UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM10-Q
|
|
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30,, 20172023
OR
|
|
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________
Commission File Number: 0-14549
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 |
|
FIRST US BANCSHARES, INC. AND SUBSIDIARIES
PAGE | ||
| ||
4 | ||
4 | ||
4 | ||
5 | ||
6 | ||
7 | ||
9 | ||
Notes to Interim Condensed Consolidated Financial Statements (Unaudited) | ||
10 | ||
| ||
43 | ||
| ||
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | ||
59 | ||
| ||
| ||
| ||
61 | ||
| ||
61 | ||
61 | ||
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS | ||
61 | ||
| ||
62 | ||
63 |
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, includingstatements of the Company or its senior management should be considered in light of those factors. Such factors may include adverse developments in the financial services industry; the effects of any government shutdown; loan losses may be greater than anticipated; our ability to ensure that sufficient cash flow and liquid assets are available to satisfy current and future financial obligations; 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 risk factors described in Part I, Item 1Athat internal controls and procedures might fail or be circumvented; the impact of changing tax laws on the Company’s Annual Report on Form 10-K asfinancial results; the potential impact of climate change and forrelated legislative and regulatory initiatives; the year ended December 31, 2016. Specifically, with respect to statements relating to loan demand, growthpossibility that acquisitions may not produce anticipated results and earnings potential, geographic expansion and the adequacy of the allowance for loan losses for the Company, these factors include, but are not limited to,result in unforeseen integration difficulties; the rate of growth (or lack thereof) in the economy generally and in the Company’s service areas,areas; the availabilityvolatility of quality loansour stock price and our dependence on the soundness of other financial institutions; 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
|
ITEM 1. FINANCIAL STATEMENTS
FIRST US BANCSHARES, INC. AND SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)Thousands, Except Share Amounts)
September 30, | December 31, |
| September 30, |
|
| December 31, |
| ||||||||||
2017 | 2016 |
| 2023 |
|
| 2022 |
| ||||||||||
(Unaudited) |
| (Unaudited) |
|
|
|
| |||||||||||
ASSETS | ASSETS | ASSETS |
| ||||||||||||||
Cash and due from banks | $ | 8,705 | $ | 7,018 |
| $ | 10,311 |
|
| $ | 11,844 |
| |||||
Interest-bearing deposits in banks | 23,849 | 16,512 |
|
| 55,818 |
|
|
| 18,308 |
| |||||||
Total cash and cash equivalents | 32,554 | 23,530 |
|
| 66,129 |
|
|
| 30,152 |
| |||||||
Federal funds sold |
|
| 1,143 |
|
|
| 1,768 |
| |||||||||
Investment securities available-for-sale, at fair value | 158,425 | 181,910 |
|
| 126,551 |
|
|
| 130,795 |
| |||||||
Investment securities held-to-maturity, at amortized cost | 27,377 | 25,904 |
|
| 1,272 |
|
|
| 1,862 |
| |||||||
Federal Home Loan Bank stock, at cost | 1,396 | 1,581 |
|
| 2,151 |
|
|
| 1,359 |
| |||||||
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 and leases held for investment |
|
| 815,300 |
|
|
| 773,873 |
| |||||||||
Less allowance for credit losses |
|
| 11,380 |
|
|
| 9,422 |
| |||||||||
Net loans and leases held for investment |
|
| 803,920 |
|
|
| 764,451 |
| |||||||||
Premises and equipment, net of accumulated depreciation |
|
| 24,259 |
|
|
| 24,439 |
| |||||||||
Cash surrender value of bank-owned life insurance | 14,843 | 14,603 |
|
| 16,622 |
|
|
| 16,399 |
| |||||||
Accrued interest receivable | 1,877 | 1,987 |
|
| 3,522 |
|
|
| 3,011 |
| |||||||
Goodwill and core deposit intangible, net |
|
| 7,642 |
|
|
| 7,801 |
| |||||||||
Other real estate owned | 3,819 | 4,858 |
|
| 617 |
|
|
| 686 |
| |||||||
Other assets | 10,040 | 11,407 |
|
| 11,411 |
|
|
| 11,944 |
| |||||||
Total assets | $ | 614,599 | $ | 606,892 |
| $ | 1,065,239 |
|
| $ | 994,667 |
| |||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||||||||||||
Deposits | $ | 508,385 | $ | 497,556 | |||||||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | LIABILITIES AND SHAREHOLDERS’ EQUITY |
| |||||||||||||||
Deposits: |
|
|
|
|
|
| |||||||||||
Non-interest-bearing |
| $ | 157,652 |
|
| $ | 169,822 |
| |||||||||
Interest-bearing |
|
| 769,386 |
|
|
| 700,203 |
| |||||||||
Total deposits |
|
| 927,038 |
|
|
| 870,025 |
| |||||||||
Accrued interest expense | 281 | 241 |
|
| 1,864 |
|
|
| 607 |
| |||||||
Other liabilities | 6,444 | 7,735 |
|
| 8,148 |
|
|
| 8,136 |
| |||||||
Short-term borrowings | 10,635 | 10,119 |
|
| 30,000 |
|
|
| 20,038 |
| |||||||
Long-term debt | 10,000 | 15,000 | |||||||||||||||
Long-term borrowings |
|
| 10,781 |
|
|
| 10,726 |
| |||||||||
Total liabilities | 535,745 | 530,651 |
|
| 977,831 |
|
|
| 909,532 |
| |||||||
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; 7,738,156 and |
|
| 75 |
|
|
| 75 |
| |||||||||
Additional paid-in capital |
|
| 14,824 |
|
|
| 14,510 |
| |||||||||
Accumulated other comprehensive loss, net of tax |
|
| (8,907 | ) |
|
| (7,241 | ) | |||||||||
Retained earnings | 88,525 | 87,434 |
|
| 107,976 |
|
|
| 104,460 |
| |||||||
Less treasury stock: 1,264,202 and 1,285,958 shares at cost, respectively | (20,414 | ) | (20,764 | ) |
| ||||||||||||
Noncontrolling interest | (12 | ) | (11 | ) |
| ||||||||||||
Total shareholders’ equity | 78,854 | 76,241 | |||||||||||||||
Total liabilities and shareholders’ equity | $ | 614,599 | $ | 606,892 | |||||||||||||
Less treasury stock: 1,863,375 and 1,868,598 shares at cost, respectively |
|
| (26,560 | ) |
|
| (26,669 | ) | |||||||||
Total shareholders’ equity |
|
| 87,408 |
|
|
| 85,135 |
| |||||||||
Total liabilities and shareholders’ equity |
| $ | 1,065,239 |
|
| $ | 994,667 |
|
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 |
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| |||||||||||||||||
(Unaudited) | (Unaudited) |
| (Unaudited) |
|
| (Unaudited) |
| |||||||||||||||||||||||||
Interest income: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Interest and fees on loans | $ | 6,802 | $ | 6,773 | $ | 19,928 | $ | 19,192 |
| $ | 12,584 |
|
| $ | 9,750 |
|
| $ | 35,330 |
|
| $ | 27,339 |
| ||||||||
Interest on investment securities | 1,018 | 987 | 3,085 | 3,242 |
|
| 685 |
|
|
| 756 |
|
|
| 2,043 |
|
|
| 1,927 |
| ||||||||||||
Interest on deposits in banks |
|
| 598 |
|
|
| 136 |
|
|
| 1,362 |
|
|
| 265 |
| ||||||||||||||||
Other |
|
| 35 |
|
|
| 28 |
|
|
| 126 |
|
|
| 45 |
| ||||||||||||||||
Total interest income | 7,820 | 7,760 | 23,013 | 22,434 |
|
| 13,902 |
|
|
| 10,670 |
|
|
| 38,861 |
|
|
| 29,576 |
| ||||||||||||
Interest expense: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Interest on deposits | 617 | 532 | 1,713 | 1,568 |
|
| 4,222 |
|
|
| 864 |
|
|
| 9,681 |
|
|
| 1,964 |
| ||||||||||||
Interest on borrowings | 68 | 55 | 189 | 115 |
|
| 197 |
|
|
| 291 |
|
|
| 940 |
|
|
| 562 |
| ||||||||||||
Total interest expense | 685 | 587 | 1,902 | 1,683 |
|
| 4,419 |
|
|
| 1,155 |
|
|
| 10,621 |
|
|
| 2,526 |
| ||||||||||||
Net interest income | 7,135 | 7,173 | 21,111 | 20,751 |
|
| 9,483 |
|
|
| 9,515 |
|
|
| 28,240 |
|
|
| 27,050 |
| ||||||||||||
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 credit losses |
|
| 184 |
|
|
| 1,165 |
|
|
| 753 |
|
|
| 2,781 |
| ||||||||||||||||
Net interest income after provision for credit losses |
|
| 9,299 |
|
|
| 8,350 |
|
|
| 27,487 |
|
|
| 24,269 |
| ||||||||||||||||
Non-interest income: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Service and other charges on deposit accounts | 481 | 463 | 1,406 | 1,306 |
|
| 302 |
|
|
| 311 |
|
|
| 869 |
|
|
| 904 |
| ||||||||||||
Credit insurance income | 160 | 256 | 459 | 570 | ||||||||||||||||||||||||||||
Net gain on sales and prepayments of investment securities | 178 | 259 | 228 | 657 | ||||||||||||||||||||||||||||
Lease income |
|
| 241 |
|
|
| 210 |
|
|
| 707 |
|
|
| 635 |
| ||||||||||||||||
Other income, net | 417 | 589 | 1,240 | 1,503 |
|
| 294 |
|
|
| 567 |
|
|
| 889 |
|
|
| 1,234 |
| ||||||||||||
Total non-interest income | 1,236 | 1,567 | 3,333 | 4,036 |
|
| 837 |
|
|
| 1,088 |
|
|
| 2,465 |
|
|
| 2,773 |
| ||||||||||||
Non-interest expense: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Salaries and employee benefits | 4,370 | 4,334 | 13,048 | 12,734 |
|
| 4,120 |
|
|
| 4,007 |
|
|
| 12,310 |
|
|
| 12,389 |
| ||||||||||||
Net occupancy and equipment | 806 | 830 | 2,276 | 2,381 |
|
| 897 |
|
|
| 861 |
|
|
| 2,625 |
|
|
| 2,468 |
| ||||||||||||
Other real estate/foreclosure expense, net | 244 | 124 | 461 | 370 | ||||||||||||||||||||||||||||
Computer services |
|
| 464 |
|
|
| 417 |
|
|
| 1,315 |
|
|
| 1,224 |
| ||||||||||||||||
Insurance expense and assessments |
|
| 423 |
|
|
| 310 |
|
|
| 1,156 |
|
|
| 970 |
| ||||||||||||||||
Fees for professional services |
|
| 331 |
|
|
| 263 |
|
|
| 735 |
|
|
| 811 |
| ||||||||||||||||
Other expense | 1,770 | 2,060 | 5,305 | 6,184 |
|
| 1,084 |
|
|
| 1,174 |
|
|
| 3,599 |
|
|
| 3,104 |
