans as a percentage of outstanding loans was 0.99% at June 30, 2023 and 1.07% at December 31, 20202022. On January 1, 2023, the Company adopted the current expected losses (CECL) accounting standard (ASC 326). The Company’s allowance for credit losses on loans was 0.95% upon adoption of the standard on January 1, 2023.
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Non-interest Income
The following table reflects the major components of the Company’s non-interest income for the three months ended June 30, 2023 and 2019,2022.
Three Months Ended June 30, | Increase (Decrease) | |||||||||||||||
(Dollars in thousands) | 2023 | 2022 | Amount | Percent | ||||||||||||
Service charges and other fees | $ | 867 | $ | 1,134 | $ | (267 | ) | -24 | % | |||||||
Gain on sale of loans | — | — | — | 0 | % | |||||||||||
Earnings on BOLI | 177 | 165 | 12 | 7 | % | |||||||||||
Other | 91 | 95 | (4 | ) | -4 | % | ||||||||||
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Total non-interest income | $ | 1,135 | $ | 1,394 | $ | (259 | ) | -19 | % | |||||||
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Non-interest income decreased by $259,000, or 19% in the second quarter of 2023, compared to the second quarter of 2022. The decrease was primarily due to a decrease in service charges and other fee income related to fewer prepayment penalties assessed on loans.
Non-interest Expense
The following table reflects the major components of the Company’s non-interest expense for the three months ended June 30, 2023 and 2022.
Three Months Ended June 30, | Increase (Decrease) | |||||||||||||||
(Dollars in thousands) | 2023 | 2022 | Amount | Percent | ||||||||||||
Salaries and benefits | $ | 7,831 | $ | 7,146 | $ | 685 | 10 | % | ||||||||
Premises and equipment | 1,168 | 1,267 | (99 | ) | -8 | % | ||||||||||
Professional fees | 470 | 547 | (77 | ) | -14 | % | ||||||||||
Data processing | 701 | 599 | 102 | 17 | % | |||||||||||
Other | 1,433 | 1,260 | 173 | 14 | % | |||||||||||
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|
|
|
|
|
|
| |||||||||
Total non-interest expense | $ | 11,603 | $ | 10,819 | $ | 784 | 7 | % | ||||||||
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|
|
|
|
|
|
Non-interest expense was $11.6 million and $10.8 million for the three months ended June 30, 2023 and 2022, respectively. We recordedExcluding capitalized loan origination costs, non-interest expense for the second quarter of 2023 was $12.3 million compared to $11.9 million for the second quarter of 2022, representing an increase of $405,000, or 3%. The increase in non-interest expense, excluding capitalized origination costs, from the second quarter of 2022 was primarily due to an increase in salaries and benefits related to investments to support the continued growth of the business.
For the three months ended June 30, 2023 and 2022, the Company’s efficiency ratio, the ratio of non-interest expense to revenues, was 58.66% and 61.41%, respectively.
Provision for Income Taxes
Income tax expense was $2.3 million for the second quarter of 2023 compared to $1.6 million for the same period in prior year. The effective tax rates for those time periods were 29.7% and 27.7%, respectively.
32
Results of Operations – Six Months Ended June 30, 2023 and 2022:
Overview
For the six months ended June 30, 2023 and June 30, 2022, net income was $10.9 million and $7.9 million, respectively, representing an increase of $3.0 million, or 38%. Compared to the same period last year, net interest income after the provision for credit losses increased by $7.7 million, which was offset by a decrease in non-interest income of $1.7 million, an increase in non-interest expense of $1.7 million and an increase in the provision for income taxes of $1.3 million.
Net Interest Income and Margin
Net interest income for the six months ended June 30, 2023, was $37.4 million, an increase of $6.7 million, or 22% from $30.7 million for the same period in 2022. The increase in net interest income was primarily attributable to the rising interest rate environment combined with a more favorable mix of higher yielding earning assets offset, in part, by an increase in the cost of total deposits. Net interest margin increased by 56 basis points to 3.98% for the six months ended June 30, 2023, compared to 3.42% for the six months ended June 30, 2022.
Average total interest-earning assets were $1.90 billion in the six months ended June 30, 2023 compared to $1.81 billion for the same period during 2022. The increase in total interest-earning assets was primarily due to growth of the loan portfolio. For the six months ended June 30, 2023, the yield on average earning assets increased 186 basis points to 5.60% from 3.74% for the six months ended June 30, 2022. The yield on total average gross loans for the six months ended June 30, 2023 was 5.86%, representing an increase of 143 basis points compared to 4.43% in the same period one year earlier. For the six months ended June 30, 2023 compared to the same period in 2022, the yield on federal funds sold increased 458 basis points to 4.92 % from 0.34%, and the yield on average investment securities increased 92 basis points to 3.63% from 2.71%.
For the six months ended June 30, 2023, average loans increased $161.6 million, or 11%, from the six months ended June 30, 2022 while average interest-bearing deposit balances increased $96.8 million, or 11%, from the same period in the prior year. Average non-interest bearing deposits for the first six months of 2023 decreased $14.4 million, or 2%, from the same period in the prior year. The average loan to deposit ratio for the six months ended June 30, 2023 was 93.38% compared to 88.12% for the six months ended June 30, 2022.
Of the $161.6 million increase in average loan balances year over year, average commercial and real estate loans increased by $100.3 million and $119.9 million, respectively, as a result of organic growth. These increases were offset by a decrease in average SBA loans of $38.1 million primarily due to PPP loan forgiveness and a decrease in other loans of $20.5 million primarily due to the sale of a portion of our solar loan portfolio.
Of the $96.8 million increase in average interest-bearing deposit balances year over year, $166.7 million was attributable to time deposits, offset by a decrease in money market and savings accounts of $61.8 million, and a decrease in demand accounts of $8.1 million. The cost of interest-bearing deposits was 2.81% during the six months ended June 30, 2023 compared to 0.37% for the same period one year earlier. In addition, the overall cost of average total deposit balances increased by 141 basis points to 1.61% during the six months ended June 30, 2023 compared to 0.20% during the six months ended June 30, 2022.
33
The following table shows the composition of average earning assets and average funding sources, average yields and rates, and the net interest margin for the six months ended June 30, 2023 and 2022.
