UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM10-Q
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☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30,, 20172022
OR
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☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________
Commission File Number: 0-14549
First US Bancshares, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Delaware | 63-0843362 |
(State or Other Jurisdiction of Incorporation or Organization) | (IRS Employer Identification No.) |
3291 U.S. Highway 280 Birmingham, AL | 35243 |
(Address of Principal Executive Offices) | (Zip Code) |
(205) (205) 582-1200
(Registrant’sRegistrant’s Telephone Number, Including Area Code)
N/A
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, $0.01 par value | FUSB | The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of RegulationsRegulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,”company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | ☐ |
| Accelerated filer | ☐ |
Non-accelerated filer |
| Smaller reporting company | ☒ | |
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark ofif the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes☐ No ☒
Indicate the number of shares outstanding of each of the issuer’sissuer’s classes of common stock, as of the latest practicable date.
Class | Outstanding at November |
Common Stock, $0.01 par value |
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FIRST US BANCSHARES, INC. AND SUBSIDIARIES
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9 | ||
Notes to Interim Condensed Consolidated Financial Statements (Unaudited) | ||
10 | ||
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43 | ||
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | ||
58 | ||
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60 | ||
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60 | ||
60 | ||
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS | ||
60 | ||
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61 | ||
62 |
2
FORWARD-LOOKING STATEMENTS
Statements contained in this Quarterly Report on Form 10-Q that are not historical facts are forward-looking statements (as defined in the Private Securities Litigation Reform Act of 1995). In addition, First US Bancshares, Inc. (“Bancshares” and, together with its subsidiaries, the “Company”), through its senior management, from time to time makes forward-looking statements concerning its expected future operations, and performance and other developments. The words “estimate,” “project,” “intend,” “anticipate,” “expect,” “believe,” “continues”“continues” and similar expressions are indicative of forward-looking statements. Such forward-looking statements are necessarily estimates reflecting the Company’s best judgment based on current information and involve a number of risks and uncertainties,uncertainties. Certain factors that could affect the accuracy of such forward-looking statements and various factors could cause actual results to differ materially from those contemplated byprojected in such forward-looking statements. Such factors could include thosestatements are identified from time to time in the Company’s filings with the Securities and Exchange Commission (“SEC”) filings, and forward-looking statements contained herein or in other public announcements, including the risk factors described in Part I, Item 1Astatements of the Company’s Annual Report on Form 10-K asCompany or its senior management should be considered in light of and for the year ended December 31, 2016. Specifically, with respect to statements relating to loan demand, growth and earnings potential, geographic expansion and the adequacy of the allowance for loan losses for the Company, thesethose factors. Such factors may include but are not limited to, the rate of growth (or lack thereof) in the economy generally and in the Company’s service areas,areas; the availabilityimpact of quality loansthe current COVID-19 pandemic on the Company’s business, the Company’s customers, the communities that the Company serves and the United States economy, including the impact of actions taken by governmental authorities to try to contain the virus and protect against it, through vaccinations and otherwise, or address the impact of the virus on the United States economy (including, without limitation, the Coronavirus Aid, Relief and Economic Security (CARES) Act and subsequent federal legislation) and the resulting effect on the Company’s operations, liquidity and capital position and on the financial condition of the Company’s borrowers and other customers; the impact of changing accounting standards and tax laws on the Company’s allowance for loan losses and financial results; the impact of national and local market conditions on the Company’s business and operations; strong competition in the banking industry; the impact of changes in interest rates and monetary policy on the Company’s performance and financial condition; the pending discontinuation of LIBOR as an interest rate benchmark; the impact of technological changes in the banking and financial service industries and potential information system failures; cybersecurity and data privacy threats; the costs of complying with extensive governmental regulation; the possibility that acquisitions may not produce anticipated results and result in unforeseen integration difficulties; and other risk factors described from time to time in the Company’s service areas,public filings, including, but not limited to, the relative strength and weakness inCompany’s most recent Annual Report on Form 10-K. Relative to the consumer and commercial credit sectors and inCompany’s dividend policy, the real estate markets and collateral values. Forward-looking statements speak only aspayment of cash dividends is subject to the discretion of the date they are made,Board of Directors and will be determined in light of then-current conditions, including the Company undertakes no obligation to revise forward-looking statements to reflect circumstancesCompany’s earnings, leverage, operations, financial conditions, capital requirements and other factors deemed relevant by the Board of Directors. In the future, the Board of Directors may change the Company’s dividend policy, including the frequency or events that occur after the dates on which the forward-looking statements are made, except as required by law.amount of any dividend, in light of then-existing conditions.
3
PARTPART I. FINANCIAL INFORMATION
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ITEM 1. FINANCIAL STATEMENTS
FIRST US BANCSHARES, INC. AND SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
September 30, | December 31, |
| September 30, |
|
| December 31, |
| ||||||||||
2017 | 2016 |
| 2022 |
|
| 2021 |
| ||||||||||
(Unaudited) |
| (Unaudited) |
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ASSETS | ASSETS | ASSETS |
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Cash and due from banks | $ | 8,705 | $ | 7,018 |
| $ | 11,608 |
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| $ | 10,843 |
| |||||
Interest-bearing deposits in banks | 23,849 | 16,512 |
|
| 25,212 |
|
|
| 50,401 |
| |||||||
Total cash and cash equivalents | 32,554 | 23,530 |
|
| 36,820 |
|
|
| 61,244 |
| |||||||
Federal funds sold |
|
| 120 |
|
|
| 82 |
| |||||||||
Investment securities available-for-sale, at fair value | 158,425 | 181,910 |
|
| 143,794 |
|
|
| 130,883 |
| |||||||
Investment securities held-to-maturity, at amortized cost | 27,377 | 25,904 |
|
| 2,109 |
|
|
| 3,436 |
| |||||||
Federal Home Loan Bank stock, at cost | 1,396 | 1,581 |
|
| 2,009 |
|
|
| 870 |
| |||||||
Loans, net of allowance for loan losses of $4,808 and $4,856, respectively | 338,026 | 322,772 | |||||||||||||||
Premises and equipment, net | 26,242 | 18,340 | |||||||||||||||
Loans, net of allowance for loan and lease losses of $9,373 and $8,320, respectively |
|
| 740,898 |
|
|
| 700,030 |
| |||||||||
Premises and equipment, net of accumulated depreciation of $21,338 and $21,916, |
|
| 24,209 |
|
|
| 25,123 |
| |||||||||
Cash surrender value of bank-owned life insurance | 14,843 | 14,603 |
|
| 16,360 |
|
|
| 16,141 |
| |||||||
Accrued interest receivable | 1,877 | 1,987 |
|
| 2,691 |
|
|
| 2,556 |
| |||||||
Goodwill and core deposit intangible, net |
|
| 7,856 |
|
|
| 8,069 |
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Other real estate owned | 3,819 | 4,858 |
|
| 686 |
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|
| 2,149 |
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Other assets | 10,040 | 11,407 |
|
| 11,725 |
|
|
| 7,719 |
| |||||||
Total assets | $ | 614,599 | $ | 606,892 |
| $ | 989,277 |
|
| $ | 958,302 |
| |||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||||||||||||
Deposits | $ | 508,385 | $ | 497,556 | |||||||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | LIABILITIES AND SHAREHOLDERS’ EQUITY |
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Deposits: |
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|
|
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Non-interest-bearing |
| $ | 177,778 |
|
| $ | 174,501 |
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Interest-bearing |
|
| 668,759 |
|
|
| 663,625 |
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Total deposits |
|
| 846,537 |
|
|
| 838,126 |
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Accrued interest expense | 281 | 241 |
|
| 719 |
|
|
| 224 |
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Other liabilities | 6,444 | 7,735 |
|
| 8,104 |
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| 9,189 |
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Short-term borrowings | 10,635 | 10,119 |
|
| 40,106 |
|
|
| 10,046 |
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Long-term debt | 10,000 | 15,000 | |||||||||||||||
Long-term borrowings |
|
| 10,708 |
|
|
| 10,653 |
| |||||||||
Total liabilities | 535,745 | 530,651 |
|
| 906,174 |
|
|
| 868,238 |
| |||||||
Commitments and contingencies | |||||||||||||||||
Shareholders’ equity: | |||||||||||||||||
Common stock, par value $0.01 per share, 10,000,000 shares authorized; 7,341,556 and 7,329,060 shares issued, respectively; 6,077,354 and 6,043,102 shares outstanding, respectively | 73 | 73 | |||||||||||||||
Surplus | 10,657 | 10,786 | |||||||||||||||
Accumulated other comprehensive income (loss), net of tax | 25 | (1,277 | ) | ||||||||||||||
Shareholders’ equity: |
|
|
|
|
|
| |||||||||||
Common stock, par value $0.01 per share, 10,000,000 shares authorized; 7,679,659 and |
|
| 75 |
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| 75 |
| |||||||||
Additional paid-in capital |
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| 14,386 |
|
|
| 14,163 |
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Accumulated other comprehensive loss, net of tax |
|
| (7,212 | ) |
|
| (276 | ) | |||||||||
Retained earnings | 88,525 | 87,434 |
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| 102,523 |
|
|
| 98,428 |
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Less treasury stock: 1,264,202 and 1,285,958 shares at cost, respectively | (20,414 | ) | (20,764 | ) |
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Noncontrolling interest | (12 | ) | (11 | ) |
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Total shareholders’ equity | 78,854 | 76,241 | |||||||||||||||
Total liabilities and shareholders’ equity | $ | 614,599 | $ | 606,892 | |||||||||||||
Less treasury stock: 1,867,401 and 1,462,540 shares at cost, respectively |
|
| (26,669 | ) |
|
| (22,326 | ) | |||||||||
Total shareholders’ equity |
|
| 83,103 |
|
|
| 90,064 |
| |||||||||
Total liabilities and shareholders’ equity |
| $ | 989,277 |
|
| $ | 958,302 |
|
The accompanying notes are an integral part of these Interim Condensed Consolidated Statements.
4
FIRST US BANCSHARES, INC. AND SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands, Except Per Share Data)
Three Months Ended | Nine Months Ended |
| Three Months Ended |
|
| Nine Months Ended |
| |||||||||||||||||||||||||
September 30, | September 30, |
| September 30, |
|
| September 30, |
| |||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 |
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| |||||||||||||||||
(Unaudited) | (Unaudited) |
| (Unaudited) |
|
| (Unaudited) |
| |||||||||||||||||||||||||
Interest income: |
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|
|
|
|
|
|
|
|
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|
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Interest and fees on loans | $ | 6,802 | $ | 6,773 | $ | 19,928 | $ | 19,192 |
| $ | 9,750 |
|
| $ | 9,568 |
|
| $ | 27,339 |
|
| $ | 28,726 |
| ||||||||
Interest on investment securities | 1,018 | 987 | 3,085 | 3,242 |
|
| 920 |
|
|
| 462 |
|
|
| 2,237 |
|
|
| 1,208 |
| ||||||||||||
Total interest income | 7,820 | 7,760 | 23,013 | 22,434 |
|
| 10,670 |
|
|
| 10,030 |
|
|
| 29,576 |
|
|
| 29,934 |
| ||||||||||||
Interest expense: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Interest on deposits | 617 | 532 | 1,713 | 1,568 |
|
| 864 |
|
|
| 652 |
|
|
| 1,964 |
|
|
| 2,100 |
| ||||||||||||
Interest on borrowings | 68 | 55 | 189 | 115 |
|
| 291 |
|
|
| 43 |
|
|
| 562 |
|
|
| 123 |
| ||||||||||||
Total interest expense | 685 | 587 | 1,902 | 1,683 |
|
| 1,155 |
|
|
| 695 |
|
|
| 2,526 |
|
|
| 2,223 |
| ||||||||||||
Net interest income | 7,135 | 7,173 | 21,111 | 20,751 |
|
| 9,515 |
|
|
| 9,335 |
|
|
| 27,050 |
|
|
| 27,711 |
| ||||||||||||
Provision for loan losses | 373 | 680 | 1,464 | 1,383 | ||||||||||||||||||||||||||||
Net interest income after provision for loan losses | 6,762 | 6,493 | 19,647 | 19,368 | ||||||||||||||||||||||||||||
Provision for loan and lease losses |
|
| 1,165 |
|
|
| 618 |
|
|
| 2,781 |
|
|
| 1,517 |
| ||||||||||||||||
Net interest income after provision for loan and lease losses |
|
| 8,350 |
|
|
| 8,717 |
|
|
| 24,269 |
|
|
| 26,194 |
| ||||||||||||||||
Non-interest income: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Service and other charges on deposit accounts | 481 | 463 | 1,406 | 1,306 |
|
| 311 |
|
|
| 271 |
|
|
| 904 |
|
|
| 777 |
| ||||||||||||
Credit insurance income | 160 | 256 | 459 | 570 | ||||||||||||||||||||||||||||
Net gain on sales and prepayments of investment securities | 178 | 259 | 228 | 657 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 22 |
| ||||||||||||
Lease income |
|
| 210 |
|
|
| 208 |
|
|
| 635 |
|
|
| 619 |
| ||||||||||||||||
Other income, net | 417 | 589 | 1,240 | 1,503 |
|
| 567 |
|
|
| 417 |
|
|
| 1,234 |
|
|
| 1,238 |
| ||||||||||||
Total non-interest income | 1,236 | 1,567 | 3,333 | 4,036 |
|
| 1,088 |
|
|
| 896 |
|
|
| 2,773 |
|
|
| 2,656 |
| ||||||||||||
Non-interest expense: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Salaries and employee benefits | 4,370 | 4,334 | 13,048 | 12,734 |
|
| 4,007 |
|
|
| 5,045 |
|
|
| 12,389 |
|
|
| 14,951 |
| ||||||||||||
Net occupancy and equipment | 806 | 830 | 2,276 | 2,381 |
|
| 861 |
|
|
| 1,259 |
|
|
| 2,468 |
|
|
| 3,318 |
| ||||||||||||
Other real estate/foreclosure expense, net | 244 | 124 | 461 | 370 | ||||||||||||||||||||||||||||
Computer services |
|
| 417 |
|
|
| 461 |
|
|
| 1,224 |
|
|
| 1,411 |
| ||||||||||||||||
Fees for professional services |
|
| 263 |
|
|
| 292 |
|
|
| 811 |
|
|
| 1,003 |
| ||||||||||||||||
Other expense | 1,770 | 2,060 | 5,305 | 6,184 |
|
| 1,484 |
|
|
| 1,490 |
|
|
| 4,074 |
|
|
| 4,659 |
| ||||||||||||
Total non-interest expense | 7,190 | 7,348 | 21,090 | 21,669 |
|
| 7,032 |
|
|
| 8,547 |
|
|
| 20,966 |
|
|
| 25,342 |
| ||||||||||||
Income before income taxes | 808 | 712 | 1,890 | 1,735 |
|
| 2,406 |
|
|
| 1,066 |
|
|
| 6,076 |
|
|
| 3,508 |
| ||||||||||||
Provision for income taxes | 173 | 162 | 435 | 406 |
|
| 546 |
|
|
| 229 |
|
|
| 1,440 |
|
|
| 768 |
| ||||||||||||
Net income | $ | 635 | $ | 550 | $ | 1,455 | $ | 1,329 |
| $ | 1,860 |
|
| $ | 837 |
|
| $ | 4,636 |
|
| $ | 2,740 |
| ||||||||
Basic net income per share | $ | 0.10 | $ | 0.09 | $ | 0.24 | $ | 0.22 |
| $ | 0.31 |
|
| $ | 0.13 |
|
| $ | 0.76 |
|
| $ | 0.43 |
| ||||||||
Diluted net income per share | $ | 0.10 | $ | 0.09 | $ | 0.22 | $ | 0.21 |
| $ | 0.29 |
|
| $ | 0.13 |
|
| $ | 0.71 |
|
| $ | 0.41 |
| ||||||||
Dividends per share | $ | 0.02 | $ | 0.02 | $ | 0.06 | $ | 0.06 |
| $ | 0.03 |
|
| $ | 0.03 |
|
| $ | 0.09 |
|
| $ | 0.09 |
|
The accompanying notes are an integral part of these Interim Condensed Consolidated Statements.
5
FIRST US BANCSHARES, INC. AND SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in Thousands)
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||
Net income | $ | 635 | $ | 550 | $ | 1,455 | $ | 1,329 | ||||||||
Other comprehensive income: | ||||||||||||||||
Unrealized holding gains (losses) on securities available-for-sale arising during period, net of tax expense (benefit) of $(7), $(39), $864 and $656, respectively | (12 | ) | (66 | ) | 1,481 | 1,125 | ||||||||||
Reclassification adjustment for net gains on securities available-for-sale realized in net income, net of tax expense of $66, $93, $84 and $238, respectively | (113 | ) | (160 | ) | (144 | ) | (410 | ) | ||||||||
Unrealized holding gains (losses) arising during the period on effective cash flow hedge derivatives, net of tax expense (benefit) of $(1), $34, $(20) and $(48), respectively | (1 | ) | 57 | (35 | ) | (82 | ) | |||||||||
Other comprehensive income (loss) | (126 | ) | (169 | ) | 1,302 | 633 | ||||||||||
Total comprehensive income | $ | 509 | $ | 381 | $ | 2,757 | $ | 1,962 |
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
|
| (Unaudited) |
|
| (Unaudited) |
| ||||||||||
Net income |
| $ | 1,860 |
|
| $ | 837 |
|
| $ | 4,636 |
|
| $ | 2,740 |
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Unrealized holding losses on securities available-for-sale |
|
| (1,048 | ) |
|
| (18 | ) |
|
| (8,307 | ) |
|
| (122 | ) |
Reclassification adjustment for net gains on securities available-for |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (16 | ) |
Unrealized holding gains arising during the period on |
|
| 393 |
|
|
| 75 |
|
|
| 1,330 |
|
|
| 559 |
|
Reclassification adjustment for net gains on cash flow hedge derivatives realized in net income, net of tax expense of $9, $0, $14, $0, respectively |
|
| 27 |
|
|
| — |
|
|
| 41 |
|
|
| — |
|
Other comprehensive income (loss) |
|
| (628 | ) |
|
| 57 |
|
|
| (6,936 | ) |
|
| 421 |
|
Total comprehensive income (loss) |
| $ | 1,232 |
|
| $ | 894 |
|
| $ | (2,300 | ) |
| $ | 3,161 |
|
The accompanying notes are an integral part of these Interim Condensed Consolidated Statements.
6
FIRST US BANCSHARES, INC. AND SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSCHANGES IN SHAREHOLDERS’ EQUITY
(Dollars in Thousands)Thousands, Except Share and Per Share Data)
Nine Months Ended | ||||||||
September 30, | ||||||||
2017 | 2016 | |||||||
(Unaudited) | ||||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 1,455 | $ | 1,329 | ||||
Adjustments to reconcile net income to cash provided by operating activities: | ||||||||
Depreciation and amortization | 781 | 726 | ||||||
Provision for loan losses | 1,464 |
| 1,383 |
| ||||
Deferred income tax provision | 231 | 368 | ||||||
Net gain on sale and prepayment of investment securities | (228 | ) | (657 | ) | ||||
Stock-based compensation expense | 262 | 218 | ||||||
Net amortization of securities | 869 | 1,163 | ||||||
Net loss on premises and equipment and other real estate | 453 | 573 | ||||||
Changes in assets and liabilities: | ||||||||
Decrease (increase) in accrued interest receivable | 110 | (14 | ) | |||||
Decrease in other assets | 57 | 224 | ||||||
Increase in accrued interest expense | 40 |
| 51 |
| ||||
Decrease in other liabilities | (114 | ) | (27 | ) | ||||
Net cash provided by operating activities | 5,380 | 5,337 | ||||||
Cash flows from investing activities: | ||||||||
Purchases of investment securities, available-for-sale | (15,254 | ) | (49,236 | ) | ||||
Purchases of investment securities, held-to-maturity | (4,696 | ) | (13,850 | ) | ||||
Proceeds from sales of investment securities, available-for-sale | 1,749 | 30,439 | ||||||
Proceeds from maturities and prepayments of investment securities, available-for-sale | 38,570 | 37,131 | ||||||
Proceeds from maturities and prepayments of investment securities, held-to-maturity | 3,119 | 17,779 | ||||||
Net decrease (increase) in Federal Home Loan Bank stock | 185 | (343 | ) | |||||
Proceeds from the sale of premises and equipment and other real estate | 1,215 | 1,208 | ||||||
Net change in loan portfolio | (17,326 | ) | (64,081 | ) | ||||
Purchases of premises and equipment | (9,858 | ) | (4,554 | ) | ||||
Net cash used in investing activities | (2,296 | ) | (45,507 | ) | ||||
Cash flows from financing activities: | ||||||||
Net increase in customer deposits | 10,829 |
| 14,570 |
| ||||
Net increase (decrease) in other borrowings | 516 | (2,017 | ) | |||||
Net increase (decrease) in Federal Home Loan Bank advances | (5,000 | ) | 10,000 | |||||
Net share-based compensation transactions | (41 | ) | — | |||||
Dividends paid | (364 | ) | (362 | ) | ||||
Net cash provided by financing activities | 5,940 |
| 22,191 |
| ||||
Net increase (decrease) in cash and cash equivalents | 9,024 |
| (17,979 | ) | ||||
Cash and cash equivalents, beginning of period | 23,530 | 44,072 | ||||||
Cash and cash equivalents, end of period | $ | 32,554 | $ | 26,093 | ||||
Supplemental disclosures: | ||||||||
Cash paid for: | ||||||||
Interest | $ | 1,862 | $ | 1,632 | ||||
Income taxes | 77 | 85 | ||||||
Non-cash transactions: | ||||||||
Assets acquired in settlement of loans | 608 | 1,009 | ||||||
Reissuance of treasury stock as compensation | $ | 350 | $ | 53 |
For the three months ended September 30, 2022 and 2021 (Unaudited)
|
| Common |
|
| Common |
|
| Additional |
|
| Accumulated |
|
| Retained |
|
| Treasury |
|
| Total |
| |||||||
Balance, June 30, 2021 |
|
| 6,214,809 |
|
| $ | 75 |
|
| $ | 13,981 |
|
| $ | 312 |
|
| $ | 96,252 |
|
| $ | (21,842 | ) |
| $ | 88,778 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 837 |
|
|
| — |
|
|
| 837 |
|
Net change in fair value of |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (18 | ) |
|
| — |
|
|
| — |
|
|
| (18 | ) |
Net change in fair value of |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 75 |
|
|
| — |
|
|
| — |
|
|
| 75 |
|
Dividends declared: $.03 per |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (186 | ) |
|
| — |
|
|
| (186 | ) |
Impact of stock-based |
|
| 637 |
|
|
| — |
|
|
| 111 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 111 |
|
Reissuance of treasury stock as |
|
| 2,680 |
|
|
| — |
|
|
| (41 | ) |
|
| — |
|
|
| — |
|
|
| 41 |
|
|
| — |
|
Balance, September 30, 2021 |
|
| 6,218,126 |
|
| $ | 75 |
|
| $ | 14,051 |
|
| $ | 369 |
|
| $ | 96,903 |
|
| $ | (21,801 | ) |
| $ | 89,597 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Balance, June 30, 2022 |
|
| 5,876,258 |
|
| $ | 75 |
|
| $ | 14,263 |
|
| $ | (6,584 | ) |
| $ | 100,838 |
|
| $ | (26,016 | ) |
| $ | 82,576 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,860 |
|
|
| — |
|
|
| 1,860 |
|
Net change in fair value of |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,048 | ) |
|
| — |
|
|
| — |
|
|
| (1,048 | ) |
Net change in fair value of |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 420 |
|
|
| — |
|
|
| — |
|
|
| 420 |
|
Dividends declared: $.03 per |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (175 | ) |
|
| — |
|
|
| (175 | ) |
Impact of stock-based |
|
| — |
|
|
| — |
|
|
| 123 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 123 |
|
Reissuance of treasury stock as |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Treasury stock repurchases |
|
| (64,000 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (653 | ) |
|
| (653 | ) | ||||
Balance, September 30, 2022 |
|
| 5,812,258 |
|
| $ | 75 |
|
| $ | 14,386 |
|
| $ | (7,212 | ) |
| $ | 102,523 |
|
| $ | (26,669 | ) |
| $ | 83,103 |
|
The accompanying notes are an integral part of these Interim Condensed Consolidated Statements.
7
FIRST US BANCSHARES, INC. AND SUBSIDIARIES
NOTESINTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Dollars in Thousands, Except Share and Per Share Data)
For the nine months ended September 30, 2022 and 2021 (Unaudited)
|
| Common |
|
| Common |
|
| Additional |
|
| Accumulated |
|
| Retained |
|
| Treasury |
|
| Total |
| |||||||
Balance, December 31, 2020 |
|
| 6,176,556 |
|
| $ | 75 |
|
| $ | 13,786 |
|
| $ | (52 | ) |
| $ | 94,722 |
|
| $ | (21,853 | ) |
| $ | 86,678 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,740 |
|
|
| — |
|
|
| 2,740 |
|
Net change in fair value of |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (138 | ) |
|
| — |
|
|
| — |
|
|
| (138 | ) |
Net change in fair value of |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 559 |
|
|
| — |
|
|
| — |
|
|
| 559 |
|
Dividends declared: $.09 per |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (559 | ) |
|
| — |
|
|
| (559 | ) |
Impact of stock-based |
|
| 37,722 |
|
|
| — |
|
|
| 324 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 324 |
|
Reissuance of treasury stock as |
|
| 3,848 |
|
|
| — |
|
|
| (59 | ) |
|
| — |
|
|
| — |
|
|
| 59 |
|
|
| — |
|
Treasury stock repurchases |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (7 | ) |
|
| (7 | ) |
Balance, September 30, 2021 |
|
| 6,218,126 |
|
| $ | 75 |
|
| $ | 14,051 |
|
| $ | 369 |
|
| $ | 96,903 |
|
| $ | (21,801 | ) |
| $ | 89,597 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Balance, December 31, 2021 |
|
| 6,172,378 |
|
| $ | 75 |
|
| $ | 14,163 |
|
| $ | (276 | ) |
| $ | 98,428 |
|
| $ | (22,326 | ) |
| $ | 90,064 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,636 |
|
|
| — |
|
|
| 4,636 |
|
Net change in fair value of |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (8,307 | ) |
|
| — |
|
|
| — |
|
|
| (8,307 | ) |
Net change in fair value of |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,371 |
|
|
| — |
|
|
| — |
|
|
| 1,371 |
|
Dividends declared: $.09 per |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (541 | ) |
|
| — |
|
|
| (541 | ) |
Impact of stock-based |
|
| 43,096 |
|
|
| — |
|
|
| 361 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 361 |
|
Reissuance of treasury stock as |
|
| 9,184 |
|
|
| — |
|
|
| (138 | ) |
|
| — |
|
|
| — |
|
|
| 138 |
|
|
| — |
|
Treasury stock repurchases |
|
| (412,400 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (4,481 | ) |
|
| (4,481 | ) |
Balance, September 30, 2022 |
|
| 5,812,258 |
|
| $ | 75 |
|
| $ | 14,386 |
|
| $ | (7,212 | ) |
| $ | 102,523 |
|
| $ | (26,669 | ) |
| $ | 83,103 |
|
The accompanying notes are an integral part of these Interim Condensed Consolidated Statements.
8
FIRST US BANCSHARES, INC. AND SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
|
| Nine Months Ended |
| |||||
|
| September 30, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
|
| (Unaudited) |
| |||||
Cash flows from operating activities: |
|
|
|
|
|
| ||
Net income |
| $ | 4,636 |
|
| $ | 2,740 |
|
Adjustments to reconcile net income to cash provided by operating activities: |
|
|
|
|
|
| ||
Depreciation and amortization |
|
| 1,201 |
|
|
| 1,300 |
|
Provision for loan and lease losses |
|
| 2,781 |
|
|
| 1,517 |
|
Deferred income tax provision |
|
| (309 | ) |
|
| 160 |
|
Net gain on sale and prepayment of investment securities |
|
| — |
|
|
| (22 | ) |
Stock-based compensation expense |
|
| 361 |
|
|
| 324 |
|
Net amortization of securities |
|
| 169 |
|
|
| 243 |
|
Amortization of intangible assets |
|
| 213 |
|
|
| 268 |
|
Net gain on premises and equipment and other real estate |
|
| (350 | ) |
|
| (71 | ) |
Changes in assets and liabilities: |
|
|
|
|
|
| ||
(Increase) decrease in accrued interest receivable |
|
| (135 | ) |
|
| 215 |
|
Decrease in other assets |
|
| 750 |
|
|
| 672 |
|
Increase (decrease) in accrued interest expense |
|
| 495 |
|
|
| (109 | ) |
Decrease in other liabilities |
|
| (310 | ) |
|
| (140 | ) |
Net cash provided by operating activities |
|
| 9,502 |
|
|
| 7,097 |
|
Cash flows from investing activities: |
|
|
|
|
|
| ||
Net (increase) decrease in federal funds sold |
|
| (38 | ) |
|
| 3 |
|
Purchases of investment securities, available-for-sale |
|
| (39,256 | ) |
|
| (65,535 | ) |
Proceeds from maturities and prepayments of investment securities, available-for-sale |
|
| 15,111 |
|
|
| 32,592 |
|
Proceeds from maturities and prepayments of investment securities, held-to-maturity |
|
| 1,317 |
|
|
| 2,492 |
|
Net (increase) decrease in Federal Home Loan Bank stock |
|
| (1,139 | ) |
|
| 265 |
|
Proceeds from the sale of premises and equipment and other real estate |
|
| 2,892 |
|
|
| 1,630 |
|
Net increase in loans |
|
| (45,590 | ) |
|
| (61,135 | ) |
Purchases of premises and equipment |
|
| (672 | ) |
|
| (648 | ) |
Net cash used in investing activities |
|
| (67,375 | ) |
|
| (90,336 | ) |
Cash flows from financing activities: |
|
|
|
|
|
| ||
Net increase in deposits |
|
| 8,411 |
|
|
| 64,630 |
|
Net increase in short-term borrowings |
|
| 30,060 |
|
|
| 20 |
|
Net share-based compensation transactions |
|
| — |
|
|
| (7 | ) |
Treasury stock repurchases |
|
| (4,481 | ) |
|
| — |
|
Dividends paid |
|
| (541 | ) |
|
| (559 | ) |
Net cash provided by financing activities |
|
| 33,449 |
|
|
| 64,084 |
|
Net decrease in cash and cash equivalents |
|
| (24,424 | ) |
|
| (19,155 | ) |
Cash and cash equivalents, beginning of period |
|
| 61,244 |
|
|
| 94,415 |
|
Cash and cash equivalents, end of period |
| $ | 36,820 |
|
| $ | 75,260 |
|
Supplemental disclosures: |
|
|
|
|
|
| ||
Cash paid for: |
|
|
|
|
|
| ||
Interest |
| $ | 2,031 |
|
| $ | 2,332 |
|
Income taxes |
|
| 1,804 |
|
|
| 752 |
|
Non-cash transactions: |
|
|
|
|
|
| ||
Assets acquired in settlement of loans |
|
| 656 |
|
|
| 668 |
|
Closed branch assets transferred to other real estate |
|
| 390 |
|
|
| 1,978 |
|
Reissuance of treasury stock as compensation |
|
| 138 |
|
|
| 59 |
|
The accompanying notes are an integral part of these Interim Condensed Consolidated Statements.
9
FIRST US BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
|
The accompanying unaudited interim condensed consolidated financial statements include the accounts of First US Bancshares, Inc. (“Bancshares”) and its subsidiaries (collectively, the “Company”). Bancshares is the parent holding company of First US Bank (the “Bank”). The Company and the Bank are both headquartered in Birmingham, Alabama. The Bank operates a finance company subsidiary, Acceptance Loan Company, Inc. (“ALC”). Management has determined that the Bank and ALC comprise Bancshares’ two reportable operating segments. All significant intercompany transactions and accounts have been eliminated. During the third quarter of 2021, ALC ceased new business development and permanently closed its 20 branch lending locations in Alabama and Mississippi to the public. ALC is continuing to service its remaining portfolio of loans from its headquarters in Mobile, Alabama.
The unaudited interim condensed consolidated financial statements, in the opinion of management, reflect all adjustments necessary for a fair presentation of the Company’s consolidated financial position, results of operations and cash flows for the periods presented. Such adjustments are of a normal, recurring nature. The results of operations for any interim period are not necessarily indicative of results expected for the fiscal year ending December 31, 2017.2022. While certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”), management believes that the disclosures herein are adequate to make the information presented not misleading. These unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K as of and for the year ended December 31, 2016.2021.
|
|
Summary of Significant Accounting Policies
Certain significant accounting policies followed by the Company are set forth in Note 2, “Summary of Significant Accounting Policies,” of the Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K as of and for the year ended December 31, 2016.2021.
Reclassification
Certain amounts and disclosures in the notes to the prior period consolidated financial statements have been reclassified to conform to the 2022 presentation. These reclassifications had no effect on the Company’s results of operations, financial position or net cash flow.
Net Income Per Share and Comprehensive Income
Basic net income per share is computed by dividing net income by the weighted average number of basic shares of common stock outstanding during the period. Included in basicBasic shares are certaininclude shares outstanding, as well as shares that have been accrued ason behalf of the balance sheet datenon-employee directors as deferred compensation for memberscompensation under Bancshares’ Non-employee Directors’ Deferred Compensation Plan ("director deferred shares"). Shares outstanding includes shares of Bancshares’ Board of Directors.restricted stock that have been granted pursuant to Bancshares' 2013 Incentive Plan (as amended, the "2013 Incentive Plan") previously approved by Bancshares' shareholders. Diluted net income per share is computed by dividing net income by the weighted average number of shares of common stock outstanding, during the period, adjusted for the effect of potentially dilutive stock awards outstanding during the period.period (dilutive shares). The dilutive shares consist of nonqualified stock option grants issued to employees and members of Bancshares’ Board of Directors pursuant to Bancshares’the 2013 Incentive Plan (the “2013 Incentive Plan”) previously approved by Bancshares’ shareholders. Plan. The following table reflects weighted average shares used to calculatetables set forth the calculation of basic and diluted net income per share for the periods presented.
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Weighted average shares outstanding |
|
| 5,839,658 |
|
|
| 6,217,103 |
|
|
| 6,016,770 |
|
|
| 6,207,726 |
|
Weighted average director deferred shares |
|
| 111,608 |
|
|
| 114,737 |
|
|
| 114,853 |
|
|
| 113,481 |
|
Basic shares |
|
| 5,951,266 |
|
|
| 6,331,840 |
|
|
| 6,131,623 |
|
|
| 6,321,207 |
|
Dilutive shares |
|
| 419,650 |
|
|
| 420,250 |
|
|
| 419,650 |
|
|
| 420,250 |
|
Diluted shares |
|
| 6,370,916 |
|
|
| 6,752,090 |
|
|
| 6,551,273 |
|
|
| 6,741,457 |
|
10
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Basic shares | 6,176,381 | 6,151,701 | 6,170,892 | 6,147,325 | ||||||||||||
Dilutive shares | 320,501 | 272,550 | 320,501 | 272,550 | ||||||||||||
Diluted shares | 6,496,882 | 6,424,251 | 6,491,393 | 6,419,875 |
Three Months Ended | Nine Months Ended |
| ||||||||||||||
September 30, | September 30, |
| ||||||||||||||
2017 | 2016 | 2017 |
| 2016 |
| |||||||||||
(Dollars in Thousands, Except Per Share Data) |
| |||||||||||||||
Net income | $ | 635 | $ | 550 | $ | 1,455 | $ | 1,329 | ||||||||
Basic net income per share | $ | 0.10 | $ | 0.09 | $ | 0.24 | $ | 0.22 | ||||||||
Diluted net income per share | $ | 0.10 | $ | 0.09 | $ | 0.22 | $ | 0.21 |
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
|
| (Dollars in Thousands, Except Per Share Data) |
| |||||||||||||
Net income |
| $ | 1,860 |
|
| $ | 837 |
|
| $ | 4,636 |
|
| $ | 2,740 |
|
Basic net income per share |
| $ | 0.31 |
|
| $ | 0.13 |
|
| $ | 0.76 |
|
| $ | 0.43 |
|
Diluted net income per share |
| $ | 0.29 |
|
| $ | 0.13 |
|
| $ | 0.71 |
|
| $ | 0.41 |
|
Comprehensive Income
Comprehensive income consists of net income, as well as unrealized holding gains and losses that arise during the period associated with the Company’sCompany’s available-for-sale securities portfolio and the effective portion of cash flow hedge derivatives. In the calculation of comprehensive income, reclassification adjustments are made for gains or losses realized in the statement of operations associated with the sale of available-for-sale securities, settlement of derivative contracts or changes in the fair value of cash flow derivatives.
Accounting Policies Recently Adopted
ASU 2020-04 and ASU 2021-01, "Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting." These ASUs provide optional and temporary relief, in the form of optional expedients and exceptions, for applying GAAP to modifications of contracts, hedging relationships and other transactions affected by reference rate (e.g. LIBOR) reforms. The Company utilizes LIBOR, among other indexes, as a reference rate for underwriting certain variable rate loans and interest rate hedging instruments. Management has identified all contracts referencing LIBOR and will continue to monitor risks associated with the discontinuance of LIBOR until remediation of such contracts is complete. Reference rate reform has not had, nor does the Company expect it to have, a material effect on the Company’s consolidated balance sheet, operations or cash flows.
Pending Accounting Pronouncements
Accounting Standards Update (“ASU”ASU 2022-02, "Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings ("TDRs") and Vintage Disclosures." The ASU addresses and amends areas identified by the FASB as part of its post-implementation review of the accounting standard that introduced the current expected credit losses model. The amendments eliminate the accounting guidance for troubled debt restructurings by creditors that have adopted the current expected credit losses model and enhance the disclosure requirements for loan refinancings and restructurings made with borrowers experiencing financial difficulty. In addition, the amendments require disclosure of current-period gross write-offs for financing receivables and net investment in leases by year of origination in the vintage disclosures. As the Company has not yet adopted the amendments in ASU 2016-13 (See discussion below), ASU 2022-02 will become effective for the Company in the first quarter of 2023. Management is assessing the impact that adoption of this standard will have on the Company’s financial condition and results of operations in conjunction with its assessment of the impact of ASU 2016-13. The Company expects to adopt the guidance for the fiscal year beginning January 1, 2023.
ASU 2022-01, "Fair Value Hedging - Portfolio Layer Method - Derivatives and Hedging (Topic 815)." In March 2022, the FASB issued ASU 2022-01. The amendments in this standard update expand the current last-of-layer method of hedge accounting that permits only one hedged layer to allow multiple hedged layers of a single closed portfolio. This standard update is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted on any date on or after the issuance of this update for any entity that has adopted the amendments in ASU 2017-12 for the corresponding period. If an entity adopts the amendments in an interim period, the effect of adopting the amendments related to basis adjustments should be reflected as of the beginning of the fiscal year of adoption. The adoption of this standard update is not expected to have a material impact on the Company's consolidated financial statements; however, the impact will be dependent on future hedging activity.