| ||||||||||||
Total non-interest expense | 7,190 | 7,348 | 21,090 | 21,669 |
|
| 7,319 |
|
|
| 7,032 |
|
|
| 21,740 |
|
|
| 20,966 |
| ||||||||||||
Income before income taxes | 808 | 712 | 1,890 | 1,735 |
|
| 2,817 |
|
|
| 2,406 |
|
|
| 8,212 |
|
|
| 6,076 |
| ||||||||||||
Provision for income taxes | 173 | 162 | 435 | 406 |
|
| 704 |
|
|
| 546 |
|
|
| 2,004 |
|
|
| 1,440 |
| ||||||||||||
Net income | $ | 635 | $ | 550 | $ | 1,455 | $ | 1,329 |
| $ | 2,113 |
|
| $ | 1,860 |
|
| $ | 6,208 |
|
| $ | 4,636 |
| ||||||||
Basic net income per share | $ | 0.10 | $ | 0.09 | $ | 0.24 | $ | 0.22 |
| $ | 0.35 |
|
| $ | 0.31 |
|
| $ | 1.04 |
|
| $ | 0.76 |
| ||||||||
Diluted net income per share | $ | 0.10 | $ | 0.09 | $ | 0.22 | $ | 0.21 |
| $ | 0.33 |
|
| $ | 0.29 |
|
| $ | 0.97 |
|
| $ | 0.71 |
| ||||||||
Dividends per share | $ | 0.02 | $ | 0.02 | $ | 0.06 | $ | 0.06 |
| $ | 0.05 |
|
| $ | 0.03 |
|
| $ | 0.15 |
|
| $ | 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 (LOSS)
(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, |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
|
| (Unaudited) |
|
| (Unaudited) |
| ||||||||||
Net income |
| $ | 2,113 |
|
| $ | 1,860 |
|
| $ | 6,208 |
|
| $ | 4,636 |
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Unrealized holding losses on securities available-for-sale |
|
| (167 | ) |
|
| (1,048 | ) |
|
| (1,271 | ) |
|
| (8,307 | ) |
Unrealized holding gains (losses) arising during the period on |
|
| — |
| �� |
| 393 |
|
|
| (50 | ) |
|
| 1,330 |
|
Reclassification adjustments on cash flow hedge derivatives realized in net income, net of tax benefit (expense) of $39, ($9), $116 and ($14), respectively |
|
| (118 | ) |
|
| 27 |
|
|
| (345 | ) |
|
| 41 |
|
Other comprehensive loss |
|
| (285 | ) |
|
| (628 | ) |
|
| (1,666 | ) |
|
| (6,936 | ) |
Total comprehensive income (loss) |
| $ | 1,828 |
|
| $ | 1,232 |
|
| $ | 4,542 |
|
| $ | (2,300 | ) |
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, 2023 and 2022 (Unaudited)
|
| Common |
|
| Common |
|
| Additional |
|
| Accumulated |
|
| Retained |
|
| Treasury |
|
| Total |
| |||||||
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 |
|
Impact of common stock share repurchases |
|
| (64,000 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (653 | ) |
|
| (653 | ) |
Balance, September 30, 2022 |
|
| 5,812,258 |
|
| $ | 75 |
|
| $ | 14,386 |
|
| $ | (7,212 | ) |
| $ | 102,523 |
|
| $ | (26,669 | ) |
| $ | 83,103 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Balance, June 30, 2023 |
|
| 5,874,765 |
|
| $ | 75 |
|
| $ | 14,675 |
|
| $ | (8,622 | ) |
| $ | 106,157 |
|
| $ | (26,560 | ) |
| $ | 85,725 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,113 |
|
|
| — |
|
|
| 2,113 |
|
Net change in fair value of |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (167 | ) |
|
| — |
|
|
| — |
|
|
| (167 | ) |
Net change in fair value of |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (118 | ) |
|
| — |
|
|
| — |
|
|
| (118 | ) |
Dividends declared: $.05 per |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (294 | ) |
|
| — |
|
|
| (294 | ) |
Impact of stock-based |
|
| — |
|
|
| — |
|
|
| 149 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 149 |
|
Reissuance of treasury stock as |
|
| 16 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Balance, September 30, 2023 |
| 5,874,781 |
|
| $ | 75 |
|
| $ | 14,824 |
|
| $ | (8,907 | ) |
| $ | 107,976 |
|
| $ | (26,560 | ) |
| $ | 87,408 |
|
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, 2023 and 2022 (Unaudited)
|
| Common |
|
| Common |
|
| Additional |
|
| Accumulated |
|
| Retained |
|
| Treasury |
|
| Total |
| |||||||
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 |
|
|
| — |
|
Impact of common stock share |
|
| (412,400 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (4,481 | ) |
|
| (4,481 | ) |
Balance, September 30, 2022 |
|
| 5,812,258 |
|
| $ | 75 |
|
| $ | 14,386 |
|
| $ | (7,212 | ) |
| $ | 102,523 |
|
| $ | (26,669 | ) |
| $ | 83,103 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Balance, December 31, 2022 |
|
| 5,812,258 |
|
| $ | 75 |
|
| $ | 14,510 |
|
| $ | (7,241 | ) |
| $ | 104,460 |
|
| $ | (26,669 | ) |
| $ | 85,135 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6,208 |
|
|
| — |
|
|
| 6,208 |
|
Net change in fair value of |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,271 | ) |
|
| — |
|
|
| — |
|
|
| (1,271 | ) |
Net change in fair value of |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (395 | ) |
|
| — |
|
|
| — |
|
|
| (395 | ) |
Dividends declared: $.15 per |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (881 | ) |
|
| — |
|
|
| (881 | ) |
Impact of stock-based |
|
| 53,141 |
|
|
| — |
|
|
| 448 |
|
|
| — |
|
|
| — |
|
|
| (25 | ) |
|
| 423 |
|
Reissuance of treasury stock as |
|
| 9,382 |
|
|
|
|
|
| (134 | ) |
|
|
|
|
|
|
|
| 134 |
|
|
| — |
| |||
Impact of adopting current expected credit loss accounting model, net of tax |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,811 | ) |
|
| — |
|
|
| (1,811 | ) |
Balance, September 30, 2023 |
|
| 5,874,781 |
|
| $ | 75 |
|
| $ | 14,824 |
|
| $ | (8,907 | ) |
| $ | 107,976 |
|
| $ | (26,560 | ) |
| $ | 87,408 |
|
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, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
|
| (Unaudited) |
| |||||
Cash flows from operating activities: |
|
|
|
|
|
| ||
Net income |
| $ | 6,208 |
|
| $ | 4,636 |
|
Adjustments to reconcile net income to cash provided by operating activities: |
|
|
|
|
|
| ||
Depreciation and amortization |
|
| 1,180 |
|
|
| 1,201 |
|
Provision for credit losses |
|
| 753 |
|
|
| 2,781 |
|
Deferred income tax benefit |
|
| (566 | ) |
|
| (309 | ) |
Proceeds from settlement of derivative contracts |
|
| 2,166 |
|
|
| — |
|
Reclassification of unrealized gains on terminated derivative contracts |
|
| (848 | ) |
|
| — |
|
Stock-based compensation expense |
|
| 448 |
|
|
| 361 |
|
Net amortization of securities |
|
| 40 |
|
|
| 169 |
|
Amortization of intangible assets |
|
| 159 |
|
|
| 213 |
|
Net loss (gain) on premises and equipment and other real estate |
|
| 613 |
|
|
| (350 | ) |
Changes in assets and liabilities: |
|
|
|
|
|
| ||
Increase in accrued interest receivable |
|
| (511 | ) |
|
| (135 | ) |
Decrease in other assets |
|
| 333 |
|
|
| 750 |
|
Increase in accrued interest expense |
|
| 1,257 |
|
|
| 495 |
|
Decrease in other liabilities |
|
| (225 | ) |
|
| (310 | ) |
Net cash provided by operating activities |
|
| 11,007 |
|
|
| 9,502 |
|
Cash flows from investing activities: |
|
|
|
|
|
| ||
Net decrease (increase) in federal funds sold |
|
| 625 |
|
|
| (38 | ) |
Purchases of investment securities, available-for-sale |
|
| (6,756 | ) |
|
| (39,256 | ) |
Proceeds from maturities and prepayments of investment securities, available-for-sale |
|
| 9,267 |
|
|
| 15,111 |
|
Proceeds from maturities and prepayments of investment securities, held-to-maturity |
|
| 587 |
|
|
| 1,317 |
|
Net increase in Federal Home Loan Bank stock |
|
| (792 | ) |
|
| (1,139 | ) |
Net increase in loans |
|
| (43,533 | ) |
|
| (45,590 | ) |
Proceeds from the sale of premises and equipment and other real estate |
|
| 482 |
|
|
| 2,892 |
|
Purchases of premises and equipment |
|
| (979 | ) |
|
| (672 | ) |
Net cash used in investing activities |
|
| (41,099 | ) |
|
| (67,375 | ) |
Cash flows from financing activities: |
|
|
|
|
|
| ||
Net increase in deposits |
|
| 57,013 |
|
|
| 8,411 |
|
Net increase in short-term borrowings |
|
| 9,962 |
|
|
| 30,060 |
|
Net share-based compensation transactions |
|
| (25 | ) |
|
| — |
|
Repurchases of common stock |
|
| — |
|
|
| (4,481 | ) |
Dividends paid |
|
| (881 | ) |
|
| (541 | ) |
Net cash provided by financing activities |
|
| 66,069 |
|
|
| 33,449 |
|
Net increase (decrease) in cash and cash equivalents |
|
| 35,977 |
|
|
| (24,424 | ) |
Cash and cash equivalents, beginning of period |
|
| 30,152 |
|
|
| 61,244 |
|
Cash and cash equivalents, end of period |
| $ | 66,129 |
|
| $ | 36,820 |
|
Supplemental disclosures: |
|
|
|
|
|
| ||
Cash paid for: |
|
|
|
|
|
| ||
Interest |
| $ | 9,364 |
|
| $ | 2,031 |
|
Income taxes |
|
| 2,374 |
|
|
| 1,804 |
|
Non-cash transactions: |
|
|
|
|
|
| ||
Assets acquired in settlement of loans |
|
| 1,178 |
|
|
| 656 |
|
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 operatesare both headquartered in Birmingham, Alabama. As of September 30, 2023, the Bank operated a finance company subsidiary, Acceptance Loan Company, Inc. (“ALC”). Management hasDuring 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. Through the third quarter of 2023, ALC continued to service its remaining portfolio of loans from its headquarters in Mobile, Alabama. Effective October 1, 2023, all of ALC’s remaining loans were sold to the Bank in an intercompany transaction. Due to this transaction, management determined that the Bank and ALC comprise Bancshares’ twowas no longer a separate reportable operating segments.segment. The Bank intends to manage the remaining portfolio through final resolution. All significant intercompany transactions and accounts have been eliminated.