Six months ended June 30, | ||||||||||||||||||||||||
2023 | 2022 | |||||||||||||||||||||||
Average Balance | Yields or Rates | Interest Income/ Expense | Average Balance | Yields or Rates | Interest Income/ Expense | |||||||||||||||||||
ASSETS | ||||||||||||||||||||||||
Interest earning assets: | ||||||||||||||||||||||||
Loans (1) | $ | 1,579,917 | 5.86 | % | $ | 45,948 | $ | 1,418,314 | 4.43 | % | $ | 31,184 | ||||||||||||
Federal funds sold | 163,812 | 4.92 | % | 3,998 | 244,809 | 0.34 | % | 416 | ||||||||||||||||
Investment securities | 153,719 | 3.63 | % | 2,765 | 151,324 | 2.71 | % | 2,030 | ||||||||||||||||
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|
|
|
|
|
|
|
|
|
| |||||||||||||
Total interest earning assets | 1,897,448 | 5.60 | % | 52,711 | 1,814,447 | 3.74 | % | 33,630 | ||||||||||||||||
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|
|
|
|
|
|
|
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|
| |||||||||||||
Noninterest-earning assets: | ||||||||||||||||||||||||
Cash and due from banks | 18,656 | 19,244 | ||||||||||||||||||||||
All other assets (2) | 63,003 | 62,500 | ||||||||||||||||||||||
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| |||||||||||||||||||||
TOTAL | $ | 1,979,107 | $ | 1,896,191 | ||||||||||||||||||||
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|
|
| |||||||||||||||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||||||||||||||
Interest-bearing liabilities: | ||||||||||||||||||||||||
Deposits: | ||||||||||||||||||||||||
Demand | $ | 32,179 | 0.12 | % | 19 | $ | 40,300 | 0.09 | % | 17 | ||||||||||||||
Money market and savings | 617,885 | 2.25 | % | 6,897 | 679,662 | 0.37 | % | 1,247 | ||||||||||||||||
Time | 318,313 | 4.18 | % | 6,599 | 151,588 | 0.45 | % | 338 | ||||||||||||||||
Other | 80,701 | 4.48 | % | 1,793 | 110,370 | 2.34 | % | 1,279 | ||||||||||||||||
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|
|
|
|
|
|
|
|
|
| |||||||||||||
Total interest-bearing liabilities | 1,049,078 | 2.94 | % | 15,308 | 981,920 | 0.59 | % | 2,881 | ||||||||||||||||
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|
|
|
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|
| |||||||||||||
Noninterest-bearing liabilities: | ||||||||||||||||||||||||
Demand deposits | 723,548 | 737,928 | ||||||||||||||||||||||
Accrued expenses and other liabilities | 26,383 | 20,724 | ||||||||||||||||||||||
Shareholders’ equity | 180,098 | 155,619 | ||||||||||||||||||||||
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|
| |||||||||||||||||||||
TOTAL | $ | 1,979,107 | $ | 1,896,191 | ||||||||||||||||||||
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|
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|
|
| |||||||||||||
Net interest income and margin (3) | 3.98 | % | $ | 37,403 | 3.42 | % | $ | 30,749 | ||||||||||||||||
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|
|
|
(1) | Nonperforming loans are included in average loan balances. No adjustment has been made for these loans in the calculation of yields. Interest income on loans includes amortization of net deferred loan (costs) fees of $(401,000) and $402,000, respectively. |
(2) | Other noninterest-earning assets includes the allowance for credit losses of $16.2 million and $14.6 million, respectively. |
(3) | Net interest margin is net interest income divided by total interest-earning assets. |
34
The following table shows the effect of the interest differential of volume and rate changes for the six months ended June 30, 2023 and 2022. The change in interest due to both rate and volume has been allocated in proportion to the relationship of absolute dollar amounts of change in each.
Six Months Ended June 30, | ||||||||||||
2023 vs. 2022 | ||||||||||||
Increase (Decrease) Due to | ||||||||||||
Change in: | ||||||||||||
Average | Average | Net | ||||||||||
(Dollars in thousands) | Volume | Rate | Change | |||||||||
Interest income: | ||||||||||||
Loans | $ | 4,700 | $ | 10,064 | $ | 14,764 | ||||||
Federal funds sold | (1,977 | ) | 5,559 | 3,582 | ||||||||
Investment securities | 43 | 692 | 735 | |||||||||
Interest expense: | ||||||||||||
Deposits | ||||||||||||
Demand | (5 | ) | 7 | 2 | ||||||||
Money market and savings | (690 | ) | 6,340 | 5,650 | ||||||||
Time | 3,456 | 2,805 | 6,261 | |||||||||
Other borrowings | (659 | ) | 1,173 | 514 | ||||||||
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|
|
|
|
| |||||||
Net interest income | $ | 664 | $ | 5,990 | $ | 6,654 | ||||||
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|
|
|
|
|
Interest Income
Interest income increased by $19.1 million for the six months ended June 30, 2023 compared to the same period of 2022, primarily due to an increase in the prime rate which generated higher yields on our loan portfolio combined with PPP loans that were forgiven by the SBA being replaced with higher yielding commercial and real estate other loans, partially offset by a decrease in amortization of net fees collected on PPP loans. The prime rate at June 30, 2023 and June 30, 2022 was 8.25% and 4.75%, respectively. The average prime rate for the six months ended June 30, 2023 and 2022 was 7.92% and 3.62%, respectively. Interest earned on our loan portfolio of $45.9 million for the six months ended June 30, 2023 represented an increase of $14.7 million, or 47%, compared to $31.2 million for the same period in 2022.
Additionally, the Company benefited from a more favorable mix of other earning assets. Interest earned on federal funds sold of $4.0 million for the six months ended June 30, 2023 compared to $416,000 for the same period in the prior year. Interest earned on investment securities of $2.8 million for the six months ended June 30, 2023 compared to $2.0 million for the same period in the prior year.
Interest Expense
Interest expense increased by $12.4 million for the six months ended June 30, 2023 compared to the same period of 2022, primarily due to the effect of increased rates paid on interest-bearing deposits and other borrowings, combined with a higher level of interest-bearing deposits. The average rate paid on interest-bearing liabilities for the six months ended June 30, 2023 compared to the same period one year earlier increased 235 basis point to 2.94% from 0.59%.
Provision for Credit Losses
The provision for credit losses of $802,000 for the six months ended June 30, 2023 was comprised of $804,000 pertaining to the ACL on loans and $50,000 pertaining to the ACL for unfunded loan commitments, partially offset by a release of reserves pertaining to the ACL for held to maturity securities of $52,000.