ASU 2017-04, “Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” Issued in January 2017, ASU 2017-04 simplifies the manner in which an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. In computing the implied fair value of goodwill under Step 2, an entity, prior to the amendments in ASU 2017-04, had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities, including unrecognized assets and liabilities, in accordance with the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. However, under the amendments in ASU 2017-04, an entity should (1) perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount, and (2) recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, with the understanding that the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, ASU 2017-04 removes the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails such qualitative test, to perform Step 2 of the goodwill impairment test. As originally issued, ASU 2017-04 was effective prospectively for annual, or any interim, goodwill
11
impairment tests in fiscal years beginning after December 15, 2019. On October 16, 2019, the FASB approved a delay in the implementation of ASU 2017-04 by three years for smaller reporting companies, including the Company. The ASU will now become effective for the Company on January 1, 2023. The adoption of this standard update is not currently expected to have a material effect on the Company’s financial statements; however, the impact will be dependent on future evaluations of goodwill impairment that will continue to be performed by management on an annual basis.
ASU 2016-13, "Financial Instruments -– Credit Losses: Measurement of Credit Losses on Financial Instruments.” Issued in June 2016, ASU 2016-13 removes the thresholds that companies apply to measure credit losses on financial instruments measured at amortized cost, such as loans, receivables and held-to-maturity debt securities. Under current U.S. GAAP, companies generally recognizethe Company recognizes credit losses when it is probable that the loss has been incurred. The revised guidance will removeremoves all current recognition thresholds and will requirerequires companies to recognize an allowance for lifetime expected credit losses. Credit losses will be immediately recognized through net income;income; the amount recognized will be based on the current estimate of contractual cash flows not expected to be collected over the financial asset’s contractual term. The standard also adds disclosure requirements intended to enable users of the financial statements to understand credit risk in the portfolio and how management monitors credit quality, management’s estimate of expected credit losses, and changes in the estimate of credit losses during the period. As originally issued, ASU 2016-13 also amends the credit loss measurement guidance for available-for-sale debt securities. For public business entities, ASU 2016-13 iswas effective for financial statements issued for fiscal years and for interim periods within those fiscal years beginning after December 15, 2019. Institutions will be2019, with institutions required to apply the changes through a cumulative-effect adjustment to their retained earnings balance as of the beginning of the first reporting period in which the guidance is effective. Management is currently evaluatingOn October 16, 2019, the impact that thisFASB approved a delay in the implementation of ASU 2016-13 by three years for smaller reporting companies, including the Company. The standard will have on the Company’s consolidated financial statements.
ASU 2016-09, “Compensation-Stock Compensation (Topic 718) - Improvements to Employee Share-Based Payment Accounting.” Issued in March 2016, ASU 2016-09 seeks to reduce complexity in accounting standards by simplifying several aspects of the accounting for share-based payment transactions, including (1) accounting for income taxes; (2) classification of excess tax benefits on the statement of cash flows; (3) forfeitures; (4) minimum statutory tax withholding requirements; (5) classification of employee taxes paid on the statement of cash flows when an employer withholds shares for tax withholding purposes; (6) the practical expedient for estimating the expected term; and (7) intrinsic value. ASU 2016-09 becamenow become effective for the Company on January 1, 2017.2023. At this time, the Company expects to recognize a one-time cumulative effect adjustment to the allowance for credit losses as of the date of adoption. The magnitude of any such one-time adjustment will be dependent on circumstances as of the date of adoption, including reasonable and supportable forecasts of ASU 2016-09 did not haveexpected credit losses.
Effective September 3, 2021, ALC ceased new business development and permanently closed its 20 branch lending locations in Alabama and Mississippi to the public. The closure of ALC’s branches eliminated the majority of ALC’s full-time employment positions during the third quarter of 2021. ALC continues to service its remaining portfolio of loans from its headquarters in Mobile, Alabama. The cessation of new business and closure of ALC’s branch locations were undertaken by the Company as part of a material impact onlong-term strategy to reduce expenses, fortify asset quality, and focus the Company’s consolidated financial statements.loan growth efforts in other areas, including the Bank’s commercial lending and consumer indirect lending efforts.
Total restructuring charges incurred during the nine months ended September 30, 2022 and the year ended December 31, 2021 consisted of the following:
|
| Nine Months Ended |
|
| Year Ended |
| ||
|
| September 30, 2022 |
|
| December 31, 2021 |
| ||
|
| (Dollars in Thousands) |
| |||||
Expense Category |
|
|
|
|
|
| ||
Severance and personnel expenses |
| $ | 108 |
|
| $ | 263 |
|
Lease termination costs |
|
| 2 |
|
|
| 224 |
|
Fixed asset valuation adjustments |
|
| — |
|
|
| 239 |
|
Termination of technology contracts |
|
| 45 |
|
|
| 85 |
|
Other expenses |
|
| — |
|
|
| 93 |
|
Total expenses |
| $ | 155 |
|
| $ | 904 |
|
As of September 30, 2022, the majority of restructuring charges associated with the closure of ALC's branches have been incurred.
12
ASU 2016-05, “Derivatives and Hedging (Topic 815): Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships.”Issued in March 2016, ASU 2016-05clarifies that a change in the counterparty to a derivative instrument that has been designated as a hedging instrument under the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 815 does not, in and of itself, require de-designation of that hedging relationship, provided that all other hedge accounting criteria continue to be met. ASU 2016-05 became effective for the Company on January 1, 2017. The adoption of ASU 2016-05 did not have a material impact on the Company’s consolidated financial statements.
ASU 2016-02, “Leases (Topic 842).” Issued in February 2016, ASU 2016-02 was issued by the FASB to increase transparency and comparability among organizations by recognizing lease assets and liabilities on the balance sheet and by disclosing key information about leasing arrangements. ASU 2016-02 will require organizations that lease assets (lessees) to recognize on the balance sheet the assets and liabilities for the rights and obligations created by the lease for all operating leases under current U.S. GAAP with a term of more than 12 months. The recognition, measurement and presentation of expenses and cash flows arising from a lease are not significantly changed under ASU 2016-02, and there will continue to be differentiation between finance leases and operating leases. The accounting applied by the lessor in a lease transaction remains largely unchanged from previous U.S. GAAP. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018. Management is currently evaluating the impact that this ASU will have on the Company’s consolidated financial statements.
ASU 2016-01, “Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (An Amendment of FASB ASC 825).” Issued in January 2016, ASU 2016-01 is intended to enhance the reporting model for financial instruments to provide users of financial statements with improved decision-making information. The amendments of ASU 2016-01 include: (i) requiring equity investments, except those accounted for under the equity method of accounting or those that result in the consolidation of an investee, to be measured at fair value, with changes in fair value recognized in net income; (ii) requiring a qualitative assessment to identify impairment of equity investments without readily determinable fair values; and (iii) clarifying that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. The amendments of ASU 2016-01 are effective for interim and annual periods beginning after December 15, 2017. Management is currently evaluating the impact that this ASU will have on the Company’s consolidated financial statements.
ASU 2014-09, “Revenue from Contracts with Customers (Topic 606).” Issued in May 2014, ASU 2014-09 will add FASB ASC Topic 606, Revenue from Contracts with Customers, and will supersede revenue recognition requirements in FASB ASC Topic 605, Revenue Recognitionand certain cost guidance in FASB ASC Topic 605-35, Revenue Recognition – Construction-Type and Production-Type Contracts. ASU 2014-09 requires an entity to recognize revenue when (or as) an entity transfers control of goods or services to a customer at the amount to which the entity expects to be entitled. Depending on whether certain criteria are met, revenue should be recognized either over time, in a manner that depicts the entity’s performance, or at a point in time, when control of the goods or services is transferred to the customer. ASU 2015-14,“Revenue from Contracts with Customers (Topic 606) - Deferral of the Effective Date,” issued in August 2015, defers the effective date of ASU 2014-09 by one year. ASU 2015-14 provides that the amendments of ASU 2014-09 become effective for interim and annual periods beginning after December 15, 2017. Management is currently evaluating the impact that this ASU will have on the Company’s consolidated financial statements, as well as the most appropriate method of application. However, because this guidance does not apply to revenue associated with financial instruments, including loans and securities accounted for under other U.S. GAAP, the adoption of ASU 2014-09 is not expected to have a material impact on the Company’s consolidated financial statements. Further, management has determined that the adoption of this ASU for revenue streams reported within non-interest income that are within the scope of the accounting standard will not materially impact the Company’s consolidated financial statements.
|
|
Details of investment securities available-for-sale and held-to-maturity as of September 30, 20172022 and December 31, 20162021 were as follows:
Available-for-Sale |
| Available-for-Sale |
| |||||||||||||||||||||||||||||
September 30, 2017 |
| September 30, 2022 |
| |||||||||||||||||||||||||||||
Gross | Gross | Estimated |
|
|
|
| Gross |
|
| Gross |
|
| Estimated |
| ||||||||||||||||||
Amortized | Unrealized | Unrealized | Fair |
| Amortized |
|
| Unrealized |
|
| Unrealized |
|
| Fair |
| |||||||||||||||||
Cost | Gains | Losses | Value |
| Cost |
|
| Gains |
|
| Losses |
|
| Value |
| |||||||||||||||||
(Dollars in Thousands) |
| (Dollars in Thousands) |
| |||||||||||||||||||||||||||||
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Residential | $ | 83,391 | $ | 477 | $ | (318 | ) | $ | 83,550 |
| $ | 50,647 |
|
| $ | 1 |
|
| $ | (3,801 | ) |
| $ | 46,847 |
| |||||||
Commercial | 67,781 | 62 | (705 | ) | 67,138 |
|
| 18,324 |
|
|
| 134 |
|
|
| (418 | ) |
|
| 18,040 |
| |||||||||||
Obligations of U.S. government-sponsored agencies |
|
| 5,118 |
|
|
| — |
|
|
| (778 | ) |
|
| 4,340 |
| ||||||||||||||||
Obligations of states and political subdivisions | 5,424 | 231 | — |
| 5,655 |
|
| 3,789 |
|
|
| — |
|
|
| (127 | ) |
|
| 3,662 |
| |||||||||||
Obligations of U.S. government-sponsored agencies | 2,000 | 2 | — |
| 2,002 | |||||||||||||||||||||||||||
Corporate notes |
|
| 19,838 |
|
|
| 2 |
|
|
| (1,680 | ) |
|
| 18,160 |
| ||||||||||||||||
U.S. Treasury securities | 80 | — | — | 80 |
|
| 56,946 |
|
|
| — |
|
|
| (4,201 | ) |
|
| 52,745 |
| ||||||||||||
Total | $ | 158,676 | $ | 772 | $ | (1,023 | ) | $ | 158,425 |
| $ | 154,662 |
|
| $ | 137 |
|
| $ | (11,005 | ) |
| $ | 143,794 |
|
Held-to-Maturity |
| Held-to-Maturity |
| |||||||||||||||||||||||||||||
September 30, 2017 |
| September 30, 2022 |
| |||||||||||||||||||||||||||||
Gross | Gross | Estimated |
|
|
|
| Gross |
|
| Gross |
|
| Estimated |
| ||||||||||||||||||
Amortized | Unrealized | Unrealized | Fair |
| Amortized |
|
| Unrealized |
|
| Unrealized |
|
| Fair |
| |||||||||||||||||
Cost | Gains | Losses | Value |
| Cost |
|
| Gains |
|
| Losses |
|
| Value |
| |||||||||||||||||
(Dollars in Thousands) |
| (Dollars in Thousands) |
| |||||||||||||||||||||||||||||
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Commercial | $ | 15,976 | $ | 18 | $ | (61 | ) | $ | 15,933 |
| $ | 1,334 |
|
| $ | — |
|
| $ | (37 | ) |
| $ | 1,297 |
| |||||||
Obligations of U.S. government-sponsored agencies | 9,458 | 25 | (79 | ) | 9,404 |
|
| 675 |
|
|
| — |
|
|
| (46 | ) |
|
| 629 |
| |||||||||||
Obligations of states and political subdivisions | 1,943 | 26 | (3 | ) | 1,966 |
|
| 100 |
|
|
| — |
|
|
| (13 | ) |
|
| 87 |
| |||||||||||
Total | $ | 27,377 | $ | 69 | $ | (143 | ) | $ | 27,303 |
| $ | 2,109 |
|
| $ | — |
|
| $ | (96 | ) |
| $ | 2,013 |
|
Available-for-Sale |
| Available-for-Sale |
| |||||||||||||||||||||||||||||
December 31, 2016 |
| December 31, 2021 |
| |||||||||||||||||||||||||||||
Gross | Gross | Estimated |
|
|
|
| Gross |
|
| Gross |
|
| Estimated |
| ||||||||||||||||||
Amortized | Unrealized | Unrealized | Fair |
| Amortized |
|
| Unrealized |
|
| Unrealized |
|
| Fair |
| |||||||||||||||||
Cost | Gains | Losses | Value |
| Cost |
|
| Gains |
|
| Losses |
|
| Value |
| |||||||||||||||||
(Dollars in Thousands) |
| (Dollars in Thousands) |
| |||||||||||||||||||||||||||||
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Residential | $ | 99,922 | $ | 490 | $ | (2,003 | ) | $ | 98,409 |
| $ | 46,020 |
|
| $ | 450 |
|
| $ | (242 | ) |
| $ | 46,228 |
| |||||||
Commercial | 71,761 | 56 | (1,287 | ) | 70,530 |
|
| 24,647 |
|
|
| 371 |
|
|
| (47 | ) |
|
| 24,971 |
| |||||||||||
Obligations of U.S. government-sponsored agencies |
|
| 5,207 |
|
|
| — |
|
|
| (15 | ) |
|
| 5,192 |
| ||||||||||||||||
Obligations of states and political subdivisions | 9,759 | 390 | (7 | ) | 10,142 |
|
| 4,247 |
|
|
| 80 |
|
|
| (10 | ) |
|
| 4,317 |
| |||||||||||
Obligations of U.S. government-sponsored agencies | 2,000 | — | (7 | ) | 1,993 | |||||||||||||||||||||||||||
Corporate notes | 756 | — | — | 756 |
|
| 15,458 |
|
|
| 76 |
|
|
| (52 | ) |
|
| 15,482 |
| ||||||||||||
U.S. Treasury securities | 80 | — | — | 80 |
|
| 35,097 |
|
|
| — |
|
|
| (404 | ) |
|
| 34,693 |
| ||||||||||||
Total | $ | 184,278 | $ | 936 | $ | (3,304 | ) | $ | 181,910 |
| $ | 130,676 |
|
| $ | 977 |
|
| $ | (770 | ) |
| $ | 130,883 |
|
Held-to-Maturity |
| Held-to-Maturity |
| |||||||||||||||||||||||||||||
December 31, 2016 |
| December 31, 2021 |
| |||||||||||||||||||||||||||||
Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value |
| Amortized |
|
| Gross |
|
| Gross |
|
| Estimated |
| |||||||||||||||||
(Dollars in Thousands) |
| (Dollars in Thousands) |
| |||||||||||||||||||||||||||||
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Commercial | $ | 14,684 | $ | 5 | $ | (148 | ) | $ | 14,541 |
| $ | 2,115 |
|
| $ | 29 |
|
| $ | — |
|
| $ | 2,144 |
| |||||||
Obligations of U.S. government-sponsored agencies | 9,129 | 13 | (222 | ) | 8,920 |
|
| 768 |
|
|
| 10 |
|
|
| — |
|
|
| 778 |
| |||||||||||
Obligations of states and political subdivisions | 2,091 | 2 | (46 | ) | 2,047 |
|
| 553 |
|
|
| 2 |
|
|
| — |
|
|
| 555 |
| |||||||||||
Total | $ | 25,904 | $ | 20 | $ | (416 | ) | $ | 25,508 |
| $ | 3,436 |
|
| $ | 41 |
|
| $ | — |
|
| $ | 3,477 |
|
13
The scheduled maturities of investment securities available-for-sale and held-to-maturity as of September 30,, 2017 2022 are presented in the following table:
Available-for-Sale | Held-to-Maturity | |||||||||||||||
Amortized Cost | Estimated Fair Value | Amortized Cost | Estimated Fair Value | |||||||||||||
(Dollars in Thousands) | ||||||||||||||||
Maturing within one year | $ | 490 | $ | 496 | $ | — | $ | — | ||||||||
Maturing after one to five years | 8,674 | 8,723 | 2,048 | �� | 2,079 | |||||||||||
Maturing after five to ten years | 71,462 | 71,596 | 2,904 | 2,899 | ||||||||||||
Maturing after ten years | 78,050 | 77,610 | 22,425 | 22,325 | ||||||||||||
Total | $ | 158,676 | $ | 158,425 | $ | 27,377 | $ | 27,303 |
|
| Available-for-Sale |
|
| Held-to-Maturity |
| ||||||||||
|
| Amortized |
|
| Estimated |
|
| Amortized |
|
| Estimated |
| ||||
|
| (Dollars in Thousands) |
| |||||||||||||
Maturing within one year |
| $ | 2,518 |
|
| $ | 2,511 |
|
| $ | — |
|
| $ | — |
|
Maturing after one to five years |
|
| 60,412 |
|
|
| 56,550 |
|
|
| — |
|
|
| — |
|
Maturing after five to ten years |
|
| 73,817 |
|
|
| 67,510 |
|
|
| 1,830 |
|
|
| 1,757 |
|
Maturing after ten years |
|
| 17,915 |
|
|
| 17,223 |
|
|
| 279 |
|
|
| 256 |
|
Total |
| $ | 154,662 |
|
| $ | 143,794 |
|
| $ | 2,109 |
|
| $ | 2,013 |
|
For purposes of the maturity table, mortgage-backed securities, which are not due at a single maturity date, have been allocated over maturity groupings based on the weighted-average contractual maturities of underlying collateral. The mortgage-backed securities generally mature earlier than their weighted-average contractual maturities because of principal prepayments.
The following table reflectstables reflect gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, as of September 30, 20172022 and December 31, 2016.2021.
Available-for-Sale |
| Available-for-Sale |
| |||||||||||||||||||||||||||||
September 30, 2017 |
| September 30, 2022 |
| |||||||||||||||||||||||||||||
Less than 12 Months | 12 Months or More |
| Less than 12 Months |
|
| 12 Months or More |
| |||||||||||||||||||||||||
Fair Value | Unrealized Losses | Fair Value | Unrealized Losses |
| Fair |
|
| Unrealized |
|
| Fair |
|
| Unrealized |
| |||||||||||||||||
(Dollars in Thousands) |
| (Dollars in Thousands) |
| |||||||||||||||||||||||||||||
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Residential | $ | 38,784 | $ | (115 | ) | $ | 14,350 | $ | (203 | ) |
| $ | 26,903 |
|
| $ | (1,478 | ) |
| $ | 19,875 |
|
| $ | (2,323 | ) | ||||||
Commercial | 19,576 | (145 | ) | 37,291 | (560 | ) |
|
| 8,105 |
|
|
| (364 | ) |
|
| 535 |
|
|
| (54 | ) | ||||||||||
Obligations of U.S. government-sponsored agencies |
|
| 4,223 |
|
|
| (777 | ) |
|
| 117 |
|
|
| (1 | ) | ||||||||||||||||
Obligations of states and political subdivisions |
|
| 3,151 |
|
|
| (72 | ) |
|
| 512 |
|
|
| (55 | ) | ||||||||||||||||
Corporate notes |
|
| 13,452 |
|
|
| (1,387 | ) |
|
| 2,707 |
|
|
| (293 | ) | ||||||||||||||||
U.S. Treasury securities | 80 | — |
| — | — |
|
| 21,323 |
|
|
| (686 | ) |
|
| 31,502 |
|
|
| (3,515 | ) | |||||||||||
Total | $ | 58,440 | $ | (260 | ) | $ | 51,641 | $ | (763 | ) |
| $ | 77,157 |
|
| $ | (4,764 | ) |
| $ | 55,248 |
|
| $ | (6,241 | ) |
Held-to-Maturity |
| Held-to-Maturity |
| |||||||||||||||||||||||||||||
September 30, 2017 |
| September 30, 2022 |
| |||||||||||||||||||||||||||||
Less than 12 Months | 12 Months or More |
| Less than 12 Months |
|
| 12 Months or More |
| |||||||||||||||||||||||||
Fair Value | Unrealized Losses | Fair Value | Unrealized Losses |
| Fair |
|
| Unrealized |
|
| Fair |
|
| Unrealized |
| |||||||||||||||||
(Dollars in Thousands) |
| (Dollars in Thousands) |
| |||||||||||||||||||||||||||||
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Commercial | $ | 9,643 | $ | (58 | ) | $ | 423 | $ | (3 | ) |
| $ | 1,297 |
|
| $ | (37 | ) |
| $ | — |
|
| $ | — |
| ||||||
Obligations of U.S. government-sponsored agencies | 3,217 | (27 | ) | 4,345 | (52 | ) |
|
| 629 |
|
|
| (46 | ) |
|
| — |
|
|
| — |
| ||||||||||
Obligations of states and political subdivisions | — | — |
| 543 | (3 | ) |
|
| 87 |
|
|
| (13 | ) |
|
| — |
|
|
| — |
| ||||||||||
Total | $ | 12,860 | $ | (85 | ) | $ | 5,311 | $ | (58 | ) |
| $ | 2,013 |
|
| $ | (96 | ) |
| $ | — |
|
| $ | — |
|
Available-for-Sale | ||||||||||||||||
December 31, 2016 | ||||||||||||||||
Less than 12 Months | 12 Months or More | |||||||||||||||
Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | |||||||||||||
(Dollars in Thousands) | ||||||||||||||||
Mortgage-backed securities: | ||||||||||||||||
Residential | $ | 85,741 | $ | (1,976 | ) | $ | 1,904 | $ | (27 | ) | ||||||
Commercial | 54,475 | (946 | ) | 10,721 | (341 | ) | ||||||||||
Obligations of U.S. government-sponsored agencies | 1,993 | (7 | ) | — | — | |||||||||||
Obligations of states and political subdivisions | 434 | (7 | ) | — | — | |||||||||||
U.S. Treasury securities | 80 | — |
| — | — | |||||||||||
Total | $ | 142,723 | $ | (2,936 | ) | $ | 12,625 | $ | (368 | ) |
Held-to-Maturity | ||||||||||||||||
December 31, 2016 | ||||||||||||||||
Less than 12 Months | 12 Months or More | |||||||||||||||
Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | |||||||||||||
(Dollars in Thousands) | ||||||||||||||||
Mortgage-backed securities: | ||||||||||||||||
Commercial | $ | 12,776 | $ | (148 | ) | $ | — | $ | — | |||||||
Obligations of U.S. government-sponsored agencies | 7,957 | (222 | ) | — | — |
| ||||||||||
Obligations of states and political subdivisions | 1,628 | (46 | ) | — | — | |||||||||||
Total | $ | 22,361 | $ | (416 | ) | $ | — | $ | — |
|
14
|
| Available-for-Sale |
| |||||||||||||
|
| December 31, 2021 |
| |||||||||||||
|
| Less than 12 Months |
|
| 12 Months or More |
| ||||||||||
|
| Fair |
|
| Unrealized |
|
| Fair |
|
| Unrealized |
| ||||
|
| (Dollars in Thousands) |
| |||||||||||||
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Residential |
| $ | 31,346 |
|
| $ | (240 | ) |
| $ | 253 |
|
| $ | (2 | ) |
Commercial |
|
| 2,245 |
|
|
| (12 | ) |
|
| 2,970 |
|
|
| (35 | ) |
Obligations of U.S. government-sponsored agencies |
|
| 4,987 |
|
|
| (13 | ) |
|
| 194 |
|
|
| (2 | ) |
Obligations of states and political subdivisions |
|
| 561 |
|
|
| (10 | ) |
|
| — |
|
|
| — |
|
Corporate notes |
|
| 9,092 |
|
|
| (52 | ) |
|
| — |
|
|
| — |
|
U.S. Treasury securities |
|
| 34,692 |
|
|
| (404 | ) |
|
| — |
|
|
| — |
|
Total |
| $ | 82,923 |
|
| $ | (731 | ) |
| $ | 3,417 |
|
| $ | (39 | ) |
There were no held-to-maturity securities in an unrealized loss position as of December 31, 2021.
Due to the increasing interest rate environment during the nine months ended September 30, 2022, gross unrealized losses increased significantly, particularly within the Company’s available-for-sale portfolio. Management evaluates securities for other-than-temporary impairment no less frequently than quarterly and more frequently when economic or market concerns warrant such evaluation. Consideration is given to: (i) the length of time and the extent to which fair value has been less than cost,cost; (ii) the financial condition and near-term prospects of the issuer,issuer; (iii) whether the Company intends to sell securities,the securities; and (iv) whether it is more likely than not that the Company will be required to sell the securities before recovery of their amortized cost bases.basis.
As of September 30, 2017, 462022, 26 debt securities had been in a loss position for more than 12 months, and 75109 debt securities had been in a loss position for less than 12 months. As of December 31, 2016, 132021, 10 debt securities had been in a loss position for more than 12 months, and 13032 debt securities had been in a loss position for less than 12 months. The increase in the number of debt securities in a loss position resulted from the rising interest rate environment during the nine months ended September 30, 2022. As of both September 30, 20172022 and December 31, 2016,2021, the losses for all securities were considered to be a direct result of the effect that the prevailing interest rate environment had on the value of debt securities and were not related to the creditworthiness of the issuers. Further, the Company has the current intent and ability to retain its investments in the issuers for a period of time that management believes to be sufficient to allow for any anticipated recovery in fair value. Therefore, the Company did notnot recognize any other-than-temporary impairments as of September 30, 2017 and2022 or December 31, 2016.2021.
Investment securities available-for-sale with a carrying value of $87.1$60.9 million and $87.7$52.2 million as of September 30, 20172022 and December 31, 2016,2021, respectively, were pledged to secure public deposits and for other purposes.
|
|
Portfolio Segments
The Company has divided the loan portfolio into eightthe following portfolio segments each with differentbased on risk characteristics described as follows:characteristics:
Construction, land development and other land loans – Commercial construction, land and land development loans include loans for the development of residential housing projects, loans for the development of commercial and industrial use property, and loans for the purchase and improvement of raw land.land and loans primarily for agricultural production that are secured by farmland. These loans are secured in whole or in part by the underlying real estate collateral and are generally guaranteed by the principals of the borrowing entity.
Secured by 1-4 family residential properties– These loans include conventional mortgage loans on one-to-four family residential properties. These properties may serve as the borrower’s primary residence, vacation home or investment property. Also included in this portfolio are home equity loans and lines of credit. This type of lending, which is secured by a first or second mortgage on the borrower’s residence, allows customers to borrow against the equity in their homes.home.
Secured by multi-family residential properties – This portfolio segment includes mortgage loans secured by apartment buildings.
Secured by non-farm, non-residential properties – This portfolio segment includes real estate loans secured by commercial and industrial properties, office or mixed-use facilities, strip shopping centers or other commercial property. These loans are generally guaranteed by the principals of the borrowing entity.
15
Other real estate loans – Other real estate loans are loans primarily for agricultural production, secured by mortgages on farmland.
Commercial and industrial loansand leases – This portfolio segment includes loans and leases to commercial customers for use in the normal course of business. These credits may be loans, and lines of credit and leases to financially strong borrowers, secured by inventories, equipment or receivables, and are generally guaranteed by the principals of the borrowing entity.
Consumer loansDirect consumer – This portfolio segment includes a variety of secured and unsecured personal loans, including automobile loans, loans for household and personal purposes and all other direct consumer installment loans.
Indirect salesBranch retail – This portfolio segment includes loans secured by collateral that is purchased by consumers at retail stores with whom ALC had an established relationship through its branch network to provide financing for the retail products sold if applicable underwriting standards were met. The collateral securing these loans generally includes personal property items such as furniture, ATVs and home appliances.
Indirect – This portfolio segment includes loans secured by collateral purchased by consumers at retail stores with whom the Company has an established relationship to provide financing for the retail products sold if applicable underwriting standards are met.
The collateral securing these loans generally includes recreational vehicles, campers, boats, horse trailers and cargo trailers.
As of September 30, 20172022 and December 31, 2016,2021, the composition of the loan portfolio by reporting segment and portfolio segment was as follows:
September 30, 2017 |
| September 30, 2022 |
| |||||||||||||||||||||
Bank | ALC | Total |
| Bank |
|
| ALC |
|
| Total |
| |||||||||||||
(Dollars in Thousands) |
| (Dollars in Thousands) |
| |||||||||||||||||||||
Real estate loans: |
|
|
|
|
|
|
|
|
| |||||||||||||||
Construction, land development and other land loans | $ | 20,213 | $ | — | $ | 20,213 |
| $ | 36,740 |
|
| $ | — |
|
| $ | 36,740 |
| ||||||
Secured by 1-4 family residential properties | 35,125 | 11,490 | 46,615 |
|
| 83,231 |
|
|
| 1,680 |
|
|
| 84,911 |
| |||||||||
Secured by multi-family residential properties | 16,498 | — | 16,498 |
|
| 72,446 |
|
|
| — |
|
|
| 72,446 |
| |||||||||
Secured by non-farm, non-residential properties | 107,679 | — | 107,679 |
|
| 200,505 |
|
|
| — |
|
|
| 200,505 |
| |||||||||
Other | 223 | — | 223 | |||||||||||||||||||||
Commercial and industrial loans | 66,320 | — | 66,320 | |||||||||||||||||||||
Commercial and industrial loans and leases (1) |
|
| 65,951 |
|
|
| — |
|
|
| 65,951 |
| ||||||||||||
Consumer loans: |
|
|
|
|
|
|
|
|
| |||||||||||||||
Consumer | 5,431 | 35,650 | 41,081 | |||||||||||||||||||||
Indirect sales | — | 50,553 | 50,553 | |||||||||||||||||||||
Direct consumer |
|
| 5,685 |
|
|
| 6,594 |
|
|
| 12,279 |
| ||||||||||||
Branch retail |
|
| — |
|
|
| 16,278 |
|
|
| 16,278 |
| ||||||||||||
Indirect |
|
| 262,742 |
|
|
| — |
|
|
| 262,742 |
| ||||||||||||
Total loans | 251,489 | 97,693 | 349,182 |
|
| 727,300 |
|
|
| 24,552 |
|
|
| 751,852 |
| |||||||||
Less: Unearned interest, fees and deferred cost | 367 | 5,981 | 6,348 |
|
| 847 |
|
|
| 734 |
|
|
| 1,581 |
| |||||||||
Allowance for loan losses | 2,422 | 2,386 | 4,808 | |||||||||||||||||||||
Allowance for loan and lease losses |
|
| 8,033 |
|
|
| 1,340 |
|
|
| 9,373 |
| ||||||||||||
Net loans | $ | 248,700 | $ | 89,326 | $ | 338,026 |
| $ | 718,420 |
|
| $ | 22,478 |
|
| $ | 740,898 |
|
December 31, 2016 | ||||||||||||
Bank | ALC | Total | ||||||||||
(Dollars in Thousands) | ||||||||||||
Real estate loans: | ||||||||||||
Construction, land development and other land loans | $ | 23,772 | $ | — | $ | 23,772 | ||||||
Secured by 1-4 family residential properties | 32,955 | 13,724 | 46,679 | |||||||||
Secured by multi-family residential properties | 16,627 | — | 16,627 | |||||||||
Secured by non-farm, non-residential properties | 102,112 | — | 102,112 | |||||||||
Other | 234 | — | 234 | |||||||||
Commercial and industrial loans | 57,963 | — | 57,963 | |||||||||
Consumer loans: | ||||||||||||
Consumer | 6,206 | 36,413 | 42,619 | |||||||||
Indirect sales | — | 44,775 | 44,775 | |||||||||
Total loans | 239,869 | 94,912 | 334,781 | |||||||||
Less: Unearned interest, fees and deferred cost | 218 | 6,935 | 7,153 | |||||||||
Allowance for loan losses | 2,409 | 2,447 | 4,856 | |||||||||
Net loans | $ | 237,242 | $ | 85,530 | $ | 322,772 |
|
| December 31, 2021 |
| |||||||||
|
| Bank |
|
| ALC |
|
| Total |
| |||
|
| (Dollars in Thousands) |
| |||||||||
Real estate loans: |
|
|
|
|
|
|
|
|
| |||
Construction, land development and other land loans |
| $ | 67,048 |
|
| $ | — |
|
| $ | 67,048 |
|
Secured by 1-4 family residential properties |
|
| 70,439 |
|
|
| 2,288 |
|
|
| 72,727 |
|
Secured by multi-family residential properties |
|
| 46,000 |
|
|
| — |
|
|
| 46,000 |
|
Secured by non-farm, non-residential properties |
|
| 197,901 |
|
|
| — |
|
|
| 197,901 |
|
Commercial and industrial loans and leases (1) |
|
| 73,947 |
|
|
| — |
|
|
| 73,947 |
|
Consumer loans: |
|
|
|
|
|
|
|
|
| |||
Direct consumer |
|
| 5,972 |
|
|
| 15,717 |
|
|
| 21,689 |
|
Branch retail |
|
| — |
|
|
| 25,692 |
|
|
| 25,692 |
|
Indirect |
|
| 205,940 |
|
|
| — |
|
|
| 205,940 |
|
Total loans |
|
| 667,247 |
|
|
| 43,697 |
|
|
| 710,944 |
|
Less: Unearned interest, fees and deferred cost |
|
| (324 | ) |
|
| 2,918 |
|
|
| 2,594 |
|
Allowance for loan and lease losses |
|
| 7,038 |
|
|
| 1,282 |
|
|
| 8,320 |
|
Net loans |
| $ | 660,533 |
|
| $ | 39,497 |
|
| $ | 700,030 |
|
16
The Company makes commercial, real estate and installment loans to its customers. Although the Company has a diversified loan portfolio, 54.8%52.5% and 56.6%54.0% of the portfolio was concentrated in loans secured by real estate located primarily within a single geographic region of the United States as of September 30, 20172022 and December 31, 2016,2021, respectively.
Loans with a carrying value of $113.5 million and $66.6 million were pledged as collateral to secure Federal Home Loan Bank (“FHLB”) borrowings as of September 30, 2022 and December 31, 2021, respectively.
Related Party Loans
In the ordinary course of business, the Bank makes loans to certain officers and directors of the Company, including companies with which they are associated. These loans are made on the same terms as those prevailing for comparable transactions with non-relatedunrelated parties. Management believes that such loans do not represent more than a normal risk of collectability, nor do they present other unfavorable features. The aggregate balances of such related party loans and commitments were $0.3 million as of both September 30, 20172022 and December 31, 2016 were $0.5 million and $2.7 million, respectively.2021. During the nine months ended September 30, 2017,2022, there were no new loans to these parties, and repayments by active related parties were $7$5 thousand. In addition, during the nine months ended September 30, 2017, approximately $2.5 million in related party loans were reclassified as unrelated party loans due to the retirement of certain members of the Company’s Board of Directors. During the year ended December 31, 2016,2021, there was onewere no new loanloans to a related party,these parties, and repayments by active related parties totaled $0.1were $0.1 million.