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.nature, except for the adoption of Accounting Standards Codification (“ASC”) 326, Measurement of Credit Losses on Financial Instruments, as discussed below. The results of operations for any interim period are not necessarily indicative of results expected for the fiscal year ending December 31, 2017.2023. 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, 2016.2022 (the "Company's 2022 Form 10-K").
Reclassification
|
|
Certain amounts in the prior period consolidated financial statements and the notes to the prior period consolidated financial statements have been reclassified to conform to the 2023 presentation. These reclassifications had no effect on the Company’s results of operations, financial position or net cash flow.
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 Report2022 Form 10-K.
Adoption of ASC 326
On January 1, 2023, the Company adopted Accounting Standards Update ("ASU") 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, as subsequently updated for certain clarifications, targeted relief and codification improvements. ASC 326 replaces the previous "incurred loss" model for measuring credit losses, which required allowances for current known and inherent losses within the loan portfolio, with an "expected loss" model. The newly adopted current expected credit loss ("CECL") model requires the measurement of all expected credit losses for financial assets measured at amortized cost and certain off-balance-sheet credit exposures based on historical experience, current conditions, and reasonable and supportable forecasts. ASC 326 also requires enhanced disclosures related to the significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization's portfolio. In addition, ASC 326 includes certain changes to the accounting for available-for-sale securities including the requirement to present credit losses as an allowance rather than as a direct write-down.
The Company adopted ASC 326 using the modified retrospective method for financial assets measured at amortized cost and off-balance-sheet credit exposures. Upon adoption, the Company recognized an increase in the allowance for credit losses (including both loans and unfunded lending commitments) of $2.4 million, which included an after-tax cumulative effect decrease to retained earnings totaling $1.8 million. Operating results for periods after January 1, 2023 are presented in accordance with ASC 326 while prior period amounts continue to be reported in accordance with previously applicable standards and the accounting policies described in Note 2 of the Company's 2022 Form 10-K10-K. In connection with the adoption of ASC 326, the Company revised certain accounting policies and implemented certain accounting policy elections. The revised accounting policies are described below.
10
Loans and Leases Held for Investment
Loans and leases held for investment (“loans”) represent financial instruments that the Company has the intent and the ability to hold for the foreseeable future or until maturity or payoff. Loans are reported at amortized cost, net of the allowance for credit losses. Amortized cost is the principal balance outstanding, net of purchase premiums and discounts, fair value hedge accounting adjustments, as well as deferred loan fees and costs. Accrued interest receivable on loans and leases is reported separately on the Company’s consolidated balance sheets and is excluded from the estimate of credit losses. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income using the level-yield method without anticipating prepayments.
At the time a loan is 90 days delinquent, it is placed on nonaccrual status unless it is well-secured and in process of collection. Interest income is discontinued on all loans on nonaccrual status. Past-due status is based on the contractual terms of the loan. In all cases, loans are moved to nonaccrual status, or charged off at an earlier date, if collection of principal and interest is considered doubtful.
All interest accrued but not received on loans on nonaccrual status is reversed against interest income. Interest received on such loans is accounted for on the cash-basis or cost-recovery methods, until qualifying for return to accrual. Under the cash-basis method, interest income is recorded when the payment is received in cash. Under the cost-recovery method, interest income is not recognized until the loan balance is reduced to zero. Loans are returned to accrual status when all of the principal and interest amounts contractually due are brought current and future payments are reasonably assured.
Allowance for Credit Losses – Loans and Leases
The allowance for credit losses is a contra-asset valuation account that is deducted from the amortized cost basis of the loans to present the net amount expected to be collected on the loans. Loans are charged off against the allowance when management believes the uncollectibility of a loan balance is confirmed. Expected recoveries do not exceed the aggregate of amounts previously charged off and expected to be charged off. The allowance for credit losses on loans and leases is adjusted through the provision for (recovery of) credit losses.
Management estimates the allowance balance by using relevant available information from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience provides the basis for estimation of expected credit losses. Adjustments to historical loss information are made for differences in loan-specific risk characteristics such as changes in economic and business conditions, underwriting standards, portfolio mix, and delinquency level. Considerations related to environmental conditions include reasonable and supportable current and forecasted data related to economic factors such as inflation, unemployment levels, and interest rates.
The allowance for credit losses is measured on a collective (pool) basis when similar risk characteristics exist. Loans that do not share risk characteristics are evaluated on an individual basis. Loans evaluated individually are not included in the collective evaluation. When management determines that foreclosure is probable or when the borrower is experiencing financial difficulty as of the reporting date and repayment is expected to be provided substantially through the operation or sale of the collateral, expected credit losses are based on the fair value of the collateral at the reporting date, adjusted for estimated selling costs as appropriate.
Expected credit losses are estimated over the year ended December 31, 2016.contractual term of the loans, adjusted for expected prepayments when appropriate. The contractual term excludes expected extensions, renewals, and modifications unless renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancellable by the Company, or management has a reasonable expectation at the reporting date that a loan modification will be made to a borrower experiencing financial difficulty.
Additional information related to the factors considered in evaluating credit losses on loans and leases is included in Note 4.
Allowance for Credit Losses on Off-Balance Sheet Credit Exposures
The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The following categories of off-balance sheet credit exposures have been identified: unfunded loan commitments, standby letters of credit, and financial guarantees (collectively, “unfunded lending commitments”). The allowance for credit losses on unfunded lending commitments is adjusted through the provision for (recovery of) credit losses. The estimate may include consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded, as well as reasonable practical expedients or industry practices to assist in the evaluation of estimated funding amounts.
11
Additional information related to the factors considered in evaluating credit losses on unfunded lending commitments is included in Note 4.
Allowance for Credit Losses – Investment Securities Held-to-Maturity
Expected credit losses on held-to-maturity debt securities are measured on a collective basis by major security type. Accrued interest receivable on held-to-maturity securities is excluded from the estimate of credit losses. The estimate of expected credit losses considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. The allowance for credit losses on investment securities held-to-maturity is adjusted through the provision for (recovery of) credit losses.
Additional information related to the factors considered in evaluating credit losses in the held-to-maturity investment portfolio is included in Note 3.
Allowance for Credit Losses – Investment Securities Available-for-Sale
For available-for-sale debt securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more likely than not that it will be required to sell, the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For debt securities available-for-sale that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes in the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income. Changes in the allowance for credit losses are recorded in the provision for (recovery of) credit losses. Losses are charged against the allowance when management believes the uncollectibility of an available-for-sale security is confirmed or when either of the criteria regarding intent or requirement to sell is met. Accrued interest receivable on available-for-sale debt securities is excluded from the estimate of credit losses.
Additional information related to the factors considered in evaluating credit losses in the available-for-sale investment portfolio is included in Note 3.
Net Income Per Share and Comprehensive Income
Basic net income per share is computed by dividing net income by the weighted average number of shares of common stock outstanding during the period.("basic shares"). Included in basic shares are certainstock equivalent shares that have been accrued as of the balance sheet date as deferred compensationcompensation for members of Bancshares’ Board of Directors.Directors under the Non-Employee Directors' Deferred Compensation Plan (as defined below and discussed further in Note 9). 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 unexercised nonqualified stock option grants issued to employees and members of Bancshares’ Board of Directors pursuant to Bancshares’ 2013the Company's Incentive Plan (the “2013 Incentive Plan”) previously approved by Bancshares’ shareholders. (as defined below and discussed further in Note 10).
The following table reflects the weighted average shares used to calculate basic and diluted net income per share for the periods presented.