The provision for credit losses on loans of $802,000 for the six months ended June 30, 2023 compared to a provision for loan losses of $1.9 million for the same period in the prior year. The Company had net loan charge-offs of $247,000 and net loan recoveries of $90,000 in$1,000 during the first quarter of 2020 compared to net charge-offs of $131,000 during the same period of 2019.half 2023 and 2022, respectively. The allowance for loan losscredit losses on loans as a percentpercentage of outstanding loans was 1.19%0.99% at MarchJune 30, 2023 and 1.07% at December 31, 2020 and 1.27% at March 31, 2019.2022. On January 1, 2023, the Company adopted the current expected losses (CECL) accounting standard (ASC 326). The decrease inCompany’s allowance for credit losses on loans was 0.95% upon adoption of the reserve percentage reflects the impact of enhancements to our qualitative methodology and highercharge-off activity in 2019. See further discussion in “Financial Condition – Allowance for Loan Losses”standard on January 1, 2023.
2535
Noninterest Income
The following table reflects the major components of the Company’s noninterest income.income for the six months ended June 30, 2023 and 2022.
Three Months Ended March 31, | Increase (Decrease) | Six Months Ended June 30, | Increase (Decrease) | |||||||||||||||||||||||||||||
(Dollars in thousands) | 2020 | 2019 | Amount | Percent | 2023 | 2022 | Amount | Percent | ||||||||||||||||||||||||
Service charges and other fees | $ | 970 | $ | 625 | $ | 345 | 55 | % | $ | 1,730 | $ | 2,023 | $ | (293 | ) | -14 | % | |||||||||||||||
Gain on sale of SBA loans | — | 23 | (23 | ) | -100 | % | — | 1,393 | (1,393 | ) | 100 | % | ||||||||||||||||||||
Earnings on BOLI | 153 | 105 | 48 | 46 | % | 349 | 330 | 19 | 6 | % | ||||||||||||||||||||||
Other | 167 | 110 | 57 | 52 | % | 163 | 182 | (19 | ) | -10 | % | |||||||||||||||||||||
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| |||||||||||||||||||||||||
Total noninterest income | $ | 1,290 | $ | 863 | $ | 427 | 49 | % | ||||||||||||||||||||||||
Total non-interest income | $ | 2,242 | $ | 3,928 | $ | (1,686 | ) | -43 | % | |||||||||||||||||||||||
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Noninterest income grewdecreased by $427,000$1.7 million, or 49% in43%, for the first quarter of 2020,six months ended June 30, 2023, compared to the first quartersix months ended of 2019.2022. The increasedecrease was primarily attributable to growtha gain of $1.4 million recognized on the sale of a portion of our solar loan portfolio in the prior year and a decrease of $293,000 pertaining to service charges and other fees related to growth in noninterest-bearing deposits and loans as well as an increase in earnings from bank-owned life insurance and other miscellaneous income.fees.
Noninterest Expense
The following table reflects the major components of the Company’s noninterest expense.expense for the six months ended June 30, 2023 and 2022.
Three Months Ended March 31, | Increase (Decrease) | Six Months Ended June 30, | Increase (Decrease) | |||||||||||||||||||||||||||||
(Dollars in thousands) | 2020 | 2019 | Amount | Percent | 2023 | 2022 | Amount | Percent | ||||||||||||||||||||||||
Salaries and benefits | $ | 6,477 | $ | 4,515 | $ | 1,962 | 43 | % | $ | 15,707 | $ | 14,239 | $ | 1,468 | 10 | % | ||||||||||||||||
Premises and equipment | 1,139 | 745 | 394 | 53 | % | 2,348 | 2,569 | (221 | ) | -9 | % | |||||||||||||||||||||
Professional fees | 955 | 358 | 597 | 167 | % | 920 | 1,139 | (219 | ) | -19 | % | |||||||||||||||||||||
Data processing | 526 | 419 | 107 | 26 | % | 1,309 | 1,207 | 102 | 8 | % | ||||||||||||||||||||||
Other | 1,310 | 1,578 | (268 | ) | -17 | % | 3,162 | 2,581 | 581 | 23 | % | |||||||||||||||||||||
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| |||||||||||||||||||||||||
Total noninterest expense | $ | 10,407 | $ | 7,615 | $ | 2,792 | 37 | % | ||||||||||||||||||||||||
Total non-interest expense | $ | 23,446 | $ | 21,735 | $ | 1,711 | 8 | % | ||||||||||||||||||||||||
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DuringNon-interest expense was $23.4 million and $21.7 million for the threesix months ended March 31, 2020,June 30, 2023 and 2022, respectively. Excluding capitalized loan origination costs, non-interest expenses increased by $2.8 million or 37% to $10.4 expense for the six months ended June 30, 2023 was $24.8 million compared to $7.6$23.8 million infor the same periodsix months ended June 30, 2022, representing an increase of 2019. Of this increase, $2.0$1.0 million, was in net salariesor 4%.
Salaries and benefits expense.for the six months ended June 30, 2023 were $15.7 million, representing an increase of $1.5 million, or 10%, compared to $14.2 million for the six months ended June 30, 2022. The increase in salaries and benefits expense was primarily the result of hiring key executivedue to an increase in salaries and staff positionsbenefits related to investments to support the Company’s expansion initiatives and continued growth as well as approximately $400,000 due to severance benefits related toof the departure of an executive.business combined with a reduction in capitalized loan origination costs.
Operating expenses forFor the threesix months ended March 31, 2020 also included increases in professionalJune 30, 2023 and legal fees related to implementation of FDICIA and SEC compliance controls and processes as well as the registration of2022, the Company’s common sharesefficiency ratio, the ratio of $597,000; occupancynon-interest expense to revenues, was 59.14% and equipment from the expansion of facilities of $394,000; and data processing costs related to enhancement of treasury management systems of $107,000.62.68%, respectively.
Provision for Income Taxes
Income tax expense was $192,000$4.5 million and $3.2 million for the first quarter of 2020 which compared to $636,000 for the same period one year earlier.six months ended June 30, 2023 and 2022. The effective tax rates for those time periods were 28.9%29.3% and 25.4%28.5%, respectively.