Allowance for Loan and Lease Losses
The following tables present changes in the allowance for loan and lease losses during the nine months ended September 30, 2022 and 2021 and the related loan balances by loan portfolio segment and loan type as of September 30, 20172022 and December 31, 2016.2021:
Bank | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Nine Months Ended September 30, 2017 |
| As of and for the Nine Months Ended September 30, 2022 |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Construction, Land | 1-4 Family | Real Estate Multi- Family | Non-Farm Non-Residential | Other | Commercial | Consumer | Indirect Sales | Total |
| Construction, |
|
| Real Estate 1-4 |
|
| Real |
|
| Non- |
|
| Commercial and |
|
| Direct |
|
| Branch Retail |
|
| Indirect |
|
| Total |
| |||||||||||||||||||||||||||||||||||||
(Dollars in Thousands) |
| (Dollars in Thousands) |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Allowance for loan losses: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Allowance for loan and lease losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||
Beginning balance | $ | 535 | $ | 304 | $ | 88 | $ | 903 | $ | 2 | $ | 527 | $ | 50 | $ | — | $ | 2,409 |
| $ | 628 |
|
| $ | 690 |
|
| $ | 437 |
|
| $ | 1,958 |
|
| $ | 860 |
|
| $ | 1,004 |
|
| $ | 304 |
|
| $ | 2,439 |
|
| $ | 8,320 |
| ||||||||||||||||||
Charge-offs | — | — | — | — | — | (16 | ) | (63 | ) | — | (79 | ) |
|
| — |
|
|
| (10 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,604 | ) |
|
| (423 | ) |
|
| (238 | ) |
|
| (2,275 | ) | ||||||||||||||||||||||||
Recoveries | — | 85 | — | 69 | — | 16 | 52 | — | 222 |
|
| 2 |
|
|
| 23 |
|
|
| — |
|
|
| 4 |
|
|
| — |
|
|
| 387 |
|
|
| 97 |
|
|
| 34 |
|
|
| 547 |
| |||||||||||||||||||||||||||
Provision | (328 | ) | (141 | ) | 27 | (142 | ) | — | 440 | 14 | — | (130 | ) |
|
| (246 | ) |
|
| 89 |
|
|
| 210 |
|
|
| 30 |
|
|
| 244 |
|
|
| 1,161 |
|
|
| 445 |
|
|
| 848 |
|
|
| 2,781 |
| |||||||||||||||||||||||
Ending balance | $ | 207 | $ | 248 | $ | 115 | $ | 830 | $ | 2 | $ | 967 | $ | 53 | $ | — | $ | 2,422 |
| $ | 384 |
|
| $ | 792 |
|
| $ | 647 |
|
| $ | 1,992 |
|
| $ | 1,104 |
|
| $ | 948 |
|
| $ | 423 |
|
| $ | 3,083 |
|
| $ | 9,373 |
| ||||||||||||||||||
Ending balance of allowance attributable to loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||
Individually evaluated for impairment | $ | 62 | $ | 5 | $ | — | $ | 55 | $ | — | $ | 72 | $ | — | $ | — | $ | 194 |
| $ | — |
|
| $ | 8 |
|
| $ | — |
|
| $ | — |
|
| $ | 277 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 285 |
| ||||||||||||||||||
Collectively evaluated for impairment | 145 | 243 | 115 | 775 | 2 | 895 | 53 | — | 2,228 |
|
| 384 |
|
|
| 784 |
|
|
| 647 |
|
|
| 1,992 |
|
|
| 827 |
|
|
| 948 |
|
|
| 423 |
|
|
| 3,083 |
|
|
| 9,088 |
| |||||||||||||||||||||||||||
Total allowance for loan losses | $ | 207 | $ | 248 | $ | 115 | $ | 830 | $ | 2 | $ | 967 | $ | 53 | $ | — | $ | 2,422 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total allowance for loan and lease losses |
| $ | 384 |
|
| $ | 792 |
|
| $ | 647 |
|
| $ | 1,992 |
|
| $ | 1,104 |
|
| $ | 948 |
|
| $ | 423 |
|
| $ | 3,083 |
|
| $ | 9,373 |
| ||||||||||||||||||||||||||||||||||||
Ending balance of loans receivable: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||
Individually evaluated for impairment | $ | 86 | $ | 189 | $ | — | $ | 535 | $ | — | $ | 70 | $ | — | $ | — | $ | 880 |
| $ | 1,048 |
|
| $ | 600 |
|
| $ | — |
|
| $ | 1,765 |
|
| $ | 2,603 |
|
| $ | 18 |
|
| $ | — |
|
| $ | — |
|
| $ | 6,034 |
| ||||||||||||||||||
Collectively evaluated for impairment | 20,127 | 34,936 | 16,498 | 107,144 | 223 | 66,250 | 5,431 | — | 250,609 |
|
| 35,692 |
|
|
| 84,311 |
|
|
| 72,446 |
|
|
| 198,740 |
|
|
| 63,348 |
|
|
| 12,261 |
|
|
| 16,278 |
|
|
| 262,742 |
|
|
| 745,818 |
| |||||||||||||||||||||||||||
Loans acquired with deteriorated credit quality |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||||||||||||||||||||||||||
Total loans receivable | $ | 20,213 | $ | 35,125 | $ | 16,498 | $ | 107,679 | $ | 223 | $ | 66,320 | $ | 5,431 | $ | — | $ | 251,489 |
| $ | 36,740 |
|
| $ | 84,911 |
|
| $ | 72,446 |
|
| $ | 200,505 |
|
| $ | 65,951 |
|
| $ | 12,279 |
|
| $ | 16,278 |
|
| $ | 262,742 |
|
| $ | 751,852 |
|
ALC | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Nine Months Ended September 30, 2017 |
| As of and for the Nine Months Ended September 30, 2021 |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Construction, Land | 1-4 Family | Real Estate Multi- Family | Non-Farm Non-Residential | Other | Commercial | Consumer | Indirect Sales | Total |
| Construction, |
|
| Real Estate 1-4 |
|
| Real |
|
| Non- |
|
| Commercial and |
|
| Direct |
|
| Branch Retail |
|
| Indirect |
|
| Total |
| |||||||||||||||||||||||||||||||||||||
(Dollars in Thousands) |
| (Dollars in Thousands) |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Allowance for loan losses: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Allowance for loan and lease losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||
Beginning balance | $ | — | $ | 107 | $ | — | $ | — | $ | — | $ | — | $ | 1,717 | $ | 623 | $ | 2,447 |
| $ | 393 |
|
| $ | 639 |
|
| $ | 577 |
|
| $ | 1,566 |
|
| $ | 1,008 |
|
| $ | 1,202 |
|
| $ | 373 |
|
| $ | 1,712 |
|
| $ | 7,470 |
| ||||||||||||||||||
Charge-offs | — | (27 | ) | — | — | — | — | (1,721 | ) | (445 | ) | (2,193 | ) |
|
| (22 | ) |
|
| (6 | ) |
|
| — |
|
|
| — |
|
|
| (6 | ) |
|
| (848 | ) |
|
| (299 | ) |
|
| (365 | ) |
|
| (1,546 | ) | |||||||||||||||||||||||
Recoveries | — | 28 | — | — | — | — | 435 | 75 | 538 |
|
| 21 |
|
|
| 9 |
|
|
| — |
|
|
| 4 |
|
|
| 10 |
|
|
| 512 |
|
|
| 148 |
|
|
| 48 |
|
|
| 752 |
| |||||||||||||||||||||||||||
Provision | — | (5 | ) | — | — | — | — | 1,134 | 465 | 1,594 |
|
| 128 |
|
|
| 50 |
|
|
| (89 | ) |
|
| 415 |
|
|
| (135 | ) |
|
| 120 |
|
|
| 127 |
|
|
| 901 |
|
|
| 1,517 |
| ||||||||||||||||||||||||||
Ending balance | $ | — | $ | 103 | $ | — | $ | — | $ | — | $ | — | $ | 1,565 | $ | 718 | $ | 2,386 |
| $ | 520 |
|
| $ | 692 |
|
| $ | 488 |
|
| $ | 1,985 |
|
| $ | 877 |
|
| $ | 986 |
|
| $ | 349 |
|
| $ | 2,296 |
|
| $ | 8,193 |
| ||||||||||||||||||
Ending balance of allowance attributable to loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||
Individually evaluated for impairment | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — |
| $ | — |
|
| $ | 10 |
|
| $ | — |
|
| $ | — |
|
| $ | 58 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 68 |
| ||||||||||||||||||
Collectively evaluated for impairment | — | 103 | — | — | — | — | 1,565 | 718 | 2,386 |
|
| 520 |
|
|
| 682 |
|
|
| 488 |
|
|
| 1,985 |
|
|
| 819 |
|
|
| 986 |
|
|
| 349 |
|
|
| 2,296 |
|
|
| 8,125 |
| |||||||||||||||||||||||||||
Total allowance for loan losses | $ | — | $ | 103 | $ | — | $ | — | $ | — | $ | — | $ | 1,565 | $ | 718 | $ | 2,386 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total allowance for loan and lease losses |
| $ | 520 |
|
| $ | 692 |
|
| $ | 488 |
|
| $ | 1,985 |
|
| $ | 877 |
|
| $ | 986 |
|
| $ | 349 |
|
| $ | 2,296 |
|
| $ | 8,193 |
| ||||||||||||||||||||||||||||||||||||
Ending balance of loans receivable: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||
Individually evaluated for impairment | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — |
| $ | — |
|
| $ | 671 |
|
| $ | — |
|
| $ | 1,053 |
|
| $ | 1,015 |
|
| $ | 21 |
|
| $ | — |
|
| $ | — |
|
| $ | 2,760 |
| ||||||||||||||||||
Collectively evaluated for impairment | — | 11,490 | — | — | — | — | 35,650 | 50,553 | 97,693 |
|
| 58,175 |
|
|
| 72,430 |
|
|
| 51,420 |
|
|
| 197,692 |
|
|
| 76,664 |
|
|
| 25,824 |
|
|
| 29,764 |
|
|
| 194,154 |
|
|
| 706,123 |
| |||||||||||||||||||||||||||
Loans acquired with deteriorated credit quality |
|
| — |
|
|
| 11 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 11 |
| ||||||||||||||||||||||||||||||||||||
Total loans receivable | $ | — | $ | 11,490 | $ | — | $ | — | $ | — | $ | — | $ | 35,650 | $ | 50,553 | $ | 97,693 |
| $ | 58,175 |
|
| $ | 73,112 |
|
| $ | 51,420 |
|
| $ | 198,745 |
|
| $ | 77,679 |
|
| $ | 25,845 |
|
| $ | 29,764 |
|
| $ | 194,154 |
|
| $ | 708,894 |
|
17
Bank and ALC | ||||||||||||||||||||||||||||||||||||
Nine Months Ended September 30, 2017 | ||||||||||||||||||||||||||||||||||||
Construction, Land | 1-4 Family | Real Estate Multi- Family | Non-Farm Non-Residential | Other | Commercial | Consumer | Indirect Sales | Total | ||||||||||||||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||||||||||||||||||
Allowance for loan losses: | ||||||||||||||||||||||||||||||||||||
Beginning balance | $ | 535 | $ | 411 | $ | 88 | $ | 903 | $ | 2 | $ | 527 | $ | 1,767 | $ | 623 | $ | 4,856 | ||||||||||||||||||
Charge-offs | — | (27 | ) | — | — | — | (16 | ) | (1,784 | ) | (445 | ) | (2,272 | ) | ||||||||||||||||||||||
Recoveries | — | 113 | — | 69 | — | 16 | 487 | 75 | 760 | |||||||||||||||||||||||||||
Provision | (328 | ) | (146 | ) | 27 | (142 | ) | — | 440 | 1,148 | 465 | 1,464 | ||||||||||||||||||||||||
Ending balance | $ | 207 | $ | 351 | $ | 115 | $ | 830 | $ | 2 | $ | 967 | $ | 1,618 | $ | 718 | $ | 4,808 | ||||||||||||||||||
Ending balance of allowance attributable to loans: | ||||||||||||||||||||||||||||||||||||
Individually evaluated for impairment | $ | 62 | $ | 5 | $ | — | $ | 55 | $ | — | $ | 72 | $ | — | $ | — | $ | 194 | ||||||||||||||||||
Collectively evaluated for impairment | 145 | 346 | 115 | 775 | 2 | 895 | 1,618 | 718 | 4,614 | |||||||||||||||||||||||||||
Total allowance for loan losses | $ | 207 | $ | 351 | $ | 115 | $ | 830 | $ | 2 | $ | 967 | $ | 1,618 | $ | 718 | $ | 4,808 | ||||||||||||||||||
Ending balance of loans receivable: | ||||||||||||||||||||||||||||||||||||
Individually evaluated for impairment | $ | 86 | $ | 189 | $ | — | $ | 535 | $ | — | $ | 70 | $ | — | $ | — | $ | 880 | ||||||||||||||||||
Collectively evaluated for impairment | 20,127 | 46,426 | 16,498 | 107,144 | 223 | 66,250 | 41,081 | 50,553 | 348,302 | |||||||||||||||||||||||||||
Total loans receivable | $ | 20,213 | $ | 46,615 | $ | 16,498 | $ | 107,679 | $ | 223 | $ | 66,320 | $ | 41,081 | $ | 50,553 | $ | 349,182 |
Bank | ||||||||||||||||||||||||||||||||||||
Year Ended December 31, 2016 | ||||||||||||||||||||||||||||||||||||
Construction, Land | 1-4 Family | Real Estate Multi- Family | Non-Farm Non-Residential | Other | Commercial | Consumer | Indirect Sales | Total | ||||||||||||||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||||||||||||||||||
Allowance for loan losses: | ||||||||||||||||||||||||||||||||||||
Beginning balance | $ | 110 | $ | 138 | $ | 29 | $ | 351 | $ | 1 | $ | 659 | $ | 41 | $ | — | $ | 1,329 | ||||||||||||||||||
Charge-offs | — | (66 | ) | — | (40 | ) | — | (2 | ) | (43 | ) | — | (151 | ) | ||||||||||||||||||||||
Recoveries | 200 | 23 | — | — | — | 73 | 50 | — | 346 | |||||||||||||||||||||||||||
Provision | 225 | 209 | 59 | 592 | 1 | (203 | ) | 2 | — | 885 | ||||||||||||||||||||||||||
Ending balance | $ | 535 | $ | 304 | $ | 88 | $ | 903 | $ | 2 | $ | 527 | $ | 50 | $ | — | $ | 2,409 | ||||||||||||||||||
Ending balance of allowance attributable to loans: | ||||||||||||||||||||||||||||||||||||
Individually evaluated for impairment | $ | 423 | $ | 5 | $ | — | $ | 107 | $ | — | $ | — | $ | — | $ | — | $ | 535 | ||||||||||||||||||
Collectively evaluated for impairment | 112 | 299 | 88 | 796 | 2 | 527 | 50 | — | 1,874 | |||||||||||||||||||||||||||
Total allowance for loan losses | $ | 535 | $ | 304 | $ | 88 | $ | 903 | $ | 2 | $ | 527 | $ | 50 | $ | — | $ | 2,409 | ||||||||||||||||||
Ending balance of loans receivable: | ||||||||||||||||||||||||||||||||||||
Individually evaluated for impairment | $ | 1,361 | $ | 193 | $ | — | $ | 549 | $ | — | $ | — | $ | — | $ | — | $ | 2,103 | ||||||||||||||||||
Collectively evaluated for impairment | 22,411 | 32,762 | 16,627 | 101,563 | 234 | 57,963 | 6,206 | — | 237,766 | |||||||||||||||||||||||||||
Total loans receivable | $ | 23,772 | $ | 32,955 | $ | 16,627 | $ | 102,112 | $ | 234 | $ | 57,963 | $ | 6,206 | $ | — | $ | 239,869 |
ALC | ||||||||||||||||||||||||||||||||||||
Year Ended December 31, 2016 | ||||||||||||||||||||||||||||||||||||
Construction, Land | 1-4 Family | Real Estate Multi- Family | Non-Farm Non-Residential | Other | Commercial | Consumer | Indirect Sales | Total | ||||||||||||||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||||||||||||||||||
Allowance for loan losses: | ||||||||||||||||||||||||||||||||||||
Beginning balance | $ | — | $ | 250 | $ | — | $ | — | $ | — | $ | — | $ | 1,584 | $ | 618 | $ | 2,452 | ||||||||||||||||||
Charge-offs | — | (56 | ) | — | — |
| — | — |
| (2,218 | ) | (752 | ) | (3,026 | ) | |||||||||||||||||||||
Recoveries | — | 39 | — | — | — | — | 451 | 220 | 710 | |||||||||||||||||||||||||||
Provision | — | (126 | ) | — | — | — | — |
| 1,900 | 537 | 2,311 | |||||||||||||||||||||||||
Ending balance | $ | — | $ | 107 | $ | — | $ | — | $ | — | $ | — | $ | 1,717 | $ | 623 | $ | 2,447 | ||||||||||||||||||
Ending balance of allowance attributable to loans: | ||||||||||||||||||||||||||||||||||||
Individually evaluated for impairment | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||
Collectively evaluated for impairment | — | 107 | — | — | — | — | 1,717 | 623 | 2,447 | |||||||||||||||||||||||||||
Total allowance for loan losses | $ | — | $ | 107 | $ | — | $ | — | $ | — | $ | — | $ | 1,717 | $ | 623 | $ | 2,447 | ||||||||||||||||||
Ending balance of loans receivable: | ||||||||||||||||||||||||||||||||||||
Individually evaluated for impairment | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||
Collectively evaluated for impairment | — | 13,724 | — | — | — | — | 36,413 | 44,775 | 94,912 | |||||||||||||||||||||||||||
Total loans receivable | $ | — | $ | 13,724 | $ | — | $ | — | $ | — | $ | — | $ | 36,413 | $ | 44,775 | $ | 94,912 |
Bank and ALC | ||||||||||||||||||||||||||||||||||||
Year Ended December 31, 2016 | ||||||||||||||||||||||||||||||||||||
Construction, Land | 1-4 Family | Real Estate Multi- Family | Non-Farm Non-Residential | Other | Commercial | Consumer | Indirect Sales | Total | ||||||||||||||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||||||||||||||||||
Allowance for loan losses: | ||||||||||||||||||||||||||||||||||||
Beginning balance | $ | 110 | $ | 388 | $ | 29 | $ | 351 | $ | 1 | $ | 659 | $ | 1,625 | $ | 618 | $ | 3,781 | ||||||||||||||||||
Charge-offs | — | (122 | ) | — | (40 | ) | — | (2 | ) | (2,261 | ) | (752 | ) | (3,177 | ) | |||||||||||||||||||||
Recoveries | 200 | 62 | — | — | — | 73 | 501 | 220 | 1,056 | |||||||||||||||||||||||||||
Provision | 225 | 83 | 59 | 592 | 1 | (203 | ) | 1,902 | 537 | 3,196 | ||||||||||||||||||||||||||
Ending balance | $ | 535 | $ | 411 | $ | 88 | $ | 903 | $ | 2 | $ | 527 | $ | 1,767 | $ | 623 | $ | 4,856 | ||||||||||||||||||
Ending balance of allowance attributable to loans: | ||||||||||||||||||||||||||||||||||||
Individually evaluated for impairment | $ | 423 | $ | 5 | $ | — | $ | 107 | $ | — | $ | — | $ | — | $ | — | $ | 535 | ||||||||||||||||||
Collectively evaluated for impairment | 112 | 406 | 88 | 796 | 2 | 527 | 1,767 | 623 | 4,321 | |||||||||||||||||||||||||||
Total allowance for loan losses | $ | 535 | $ | 411 | $ | 88 | $ | 903 | $ | 2 | $ | 527 | $ | 1,767 | $ | 623 | $ | 4,856 | ||||||||||||||||||
Ending balance of loans receivable: | ||||||||||||||||||||||||||||||||||||
Individually evaluated for impairment | $ | 1,361 | $ | 193 | $ | — | $ | 549 | $ | — | $ | — | $ | — | $ | — | $ | 2,103 | ||||||||||||||||||
Collectively evaluated for impairment | 22,411 | 46,486 | 16,627 | 101,563 | 234 | 57,963 | 42,619 | 44,775 | 332,678 | |||||||||||||||||||||||||||
Total loans receivable | $ | 23,772 | $ | 46,679 | $ | 16,627 | $ | 102,112 | $ | 234 | $ | 57,963 | $ | 42,619 | $ | 44,775 | $ | 334,781 |
Credit Quality Indicators
The BankCompany utilizes a credit grading system that provides a uniform framework for establishing and monitoring credit risk in the loan portfolio. Under this system, each loan isconstruction, land, multi-family real estate, other commercial real estate, and commercial and industrial loans are graded based on pre-determined risk metrics and categorized into one of nine risk grades. These risk grades can be summarized into categories described as pass, special mention, substandard, doubtful and loss, as described in further detail below.
|
|
| Because residential real estate and consumer loans are |
|
|
|
|
|
|
At ALC, because the loan portfolio is more uniform in nature, each loan is categorized into one of two risk grades, depending on whether the loan is considered to be performing or nonperforming. Performing loans are loans that are paying principal and interest in accordance with a contractual agreement. Nonperforming loans are loans that have demonstrated characteristics that indicate a probability of loss.
The tables below illustrate the carrying amount of loans by credit quality indicator as of September 30, 2017.2022:
Bank |
| September 30, 2022 |
| |||||||||||||||||||||||||||||||||
Pass 1-5 | Special Mention 6 | Substandard 7 | Doubtful 8 | Total |
| Pass 1-5 |
|
| Special Mention 6 |
|
| Substandard 7 |
|
| Total |
| ||||||||||||||||||||
(Dollars in Thousands) |
| (Dollars in Thousands) |
| |||||||||||||||||||||||||||||||||
Loans secured by real estate: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Construction, land development and other land loans | $ | 19,939 | $ | — | $ | 274 | $ | — | $ | 20,213 |
| $ | 35,692 |
|
| $ | — |
|
| $ | 1,048 |
|
| $ | 36,740 |
| ||||||||||
Secured by 1-4 family residential properties | 34,069 | 201 | 855 | — | 35,125 | |||||||||||||||||||||||||||||||
Secured by multi-family residential properties | 16,498 | — | — | — | 16,498 |
|
| 72,446 |
|
|
| — |
|
|
| — |
|
|
| 72,446 |
| |||||||||||||||
Secured by non-farm, non-residential properties | 102,264 | 4,884 | 531 | — | 107,679 |
|
| 198,004 |
|
|
| 656 |
|
|
| 1,845 |
|
|
| 200,505 |
| |||||||||||||||
Other | 223 | — | — | — | 223 | |||||||||||||||||||||||||||||||
Commercial and industrial loans | 63,995 | 2,105 | 220 | — | 66,320 |
|
| 63,064 |
|
|
| — |
|
|
| 2,887 |
|
|
| 65,951 |
| |||||||||||||||
Consumer loans | 5,366 | — | 65 | — | 5,431 | |||||||||||||||||||||||||||||||
Total | $ | 242,354 | $ | 7,190 | $ | 1,945 | $ | — | $ | 251,489 |
| $ | 369,206 |
|
| $ | 656 |
|
| $ | 5,780 |
|
| $ | 375,642 |
| ||||||||||
As a percentage of total loans |
|
| 98.29 | % |
|
| 0.17 | % |
|
| 1.54 | % |
|
| 100.00 | % |
ALC | ||||||||||||
Performing | Nonperforming | Total | ||||||||||
(Dollars in Thousands) | ||||||||||||
Loans secured by real estate: | ||||||||||||
Secured by 1-4 family residential properties | $ | 11,292 | $ | 198 | $ | 11,490 | ||||||
Consumer loans: | ||||||||||||
Consumer | 34,609 | 1,041 | 35,650 | |||||||||
Indirect sales | 50,168 | 385 | 50,553 | |||||||||
Total | $ | 96,069 | $ | 1,624 | $ | 97,693 |
18
|
| September 30, 2022 |
| |||||||||
|
| Performing |
|
| Nonperforming |
|
| Total |
| |||
|
| (Dollars in Thousands) |
| |||||||||
Loans secured by real estate: |
|
|
|
|
|
|
|
|
| |||
Secured by 1-4 family residential properties |
| $ | 83,611 |
|
| $ | 1,300 |
|
| $ | 84,911 |
|
Consumer loans: |
|
|
|
|
|
|
|
|
| |||
Direct consumer |
|
| 12,112 |
|
|
| 167 |
|
|
| 12,279 |
|
Branch retail |
|
| 16,130 |
|
|
| 148 |
|
|
| 16,278 |
|
Indirect |
|
| 262,742 |
|
|
| — |
|
|
| 262,742 |
|
Total |
| $ | 374,595 |
|
| $ | 1,615 |
|
| $ | 376,210 |
|
As a percentage of total loans |
|
| 99.57 | % |
|
| 0.43 | % |
|
| 100.00 | % |
The tables below illustrate the carrying amount of loans by credit quality indicator as of December 31, 2016.2021:
Bank |
| December 31, 2021 |
| |||||||||||||||||||||||||||||||||
Pass 1-5 | Special Mention 6 | Substandard 7 | Doubtful 8 | Total |
| Pass 1-5 |
|
| Special Mention 6 |
|
| Substandard 7 |
|
| Total |
| ||||||||||||||||||||
(Dollars in Thousands) |
| (Dollars in Thousands) |
| |||||||||||||||||||||||||||||||||
Loans secured by real estate: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Construction, land development and other land loans | $ | 22,240 | $ | — | $ | 1,532 | $ | — | $ | 23,772 |
| $ | 67,046 |
|
| $ | — |
|
| $ | 2 |
|
| $ | 67,048 |
| ||||||||||
Secured by 1-4 family residential properties | 31,995 | 213 | 747 | — | 32,955 | |||||||||||||||||||||||||||||||
Secured by multi-family residential properties | 16,627 | — | — | — | 16,627 |
|
| 43,472 |
|
|
| 2,528 |
|
|
| — |
|
|
| 46,000 |
| |||||||||||||||
Secured by non-farm, non-residential properties | 99,082 | 2,315 | 715 | — | 102,112 |
|
| 189,425 |
|
|
| 7,442 |
|
|
| 1,034 |
|
|
| 197,901 |
| |||||||||||||||
Other | 234 | — | — | — | 234 | |||||||||||||||||||||||||||||||
Commercial and industrial loans | 55,481 | 2,227 | 255 | — | 57,963 |
|
| 72,116 |
|
|
| 333 |
|
|
| 1,498 |
|
|
| 73,947 |
| |||||||||||||||
Consumer loans | 6,126 | — | 80 | — | 6,206 | |||||||||||||||||||||||||||||||
Total | $ | 231,785 | $ | 4,755 | $ | 3,329 | $ | — | $ | 239,869 |
| $ | 372,059 |
|
| $ | 10,303 |
|
| $ | 2,534 |
|
| $ | 384,896 |
| ||||||||||
As a percentage of total loans |
|
| 96.66 | % |
|
| 2.68 | % |
|
| 0.66 | % |
|
| 100.00 | % |
ALC | ||||||||||||
Performing | Nonperforming | Total | ||||||||||
(Dollars in Thousands) | ||||||||||||
Loans secured by real estate: | ||||||||||||
Secured by 1-4 family residential properties | $ | 13,507 | $ | 217 | $ | 13,724 | ||||||
Consumer loans: | ||||||||||||
Consumer | 35,278 | 1,135 | 36,413 | |||||||||
Indirect sales | 44,228 | 547 | 44,775 | |||||||||
Total | $ | 93,013 | $ | 1,899 | $ | 94,912 |
|
| December 31, 2021 |
| |||||||||
|
| Performing |
|
| Nonperforming |
|
| Total |
| |||
|
| (Dollars in Thousands) |
| |||||||||
Loans secured by real estate: |
|
|
|
|
|
|
|
|
| |||
Secured by 1-4 family residential properties |
| $ | 71,526 |
|
| $ | 1,201 |
|
| $ | 72,727 |
|
Consumer loans: |
|
|
|
|
|
|
|
|
| |||
Direct consumer |
|
| 20,939 |
|
|
| 750 |
|
|
| 21,689 |
|
Branch retail |
|
| 25,486 |
|
|
| 206 |
|
|
| 25,692 |
|
Indirect |
|
| 205,940 |
|
|
| — |
|
|
| 205,940 |
|
Total |
| $ | 323,891 |
|
| $ | 2,157 |
|
| $ | 326,048 |
|
As a percentage of total loans |
|
| 99.34 | % |
|
| 0.66 | % |
|
| 100.00 | % |
19
The following tables providetable provides an aging analysis of past due loans by class as of September 30, 2017.2022:
Bank | ||||||||||||||||||||||||||||
As of September 30, 2017 | ||||||||||||||||||||||||||||
30-59 Days Past Due | 60-89 Days Past Due | 90 Days Or Greater | Total Past Due | Current | Total Loans | Recorded Investment > 90 Days And Accruing | ||||||||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||||||||||
Loans secured by real estate: | ||||||||||||||||||||||||||||
Construction, land development and other land loans | $ | 23 | $ | — | $ | — | $ | 23 | $ | 20,190 | $ | 20,213 | $ | — | ||||||||||||||
Secured by 1-4 family residential properties | 149 | — | 91 | 240 | 34,885 | 35,125 | — | |||||||||||||||||||||
Secured by multi-family residential properties | — | — | — | — | 16,498 | 16,498 | — | |||||||||||||||||||||
Secured by non-farm, non-residential properties | 15 | 117 | — | 132 | 107,547 | 107,679 | — | |||||||||||||||||||||
Other | — | — | — | — | 223 | 223 | — | |||||||||||||||||||||
Commercial and industrial loans | 31 | — | — | 31 | 66,289 | 66,320 | — | |||||||||||||||||||||
Consumer loans | — | — | 23 | 23 | 5,408 | 5,431 | — | |||||||||||||||||||||
Total | $ | 218 | $ | 117 | $ | 114 | $ | 449 | $ | 251,040 | $ | 251,489 | $ | — |
|
| As of September 30, 2022 |
| |||||||||||||||||||||||||
|
| 30-59 |
|
| 60-89 |
|
| 90 |
|
| Total |
|
| Current |
|
| Total |
|
| Recorded |
| |||||||
|
| (Dollars in Thousands) |
| |||||||||||||||||||||||||
Loans secured by real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Construction, land development |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 36,740 |
|
| $ | 36,740 |
|
| $ | — |
|
Secured by 1-4 family residential |
|
| 288 |
|
|
| 15 |
|
|
| 223 |
|
|
| 526 |
|
|
| 84,385 |
|
|
| 84,911 |
|
|
| — |
|
Secured by multi-family residential |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 72,446 |
|
|
| 72,446 |
|
|
| — |
|
Secured by non-farm, non-residential |
|
| 382 |
|
|
| — |
|
|
| — |
|
|
| 382 |
|
|
| 200,123 |
|
|
| 200,505 |
|
|
| — |
|
Commercial and industrial loans |
|
| 406 |
|
|
| — |
|
|
| — |
|
|
| 406 |
|
|
| 65,545 |
|
|
| 65,951 |
|
|
| — |
|
Consumer loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Direct consumer |
|
| 289 |
|
|
| 143 |
|
|
| 150 |
|
|
| 582 |
|
|
| 11,697 |
|
|
| 12,279 |
|
|
| — |
|
Branch retail |
|
| 195 |
|
|
| 142 |
|
|
| 148 |
|
|
| 485 |
|
|
| 15,793 |
|
|
| 16,278 |
|
|
| — |
|
Indirect |
|
| 101 |
|
|
| — |
|
|
| 59 |
|
|
| 160 |
|
|
| 262,583 |
|
|
| 262,742 |
|
|
| — |
|
Total |
| $ | 1,661 |
|
| $ | 300 |
|
| $ | 580 |
|
| $ | 2,541 |
|
| $ | 749,312 |
|
| $ | 751,852 |
|
| $ | — |
|
As a percentage of total loans |
|
| 0.22 | % |
|
| 0.04 | % |
|
| 0.08 | % |
|
| 0.34 | % |
|
| 99.66 | % |
|
| 100.00 | % |
|
|
|
ALC | ||||||||||||||||||||||||||||
As of September 30, 2017 | ||||||||||||||||||||||||||||
30-59 Days Past Due | 60-89 Days Past Due | 90 Days Or Greater | Total Past Due | Current | Total Loans | Recorded Investment > 90 Days And Accruing | ||||||||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||||||||||
Loans secured by real estate: | ||||||||||||||||||||||||||||
Construction, land development and other land loans | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||
Secured by 1-4 family residential properties | 73 | 70 | 71 | 214 | 11,276 | 11,490 | — | |||||||||||||||||||||
Secured by multi-family residential properties | — | — | — | — | — | — | — | |||||||||||||||||||||
Secured by non-farm, non-residential properties | — | — | — | — | — | — | — | |||||||||||||||||||||
Other | — | — | — | — | — | — | — | |||||||||||||||||||||
Commercial and industrial loans | — | — | — | — | — | — | — | |||||||||||||||||||||
Consumer loans: | ||||||||||||||||||||||||||||
Consumer | 506 | 433 | 1,016 | 1,955 | 33,695 | 35,650 | — | |||||||||||||||||||||
Indirect sales | 214 | 221 | 383 | 818 | 49,735 | 50,553 | — | |||||||||||||||||||||
Total | $ | 793 | $ | 724 | $ | 1,470 | $ | 2,987 | $ | 94,706 | $ | 97,693 | $ | — |
The following tables providetable provides an aging analysis of past due loans by class as of December 31, 2016.2021:
Bank | ||||||||||||||||||||||||||||
As of December 31, 2016 | ||||||||||||||||||||||||||||
30-59 Days Past Due | 60-89 Days Past Due | 90 Days Or Greater | Total Past Due | Current | Total Loans | Recorded Investment > 90 Days And Accruing | ||||||||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||||||||||
Loans secured by real estate: | ||||||||||||||||||||||||||||
Construction, land development and other land loans | $ | — | $ | — | $ | 86 | $ | 86 | $ | 23,686 | $ | 23,772 | $ | — | ||||||||||||||
Secured by 1-4 family residential properties | 164 | 69 | 145 | 378 | 32,577 | 32,955 | — | |||||||||||||||||||||
Secured by multi-family residential properties | — | — | — | — | 16,627 | 16,627 | — | |||||||||||||||||||||
Secured by non-farm, non-residential properties | 762 | — | — | 762 | 101,350 | 102,112 | — | |||||||||||||||||||||
Other | — | — | — | — | 234 | 234 | — | |||||||||||||||||||||
Commercial and industrial loans | — | — | 14 | 14 | 57,949 | 57,963 | — | |||||||||||||||||||||
Consumer loans | — | 28 | — | 28 | 6,178 | 6,206 | — | |||||||||||||||||||||
Total | $ | 926 | $ | 97 | $ | 245 | $ | 1,268 | $ | 238,601 | $ | 239,869 | $ | — |
|
| As of December 31, 2021 |
| |||||||||||||||||||||||||
|
| 30-59 |
|
| 60-89 |
|
| 90 |
|
| Total |
|
| Current |
|
| Total |
|
| Recorded |
| |||||||
|
| (Dollars in Thousands) |
| |||||||||||||||||||||||||
Loans secured by real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Construction, land development |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 67,048 |
|
| $ | 67,048 |
|
| $ | — |
|
Secured by 1-4 family residential |
|
| 349 |
|
|
| 23 |
|
|
| 20 |
|
|
| 392 |
|
|
| 72,335 |
|
|
| 72,727 |
|
|
| — |
|
Secured by multi-family residential |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 46,000 |
|
|
| 46,000 |
|
|
| — |
|
Secured by non-farm, non-residential |
|
| 403 |
|
|
| — |
|
|
| — |
|
|
| 403 |
|
|
| 197,498 |
|
|
| 197,901 |
|
|
| — |
|
Commercial and industrial loans |
|
| 54 |
|
|
| — |
|
|
| 234 |
|
|
| 288 |
|
|
| 73,659 |
|
|
| 73,947 |
|
|
| — |
|
Consumer loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Direct consumer |
|
| 652 |
|
|
| 589 |
|
|
| 730 |
|
|
| 1,971 |
|
|
| 19,718 |
|
|
| 21,689 |
|
|
| — |
|
Branch retail |
|
| 377 |
|
|
| 182 |
|
|
| 206 |
|
|
| 765 |
|
|
| 24,927 |
|
|
| 25,692 |
|
|
| — |
|
Indirect |
|
| 43 |
|
|
| 14 |
|
|
| — |
|
|
| 57 |
|
|
| 205,883 |
|
|
| 205,940 |
|
|
| — |
|
Total |
| $ | 1,878 |
|
| $ | 808 |
|
| $ | 1,190 |
|
| $ | 3,876 |
|
| $ | 707,068 |
|
| $ | 710,944 |
|
| $ | — |
|
As a percentage of total loans |
|
| 0.27 | % |
|
| 0.11 | % |
|
| 0.17 | % |
|
| 0.55 | % |
|
| 99.45 | % |
|
| 100.00 | % |
|
|
|
20
ALC | ||||||||||||||||||||||||||||
As of December 31, 2016 | ||||||||||||||||||||||||||||
30-59 Days Past Due | 60-89 Days Past Due | 90 Days Or Greater | Total Past Due | Current | Total Loans | Recorded Investment > 90 Days And Accruing | ||||||||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||||||||||
Loans secured by real estate: | ||||||||||||||||||||||||||||
Construction, land development and other land loans | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||
Secured by 1-4 family residential properties | 61 | 29 | 213 | 303 | 13,421 | 13,724 | — | |||||||||||||||||||||
Secured by multi-family residential properties | — | — | — | — | — | — | — | |||||||||||||||||||||
Secured by non-farm, non-residential properties | — | — | — | — | — | — | — | |||||||||||||||||||||
Other | — | — | — | — | — | — | — | |||||||||||||||||||||
Commercial and industrial loans | — | — | — | — | — | — | — | |||||||||||||||||||||
Consumer loans: | ||||||||||||||||||||||||||||
Consumer | 441 | 413 | 1,104 | 1,958 | 34,455 | 36,413 | — | |||||||||||||||||||||
Indirect sales | 191 | 139 | 489 | 819 | 43,956 | 44,775 | — | |||||||||||||||||||||
Total | $ | 693 | $ | 581 | $ | 1,806 | $ | 3,080 | $ | 91,832 | $ | 94,912 | $ | — |
The following table provides an analysis of non-accruing loans by class as of September 30, 20172022 and December 31, 2016.2021:
Loans on Non-Accrual Status |
| Loans on Non-Accrual Status |
| |||||||||||||
September 30, 2017 | December 31, 2016 |
| September 30, 2022 |
|
| December 31, 2021 |
| |||||||||
(Dollars in Thousands) |
| (Dollars in Thousands) |
| |||||||||||||
Loans secured by real estate: |
|
|
|
|
|
| ||||||||||
Construction, land development and other land loans | $ | — | $ | 86 |
| $ | — |
|
| $ | 2 |
| ||||
Secured by 1-4 family residential properties | 418 | 570 |
|
| 1,090 |
|
|
| 780 |
| ||||||
Secured by multi-family residential properties | — | — |
|
| — |
|
|
| — |
| ||||||
Secured by non-farm, non-residential properties | 33 | 53 |
|
| — |
|
|
| — |
| ||||||
Commercial and industrial loans | 14 | 32 |
|
| 631 |
|
|
| 277 |
| ||||||
Consumer loans: |
|
|
|
|
|
| ||||||||||
Consumer | 1,106 | 1,676 | ||||||||||||||
Indirect sales | 385 | — | ||||||||||||||
Direct consumer |
|
| 149 |
|
|
| 743 |
| ||||||||
Branch retail |
|
| 148 |
|
|
| 206 |
| ||||||||
Indirect |
|
| 59 |
|
|
| — |
| ||||||||
Total loans | $ | 1,956 | $ | 2,417 |
| $ | 2,077 |
|
| $ | 2,008 |
|
21
Impaired Loans
A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the related loan agreement. If a loan is impaired, a specific valuation allowance is allocated, if necessary, so that the loan is reported at the present value of estimated future cash flows using the loan’sloan’s existing rate or at the fair value of collateral if repayment is expected solely from the liquidation of the collateral atcollateral. At the Bank.Bank, all loans of $0.5 million or more that have a credit quality risk grade of seven or above are identified for impairment analysis. At management’s discretion, additional loans may be impaired based on homogeneous factors such as changes in the nature and volume of the portfolio, portfolio quality, adequacy of the underlying collateral value, loan concentrations, historical charge-off trends and economic conditions that may affect athe borrower’s ability to pay. At ALC, all real estate loans of $0.1 million$50 thousand or more that are 90 days or more past due are identified for impairment analysis. There are currentlyAs of both September 30, 2022 and December 31, 2021, there were $0.1 million of impaired loans with no loansrelated allowance recorded at ALC that meet that criteria. All loans of $0.5 million or more that have a credit quality risk grade of seven or above are identified for impairment analysis.ALC. Impaired loans, or portions thereof, are charged off when deemed uncollectable.