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||
September 30, | September 30, |
| Three Months Ended |
|
| Nine Months Ended |
| |||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 |
| September 30, |
|
| September 30, |
| |||||||||||||||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||||||||||||||||||
Weighted average shares outstanding |
|
| 5,874,769 |
|
|
| 5,839,658 |
|
|
| 5,858,812 |
|
|
| 6,016,770 |
| ||||||||||||||||
Weighted average director stock equivalent shares |
|
| 109,793 |
|
|
| 111,608 |
|
|
| 113,142 |
|
|
| 114,853 |
| ||||||||||||||||
Basic shares | 6,176,381 | 6,151,701 | 6,170,892 | 6,147,325 |
|
| 5,984,562 |
|
|
| 5,951,266 |
|
|
| 5,971,954 |
|
|
| 6,131,623 |
| ||||||||||||
Dilutive shares | 320,501 | 272,550 | 320,501 | 272,550 |
|
| 419,650 |
|
|
| 419,650 |
|
|
| 419,650 |
|
|
| 419,650 |
| ||||||||||||
Diluted shares | 6,496,882 | 6,424,251 | 6,491,393 | 6,419,875 |
|
| 6,404,212 |
|
|
| 6,370,916 |
|
|
| 6,391,604 |
|
|
| 6,551,273 |
|
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 |
12
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
|
| (Dollars in Thousands, Except Per Share Data) |
| |||||||||||||
Net income |
| $ | 2,113 |
|
| $ | 1,860 |
|
| $ | 6,208 |
|
| $ | 4,636 |
|
Basic net income per share |
| $ | 0.35 |
|
| $ | 0.31 |
|
| $ | 1.04 |
|
| $ | 0.76 |
|
Diluted net income per share |
| $ | 0.33 |
|
| $ | 0.29 |
|
| $ | 0.97 |
|
| $ | 0.71 |
|
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 or changessettlement of derivative contracts.
Recently Adopted Accounting Guidance
Reference Rate Reform
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 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. Historically, the Company utilized LIBOR, among other indexes, as a reference rate for underwriting certain variable rate loans and interest rate hedging instruments. Since the issuance of this guidance, cessation of U.S. dollar LIBOR was extended to June 30, 2023. Accordingly, in December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848, which deferred the sunset date of ASC Topic 848 from December 31, 2022 to December 31, 2024. The amendments in this update provide optional expedients designed to provide relief from accounting analysis and the impacts that may otherwise be required for modifications to agreements necessitated by reference rate reform. The optional expedients provided by the update include guidance related to modifications of contracts within the scope of ASC Topics 310, Receivables, and 470, Debt, that indicates the modifications should be accounted for by prospectively adjusting the effective interest rate. As of September 30, 2023, the Company’s contracts referencing LIBOR were limited to certain variable-rate loan agreements for which the pricing reset date has not yet occurred. Management has implemented a process to convert the agreements to another reference rate at the next applicable pricing reset date. Due to the prospective nature of the implementation of the revised guidance, the adoption did not have a material impact on the Company’s consolidated financial statements.
Portfolio Layer Hedging Method
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 expand the current last-of-layer method of hedge accounting to allow multiple hedged layers of a single closed portfolio. The Company adopted ASU 2022-01 on January 1, 2023. Due to the prospective nature of the implementation of this revised guidance, the adoption of this standard update did not have a material impact on the Company's consolidated financial statements.
Intangibles and Goodwill
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 cash flow derivatives.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 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 became effective for the Company on January 1, 2023. The adoption of this standard update did not have a material effect on the Company’s consolidated financial statements.
13
Current Expected Credit Loss Accounting Policies Recently Adopted and Pending Accounting PronouncementsGuidance
Accounting Standards Update (“ASU”)ASU 2016-13, "Financial Instruments -– Credit Losses:Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.”" Issued in June 2016, ASU 2016-13 removesremoved the thresholds that companies applyentities previously applied 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 recognize credit losses when it is probable thatKnown as the loss has been incurred. TheCurrent Expected Credit Loss (CECL) model, the revised guidance will removeremoved all current recognition thresholds under previously used incurred loss models and will require companiesrequired entities to recognize an allowance for lifetime expected credit losses. CreditThe standard also added 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. In addition, the standard made changes to the accounting for available for sale debt securities. One such change is to require credit losses to be presented as an allowance rather than as a write-down on available for sale debt securities if management does not intend to sell and does not believe that it is more likely than not they will be immediately recognized through net income; the amount recognized will be based on the current estimate of contractual cash flows not expectedrequired to be collected over the financial asset’s contractual term.sell. 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 will have on2016-13 by three years for smaller reporting companies, including the Company’s consolidated financial statements.
Company. The 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 became effective for the Company on January 1, 2017.2023, and the Company recorded a cumulative-effect adjustment that increased the allowance for credit losses by approximately $2.1 million. In addition, the Company recorded a cumulative-effect adjustment that increased other liabilities by $0.3 million as an allowance for credit losses for unfunded commitments. In accordance with transition accounting guidance, the transition adjustments were recorded directly to retained earnings (net of tax) during the first quarter of 2023 and did not impact then-current period earnings.
Troubled Debt Restructurings and Vintage Disclosures
ASU 2022-02, “Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings (“TDRs��) and Vintage Disclosures.” Issued in March 2022, ASU 2022-02 sought to improve the decision usefulness of information provided to investors concerning certain loan refinancings, restructurings and write-offs. The ASU eliminated the accounting guidance for troubled debt restructurings by creditors that have adopted the CECL accounting model and enhanced 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. The Company adopted the amendments of ASU 2022-02 on January 1, 2023, concurrent with the adoption of the CECL accounting model. The amendments of ASU 2022-02 include only changes to certain financial statement disclosures; and, therefore, adoption of ASU 2016-092022-02 did not have a material impact on the Company’s consolidated financial statements.
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, 20172023 and December 31, 20162022 were as follows:
Available-for-Sale |
| Available-for-Sale |
| |||||||||||||||||||||||||||||
September 30, 2017 |
| September 30, 2023 |
| |||||||||||||||||||||||||||||
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 |
| $ | 41,071 |
|
| $ | — |
|
| $ | (4,071 | ) |
| $ | 37,000 |
| |||||||
Commercial | 67,781 | 62 | (705 | ) | 67,138 |
|
| 10,020 |
|
|
| 1 |
|
|
| (521 | ) |
|
| 9,500 |
| |||||||||||
Obligations of U.S. government-sponsored agencies |
|
| 11,851 |
|
|
| — |
|
|
| (919 | ) |
|
| 10,932 |
| ||||||||||||||||
Obligations of states and political subdivisions | 5,424 | 231 | — |
| 5,655 |
|
| 1,633 |
|
|
| — |
|
|
| (90 | ) |
|
| 1,543 |
| |||||||||||
Obligations of U.S. government-sponsored agencies | 2,000 | 2 | — |
| 2,002 | |||||||||||||||||||||||||||
Corporate notes |
|
| 17,772 |
|
|
| — |
|
|
| (3,091 | ) |
|
| 14,681 |
| ||||||||||||||||
U.S. Treasury securities | 80 | — | — | 80 |
|
| 56,988 |
|
|
| — |
|
|
| (4,093 | ) |
|
| 52,895 |
| ||||||||||||
Total | $ | 158,676 | $ | 772 | $ | (1,023 | ) | $ | 158,425 |
| $ | 139,335 |
|
| $ | 1 |
|
| $ | (12,785 | ) |
| $ | 126,551 |
|
Held-to-Maturity | ||||||||||||||||
September 30, 2017 | ||||||||||||||||
Gross | Gross | Estimated | ||||||||||||||
Amortized | Unrealized | Unrealized | Fair | |||||||||||||
Cost | Gains | Losses | Value | |||||||||||||
(Dollars in Thousands) | ||||||||||||||||
Mortgage-backed securities: | ||||||||||||||||
Commercial | $ | 15,976 | $ | 18 | $ | (61 | ) | $ | 15,933 | |||||||
Obligations of U.S. government-sponsored agencies | 9,458 | 25 | (79 | ) | 9,404 | |||||||||||
Obligations of states and political subdivisions | 1,943 | 26 | (3 | ) | 1,966 | |||||||||||
Total | $ | 27,377 | $ | 69 | $ | (143 | ) | $ | 27,303 |
Available-for-Sale | ||||||||||||||||
December 31, 2016 | ||||||||||||||||
Gross | Gross | Estimated | ||||||||||||||
Amortized | Unrealized | Unrealized | Fair | |||||||||||||
Cost | Gains | Losses | Value | |||||||||||||
(Dollars in Thousands) | ||||||||||||||||
Mortgage-backed securities: | ||||||||||||||||
Residential | $ | 99,922 | $ | 490 | $ | (2,003 | ) | $ | 98,409 | |||||||
Commercial | 71,761 | 56 | (1,287 | ) | 70,530 | |||||||||||
Obligations of states and political subdivisions | 9,759 | 390 | (7 | ) | 10,142 | |||||||||||
Obligations of U.S. government-sponsored agencies | 2,000 | — | (7 | ) | 1,993 | |||||||||||
Corporate notes | 756 | — | — | 756 | ||||||||||||