2636
Financial Condition:
Overview
Total assets of the Company were $1.21$2.01 billion as of March 31, 2020June 30, 2023 compared to $1.15$2.04 billion as of December 31, 2019.2022. The increasedecrease in total assets was driven by an increase in both the loan portfolio and federal funds sold. Growth in assetsfrom year-end was primarily funded bydue to slower loan growth inand decreased liquidity related to the seasonal outflow of deposits andthat occurs at the beginning of the year for many of our business clients combined with a reduction in other borrowings.
Loan Portfolio
Our loan portfolio consists almost entirely of loans to customers who have a full banking relationship with us. Gross loan balances increaseddecreased by $19.3$9.8 million, or 2%1%, from December 31, 20192022 to March 31, 2020. June 30, 2023 primarily due to a reduction in the commercial and industrial, construction and land, SBA and other loan portfolios, partially offset by an increase in real estate other loans due to organic growth.
The loan portfolio at March 31, 2020June 30, 2023 was comprised of approximately 43%39% of commercial and industrial loans compared to 41%40% at December 31, 2019.2022. In addition, commercial real estate loans comprised 55%58% of our loans at March 31, 2020 compared toJune 30, 2023 and 57% at December 31, 2019. A substantial percentage of the commercial real estate loans are considered owner-occupied loans.2022. Our loans are generated by our relationship managers and executives. Our senior management is actively involved in the lending, underwriting, and collateral valuation processes. Higher dollar loans or loan commitments are also approved through a bank loan committee comprised of executives and outside board members.
The following table reflects the composition of the Company’s loan portfolio and theirthe percentage distribution.distribution at June 30, 2023 and December 31, 2022.
(Dollars in thousands) | March 31, 2020 | December 31, 2019 | June 30, 2023 | December 31, 2022 | ||||||||||||
Commercial and industrial | 416,308 | 389,746 | $ | 622,270 | $ | 634,535 | ||||||||||
Real estate - other | 856,344 | 848,241 | ||||||||||||||
Real estate - construction and land | 41,697 | 42,519 | 60,595 | 63,730 | ||||||||||||
Real estate - other | 496,765 | 502,929 | ||||||||||||||
Real estate - HELOC | 995 | 982 | ||||||||||||||
Installment and other | 13,180 | 13,476 | ||||||||||||||
SBA | 4,936 | 7,220 | ||||||||||||||
Other | 39,486 | 39,695 | ||||||||||||||
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| |||||||||||||
Total loans, gross | 968,945 | 949,652 | 1,583,631 | 1,593,421 | ||||||||||||
Deferred loan origination costs, net | 2,902 | 2,555 | 1,637 | 2,040 | ||||||||||||
Allowance for loan losses | (11,565 | ) | (11,075 | ) | ||||||||||||
Allowance for credit losses | (15,722 | ) | (17,005 | ) | ||||||||||||
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| |||||||||||||
Total loans, net | 960,282 | 941,132 | $ | 1,569,546 | $ | 1,578,456 | ||||||||||
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| |||||||||||||
Commercial and industrial | 43 | % | 41 | % | 39 | % | 40 | % | ||||||||
Real estate - other | 54 | % | 53 | % | ||||||||||||
Real estate - construction and land | 4 | % | 4 | % | 4 | % | 4 | % | ||||||||
Real estate - other | 51 | % | 53 | % | ||||||||||||
Real estate - HELOC | 0 | % | 0 | % | ||||||||||||
Installment and other | 1 | % | 1 | % | ||||||||||||
SBA | 1 | % | 1 | % | ||||||||||||
Other | 2 | % | 2 | % | ||||||||||||
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| |||||||||||||
Total loans, gross | 100 | % | 100 | % | 100 | % | 100 | % | ||||||||
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|
|
37
The following table shows the maturity distribution for total loans outstanding as of March 31, 2020.June 30, 2023. The maturity distribution is grouped by remaining scheduled principal payments that are due within one year, after one but within five years, after five years but within fifteen years, or after fivefifteen years. The principal balances of loans are indicated by both fixed and variable rate categories.
Due in One Year Or Less | Over One Year But Less Than Five Years | Over Five Years | Total | Loans With | ||||||||||||||||||||||||||||||||||||||||
(Dollars in thousands) | Fixed Rates (1) | Variable Rates | Due in One Year Or Less | Over One Year But Less Than Five Years | Over Five Years But Less Than Fifteen Years | Over Fifteen Years | Total | |||||||||||||||||||||||||||||||||||||
Commercial and industrial | $ | 169,586 | $ | 86,299 | $ | 160,423 | $ | 416,308 | $ | 225,607 | $ | 190,701 | $ | 196,178 | $ | 310,765 | $ | 115,327 | $ | — | $ | 622,270 | ||||||||||||||||||||||
Real estate - other | 49,770 | 395,070 | 400,078 | 11,426 | 856,344 | |||||||||||||||||||||||||||||||||||||||
Real estate - construction and land | 27,976 | 5,262 | 8,459 | 41,697 | 8,485 | 33,212 | 50,543 | 9,032 | 1,020 | — | 60,595 | |||||||||||||||||||||||||||||||||
Real estate - other | 16,818 | 98,608 | 381,339 | 496,765 | 203,905 | 292,860 | ||||||||||||||||||||||||||||||||||||||
Real estate - HELOC | — | 500 | 495 | 995 | — | 995 | ||||||||||||||||||||||||||||||||||||||
Installment and other | 967 | 1,558 | 10,655 | 13,180 | 295 | 12,885 | ||||||||||||||||||||||||||||||||||||||
SBA | 461 | 888 | 2,768 | 819 | 4,936 | |||||||||||||||||||||||||||||||||||||||
Other | 2,811 | 1,879 | — | 34,796 | 39,486 | |||||||||||||||||||||||||||||||||||||||
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| ||||||||||||||||||||||||||||||||||
Total loans, gross | $ | 215,347 | $ | 192,227 | $ | 561,371 | $ | 968,945 | $ | 438,292 | $ | 530,653 | $ | 299,763 | $ | 717,634 | $ | 519,193 | $ | 47,041 | $ | 1,583,631 | ||||||||||||||||||||||
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Loans With | ||||||||||||
(Dollars in thousands) | Fixed Rates (1) | Variable Rates | Total | |||||||||
Commercial and industrial | $ | 175,481 | $ | 446,789 | $ | 622,270 | ||||||
Real estate - other | 570,935 | 285,409 | 856,344 | |||||||||
Real estate - construction and land | 3,584 | 57,011 | 60,595 | |||||||||
SBA | 402 | 4,534 | 4,936 | |||||||||
Other | 36,665 | 2,821 | 39,486 | |||||||||
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|
| |||||||
Total loans, gross | $ | 787,067 | $ | 796,564 | $ | 1,583,631 | ||||||
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|
|
(1) | Excludes variable rate loans on floors |
27
Nonperforming Assets
Nonperforming assets are comprised of loans on nonaccrual status, loans 90 days or more past due and still accruing interest, and other real estate owned. We had no loans 90 days or more past due and still accruing interest and no other real estate owned at March 31, 2020.June 30, 2023. A loan is placed on nonaccrual status if there is concern that principal and interest may not be fully collected or if the loan has been past due for a period of 90 days or more, unless the obligation is both well secured and in process of legal collection. When loans are placed on nonaccrual status, all interest previously accrued but not collected is reversed against current period interest income. Income on nonaccrual loans is subsequently recognized only to the extent that cash is received and the loan’s principal balance is deemed collectible. Loans are returned to accrual status when they are brought current with respect to principal and interest payments and future payments are reasonably assured. Loans in which the borrower is encountering financial difficulties and we have modified the terms of the original loan are evaluated for impairment and classified as TDR loans.