As of September 30, 2017,2022, the carrying amount of the Company’s impaired loans consisted of the following:
|
| September 30, 2022 |
| |||||||||||||||||||||
|
| Carrying |
|
| Unpaid |
|
| Related |
| |||||||||||||||
September 30, 2017 |
| (Dollars in Thousands) |
| |||||||||||||||||||||
Impaired loans with no related allowance recorded | Carrying Amount | Unpaid Principal Balance | Related Allowances |
|
|
|
|
|
|
|
|
| ||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||||||
Loans secured by real estate |
|
|
|
|
|
|
|
|
| |||||||||||||||
Construction, land development and other land loans | $ | — | $ | — | $ | — |
| $ | 1,048 |
|
| $ | 1,048 |
|
| $ | — |
| ||||||
Secured by 1-4 family residential properties | — | — | — |
|
| 585 |
|
|
| 585 |
|
|
| — |
| |||||||||
Secured by multi-family residential properties | — | — | — |
|
| — |
|
|
| — |
|
|
| — |
| |||||||||
Secured by non-farm, non-residential properties | — | — | — |
|
| 1,765 |
|
|
| 1,765 |
|
|
| — |
| |||||||||
Commercial and industrial | — | — | — |
|
| 2,249 |
|
|
| 2,249 |
|
|
| — |
| |||||||||
Direct consumer |
|
| 18 |
|
|
| 18 |
|
|
| — |
| ||||||||||||
Total loans with no related allowance recorded | $ | — | $ | — | $ | — |
| $ | 5,665 |
|
| $ | 5,665 |
|
| $ | — |
| ||||||
Impaired loans with an allowance recorded |
|
|
|
|
|
|
|
|
| |||||||||||||||
Loans secured by real estate |
|
|
|
|
|
|
|
|
| |||||||||||||||
Construction, land development and other land loans | $ | 86 | $ | 86 | $ | 62 |
| $ | — |
|
| $ | — |
|
| $ | — |
| ||||||
Secured by 1-4 family residential properties | 189 | 189 | 5 |
|
| 15 |
|
|
| 15 |
|
|
| 8 |
| |||||||||
Secured by multi-family residential properties | — | — | — |
|
| — |
|
|
| — |
|
|
| — |
| |||||||||
Secured by non-farm, non-residential properties | 535 | 535 | 55 |
|
| — |
|
|
| — |
|
|
| — |
| |||||||||
Commercial and industrial | 70 | 70 | 72 |
|
| 354 |
|
|
| 354 |
|
|
| 277 |
| |||||||||
Direct consumer |
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||
Total loans with an allowance recorded | $ | 880 | $ | 880 | $ | 194 |
| $ | 369 |
|
| $ | 369 |
|
| $ | 285 |
| ||||||
Total impaired loans |
|
|
|
|
|
|
|
|
| |||||||||||||||
Loans secured by real estate |
|
|
|
|
|
|
|
|
| |||||||||||||||
Construction, land development and other land loans | $ | 86 | $ | 86 | $ | 62 |
| $ | 1,048 |
|
| $ | 1,048 |
|
| $ | — |
| ||||||
Secured by 1-4 family residential properties | 189 | 189 | 5 |
|
| 600 |
|
|
| 600 |
|
|
| 8 |
| |||||||||
Secured by multi-family residential properties | — | — | — |
|
| — |
|
|
| — |
|
|
| — |
| |||||||||
Secured by non-farm, non-residential properties | 535 | 535 | 55 |
|
| 1,765 |
|
|
| 1,765 |
|
|
| — |
| |||||||||
Commercial and industrial | 70 | 70 | 72 |
|
| 2,603 |
|
|
| 2,603 |
|
|
| 277 |
| |||||||||
Direct consumer |
|
| 18 |
|
|
| 18 |
|
|
| — |
| ||||||||||||
Total impaired loans | $ | 880 | $ | 880 | $ | 194 |
| $ | 6,034 |
|
| $ | 6,034 |
|
| $ | 285 |
|
22
As of December 31, 2016,2021, the carrying amount of the Company’s impaired loans consisted of the following:
|
| December 31, 2021 |
| |||||||||||||||||||||
|
| Carrying |
|
| Unpaid |
|
| Related |
| |||||||||||||||
December 31, 2016 |
| (Dollars in Thousands) |
| |||||||||||||||||||||
Impaired loans with no related allowance recorded | Carrying Amount | Unpaid Principal Balance | Related Allowances |
|
|
|
|
|
|
|
|
| ||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||||||
Loans secured by real estate |
|
|
|
|
|
|
|
|
| |||||||||||||||
Construction, land development and other land loans | $ | — | $ | — | $ | — |
| $ | — |
|
| $ | — |
|
| $ | — |
| ||||||
Secured by 1-4 family residential properties | — | — | — |
|
| 630 |
|
|
| 630 |
|
|
| — |
| |||||||||
Secured by multi-family residential properties | — | — | — |
|
| — |
|
|
| — |
|
|
| — |
| |||||||||
Secured by non-farm, non-residential properties | — | — | — |
|
| 1,051 |
|
|
| 1,051 |
|
|
| — |
| |||||||||
Commercial and industrial | — | — | — |
|
| 823 |
|
|
| 823 |
|
|
| — |
| |||||||||
Direct consumer |
|
| 21 |
|
|
| 21 |
|
|
| — |
| ||||||||||||
Total loans with no related allowance recorded | $ | — | $ | — | $ | — |
| $ | 2,525 |
|
| $ | 2,525 |
|
| $ | — |
| ||||||
Impaired loans with an allowance recorded |
|
|
|
|
|
|
|
|
| |||||||||||||||
Loans secured by real estate |
|
|
|
|
|
|
|
|
| |||||||||||||||
Construction, land development and other land loans | $ | 1,361 | $ | 1,361 | $ | 423 |
| $ | — |
|
| $ | — |
|
| $ | — |
| ||||||
Secured by 1-4 family residential properties | 193 | 193 | 5 |
|
| 16 |
|
|
| 16 |
|
|
| 10 |
| |||||||||
Secured by multi-family residential properties | — | — | — |
|
| — |
|
|
| — |
|
|
| — |
| |||||||||
Secured by non-farm, non-residential properties | 549 | 549 | 107 |
|
| — |
|
|
| — |
|
|
| — |
| |||||||||
Commercial and industrial | — | — | — |
|
| 57 |
|
|
| 57 |
|
|
| 57 |
| |||||||||
Direct consumer |
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||
Total loans with an allowance recorded | $ | 2,103 | $ | 2,103 | $ | 535 |
| $ | 73 |
|
| $ | 73 |
|
| $ | 67 |
| ||||||
Total impaired loans |
|
|
|
|
|
|
|
|
| |||||||||||||||
Loans secured by real estate |
|
|
|
|
|
|
|
|
| |||||||||||||||
Construction, land development and other land loans | $ | 1,361 | $ | 1,361 | $ | 423 |
| $ | — |
|
| $ | — |
|
| $ | — |
| ||||||
Secured by 1-4 family residential properties | 193 | 193 | 5 |
|
| 646 |
|
|
| 646 |
|
|
| 10 |
| |||||||||
Secured by multi-family residential properties | — | — | — |
|
| — |
|
|
| — |
|
|
| — |
| |||||||||
Secured by non-farm, non-residential properties | 549 | 549 | 107 |
|
| 1,051 |
|
|
| 1,051 |
|
|
| — |
| |||||||||
Commercial and industrial | — | — | — |
|
| 880 |
|
|
| 880 |
|
|
| 57 |
| |||||||||
Direct consumer |
|
| 21 |
|
|
| 21 |
|
|
| — |
| ||||||||||||
Total impaired loans | $ | 2,103 | $ | 2,103 | $ | 535 |
| $ | 2,598 |
|
| $ | 2,598 |
|
| $ | 67 |
|
The average net investment in impaired loans and interest income recognized and received on impaired loans as ofduring the nine months ended September 30, 20172022 and the year ended December 31, 20162021 were as follows:
|
| Nine Months Ended September 30, 2022 |
| |||||||||
|
| Average |
|
| Interest |
|
| Interest |
| |||
|
| (Dollars in Thousands) |
| |||||||||
Loans secured by real estate |
|
|
|
|
|
|
|
|
| |||
Construction, land development and other land loans |
| $ | 116 |
|
| $ | 2 |
|
| $ | — |
|
Secured by 1-4 family residential properties |
|
| 624 |
|
|
| 4 |
|
|
| 4 |
|
Secured by multi-family residential properties |
|
| — |
|
|
| — |
|
|
| — |
|
Secured by non-farm, non-residential properties |
|
| 1,116 |
|
|
| 38 |
|
|
| 35 |
|
Commercial and industrial |
|
| 872 |
|
|
| 7 |
|
|
| 4 |
|
Direct consumer |
|
| 19 |
|
|
| 1 |
|
|
| 1 |
|
Total |
| $ | 2,747 |
|
| $ | 52 |
|
| $ | 44 |
|
23
September 30, 2017 | ||||||||||||
Average Recorded Investment | Interest Income Recognized | Interest Income Received | ||||||||||
(Dollars in Thousands) | ||||||||||||
Loans secured by real estate | ||||||||||||
Construction, land development and other land loans | $ | 1,183 | $ | 1 | $ | 1 | ||||||
Secured by 1-4 family residential properties | 191 | 10 | 11 | |||||||||
Secured by multi-family residential properties | — | — | — | |||||||||
Secured by non-farm, non-residential properties | 539 | 27 | 25 | |||||||||
Commercial and industrial | 55 | 6 | 3 | |||||||||
Total | $ | 1,968 | $ | 44 | $ | 40 |
|
| Year Ended December 31, 2021 |
| |||||||||
|
| Average |
|
| Interest |
|
| Interest |
| |||
|
| (Dollars in Thousands) |
| |||||||||
Loans secured by real estate |
|
|
|
|
|
|
|
|
| |||
Construction, land development and other land loans |
| $ | — |
|
| $ | — |
|
| $ | — |
|
Secured by 1-4 family residential properties |
|
| 773 |
|
|
| 31 |
|
|
| 31 |
|
Secured by multi-family residential properties |
|
| — |
|
|
| — |
|
|
| — |
|
Secured by non-farm, non-residential properties |
|
| 2,377 |
|
|
| 140 |
|
|
| 108 |
|
Commercial and industrial |
|
| 637 |
|
|
| 61 |
|
|
| 40 |
|
Direct consumer |
|
| 22 |
|
|
| 9 |
|
|
| 2 |
|
Total |
| $ | 3,809 |
|
| $ | 241 |
|
| $ | 181 |
|
December 31, 2016 | ||||||||||||
Average Recorded Investment | Interest Income Recognized | Interest Income Received | ||||||||||
(Dollars in Thousands) | ||||||||||||
Loans secured by real estate | ||||||||||||
Construction, land development and other land loans | $ | 1,381 | $ | 41 | $ | 39 | ||||||
Secured by 1-4 family residential properties | 232 | 14 | 14 | |||||||||
Secured by multi-family residential properties | — | — | — | |||||||||
Secured by non-farm, non-residential properties | 557 | 33 | 31 | |||||||||
Commercial and industrial | — | — | — | |||||||||
Total | $ | 2,170 | $ | 88 | $ | 84 |
Loans on which the accrual of interest has been discontinued amounted to $2.0$2.1 million and $2.4$2.0 million as of September 30, 20172022 and December 31, 2016,2021, respectively. If interest on those loans had been accrued, there would have been $5$17 thousand and $35$52 thousand of interest accrued for the periods ended September 30, 20172022 and December 31, 2016,2021, respectively. Interest income related to these loans as offor the nine months ended September 30, 20172022 and the year ended December 31, 20162021 was $3$27 thousand and $4$30 thousand, respectively.
Troubled Debt Restructurings
Troubled debt restructurings include loans with respect to which concessions have been granted to borrowers that generally would not have otherwise been considered had the borrowers not been experiencing financial difficulty. The concessions granted may include payment schedule modifications, interest rate reductions, maturity date extensions, modificationsmodifications of note structure, principal balance reductions or some combination of these concessions. There were no loans modified with concessions granted during the nine-month periodnine months ended September 30, 2017.2022 and two loans with balances totaling $0.6 million modified with concessions granted during the year ended December 31, 2021. Restructured loans may involve loans remaining on non-accrual, moving to non-accrual or continuing on accrual status, depending on the individual facts and circumstances of the borrower. Non-accrual restructured loans are included with all other non-accrual loans. In addition, all accruing restructured loans are reported as troubled debt restructurings. Generally, restructured loans remain on non-accrual until the customer has attained a sustained period of repayment performance under the modified loan terms (generally a minimum of six months). However, performance prior to the restructuring, or significant events that coincide with the restructuring, are considered in assessing whether the borrower can meet the new terms and whether the loan should be returned to or maintained on non-accrual status. If the borrower’s ability to meet the revised payment schedule is not reasonably assured, then the loan remains on non-accrual. As of both September 30, 2017 and December 31, 2016, theThe Company had $0.1 million ofdid not have any non-accruing loans that were previously restructured and that remained on non-accrual status.status as of both September 30, 2022 and December 31, 2021. For both the nine months ended September 30, 2017,2022 and the year ended December 31, 2021, the Company had no loans that were restored to accrual status based on a sustained period of repayment performance. For the year ended December 31, 2016, the Company had $0.3 million in restructured loans that were restored to accrual status based on a sustained period of repayment performance.
The following table provides, as of September 30, 2022 and December 31, 2021, the number of loans remaining in each loan category as of September 30, 2017 and December 31, 2016 that the BankCompany had previously modified in a troubled debt restructuring, as well as the pre- and post-modification principal balance as of each date.
September 30, 2017 | December 31, 2016 | |||||||||||||||||||||||
Number of Loans | Pre- Modification Outstanding Principal Balance | Post- Modification Principal Balance | Number of Loans | Pre- Modification Outstanding Principal Balance | Post- Modification Principal Balance | |||||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||||||
Loans secured by real estate: | ||||||||||||||||||||||||
Construction, land development and other land loans | 1 | $ | 107 | $ | 84 | 2 | $ | 1,960 | $ | 1,286 | ||||||||||||||
Secured by 1-4 family residential properties | 3 | 318 | 188 | 3 | 318 | 249 | ||||||||||||||||||
Secured by non-farm, non-residential properties | 1 | 53 | 38 | 1 | 53 | 41 | ||||||||||||||||||
Commercial loans | 2 | 116 | 83 | 2 | 116 | 88 | ||||||||||||||||||
Total | 7 | $ | 594 | $ | 393 | 8 | $ | 2,447 | $ | 1,664 |
|
| September 30, 2022 |
|
| December 31, 2021 |
| ||||||||||||||||||
|
| Number |
|
| Pre- |
|
| Post- |
|
| Number |
|
| Pre- |
|
| Post- |
| ||||||
|
| (Dollars in Thousands) |
| |||||||||||||||||||||
Loans secured by real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Construction, land development and other land |
|
| 1 |
|
| $ | 107 |
|
| $ | — |
|
|
| 1 |
|
| $ | 107 |
|
| $ | — |
|
Secured by 1-4 family residential properties |
|
| 2 |
|
|
| 59 |
|
|
| 12 |
|
|
| 2 |
|
|
| 59 |
|
|
| 12 |
|
Secured by non-farm, non-residential properties |
|
| 2 |
|
|
| 621 |
|
|
| 613 |
|
|
| 2 |
|
|
| 621 |
|
|
| 617 |
|
Commercial loans |
|
| 2 |
|
|
| 116 |
|
|
| 24 |
|
|
| 2 |
|
|
| 116 |
|
|
| 31 |
|
Total |
|
| 7 |
|
| $ | 903 |
|
| $ | 649 |
|
|
| 7 |
|
| $ | 903 |
|
| $ | 660 |
|
As of September 30, 20172022 and December 31, 2016, 2021, no loans that previously had been modified in a troubled debt restructuring had defaulted subsequent to modification.
24
Restructured loan modifications primarily included maturity date extensions and payment schedule modifications. There were no modifications to principal balances of the loans that were restructured. Accordingly, there was no impact on the Company’sCompany’s allowance for loan and lease losses resulting from the modifications.
All loans with a principal balance of $0.5$0.5 million or more that have been modified in a troubled debt restructuring are considered impaired and evaluated individually for impairment. The nature and extent of impairment of restructured loans, including those that have experienced a subsequent payment default, are considered in the determination of an appropriate level of allowance for loan and lease losses. This evaluation resulted in an allowance for loan and lease losses attributable to such restructured loans of $37 thousand as of both September 30, 20172022 and $15 thousand as of December 31, 2016.2021.
Other Real Estate Owned
|
|
Other real estate and certain other assets acquired in foreclosure are reported at the lower of the investment in the loan or the fairnet realizable value of the property, less estimated costs to sell. The following table summarizes foreclosed property activity foras of the nine months ended September 30, 20172022 and 2016.2021:
September 30, 2017 | ||||||||||||||||||||
Bank | ALC | Total |
| September 30, 2022 |
|
| September 30, 2021 |
| ||||||||||||
(Dollars in Thousands) |
| (Dollars in Thousands) |
| |||||||||||||||||
Beginning balance | $ | 4,353 | $ | 505 | $ | 4,858 |
| $ | 2,149 |
|
| $ | 949 |
| ||||||
Transfers from loans | — | 87 | 87 | |||||||||||||||||
Additions |
|
| 411 |
|
|
| 1,981 |
| ||||||||||||
Sales proceeds | (649 | ) | (199 | ) | (848 | ) |
|
| (2,215 | ) |
|
| (891 | ) | ||||||
Gross gains | 14 | — | 14 |
|
| 369 |
|
|
| 401 |
| |||||||||
Gross losses | (20 | ) | (101 | ) | (121 | ) |
|
| (27 | ) |
|
| — |
| ||||||
Net gains (losses) | (6 | ) | (101 | ) | (107 | ) | ||||||||||||||
Net gains |
|
| 342 |
|
|
| 401 |
| ||||||||||||
Impairment | (171 | ) | — |
| (171 | ) |
|
| (1 | ) |
|
| (67 | ) | ||||||
Ending balance | $ | 3,527 | $ | 292 | $ | 3,819 |
| $ | 686 |
|
| $ | 2,373 |
|
September 30, 2016 | ||||||||||||
Bank | ALC | Total | ||||||||||
(Dollars in Thousands) | ||||||||||||
Beginning balance | $ | 5,327 | $ | 711 | $ | 6,038 | ||||||
Transfers from loans | 255 | 149 | 404 | |||||||||
Sales proceeds | (655 | ) | (259 | ) | (914 | ) | ||||||
Gross gains | — | 27 | 27 | |||||||||
Gross losses | (40 | ) | (73 | ) | (113 | ) | ||||||
Net gains (losses) | (40 | ) | (46 | ) | (86 | ) | ||||||
Impairment | — | (51 | ) | (51 | ) | |||||||
Ending balance | $ | 4,887 | $ | 504 | $ | 5,391 |
Valuation adjustments are recorded in other non-interest expense and are primarily post-foreclosure write-downs that are a result of continued declining property values based on updated appraisals or other indications of value, such as offers to purchase. FairNet realizable value less estimated costcosts to sell of foreclosed residential real estate held by the Company was $0.6 million and $1.1 millionzero as of both September 30, 20172022 and 2016, respectively.2021. In addition, the Company held $20$19 thousand and $0.1 millionzero in consumer mortgage loans collateralized by residential real estate that were in the process of foreclosure as of September 30, 20172022 and 2016,2021, respectively.
Repossessed Assets
In addition to the other real estate and other assets acquired in foreclosure, the Company also acquires assets through the repossession of the underlying collateral of loans in default. The following table summarizes repossessed asset activity as of the nine months ended September 30, 2022 and 2021:
|
| September 30, 2022 |
|
| September 30, 2021 |
| ||
|
| (Dollars in Thousands) |
| |||||
Beginning balance |
| $ | 154 |
|
| $ | 245 |
|
Transfers from loans |
|
| 635 |
|
|
| 665 |
|
Sales proceeds |
|
| (331 | ) |
|
| (683 | ) |
Gross gains |
|
| — |
|
|
| — |
|
Gross losses |
|
| (292 | ) |
|
| (76 | ) |
Net losses |
|
| (292 | ) |
|
| (76 | ) |
Impairment |
|
| — |
|
|
| — |
|
Ending balance |
| $ | 166 |
|
| $ | 151 |
|
Repossessed assets are included in Other Assets in the Company’s condensed consolidated balance sheet.
25
|
|
The Company holds an investment in an affordable housing projectGoodwill is tested for which it provides fundingimpairment annually, or more often if circumstances warrant. If, as a limited partnerresult of impairment testing, it is determined that the implied fair value of goodwill is lower than its carrying amount, impairment is indicated, and has received tax credits relatedgoodwill must be written down to its investmentimplied fair value. Subsequent increases in goodwill value are not recognized in the project based on its partnership share. The net assets of the partnership consist primarily of apartment complexes, and the primary liabilities consist of those associated with the operation of the partnership. The Company has determined that this investment requires consolidation as a variable interest entity under ASC Topic 810, Consolidation. The Company holds a 99.9% interest in the limited partnership. Assetsconsolidated financial statements. Goodwill, originally recorded by the Company as a result of the consolidation were less than $0.1Company's acquisition of The Peoples Bank ("TPB") in 2018, totaled $7.4 million as of both September 30, 20172022 and December 31, 2016.2021. Goodwill impairment was neither indicated nor recorded during the nine months ended September 30, 2022 or the year ended December 31, 2021.
|
|
Core deposit premiums are amortized over a seven-year period and are periodically evaluated, at least annually, as to the recoverability of their carrying value. Core deposit premiums of $2.0 million were recorded during 2018 as part of the TPB acquisition.
The Company’s goodwill and other intangible assets (carrying basis and accumulated amortization) as of September 30, 2022 were as follows:
|
| September 30, 2022 |
|
| December 31, 2021 |
| ||
|
| (Dollars in Thousands) |
| |||||
Goodwill |
| $ | 7,435 |
|
| $ | 7,435 |
|
Core deposit intangible: |
|
|
|
|
|
| ||
Gross carrying amount |
|
| 2,048 |
|
|
| 2,048 |
|
Accumulated amortization |
|
| (1,627 | ) |
|
| (1,414 | ) |
Core deposit intangible, net |
|
| 421 |
|
|
| 634 |
|
Total |
| $ | 7,856 |
|
| $ | 8,069 |
|
The Company’s estimated remaining amortization expense on intangible assets as of September 30, 2022 was as follows:
|
| Amortization Expense |
| |
|
| (Dollars in Thousands) |
| |
2022 |
| $ | 55 |
|
2023 |
|
| 195 |
|
2024 |
|
| 122 |
|
2025 |
|
| 49 |
|
2026 and thereafter |
|
| — |
|
Total |
| $ | 421 |
|
The net carrying amount of the Company’s core deposit premiums is not considered recoverable if it exceeds the sum of the undiscounted cash flows expected to result from use and eventual disposition. That assessment is based on the carrying amount of the intangible assets subject to amortization at the date on which it is tested for recoverability. Intangible assets subject to amortization are tested by the Company for recoverability whenever events or changes in circumstances indicate that their carrying amount may not be recoverable.
Short-Term Borrowings
Short-term borrowings consist of federal funds purchased, securities sold under repurchase agreements, and short-term Federal Home Loan Bank (“FHLB”)FHLB advances with original maturities of one year or less. Short-term borrowings totaled $10.6 million and $10.1 million as of September 30, 2017 and December 31, 2016, respectively.
outstanding.
26
|
|
Long-Term Borrowings
FHLB Advances
The Company uses may use FHLB advances with original maturities of more than one year as an alternative to funding sources with similar maturities, such as certificates of deposit or other deposit programs. These advances generally offer more attractive rates than other mid-term financing options. They are also flexible, allowing the Company to quickly obtain the necessary maturities and rates that best suit its overall asset/liability strategy. FHLB advances with an original maturity of more than one year are classified as long-term. TheAs of both September 30, 2022 and December 31, 2021, the Company haddid not have any long-term FHLB advances outstandingoutstanding.
Subordinated Debt
On October 1, 2021, the Company completed a private placement of $10.0$11.0 million in aggregate principal amount of fixed-to-floating rate subordinated notes that will mature on October 1, 2031 (the “Notes”). The Notes bear interest at a rate of 3.50% per annum for the first five years, after which the interest rate will be reset quarterly to a benchmark interest rate per annum which, subject to certain conditions provided in the Notes, will be equal to the then current three-month term Secured Overnight Financing Rate (“SOFR”) plus 275 basis points. The Company used the net proceeds for general corporate purposes, including repurchasing of the Company’s common stock, and supporting organic growth plans, including the maintenance of capital ratios. As of both September 30, 2022 and December 31, 2021, the Notes were recorded as long-term borrowings totaling $10.7 million, net of unamortized debt issuance costs. The table below provides additional information related to the Notes as of and for the nine months ended September 30, 2022 and the year ended December 31, 2021, respectively.
|
| September 30, |
|
| December 31, |
| ||
|
| 2022 |
|
| 2021 |
| ||
|
| (Dollars in Thousands) |
| |||||
Balance at period-end |
| $ | 10,708 |
|
| $ | 10,653 |
|
Average balance during the period |
| $ | 10,702 |
|
| $ | 2,682 |
|
Maximum month-end balance during the year |
| $ | 10,708 |
|
| $ | 10,653 |
|
Average rate paid during the year, including amortization of debt issuance costs |
|
| 4.16 | % |
|
| 4.20 |
|
Weighted average remaining maturity (in years) |
|
| 9.00 |
|
|
| 9.75 |
|
Available Credit
As an additional funding source, the Company has available unused lines of credit with correspondent banks, the Federal Reserve and the FHLB. Certain of these funding sources are subject to underlying collateral. As of September 30, 2022 and December 31, 2021, the Company’s available unused lines of credit consisted of the following:
Available Unused Lines of Credit | Collateral Requirements | September 30, 2022 | December 31, 2021 | |||
Correspondent banks | None | $45.0 million | $45.0 million | |||
Federal Reserve (discount window) | Subject to collateral | $1.2 million | $1.0 million | |||
FHLB advances (1) | Subject to collateral | $206.6 million | $237.0 million |
Assets pledged associatedThe Company’s collateral exposure with the FHLB in the form of advances totaled $22.3and letters of credit was $
27
|
|
The provision for income taxes was $0.41.4 million and $0.8 million for both of the nine-month periodsnine months ended September 30, 20172022 and 2016.2021, respectively. The Company’s effective tax rate was 23.0%23.7% and 23.4%21.9%, respectively, for the same periods. The effective tax rate is impacted by recurring permanent differences, such as those associated with bank-owned life insurance and tax-exempt investmentsinvestment and loan income.
The Company had a net deferred tax asset of $7.7$5.1 million and $8.7$2.5 million as of September 30, 20172022 and December 31, 2016,2021, respectively. The reduction in the net deferred tax asset, resulted primarily fromwhich is included on the impact ofbalance sheet in other assets, is impacted by changes in the fair value of securities available-for-sale as well as the reduction of federaland cash flow hedges, changes in net operating loss carry-forwards.carryforwards and other book-to-tax temporary differences.
|
|
The BankCompany has entered into supplemental retirement compensation benefits agreements with certain directors and former executive officers. The measurement of the liability under these agreements includes estimates involving life expectancy, length of time before retirement and the expected returns on the bank-owned life insurance policies used to fund those agreements. Should these estimates prove to be materially wrong, the cost of these agreements could change accordingly. The related deferred compensation obligation to these directors and executive officers included in other liabilities was $3.4 million and $3.5$3.2 million as of both September 30, 20172022 and December 31, 2016, respectively.2021.
Non-employee directors may elect to defer payment of all or any portion of their Bancshares and Bank director fees under Bancshares’ Non-Employee Directors’ Deferred Compensation Plan (the “Deferral Plan”). The Deferral Plan which was ratified by Bancshares’ shareholders at the annual meeting held on May 11, 2004, permits non-employee directors to invest their directors’ fees and to receive the adjusted value of the deferred amounts in cash and/or shares of Bancshares’ common stock. Neither Bancshares nor the Bank makes any contribution to participants’ accounts under the Deferral Plan. As of September 30, 20172022 and December 31, 2016,2021, a total of 100,990112,782 and 114,547117,825 shares of Bancshares common stock, respectively, were deferred in connection with the Deferral Plan. All deferred fees, whether in the form of cash or shares of Bancshares common stock, are reflected as compensation expense in the period earned. The Company classifies all deferred directors'directors’ fees allocated to be paid in shares of stock as equity surplus.additional paid-in capital. The Company usesmay use issued shares or shares of treasury stock to satisfy these obligations when due.
|
|
In accordance with the Company’s 2013 Incentive Plan, stock awards, including stock options and restricted stock, have been granted to certain employees and non-employee directors. Shares of common stock available for distribution to satisfy the grants may consist, in whole or in part, of authorized and unissued shares, treasury shares or shares reacquired by the Company in any manner. Stock-based compensation expense related to stock awards totaled $0.2 million and $0.1$0.3 million for both the nine-month periodsnine months ended September 30, 20172022 and 2016,2021, respectively.
Stock Options
The stockStock option awards werehave been granted with an exercise price equal to the market price of Bancshares’the Company’s common stock on the date of the grant and have vesting periods ranging from one to three years, with 10-year10-year contractual terms.
The Company recognizes the cost of services received in exchange for stock option awards based on the grant date fair value of the award, with compensation expense recognized on a straight-line basisbasis over the award’s vesting period. The fair value of outstanding awards was determined using the Black-Scholes option pricing model based onmodel. The Company did not grant any stock option awards during the assumptions noted in the table below. Expected volatilities are based on historical volatilities of Bancshares’ common stock.nine months ended September 30, 2022 or 2021.
2017 | 2016 | |||||||
Risk-free interest rate | 2.23 | % | 1.58 | % | ||||
Expected term | 7.5 years | 7.5 years | ||||||
Expected stock price volatility | 25.36 | % | 25.25 | % | ||||
Dividend yield | 1.50 | % | 1.50 | % |
The following table summarizes the Company'sCompany’s stock option activity for the periods presented.
Nine Months Ended |
| Nine Months Ended |
| |||||||||||||||||||||||||||||
September 30, 2017 | September 30, 2016 |
| September 30, 2022 |
|
| September 30, 2021 |
| |||||||||||||||||||||||||
Number of Shares | Average Exercise Price | Number of Shares | Average Exercise Price |
| Number of |
|
| Average |
|
| Number of |
|
| Average |
| |||||||||||||||||
Options: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Outstanding, beginning of period | 272,550 | $ | 8.21 | 175,550 | $ | 8.17 |
|
| 420,250 |
|
| $ | 9.79 |
|
|
| 421,000 |
|
| $ | 9.79 |
| ||||||||||
Granted | 70,600 | 13.84 | 97,000 | 8.30 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||
Exercised | 19,316 | 8.15 | — | — |
|
| — |
|
|
| — |
|
|
| 750 |
|
|
| 8.23 |
| ||||||||||||
Expired | — | — | — | — |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||
Forfeited | 3,334 | 11.79 | — | — |
|
| 600 |
|
|
| 10.86 |
|
|
| — |
|
|
| — |
| ||||||||||||
Options outstanding, end of period | 320,500 | $ | 9.42 | 272,550 | $ | 8.21 |
|
| 419,650 |
|
| $ | 9.79 |
|
|
| 420,250 |
|
| $ | 9.79 |
| ||||||||||
Options exercisable, end of period | 208,633 | $ | 8.20 | 175,550 | $ | 8.17 |
|
| 416,249 |
|
| $ | 9.77 |
|
|
| 395,678 |
|
| $ | 9.74 |
|
28
The aggregate intrinsic value of stock options outstanding (calculated as the amount by which the market value of underlying stock exceeds the exercise price of the option) was approximately $0.8 millionzero and $0.4$0.6 million as of September 30, 20172022 and 2016,2021, respectively.
Restricted Stock
During the first nine months of 2017, 7,533 shares of restricted stock were granted with vesting periods of either one or three years. No shares of restricted stock were granted during the nine months ended September 30, 2016.2022 and 2021, 45,938 shares and 38,430 shares, respectively, of restricted stock were granted. The Company recognizes the cost of services received in exchange for restricted stock awards based on the grant date closing price of the stock, with compensation expense recognized on a straight-line basis over the award’s vesting period.
The Bank and ALC are involved in a number of operating leases, primarily for branch locations. Branch leases have remaining lease terms ranging from two years to seven years, some of which include options to extend the leases for up to five years, and some of which include an option to terminate the lease within one year. The Bank leases certain office facilities to third parties and classifies these leases as operating leases.
The following table provides a summary of the components of lease expense, as well as the reporting location in the Condensed Consolidated Statements of Operations, for the three and nine months ended September 30, 2022 and 2021:
|
| Location in the Condensed |
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| Consolidated Statements |
| September 30, |
|
| September 30, |
|
| September 30, |
|
| September 30, |
| ||||
|
|
|
| (Dollars in Thousands) |
|
| (Dollars in Thousands) |
| ||||||||||
Operating lease expense (1) |
| Net occupancy and equipment |
| $ | 108 |
|
| $ | 209 |
|
| $ | 326 |
|
| $ | 627 |
|
Operating lease income (2) |
| Lease income |
| $ | 210 |
|
| $ | 208 |
|
| $ | 635 |
|
| $ | 619 |
|
The following table provides supplemental lease information for operating leases on the Condensed Consolidated Balance Sheet as of September 30, 2022:
|
| Location in |
|
|
| |
|
| Consolidated |
| September 30, |
| |
|
|
|
| (Dollars in |
| |
Operating lease right-of-use assets |
| Other assets |
| $ | 1,974 |
|
Operating lease liabilities |
| Other liabilities |
| $ | 2,051 |
|
Weighted-average remaining lease term (in years) |
|
|
|
| 5.28 |
|
Weighted-average discount rate |
|
|
|
| 3.30 | % |
The following table provides supplemental lease information for the Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and 2021:
|
| Nine Months Ended |
| |||||
|
| September 30, |
|
| September 30, |
| ||
|
| (Dollars in Thousands) |
| |||||
Cash paid for amounts included in the measurement of |
|
|
|
|
|
| ||
Operating cash flows from operating leases |
| $ | 320 |
|
| $ | 523 |
|
29
The following table is a schedule of remaining future minimum lease payments for operating leases that had an initial or remaining non-cancellable lease term in excess of one year as of September 30, 2022:
|
| Minimum |
| |
|
| (Dollars in Thousands) |
| |
2022 |
| $ | 107 |
|
2023 |
|
| 432 |
|
2024 |
|
| 438 |
|
2025 |
|
| 339 |
|
2026 |
|
| 346 |
|
2027 and thereafter |
|
| 591 |
|
Total future minimum lease payments |
| $ | 2,253 |
|
Less: Imputed interest |
|
| 202 |
|
Total operating lease liabilities |
| $ | 2,051 |
|
|
|
On April 1, 2016,The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity and credit risk, primarily by managing the amount, sources and duration of certain balance sheet assets and liabilities. In the normal course of business, the Company also uses derivative financial instruments to add stability to interest income or expense and to manage its exposure to movements in interest rates. The Company does not use derivatives for trading or speculative purposes and only enters into transactions that have a qualifying hedge relationship. The Company’s hedging strategies involving interest rate derivatives are classified as either cash flow hedges or fair value hedges, depending upon the rate characteristic of the hedged item.
Cash Flow Hedges
The Bank has entered into forward interest rate swap contracts on certain variable-rate money market deposit accounts (indexed to the Federal Funds effective rate’s daily weighted average). The money market account balances are expected to exceed the notional amount for the duration of the hedges and the rates on these deposits are anticipated to move closely with changes in one-month LIBOR, or a comparable benchmark interest rate. These interest rate swaps were designated as derivative instruments in cash flow hedges with the objective of converting the floating interest payments to a fixed rate. Under the swap arrangements, the Bank entered intopays a fixed interest rate and receives a variable interest rate based on one-month LIBOR, or a comparable benchmark interest rate, on the notional amount, with monthly net settlements.
Terminated Cash Flow Hedge
During the second quarter of 2022, the Bank terminated a forward interest rate swap contract on a variable rate FHLB advance (indexedthat was previously designated as a cash flow hedge. The termination of the swap resulted in a net gain of $0.3 million which will remain in accumulated other comprehensive income and be reclassified into earnings over the original term of the interest rate swap contract. During the nine-month period ended September 30, 2022, a gain of $41 thousand, net of income taxes, was reclassified from other comprehensive income (loss) related to three-month LIBOR) with a total notional amount of $10.0 million.the terminated contract. There were no gains or losses reclassified from other comprehensive income (loss) related to cash flow hedges for the nine months ended September 30, 2021.
Fair Value Hedges
The Bank has entered into forward interest rate swap contracts on fixed rate commercial real estate loans. The interest rate swap contract wasswaps were designated as a derivative instrumentinstruments in a cash flow hedge under ASC Topic 815, Derivatives and Hedging,fair value hedges with the objective of protecting the quarterly interesteffectively converting pools of fixed rate payments on the FHLB advance from the risk of variability of those payments resulting from changes in the three-month LIBOR interestassets to variable rate throughout the seven-year period beginning on April 5, 2016 and ending on April 5, 2023.hedge durations. Under the swap arrangement, which became effective on April 5, 2016,arrangements, the Bank will paypays a fixed interest rate of 1.46% and receivereceives a variable interest rate based on three-monthone-month LIBOR, or a comparable benchmark interest rate, on the total notional amount, of $10.0 million, with quarterlymonthly net settlements. The Bank recognized no gains or losses on the fair value hedges for the three and nine months ended September 30, 2022 and 2021.
No ineffectiveness relatedPresentation
The Company has elected to offset derivative fair value amounts under master netting agreements, given that all of the interest rate swap designatedCompany’s hedges are with the same counterparty.
30
The following table reflects the notional amount and fair value of derivative instruments included on the Company’s Consolidated Balance Sheets on a net basis.
|
| As of September 30, 2022 |
|
| As of December 31, 2021 |
| ||||||||||
|
| Notional |
|
| Estimated Fair Value |
|
| Notional |
|
| Estimated Fair Value |
| ||||
|
| Amount |
|
| Gain (Loss) (1) |
|
| Amount |
|
| Gain (Loss) (1) |
| ||||
|
| (Dollars in Thousands) |
| |||||||||||||
Derivatives designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Fair value hedges: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest rate swaps related to fixed rate commercial real estate loans |
| $ | 20,000 |
|
| $ | 1,087 |
|
| $ | 20,000 |
|
| $ | (198 | ) |
Total fair value hedges |
|
|
|
|
| 1,087 |
|
|
|
|
|
| (198 | ) | ||
Cash flow hedges: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest rate swaps related to variable-rate money market deposit accounts |
|
| 20,000 |
|
|
| 1,251 |
|
|
| 20,000 |
|
|
| (472 | ) |
Interest rate swaps related to FHLB advances |
|
| — |
|
|
| — |
|
|
| 10,000 |
|
|
| (104 | ) |
Total cash flow hedges |
|
|
|
|
| 1,251 |
|
|
|
|
|
| (576 | ) | ||
Total hedges designated as hedging instruments, net |
|
|
|
| $ | 2,338 |
|
|
|
|
| $ | (774 | ) |
The Company has elected the last-of-layer method with respect to both of operationsits fair value hedges. This approach allows the Company to designate as the hedged item a stated amount of the assets that are not expected to be affected by prepayments, defaults and other factors affecting the timing and amount of cash flows. Relative to the identified pools of loans, this represents the last dollar amount of the designated commercial loans, which is equivalent to the notional amounts of the derivative instruments.
The following amounts were recorded on the condensed consolidated balance sheet related to cumulative basis adjustments for fair value hedges:
Location in the Condensed Consolidated |
| Carrying Amount of the |
|
| Cumulative Amount of Fair |
| ||
Item is Included |
| September 30, 2022 |
| |||||
|
| (Dollars in Thousands) |
| |||||
Loans and leases, net of allowance for loan and |
| $ | 32,353 |
|
| $ | 1,087 |
|
The accumulated net after-tax gain relatedfollowing table presents the effect of hedging derivative instruments on the Company’s Consolidated Statements of Operations. The effects are presented as either an increase or decrease to the effective cash flow hedge included in accumulated other comprehensive income totaled $0.2 million as of both September 30, 2017 and December 31, 2016.before income taxes.
|
|
31
|
| Location in the Condensed |
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| Consolidated Statements |
| September 30, |
|
| September 30, |
|
| September 30, |
|
| September 30, |
| ||||
|
|
|
| (Dollars in Thousands) |
|
| (Dollars in Thousands) |
| ||||||||||
Interest income |
| Interest and fees on loans |
| $ | 45 |
|
| $ | (64 | ) |
| $ | (42 | ) |
| $ | (188 | ) |
Interest expense |
| Interest on deposits |
|
| 36 |
|
|
| (32 | ) |
|
| 20 |
|
|
| (95 | ) |
Interest expense |
| Interest on short-term borrowings |
|
| 24 |
|
|
| (85 | ) |
|
| (103 | ) |
|
| (249 | ) |
|
| Net increase (decrease) to income before income taxes |
| $ | 105 |
|
| $ | (181 | ) |
| $ | (125 | ) |
| $ | (532 | ) |
32
Under ASC Topic 280,Segment Reporting, certain information is disclosed for the two reportable operating segments of Bancshares: the Bank and ALC. The reportable segments were determined using the internal management reporting system. These segments comprise Bancshares’ and the Bank’s significant subsidiaries. The accounting policies for each segment are the same as those described in Note 2, “Summary of Significant Accounting Policies,” of the Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K as of and for the year ended December 31, 2016.2021. The segment results include certain overhead allocations and intercompany transactions that were recorded at current market prices. All intercompany transactions have been eliminated to determine the consolidated balances. The results for the two reportable segments of the Company are included in the tables below.