U.S. Treasury securities | 80 | — | — | 80 | ||||||||||||
Total | $ | 184,278 | $ | 936 | $ | (3,304 | ) | $ | 181,910 |
Held-to-Maturity | ||||||||||||||||
December 31, 2016 | ||||||||||||||||
Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | |||||||||||||
(Dollars in Thousands) | ||||||||||||||||
Mortgage-backed securities: | ||||||||||||||||
Commercial | $ | 14,684 | $ | 5 | $ | (148 | ) | $ | 14,541 | |||||||
Obligations of U.S. government-sponsored agencies | 9,129 | 13 | (222 | ) | 8,920 | |||||||||||
Obligations of states and political subdivisions | 2,091 | 2 | (46 | ) | 2,047 | |||||||||||
Total | $ | 25,904 | $ | 20 | $ | (416 | ) | $ | 25,508 |
14
|
| Held-to-Maturity |
| |||||||||||||
|
| September 30, 2023 |
| |||||||||||||
|
|
|
|
| Gross |
|
| Gross |
|
| Estimated |
| ||||
|
| Amortized |
|
| Unrealized |
|
| Unrealized |
|
| Fair |
| ||||
|
| Cost |
|
| Gains |
|
| Losses |
|
| Value |
| ||||
|
| (Dollars in Thousands) |
| |||||||||||||
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Commercial |
| $ | 704 |
|
| $ | — |
|
| $ | (30 | ) |
| $ | 674 |
|
Obligations of U.S. government-sponsored agencies |
|
| 502 |
|
|
| — |
|
|
| (49 | ) |
|
| 453 |
|
Obligations of states and political subdivisions |
|
| 66 |
|
|
| — |
|
|
| (10 | ) |
|
| 56 |
|
Total |
| $ | 1,272 |
|
| $ | — |
|
| $ | (89 | ) |
| $ | 1,183 |
|
|
| Available-for-Sale |
| |||||||||||||
|
| December 31, 2022 |
| |||||||||||||
|
|
|
|
| Gross |
|
| Gross |
|
| Estimated |
| ||||
|
| Amortized |
|
| Unrealized |
|
| Unrealized |
|
| Fair |
| ||||
|
| Cost |
|
| Gains |
|
| Losses |
|
| Value |
| ||||
|
| (Dollars in Thousands) |
| |||||||||||||
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Residential |
| $ | 47,659 |
|
| $ | 2 |
|
| $ | (3,704 | ) |
| $ | 43,957 |
|
Commercial |
|
| 12,169 |
|
|
| 4 |
|
|
| (480 | ) |
|
| 11,693 |
|
Obligations of U.S. government-sponsored agencies |
|
| 5,116 |
|
|
| — |
|
|
| (846 | ) |
|
| 4,270 |
|
Obligations of states and political subdivisions |
|
| 2,166 |
|
|
| — |
|
|
| (94 | ) |
|
| 2,072 |
|
Corporate notes |
|
| 17,817 |
|
|
| 2 |
|
|
| (1,898 | ) |
|
| 15,921 |
|
U.S. Treasury securities |
|
| 56,956 |
|
|
| — |
|
|
| (4,074 | ) |
|
| 52,882 |
|
Total |
| $ | 141,883 |
|
| $ | 8 |
|
| $ | (11,096 | ) |
| $ | 130,795 |
|
|
| Held-to-Maturity |
| |||||||||||||
|
| December 31, 2022 |
| |||||||||||||
|
| Amortized |
|
| Gross |
|
| Gross |
|
| Estimated |
| ||||
|
| (Dollars in Thousands) |
| |||||||||||||
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Commercial |
| $ | 1,167 |
|
| $ | — |
|
| $ | (41 | ) |
| $ | 1,126 |
|
Obligations of U.S. government-sponsored agencies |
|
| 610 |
|
|
| — |
|
|
| (40 | ) |
|
| 570 |
|
Obligations of states and political subdivisions |
|
| 85 |
|
|
| — |
|
|
| (12 | ) |
|
| 73 |
|
Total |
| $ | 1,862 |
|
| $ | — |
|
| $ | (93 | ) |
| $ | 1,769 |
|
The scheduled maturities of investment securities available-for-sale and held-to-maturity as of September 30,, 2017 2023 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 |
| $ | 12,988 |
|
| $ | 12,783 |
|
| $ | — |
|
| $ | — |
|
Maturing after one to five years |
|
| 53,676 |
|
|
| 49,249 |
|
|
| 324 |
|
|
| 308 |
|
Maturing after five to ten years |
|
| 60,121 |
|
|
| 52,780 |
|
|
| 738 |
|
|
| 686 |
|
Maturing after ten years |
|
| 12,550 |
|
|
| 11,739 |
|
|
| 210 |
|
|
| 189 |
|
Total |
| $ | 139,335 |
|
| $ | 126,551 |
|
| $ | 1,272 |
|
| $ | 1,183 |
|
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.
15
The following table reflectstables reflect gross unrealized losses and fair value for securities for which an allowance for credit losses has not been recorded, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, as of September 30, 2023.
|
| Available-for-Sale |
| |||||||||||||
|
| September 30, 2023 |
| |||||||||||||
|
| Less than 12 Months |
|
| 12 Months or More |
| ||||||||||
|
| Fair |
|
| Unrealized |
|
| Fair |
|
| Unrealized |
| ||||
|
| (Dollars in Thousands) |
| |||||||||||||
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Residential |
| $ | 105 |
|
| $ | (5 | ) |
| $ | 36,860 |
|
| $ | (4,066 | ) |
Commercial |
|
| 1,532 |
|
|
| (13 | ) |
|
| 7,934 |
|
|
| (508 | ) |
Obligations of U.S. government-sponsored agencies |
|
| — |
|
|
| — |
|
|
| 4,176 |
|
|
| (919 | ) |
Obligations of states and political subdivisions |
|
| — |
|
|
| — |
|
|
| 1,543 |
|
|
| (90 | ) |
Corporate notes |
|
| 802 |
|
|
| (198 | ) |
|
| 13,879 |
|
|
| (2,893 | ) |
U.S. Treasury securities |
|
| — |
|
|
| — |
|
|
| 52,895 |
|
|
| (4,093 | ) |
Total |
| $ | 2,439 |
|
| $ | (216 | ) |
| $ | 117,287 |
|
| $ | (12,569 | ) |
|
| Held-to-Maturity |
| |||||||||||||
|
| September 30, 2023 |
| |||||||||||||
|
| Less than 12 Months |
|
| 12 Months or More |
| ||||||||||
|
| Fair |
|
| Unrealized |
|
| Fair |
|
| Unrealized |
| ||||
|
| (Dollars in Thousands) |
| |||||||||||||
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Commercial |
| $ | — |
|
| $ | — |
|
| $ | 674 |
|
| $ | (30 | ) |
Obligations of U.S. government-sponsored agencies |
|
| — |
|
|
| — |
|
|
| 453 |
|
|
| (49 | ) |
Obligations of states and political subdivisions |
|
| — |
|
|
| — |
|
|
| 56 |
|
|
| (10 | ) |
Total |
| $ | — |
|
| $ | — |
|
| $ | 1,183 |
|
| $ | (89 | ) |
The following tables 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, 2017 and December 31, 2016.2022. No determination was made concerning the need for an allowance for credit losses as this table reflects information prior to the adoption of ASC 326.
Available-for-Sale |
| Available-for-Sale |
| |||||||||||||||||||||||||||||
September 30, 2017 |
| December 31, 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 | ) |
| $ | 19,876 |
|
| $ | (952 | ) |
| $ | 23,903 |
|
| $ | (2,752 | ) | ||||||
Commercial | 19,576 | (145 | ) | 37,291 | (560 | ) |
|
| 9,720 |
|
|
| (357 | ) |
|
| 1,247 |
|
|
| (123 | ) | ||||||||||
Obligations of U.S. government-sponsored agencies |
|
| — |
|
|
| — |
|
|
| 4,270 |
|
|
| (846 | ) | ||||||||||||||||
Obligations of states and political subdivisions |
|
| 1,559 |
|
|
| (41 | ) |
|
| 513 |
|
|
| (53 | ) | ||||||||||||||||
Corporate notes |
|
| 6,845 |
|
|
| (898 | ) |
|
| 8,075 |
|
|
| (1,000 | ) | ||||||||||||||||
U.S. Treasury securities | 80 | — |
| — | — |
|
| 21,240 |
|
|
| (698 | ) |
|
| 31,642 |
|
|
| (3,376 | ) | |||||||||||
Total | $ | 58,440 | $ | (260 | ) | $ | 51,641 | $ | (763 | ) |
| $ | 59,240 |
|
| $ | (2,946 | ) |
| $ | 69,650 |
|
| $ | (8,150 | ) |
Held-to-Maturity | ||||||||||||||||
September 30, 2017 | ||||||||||||||||
Less than 12 Months | 12 Months or More | |||||||||||||||
Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | |||||||||||||
(Dollars in Thousands) | ||||||||||||||||
Mortgage-backed securities: | ||||||||||||||||
Commercial | $ | 9,643 | $ | (58 | ) | $ | 423 | $ | (3 | ) | ||||||
Obligations of U.S. government-sponsored agencies | 3,217 | (27 | ) | 4,345 | (52 | ) | ||||||||||
Obligations of states and political subdivisions | — | — |
| 543 | (3 | ) | ||||||||||
Total | $ | 12,860 | $ | (85 | ) | $ | 5,311 | $ | (58 | ) |
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 | ) | $ | — | $ | — |
|
Management evaluates16
|
| Held-to-Maturity |
| |||||||||||||
|
| December 31, 2022 |
| |||||||||||||
|
| Less than 12 Months |
|
| 12 Months or More |
| ||||||||||
|
| Fair |
|
| Unrealized |
|
| Fair |
|
| Unrealized |
| ||||
|
| (Dollars in Thousands) |
| |||||||||||||
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Commercial |
| $ | 1,126 |
|
| $ | (41 | ) |
| $ | — |
|
| $ | — |
|
Obligations of U.S. government-sponsored agencies |
|
| 214 |
|
|
| (7 | ) |
|
| 356 |
|
|
| (33 | ) |
Obligations of states and political subdivisions |
|
| 73 |
|
|
| (12 | ) |
|
| — |
|
|
| — |
|
Total |
| $ | 1,413 |
|
| $ | (60 | ) |
| $ | 356 |
|
| $ | (33 | ) |
Available-for-Sale Considerations
For any 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, (ii) the financial condition and near-term prospectsclassified as available-for-sale that are in an unrealized loss position as of the issuer, (iii)balance sheet date, the Company assesses whether the Companyor not it intends to sell securities, and (iv) whether it is more likely than not that the Companysecurity, or more-likely-than-not will be required to sell the securitiessecurity, before recovery of theirits amortized cost bases.basis which would require a write-down to fair value through net income.
As of September 30, 2017, 462023, 109 available-for-sale debt securities had been in a loss position for more than 12 months, and 75six available-for-sale debt securities had been in a loss position for less than 12 months. As of December 31, 2016, 132022, 37 available-for-sale debt securities had been in a loss position for more than 12 months, and 13075 available-for-sale 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 for greater than 12 months was due to the sustained higher interest rate environment during the nine months ended September 30, 2023. As of both September 30, 20172023, the Company had the current intent and December 31, 2016,ability to retain its investments for a period of time that management believes to be sufficient to allow for any anticipated recovery of fair value. As of September 30, 2023, the losses for all available-for-sale 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 abilityAccordingly, no allowance for credit losses was considered necessary related 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 not recognize any other-than-temporary impairmentsavailable-for-sale securities as of September 30, 20172023.