The following table presents information regarding the Company’s nonperforming and restructured loans.modified loans as of June 30, 2023 and December 31, 2022.
(Dollars in thousands) | March 31, 2020 | December 31, 2019 | June 30, 2023 | December 31, 2022 | ||||||||||||
Nonaccrual loans | $ | 2,650 | $ | 2,753 | $ | 181 | $ | 1,250 | ||||||||
Loans over 90 days past due and still accruing | — | — | — | — | ||||||||||||
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| |||||||||||||
Total nonperforming loans | 2,650 | 2,753 | 181 | 1,250 | ||||||||||||
Foreclosed assets | — | — | — | — | ||||||||||||
|
|
|
| |||||||||||||
Total nonperforming assets | $ | 2,650 | $ | 2,753 | $ | 181 | $ | 1,250 | ||||||||
|
|
|
| |||||||||||||
Performing TDR’s | $ | 624 | $ | 646 | ||||||||||||
Modified loans | $ | 51 | $ | — | ||||||||||||
|
|
|
| |||||||||||||
Nonperforming loans / gross loans | 0.01 | % | 0.08 | % | ||||||||||||
Allowance for credit losses / nonperforming loans | 8686.19 | % | 1360.40 | % |
38
Allowance for LoanCredit Losses
Effective January 1, 2023, the Company adopted the Current Expected Credit Losses (CECL) Methodology for estimating the allowance for credit losses. Our allowance for loancredit losses is maintained at a level management believes is adequate to account for probable incurredexpected credit losses in the loan portfolio as of the reporting date. We determine the allowance based on a quarterly evaluation of risk. That evaluation gives consideration to the nature of the loan portfolio, historical loss experience, known and inherent risks in the portfolio, the estimated value of any underlying collateral, adverse situations that may affect a borrower’s ability to repay, current economic and environmental conditions and risk assessments assigned to each loan as a result of our ongoing reviews of the loan portfolio. This process involves a considerable degree of judgment and subjectivity. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Bank’s allowance. Such agencies may require the Bank to recognize additions to the allowance based on judgments different from those of management.
Our allowance is established through charges to the provision for loancredit losses. Loans, or portions of loans, deemed to be uncollectible are charged against the allowance. Recoveries of previouslycharged-off amounts are credited to our allowance for loancredit losses. The allowance is decreased by the reversal of prior provisions when the total allowance balance is deemed excessive for the risks inherent in the portfolio. The allowance for loancredit losses balance is neither indicative of the specific amounts of future charge-offs that may occur, nor is it an indicator of any future loss trends.
28
The following table providestables provide information on the activity within the allowance for loancredit losses as of and for the periods indicated.
Commercial | Real Estate | |||||||||||||||||||||||||||||||||||||||||||||||
and | Real Estate | Construction | ||||||||||||||||||||||||||||||||||||||||||||||
(Dollars in thousands) | Commercial and Industrial | Real Estate Construction and Land | Real Estate Other | Real Estate HELOC | Installment and Other | Total | Industrial | Other | and Land | SBA | Other | Total | ||||||||||||||||||||||||||||||||||||
Three months ended March 31, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||
Three months ended June 30, 2023: | ||||||||||||||||||||||||||||||||||||||||||||||||
Beginning balance | $ | 10,719 | $ | 2,943 | $ | 743 | $ | 42 | $ | 935 | $ | 15,382 | ||||||||||||||||||||||||||||||||||||
Provision for credit losses | 84 | 27 | (6 | ) | (2 | ) | 237 | 340 | ||||||||||||||||||||||||||||||||||||||||
Charge-offs | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
Recoveries | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||
Ending balance | $ | 10,803 | $ | 2,970 | $ | 737 | $ | 40 | $ | 1,172 | $ | 15,722 | ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||
Alowance for credit losses / gross loans | 1.74 | % | 0.35 | % | 1.22 | % | 0.81 | % | 2.97 | % | 0.99 | % | ||||||||||||||||||||||||||||||||||||
Net recoveries (charge-offs) / gross loans | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | ||||||||||||||||||||||||||||||||||||
Three months ended June 30, 2022: | ||||||||||||||||||||||||||||||||||||||||||||||||
Beginning balance | $ | 6,708 | $ | 1,022 | $ | 3,281 | $ | 6 | $ | 58 | $ | 11,075 | $ | 8,876 | $ | 5,080 | $ | 783 | $ | 283 | $ | 10 | $ | 15,032 | ||||||||||||||||||||||||
Provision for loan losses | 1,045 | (292 | ) | (620 | ) | (1 | ) | 268 | 400 | 650 | 163 | 124 | (10 | ) | (2 | ) | 925 | |||||||||||||||||||||||||||||||
Charge-offs | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
Recoveries | 90 | — | — | — | — | 90 | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||
Ending balance | $ | 7,843 | $ | 730 | $ | 2,661 | $ | 5 | $ | 326 | $ | 11,565 | $ | 9,526 | $ | 5,243 | $ | 907 | $ | 273 | $ | 8 | $ | 15,957 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||
Three months ended March 31, 2019 | ||||||||||||||||||||||||||||||||||||||||||||||||
Beginning balance | $ | 5,578 | $ | 1,493 | $ | 3,703 | $ | 16 | $ | 10 | $ | 10,800 | ||||||||||||||||||||||||||||||||||||
Provision for loan losses | 378 | (373 | ) | 448 | (6 | ) | 134 | 581 | ||||||||||||||||||||||||||||||||||||||||
Charge-offs | — | — | — | — | (137 | ) | (137 | ) | ||||||||||||||||||||||||||||||||||||||||
Recoveries | 6 | — | — | — | — | 6 | ||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||
Ending balance | $ | 5,962 | $ | 1,120 | $ | 4,151 | $ | 10 | $ | 7 | $ | 11,250 | ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||
Alowance for loan losses / gross loans | 1.62 | % | 0.66 | % | 1.44 | % | 2.05 | % | 0.02 | % | 1.06 | % | ||||||||||||||||||||||||||||||||||||
Net recoveries (charge-offs) / gross loans | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % |
Our provision of $400,000 for the quarter ended March 31, 2020 reflects an increase to qualitative assessments from the potential impact of the COVID-19 pandemic as well as modest loan growth, offset by improvements in other qualitative assessments. As of March 31, 2020, our most direct potential exposure to the Covid-19 environment related to our dental practice acquisition loans, which are part of commercial loans, and we believe our actions to offer payment deferments and government guaranteed loans provides significant mitigation of risk in that segment. In addition, our assessment broadly anticipates that the most severe and direct impacts from the Covid-19 environment would manifest in consumer credit card and installment portfolios; segments of commercial loans related to consumer services; and real estate in heavily impacted segments such as retail strip malls, hospitality and restaurants. The provision reflects a heavier allocation toward commercial and installment loans due to Covid-19 and less toward real estate segments.