All | ||||||||||||||||||||
Bank | ALC | Other | Eliminations | Consolidated | ||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||
As of and for the three months ended September 30, 2017: | ||||||||||||||||||||
Net interest income | $ | 4,192 | $ | 2,940 | $ | 3 | $ | — | $ | 7,135 | ||||||||||
Provision (reduction in reserve) for loan losses | (130 | ) | 503 | — | — | 373 | ||||||||||||||
Total non-interest income | 1,005 | 219 | 954 | (942 | ) | 1,236 | ||||||||||||||
Total non-interest expense | 4,699 | 2,303 | 336 | (148 | ) | 7,190 | ||||||||||||||
Income before income taxes | 628 | 353 | 621 | (794 | ) | 808 | ||||||||||||||
Provision for income taxes | 48 | 202 | (77 | ) | — | 173 | ||||||||||||||
Net income | $ | 580 | $ | 151 | $ | 698 | $ | (794 | ) | $ | 635 | |||||||||
Other significant items: | ||||||||||||||||||||
Total assets | $ | 616,820 | $ | 92,942 | $ | 84,170 | $ | (179,333 | ) | $ | 614,599 | |||||||||
Total investment securities | 185,722 | — | 80 | — | 185,802 | |||||||||||||||
Total loans, net | 329,327 | 89,326 | — | (80,627 | ) | 338,026 | ||||||||||||||
Investment in subsidiaries | 5 | — | 78,469 | (78,469 | ) | 5 | ||||||||||||||
Fixed asset additions | 818 | 13 | — | — | 831 | |||||||||||||||
Depreciation and amortization expense | 238 | 41 | — | — | 279 | |||||||||||||||
Total interest income from external customers | 3,596 | 4,224 | — | — | 7,820 | |||||||||||||||
Total interest income from affiliates | 1,284 | — | 3 | (1,287 | ) | — | ||||||||||||||
For the nine months ended September 30, 2017: | ||||||||||||||||||||
Net interest income | $ | 12,168 | $ | 8,933 | $ | 10 | $ | — | $ | 21,111 | ||||||||||
Provision (reduction in reserve) for loan losses | (130 | ) | 1,594 | — | — | 1,464 | ||||||||||||||
Total non-interest income | 2,647 | 700 | 2,451 | (2,465 | ) | 3,333 | ||||||||||||||
Total non-interest expense | 13,522 | 6,966 | 1,074 | (472 | ) | 21,090 | ||||||||||||||
Income before income taxes | 1,423 | 1,073 | 1,387 | (1,993 | ) | 1,890 | ||||||||||||||
Provision for income taxes | 249 | 458 | (272 | ) | — | 435 | ||||||||||||||
Net income | $ | 1,174 | $ | 615 | $ | 1,659 | $ | (1,993 | ) | $ | 1,455 | |||||||||
Other significant items: | ||||||||||||||||||||
Fixed asset additions | 8,578 | 103 | — | — | 8,681 | |||||||||||||||
Depreciation and amortization expense | 657 | 124 | — | — | 781 | |||||||||||||||
Total interest income from external customers | 10,493 | 12,520 | — | — | 23,013 | |||||||||||||||
Total interest income from affiliates | 3,587 | — | 9 | (3,596 | ) | — |
|
|
|
|
|
|
|
| All |
|
|
|
|
|
|
| |||||
|
| Bank |
|
| ALC |
|
| Other |
|
| Eliminations |
|
| Consolidated |
| |||||
|
| (Dollars in Thousands) |
| |||||||||||||||||
As of and for the three months ended September 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Total interest income |
| $ | 9,875 |
|
| $ | 1,026 |
|
| $ | 1 |
|
| $ | (232 | ) |
| $ | 10,670 |
|
Total interest expense |
|
| 1,041 |
|
|
| 231 |
|
|
| 115 |
|
|
| (232 | ) |
|
| 1,155 |
|
Net interest income |
|
| 8,834 |
|
|
| 795 |
|
|
| (114 | ) |
|
| — |
|
|
| 9,515 |
|
Provision for loan and lease losses |
|
| 840 |
|
|
| 325 |
|
|
| — |
|
|
| — |
|
|
| 1,165 |
|
Total non-interest income |
|
| 1,102 |
|
|
| 43 |
|
|
| 2,145 |
|
|
| (2,202 | ) |
|
| 1,088 |
|
Total non-interest expense |
|
| 6,421 |
|
|
| 397 |
|
|
| 255 |
|
|
| (41 | ) |
|
| 7,032 |
|
Income before income taxes |
|
| 2,675 |
|
|
| 116 |
|
|
| 1,776 |
|
|
| (2,161 | ) |
|
| 2,406 |
|
Provision for income taxes |
|
| 600 |
|
|
| 28 |
|
|
| (82 | ) |
|
| — |
|
|
| 546 |
|
Net income |
| $ | 2,075 |
|
| $ | 88 |
|
| $ | 1,858 |
|
| $ | (2,161 | ) |
| $ | 1,860 |
|
Other significant items: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Total assets |
| $ | 993,194 |
|
| $ | 23,544 |
|
| $ | 98,769 |
|
| $ | (126,230 | ) |
| $ | 989,277 |
|
Total investment securities |
|
| 145,902 |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| 145,903 |
|
Total loans, net |
|
| 740,418 |
|
|
| 22,478 |
|
|
| — |
|
|
| (21,998 | ) |
|
| 740,898 |
|
Goodwill and core deposit intangible, net |
|
| 7,856 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 7,856 |
|
Investment in subsidiaries |
|
| — |
|
|
| — |
|
|
| 91,575 |
|
|
| (91,575 | ) |
|
| — |
|
Fixed asset additions |
|
| 331 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 331 |
|
Depreciation and amortization expense |
|
| 413 |
|
|
| 9 |
|
|
| — |
|
|
| — |
|
|
| 422 |
|
Total interest income from external customers |
|
| 9,645 |
|
|
| 1,025 |
|
|
| — |
|
|
| — |
|
|
| 10,670 |
|
Total interest income from affiliates |
|
| 231 |
|
|
| — |
|
|
| 1 |
|
|
| (232 | ) |
|
| — |
|
For the nine months ended September 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Total interest income |
|
| 26,503 |
|
|
| 3,911 |
|
|
| 3 |
|
|
| (841 | ) |
|
| 29,576 |
|
Total interest expense |
|
| 2,185 |
|
|
| 838 |
|
|
| 344 |
|
|
| (841 | ) |
|
| 2,526 |
|
Net interest income |
|
| 24,318 |
|
|
| 3,073 |
|
|
| (341 | ) |
|
| 0 |
|
|
| 27,050 |
|
Provision for loan and lease losses |
|
| 1,185 |
|
|
| 1,596 |
|
|
| — |
|
|
| — |
|
|
| 2,781 |
|
Total non-interest income |
|
| 2,833 |
|
|
| 173 |
|
|
| 5,511 |
|
|
| (5,744 | ) |
|
| 2,773 |
|
Total non-interest expense |
|
| 18,899 |
|
|
| 1,379 |
|
|
| 854 |
|
|
| (166 | ) |
|
| 20,966 |
|
Income before income taxes |
|
| 7,067 |
|
|
| 271 |
|
|
| 4,316 |
|
|
| (5,578 | ) |
|
| 6,076 |
|
Provision for income taxes |
|
| 1,646 |
|
|
| 65 |
|
|
| (271 | ) |
|
| — |
|
|
| 1,440 |
|
Net income |
| $ | 5,421 |
|
| $ | 206 |
|
| $ | 4,587 |
|
| $ | (5,578 | ) |
| $ | 4,636 |
|
Other significant items: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Fixed asset additions |
| $ | 672 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 672 |
|
Depreciation and amortization expense |
|
| 1,173 |
|
|
| 28 |
|
|
| — |
|
|
| — |
|
|
| 1,201 |
|
Total interest income from external customers |
|
| 25,666 |
|
|
| 3,910 |
|
|
| — |
|
|
| — |
|
|
| 29,576 |
|
Total interest income from affiliates |
|
| 838 |
|
|
| — |
|
|
| 3 |
|
|
| (841 | ) |
|
| — |
|
33
|
|
|
|
|
| All |
|
|
|
|
|
| ||||||||
Bank | ALC | Other | Eliminations | Consolidated | ||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||
As of and for the three months ended September 30, 2016: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net interest income | $ | 3,917 | $ | 3,253 | $ | 3 | $ | — | $ | 7,173 | ||||||||||
Provision for loan losses | 100 |
| 580 | — | — | 680 | ||||||||||||||
Total non-interest income | 1,159 | 316 | 973 | (881 | ) | 1,567 | ||||||||||||||
Total non-interest expense | 4,636 | 2,403 | 474 | (165 | ) | 7,348 | ||||||||||||||
Income (loss) before income taxes | 340 | 586 | 502 | (716 | ) | 712 | ||||||||||||||
Provision for income taxes | 52 | 196 | (86 | ) | — | 162 | ||||||||||||||
Net income (loss) | $ | 288 | $ | 390 | $ | 588 | $ | (716 | ) | $ | 550 | |||||||||
Other significant items: | ||||||||||||||||||||
Total assets | $ | 602,123 | $ | 89,347 | $ | 84,291 | $ | (175,454 | ) | $ | 600,307 | |||||||||
Total investment securities | 209,486 | — | 80 | — | 209,566 | |||||||||||||||
Total loans, net | 308,423 | 85,720 | — | (77,022 | ) | 317,121 | ||||||||||||||
Investment in subsidiaries | 5 | — | 78,737 | (78,737 | ) | 5 | ||||||||||||||
Fixed asset additions | 960 | 16 | — | — | 976 | |||||||||||||||
Depreciation and amortization expense | 193 | 54 | — | — | 247 | |||||||||||||||
Total interest income from external customers | 3,415 | 4,345 | — | — | 7,760 | |||||||||||||||
Total interest income from affiliates | 1,092 | — | 3 | (1,095 | ) | — | ||||||||||||||
For the nine months ended September 30, 2016: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net interest income | $ | 11,199 | $ | 9,544 | $ | 8 | $ | — | $ | 20,751 | ||||||||||
Provision (reduction in reserve) for loan losses | (350 | ) | 1,733 | — | — | 1,383 | ||||||||||||||
Total non-interest income | 3,002 | 909 | 2,481 | (2,356 | ) | 4,036 | ||||||||||||||
Total non-interest expense | 13,435 | 7,306 | 1,373 | (445 | ) | 21,669 | ||||||||||||||
Income (loss) before income taxes | 1,116 | 1,414 | 1,116 | (1,911 | ) | 1,735 | ||||||||||||||
Provision for income taxes | 224 | 484 | (302 | ) | — | 406 | ||||||||||||||
Net income (loss) | $ | 892 | $ | 930 | $ | 1,418 | $ | (1,911 | ) | $ | 1,329 | |||||||||
Other significant items: | ||||||||||||||||||||
Fixed asset additions | 4,521 | 33 | — | — | 4,554 | |||||||||||||||
Depreciation and amortization expense | 564 | 162 | — | — | 726 | |||||||||||||||
Total interest income from external customers | 9,750 | 12,684 | — | — | 22,434 | |||||||||||||||
Total interest income from affiliates | 3,140 | — | 8 | (3,148 | ) | — |
|
|
|
|
|
|
|
| All |
|
|
|
|
|
|
| |||||
|
| Bank |
|
| ALC |
|
| Other |
|
| Eliminations |
|
| Consolidated |
| |||||
|
| (Dollars in Thousands) |
| |||||||||||||||||
As of and for the three months ended September 30, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Total interest income |
| $ | 8,134 |
|
| $ | 2,302 |
|
| $ | 1 |
|
| $ | (407 | ) |
| $ | 10,030 |
|
Total interest expense |
|
| 696 |
|
|
| 406 |
|
|
| — |
|
|
| (407 | ) |
|
| 695 |
|
Net interest income |
|
| 7,438 |
|
|
| 1,896 |
|
|
| 1 |
|
|
| — |
|
|
| 9,335 |
|
Provision for loan and lease losses |
|
| 460 |
|
|
| 158 |
|
|
| — |
|
|
| — |
|
|
| 618 |
|
Total non-interest income |
|
| 776 |
|
|
| 176 |
|
|
| 1,111 |
|
|
| (1,167 | ) |
|
| 896 |
|
Total non-interest expense |
|
| 6,211 |
|
|
| 2,100 |
|
|
| 354 |
|
|
| (118 | ) |
|
| 8,547 |
|
Income before income taxes |
|
| 1,543 |
|
|
| (186 | ) |
|
| 758 |
|
|
| (1,049 | ) |
|
| 1,066 |
|
Provision for income taxes |
|
| 336 |
|
|
| (47 | ) |
|
| (60 | ) |
|
| — |
|
|
| 229 |
|
Net income |
| $ | 1,207 |
|
| $ | (139 | ) |
| $ | 818 |
|
| $ | (1,049 | ) |
| $ | 837 |
|
Other significant items: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Total assets |
| $ | 959,978 |
|
| $ | 48,693 |
|
| $ | 94,718 |
|
| $ | (146,655 | ) |
| $ | 956,734 |
|
Total investment securities |
|
| 121,386 |
|
|
| — |
|
|
| 81 |
|
|
| — |
|
|
| 121,467 |
|
Total loans, net |
|
| 691,106 |
|
|
| 46,645 |
|
|
| — |
|
|
| (40,779 | ) |
|
| 696,972 |
|
Goodwill and core deposit intangible, net |
|
| 8,142 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 8,142 |
|
Investment in subsidiaries |
|
| — |
|
|
| — |
|
|
| 89,088 |
|
|
| (89,088 | ) |
|
| — |
|
Fixed asset additions |
|
| 107 |
|
|
| 2 |
|
|
| — |
|
|
| — |
|
|
| 109 |
|
Depreciation and amortization expense |
|
| 401 |
|
|
| 21 |
|
|
| — |
|
|
| — |
|
|
| 422 |
|
Total interest income from external customers |
|
| 7,728 |
|
|
| 2,302 |
|
|
| — |
|
|
| — |
|
|
| 10,030 |
|
Total interest income from affiliates |
|
| 406 |
|
|
| — |
|
|
| 1 |
|
|
| (407 | ) |
|
| — |
|
For the nine months ended September 30, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Total interest income |
|
| 24,138 |
|
|
| 7,045 |
|
|
| 5 |
|
|
| (1,254 | ) |
|
| 29,934 |
|
Total interest expense |
|
| 2,228 |
|
|
| 1,249 |
|
|
| — |
|
|
| (1,254 | ) |
|
| 2,223 |
|
Net interest income |
|
| 21,910 |
|
|
| 5,796 |
|
|
| 5 |
|
|
| — |
|
|
| 27,711 |
|
Provision for loan and lease losses |
|
| 1,280 |
|
|
| 237 |
|
|
| — |
|
|
| — |
|
|
| 1,517 |
|
Total non-interest income |
|
| 2,389 |
|
|
| 480 |
|
|
| 3,608 |
|
|
| (3,821 | ) |
|
| 2,656 |
|
Total non-interest expense |
|
| 18,853 |
|
|
| 5,749 |
|
|
| 1,102 |
|
|
| (362 | ) |
|
| 25,342 |
|
Income before income taxes |
|
| 4,166 |
|
|
| 290 |
|
|
| 2,511 |
|
|
| (3,459 | ) |
|
| 3,508 |
|
Provision for income taxes |
|
| 895 |
|
|
| 72 |
|
|
| (199 | ) |
|
| — |
|
|
| 768 |
|
Net income |
| $ | 3,271 |
|
| $ | 218 |
|
| $ | 2,710 |
|
| $ | (3,459 | ) |
| $ | 2,740 |
|
Other significant items: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Fixed asset additions |
| $ | 642 |
|
| $ | 6 |
|
| $ | — |
|
| $ | — |
|
| $ | 648 |
|
Depreciation and amortization expense |
|
| 1,231 |
|
|
| 69 |
|
|
| — |
|
|
| — |
|
|
| 1,300 |
|
Total interest income from external customers |
|
| 22,889 |
|
|
| 7,045 |
|
|
| — |
|
|
| — |
|
|
| 29,934 |
|
Total interest income from affiliates |
|
| 1,249 |
|
|
| — |
|
|
| 5 |
|
|
| (1,254 | ) |
|
| — |
|
|
|
34
Other Operating Income
Other operating income for the three and nine months ended September 30, 2022 and 2021 consisted of the following:
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
|
| (Dollars in Thousands, Except Per Share Data) |
| |||||||||||||
Bank-owned life insurance |
| $ | 112 |
|
| $ | 110 |
|
| $ | 335 |
|
| $ | 327 |
|
Credit insurance commissions and fees |
|
| (15 | ) |
|
| 63 |
|
|
| (66 | ) |
|
| 150 |
|
ATM fee income |
|
| 125 |
|
|
| 141 |
|
|
| 403 |
|
|
| 432 |
|
Mortgage fees from secondary market |
|
| 7 |
|
|
| — |
|
|
| 11 |
|
|
| 23 |
|
Wire transfer fees |
|
| 12 |
|
|
| 18 |
|
|
| 39 |
|
|
| 49 |
|
Gain on sales of premises and equipment and other assets |
|
| 278 |
|
|
| 17 |
|
|
| 301 |
|
|
| 17 |
|
Other income |
|
| 48 |
|
|
| 68 |
|
|
| 211 |
|
|
| 240 |
|
Total |
| $ | 567 |
|
| $ | 417 |
|
| $ | 1,234 |
|
| $ | 1,238 |
|
Other Operating Expense
Other operating expense for the three and nine months ended September 30, 2022 and 2021 consisted of the following:
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
|
| (Dollars in Thousands, Except Per Share Data) |
| |||||||||||||
Postage, stationery and supplies |
| $ | 164 |
|
| $ | 206 |
|
| $ | 469 |
|
| $ | 618 |
|
Telephone/data communication |
|
| 159 |
|
|
| 283 |
|
|
| 518 |
|
|
| 742 |
|
Advertising and marketing |
|
| 47 |
|
|
| 33 |
|
|
| 145 |
|
|
| 115 |
|
Travel and business development |
|
| 71 |
|
|
| 42 |
|
|
| 176 |
|
|
| 109 |
|
Collection and recoveries |
|
| 57 |
|
|
| 32 |
|
|
| 176 |
|
|
| 142 |
|
Other services |
|
| 68 |
|
|
| 129 |
|
|
| 208 |
|
|
| 272 |
|
Insurance expense |
|
| 145 |
|
|
| 149 |
|
|
| 465 |
|
|
| 464 |
|
FDIC insurance and state assessments |
|
| 166 |
|
|
| 191 |
|
|
| 506 |
|
|
| 521 |
|
Loss on sales of premises and equipment and other assets |
|
| 27 |
|
|
| 76 |
|
|
| 55 |
|
|
| 130 |
|
Core deposit intangible amortization |
|
| 67 |
|
|
| 85 |
|
|
| 213 |
|
|
| 268 |
|
Other real estate/foreclosure expense, net |
|
| (5 | ) |
|
| (273 | ) |
|
| (320 | ) |
|
| (286 | ) |
Other expense |
|
| 518 |
|
|
| 537 |
|
|
| 1,463 |
|
|
| 1,564 |
|
Total |
| $ | 1,484 |
|
| $ | 1,490 |
|
| $ | 4,074 |
|
| $ | 4,659 |
|
35
Credit
The Bank’sBank’s exposure to credit loss in the event of nonperformance by the other party for commitments to make loans and standby letters of credit is represented by the contractual amount of those instruments. The Bank uses the same credit policies in making these commitments as it does for on-balance sheet instruments. For interest rate swap transactions and commitments to purchase or sell securities for forward delivery, the contract or notional amounts do not represent exposure to credit loss. The Bank controls the credit risk of these derivative instruments through credit approvals, limits and monitoring procedures. Certain derivative contracts have credit risk for the carrying value plus the amount to replace such contracts in the event of counterparty default. All of the Bank’s financial instruments are held for risk management and not for trading purposes. During the nine-month periods ended September 30, 2017 and 2016, there were no credit losses associated with derivative contracts.
In the normal course of business, there are outstanding commitments and contingent liabilities, such as commitments to extend credit, letters of credit and others, that are not included in the consolidated financial statements. The financial instruments involve, to varying degrees, elements of credit and interest rate risk in excess of amounts recognized in the financial statements. A summary of these commitments and contingent liabilities is presented below.below:
September 30, 2017 | December 31, 2016 |
| September 30, |
|
| December 31, |
| |||||||||
(Dollars in Thousands) |
| (Dollars in Thousands) |
| |||||||||||||
Standby letters of credit | $ | 180 | $ | 183 |
| $ | — |
|
| $ | — |
| ||||
Standby performance letters of credit |
| $ | 541 |
|
| $ | 582 |
| ||||||||
Commitments to extend credit | $ | 53,231 | $ | 41,267 |
| $ | 212,606 |
|
| $ | 164,247 |
|
Standby letters of credit and standby performance letters of credit are contingent commitments issued by the Bank generally to guarantee the performance of a customer to a third-party.third party. The Bank has recourse against the customer for any amount that it is required to pay to a third-partythird party under a standby letter of credit or standby performance letter of credit. Revenues are recognized over the lives of the standby letters of credit and standby performance letters of credit. As of September 30, 20172022 and December 31, 2016,2021, the potential amountamounts of future payments that the Bank could be required to make under its standby letters of credit and standby performance letters of credit, which represent the Bank’s total credit risk in this category, isthese categories, are included in the table above.
A commitment to extend credit is an agreement to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon the extension of credit, is based on management’s credit evaluation of the counterparty. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment and income-producing commercial properties.
Commitments to purchase securities for delayed delivery require the Bank to purchase a specified security at a specified price for delivery on a specified date. Similarly, commitments to sell securities for delayed delivery require the Bank to sell a specified security at a specified price for delivery on a specified date. Market risk arises from potential movements in security values and interest rates between the commitment and delivery dates. As of both September 30, 2017 and December 31, 2016, there were no outstanding commitments to purchase securities for delayed delivery and no outstanding commitments to sell securities for delayed delivery.Self-Insurance
The Company is self-insured for a significant portion of employee health benefits. However, the Company maintains stop-loss coverage with third-party insurers to limit the Company’s individual claim and total exposure related to self-insurance. The Company estimates an accrued liability for the ultimate costs to closesettle known claims, as well as claims incurred but not yet reported, as of the balance sheet date. The Company’s recorded estimated liability for self-insurance is based on the insurance companies’companies' incurred loss estimates and management’s judgment, including assumptions and evaluation of factors related to the frequency and severity of claims, the Company’s claims development history and the Company’s claims settlement practices. The assessment of loss contingencies and self-insurance reserves is a highly subjective process that requires judgments about future events. Contingencies are reviewed at least quarterly to determine the adequacy of self-insurance accruals. Self-insurance accruals totaled $0.2 million as of both September 30, 2022 and December 31, 2021. The ultimate settlement of loss contingencies and self-insurance reserves may differ significantly from amounts that the Company has accrued in the Company’s consolidated financial statements.
Litigation
In 2016, the Bank entered into an agreement with a general contractor to manage construction of an office complex on a parcel of land located in the Birmingham, Alabama area that was purchased by the Bank in 2016. As of September 30, 2017, construction of the office complex was substantially complete, and remaining contractual commitments with the general contractor totaled $0.3 million.
Litigation
The Company is party to certain ordinary course litigation from time to time, and the Company intends to vigorously defend itself in all such litigation. In the opinion of the Company, based on review and consultation with legal counsel, the outcome of such ordinary course litigation should not have a material adverse effect on the Company’s consolidated financial statements or results of operations.
36
|
|
The Company follows the provisions of ASC Topic 820,Fair Value Measurements and Disclosures, which defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. The assumptions used in the Company’s estimation of the fair value of the Company’s financial instruments are detailed below. The following disclosures should not be considered a surrogaterepresentation of the liquidation value of the Company, but rather represent a good-faith estimate of the increase or decrease in value of financial instruments held by the Company since purchase, origination or issuance.
Fair Value Hierarchy
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between willing market participants at the measurement date. In determining fair value, the Company uses various methods, including market, income and cost approaches. Based on these approaches, the Company often utilizes certain assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and/or the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market-corroborated or generally unobservable inputs. The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Based on the observability of the inputs used in the valuation techniques, the Company is required to provide the following information according to the fair value hierarchy. The fair value hierarchy ranks the quality and reliability of the information used to determine fair values.value. Assets and liabilities carried at fair value will be classified and disclosed in one of the following three categories:
|
|
|
|
|
|
The Company rarely transfers assets and liabilities measured at fair value between Level 1 and Level 2 measurements. Trading account assets and securities available-for-sale may be periodically transferred to or from Level 3 valuation based on management’smanagement’s conclusion regarding the best method of pricing for an individual security. Such transfers are accounted for as if they occurred at the beginning of a reporting period. There were no such transfers during the nine months ended September 30, 20172022 or the year ended December 31, 2016.2021.
Fair Value Measurements on a Recurring Basis
Securities Available-for-Sale
Securities Available-for-Sale
Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities include exchange-traded equities. Level 2 securities include U.S. Treasury and agency securities, mortgage-backed agency securities, obligations of states and political subdivisions and certain corporate, asset-backed and other securities. Level 2 fair values are obtained from quoted prices of securities with similar characteristics. In certain cases, where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy.
Interest Rate Derivative Agreements
Interest rate derivative agreements are used by the Company to mitigate risk associated with changes in interest rates. The fair value of these agreements is based on information obtained from third-party financial institutions. This information is periodically evaluated by the Company and, as necessary, corroborated against other third-party valuations. The Company classifies these derivative assets within Level 2 of the valuation hierarchy.
37
The following table presents assets and liabilities measured at fair value on a recurring basis as of September 30, 20172022 and December 31, 2016. There were no liabilities measured at fair value on a recurring basis for either period presented.2021.
Fair Value Measurements as of September 30, 2017 Using |
| Fair Value Measurements as of September 30, 2022 Using |
| |||||||||||||||||||||||||||||
Totals At September 30, 2017 | Quoted Prices in Active Markets For Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) |
| Totals At |
|
| Quoted |
|
| Significant |
|
| Significant |
| |||||||||||||||||
(Dollars in Thousands) |
| (Dollars in Thousands) |
| |||||||||||||||||||||||||||||
Investment securities, available-for-sale |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Residential | $ | 83,550 | $ | — | $ | 83,550 | $ | — |
| $ | 46,847 |
|
| $ | — |
|
| $ | 46,847 |
|
| $ | — |
| ||||||||
Commercial | 67,138 | — | 67,138 | — |
|
| 18,040 |
|
|
| — |
|
|
| 18,040 |
|
|
| — |
| ||||||||||||
Obligations of U.S. government-sponsored agencies |
|
| 4,340 |
|
|
| — |
|
|
| 4,340 |
|
|
| — |
| ||||||||||||||||
Obligations of states and political subdivisions | 5,655 | — | 5,655 | — |
|
| 3,662 |
|
|
| — |
|
|
| 3,662 |
|
|
| — |
| ||||||||||||
Obligations of U.S. government-sponsored agencies | 2,002 | — | 2,002 | — | ||||||||||||||||||||||||||||
Corporate notes |
|
| 18,160 |
|
|
| — |
|
|
| 18,160 |
|
|
| — |
| ||||||||||||||||
U.S. Treasury securities | 80 | — | 80 | — |
|
| 52,745 |
|
|
| — |
|
|
| 52,745 |
|
|
| — |
| ||||||||||||
Other assets - derivatives | 291 | — | 291 | — |
|
| 2,338 |
|
|
| — |
|
|
| 2,338 |
|
|
| — |
|
Fair Value Measurements as of December 31, 2016 Using |
| Fair Value Measurements as of December 31, 2021 Using |
| |||||||||||||||||||||||||||||
Totals At December 31, 2016 | Quoted Prices in Active Markets For Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) |
| Totals At |
|
| Quoted |
|
| Significant |
|
| Significant |
| |||||||||||||||||
(Dollars in Thousands) |
| (Dollars in Thousands) |
| |||||||||||||||||||||||||||||
Investment securities, available-for-sale |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Residential | $ | 98,409 | $ | — | $ | 98,409 | $ | — |
| $ | 46,228 |
|
| $ | — |
|
| $ | 46,228 |
|
| $ | — |
| ||||||||
Commercial | 70,530 | — | 70,530 | — |
|
| 24,971 |
|
|
| — |
|
|
| 24,971 |
|
|
| — |
| ||||||||||||
Obligations of U.S. government-sponsored agencies |
|
| 5,192 |
|
|
|
|
|
| 5,192 |
|
|
|
| ||||||||||||||||||
Obligations of states and political subdivisions | 10,142 | — | 10,142 | — |
|
| 4,317 |
|
|
| — |
|
|
| 4,317 |
|
|
| — |
| ||||||||||||
Obligations of U.S. government-sponsored agencies | 1,993 | — | 1,993 | — | ||||||||||||||||||||||||||||
Corporate notes | 756 | — | 756 | — |
|
| 15,482 |
|
|
| — |
|
|
| 15,482 |
|
|
| — |
| ||||||||||||
U.S. Treasury securities | 80 | — | 80 | — |
|
| 34,693 |
|
|
| — |
|
|
| 34,693 |
|
|
| — |
| ||||||||||||
Other assets - derivatives | 346 | — | 346 | — | ||||||||||||||||||||||||||||
Other liabilities - derivatives |
|
| 774 |
|
|
| — |
|
|
| 774 |
|
|
| — |
|
38
Fair Value Measurements on a Non-recurring Basis
Impaired Loans
Loans that are considered impaired are loans for which, based on current information and events, it is probable that the Company will be unable to collect all principal and interest payments due under the contractual terms of the loan agreement. Impaired loans can be measured based on the present value of expected payments using the loan’sloan’s original effective rate as the discount rate, the loan’s observable market price or the fair value of the collateral less estimated selling cost if the loan is collateral-dependent. For the Company, the fair value of impaired loans is primarily measured based on the value of the collateral securing the loans (typically real estate). The Company determines the fair value of the collateral based on independent appraisals performed by qualified licensed appraisers. The appraisals may include a single valuation approach or a combination of approaches, including comparable sales and income approaches. Appraised values are discounted for estimated costs to sell and may be discounted further based on management’s knowledge of the collateral, changes in market conditions since the most recent appraisal and/or management’s knowledge of the borrower and the borrower’s business. Such discounts by management are subjective and are typically significant unobservable inputs for determining fair value. Impaired loans are evaluated by management for additional impairment at least quarterly and are adjusted accordingly.
OREO and Other Assets Held-for-Sale
Other Real Estate Owned (OREO)
OREO consists of properties obtained through foreclosure or in satisfaction of loans and is recorded at the lower of the loan’s carrying amount or the fairnet realizable value, of the property, less estimated cost to sell. Estimates of fair value are generally based on third-party appraisals of the property and are classified within Level 3 of the fair value hierarchy. The appraisals are sometimes discounted based on management’s knowledge of the property and/or changes in market conditions from the date of the most recent appraisal. Such discounts are typically significant unobservable inputs for determining fair value.
Other Assets
IncludedAs of September 30, 2022 and December 31, 2021, included within other assets areOREO were certain assets that were formerly included as premises and equipment but have been removed from service, and as of the balance sheet date, were designated as assets to be disposed of by sale. These include assets associated with branches of the Bank and ALC that have been closed. When an asset is designated as held for sale,held-for-sale, the Company ceases depreciation of the asset, and the asset is recorded at the lower of its carrying amount or fair value less estimated cost to sell. Estimates of fair value are generally based on third-party appraisals of the property and are classified within Level 3 of the fair value hierarchy. The appraisals are sometimes discounted based on management’s knowledge of the property and/or changes in market conditions from the date of the most recent appraisal. Such discounts are typically unobservable inputs for determining fair value.
The following table presents the balances of impaired loans, OREO and other assets held-for-sale measured at fair value on a non-recurring basis as of September 30, 20172022 and December 31, 2016.2021:
Fair Value Measurements as of September 30, 2017 Using | ||||||||||||||||
Totals At September 30, 2017 | Quoted Prices in Active Markets For Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||
(Dollars in Thousands) | ||||||||||||||||
Impaired loans | $ | 686 | $ | — | $ | — | $ | 686 | ||||||||
OREO | 3,819 | — | — | 3,819 | ||||||||||||
Other assets | 228 | — | — | 228 |
|
| Fair Value Measurements as of September 30, 2022 Using |
| |||||||||||||
|
| Totals At |
|
| Quoted |
|
| Significant |
|
| Significant |
| ||||
|
| (Dollars in Thousands) |
| |||||||||||||
Impaired loans |
| $ | 84 |
|
| $ | — |
|
| $ | — |
|
| $ | 84 |
|
OREO and other assets held-for-sale |
|
| 686 |
|
|
| — |
|
|
| — |
|
|
| 686 |
|
|
| Fair Value Measurements as of December 31, 2021 Using |
| |||||||||||||
|
| Totals At |
|
| Quoted |
|
| Significant |
|
| Significant |
| ||||
|
| (Dollars in Thousands) |
| |||||||||||||
Impaired loans |
| $ | 6 |
|
| $ | — |
|
| $ | — |
|
| $ | 6 |
|
OREO and other assets held-for-sale |
|
| 2,149 |
|
|
| — |
|
|
| — |
|
|
| 2,149 |
|
39
Fair Value Measurements as of December 31, 2016 Using | ||||||||||||||||
Totals At December 31, 2016 | Quoted Prices in Active Markets For Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||
(Dollars in Thousands) | ||||||||||||||||
Impaired loans | $ | 1,568 | $ | — | $ | — | $ | 1,568 | ||||||||
OREO | 4,858 | — | — | 4,858 | ||||||||||||
Other assets | 280 | — | — | 280 |
Non-recurring Fair Value Measurements Using Significant Unobservable Inputs
The following table presents information regarding assets and liabilities measured at fair value using significant unobservable inputs (Level 3) as of September 30, 2017.2022. The table includes the valuation techniques and the significant unobservable inputs utilized. The range of each unobservable input and the weighted average within the range utilized as of September 30, 20172022 are both included. Following the table is a description of the valuation technique and the sensitivity of the technique to changes in the significant unobservable input.
|
| Level 3 Significant Unobservable Input Assumptions |
| Level 3 Significant Unobservable Input Assumptions | ||||||||||||||||||
|
| Fair Value September 30, 2017 |
|
| Valuation Technique |
| Unobservable Input |
| Quantitative Range of Unobservable Inputs (Weighted Average) |
| Fair Value |
|
| Valuation Technique |
| Unobservable Input |
| Quantitative Range | ||||
|
| (Dollars in Thousands) |
| (Dollars in Thousands) |
|
| ||||||||||||||||
Non-recurring fair value measurements: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Impaired loans |
| $ | 686 |
|
| Multiple data points, including discount to appraised value of collateral based on recent market activity |
| Appraisal comparability adjustment (discount) |
| 9% - 10% (9.5%) |
| $ | 84 |
|
| Multiple data points, |
| Appraisal comparability |
| 9%-10% |
| (9.5%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
OREO | $ | 3,819 | Discount to appraised value of property based on recent market activity for sales of similar properties | Appraisal comparability adjustment (discount) | 9% - 10% (9.5%) | |||||||||||||||||
Other assets |
| $ | 228 |
|
| Discount to appraised value of property based on recent market activity for sales of similar properties |
| Appraisal comparability adjustment (discount) |
| 9% - 10% (9.5%) | ||||||||||||
OREO and other assets held-for-sale |
| $ | 686 |
|
| Discount to appraised |
| Appraisal comparability |
| 9%-10% |
| (9.5%) |
Impaired Loans
Impaired loans are valued based on multiple data points indicating the fair value for each loan. The primary data point is the appraisal value of the underlying collateral, to which a discount is applied. Management establishes this discount or comparability adjustment based on recent sales of similar property types. As liquidity in the market increases or decreases, the comparability adjustment and the resulting asset valuation are impacted.
OREO
OREO
OREO under a binding contract for sale is valued based on contract price. If no sales contract is pending for a specific property, management establishes a comparability adjustment to the appraised value based on historical activity, considering proceeds for properties sold versus the corresponding appraised value. Increases or decreases in realization for properties sold impact the comparability adjustment for similar assets remaining on the balance sheet.
Other Assets Held-for-Sale
Assets designated as held for saleheld-for-sale that are under a binding contract are valued based on the contract price. If no sales contract is pending for a specific property, management establishes a comparability adjustment to the appraised value based on historical activity, considering proceeds for properties sold versus the corresponding appraised value. Increases or decreases in realization for properties sold impact the comparability adjustment for similar assets remaining on the balance sheet.
40
Fair Value of Financial Instruments
ASC Topic 825, Financial Instruments, requires disclosure of fair value information about financial instruments, whether or not recognized on the face of the balance sheet, for which it is practicable to estimate that value.estimate. The following methods and assumptions were used by the Company in estimating the fair value of its financial instruments:
Cash, due from banks and federal funds sold:The carrying amount of cash, due from banks and federal funds sold approximates fair value.
Federal Home Loan Bank stock:Based on the redemption provision of the FHLB, the stock has no quoted market value and is carried at cost.
Investment securities:Fair values of investment securities are based on quoted market prices where available. If quoted market prices are not available, estimated fair values are based on market prices of comparable instruments.
Derivative instruments:The fair value of derivative instruments is based on information obtained from a third-party financial institution. This information is periodically evaluated by the Company and, as necessary, corroborated against other third-party information.
Accrued interest receivable and payable:The carrying amount of accrued interest approximates fair value.
Loans, net:For variable-rate loans, The fair values are based on carrying values. Fixed-rate commercial loans, other installment loans and certain real estate mortgage loans are valued using discounted cash flows. The discount rate used to determine the present value of these loans is basedestimated on interest rates charged by the Company on comparable loans as toan exit price basis incorporating contractual cash flow, prepayment discount spreads, credit riskloss and term at the determination date.liquidity premiums.
Demand and savings deposits:The fair values of demand deposits are equal to the carrying value of such deposits. Demand deposits include non-interest-bearing demand deposits, savings accounts, NOW accounts and money market demand accounts.
Time deposits:The fair values of relatively short-term time deposits are equal to their carrying values. Discounted cash flows are used to value long-term time deposits. The discount rate used is based on interest rates currently being offered by the Company on comparable deposits as to amount and term.