Held-to-Maturity Considerations
Effective January 1, 2023, the Company adopted the CECL accounting model to evaluate credit losses in the held-to-maturity investment portfolio. Each quarter, management evaluates the portfolio on a collective basis by major security type to determine whether an allowance for credit losses is needed. Qualitative factors are used in the Company’s credit loss assessments, including current and December 31, 2016.forecasted economic conditions, the characteristics of the debt issuer, and the historic ability of the issuer to make contractual principal and interest payments. Based on these evaluations, no allowance for credit losses was recorded by the Company for the held-to-maturity investment portfolio upon adoption of the CECL accounting model or as of September 30, 2023.
Pledged Securities
Investment securities available-for-sale with a carrying value of $87.1$42.3 million and $87.7$54.7 million as of September 30, 20172023 and December 31, 2016,2022, 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.
17
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.
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 previously 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 consumer – 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, 20172023 and December 31, 2016,2022, the composition of the loan portfolio by reporting segment and portfolio segment was as follows:
September 30, 2017 | ||||||||||||||||||
Bank | ALC | Total | ||||||||||||||||
(Dollars in Thousands) | September 30, 2023 |
| December 31, 2022 |
| ||||||||||||||
Real estate loans: |
|
|
|
| ||||||||||||||
Construction, land development and other land loans | $ | 20,213 | $ | — | $ | 20,213 | $ | 90,051 |
| $ | 53,914 |
| ||||||
Secured by 1-4 family residential properties | 35,125 | 11,490 | 46,615 |
| 83,876 |
| 87,995 |
| ||||||||||
Secured by multi-family residential properties | 16,498 | — | 16,498 |
| 56,506 |
| 67,852 |
| ||||||||||
Secured by non-farm, non-residential properties | 107,679 | — | 107,679 |
| 199,116 |
| 200,156 |
| ||||||||||
Other | 223 | — | 223 | |||||||||||||||
Commercial and industrial loans | 66,320 | — | 66,320 | |||||||||||||||
Commercial and industrial loans and leases (1) |
| 59,369 |
| 73,546 |
| |||||||||||||
Consumer loans: |
|
|
|
| ||||||||||||||
Consumer | 5,431 | 35,650 | 41,081 | |||||||||||||||
Indirect sales | — | 50,553 | 50,553 | |||||||||||||||
Direct |
| 6,544 |
| 9,851 |
| |||||||||||||
Branch retail |
| 9,648 |
| 13,992 |
| |||||||||||||
Indirect |
| 310,190 |
|
| 266,567 |
| ||||||||||||
Total loans | 251,489 | 97,693 | 349,182 |
| 815,300 |
| 773,873 |
| ||||||||||
Less: Unearned interest, fees and deferred cost | 367 | 5,981 | 6,348 | |||||||||||||||
Allowance for loan losses | 2,422 | 2,386 | 4,808 | |||||||||||||||
Allowance for credit losses |
| 11,380 |
|
| 9,422 |
| ||||||||||||
Net loans | $ | 248,700 | $ | 89,326 | $ | 338,026 | $ | 803,920 |
| $ | 764,451 |
|
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 |
The Company makes commercial, real estate and installment loans to its customers. Although the Company has a diversified loan portfolio, 54.8%52.7% and 56.6%53.0% 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, 20172023 and December 31, 2016,2022, respectively.
Loans with a carrying value of $100.8 million and $100.2 million were pledged as collateral to secure Federal Home Loan Bank (“FHLB”) borrowings as of September 30, 2023 and December 31, 2022, respectively. In addition, loans with a carrying value of $282.6 million were pledged to secure borrowings with the Federal Reserve Bank ("FRB") as of September 30, 2023. No loans were pledged to the FRB as of December 31, 2022. Measures were undertaken by management in 2023 to pledge loans to the FRB in order to provide additional borrowing capacity to the Company in response to heightened liquidity concerns in the banking industry.
18
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 $1.4 million and $0.2 million as of September 30, 20172023 and December 31, 2016 were $0.5 million and $2.7 million,2022, respectively. During the nine months ended September 30, 2017,2023, there was one new loan to these parties and no repayments made. During the year ended December 31, 2022, there were no new loans to these parties, and repayments by active related parties totaled $0.1 million.
Allowances for Credit Losses
Effective January 1, 2023, the Company adopted the CECL model to account for credit losses on financial instruments, including loans and leases held for investment, as well as off-balance sheet credit exposures including unfunded lending commitments. In accordance with the CECL accounting guidance, the Company recorded a cumulative-effect adjustment totaling $2.4 million, of which $1.8 million (net of tax) was recorded through retained earnings upon adoption of the model. This amount included estimates for credit losses associated with both loan and lease receivables, as well as unfunded lending commitments. Prospectively, following the date of adoption, all adjustments for credit losses are required to be recorded as a provision for (recovery of) credit losses in the Company’s consolidated statement of operations.
Allowance for Credit Losses - Loans and Leases
Determining the appropriateness of the allowance for credit losses is complex and requires judgment by management about the effects of matters that are inherently uncertain. In future periods, evaluations of the overall loan portfolio, or particular segments of the portfolio, in the context of factors and forecasts then prevailing, may result in significant changes in the allowance and credit loss expense in those future periods. The level of the allowance is influenced by loan volumes and mix, historical credit loss experience, average remaining life of portfolio segments, asset quality characteristics, delinquency status, and other conditions including reasonable and supportable forecasts of economic conditions and qualitative adjustment factors based on management’s understanding of various attributes that could impact life-of-loan losses as of the balance sheet date. The methodology to estimate losses includes two basic components: (1) an asset-specific component for individual loans that do not share similar risk characteristics with other loans, and (2) a pooled component for estimated expected credit losses for loans that share similar risk characteristics.
Loans that do not share risk characteristics with other loans are evaluated on an individual basis. The process for determining whether a loan should be evaluated on an individual basis begins with a determination of credit rating. All loans graded substandard or worse with a total commitment of $0.5 million or more are evaluated on an individual basis. At management's discretion, other loans may be evaluated, including loans less than $0.5 million, if management determines that the loans exhibit unique risk characteristics. For loans individually evaluated, the allowance is based primarily on the fair value of the underlying collateral, utilizing independent third-party appraisals, and assessment of borrower guarantees.
For estimating the component of the allowance for credit losses that share similar risk characteristics, loans are segregated into loan segments or categories that share risk characteristics. Loans are designated into pooled segments based on product types, business lines, collateral, and other risk characteristics. For all pooled loan categories, the Company uses a loss-rate methodology to calculate estimated life-of-loan and lease credit losses. This methodology focuses on historical credit loss rates applied over the estimated weighted average remaining life of each loan segment, adjusted by qualitative factors, to estimate life-of-loan losses for each pooled segment. The qualitative factors utilized include, among others, reasonable and supportable forecasts of economic data, including inflation and unemployment levels, as well as interest rates.
The Company’s cumulative-effect adjustment upon the adoption of CECL increased the Company’s allowance for credit losses on loans and leases by $2.1 million. Subsequent to January 1, 2023, the Company recorded additional increases to the allowance for credit losses on loans and leases totaling $0.5 million which were $7 thousand. In addition,included in the provision for credit losses in the Company’s consolidated statement of operations 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, there was one new loan to a related party, and repayments by active related parties totaled $0.1 million.2023.