39
Commercial | Real Estate | |||||||||||||||||||||||
and | Real Estate | Construction | ||||||||||||||||||||||
(Dollars in thousands) | Industrial | Other | and Land | SBA | Other | Total | ||||||||||||||||||
Six months ended June 30, 2023 | ||||||||||||||||||||||||
Beginning balance | $ | 10,620 | $ | 5,322 | $ | 884 | $ | 132 | $ | 47 | $ | 17,005 | ||||||||||||
Adoption of new accounting standard | (1,566 | ) | (1,725 | ) | 1 | (91 | ) | 1,541 | (1,840 | ) | ||||||||||||||
Provision for credit losses | 1,996 | (627 | ) | (148 | ) | (1 | ) | (416 | ) | 804 | ||||||||||||||
Charge-offs | (247 | ) | — | — | — | — | (247 | ) | ||||||||||||||||
Recoveries | — | — | — | — | — | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Ending balance | $ | 10,803 | $ | 2,970 | $ | 737 | $ | 40 | $ | 1,172 | $ | 15,722 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Alowance for credit losses / gross loans | 1.74 | % | 0.35 | % | 1.22 | % | 0.81 | % | 2.97 | % | 0.99 | % | ||||||||||||
Net recoveries (charge-offs) / gross loans | -0.04 | % | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | -0.02 | % | ||||||||||||
Six months ended June 30, 2022 | ||||||||||||||||||||||||
Beginning balance | $ | 8,552 | $ | 4,524 | $ | 681 | $ | 309 | $ | 15 | $ | 14,081 | ||||||||||||
Provision for loan losses | 973 | 719 | 226 | (36 | ) | (7 | ) | 1,875 | ||||||||||||||||
Charge-offs | — | — | — | — | — | — | ||||||||||||||||||
Recoveries | 1 | — | — | — | — | 1 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Ending balance | $ | 9,526 | $ | 5,243 | $ | 907 | $ | 273 | $ | 8 | $ | 15,957 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Alowance for loan losses / gross loans | 1.62 | % | 0.66 | % | 1.44 | % | 2.05 | % | 0.02 | % | 1.06 | % | ||||||||||||
Net recoveries (charge-offs) / gross loans | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % |
Investment Portfolio
Our investment portfolio is comprised of debt securities. We use two classifications for our investment portfolio:available-for-sale (AFS) available for sale andheld-to-maturity (HTM). held to maturity. Securities that we have the positive intent and ability to hold to maturity are classified as“held-to-maturity “held to maturity securities” and reported at amortized cost. Securities not classified asheld-to-maturity held to maturity securities are classified as “investment securitiesavailable-for-sale” available for sale” and reported at fair value.
At March 31, 2020During the first quarter of 2022, the Company re-designated certain securities previously classified as available for sale to the held to maturity classification. The re-designated securities consisted of mortgage backed securities and government agencies with a total carrying value of $49.9 million at December 31, 2019, we had noheld-to-maturity investments.2022. At the time of re-designation the securities included $281,000 of pretax unrealized losses in other comprehensive income which is being amortized over the remaining life of the securities in a manner consistent with the amortization of a premium or discount.
Our investments provide a source of liquidity as they can be pledged to support borrowed funds or can be liquidated to generate cash proceeds. The investment portfolio is also a significant resource to us in managing interest rate risk, as the maturity and interest rate characteristics of this asset class can be readily changed to match changes in the loan and deposit portfolios. The majority of ouravailable-for-sale investment portfolio is comprised of mortgage-backedmortgage backed securities, (MBSs) that are either issued or guaranteed by U.S. government agencies or government-sponsored enterprises (GSEs).agency securities, and corporate bonds.
40
The following table reflects the amortized cost and fair market values for the total portfolio for each of the categories of investments in our securities portfolio as of March 31, 2020June 30, 2023 and December 31, 2019.2022.