Short-term borrowings:These borrowings may consist of federal funds purchased, securities sold under agreements to repurchase and the floating rate borrowings from the FHLB account. Due to the short-term nature of these borrowings, fair values approximate carrying values.
Long-term debt:The fair value of this debt is estimated using discounted cash flows based on the Company’s current incremental borrowing rate for similar types of borrowing arrangements as of the determination date.
Off-balance sheet instruments:The carrying amount of commitments to extend credit and standby letters of credit approximates fair value. The carrying amount of the off-balance sheet financial instruments is based on fees currently charged to enter into such agreements.
The estimated fair value and related carrying or notional amounts, as well as the level within the fair value hierarchy, of the Company’sCompany’s financial instruments as of September 30, 20172022 and December 31, 20162021 were as follows:
September 30, 2017 |
| September 30, 2022 |
| |||||||||||||||||||||||||||||||||||||
Carrying Amount | Estimated Fair Value | Level 1 | Level 2 | Level 3 |
| Carrying |
|
| Estimated |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| |||||||||||||||||||||
(Dollars in Thousands) |
| (Dollars in Thousands) |
| |||||||||||||||||||||||||||||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Cash and cash equivalents | $ | 32,554 | $ | 32,554 | $ | 32,554 | $ | — | $ | — |
| $ | 36,820 |
|
| $ | 36,820 |
|
| $ | 36,820 |
|
| $ | — |
|
| $ | — |
| ||||||||||
Investment securities available-for-sale | 158,425 | 158,425 | — | 158,425 | — |
|
| 143,794 |
|
|
| 143,794 |
|
|
| — |
|
|
| 143,794 |
|
|
| — |
| |||||||||||||||
Investment securities held-to-maturity | 27,377 | 27,303 | — | 27,303 | — |
|
| 2,109 |
|
|
| 2,013 |
|
|
| — |
|
|
| 2,013 |
|
|
| — |
| |||||||||||||||
Federal funds sold |
|
| 120 |
|
|
| 120 |
|
|
| — |
|
|
| 120 |
|
|
| — |
| ||||||||||||||||||||
Federal Home Loan Bank stock | 1,396 | 1,396 | — | — | 1,396 |
|
| 2,009 |
|
|
| 2,009 |
|
|
| — |
|
|
| — |
|
|
| 2,009 |
| |||||||||||||||
Loans, net of allowance for loan losses | 338,026 | 327,251 | — | — | 327,251 | |||||||||||||||||||||||||||||||||||
Loans, net of allowance for loan and lease losses |
|
| 740,898 |
|
|
| 703,047 |
|
|
| — |
|
|
| — |
|
|
| 703,047 |
| ||||||||||||||||||||
Other assets - derivatives | 291 | 291 | — | 291 | — |
|
| 2,338 |
|
|
| 2,338 |
|
|
| — |
|
|
| 2,338 |
|
|
| — |
| |||||||||||||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Deposits | 508,385 | 507,298 | — | 507,298 | — |
|
| 846,537 |
|
|
| 836,020 |
|
|
| — |
|
|
| 836,020 |
|
|
| — |
| |||||||||||||||
Short-term borrowings | 10,635 | 10,634 | — | 10,634 | — |
|
| 40,106 |
|
|
| 40,106 |
|
|
| — |
|
|
| 40,106 |
|
|
| — |
| |||||||||||||||
Long-term debt | 10,000 | 10,000 | — | 10,000 | — | |||||||||||||||||||||||||||||||||||
Long-term borrowings |
|
| 10,708 |
|
|
| 9,906 |
|
|
|
|
| 9,906 |
|
|
|
|
41
December 31, 2016 | ||||||||||||||||||||
Carrying Amount | Estimated Fair Value | Level 1 | Level 2 | Level 3 | ||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||
Assets: | ||||||||||||||||||||
Cash and cash equivalents | $ | 23,530 | $ | 23,530 | $ | 23,530 | $ | — | $ | — | ||||||||||
Investment securities available-for-sale | 181,910 | 181,910 | — | 181,910 | — | |||||||||||||||
Investment securities held-to-maturity | 25,904 | 25,508 | — | 25,508 | — | |||||||||||||||
Federal Home Loan Bank stock | 1,581 | 1,581 | — | — | 1,581 | |||||||||||||||
Loans, net of allowance for loan losses | 322,772 | 319,881 | — | — | 319,881 | |||||||||||||||
Other assets - derivatives | 346 | 346 | — | 346 | — | |||||||||||||||
Liabilities: | ||||||||||||||||||||
Deposits | 497,556 | 497,037 | — | 497,037 | — | |||||||||||||||
Short-term borrowings | 10,119 | 10,119 | — | 10,119 | — | |||||||||||||||
Long-term debt | 15,000 | 14,998 | — | 14,998 | — |
|
| December 31, 2021 |
| |||||||||||||||||
|
| Carrying |
|
| Estimated |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| |||||
|
| (Dollars in Thousands) |
| |||||||||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Cash and cash equivalents |
| $ | 61,244 |
|
| $ | 61,244 |
|
| $ | 61,244 |
|
| $ | — |
|
| $ | — |
|
Investment securities available-for-sale |
|
| 130,883 |
|
|
| 130,883 |
|
|
| — |
|
|
| 130,883 |
|
|
| — |
|
Investment securities held-to-maturity |
|
| 3,436 |
|
|
| 3,477 |
|
|
| — |
|
|
| 3,477 |
|
|
| — |
|
Federal funds sold |
|
| 82 |
|
|
| 82 |
|
|
| — |
|
|
| 82 |
|
|
| — |
|
Federal Home Loan Bank stock |
|
| 870 |
|
|
| 870 |
|
|
| — |
|
|
| — |
|
|
| 870 |
|
Loans, net of allowance for loan and lease losses |
|
| 700,030 |
|
|
| 694,744 |
|
|
| — |
|
|
| — |
|
|
| 694,744 |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Deposits |
|
| 838,126 |
|
|
| 837,439 |
|
|
| — |
|
|
| 837,439 |
|
|
| — |
|
Short-term borrowings |
|
| 10,046 |
|
|
| 10,046 |
|
|
| — |
|
|
| 10,046 |
|
|
| — |
|
Long-term borrowings |
|
| 10,653 |
|
|
| 10,804 |
|
|
|
|
|
| 10,804 |
|
|
|
| ||
Other liabilities - derivatives |
|
| 774 |
|
|
| 774 |
|
|
| — |
|
|
| 774 |
|
|
| — |
|
|
42
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
DESCRIPTION OF THE BUSINESS
First US Bancshares, Inc., a Delaware corporation (“Bancshares” and, together with its subsidiaries, the “Company”), is a bank holding company with its principal officesoffices in Birmingham, Alabama. Bancshares operates one commercial banking subsidiary, First US Bank (the “Bank”). As of September 30, 2017,2022, the Bank operated and served its customers through sixteen15 banking offices located in Birmingham, Bucksville, Butler, Calera, Centreville, Columbiana, Gilbertown, Grove Hill, Harpersville, Jackson, Thomasville, Tuscaloosa and Woodstock, Alabama, inAlabama; Knoxville and Powell, Tennessee; and Rose Hill, Virginia. In addition, to athe Bank operates loan production officeoffices in Mountain Brook, Alabama.Mobile, Alabama and the Chattanooga, Tennessee area. The Bank provides a wide range of commercial banking services to small- and medium-sized businesses, property managers, business executives, professionals and other individuals. The Bank also performs indirect lending through third-party retailers and currently conducts this lending in 12 states, including Alabama, Florida, Georgia, Kentucky, Mississippi, Missouri, North Carolina, Oklahoma, South Carolina, Tennessee, Texas and Virginia.
The Bank owns all of the stock of Acceptance Loan Company, Inc., an Alabama corporation (“ALC”). ALC is a finance company organized for the purpose of making and purchasing consumer loans. ALC’s principal office is locatedheadquartered in Mobile, Alabama. The Bank isDuring the funding source for ALC. Asthird quarter of September 30, 2017, in addition to2021, ALC ceased new business development and permanently closed its principal office, ALC operated twenty-one offices located20 branch lending locations in Alabama and southeast Mississippi.Mississippi to the public. ALC continues to service its remaining portfolio of loans from its headquarters in Mobile, Alabama.
The Bank provides a wide range of commercial banking services to small- and medium-sized businesses, property managers, business executives, professionals and other individuals, while ALC’s business is focused on consumer lending.
FUSB Reinsurance, Inc., an Arizona corporation and a wholly ownedwholly-owned subsidiary of the Bank (“FUSB Reinsurance”), reinsures or “underwrites” credit life and credit accident and health insurance policies sold to the Bank’s and ALC’s consumer loan customers. FUSB Reinsurance is responsible for the first level of risk on these policies up to a specified maximum amount, and a primary third-party insurer retains the remaining risk. TheA third-party insureradministrator is also responsible for performing most of the administrative functions of FUSB Reinsurance on a contract basis.
Delivery of the best possible financial services to customers remains an overall operational focus of Bancshares and its subsidiaries (collectively, the “Company”). We recognizeCompany. The Company recognizes that attention to detail and responsiveness to customers’customers’ desires are critical to customer satisfaction. The Company continues to upgrade technology, both in its financial services and in the training of its 258155 full-time equivalent employees (as of September 30, 2022), to ensure customer satisfaction and convenience.
The preparation of the Company’sCompany’s consolidated financial statements requires management to make subjective judgments associated with estimates. These estimates are necessary to comply with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and general banking practices. These estimates include accounting for the allowance for loan and lease losses, the right-of-use asset and lease liability, the value of other real estate owned valuation ofand certain collateral-dependent loans, consideration related to goodwill impairment testing and deferred tax assets and fair value measurements.asset valuation. A description of these estimates, which significantly affect the determination of the Company’s consolidated financial position, results of operations and cash flows, is set forth in Note 2, “Summary of Significant Accounting Policies,” of the Notes to Consolidated Financial Statements in Bancshares’ Annual Report on Form 10-K as of and for the year ended December 31, 2016.2021.
The emphasis of this discussion is a comparison of assets, liabilities and shareholders’shareholders’ equity as of September 30, 20172022 to December 31, 2016,2021, while comparing income and expense for the three- and nine-month periodsnine months ended September 30, 20172022 and 2016.2021.
All yields and ratios presented and discussed herein are recorded and presented on the accrual basis and not on the tax-equivalent basis, unless otherwise indicated.
This information should be read in conjunction with the Company’sCompany’s unaudited condensed consolidated financial statements and related notes appearing elsewhere in this report and Management’s Discussion and Analysis of Financial Condition and Results of Operations appearing in Bancshares’ Annual Report on Form 10-K as of and for the year ended December 31, 2016.2021. As used in the following discussion, the words “ we,“we,” “ us,“us,” “ our”“our” and the “ Company”“Company” refer to Bancshares and its consolidated subsidiaries, unless the context indicates otherwise.
43
RECENT MARKET CONDITIONS
During the nine months ended September 30, 2022, general economic conditions benefited from declining COVID-19 cases and the related lifting of COVID-19 restrictions throughout the United States. However, economic uncertainty remains with respect to the long-term effectiveness of efforts to reduce the impact of COVID-19 both globally and domestically. In addition, economic uncertainty emerged from geopolitical developments surrounding the invasion of Ukraine by Russia and further COVID-19 lockdowns in China. Furthermore, inflation has reached a 40-year high during 2022, and market rates of interest have risen after a prolonged period at historical lows. In March 2022, the Federal Reserve Board (FRB) raised the target federal funds rate for the first time in three years, with additional increases in May, June, July and September 2022. Further increases are expected during the remainder of 2022 as the FRB attempts to reduce inflation.
As interest rates increase, competitive pressures on both loan and deposit pricing are also expected to increase. The pace and magnitude of changes in interest rates, or the impact that such changes will have on the Company’s operating results, cannot be fully predicted. During this still-ongoing and still-volatile transition period, the yield curve has flattened and, at times, become inverted. Unusual yield curve effects, including inversion, may continue. Further, as the rate of inflation accelerates, the Company’s operations could be impacted by, among other things, accelerating cost of goods and services, including the cost of salaries and benefits. Additionally, the Company’s borrowers could be negatively impacted by rising expense levels, leading to deterioration of credit quality and/or reductions in the Company’s lending activity. The higher interest rate environment has also led to unrealized losses in the Company's investment portfolio, which consists primarily of fixed rate instruments.
44
EXECUTIVE OVERVIEW
Update on Strategic Initiatives
Beginning in 2021, the Company originated certain strategic initiatives designed to improve the Company’s operating efficiency, focus the Company’s loan growth activities, and fortify asset quality. The discussion below provides an update regarding the Company’s ongoing strategic initiatives.
Cessation of Business at ALC
On September 3, 2021, ALC ceased new business development and permanently closed its 20 branch lending locations in Alabama and Mississippi to the public. As of September 30, 2022, ALC employed eight full-time equivalent employees that continued to collect payments on loans through ALC’s Mobile, Alabama headquarters office. The objectives of this initiative included the simplification of the Company’s business processes, reduction of non-interest expense, and the improvement of the Company’s asset quality. The timing of the Company’s ability to achieve each of these objectives will be different with some objectives being achieved relatively quickly after execution of the initiative, while others will take more time as ALC’s loan portfolio continues to pay down. For example, a significant reduction of non-interest expense was achieved beginning in the fourth quarter of 2021 and has continued in 2022 due to the reduction of personnel, termination of branch leases, and reduction of technology and other overhead expenses. During the nine months ended September 30, 2022, non-interest expense at ALC totaled $1.4 million, compared to $5.7 million during the same period of 2021.
Though the initiative resulted in non-interest expense reductions relatively early in its execution, it has also resulted in increased expense related to loan loss provisioning. As a result of branch closures, charge-offs associated with ALC loans have increased since the inception of the initiative compared to prior periods. Net charge-offs at ALC totaled $1.5 million during the nine months ended September 30, 2022, compared to $0.5 million during the nine months ended September 30, 2021. In addition, in management’s view, the economic uncertainties that have emerged in 2022, including elevated inflation levels, have increased overall credit risk related to ALC’s loan portfolio. Accordingly, qualitative economic factors associated with ALC’s loan loss reserves have worsened, resulting in additional loan loss provisions. For the nine months ended September 30, 2022, loan loss provisions specific to ALC’s loans totaled $1.6 million, compared to $0.2 million for the corresponding period of 2021. Over time, the reduction of loans at ALC is expected to improve the Company’s asset quality. ALC’s loans and, in particular, its direct consumer portfolio have historically had the Company’s highest level of losses. Approximately 89.0% and 61.0% of the Company’s total net charge-offs were associated with ALC’s loan portfolio during the nine months ended September 30, 2022 and 2021, respectively. As of September 30, 2022, ALC's remaining loans net of unearned interest and fees totaled $23.8 million, compared to $40.8 million as of December 31, 2021.
While this strategy is expected to provide ongoing expense reductions, interest income earned on ALC’s loans will also continue to decline in future periods as the loans pay down. For the nine months ended September 30, 2022, interest income earned on ALC’s loans totaled $3.9 million, compared to $7.0 million for the nine months ended September 30, 2021. Accordingly, the Company’s focus remains on continued loan growth in other areas of the Bank’s portfolio, as well as efforts to continue to simplify the Company’s ongoing operations and reduce expenses further.
Organizational Efforts
In January 2022, management reorganized the Bank’s retail banking, technology and deposit operations functions under a single organizational structure. Under this structure, management expects to further improve the efficiency of its retail banking operation, while also improving the promotion and deployment of the Bank’s digital products and services.
In addition, the Company continues to evaluate opportunities throughout the organization to improve its processes and simplify business models.
Financial Highlights
The Company earned net income of $0.10$1.9 million, or $0.29 per diluted common share, during the three months ended September 30, 2017,2022, compared to $0.09$0.8 million, or $0.13 per diluted common share, duringfor the corresponding three-month period of 2016.three months ended September 30, 2021. For the nine months ended September 30, 2017,2022, net income totaled $0.22$4.6 million, or $0.71 per diluted common share, compared to $0.21$2.7 million, or $0.41 per diluted common share, for the nine months ended September 30, 2021.
45
Earnings improvement, comparing both the three and nine months ended September 30, 2022 to the corresponding nine-monthperiods in 2021, was driven primarily by reductions in non-interest expense resulting from the strategic initiatives that were initiated by the Company beginning in 2021, and in particular the ALC cessation of business initiative. Non-interest expense was reduced by $1.5 million, or 17.7%, comparing the three months ended September 30, 2022 to the three months ended September 30, 2021, and by $4.4 million, or 17.3%, comparing the nine months ended September 30, 2022, to the corresponding period of 2016. 2021.
Summarized condensed consolidated statements of operations are included below for the three and nine months ended September 30, 2022 and 2021.
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
|
| September 30, |
|
| September 30, |
| ||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
|
| (Dollars in Thousands) |
| |||||||||||||
Interest income |
| $ | 10,670 |
|
| $ | 10,030 |
|
| $ | 29,576 |
|
| $ | 29,934 |
|
Interest expense |
|
| 1,155 |
|
|
| 695 |
|
|
| 2,526 |
|
|
| 2,223 |
|
Net interest income |
|
| 9,515 |
|
|
| 9,335 |
|
|
| 27,050 |
|
|
| 27,711 |
|
Provision for loan and lease losses |
|
| 1,165 |
|
|
| 618 |
|
|
| 2,781 |
|
|
| 1,517 |
|
Net interest income after provision for loan and lease losses |
|
| 8,350 |
|
|
| 8,717 |
|
|
| 24,269 |
|
|
| 26,194 |
|
Non-interest income |
|
| 1,088 |
|
|
| 896 |
|
|
| 2,773 |
|
|
| 2,656 |
|
Non-interest expense |
|
| 7,032 |
|
|
| 8,547 |
|
|
| 20,966 |
|
|
| 25,342 |
|
Income before income taxes |
|
| 2,406 |
|
|
| 1,066 |
|
|
| 6,076 |
|
|
| 3,508 |
|
Provision for income taxes |
|
| 546 |
|
|
| 229 |
|
|
| 1,440 |
|
|
| 768 |
|
Net income |
| $ | 1,860 |
|
| $ | 837 |
|
| $ | 4,636 |
|
| $ | 2,740 |
|
Basic net income per share |
| $ | 0.31 |
|
| $ | 0.13 |
|
| $ | 0.76 |
|
| $ | 0.43 |
|
Diluted net income per share |
| $ | 0.29 |
|
| $ | 0.13 |
|
| $ | 0.71 |
|
| $ | 0.41 |
|
Dividends per share |
| $ | 0.03 |
|
| $ | 0.03 |
|
| $ | 0.09 |
|
| $ | 0.09 |
|
The compositionfollowing discussion summarizes the most significant activity that drove changes in the Company’s net income during the nine months ended September 30, 2022, as compared to the nine months ended September 30, 2021.
Net Interest Income and Margin
Net interest income decreased by $0.7 million comparing the nine months ended September 30, 2022 to the nine months ended September 30, 2021. The most significant driver of earnings changed significantlythe decrease in net interest income was the reduction of interest and fees on ALC loans in connection with the ALC business cessation strategy. Interest and fees on ALC loans decreased by $3.1 million during the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021. This reduction was partially offset by increased interest income in the Bank’s other loan portfolios, as well as an increase in investment security interest income. As ALC’s loan portfolio continues to pay down, there will be continued reduction in interest and fees attributable to ALC’s loans. These reductions are expected to continue to put downward pressure on total loan yield and net interest margin. As a result of the changing mix of loans, the Company’s net interest margin was reduced to 4.00% during the nine months ended September 30, 2022, compared to 4.29% during the nine months ended September 30, 2021. Historically, ALC’s loan portfolio has represented both the Company’s highest yielding loans, as well as the portfolio with the highest level of credit losses. Accordingly, while interest earned on these loans is expected to decrease over time, loan loss provision expense is also expected to decrease after the portfolio pays down.
As the pay down of ALC’s loans continues, management remains focused on efforts to grow earning assets in the Bank’s other loan and investment categories, while at the same time maintaining pricing discipline on deposit costs. As part of its overall interest rate risk management program, the Company has entered into forward interest rate swap contracts on certain variable rate deposit products and fixed rate commercial real estate loans. During the nine months ended September 30, 2022, the Company terminated one interest rate swap associated with a Federal Home Loan Bank borrowing and recorded a deferred gain associated with the termination of $0.3 million. The gain will be recognized over the remaining 24-month term of the original swap agreement.
46
Provision for Loan and Lease Losses
The provision for loan and lease losses was $2.8 million during the nine months ended September 30, 2022, compared to $1.5 million during the nine months ended September 30, 2021. The increase in provision expense during the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021 reflected both an increase in charge-offs associated with ALC’s loan portfolio, as well as qualitative adjustments applied to the portfolio in response to heightened inflationary trends and other economic uncertainties that emerged during the period. In management’s view, the combination of the ALC business cessation strategy, coupled with deteriorating economic conditions, including elevated inflation levels, increased overall credit risk in ALC’s loan portfolio as of September 30, 2022, compared to December 31, 2021.
Non-interest Income
Non-interest income increased by $0.1 million comparing the nine months ended September 30, 2022 to the nine months ended September 30, 2021. The increase resulted primarily from increased service and other charges on deposit accounts comparing the two periods.
Non-interest Expense
Non-interest expense decreased by $4.4 million comparing the nine months ended September 30, 2022 to the nine months ended September 30, 2021. The decrease in 2022 resulted primarily from implementation of the ALC business cessation strategy, as well as other efficiency efforts conducted at the Bank. As a result of these efforts, significant expense reductions were realized associated with salaries and employee benefits, occupancy and equipment, as well as other expenses associated with technology and professional services. Non-interest expense during both the three- and nine-month periods ended September 30, 2017, compared to the corresponding periods of the previous year. The 2017 results were positively impacted2022 and 2021 was reduced by increased net interest income as a result of growth$0.3 million and $0.4 million in net loans, as well as decreases in non-interest expenses, including regulatory assessments, insurance expense and occupancy and equipment expense. By contrast, the 2016 results were bolstered by higher gains on the sale of securities than were experienced in 2017.other real estate owned (OREO), respectively.
Balance Sheet Levels
As of September 30, 2017,2022, the Company’s net loansCompany’s assets totaled $338.0$989.3 million, compared to $958.3 million as of December 31, 2021, an increase of $15.33.2%. Compared to September 30, 2021, the Company’s total assets increased by $33.9 million, and $20.9or 3.5%.
Loans
Total loans increased by $40.9 million, or 5.8% as of September 30, 2022, compared to December 31, 2016 and September 30, 2016, respectively. The majority of loan2021. Loan volume increases included growth occurred in the Bank’s indirect, residential (secured by multi-family and 1-4 family residential properties) and commercial loan portfolioreal estate (secured by nonfarm, nonresidential properties). Growth in these categories was consistent with continued robust commercial economic activity and was concentratedresiliency in the Bank’s larger metropolitan service territories of Birmingham and Tuscaloosa, Alabama. The Bank’s commercial loan growth strategy has been focused on these larger metropolitan growth markets over the past 24 months. Consistent with that strategy,consumer demand during the third quarterperiod.
Asset Quality
The Company’s nonperforming assets, including loans in non-accrual status and OREO, totaled $2.8 million as of 2017,September 30, 2022, compared to $4.2 million as of December 31, 2021. The reduction in nonperforming assets during the Bank completed initial constructionnine months ended September 30, 2022 resulted from the sale of an office complex along U.S. Highway 280OREO properties during the period. Reductions in Birmingham. The office complex housesOREO totaled $1.5 million and included the sale of banking centers that were closed by the Company in 2021. As a retail branchpercentage of the Bank,total assets, nonperforming assets totaled 0.28% as wellof September 30, 2022 compared to 0.43% as the Birmingham commercial lending teamof December 31, 2021.
Deposit Growth and certain membersDeployment of the Bank’s executive management team. At the endFunds
Deposits increased by $8.4 million, or 1.0%, as of the third quarter, the headquarters of both Bancshares and the Bank were relocatedSeptember 30, 2022, compared to the newly completed office complex.
Additional financial results forDecember 31, 2021. During the first nine months of 20172022, management continued to focus on minimizing deposit expense and deploying excess cash balances into earning assets that meet the Company’s established credit standards, while maintaining appropriate levels of liquidity in accordance with projected funding needs. Total average funding costs, including both interest- and noninterest-bearing liabilities and borrowings, were 0.39% for the nine months ended September 30, 2022, compared to 0.36% for the nine months ended September 30, 2021. Given the increasing interest rate environment during the first nine months of 2022, management continued to deploy a portion of excess funds into the investment securities portfolio. Investment securities, including both the available-for-sale and held-to-maturity portfolios totaled $145.9 million as of September 30, 2022, compared to $134.3 million as of December 31, 2021. The expected average life of securities in the investment portfolio as of September 30, 2022 was 3.6 years, compared to 3.7 years as of December 31, 2021. Management maintains the portfolio with average durations that are summarized below.expected to provide monthly cash flows that can be utilized to reinvest in earning assets at current market rates.
|
|
47
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ Equity
Shareholders’ equity decreased by $7.0 million, or 7.7%, as of September 30, 2022, compared to December 31, 2021. The decrease in shareholders’ equity resulted primarily from increases in accumulated other comprehensive loss due to declines in the market value of the Company’s available-for-sale investment portfolio. The market value declines were the direct result of the increasing interest rate environment during the nine months ended September 30, 2022. No other-than-temporary impairment was recognized in the investment portfolio during the nine months ended September 30, 2022, and the Company has both the intent and ability to retain the investments for a period of time sufficient to allow for the full recovery of all market value decreases. The market value decrease in available-for-sale securities was partially offset by an increase in the market value of cash flow derivative instruments that hedge certain deposits and borrowings on the Company’s balance sheet.
|
|
|
|
Regulatory Capital
During the nine months ended September 30, 2022, the Bank continued to maintain capital ratios at higher levels than required to be considered a “well-capitalized” institution under applicable banking regulations. As of September 30, 2022, the Bank’s common equity Tier 1 capital and Tier 1 risk-based capital ratios were each 11.09%. Its total capital ratio was 12.23%, and its Tier 1 leverage ratio was 9.23%.
Liquidity
The Company continues to maintain excess funding capacity to provide adequate liquidity for loan growth, capital expenditures and ongoing operations. The Company benefits from a strong deposit base, a liquid investment securities portfolio and access to funding from a variety of sources, including federal funds lines, Federal Home Loan Bank (“FHLB”) advances and brokered deposits. Management believes that continued success in loan growth efforts
Cash Dividend
The Company declared cash dividends totaling $0.09 per share on its common stock during both nine-month periods ended September 30, 2022 and September 30, 2021.
Share Repurchases
During the nine months ended September 30, 2022, the Company completed share repurchases totaling 412,400 shares of its common stock at both the Bank and ALC, combined with adherence to established credit underwriting standards, will strengthen both the diversity and credit qualitya weighted average price of $10.87 per share. The repurchases were completed under the Company’s loan portfolio, while improving interest and fee income on loans.existing share repurchase program, which was amended in April 2021 to allow for the repurchase of additional shares through December 31, 2022. As of September 30, 2022, a total of 596,813 shares remained available for repurchase under the program.
RESULTS OF OPERATIONS
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | September 30, | September 30, | |||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
(Dollars in Thousands) | ||||||||||||||||
Interest income | $ | 7,820 | $ | 7,760 | $ | 23,013 | $ | 22,434 | ||||||||
Interest expense | 685 | 587 | 1,902 | 1,683 | ||||||||||||
Net interest income | 7,135 | 7,173 | 21,111 | 20,751 | ||||||||||||
Provision for loan losses | 373 | 680 |
| 1,464 | 1,383 | |||||||||||
Net interest income after provision for loan losses | 6,762 | 6,493 | 19,647 | 19,368 | ||||||||||||
Non-interest income | 1,236 | 1,567 | 3,333 | 4,036 | ||||||||||||
Non-interest expense | 7,190 | 7,348 | 21,090 | 21,669 | ||||||||||||
Income before income taxes | 808 | 712 | 1,890 | 1,735 | ||||||||||||
Provision for income taxes | 173 | 162 | 435 | 406 | ||||||||||||
Net income | $ | 635 | $ | 550 | $ | 1,455 | $ | 1,329 |
Net Interest Income
Net interest income is calculated as the difference between interest and fee income generated from earning assets and the interest expense paid on deposits and borrowed funds. Fluctuations in interest rates, as well as volume and mix changes in earning assets and interest-bearing liabilities, can materially impact net interest income. The Company’s earning assets are comprisedconsist of loans, at both the Bank and ALC, as well as taxable and nontaxabletax-exempt investments, andFederal Home Loan Bank stock, federal funds sold by the Bank.Bank and interest-bearing deposits in banks. Interest-bearing liabilities are comprisedconsist of interest-bearing demand deposits and savings and time deposits, as well as short-term borrowingsshort- and long-term debt.borrowings.
The following tables show the average balances of each principal category of assets, liabilities and shareholders’ equity for the three-three and nine-month periodsnine months ended September 30, 20172022 and 2016.2021. Additionally, the tables provide an analysis of interest revenue or expense associated with each category, along with the accompanying yield or rate percentage. Net yieldinterest margin is calculated for each period presented as net interest income divided by average total interest-earning assets.
48
|
| Three Months Ended |
|
| Three Months Ended |
| ||||||||||||||||||
|
| September 30, 2017 |
|
| September 30, 2016 |
| ||||||||||||||||||
|
| Average Balance |
|
| Interest |
|
| Annualized Yield/ Rate % |
|
| Average Balance |
|
| Interest |
|
| Annualized Yield/ Rate % |
| ||||||
|
| (Dollars in Thousands) |
| |||||||||||||||||||||
ASSETS |
| |||||||||||||||||||||||
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans – Bank (Note A) |
| $ | 240,006 |
|
| $ | 2,578 |
|
|
| 4.26 | % |
| $ | 223,739 |
|
| $ | 2,428 |
|
|
| 4.34 | % |
Loans – ALC (Note A) |
|
| 91,193 |
|
|
| 4,224 |
|
|
| 18.38 | % |
|
| 88,783 |
|
|
| 4,345 |
|
|
| 19.57 | % |
Taxable investment securities |
|
| 187,670 |
|
|
| 857 |
|
|
| 1.81 | % |
|
| 199,835 |
|
|
| 845 |
|
|
| 1.68 | % |
Non-taxable investment securities |
|
| 8,225 |
|
|
| 75 |
|
|
| 3.62 | % |
|
| 11,927 |
|
|
| 106 |
|
| 3.56 | % | |
Federal funds sold | — | — | — | % | 8,967 | 12 | 0.54 | % | ||||||||||||||||
Interest-bearing deposits in banks | 27,249 | 86 | 1.25 | % | 18,300 | 24 | 0.52 | % | ||||||||||||||||
Total interest-earning assets |
|
| 554,343 |
|
|
| 7,820 |
|
|
| 5.60 | % |
|
| 551,551 |
|
|
| 7,760 |
|
| 5.63 | % | |
Non-interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Other assets |
|
| 58,786 |
|
|
|
|
|
|
|
|
|
|
| 49,796 |
|
|
|
|
|
|
|
| |
Total |
| $ | 613,129 |
|
|
|
|
|
|
|
|
|
| $ | 601,347 |
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Demand deposits |
| $ | 164,852 |
|
| $ | 161 |
|
|
| 0.39 | % |
| $ | 151,365 |
|
| $ | 140 |
|
|
| 0.37 | % |
Savings deposits |
|
| 82,201 |
|
|
| 53 |
|
|
| 0.26 | % |
|
| 78,415 |
|
|
| 37 |
|
|
| 0.19 | % |
Time deposits |
|
| 182,405 |
|
|
| 403 |
|
|
| 0.88 | % |
|
| 182,567 |
|
|
| 355 |
|
| 0.78 | % | |
Borrowings |
|
| 20,099 |
|
|
| 68 |
|
|
| 1.34 | % |
|
| 20,289 |
|
|
| 55 |
|
|
| 1.08 | % |
Total interest-bearing liabilities |
|
| 449,557 |
|
|
| 685 |
|
|
| 0.60 | % |
|
| 432,636 |
|
|
| 587 |
|
|
| 0.54 | % |
Non-interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Demand deposits |
|
| 77,723 |
|
|
|
|
|
|
|
|
|
|
| 82,097 |
|
|
|
|
|
|
|
|
|
Other liabilities |
|
| 7,282 |
|
|
|
|
|
|
|
|
|
|
| 7,919 |
|
|
|
|
|
|
|
| |
Shareholders’ equity |
|
| 78,567 |
|
|
|
|
|
|
|
|
|
|
| 78,695 |
|
|
|
|
|
|
|
|
|
Total |
| $ | 613,129 |
|
|
|
|
|
|
|
|
|
| $ | 601,347 |
|
|
|
|
|
|
|
|
|
Net interest income (Note B) |
|
|
|
|
| $ | 7,135 |
|
|
|
|
|
|
|
|
|
| $ | 7,173 |
|
|
|
|
|
Net yield on interest-earning assets |
|
|
|
|
|
|
|
|
|
| 5.11 | % |
|
|
|
|
|
|
|
|
|
| 5.20 | % |
|
| Three Months Ended |
|
| Three Months Ended |
| ||||||||||||||||||
|
| September 30, 2022 |
|
| September 30, 2021 |
| ||||||||||||||||||
|
| Average |
|
| Interest |
|
| Annualized |
|
| Average |
|
| Interest |
|
| Annualized |
| ||||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total loans (Note A) |
| $ | 743,145 |
|
| $ | 9,750 |
|
|
| 5.21 | % |
| $ | 691,435 |
|
| $ | 9,568 |
|
|
| 5.49 | % |
Taxable investment securities |
|
| 148,964 |
|
|
| 748 |
|
|
| 1.99 | % |
|
| 119,943 |
|
|
| 409 |
|
|
| 1.35 | % |
Tax-exempt investment securities |
|
| 2,322 |
|
|
| 8 |
|
|
| 1.37 | % |
|
| 3,367 |
|
|
| 15 |
|
|
| 1.77 | % |
Federal Home Loan Bank stock |
|
| 1,808 |
|
|
| 17 |
|
|
| 3.73 | % |
|
| 870 |
|
|
| 8 |
|
|
| 3.65 | % |
Federal funds sold |
|
| 1,984 |
|
|
| 11 |
|
|
| 2.20 | % |
|
| 86 |
|
|
| — |
|
|
| — |
|
Interest-bearing deposits in banks |
|
| 23,166 |
|
|
| 136 |
|
|
| 2.33 | % |
|
| 73,490 |
|
|
| 30 |
|
|
| 0.16 | % |
Total interest-earning assets |
|
| 921,389 |
|
|
| 10,670 |
|
|
| 4.59 | % |
|
| 889,191 |
|
|
| 10,030 |
|
|
| 4.48 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Noninterest-earning assets |
|
| 64,593 |
|
|
|
|
|
|
|
|
| 67,067 |
|
|
|
|
|
|
| ||||
Total |
| $ | 985,982 |
|
|
|
|
|
|
|
| $ | 956,258 |
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Interest-bearing deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Demand deposits |
| $ | 243,131 |
|
| $ | 182 |
|
|
| 0.30 | % |
| $ | 239,188 |
|
| $ | 141 |
|
|
| 0.23 | % |
Savings deposits |
|
| 211,724 |
|
|
| 342 |
|
|
| 0.64 | % |
|
| 208,187 |
|
|
| 160 |
|
|
| 0.30 | % |
Time deposits |
|
| 209,361 |
|
|
| 340 |
|
|
| 0.64 | % |
|
| 223,988 |
|
|
| 351 |
|
|
| 0.62 | % |
Total interest-bearing deposits |
|
| 664,216 |
|
|
| 864 |
|
|
| 0.52 | % |
|
| 671,363 |
|
|
| 652 |
|
|
| 0.39 | % |
Noninterest-bearing demand deposits |
|
| 183,612 |
|
|
| — |
|
|
| — |
|
|
| 176,102 |
|
|
| — |
|
|
| — |
|
Total deposits |
|
| 847,828 |
|
|
| 864 |
|
|
| 0.40 | % |
|
| 847,465 |
|
|
| 652 |
|
|
| 0.31 | % |
Borrowings |
|
| 45,427 |
|
|
| 291 |
|
|
| 2.54 | % |
|
| 10,032 |
|
|
| 43 |
|
|
| 1.70 | % |
Total funding costs |
|
| 893,255 |
|
|
| 1,155 |
|
|
| 0.51 | % |
|
| 857,497 |
|
|
| 695 |
|
|
| 0.32 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Other noninterest-bearing liabilities |
|
| 8,642 |
|
|
|
|
|
|
|
|
| 9,158 |
|
|
|
|
|
|
| ||||
Shareholders’ equity |
|
| 84,085 |
|
|
|
|
|
|
|
|
| 89,603 |
|
|
|
|
|
|
| ||||
Total |
| $ | 985,982 |
|
|
|
|
|
|
|
| $ | 956,258 |
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net interest income (Note B) |
|
|
|
| $ | 9,515 |
|
|
|
|
|
|
|
| $ | 9,335 |
|
|
|
| ||||
Net interest margin |
|
|
|
|
|
|
|
| 4.10 | % |
|
|
|
|
|
|
|
| 4.17 | % |
Note A | — | For the purpose of these computations, non-accruing loans are included in the average loan amounts outstanding. |
Note B | — | Loan fees are included in |
49
|
| Nine Months Ended |
|
| Nine Months Ended |
| ||||||||||||||||||
|
| September 30, 2017 |
|
| September 30, 2016 |
| ||||||||||||||||||
|
| Average Balance |
|
| Interest |
|
| Annualized Yield/ Rate % |
|
| Average Balance |
|
| Interest |
|
| Annualized Yield/ Rate % |
| ||||||
|
| (Dollars in Thousands) |
| |||||||||||||||||||||
ASSETS | ||||||||||||||||||||||||
Interest-earning assets: | ||||||||||||||||||||||||
Loans – Bank (Note A) | $ | 238,428 | $ | 7,408 | 4.15 | % | $ | 197,460 | $ | 6,508 | 4.39 | % | ||||||||||||
Loans – ALC (Note A) | 88,918 | 12,520 | 18.83 | % | 85,504 | 12,684 | 19.78 | % | ||||||||||||||||
Taxable investment securities | 196,200 | 2,659 | 1.81 | % | 213,828 | 2,765 | 1.73 | % | ||||||||||||||||
Non-taxable investment securities | 8,989 | 245 | 3.64 | % | 14,073 | 382 | 3.62 | % | ||||||||||||||||
Federal funds sold | — | — | — | % | 4,288 | 17 | 0.53 | % | ||||||||||||||||
Interest-bearing deposits in banks | 22,705 | 181 | 1.07 | % | 20,581 | 78 | 0.51 | % | ||||||||||||||||
Total interest-earning assets | 555,240 | 23,013 | 5.54 | % | 535,734 | 22,434 | 5.58 | % | ||||||||||||||||
Non-interest-earning assets: | ||||||||||||||||||||||||
Other assets | 56,012 | 49,222 | ||||||||||||||||||||||
Total | $ | 611,252 | $ | 584,956 | ||||||||||||||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||||||||||||||
Interest-bearing liabilities: | ||||||||||||||||||||||||
Demand deposits | $ | 162,920 | $ | 465 | 0.38 | % | $ | 149,162 | $ | 410 | 0.37 | % | ||||||||||||
Savings deposits | 80,364 | 132 | 0.22 | % | 77,411 | 108 | 0.19 | % | ||||||||||||||||
Time deposits | 183,242 | 1,116 | 0.81 | % | 180,949 | 1,050 | 0.77 | % | ||||||||||||||||
Borrowings | 21,596 | 189 | 1.17 | % | 15,467 | 115 | 0.99 | % | ||||||||||||||||
Total interest-bearing liabilities | 448,122 | 1,902 | 0.57 | % | 422,989 | 1,683 | 0.53 | % | ||||||||||||||||
Non-interest-bearing liabilities: | ||||||||||||||||||||||||
Demand deposits | 77,976 | 76,157 | ||||||||||||||||||||||
Other liabilities | 7,223 | 7,750 | ||||||||||||||||||||||
Shareholders’ equity | 77,931 | 78,060 | ||||||||||||||||||||||
Total | $ | 611,252 | $ | 584,956 | ||||||||||||||||||||
Net interest income (Note B) | $ | 21,111 | $ | 20,751 | ||||||||||||||||||||
Net yield on interest-earning assets | 5.08 | % | 5.16 | % |
|
| Nine Months Ended |
|
| Nine Months Ended |
| ||||||||||||||||||
|
| September 30, 2022 |
|
| September 30, 2021 |
| ||||||||||||||||||
|
| Average |
|
| Interest |
|
| Annualized Yield/ |
|
| Average |
|
| Interest |
|
| Annualized Yield/ |
| ||||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total loans (Note A) |
| $ | 713,015 |
|
| $ | 27,339 |
|
|
| 5.13 | % |
| $ | 672,807 |
|
| $ | 28,726 |
|
|
| 5.71 | % |
Taxable investment securities |
|
| 142,425 |
|
|
| 1,896 |
|
|
| 1.78 | % |
|
| 100,245 |
|
|
| 1,059 |
|
|
| 1.41 | % |
Tax-exempt investment securities |
|
| 2,543 |
|
|
| 31 |
|
|
| 1.63 | % |
|
| 3,464 |
|
|
| 47 |
|
|
| 1.81 | % |
Federal Home Loan Bank stock |
|
| 1,165 |
|
|
| 33 |
|
|
| 3.79 | % |
|
| 948 |
|
|
| 25 |
|
|
| 3.53 | % |
Federal funds sold |
|
| 853 |
|
|
| 12 |
|
|
| 1.88 | % |
|
| 84 |
|
|
| — |
|
|
| — |
|
Interest-bearing deposits in banks |
|
| 45,133 |
|
|
| 265 |
|
|
| 0.79 | % |
|
| 86,632 |
|
|
| 77 |
|
|
| 0.12 | % |
Total interest-earning assets |
|
| 905,134 |
|
|
| 29,576 |
|
|
| 4.37 | % |
|
| 864,180 |
|
|
| 29,934 |
|
|
| 4.63 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Noninterest-earning assets |
|
| 65,379 |
|
|
|
|
|
|
|
|
| 68,041 |
|
|
|
|
|
|
| ||||
Total |
| $ | 970,513 |
|
|
|
|
|
|
|
| $ | 932,221 |
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Interest-bearing deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Demand deposits |
| $ | 249,183 |
|
| $ | 438 |
|
|
| 0.24 | % |
| $ | 233,329 |
|
| $ | 425 |
|
|
| 0.24 | % |
Savings deposits |
|
| 206,294 |
|
|
| 693 |
|
|
| 0.45 | % |
|
| 190,296 |
|
|
| 453 |
|
|
| 0.32 | % |
Time deposits |
|
| 208,621 |
|
|
| 833 |
|
|
| 0.53 | % |
|
| 230,986 |
|
|
| 1,222 |
|
|
| 0.71 | % |
Total interest-bearing deposits |
|
| 664,098 |
|
|
| 1,964 |
|
|
| 0.40 | % |
|
| 654,611 |
|
|
| 2,100 |
|
|
| 0.43 | % |
Noninterest-bearing demand deposits |
|
| 182,862 |
|
|
| — |
|
|
| — |
|
|
| 169,780 |
|
|
| — |
|
|
| — |
|
Total deposits |
|
| 846,960 |
|
|
| 1,964 |
|
|
| 0.31 | % |
|
| 824,391 |
|
|
| 2,100 |
|
|
| 0.34 | % |
Borrowings |
|
| 27,994 |
|
|
| 562 |
|
|
| 2.68 | % |
|
| 10,022 |
|
|
| 123 |
|
|
| 1.64 | % |
Total funding costs |
|
| 874,954 |
|
|
| 2,526 |
|
|
| 0.39 | % |
|
| 834,413 |
|
|
| 2,223 |
|
|
| 0.36 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Other noninterest-bearing liabilities |
|
| 8,833 |
|
|
|
|
|
|
|
|
| 9,288 |
|
|
|
|
|
|
| ||||
Shareholders’ equity |
|
| 86,726 |
|
|
|
|
|
|
|
|
| 88,520 |
|
|
|
|
|
|
| ||||
Total |
| $ | 970,513 |
|
|
|
|
|
|
|
| $ | 932,221 |
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net interest income (Note B) |
|
|
|
| $ | 27,050 |
|
|
|
|
|
|
|
| $ | 27,711 |
|
|
|
| ||||
Net interest margin |
|
|
|
|
|
|
|
| 4.00 | % |
|
|
|
|
|
|
|
| 4.29 | % |
Note A | — | For the purpose of these computations, non-accruing loans are included in the average loan amounts outstanding. |
Note B | — | Loan fees are included in |
Interest
50
The following tables summarize the impact of variances in volume and rate of interest-earning assets and interest-bearing liabilities on components of net interest income.