19
Allowance for Loan Losses
The following tables present changes in the allowance for credit losses on loans and leases during the nine months ended September 30, 2023 and 2022:
|
| As of and for the Nine Months Ended September 30, 2023 |
| |||||||||||||||||||||||||||||||||
|
| Construction, |
|
| Real Estate |
|
| Real |
|
| Non- |
|
| Commercial and |
|
| Direct |
|
| Branch Retail |
|
| Indirect |
|
| Total |
| |||||||||
|
| (Dollars in Thousands) |
| |||||||||||||||||||||||||||||||||
Allowance for credit losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Beginning balance |
| $ | 517 |
|
| $ | 832 |
|
| $ | 646 |
|
| $ | 1,970 |
|
| $ | 919 |
|
| $ | 866 |
|
| $ | 518 |
|
| $ | 3,154 |
|
| $ | 9,422 |
|
Impact of adopting CECL accounting guidance |
|
| (94 | ) |
|
| (39 | ) |
|
| (85 | ) |
|
| (147 | ) |
|
| (20 | ) |
|
| 47 |
|
|
| 628 |
|
|
| 1,833 |
|
|
| 2,123 |
|
Charge-offs |
|
| — |
|
|
| (96 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (521 | ) |
|
| (359 | ) |
|
| (500 | ) |
|
| (1,476 | ) |
Recoveries |
|
| — |
|
|
| 39 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 499 |
|
|
| 195 |
|
|
| 40 |
|
|
| 773 |
|
Provision for (recovery of) credit losses |
|
| 157 |
|
|
| 18 |
|
|
| (156 | ) |
|
| (201 | ) |
|
| (369 | ) |
|
| (404 | ) |
|
| (147 | ) |
|
| 1,640 |
|
|
| 538 |
|
Ending balance |
| $ | 580 |
|
| $ | 754 |
|
| $ | 405 |
|
| $ | 1,622 |
|
| $ | 530 |
|
| $ | 487 |
|
| $ | 835 |
|
| $ | 6,167 |
|
| $ | 11,380 |
|
|
| As of and for the Nine Months Ended September 30, 2022 |
| |||||||||||||||||||||||||||||||||
|
| Construction, |
|
| Real Estate |
|
| Real |
|
| Non- |
|
| Commercial and |
|
| Direct |
|
| Branch Retail |
|
| Indirect |
|
| Total |
| |||||||||
|
| (Dollars in Thousands) |
| |||||||||||||||||||||||||||||||||
Allowance for loan and lease losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Beginning balance |
| $ | 628 |
|
| $ | 690 |
|
| $ | 437 |
|
| $ | 1,958 |
|
| $ | 860 |
|
| $ | 1,004 |
|
| $ | 304 |
|
| $ | 2,439 |
|
| $ | 8,320 |
|
Charge-offs |
|
| — |
|
|
| (10 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,604 | ) |
|
| (423 | ) |
|
| (238 | ) |
|
| (2,275 | ) |
Recoveries |
|
| 2 |
|
|
| 23 |
|
|
| — |
|
|
| 4 |
|
|
| — |
|
|
| 387 |
|
|
| 97 |
|
|
| 34 |
|
|
| 547 |
|
Provision for (recovery of) loan and lease losses |
|
| (246 | ) |
|
| 89 |
|
|
| 210 |
|
|
| 30 |
|
|
| 244 |
|
|
| 1,161 |
|
|
| 445 |
|
|
| 848 |
|
|
| 2,781 |
|
Ending balance |
| $ | 384 |
|
| $ | 792 |
|
| $ | 647 |
|
| $ | 1,992 |
|
| $ | 1,104 |
|
| $ | 948 |
|
| $ | 423 |
|
| $ | 3,083 |
|
| $ | 9,373 |
|
The following table details the allowance for loan and lease losses and the related loan balancesrecorded investment in loans by loan portfolio segmentclassification and loan typeby impairment evaluation as of September 30, 2017 and December 31, 2016.2022, as determined in accordance with ASC 310, Receivables, prior to the adoption of ASC 326:
Bank | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Nine Months Ended September 30, 2017 |
| As of the Year Ended December 31, 2022 |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Construction, Land | 1-4 Family | Real Estate Multi- Family | Non-Farm Non-Residential | Other | Commercial | Consumer | Indirect Sales | Total |
| Construction, |
|
| Real Estate |
|
| Real |
|
| Non- |
|
| Commercial and |
|
| Direct |
|
| Branch Retail |
|
| Indirect |
|
| Total |
| |||||||||||||||||||||||||||||||||||||
(Dollars in Thousands) |
| (Dollars in Thousands) |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Allowance for loan losses: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Beginning balance | $ | 535 | $ | 304 | $ | 88 | $ | 903 | $ | 2 | $ | 527 | $ | 50 | $ | — | $ | 2,409 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Charge-offs | — | — | — | — | — | (16 | ) | (63 | ) | — | (79 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Recoveries | — | 85 | — | 69 | — | 16 | 52 | — | 222 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Provision | (328 | ) | (141 | ) | 27 | (142 | ) | — | 440 | 14 | — | (130 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Ending balance | $ | 207 | $ | 248 | $ | 115 | $ | 830 | $ | 2 | $ | 967 | $ | 53 | $ | — | $ | 2,422 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Ending balance of allowance attributable to loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||
Individually evaluated for impairment | $ | 62 | $ | 5 | $ | — | $ | 55 | $ | — | $ | 72 | $ | — | $ | — | $ | 194 |
| $ | — |
|
| $ | 7 |
|
| $ | — |
|
| $ | — |
|
| $ | 252 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 259 |
| ||||||||||||||||||
Collectively evaluated for impairment | 145 | 243 | 115 | 775 | 2 | 895 | 53 | — | 2,228 |
|
| 517 |
|
|
| 825 |
|
|
| 646 |
|
|
| 1,970 |
|
|
| 667 |
|
|
| 886 |
|
|
| 518 |
|
|
| 3,154 |
|
| $ | 9,183 |
| |||||||||||||||||||||||||||
Total allowance for loan losses | $ | 207 | $ | 248 | $ | 115 | $ | 830 | $ | 2 | $ | 967 | $ | 53 | $ | — | $ | 2,422 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total allowance for loan and lease losses |
| $ | 517 |
|
| $ | 832 |
|
| $ | 646 |
|
| $ | 1,970 |
|
| $ | 919 |
|
| $ | 886 |
|
| $ | 518 |
|
| $ | 3,154 |
|
| $ | 9,442 |
| ||||||||||||||||||||||||||||||||||||
Ending balance of loans receivable: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||
Individually evaluated for impairment | $ | 86 | $ | 189 | $ | — | $ | 535 | $ | — | $ | 70 | $ | — | $ | — | $ | 880 |
| $ | — |
|
| $ | 582 |
|
| $ | — |
|
| $ | 2,492 |
|
| $ | 2,429 |
|
| $ | 18 |
|
| $ | — |
|
| $ | — |
|
| $ | 5,521 |
| ||||||||||||||||||
Collectively evaluated for impairment | 20,127 | 34,936 | 16,498 | 107,144 | 223 | 66,250 | 5,431 | — | 250,609 |
|
| 53,914 |
|
|
| 87,413 |
|
|
| 67,852 |
|
|
| 197,664 |
|
|
| 71,117 |
|
|
| 9,833 |
|
|
| 13,992 |
|
|
| 266,567 |
|
|
| 768,352 |
| |||||||||||||||||||||||||||
Total loans receivable | $ | 20,213 | $ | 35,125 | $ | 16,498 | $ | 107,679 | $ | 223 | $ | 66,320 | $ | 5,431 | $ | — | $ | 251,489 |
| $ | 53,914 |
|
| $ | 87,995 |
|
| $ | 67,852 |
|
| $ | 200,156 |
|
| $ | 73,546 |
|
| $ | 9,851 |
|
| $ | 13,992 |
|
| $ | 266,567 |
|
| $ | 773,873 |
|
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 | $ | — | $ | 107 | $ | — | $ | — | $ | — | $ | — | $ | 1,717 | $ | 623 | $ | 2,447 | ||||||||||||||||||
Charge-offs | — | (27 | ) | — | — | — | — | (1,721 | ) | (445 | ) | (2,193 | ) | |||||||||||||||||||||||
Recoveries | — | 28 | — | — | — | — | 435 | 75 | 538 | |||||||||||||||||||||||||||
Provision | — | (5 | ) | — | — | — | — | 1,134 | 465 | 1,594 | ||||||||||||||||||||||||||
Ending balance | $ | — | $ | 103 | $ | — | $ | — | $ | — | $ | — | $ | 1,565 | $ | 718 | $ | 2,386 | ||||||||||||||||||
Ending balance of allowance attributable to loans: | ||||||||||||||||||||||||||||||||||||
Individually evaluated for impairment | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||
Collectively evaluated for impairment | — | 103 | — | — | — | — | 1,565 | 718 | 2,386 | |||||||||||||||||||||||||||
Total allowance for loan losses | $ | — | $ | 103 | $ | — | $ | — | $ | — | $ | — | $ | 1,565 | $ | 718 | $ | 2,386 | ||||||||||||||||||
Ending balance of loans receivable: | ||||||||||||||||||||||||||||||||||||
Individually evaluated for impairment | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||
Collectively evaluated for impairment | — | 11,490 | — | — | — | — | 35,650 | 50,553 | 97,693 | |||||||||||||||||||||||||||
Total loans receivable | $ | — | $ | 11,490 | $ | — | $ | — | $ | — | $ | — | $ | 35,650 | $ | 50,553 | $ | 97,693 |
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 |
Allowance for Credit Losses - Unfunded Lending Commitments
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 |
Unfunded lending commitments are off-balance sheet arrangements that represent unconditional commitments of the Company to lend to a borrower that are unfunded as of the balance sheet date. These may include unfunded loan commitments, standby letters of credit, and financial guarantees. The CECL accounting guidance requires that an estimate of expected credit loss be measured on commitments in which an entity is exposed to credit risk via a present contractual obligation to extend credit unless the obligation is unconditionally cancellable by the issuer. For the Company, unconditional lending commitments generally include unfunded term loan agreements, home equity lines of credit, lines of credit, and demand deposit account overdraft protection.
The Company’s cumulative-effect adjustment upon the adoption of CECL included a reserve for unfunded commitments of $0.3 million. Subsequent to January 1, 2023, the Company recorded additional increases to the reserve for unfunded commitments totaling $0.2 million which were included in the provision for credit losses in the Company's consolidated statement of operations during the nine months ended September 30, 2023. As of September 30, 2023, the reserve, which is recorded in other liabilities on the Company’s consolidated balance sheets, totaled $0.5 million. No reserve for unfunded commitments was recorded by the Company as of December 31, 2022.
20
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.