Gross | Gross | |||||||||||||||
Unrealized / | Unrealized / | Estimated | ||||||||||||||
Amortized | Unrecognized | Unrecognized | Fair | |||||||||||||
(Dollars in thousands) | Cost | Gains | Losses | Value | ||||||||||||
At June 30, 2023: | ||||||||||||||||
Mortgage backed securities | $ | 16,849 | $ | 13 | $ | (856 | ) | $ | 16,006 | |||||||
Government agencies | 29,862 | — | (1,001 | ) | 28,861 | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Total available for sale securities | $ | 46,711 | $ | 13 | $ | (1,857 | ) | $ | 44,867 | |||||||
|
|
|
|
|
|
|
| |||||||||
Mortgage backed securities | $ | 59,002 | $ | 34 | $ | (7,163 | ) | $ | 51,873 | |||||||
Government agencies | 3,077 | — | (577 | ) | 2,500 | |||||||||||
Corporate bonds | 44,183 | — | (4,419 | ) | 39,764 | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Total held to maturity securities, net | $ | 106,262 | $ | 34 | $ | (12,159 | ) | $ | 94,137 | |||||||
|
|
|
|
|
|
|
| |||||||||
At December 31, 2022: | ||||||||||||||||
Mortgage backed securities | $ | 18,629 | $ | 26 | $ | (897 | ) | $ | 17,758 | |||||||
Government agencies | 29,809 | — | (1,043 | ) | 28,766 | |||||||||||
Corporate bonds | 430 | 58 | — | 488 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total available for sale securities | $ | 48,868 | $ | 84 | $ | (1,940 | ) | $ | 47,012 | |||||||
|
|
|
|
|
|
|
| |||||||||
Mortgage backed securities | $ | 61,363 | $ | — | $ | (7,647 | ) | $ | 53,716 | |||||||
Government agencies | 3,083 | — | (627 | ) | 2,456 | |||||||||||
Corporate bonds | 44,420 | 30 | (3,739 | ) | 40,711 | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Total held to maturity securities | $ | 108,866 | $ | 30 | $ | (12,013 | ) | $ | 96,883 | |||||||
|
|
|
|
|
|
|
|
29
(Dollars in thousands) | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | ||||||||||||
At March 31, 2020: | ||||||||||||||||
Residential mortgage backed and government securities | $ | 23,763 | $ | 760 | $ | — | $ | 24,523 | ||||||||
Government agencies | 2,987 | 4 | — | 2,991 | ||||||||||||
Corporate bonds | 7,009 | — | (179 | ) | 6,830 | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Total available for sale securities | $ | 33,759 | $ | 764 | $ | (179 | ) | $ | 34,344 | |||||||
|
|
|
|
|
|
|
| |||||||||
At December 31, 2019: | ||||||||||||||||
Residential mortgage backed and government securities | $ | 20,291 | $ | 436 | $ | (5 | ) | $ | 20,722 | |||||||
Government agencies | 7,824 | 9 | — | 7,833 | ||||||||||||
Corporate bonds | — | — | — | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total available for sale securities | $ | 28,115 | $ | 445 | $ | (5 | ) | $ | 28,555 | |||||||
|
|
|
|
|
|
|
|
Deposits
Our deposits are generated through core customer relationships, related predominantly to business relationships. Many of our business customers maintain high levels of liquid balances in their demand deposit accounts and use the Bank’s treasury management services. At June 30, 2023, approximately 95% of commercial relationships held deposits at the Bank, primarily in operating accounts, and there were no significant industry concentrations. Additionally, at June 30, 2023 insured deposits represented 60% of the total deposit portfolio and uninsured deposits represented 40% of the total deposit portfolio.
At March 31, 2020,June 30, 2023, approximately 39%43% of our deposits were in noninterest-bearing demand deposits. The balance of our deposits at March 31, 2020June 30, 2023 were held in interest-bearing demand, savings and money market accounts and time deposits. More than 47%Approximately 38% of total deposits were held in interest-bearing demand, savings and money market deposit accounts at March 31, 2020,June 30, 2023, which provide our customers with interest and liquidity. Time deposits comprised the remaining 14%19% of our deposits at March 31, 2020.June 30, 2023.
Information concerning average balances and rates paid on deposits by deposit type for the past two fiscal years is contained in the Distribution, Yield and Rate Analysis of Net Income table located in the previous section titled “Results of Operations—Net Interest Income and Net Interest Margin”.
41
The following table provides a comparative distribution of our deposits by outstanding balance as well as by percentage of total deposits at the dates indicated.
(Dollars in thousands) | Balance | % of Total | Balance | % of Total | ||||||||||||
At March 31, 2020: | ||||||||||||||||
At June 30, 2023: | ||||||||||||||||
Demand noninterest-bearing | $ | 403,248 | 39 | % | $ | 742,160 | 43 | % | ||||||||
Demand interest-bearing | 21,083 | 2 | % | 29,324 | 2 | % | ||||||||||
Money market and savings | 459,712 | 45 | % | 633,620 | 36 | % | ||||||||||
Time | 144,818 | 14 | % | 333,192 | 19 | % | ||||||||||
|
|
|
| |||||||||||||
Total deposits | $ | 1,028,861 | 100 | % | $ | 1,738,296 | 100 | % | ||||||||
|
|
|
| |||||||||||||
At December 31, 2019: | ||||||||||||||||
At December 31, 2022: | ||||||||||||||||
Demand noninterest-bearing | $ | 387,267 | 39 | % | $ | 811,671 | 45 | % | ||||||||
Demand interest-bearing | 25,178 | 3 | % | 37,815 | 2 | % | ||||||||||
Money market and savings | 455,436 | 46 | % | 671,016 | 38 | % | ||||||||||
Time | 120,355 | 12 | % | 271,238 | 15 | % | ||||||||||
|
|
|
| |||||||||||||
Total deposits | $ | 988,236 | 100 | % | $ | 1,791,740 | 100 | % | ||||||||
|
|
|
|
The aggregate amount of time deposits in excess of the FDIC insurance limit was $35.1 million and $43.6 million at June 30, 2023 and December 31, 2022, respectively. The following table reflects the aggregate maturities of those deposits as of the respective reporting periods.
(Dollars in thousands) | June 30, 2023 | December 31, 2022 | ||||||
3 months or less | $ | 16,054 | $ | 33,344 | ||||
Over 3 months through 6 months | 18,766 | 10,254 | ||||||
Over 6 months through 12 months | 255 | — | ||||||
Over 12 months | — | — | ||||||
|
|
|
| |||||
Total uninsured time deposits | $ | 35,075 | $ | 43,598 | ||||
|
|
|
|
30
Liquidity
Our primary source of funding is deposits from our core banking relationships. TheHowever, the majority of the Bank’s deposits are transaction accounts or money market accounts that are payable on demand. AAdditionally, a small number of customers represent a large portion of the Bank’s deposits, as evidenced by the fact that approximately 20.0%17% of deposits were represented by the 10 largest depositors as of Marchat both June 30, 2023 and December 31, 2020.2022. We strive to manage our liquidity in a manner that enables us to meet expected and unexpected liquidity needs under both normal and adverse conditions. The Bank maintains significanton-balance sheet andoff-balance liquidity sources, including a marketable securities portfolio, the ability to supplement core deposits with brokered time deposits and/or utilization of the Certificate of Deposit Account Registry Service (CDARS) Network, and borrowing capacity through various secured and unsecured sources. Our borrowing capacity include lines of credit with the FRB, FHLB, and correspondent banks that enable us to borrow funds as described in Note 4 to the consolidated financial statements included in Item 1 of this Report.