|
| Three Months Ended September 30, 2022 |
|
| Nine Months Ended September 30, 2022 |
| ||||||||||||||||||
|
| Compared to |
|
| Compared to |
| ||||||||||||||||||
|
| Three Months Ended September 30, 2021 |
|
| Nine Months Ended September 30, 2021 |
| ||||||||||||||||||
|
| Increase (Decrease) |
|
| Increase (Decrease) |
| ||||||||||||||||||
|
| Due to Change In: |
|
| Due to Change In: |
| ||||||||||||||||||
|
| Volume |
|
| Average |
|
| Net |
|
| Volume |
|
| Average |
|
| Net |
| ||||||
|
| (Dollars in Thousands) |
| |||||||||||||||||||||
Interest earned on: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total loans |
| $ | 716 |
|
| $ | (534 | ) |
| $ | 182 |
|
| $ | 1,717 |
|
| $ | (3,104 | ) |
| $ | (1,387 | ) |
Taxable investment securities |
|
| 99 |
|
|
| 240 |
|
|
| 339 |
|
|
| 446 |
|
|
| 391 |
|
|
| 837 |
|
Tax-exempt investment securities |
|
| (5 | ) |
|
| (2 | ) |
|
| (7 | ) |
|
| (12 | ) |
|
| (4 | ) |
|
| (16 | ) |
Federal Home Loan Bank stock |
|
| 9 |
|
|
| — |
|
|
| 9 |
|
|
| 6 |
|
|
| 2 |
|
|
| 8 |
|
Federal funds sold |
|
| — |
|
|
| 11 |
|
|
| 11 |
|
|
| — |
|
|
| 12 |
|
|
| 12 |
|
Interest-bearing deposits in banks |
|
| (21 | ) |
|
| 127 |
|
|
| 106 |
|
|
| (37 | ) |
|
| 225 |
|
|
| 188 |
|
Total interest-earning assets |
|
| 798 |
|
|
| (158 | ) |
|
| 640 |
|
|
| 2,120 |
|
|
| (2,478 | ) |
|
| (358 | ) |
Interest expense on: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Demand deposits |
|
| 2 |
|
|
| 39 |
|
|
| 41 |
|
|
| 29 |
|
|
| (16 | ) |
|
| 13 |
|
Savings deposits |
|
| 3 |
|
|
| 179 |
|
|
| 182 |
|
|
| 38 |
|
|
| 202 |
|
|
| 240 |
|
Time deposits |
|
| (23 | ) |
|
| 12 |
|
|
| (11 | ) |
|
| (118 | ) |
|
| (271 | ) |
|
| (389 | ) |
Borrowings |
|
| 152 |
|
|
| 96 |
|
|
| 248 |
|
|
| 221 |
|
|
| 218 |
|
|
| 439 |
|
Total interest-bearing liabilities |
|
| 134 |
|
|
| 326 |
|
|
| 460 |
|
|
| 170 |
|
|
| 133 |
|
|
| 303 |
|
Increase (decrease) in net interest income |
| $ | 664 |
|
| $ | (484 | ) |
| $ | 180 |
|
| $ | 1,950 |
|
| $ | (2,611 | ) |
| $ | (661 | ) |
Net interest income earned on loans attotaled $9.5 million for the Bank increased in both the three- and nine- month periodsthree months ended September 30, 20172022, compared to $9.3 million for the three months ended September 30, 2021. The increase resulted primarily from loan growth and, to a lesser extent, increased yield on the investment portfolio and interest-bearing deposits in banks. For the nine months ended September 30, 2022, net interest income totaled $27.1 million, compared to $27.7 million for the nine months ended September 30, 2021. The decrease was primarily attributable to reductions in interest and fees on ALC loans in connection with the ALC cessation of business strategy. Interest and fees on ALC loans decreased by $3.1 million comparing the nine months ended September 30, 2022 to the corresponding periodsperiod of 2021. The decrease related to ALC loans was partially offset by interest income in the Bank’s other earning asset categories, which increased by $2.7 million on a net basis, comparing the nine months ended September 30, 2022 to the nine months ended September 30, 2021. As ALC’s loan portfolio continues to pay down, there will be continued reduction in interest and fees attributable to ALC’s loans. These reductions are expected to continue to put downward pressure on total loan yield and net interest margin. As a result of the previous yearchanging mix of earning assets, the Company’s net interest margin was reduced to 4.10% during the three months ended September 30, 2022, compared to 4.17% during the three months ended September 30, 2021. For the nine months ended September 30, 2022, net interest margin was 4.00%, compared to 4.29% for the nine months ended September 30, 2021. Though net interest income and margin are expected to continue to decrease as a result of growth in average loan volume. Atthe cessation of business strategy at ALC, despite continued growth in loan volume, interest income decreased during both 2017 periods comparedsignificant non-interest expense savings have developed, or are expected to the corresponding periods of 2016develop, as a result of reductions in yield. The decrease in yield at ALC was due to continued focus on credit quality improvement. These activities have been ongoing for the past several years and have resulted in significant improvement in the credit quality ofstrategy. Historically, ALC’s portfolio, with a corresponding decrease in yield commensurate with reduced risk. The loan volume increases were partially offset by decreases in the average balances of taxable and non-taxable investments and federal funds sold. The shift in the mix of earning assets is consistent with management’s ongoing strategy to utilize cash flows from the maturity and paydown of investment securities to fund loan growth as opportunities permit. The investment portfolio has been structured to provide monthly cash flows through the maturity and paydown of securities in a manner that management believes can continue to fund a substantial portion of loan growth over time.
Interest expense increased inrepresented both the three- and nine-month periods ended September 30, 2017 compared to the corresponding periods of 2016 due to increases in the volume of interest-bearing liabilities,Company’s highest yielding loans, as well as modest increasesthe portfolio with the highest level of credit losses. Accordingly, while interest earned on these loans is expected to decrease over time, loan loss provision expense is also expected to decrease after the portfolio pays down. As the pay down continues, management is continuing efforts to grow earning assets in rate commensurate with the Bank’s other loan and investment categories, while at the same time maintaining pricing discipline on deposit costs and earning asset yields consistent with the current interest rate environment experiencedenvironment.
Beginning in March of 2022 and through its November 2022 meeting, the Federal Open Market Committee has raised the federal funds rate by 375 basis points. Statements by the Federal Reserve chair have indicated that further interest rate increases may be expected in 2022 and into 2023 to address inflationary pressures. Although, as described above, the Company’s interest margin generally will benefit from rising interest rates, rates may rise in an uneven manner causing unpredictable effects, and higher rates could negatively affect the economy, loan demand and borrowers’ financial position, and could cause additional declines in the market value of the Company’s investment securities.
Provision for Loan and Lease Losses
The provision for loan and lease losses was $2.8 million during the nine months ended September 30, 2017.2022, compared to $1.5 million during the nine months ended September 30, 2021. The increase in the provision, comparing the two periods, resulted from both an increase in charge-offs associated with ALC’s runoff loan portfolio, as well as qualitative adjustments applied to the portfolio in response to heightened inflationary trends and other economic uncertainties that emerged during the nine months ended September 30, 2022. In management’s view, the combination of the ALC business cessation strategy, coupled with deteriorating economic conditions, including elevated inflation levels,
51
We expect that continued growthincreased overall credit risk, particularly in ALC’s loan portfolio, as of September 30, 2022, compared to December 31, 2021. The loan loss provision recorded by the Company during the nine months ended September 30, 2022 included $1.6 million associated with ALC’s portfolio and $1.2 million associated with the Bank’s portfolio. The Company’s net loan volume atcharge-offs totaled $2.3 million during the nine months ended September 30, 2022, compared to $1.5 million during the nine months ended September 30, 2021. The majority of the Company’s charge-offs in both the Bank2022 and ALC2021 were associated with loans of sufficient credit quality will enhance net interest income, particularly as resources are shifted from lower-earning investment securities to higher-earning loan balances. However, the competitive environment is significant relative to the generation of loans of high credit quality. At both the Bank and ALC, management is continuing to focus efforts on new loan origination within the parameters of established credit policy, while also maintaining vigilance in the deployment of strategies to effectively manage risks associated with interest rate fluctuations. Net interest income could experience downward pressure as a result of increased competition for quality loan opportunities, lower reinvestment yields and fewer opportunities to reduce future funding costs.ALC’s portfolio.
Provision (Reduction in Reserve) for Loan Losses
The provision for loan losses is an expense used to establishManagement believes that the allowance for loan losses. Actual loanand lease losses netas of recoveries, are charged directly to the allowance for loan losses. The expense recorded for each reporting period is a reflection of actual net losses experienced during the period and management’s judgment as to the adequacy of the allowanceSeptember 30, 2022, which was calculated under an incurred loss model, was sufficient to absorb losses inherent in the Company’s loan portfolio based on circumstances existing as of the balance sheet date. The following table presents Management will continue to closely monitor the provision (reduction in reserve)impact of changing economic circumstances on the Company’s loan portfolio and will adjust the allowance accordingly. In accordance with relevant accounting guidance for loan lossessmaller reporting companies, the Company has not yet adopted the Current Expected Credit Loss (CECL) accounting model for the Bankcalculation of credit losses and ALC foris currently evaluating the three and nine months ended September 30, 2017 and 2016.
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | September 30, | September 30, | |||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
(Dollars in Thousands) | (Dollars in Thousands) | |||||||||||||||
Bank | $ | (130 | ) | $ | 100 |
| $ | (130 | ) | $ | (350 | ) | ||||
ALC | 503 | 580 | 1,594 | 1,733 | ||||||||||||
Total | $ | 373 | $ | 680 |
| $ | 1,464 | $ | 1,383 |
Atimpact that adopting CECL will have on the Bank, during both the three- and nine-month periods ended September 30, 2017, recoveries of previously charged-off loans exceeded current period charge-offs. In addition, during the third quarter, the Bank resolved a previously impaired loan relationship through the collection of contractual amounts due. The resolution of the impairment, combined with continued net recoveries, enabled the BankCompany’s financial statements. Due to reduce the allowance for loan losses by $0.1 million during the third quarter. The Bank’s allowance for loan lossesits classification as a percentage of loans totaled 0.96% as of September 30, 2017, compared to 1.01% as of December 31, 2016.
At ALC,smaller reporting company by the provision for loan losses decreased during both the three-Securities and nine- month periods ended September 30, 2017, based primarily on modest improvements in charge-off experience during the period. ALC’s allowance for loan losses as a percentage of loans totaled 2.60% as of September 30, 2017, compared to 2.78% as of December 31, 2016.
ForExchange Commission, the Company is not required to implement the allowance for loan losses totaled 1.40% as of September 30, 2017, compared to 1.48% as of December 31, 2016. Based on our evaluation of the loan portfolio, we believe that the allowance for loan losses at both the Bank and ALC is adequate to absorb losses inherent in the loan portfolio as of September 30, 2017. While we believe that the methodologies and calculations that have been used in the determination of the allowance are adequate, our conclusions are based on estimates and judgments and are, therefore, approximate and imprecise. Factors beyond our control, such as changes in economic conditions impacting the national economy or the local service areas in which the Bank and ALC operate, may negatively and materially affect asset quality and the adequacy of the allowance for loan losses, as well as the resulting provision for loan losses. In general, we expect the provision for loan losses to increase commensurate with growth in loan volume at both the Bank and ALC; however, we would also expect such increases to be partially offset should credit quality of the portfolio continue to improve.CECL model until January 1, 2023.
Non-Interest Income
Non-interest income represents fees and income derived from sources other than interest-earning assets.assets. The following table presents the major components of non-interest income. Expanded discussion of certain significant non-interest income itemsfor the periods indicated:
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||||||||||||||||||
|
| 2022 |
|
| 2021 |
|
| $ Change |
|
| % Change |
|
| 2022 |
|
| 2021 |
|
| $ Change |
|
| % Change |
| ||||||||
|
| (Dollars in Thousands) |
|
|
|
|
| (Dollars in Thousands) |
|
|
|
| ||||||||||||||||||||
Service charges and other fees on deposit accounts |
| $ | 311 |
|
| $ | 271 |
|
| $ | 40 |
|
|
| 14.8 | % |
| $ | 904 |
|
| $ | 777 |
|
| $ | 127 |
|
|
| 16.3 | % |
Bank-owned life insurance |
|
| 112 |
|
|
| 110 |
|
|
| 2 |
|
|
| 1.8 | % |
|
| 335 |
|
|
| 327 |
|
|
| 8 |
|
|
| 2.4 | % |
Lease income |
|
| 210 |
|
|
| 208 |
|
|
| 2 |
|
|
| 1.0 | % |
|
| 635 |
|
|
| 619 |
|
|
| 16 |
|
|
| 2.6 | % |
Other income |
|
| 455 |
|
|
| 307 |
|
|
| 148 |
|
|
| 48.2 | % |
|
| 899 |
|
|
| 933 |
|
|
| (34 | ) |
|
| (3.6 | )% |
Total non-interest income |
| $ | 1,088 |
|
| $ | 896 |
|
| $ | 192 |
|
|
| 21.4 | % |
| $ | 2,773 |
|
| $ | 2,656 |
|
| $ | 117 |
|
|
| 4.4 | % |
Non-interest income increased in both the three- and fluctuations is provided below the table.
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||||||
2017 | 2016 | $ Change | % Change | 2017 | 2016 | $ Change | % Change | |||||||||||||||||||||||||||
(Dollars in Thousands) | (Dollars in Thousands) | |||||||||||||||||||||||||||||||||
Service charges and other fees on deposit accounts | $ | 481 | $ | 463 | $ | 18 | 3.9 | % | $ | 1,406 | $ | 1,306 | $ | 100 | 7.7 | % | ||||||||||||||||||
Credit insurance commissions and fees | 160 | 256 | (96 | ) | (37.5 | ) | % | 459 | 570 | (111 | ) | (19.5 | ) | % | ||||||||||||||||||||
Bank-owned life insurance | 106 | 105 | 1 | 0.1 | % | 318 | 316 | 2 | 0.6 | % | ||||||||||||||||||||||||
Net gain on sale and prepayment of investment securities | 178 | 259 | (81 | ) | (31.3 | ) | % | 228 | 657 | (429 | ) | (65.3 | ) | % | ||||||||||||||||||||
Other income | 311 | 484 | (173 | ) | (35.7 | ) | % | 922 | 1,187 | (265 | ) | (22.3 | ) | % | ||||||||||||||||||||
Total non-interest income | $ | 1,236 | $ | 1,567 | $ | (331 | ) | (21.1 | ) | % | $ | 3,333 | $ | 4,036 | $ | (703 | ) | (17.4 | ) | % |
Service Charges and Other Fees on Deposit Accounts
Service charges and other fees are generated on deposit accounts held at the Bank. The increase in this category of non-interest income during the three and nine monthsnine-month periods ended September 30, 2017 compared to the three and nine months ended September 30, 2016 resulted primarily from increased fees generated from service charges on deposit accounts. Periodically, management evaluates the fee structure on the Bank’s deposit accounts in order to ensure that fees charged are competitive in the current environment and compliant with regulatory guidance. In addition, management continues to evaluate opportunities for deposit growth through further penetration in existing service territories. We expect that income from these sources will grow over time as deposit levels grow. However, there is significant competition among financial institutions for deposits. Accordingly, we cannot predict with certainty the level of revenues that will be derived in this category in the future.
Credit Insurance Commissions and Fees
Credit insurance commissions and fees are generated from credit life and credit accident and health insurance policies offered primarily at ALC to consumer loan customers through FUSB Reinsurance. The decrease in non-interest income in this category during the three and nine months ended September 30, 20172022, compared to the corresponding periods of 20162021. For the three months ended September 30, 2022, the increase resulted primarily from a focus by ALC managementnonrecurring gains on product linessale of premises and equipment and other assets that do not facilitate the generation of these types of sales. Although revenues in this category decreased duringexceeded the three andmonths ended September 30, 2021 by $0.2 million. For the nine months ended September 30, 2017 compared2022, the increase was due primarily to increases in service charges and other fees on deposit accounts that were volume driven. Non-interest revenues earned from service charges and other fees on deposit accounts have generally declined during recent years based on changes in depositor preferences for liquidity, particularly during the three and nine months ended September 30, 2016, such revenues are generally dependent on the mix of product lines offered at ALC and the specific needs of borrowers.pandemic. Management continues to seekevaluate opportunities to add new non-interest revenue streams or to grow revenuesexisting streams; however, significant growth in this category when opportunities arise based on customer needs and in accordance with regulatory guidelines; however, we cannot predict with certainty the level of revenues that will be derived from this category in the future.
Bank-owned Life Insurance
The Bank utilizes bank-owned life insurance as a tool to offset the cost of certain retirement benefit programs. The income derived from bank-owned life insurance represents the increase in the cash surrender value of the policies (which is generally non-taxable) over the periods presented. The cash surrender value of the policies totaled $14.8 million and $14.6 million as of September 30, 2017 and December 31, 2016, respectively. The insurance policies are adjustable-rate assets with minimum guaranteed rates of interest between 2% and 4%. Accordingly, management does not expect significant fluctuation in the income derived from these assets.
Net Gain on Sale and Prepayment of Investment Securities
The investment securities portfolio is used by management to provide liquidity, to generate interest income and for use as collateral for public deposits and wholesale funding. Management reviews the securities in the investment portfolio periodically and, from time to time, may determine that it is appropriate to sell securities that are designated as securities available-for-sale. When this occurs, a gain or loss is recorded as the difference between the fair value of the security on the date of sale and the security’s carrying value. In addition, a gain may be recognized for prepayment penalties earned by the Company when a security is called by the debtor prior to its maturity date. Because determinations of whether to sell investment securities are made by management based on specific facts and circumstances at a given point in time, no assessment can be made as to the level of gains or losses that could be incurred related to sales of investment securities or prepayment penalties in the future.
Other Income
Other non-interest income includes fee income generated by the Bank for ancillary services, such as letters of credit, ATMs, debit and credit cards, wire transfers and real estate rental. In addition, other non-interest income is generated at ALC for ancillary services, including ALC’s auto club membership program, which provides members with emergency roadside assistance, lock and key services and reimbursement for emergency travel expenses. The decrease in other non-interest income during the three and nine months ended September 30, 2017 compared to the corresponding periods of 2016 resulted primarily from reductions in ACH fees and services at the Bank and in ALC’s auto club membership revenue. In addition, other income was reduced as a result of collection of settlement amounts associated with a nonaccrual asset in 2016 that was not repeated in 2017. Given the nature of the types of revenues categorized as other income, there is uncertainty as to the level of revenue that will be derived from these sourcesexpected in the future.near term.
Non-Interest Expense
Non-interest expense represents expenses incurred from sources other than interest-bearing liabilities. The following table presents the major components of non-interest expense for the periods indicated. Expanded discussionindicated:
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||||||||||||||||||
|
| 2022 |
|
| 2021 |
|
| $ Change |
|
| % Change |
|
| 2022 |
|
| 2021 |
|
| $ Change |
|
| % Change |
| ||||||||
|
| (Dollars in Thousands) |
|
|
|
|
| (Dollars in Thousands) |
|
|
|
| ||||||||||||||||||||
Salaries and employee benefits |
| $ | 4,007 |
|
| $ | 5,045 |
|
| $ | (1,038 | ) |
|
| (20.6 | )% |
| $ | 12,389 |
|
| $ | 14,951 |
|
| $ | (2,562 | ) |
|
| (17.1 | )% |
Net occupancy and equipment expense |
|
| 861 |
|
|
| 1,259 |
|
|
| (398 | ) |
|
| (31.6 | )% |
|
| 2,468 |
|
|
| 3,318 |
|
|
| (850 | ) |
|
| (25.6 | )% |
Computer services |
|
| 417 |
|
|
| 461 |
|
|
| (44 | ) |
|
| (9.5 | )% |
|
| 1,224 |
|
|
| 1,411 |
|
|
| (187 | ) |
|
| (13.3 | )% |
Insurance expense and assessments |
|
| 310 |
|
|
| 340 |
|
|
| (30 | ) |
|
| (8.8 | )% |
|
| 970 |
|
|
| 985 |
|
|
| (15 | ) |
|
| (1.5 | )% |
Fees for professional services |
|
| 263 |
|
|
| 292 |
|
|
| (29 | ) |
|
| (9.9 | )% |
|
| 811 |
|
|
| 1,003 |
|
|
| (192 | ) |
|
| (19.1 | )% |
Postage, stationery and supplies |
|
| 164 |
|
|
| 206 |
|
|
| (42 | ) |
|
| (20.4 | )% |
|
| 469 |
|
|
| 618 |
|
|
| (149 | ) |
|
| (24.1 | )% |
Telephone/data communications |
|
| 159 |
|
|
| 283 |
|
|
| (124 | ) |
|
| (43.8 | )% |
|
| 518 |
|
|
| 742 |
|
|
| (224 | ) |
|
| (30.2 | )% |
Other real estate/foreclosure (income) expense, net |
|
| (5 | ) |
|
| (273 | ) |
|
| 268 |
|
| NM |
|
|
| (320 | ) |
|
| (286 | ) |
|
| (34 | ) |
| NM |
| ||
Other expense |
|
| 856 |
|
|
| 934 |
|
|
| (78 | ) |
|
| (8.4 | )% |
|
| 2,437 |
|
|
| 2,600 |
|
|
| (163 | ) |
|
| (6.3 | )% |
Total non-interest expense |
| $ | 7,032 |
|
| $ | 8,547 |
|
| $ | (1,515 | ) |
|
| (17.7 | )% |
| $ | 20,966 |
|
| $ | 25,342 |
|
| $ | (4,376 | ) |
|
| (17.3 | )% |
NM: Not meaningful
Non-interest expenses were reduced in both the three- and nine-month periods ended September 30, 2022 compared to the corresponding periods of certain2021 due primarily to the strategic initiatives executed by the Company beginning in the third quarter of 2021. The initiatives, which included the ALC cessation of business strategy, Bank branch closures and other operational efficiency efforts at the Bank, led to significant non-interestreductions in the Company’s personnel levels, reduced levels of occupancy and equipment expense, items and fluctuations is provided below the table.decreases in various other expense categories.
52
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||||||
2017 | 2016 | $ Change | % Change | 2017 | 2016 | $ | % Change | |||||||||||||||||||||||||||
(Dollars in Thousands) | (Dollars in Thousands) | |||||||||||||||||||||||||||||||||
Salaries and employee benefits | $ | 4,370 | $ | 4,334 | $ | 36 | 0.8 |
| % | $ | 13,048 | $ | 12,734 | $ | 314 | 2.5 | % | |||||||||||||||||
Net occupancy and equipment expense | 806 | 830 | (24 | ) | (2.9 | ) | % | 2,276 | 2,381 | (105 | ) | (4.4 | ) | % | ||||||||||||||||||||
Computer services | 337 | 364 | (27 | ) | (7.4 | ) | % | 1,035 | 1,021 | 14 | 1.4 | % | ||||||||||||||||||||||
Insurance expense and assessments | 161 | 255 | (94 | ) | (36.9 | ) | % | 479 | 775 | (296 | ) | (38.2 | ) | % | ||||||||||||||||||||
Fees for professional services | 187 | 231 | (44 | ) | (19.0 | ) | % | 650 | 748 | (98 | ) | (13.1 | ) | % | ||||||||||||||||||||
Postage, stationery and supplies | 174 | 183 | (9 | ) | (4.9 | ) | % | 479 | 562 | (83 | ) | (14.8 | ) | % | ||||||||||||||||||||
Telephone/data communications | 206 | 164 | 42 | 25.6 | % | 628 | 502 | 126 | 25.1 | % | ||||||||||||||||||||||||
Other real estate/foreclosure expense: | ||||||||||||||||||||||||||||||||||
Write-downs, net of gain or loss on sale | 196 | 47 | 149 | 317.0 |
| % | 277 | 137 | 140 | 102.2 | % | |||||||||||||||||||||||
Carrying costs | 48 | 77 | (29 | ) | (37.7 | ) | % | 184 | 233 | (49 | ) | (21.0 | ) | % | ||||||||||||||||||||
Total other real estate/foreclosure expense | 244 | 124 | 120 | 96.8 |
| % | 461 | 370 | 91 | 24.6 | % | |||||||||||||||||||||||
Other | 705 | 863 | (158 | ) | (18.3 | ) | % | 2,034 | 2,576 | (542 | ) | (21.0 | ) | % | ||||||||||||||||||||
Total non-interest expense | $ | 7,190 | $ | 7,348 | $ | (158 | ) | (2.2 | ) | % | $ | 21,090 | $ | 21,669 | $ | (579 | ) | (2.7 | ) | % |
Salaries and Employee Benefits
Salaries and employee benefits expense reductions have been achieved through the largest categoryreduction of non-interest expense, totaled $3.0 million atemployee levels, the Bank and $1.4 million at ALC for the third quartermost notable of 2017, compared to $2.9 million at the Bank and $1.4 million at ALCwhich was realized during the third quarter of 2016. For2021 following implementation of the nine-month period endedALC business cessation strategy. Further reductions of employee levels have been achieved through the Company’s ongoing efficiency efforts. As of September 30, 2017, salaries and benefits expense totaled $8.7 million2022, the Company employed 155 full-time equivalent employees (including 147 at the Bank and $4.3 millioneight at ALC,ALC), compared to $8.3 million at the Bank and $4.4 million at ALC for the nine-month period ended175 as of December 31, 2021, 187 as of September 30, 2016. The expense amounts for the Bank are inclusive2021, and 259 as of salaries and benefits paidJune 30, 2021 (the quarter-end date immediately prior to certain members of management and employees for work performed on behalf of Bancshares, as well as current and deferred fees paid to membersexecution of the Bank’sstrategic initiatives).
The reduction in occupancy and Bancshares’ Boardsequipment expense resulted primarily from the termination of Directors. Management remains committed to providing salaries and benefits packages to employees at competitive levels in order to ensure that we continue to provide quality service to our customers. Accordingly, we expect salaries and employee benefits expense to generally increase commensurate with our growth and trends in the employment market over time.
Net Occupancy and Equipment Expense
This category of non-interest expense includes expenses associated with depreciation of buildings, equipment and furniture and fixtures, rent of office space, utilities expense and maintenance and repair costs. The majority of the Bank’s office space is owned, while the majority of ALC’s office space is leased. The decrease in this category for the three and nine months ended September 30, 2017 compared to the three and nine months ended September 30, 2016 resulted primarily from a decrease in maintenance and repair expenselease contracts following cessation of business at the Bank. Occupancy and equipment expense is expected to increase over timeits branches, as well as the Company depreciates expenditures associated with capital improvements. During the three and nine months ended September 30, 2017, the Company recorded $0.8 million and $8.7 million, respectively,closure of four bank branches in additions to premises and equipment. The majority of these expenditures were associated with the construction of an office complex in Birmingham, Alabama. Initial construction of the office complex was completed during the third quarter andof 2021. As of September 30, 2022, all previously existing ALC leases had been terminated except for the ongoing lease of ALC’s headquarters ofoffice that continues to house the Company and the Bank were relocated to that location at the end of the third quarter. Approximately 25% of the square footage of the office complex is being utilized by the Bank, with the remainder to be leased to commercial tenants. Based on management's current estimates, it is expected that placement of the office complex into service will result in approximately $0.5 million in additional depreciation expense annually. Upon full lease-up of the office complex, management expects that the majority of depreciation expense, as well as additional operating costs associated with the complex, will be recovered through lease revenue; however, no assurance can be given regarding the office complex being fully leased by third-party tenants or the timing of such third-party leases.
Computer Services
Computer services expenses were primarily associated with core processing at the Bank and ALC. Due to the differing nature of their businesses, the Bank andremaining ALC utilize different core processors. The increase in expense in this category comparingstaff. During the nine months ended September 30, 20172022, non-interest expense was also reduced by one-time net gains on the sale of OREO that totaled $0.3 million. The gains were primarily generated by the sale of the Bank’s closed branch assets.
Due to the strategic initiatives, additional expense reductions were also realized related to telephone/data communications, computer services, professional services, postage and supplies and various other expense categories, comparing both the three- and nine-month periods ended September 30, 2022 to the corresponding periods of 2021.
Both nine-month periods presented included certain one-time restructuring charges associated with the ALC cessation of business strategy. These charges included expenses associated with employee severances, termination of leases and technology contracts fixed asset valuation adjustments, and miscellaneous other expenses. The restructuring charges totaled $0.2 million during the nine months ended September 30, 2016 was associated with additional information technology services provided by2022, compared to $0.5 million during the Bank’s core processor that significantly enhanced the Bank’s technology platform, including increased protections against data security risk and enhanced disaster recovery planning. Given the rapid pace of technological change, increases in this category of expense are generally expected to occur at a more rapid pace than in other expense categories.
Insurance Expense and Assessments
This category of non-interest expense includes the cost of corporate insurance maintained by the Company, as well as FDIC insurance and state banking assessments. The Bank pays assessments to the FDIC based on a prescribed regulatory calculation that factors in average total assets and the Company’s supervisory ratings, as determined by regulatory examinations. The decrease in this expense category comparing the three and nine months ended September 30, 2017 to2021. No restructuring charges were incurred during the three and nine months ended September 30, 2016 resulted primarily from reductions2022, while $0.5 million in FDIC assessments. Inrestructuring charges were incurred during the near term, based on current regulatory guidelines, this category of expense is expected to decline. However, over a longer-term time horizon, management expects this category of expenses to increase based on growth in the Company’s balance sheet and expansion of the Company’s activities.
Fees for Professional Services
Fees for professional services include fees associated with legal, accounting and auditing, compliance and other consulting services. The decrease in these expenses for the three and nine months ended September 30, 2017 compared to2021. As of September 30, 2022, the same periods in 2016 resulted primarily from a decrease in professional feesmajority of estimated restructuring charges associated with collections and other legal matters, whichthe ALC strategy have decreased over time as a result of the increased credit quality in the Bank’s loan portfolio. Although we do not anticipate significant fluctuations in this category of expense, we do expect inflationary increases over time, as well as increases associated with increased regulatory oversight and reporting requirements commensurate with the Company’s growth and development.
Postage, Stationery and Supplies
been incurred. The decrease in expense in this category comparing the three and nine months ended September 30, 2017 to the three and nine months ended September 30, 2016 resulted from continued efforts by management at the Bank and ALC to manage controllable expenses. We will continue efforts to control these expenses in a prudent manner; however, expense in this category is generally expected to increase over time due to inflationary growth, as well as expanded penetration by the Bank into metropolitan service territories.
Telephone / Data Communications
The increase in this expense category for the three and nine months ended September 30, 2017 compared to the three and nine months ended September 30, 2016 was primarily associated with management’s efforts to enhance network and telephone capabilities. During 2016, the Company began efforts to upgrade its computer and telephone network systems. These effortsstrategic initiatives are expected to create long-term benefits in improved efficiency and technical capabilities that will benefit bothcontinue to reduce the Bank and ALC. In the short-term, however, we expect increases in this category of expenses as the Company continues upgrades.
Other Real Estate / Foreclosure Expense
Other real estate / foreclosureCompany’s expense includes both the cost of carrying OREO and write-downs of OREO. Cost of carrying OREO includes property taxes, attorneys’ fees, maintenance costs, security costs and the cost of obtaining independent property appraisals. Write-downs include impairments recorded on existing OREO properties in order to carry the property at the lower of cost or fair value, less estimated cost to sell.
OREO carrying costs decreased during the three and nine months ended September 30, 2017 compared to the corresponding periods of 2016 as a result of continued reductionstructure in the level of OREO at bothnear term, although the Bank and ALC. Write-downs, however, increased during the three and nine months ended September 30, 2017 compared to the same periods of 2016 due to impairment charges taken on a portion of the Bank’s OREO properties during the third quarter of 2017. OREO totaled $3.5 million and $0.3 million at the Bank and ALC, respectively, as of September 30, 2017, compared to $4.9 million and $0.5 million, respectively, as of September 30, 2016, a decrease of $1.6 million for the Company on a consolidated basis.
Although management continued to reduce OREO levels during the nine-month period ended September 30, 2017, there is inherent uncertainty with respect to economic conditions and real estate values in certain of the service areas in which both the Bank and ALC operate. In addition, as the level of OREO is reduced, it becomes more difficult to work out remaining OREO at the same pace as experienced when OREO volumes were higher. Accordingly, continued reduction of carrying costs cannotreductions may be expected with any level of certainty. Furthermore, if the national or local economy weakens, or if real estate values decline further inoffset by inflationary pressures affecting the Company’s ongoing operations. One of management’s primary service areas, additional write-downs of existing OREO could be required. Additionally, the pace of migration of properties into OREO could increase, resulting in the potential for increased levels of both write-downs and carrying costs.
Other
This category encompasses a variety of expenses, including business development, security services, sales and other taxes, employee training, expenses associated with fixed asset write-downs and other miscellaneous expenses. Comparing the three and nine months ended September 30, 2017 to the three and nine months ended September 30, 2016, expenses in this category decreased due to reductions in a number of expense categories, including collection fees, debit card fraud, impairment on closed branch assets and reserves for accident and health policies sold through FUSB Reinsurance. Certain of these reductions are expectedfocuses continues to be offsetbusiness simplification and process improvements in future quarters; however, management continuesan effort to maintain vigilance in efforts to reduce these costs where opportunities to do so exist.continue improving the Company’s overall efficiency levels.
Provision for Income Taxes
The provision for income taxes was $0.2$1.4 million for both of the three-month periods ended September 30, 2017 and 2016. The Company’s effective tax rate was 21.4%$0.8 million for the third quarter of 2017, compared to 22.8% for the third quarter of 2016. For the nine months ended September 30, 20172022 and 2016,2021, respectively, and the Company’s effective tax rate was 23.0%23.7% and 23.4%21.9%, respectively. respectively, for the same periods.
The effective tax rate is expected to fluctuate based onimpacted by recurring items, such as changes in tax-exempt interest income earned from bank-qualified municipal bonds and loans and the cash surrender value of bank-owned life insurance. Management makes decisions about whether to invest in tax-exempt instruments on a case-by-case basis after considering a number of factors, including investment return, credit quality and the consistency of such investments with the Company’s overall strategy. The Company’s effective tax rate is expected to fluctuate commensurate with the level of these investments as compared to total pre-tax income.
BALANCE SHEET ANALYSIS
Investment Securities
The investment securities portfolio is used by management to provide liquidity, to generate interest income and for use as collateral for public deposits and wholesale funding. Risk and return can be adjusted by altering the duration, composition and/or balance of the portfolio. The expected average life of securities in the investment portfolio was 2.73.6 years and 3.13.7 years as of September 30, 20172022 and December 31, 2016,2021, respectively.
Available-for-sale securities are recorded at estimated fair value, with unrealized gains or losses recognized, net of taxes, in accumulated other comprehensive income, a separate component of shareholders’ equity. As of September 30, 2017,2022, available-for-sale securities totaled $158.4$143.8 million, or 85.3%98.6% of the total investment portfolio, compared to $181.9$130.9 million, or 87.5%97.4% of the total investment portfolio, as of December 31, 2016.2021. Available-for-sale securities consisted of residential and commercial mortgage-backed securities, U.S. Treasury securities, corporate bonds, obligations of U.S. government-sponsored agencies, and obligations of state and political subdivisions and corporate notes.subdivisions.
Held-to-maturity securities are recorded at amortized cost and represent securities that the Company both intends and has the ability to hold to maturity. As of September 30, 2017,2022, held-to-maturity securities totaled $27.4$2.1 million, or 14.7%1.4% of the total investment portfolio, compared to $25.9$3.4 million, or 12.5%2.6% of the total investment portfolio, as of December 31, 2016.2021. Held-to-maturity securities consisted of commercial mortgage-backed securities, obligations of U.S. government-sponsored agencies, and obligations of state and political subdivisions.
53
Due to the increasing interest rate environment, during the nine months ended September 30, 2022, gross unrealized losses increased significantly, particularly within the Company’s available-for-sale portfolio. Gross unrealized losses in the available-for-sale portfolio totaled $11.0 million as of September 30, 2022, compared to $0.8 million as of December 31, 2021. Management evaluated unrealized losses as of September 30, 2022, and determined that no losses within the portfolio were other-than-temporary. Unrealized losses within the available-for-sale portfolio were recognized, net of tax, in accumulated other comprehensive income.
Loans and Allowance for Loan and Lease Losses
The Company’s total loan portfolio increased by $40.9 million, or 5.8%, as of September 30, 2022, compared to December 31, 2021. The tables below summarize loan balances by portfolio category for both the Bank and ALC at the end of each of the most recent five quarters as of September 30, 2017.
Bank | ||||||||||||||||||||
2017 | 2016 | |||||||||||||||||||
September 30, | June 30, | March 31, | December 31, | September 30, | ||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||
Real estate loans: | ||||||||||||||||||||
Construction, land development and other land loans | $ | 20,213 | $ | 12,424 | $ | 25,853 | $ | 23,772 | $ | 24,610 | ||||||||||
Secured by 1-4 family residential properties | 35,125 | 32,227 | 32,535 | 32,955 | 32,559 | |||||||||||||||
Secured by multi-family residential properties | 16,498 | 16,702 | 16,464 | 16,627 | 16,801 | |||||||||||||||
Secured by non-farm, non-residential properties | 107,679 | 113,037 | 97,294 | 102,112 | 97,859 | |||||||||||||||
Other | 223 | 226 | 230 | 234 | 185 | |||||||||||||||
Commercial and industrial loans | 66,320 | 65,087 | 57,253 | 57,963 | 54,459 | |||||||||||||||
Consumer loans | 5,431 | 5,671 | 6,057 | 6,206 | 6,335 | |||||||||||||||
Total loans | $ | 251,489 | $ | 245,374 | $ | 235,686 | $ | 239,869 | $ | 232,808 | ||||||||||
Less unearned interest, fees and deferred cost | 367 | 371 | 249 | 218 | 191 | |||||||||||||||
Allowance for loan losses | 2,422 | 2,526 | 2,521 | 2,409 | 1,216 | |||||||||||||||
Net loans | $ | 248,700 | $ | 242,477 | $ | 232,916 | $ | 237,242 | $ | 231,401 |
ALC | ||||||||||||||||||||
2017 | 2016 | |||||||||||||||||||
September 30, | June 30, | March 31, | December 31, | September 30, | ||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||
Real estate loans: | ||||||||||||||||||||
Construction, land development and other land loans | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||
Secured by 1-4 family residential properties | 11,490 | 12,229 | 12,993 | 13,724 | 14,462 | |||||||||||||||
Secured by multi-family residential properties | — | — | — | — | — | |||||||||||||||
Secured by non-farm, non-residential properties | — | — | — | — | — | |||||||||||||||
Other | — | — | — | — | — | |||||||||||||||
Commercial and industrial loans | — | — | — | — | — | |||||||||||||||
Consumer loans: | ||||||||||||||||||||
Consumer | 35,650 | 31,920 | 32,892 | 36,413 | 35,533 | |||||||||||||||
Indirect sales | 50,553 | 52,134 | 47,196 | 44,775 | 45,382 | |||||||||||||||
Total loans | $ | 97,693 | $ | 96,283 | $ | 93,081 | $ | 94,912 | $ | 95,377 | ||||||||||
Less unearned interest, fees and deferred cost | 5,981 | 5,855 | 5,962 | 6,935 | 7,205 | |||||||||||||||
Allowance for loan losses | 2,386 | 2,379 | 2,358 | 2,447 | 2,452 | |||||||||||||||
Net loans | $ | 89,326 | $ | 88,049 | $ | 84,761 | $ | 85,530 | $ | 85,720 |
The tables below summarize changes in the allowance for loan losses at the end of each of the most recent five quarters as of September 30, 2017 at both2022:
|
| Quarter Ended |
| |||||||||||||||||
|
| 2022 |
|
| 2021 |
| ||||||||||||||
|
| September |
|
| June |
|
| March |
|
| December |
|
| September |
| |||||
|
| (Dollars in Thousands) |
| |||||||||||||||||
Real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Construction, land development and other land loans |
| $ | 36,740 |
|
| $ | 40,625 |
|
| $ | 52,817 |
|
| $ | 67,048 |
|
| $ | 58,175 |
|
Secured by 1-4 family residential properties |
|
| 84,911 |
|
|
| 69,098 |
|
|
| 69,760 |
|
|
| 72,727 |
|
|
| 73,112 |
|
Secured by multi-family residential properties |
|
| 72,446 |
|
|
| 66,848 |
|
|
| 50,796 |
|
|
| 46,000 |
|
|
| 51,420 |
|
Secured by non-farm, non-residential properties |
|
| 200,505 |
|
|
| 187,041 |
|
|
| 177,752 |
|
|
| 197,901 |
|
|
| 198,745 |
|
Commercial and industrial loans, including PPP loans |
|
| 65,951 |
|
|
| 65,908 |
|
|
| 68,098 |
|
|
| 73,947 |
|
|
| 77,679 |
|
Consumer loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Direct consumer |
|
| 12,279 |
|
|
| 15,419 |
|
|
| 18,023 |
|
|
| 21,689 |
|
|
| 25,845 |
|
Branch retail |
|
| 16,278 |
|
|
| 18,634 |
|
|
| 21,891 |
|
|
| 25,692 |
|
|
| 29,764 |
|
Indirect |
|
| 262,742 |
|
|
| 252,206 |
|
|
| 220,931 |
|
|
| 205,940 |
|
|
| 194,154 |
|
Total loans |
| $ | 751,852 |
|
| $ | 715,779 |
|
| $ | 680,068 |
|
| $ | 710,944 |
|
| $ | 708,894 |
|
Less unearned interest, fees and deferred cost |
|
| 1,581 |
|
|
| 1,142 |
|
|
| 1,738 |
|
|
| 2,594 |
|
|
| 3,729 |
|
Allowance for loan and lease losses |
|
| 9,373 |
|
|
| 8,751 |
|
|
| 8,484 |
|
|
| 8,320 |
|
|
| 8,193 |
|
Net loans |
| $ | 740,898 |
|
| $ | 705,886 |
|
| $ | 669,846 |
|
| $ | 700,030 |
|
| $ | 696,972 |
|
The tables below summarize changes in the Bankallowance for loan and ALC.lease losses for each of the most recent five quarters as of September 30, 2022:
Bank |
| Quarter Ended |
| |||||||||||||||||||||||||||||||||||||
2017 | 2016 |
| 2022 |
|
| 2021 |
| |||||||||||||||||||||||||||||||||
Third Quarter | Second Quarter | First Quarter | Fourth Quarter | Third Quarter |
| September |
|
| June |
|
| March |
|
| December |
|
| September |
| |||||||||||||||||||||
(Dollars in Thousands) |
| (Dollars in Thousands) |
| |||||||||||||||||||||||||||||||||||||
Balance at beginning of period | $ | 2,526 | $ | 2,521 | $ | 2,409 | $ | 1,216 | $ | 1,138 |
| $ | 8,751 |
|
| $ | 8,484 |
|
| $ | 8,320 |
|
| $ | 8,193 |
|
| $ | 7,726 |
| ||||||||||
Charge-offs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Construction, land development and other land loans | — | — | — | — | — |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1 | ) |
|
| — |
| |||||||||||||||
Secured by 1-4 family residential properties | — | — | — | (56 | ) | (3 | ) |
|
| (3 | ) |
|
| (5 | ) |
|
| (2 | ) |
|
| (6 | ) |
|
| (1 | ) | |||||||||||||
Secured by multi-family residential properties | — | — | — | — | — |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| |||||||||||||||
Secured by non-farm, non-residential properties | — | — | — | — | — |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| |||||||||||||||
Other | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
Commercial and industrial | — | (16 | ) | — | (1 | ) | (41 | ) | ||||||||||||||||||||||||||||||||
Consumer loans | (1 | ) | (60 | ) | (2 | ) | (13 | ) | (3 | ) | ||||||||||||||||||||||||||||||
Other loans | — |
| — |
| — |
| — |
| — |
| ||||||||||||||||||||||||||||||
Commercial and industrial loans, including PPP loans |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (6 | ) | ||||||||||||||||||||
Consumer loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Direct consumer |
|
| (417 | ) |
|
| (532 | ) |
|
| (557 | ) |
|
| (437 | ) |
|
| (222 | ) | ||||||||||||||||||||
Branch retail |
|
| (200 | ) |
|
| (177 | ) |
|
| (145 | ) |
|
| (23 | ) |
|
| (77 | ) | ||||||||||||||||||||
Indirect |
|
| (136 | ) |
|
| (77 | ) |
|
| (25 | ) |
|
| (118 | ) |
|
| (55 | ) | ||||||||||||||||||||
Total charge-offs | (1 | ) | (76 | ) | (2 | ) | (70 | ) | (47 | ) |
|
| (756 | ) |
|
| (791 | ) |
|
| (729 | ) |
|
| (585 | ) |
|
| (361 | ) | ||||||||||
Recoveries | 27 | 81 | 114 | 28 | 25 |
|
| 213 |
|
|
| 163 |
|
|
| 172 |
|
|
| 219 |
|
|
| 210 |
| |||||||||||||||
Net recoveries (charge-offs) | 26 |
| 5 |
| 112 |
| (42 | ) | (22 | ) | ||||||||||||||||||||||||||||||
Provision (reduction in reserve) for loan losses | (130 | ) | — |
| — |
| 1,235 |
| 100 |
| ||||||||||||||||||||||||||||||
Net charge-offs |
|
| (543 | ) |
|
| (628 | ) |
|
| (557 | ) |
|
| (366 | ) |
|
| (151 | ) | ||||||||||||||||||||
Provision for loan and lease losses |
|
| 1,165 |
|
|
| 895 |
|
|
| 721 |
|
|
| 493 |
|
|
| 618 |
| ||||||||||||||||||||
Ending balance | $ | 2,422 | $ | 2,526 | $ | 2,521 | $ | 2,409 | $ | 1,216 |
| $ | 9,373 |
|
| $ | 8,751 |
|
| $ | 8,484 |
|
| $ | 8,320 |
|
| $ | 8,193 |
| ||||||||||
as a percentage of loans | 0.96 | % | 1.03 | % | 1.07 | % | 1.01 | % | 0.52 | % | ||||||||||||||||||||||||||||||
Ending balance as a percentage of loans |
|
| 1.25 | % |
|
| 1.22 | % |
|
| 1.25 | % |
|
| 1.17 | % |
|
| 1.16 | % | ||||||||||||||||||||
Net charge-offs as a percentage of average loans |
|
| 0.29 | % |
|
| 0.36 | % |
|
| 0.32 | % |
|
| 0.20 | % |
|
| 0.09 | % |
ALC | ||||||||||||||||||||
2017 | 2016 | |||||||||||||||||||
Third Quarter | Second Quarter | First Quarter | Fourth Quarter | Third Quarter | ||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||
Balance at beginning of period | $ | 2,379 | $ | 2,358 | $ | 2,447 | $ | 2,452 | $ | 2,453 | ||||||||||
Charge-offs: | ||||||||||||||||||||
Real estate loans: | ||||||||||||||||||||
Construction, land development and other land loans | — | — | — | — | — | |||||||||||||||
Secured by 1-4 family residential properties | (10 | ) | (4 | ) | (13 | ) | (7 | ) | (28 | ) | ||||||||||
Secured by multi-family residential properties | — | — | — | — | — | |||||||||||||||
Secured by non-farm, non-residential properties | — | — | — | — | — | |||||||||||||||
Other | — | — | — | — | — | |||||||||||||||
Commercial and industrial | — | — | — | — | — | |||||||||||||||
Consumer loans: |
| |||||||||||||||||||
Consumer | (494 | ) | (569 | ) | (658 | ) | (398 | ) | (596 | ) | ||||||||||
Indirect sales | (150 | ) | (160 | ) | (135 | ) | (354 | ) | (111 | ) | ||||||||||
Other loans | — |
| — |
| — |
| — |
| — |
| ||||||||||
Total charge-offs | (654 | ) | (733 | ) | (806 | ) | (759 | ) | (735 | ) | ||||||||||
Recoveries | 158 | 178 | 202 | 176 | 154 | |||||||||||||||
Net recoveries (charge-offs) | (496 | ) | (555 | ) | (604 | ) | (583 | ) | (581 | ) | ||||||||||
Provision (reduction in reserve) for loan losses | 503 | 576 | 515 | 578 | 580 | |||||||||||||||
Ending balance | $ | 2,386 | $ | 2,379 | $ | 2,358 | $ | 2,447 | $ | 2,452 | ||||||||||
as a percentage of loans | 2.60 | % | 2.63 | % | 2.71 | % | 2.78 | % | 2.78 | % |
54
Charge-offs increased during the nine months ended September 30, 2022 primarily in the direct consumer and branch retail categories due to charge-offs associated with ALC’s loan portfolio. In management’s view, the combination of the ALC business cessation strategy, coupled with deteriorating economic conditions, including elevated inflation levels, increased overall credit risk in ALC’s loan portfolio as of September 30, 2022, compared to December 31, 2021. The increase in provision expense in the nine months ended September 30, 2022 primarily reflected the impact of these changing circumstances on ALC’s portfolio and the overall changing economic conditions discussed above.
Nonperforming Assets
Nonperforming assets at the end of the five most recent quarters as of September 30, 20172022 were as follows:
Consolidated |
| Quarter Ended |
| |||||||||||||||||||||||||||||||||||||
2017 | 2016 |
| 2022 |
|
|
| 2021 |
|
|
|
| |||||||||||||||||||||||||||||
September 30, | June 30, | March 31, | December 31, | September 30, |
| September |
|
| June |
|
| March |
|
| December |
|
| September |
| |||||||||||||||||||||
(Dollars in Thousands) |
| (Dollars in Thousands) |
| |||||||||||||||||||||||||||||||||||||
Non-accrual loans | $ | 1,956 | $ | 1,847 | $ | 2,205 | $ | 2,417 | $ | 2,266 |
| $ | 2,077 |
|
| $ | 1,455 |
|
| $ | 2,228 |
|
| $ | 2,008 |
|
| $ | 969 |
| ||||||||||
Other real estate owned | 3,819 | 4,351 | 4,587 | 4,858 | 5,391 |
|
| 686 |
|
|
| 276 |
|
|
| 874 |
|
|
| 2,149 |
|
|
| 2,373 |
| |||||||||||||||
Total | $ | 5,775 | $ | 6,198 | $ | 6,792 | $ | 7,275 | $ | 7,657 |
| $ | 2,763 |
|
| $ | 1,731 |
|
| $ | 3,102 |
|
| $ | 4,157 |
|
| $ | 3,342 |
| ||||||||||
Nonperforming assets as a percentage of loans and other real estate | 1.67 | % | 1.82 | % | 2.08 | % | 2.19 | % | 2.37 | % | ||||||||||||||||||||||||||||||
Nonperforming assets as a percentage of total assets | 0.94 | % | 1.01 | % | 1.10 | % | 1.20 | % | 1.28 | % |
|
| 0.28 | % |
|
| 0.18 | % |
|
| 0.32 | % |
|
| 0.43 | % |
|
| 0.35 | % |
Bank | ||||||||||||||||||||
2017 | 2016 | |||||||||||||||||||
September 30, | June 30, | March 31, | December 31, | September 30, | ||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||
Non-accrual loans | $ | 332 | $ | 343 | $ | 609 | $ | 603 | $ | 766 | ||||||||||
Other real estate owned | 3,527 | 3,951 | 4,161 | 4,353 | 4,887 | |||||||||||||||
Total | $ | 3,859 | $ | 4,294 | $ | 4,770 | $ | 4,956 | $ | 5,653 | ||||||||||
Nonperforming assets as a percentage of loans and other real estate | 1.52 | % | 1.72 | % | 1.99 | % | 2.03 | % | 2.38 | % | ||||||||||
Nonperforming assets as a percentage of total assets | 0.63 | % | 0.69 | % | 0.77 | % | 0.81 | % | 0.94 | % |
ALC | ||||||||||||||||||||
2017 | 2016 | |||||||||||||||||||
September 30, | June 30, | March 31, | December 31, | September 30, | ||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||
Non-accrual loans | $ | 1,624 | $ | 1,504 | $ | 1,596 | $ | 1,814 | $ | 1,500 | ||||||||||
Other real estate owned | 292 | 400 | 426 | 505 | 504 | |||||||||||||||
Total | $ | 1,916 | $ | 1,904 | $ | 2,022 | $ | 2,319 | $ | 2,004 | ||||||||||
Nonperforming assets as a percentage of loans and other real estate | 2.08 | % | 2.10 | % | 2.31 | % | 2.62 | % | 2.26 | % | ||||||||||
Nonperforming assets as a percentage of total assets | 2.06 | % | 2.08 | % | 2.29 | % | 2.59 | % | 2.24 | % |
The decrease in OREO as of September 30, 2022, compared to December 31, 2021, resulted primarily from the sale of banking centers that were closed in 2021. The increase in non-accrual loans during the three-months ended September 30, 2022 resulted primarily from one commercial loan that moved to non-accrual status.
Allocation of Allowance for Loan and Lease Losses
Deposits
While no portion of the allowance for loan and lease losses is in any way restricted to any individual loan or group of loans and the entire allowance is available to absorb losses from any and all loans, the following table shows an allocation of the allowance for loan and lease losses as of September 30, 2022 and December 31, 2021:
|
| September 30, 2022 |
|
| December 31, 2021 |
| ||||||||||||||||||
|
| Allocation |
|
| Percent of |
|
| Percent of |
|
| Allocation |
|
| Percent of |
|
| Percent of |
| ||||||
|
| (Dollars in Thousands) |
| |||||||||||||||||||||
Real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Construction, land development and other land loans |
| $ | 384 |
|
|
| 4.1 | % |
|
| 5.7 | % |
| $ | 628 |
|
|
| 7.5 | % |
|
| 9.4 | % |
Secured by 1-4 family residential properties |
|
| 792 |
|
|
| 8.4 | % |
|
| 9.7 | % |
|
| 690 |
|
|
| 8.3 | % |
|
| 10.2 | % |
Secured by multi-family residential properties |
|
| 647 |
|
|
| 6.9 | % |
|
| 9.3 | % |
|
| 437 |
|
|
| 5.3 | % |
|
| 6.5 | % |
Secured by non-farm, non-residential properties |
|
| 1,992 |
|
|
| 21.3 | % |
|
| 26.1 | % |
|
| 1,958 |
|
|
| 23.5 | % |
|
| 27.8 | % |
Commercial and industrial loans, including PPP loans |
|
| 1,104 |
|
|
| 11.8 | % |
|
| 9.2 | % |
|
| 860 |
|
|
| 10.3 | % |
|
| 10.4 | % |
Consumer loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Direct consumer |
|
| 948 |
|
|
| 10.1 | % |
|
| 2.2 | % |
|
| 1,004 |
|
|
| 12.1 | % |
|
| 3.1 | % |
Branch retail |
|
| 423 |
|
|
| 4.5 | % |
|
| 2.6 | % |
|
| 304 |
|
|
| 3.7 | % |
|
| 3.6 | % |
Indirect |
|
| 3,083 |
|
|
| 32.9 | % |
|
| 35.2 | % |
|
| 2,439 |
|
|
| 29.3 | % |
|
| 29.0 | % |
Total allowance for loan and lease losses |
| $ | 9,373 |
|
|
| 100.0 | % |
|
| 100.0 | % |
| $ | 8,320 |
|
|
| 100.0 | % |
|
| 100.0 | % |
Deposits
Total deposits increased by 2.2% to $508.4$846.5 million as of September 30, 2017,2022, from $497.6$838.1 million as of December 31, 2016.2021, an increase of 1.0%. Core deposits, which exclude time deposits of $250 thousand or more, provide a relatively stable funding source that supports earning assets. Core deposits totaled $479.7increased to $791.4 million, or 94.4%93.5% of total deposits, as of September 30, 2017,2022, compared to $461.8$775.1 million, or 92.8%92.5% of total deposits, as of December 31, 2016.2021.
Deposits, in particular core55
Core deposits, have historically been the Company’s primary source of funding and have enabled the Company to successfully meet both short-term and long-term liquidity needs. Management anticipates that suchcore deposits will continue to be one of the Company’s primary sourcessource of funding in the future, and wefuture. Management will continue to monitor deposit levels closely to help ensure an adequate level of funding for the Company’s activities. However, various economic and competitive factors could affect this funding source in the future, including increased competition from other financial institutions in deposit gathering, national and local economic conditions and interest rate policies adopted by the Federal Reserve and other central banks.
Other Interest-Bearing Liabilities
Other interest-bearing liabilities consist of federal funds purchased, securities sold under agreements to repurchase, FHLB advances, and FHLB advances. This category continues to be utilizedsubordinated debt that are used by the Company as an alternative source of funds. During the third quarter of 2017, these borrowings2022, other interest-bearing liabilities represented 4.5%6.4% of average interest-bearing liabilities, compared to 2.6%1.5% in the third quarter of 2016.2021.
Shareholders’ Equity
Shareholders’ Equity
The Company has historically placed great emphasis on maintaining its strong capital base. As of September 30, 2017,2022, shareholders’ equity totaled $78.9$83.1 million, or 12.8%8.4% of total assets, compared to $76.2$90.1 million, or 12.6%9.4% of total assets, as of December 31, 2016. Management believes that this level of equity is an indicator of the financial soundness of the Company and the Company’s ability to sustain future growth and profitability.2021. The increasedecrease in shareholders’ equity during the period endedas of September 30, 2017 resulted from increases2022, compared to December 31, 2021, was due primarily to an increase in accumulated other comprehensive income related toloss associated with unrealized losses on available-for-sale investment securities and a Company share repurchase program completed during the nine months ended September 30, 2022. The increase in unrealized losses within the securities portfolio resulted from significant increases in interest rates during the nine months ended September 30, 2022 which reduced security valuations. The reductions in security valuations were partially offset by increases in the fair value of cash flow hedges during the quarter. Changes in both the fair value of the available-for-sales investment securities portfolio and changes in the fair value of investment securities available-for-sale.cash flow hedges are recorded, net of tax, in accumulated other comprehensive income. During the nine months ended September 30, 2022 the Company completed repurchases of 412,400 shares of its common stock at a weighted average price of $10.87 per share, or $4.5 million in aggregate. The fair valueshares were repurchased under the Company’s existing share repurchase program that was amended by the Board of Directors in April 2021 and will expire on December 31, 2022. Share repurchases under the available-for-sale portfolio fluctuates based primarily on changesprogram may be made through open market and privately negotiated transactions at times and in interest rates. Accordingly,such amounts as management deems appropriate, subject to applicable regulatory requirements. The repurchase program does not obligate the net unrealized gains duringCompany to acquire any particular number of shares and may be suspended at any time at the third quarterCompany’s discretion. As of 2017 are not necessarily indicative of future performance ofSeptember 30, 2022, 596,813 shares remained available for repurchase under the portfolio.program.
Bancshares’During both the nine months ended September 30, 2022 and 2021, the Company declared dividends totaling $0.09 per common share, or approximately $0.5 million in aggregate amount. Bancshares’ Board of Directors evaluates dividend payments based on the Company’s level of earnings and ourthe desire to maintain a strong capital base, as well as regulatory requirements relating to the payment of dividends. During each of the three-month periods ended September 30, 2017 and 2016, Bancshares declared dividends of $0.02 per common share, or approximately $0.1 million in aggregate amount.
As of September 30, 2017 and December 31, 2016, the Company retained approximately $20.4 million and $20.8 million in treasury stock, respectively. The Company initiated a share repurchase program in January 2006, under which the Company was authorized to repurchase up to 642,785 shares of Bancshares common stock before December 31, 2007. In December 2007, and in each year since, the Board of Directors has extended the expiration date of the share repurchase program for an additional year. Currently, the share repurchase program is set to expire on December 31, 2017. There are 242,303 shares available for repurchase under this program, at management’s discretion. No shares were purchased under this program to date in 2017 or in 2016.
As of September 30, 2017 and December 31, 2016, a total of 100,990 and 114,547 shares of stock, respectively, were deferred in connection with Bancshares’ Non-Employee Directors’ Deferred Compensation Plan. The plan permits non-employee directors to invest their directors’ fees and to receive the adjusted value of the deferred amounts in cash or shares of common stock. All deferred fees, whether in the form of cash or shares of stock, are reflected as compensation expense in the period earned. The Company classifies all deferred directors' fees allocated to be paid in shares of stock as equity surplus. The Company uses shares of treasury stock to satisfy these obligations when due.
LIQUIDITY AND CAPITAL RESOURCES
The asset portion of the balance sheet provides liquidity primarily from twothe following sources: (1) excess cash and interest-bearing deposits in banks, (2) federal funds sold, (3) principal payments and maturities of loans and (2) maturities and(4) principal payments and maturities from the investment portfolio. Other short-term investments, such as federal funds sold, may also provide additional sources of liquidity. Loans maturing or repricing in one year or less amounted to $114.6$183.4 million as of September 30, 20172022 and $127.3$102.4 million as of December 31, 2016.2021. Investment securities forecasted to mature or reprice in one year or less were estimated to be $10.5$10.0 million and $9.5 million of the investment portfolio as of September 30, 2017.2022 and December 31, 2021, respectively.
Although a substantial portion ofsome securities in the investment portfolio have legal final maturities exceeding 10 years, a substantial percentage of the portfolio provides monthly principal and interest payments and consistsconsists of securities that are readily marketable and easily convertible into cash on short notice. As of September 30, 2017, theThe investment securities portfolio had an estimated average life of 2.73.6 years and approximately 86.33%3.7 years as of the portfolio (including both available-for-saleSeptember 30, 2022 and held-to-maturity investments) was expected to be repaid within five years.December 31, 2021, respectively. However, management does not rely solely upon the investment portfolio to generate cash flows to fund loans, capital expenditures, dividends, debt repayment and other cash requirements. These activities are also funded by cash flows from loan payments, as well as increases in deposits and short-term borrowings.
The liability portion of the balance sheet provides liquidity through interest-bearing and non-interest-bearing deposit accounts, which represent the Company’s primary sources of funds. In addition, federal funds purchased, FHLB advances, securities sold under agreements to repurchase and short-term and long-term borrowings are additional sources of available liquidity. Liquidity management involves the continual monitoring of the sources and uses of funds to maintain an acceptable cash position. Long-term liquidity management focuses on considerations related to the total balance sheet structure. The Bank manages the pricing of its deposits to maintain a desired deposit balance. In addition, the Bank invests in short-term interest-earning assets, which provide liquidity to meet lending requirements.
As of September 30, 2017 and December 31, 2016, theThe Company had $20.0$40.0 million and $25.0$10.0 million respectively, inof outstanding borrowings under FHLB advances. advances as of September 30, 2022 and December 31, 2021, respectively. In addition, on October 1, 2021, the Company completed a private placement of $11.0 million in aggregate principal amount of fixed-to-floating rate subordinated notes that will mature on October 1, 2031. Net of unamortized debt issuance costs, the subordinated notes were recorded as long-term borrowings totaling $10.7 million as of both September 30, 2022 and December 31, 2021.
56
The Company had up to $164.8$206.6 million and $155.0$237.0 million in remaining unused credit from the FHLB (subject to available collateral)collateral, which may include eligible investment securities and loans) as of September 30, 20172022 and December 31, 2016,2021, respectively. In addition, the Company had $18.8$46.2 million and $46.0 million in unused established federal funds lines as of both September 30, 20172022 and December 31, 2016.2021, respectively.
Management believes that the Company has adequate sources of liquidity to more than cover its contractual obligations and commitments over the next twelve months. Management is not aware of any condition that currently exists that would have an adverse effect on the liquidity, capital resources or operation of the Company.
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57
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The primary purpose inof managing interest rate risk is to invest capital effectively and preserve the value created by ourthe Company’s core banking business. This is accomplished through the development and implementation of lending, funding, pricing and hedging strategies designed to maximize net interest income performance under varying interest rate environments, subject to liquidity and interest rate risk guidelines. Effective interest rate sensitivity management ensures that both assets and liabilities respond to changes in interest rates within an acceptable time frame,timeframe, thereby minimizing the effect of such interest rate movements on short- and long-term net interest margin and net interest income.
Financial simulation models are the primary tools used by the Asset/Liability Committee of the Bank'sBank’s board of directors to measure interest rate exposure. Using a wide range of scenarios, management is provided with extensive information on the potential impact on net interest income caused by changes in interest rates. In these simulations, assumptions are made about the direction and volatility of interest rates, the slope of the yield curve and the changing composition of the Company’sCompany’s balance sheet resulting from both strategic plans and customer behavior. Simulation models also incorporate management’s assumptions regarding such factors as loan and deposit growth, pricing, prepayment speeds and spreads between interest rates.rates paid on deposits and charged on loans.
MeasuringAssessing Short-Term Interest Rate SensitivityRisk – Net Interest Margin Simulation
Interest rate sensitivity isOn a function of the repricing characteristics of all of the Company’s portfolio of assets and liabilities. These repricing characteristics are the timeframes during which the interest-bearing assets and liabilities are subject to fluctuation based on changes in interest rates, either at replacement or maturity, during the life of the instruments. Measuring interest rate sensitivity is a function of the differences in the volume of assets and the volume of liabilities that are subject to repricing in future time periods. These differences are known as interest sensitivity gaps and are usually calculated for segments of time and on a cumulative basis.
The Company measures changes in net interest income and net interest margin on a monthlyperiodic basis, through income simulation over various interest rate shock scenarios, including plus or minus 1%, 2%, 3% and 4% scenarios. Each month, management evaluatessimulates how changes in short- and long-term interest rates maywill impact future profitability, as reflected by changes in the Company’s net interest margin.
Also on a monthly basis, management calculates how changes in interest rates would impact the market value of the Company’s assets and liabilities, as well as its long-term profitability. The process is similar to assessing short-term risk but emphasizes and is measured over a five-year time period, which allows for a more comprehensive assessment of longer-term repricing and cash flow imbalances that may not be captured by short-termBank’s net interest margin simulations.and net interest income. The results of these calculations are representative of long-term interest rate risk, both in terms of changes in the present value of the Company’s assets and liabilities and long-term changes in core profitability.
See Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” of Bancshares’ Annual Report on Form 10-K as of and for the year ended December 31, 2016 for additional disclosures related to market risk. Management’s evaluationtables below depict how, as of September 30, 2017 did not indicate any significant increase2022, pre-tax net interest margin and net interest income are forecasted to change over timeframes of six months, one year, two years and five years under the four listed interest rate scenarios. The interest rate scenarios contemplate immediate and parallel shifts in the Company’s exposure to market riskshort- and long-term interest rates.
Average Change in Net Interest Margin from those disclosed as of December 31, 2016.Level Interest Rate Forecast (basis points, pre-tax):
|
|
| 6 Months |
|
| 1 Year |
|
| 2 Years |
|
| 5 Years |
| ||||
+1% |
|
| 1 |
|
|
| 2 |
|
|
| 5 |
|
|
| 14 |
|
+2% |
|
| (5 | ) |
|
| (3 | ) |
|
| 3 |
|
|
| 22 |
|
+3% |
|
| (21 | ) |
|
| (20 | ) |
|
| (11 | ) |
|
| 19 |
|
+4% |
|
| (34 | ) |
|
| (32 | ) |
|
| (21 | ) |
|
| 19 |
|
-1% |
|
| (7 | ) |
|
| (8 | ) |
|
| (11 | ) |
|
| (20 | ) |
-2% |
|
| (17 | ) |
|
| (21 | ) |
|
| (28 | ) |
|
| (46 | ) |
-3% |
|
| (30 | ) |
|
| (35 | ) |
|
| (46 | ) |
|
| (73 | ) |
Cumulative Change in Net Interest Income from Level Interest Rate Forecast (dollars in thousands, pre-tax):
|
| 6 Months |
|
| 1 Year |
|
| 2 Years |
|
| 5 Years |
| ||||
+1% |
| $ | 46 |
|
| $ | 163 |
|
| $ | 932 |
|
| $ | 7,207 |
|
+2% |
|
| (238 | ) |
|
| (349 | ) |
|
| 505 |
|
|
| 11,221 |
|
+3% |
|
| (1,066 | ) |
|
| (1,965 | ) |
|
| (2,207 | ) |
|
| 9,517 |
|
+4% |
|
| (1,696 | ) |
|
| (3,183 | ) |
|
| (4,098 | ) |
|
| 9,716 |
|
-1% |
|
| (342 | ) |
|
| (805 | ) |
|
| (2,214 | ) |
|
| (9,940 | ) |
-2% |
|
| (864 | ) |
|
| (2,062 | ) |
|
| (5,579 | ) |
|
| (23,205 | ) |
-3% |
|
| (1,506 | ) |
|
| (3,533 | ) |
|
| (9,262 | ) |
|
| (36,240 | ) |
58
ITEM 4. CONTROLS AND PROCEDURES
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
Bancshares maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in Bancshares’ reports under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to Bancshares’ management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. 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.
Bancshares’ management carried out an evaluation, under the supervision and with the participation of its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of Bancshares’ disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act) as of September 30, 2017,2022, pursuant to the evaluation of these controls and procedures required by Rule 13a-15 of the Exchange Act. Based on that evaluation, Bancshares’ management concluded, as of September 30, 2017,2022, that Bancshares’ disclosure controls and procedures arewere effective at the reasonable assurance level to ensure that the information required to be disclosed in Bancshares’ periodic filings with the SEC is recorded, processed, summarized and reported within the time periods specified.specified in the SEC’s rules and forms.
Changes in Internal Control Over Financial Reporting
There were no changes in Bancshares’Bancshares’ internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the quarter ended September 30, 20172022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
59
PARTPART II. OTHER INFORMATION
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ITEM 1. LEGAL PROCEEDINGS
The Company is a party to certain ordinary course litigation, and the Company intends to vigorously defend itself in all such litigation. In the opinion of the Company, based on review and consultation with legal counsel, the outcome of such ordinary course litigation should not have a material adverse effect on the Company’s consolidated financial statements or results of operations.
|
ITEM 1A. RISK FACTORS
In addition toA list of factors that could materially affect the other information set forth in this report, you should carefully consider the factors discussedCompany’s business, financial condition and/or operating results is included in Part I, Item 1A, “Risk Factors,”Factors” in Bancshares’Bancshares’ Annual Report on Form 10-K as of and for the year ended December 31, 2016 that could materially affect the Company’s business, financial condition or future results. The risks described in Bancshares’ Annual Report on Form 10-K are not the only risks facing the Company.2021. There have been no material changes to such risk factors. Additional risks and uncertainties not currently known to the Company or that the Company currently deems to be immaterial also may materially adversely affect the Company’s business, financial condition and/or operating results.
|
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table sets forth purchases made by or on behalf of Bancshares or any “affiliated purchaser,” as defined in Rule 10b-18(a)(3) of the Exchange Act, of shares of Bancshares’Bancshares’ common stock during the third quarter of 2017.2022:
Issuer Purchases of Equity Securities
Period |
| Total Number |
|
| Average |
|
| Total Number |
|
| Maximum Number |
| ||||
July 1 – July 31 |
|
| — |
|
| $ | — |
|
|
| 37,000 |
|
|
| 623,813 |
|
August 1 – August 31 |
|
| — |
|
| $ | — |
|
|
| 8,400 |
|
|
| 615,413 |
|
September 1 – September 30 |
|
| — |
|
| $ | — |
|
|
| 18,600 |
|
|
| 596,813 |
|
Total |
|
| — |
|
| $ | — |
|
|
| 64,000 |
|
|
| 596,813 |
|
60
ITEM 6. EXHIBITS
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| Description |
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3.1A | ||
3.2 | ||
31.1* | ||
31.2* | ||
32* | ||
101 | The following financial statements from the Quarterly Report on Form 10-Q for the quarter ended September 30, |
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| |
104 | The cover page from the Quarterly Report on Form 10-Q for the quarter ended September 30, 2022, formatted in |
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________________
The exhibits listed in the Index to Exhibits below are filed*Filed herewith and are incorporated herein by reference.
61
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.
FIRST US BANCSHARES, INC.
DATE: November 8, 20179, 2022
| /s/ Thomas S. Elley | ||
Thomas S. Elley | |||
Its Senior Executive Vice President, Treasurer and Assistant Secretary, Chief Financial Officer and Principal Accounting Officer | |||
(Duly Authorized Officer and Principal Financial Officer) |
62
INDEX TO EXHIBITS
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