Capital Resources
We are subject to various regulatory capital requirements administered by federal and state banking regulators. Our capital management consists of providing equity to support our current operations and future growth. Failure to meet minimum regulatory capital requirements may result in mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on our financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, we must meet specific capital guidelines that involve quantitative measures of our assets, liabilities andoff-balance sheet items as calculated under regulatory accounting policies. As of March 31, 2020June 30, 2023 and December 31, 2019,2022, we were in compliance with all applicable regulatory capital requirements, including the capital conservation buffer, and the Bank qualified asBank’s capital ratios exceeded the minimums necessary to be considered ‘‘well-capitalized’’ for purposes of the FDIC’s prompt corrective action regulations. At March 31, 2020,June 30, 2023, the capital conservation buffer was 2.50%4.46%.
42
At March 31, 2020,June 30, 2023, the Bank had a Tier 1 risk basedrisk-based capital ratio of 11.33%11.56%, a total capital to risk-weighted assets ratio of 12.77%12.46%, and a leverage ratio of 11.36%11.42%. At December 31, 2019,2022, the Bank had a Tier 1 risk basedrisk-based capital ratio of 10.38%10.54%, a total capital to risk-weighted assets ratio of 11.79%11.40%, and a leverage ratio of 10.44%10.23%. During the first quarter of 2020, the Company entered into a borrowing arrangement for $12.0 million, the proceeds of which were infused into the Bank to support Tier 1 capital.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As a smaller reporting company, we are not required to provide the information required by this item.
Item 4. Controls and Procedures
Management of the Company, with the participation of its Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness as of March 31, 2020June 30, 2023 of the Company’s disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management was required to apply judgment in evaluating its controls and procedures. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were not effective because of the identified material weakness regarding the precision of review in SEC filings and financial reporting, as of the end of the fiscal quarter covered by this Form 10-Q.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. The material weakness we identified relates to the need for improved precision in the review of aspects of our SEC filings and financial reporting. Specifically, we did not have effective processes and procedures in place (1) to formally document management’s review of our financial statements and footnotes included in our SEC filings to ensure timeliness and accuracy of filings; (2) to consistently use checklists regarding Generally Accepted Accounting Principles and SEC disclosure requirements as part of the SEC filing process to ensure that required disclosures are complete and accurate; (3) to identify subsequent events during an open subsequent period necessary to ensure proper disclosure; and (4) to develop, maintain and review on a regular basis a listing of related parties, as defined by SEC Regulation S-K. While this deficiency did not result in a restatement of any previously reported interim consolidated financial statements, our management concluded there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements may not be prevented or detected on a timely basis. The material weakness was initially identified during the preparation of our financial statements for the year ended December 31, 2019. Management is in the process of planning its remediation of this weakness, which is expected to primarily include the development and implementation of formalized procedures and controls. The remediation of this material weakness is therefore ongoing and may necessitate implementation of additional measures. The material weakness will only be considered remediated when these controls have been performing as designed for a sufficient period of time.
Changes in Internal Control over Financial Reporting
There was no change in the Company’s internal control over financial reporting that occurred during the Company’s last fiscal quarter that has materially affected, or is reasonably likely to materially affect, such controls.
3143
From time to time, we are party to legal actions that are routine and incidental to our business. Given the nature, scope and complexity of the extensive legal and regulatory landscape applicable to our business, we, like all banking organizations, are subject to heightened regulatory compliance and legal risk. However, based on available information, management does not expect the ultimate disposition of any or a combination of these actions to have a material adverse effect on our business, financial condition and results of operation.
There have been no material changes in the risk factorsWe disclosed certain risks and uncertainties that were disclosed in Item 1A,we face under the caption “Risk Factors” in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2019,2022, which we filed with the SEC on April 14, 2020.March 24, 2023. The information presented below provides an update to, and should be read in conjunction with, the risk factors and other information contained in our 2022 Form 10-K.
Adverse developments affecting the banking industry have eroded customer confidence in the banking system and could have a material effect on our operations and/or stock price.
The recent high-profile failures of several depository institutions have negatively impacted customer confidence in the safety and soundness of some regional and community banks. As a result, we face that risk that customers may prefer to maintain deposits with larger financial institutions or invest in short-term fixed income securities instead of deposits with the Bank, either of which could materially adversely impact our liquidity, cost of funding, capital, and results of operations. In response to the failures of other depository institutions, we may face increased regulation and supervisory oversight, higher capital or liquidity requirements or a heightened risk of regulatory enforcement activities, any of which could have a material impact on our business. Further, our costs of deposit insurance may increase as a result of these bank failures and the resulting losses to the FDIC’s Deposit Insurance Fund. In addition, concerns about the banking industry’s operating environment and the public trading prices of bank holding companies are often correlated, particularly during times of financial stress, which could adversely impact the trading price of our common stock.
If we are required to sell securities to meet liquidity needs, we could realize significant losses.
As a result of increases in interest rates over the last year, the market values of previously issued government and other debt securities have declined significantly, resulting in unrealized losses in our securities portfolio. While we do not expect or intend to sell these securities, if we were required to sell these securities to meet liquidity needs, we may incur significant losses, which could impair our capital and financial condition and adversely affect our results of operations. Further, while we have taken actions to maximize our sources of liquidity, there is no guarantee that such sources will be available or sufficient in the event of sudden liquidity needs.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None
Item 3. Defaults Uponupon Senior Securities
None
32
None
45
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.
California BanCorp | ||||||
Dated: | By: | /s/ Steven E. Shelton | ||||
Steven E. Shelton | ||||||
Chief Executive Officer | ||||||
(Principal Executive Officer) | ||||||
Dated: | By: | /s/ Thomas A. Sa | ||||
Thomas A. Sa | ||||||
President and Chief Financial Officer | ||||||
(Principal Financial and Accounting Officer) |
3346