21
The tables below illustrate the carrying amount of loans and leases by credit quality indicator and year of origination as of September 30, 2017.2023:
Bank | ||||||||||||||||||||
Pass 1-5 | Special Mention 6 | Substandard 7 | Doubtful 8 | Total | ||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||
Loans secured by real estate: | ||||||||||||||||||||
Construction, land development and other land loans | $ | 19,939 | $ | — | $ | 274 | $ | — | $ | 20,213 | ||||||||||
Secured by 1-4 family residential properties | 34,069 | 201 | 855 | — | 35,125 | |||||||||||||||
Secured by multi-family residential properties | 16,498 | — | — | — | 16,498 | |||||||||||||||
Secured by non-farm, non-residential properties | 102,264 | 4,884 | 531 | — | 107,679 | |||||||||||||||
Other | 223 | — | — | — | 223 | |||||||||||||||
Commercial and industrial loans | 63,995 | 2,105 | 220 | — | 66,320 | |||||||||||||||
Consumer loans | 5,366 | — | 65 | — | 5,431 | |||||||||||||||
Total | $ | 242,354 | $ | 7,190 | $ | 1,945 | $ | — | $ | 251,489 |
|
|
|
| September 30, 2023 |
| |||||||||||||||||||||||||
|
|
|
| Loans at Amortized Cost Basis by Origination Year |
|
|
|
| ||||||||||||||||||||||
|
|
|
| 2023 |
|
| 2022 |
|
| 2021 |
|
| 2020 |
|
| 2019 |
|
| Prior |
|
| Total |
| |||||||
|
|
|
| (Dollars in Thousands) |
| |||||||||||||||||||||||||
Commercial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Construction, land development and other land loans |
| Pass |
| $ | 3,716 |
|
| $ | 38,961 |
|
| $ | 40,404 |
|
| $ | 6,377 |
|
| $ | — |
|
| $ | 593 |
|
| $ | 90,051 |
|
|
| Special Mention |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| Substandard |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| Doubtful |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| Loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| Subtotal |
| $ | 3,716 |
|
| $ | 38,961 |
|
| $ | 40,404 |
|
| $ | 6,377 |
|
| $ | — |
|
| $ | 593 |
|
| $ | 90,051 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
|
| Current period gross charge-offs |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Secured by multi-family residential properties |
| Pass |
| $ | 383 |
|
| $ | 28,513 |
|
| $ | 5,991 |
|
| $ | 686 |
|
| $ | 7,151 |
|
| $ | 13,782 |
|
| $ | 56,506 |
|
|
| Special Mention |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| Substandard |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| Doubtful |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| Loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| Subtotal |
| $ | 383 |
|
| $ | 28,513 |
|
| $ | 5,991 |
|
| $ | 686 |
|
| $ | 7,151 |
|
| $ | 13,782 |
|
| $ | 56,506 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
|
| Current period gross charge-offs |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Secured by non-farm, non-residential properties |
| Pass |
| $ | 8,683 |
|
| $ | 35,499 |
|
| $ | 25,519 |
|
| $ | 56,913 |
|
| $ | 18,618 |
|
| $ | 47,516 |
|
| $ | 192,748 |
|
|
| Special Mention |
|
| — |
|
|
| 536 |
|
|
| 1,295 |
|
|
| 347 |
|
|
| — |
|
|
| 1,690 |
|
|
| 3,868 |
|
|
| Substandard |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 152 |
|
|
| — |
|
|
| 2,348 |
|
|
| 2,500 |
|
|
| Doubtful |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| Loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| Subtotal |
| $ | 8,683 |
|
| $ | 36,035 |
|
| $ | 26,814 |
|
| $ | 57,412 |
|
| $ | 18,618 |
|
| $ | 51,554 |
|
| $ | 199,116 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
|
| Current period gross charge-offs |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Commercial and industrial loans and leases |
| Pass |
| $ | 7,435 |
|
| $ | 7,401 |
|
| $ | 15,424 |
|
| $ | 2,494 |
|
| $ | 3,802 |
|
| $ | 20,643 |
|
| $ | 57,199 |
|
|
| Special Mention |
|
| — |
|
|
| 170 |
|
|
| 899 |
|
|
| 199 |
|
|
| 57 |
|
|
| — |
|
|
| 1,325 |
|
|
| Substandard |
|
| — |
|
|
| 44 |
|
|
| 209 |
|
|
| 25 |
|
|
| 305 |
|
|
| 262 |
|
|
| 845 |
|
|
| Doubtful |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| Loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| Subtotal |
| $ | 7,435 |
|
| $ | 7,615 |
|
| $ | 16,532 |
|
| $ | 2,718 |
|
| $ | 4,164 |
|
| $ | 20,905 |
|
| $ | 59,369 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
|
| Current period gross charge-offs |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Total commercial |
| Pass |
| $ | 20,217 |
|
| $ | 110,374 |
|
| $ | 87,338 |
|
| $ | 66,470 |
|
| $ | 29,571 |
|
| $ | 82,534 |
|
| $ | 396,504 |
|
|
| Special Mention |
|
| — |
|
|
| 706 |
|
|
| 2,194 |
|
|
| 546 |
|
|
| 57 |
|
|
| 1,690 |
|
|
| 5,193 |
|
|
| Substandard |
|
| — |
|
|
| 44 |
|
|
| 209 |
|
|
| 177 |
|
|
| 305 |
|
|
| 2,610 |
|
|
| 3,345 |
|
|
| Doubtful |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| Loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
|
|
| $ | 20,217 |
|
| $ | 111,124 |
|
| $ | 89,741 |
|
| $ | 67,193 |
|
| $ | 29,933 |
|
| $ | 86,834 |
|
| $ | 405,042 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
|
| Current period gross charge-offs |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
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 |
22
|
|
|
| September 30, 2023 |
| |||||||||||||||||||||||||
|
|
|
| Loans at Amortized Cost Basis by Origination Year |
|
|
|
| ||||||||||||||||||||||
|
|
|
| 2023 |
|
| 2022 |
|
| 2021 |
|
| 2020 |
|
| 2019 |
|
| Prior |
|
| Total |
| |||||||
|
|
|
| (Dollars in Thousands) |
| |||||||||||||||||||||||||
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Secured by 1-4 family residential properties |
| Performing |
| $ | 4,282 |
|
| $ | 21,592 |
|
| $ | 14,886 |
|
| $ | 12,028 |
|
| $ | 9,323 |
|
| $ | 20,917 |
|
| $ | 83,028 |
|
|
| Non-performing |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 848 |
|
|
| 848 |
|
|
| Subtotal |
| $ | 4,282 |
|
| $ | 21,592 |
|
| $ | 14,886 |
|
| $ | 12,028 |
|
| $ | 9,323 |
|
| $ | 21,765 |
|
| $ | 83,876 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
|
| Current period gross charge-offs |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 96 |
|
| $ | 96 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Direct |
| Performing |
| $ | 2,052 |
|
| $ | 1,379 |
|
| $ | 1,961 |
|
| $ | 739 |
|
| $ | 288 |
|
| $ | 125 |
|
| $ | 6,544 |
|
|
| Non-performing |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| Subtotal |
| $ | 2,052 |
|
| $ | 1,379 |
|
| $ | 1,961 |
|
| $ | 739 |
|
| $ | 288 |
|
| $ | 125 |
|
| $ | 6,544 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
|
| Current period gross charge-offs |
| $ | — |
|
| $ | 5 |
|
| $ | 274 |
|
| $ | 115 |
|
| $ | 39 |
|
| $ | 88 |
|
| $ | 521 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Branch retail |
| Performing |
| $ | — |
|
| $ | — |
|
| $ | 2,405 |
|
| $ | 2,990 |
|
| $ | 1,794 |
|
| $ | 2,459 |
|
| $ | 9,648 |
|
|
| Non-performing |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| Subtotal |
| $ | — |
|
| $ | — |
|
| $ | 2,405 |
|
| $ | 2,990 |
|
| $ | 1,794 |
|
| $ | 2,459 |
|
| $ | 9,648 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
|
| Current period gross charge-offs |
| $ | — |
|
| $ | — |
|
| $ | 84 |
|
| $ | 127 |
|
| $ | 28 |
|
| $ | 120 |
|
| $ | 359 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Indirect |
| Performing |
| $ | 82,347 |
|
| $ | 92,898 |
|
| $ | 69,122 |
|
| $ | 53,564 |
|
| $ | 5,878 |
|
| $ | 6,239 |
|
| $ | 310,048 |
|
|
| Non-performing |
|
| — |
|
|
| 34 |
|
|
| — |
|
|
| 108 |
|
|
| — |
|
|
| — |
|
|
| 142 |
|
|
| Subtotal |
| $ | 82,347 |
|
| $ | 92,932 |
|
| $ | 69,122 |
|
| $ | 53,672 |
|
| $ | 5,878 |
|
| $ | 6,239 |
|
| $ | 310,190 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
|
| Current period gross charge-offs |
| $ | — |
|
| $ | 128 |
|
| $ | 171 |
|
| $ | 153 |
|
| $ | 13 |
|
| $ | 35 |
|
| $ | 500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Total consumer |
| Performing |
| $ | 88,681 |
|
| $ | 115,869 |
|
| $ | 88,374 |
|
| $ | 69,321 |
|
| $ | 17,283 |
|
| $ | 29,740 |
|
| $ | 409,268 |
|
|
| Non-performing |
|
| — |
|
|
| 34 |
|
|
| — |
|
|
| 108 |
|
|
| — |
|
|
| 848 |
|
|
| 990 |
|
|
|
|
| $ | 88,681 |
|
| $ | 115,903 |
|
| $ | 88,374 |
|
| $ | 69,429 |
|
| $ | 17,283 |
|
| $ | 30,588 |
|
| $ | 410,258 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
|
| Current period gross charge-offs |
| $ | — |
|
| $ | 133 |
|
| $ | 529 |
|
| $ | 395 |
|
| $ | 80 |
|
| $ | 339 |
|
| $ | 1,476 |
|
23
The tables below illustrate the carrying amount of loans by credit quality indicator as of December 31, 2016.2022:
Bank |
| December 31, 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 | $ | 22,240 | $ | — | $ | 1,532 | $ | — | $ | 23,772 |
| $ | 53,914 |
|
| $ | — |
|
| $ | — |
|
| $ | 53,914 |
| ||||||||||
Secured by 1-4 family residential properties | 31,995 | 213 | 747 | — | 32,955 | |||||||||||||||||||||||||||||||
Secured by multi-family residential properties | 16,627 | — | — | — | 16,627 |
|
| 67,852 |
|
|
| — |
|
|
| — |
|
|
| 67,852 |
| |||||||||||||||
Secured by non-farm, non-residential properties | 99,082 | 2,315 | 715 | — | 102,112 |
|
| 197,004 |
|
|
| 651 |
|
|
| 2,501 |
|
|
| 200,156 |
| |||||||||||||||
Other | 234 | — | — | — | 234 | |||||||||||||||||||||||||||||||
Commercial and industrial loans | 55,481 | 2,227 | 255 | — | 57,963 |
|
| 70,500 |
|
|
| — |
|
|
| 3,046 |
|
|
| 73,546 |
| |||||||||||||||
Consumer loans | 6,126 | — | 80 | — | 6,206 | |||||||||||||||||||||||||||||||
Total | $ | 231,785 | $ | 4,755 | $ | 3,329 | $ | — | $ | 239,869 |
| $ | 389,270 |
|
| $ | 651 |
|
| $ | 5,547 |
|
| $ | 395,468 |
| ||||||||||
As a percentage of total loans |
|
| 98.43 | % |
|
| 0.17 | % |
|
| 1.40 | % |
|
| 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, 2022 |
| |||||||||
|
| Performing |
|
| Nonperforming |
|
| Total |
| |||
|
| (Dollars in Thousands) |
| |||||||||
Loans secured by real estate: |
|
|
|
|
|
|
|
|
| |||
Secured by 1-4 family residential properties |
| $ | 86,871 |
|
| $ | 1,124 |
|
| $ | 87,995 |
|
Consumer loans: |
|
|
|
|
|
|
|
|
| |||
Direct |
|
| 9,805 |
|
|
| 46 |
|
|
| 9,851 |
|
Branch retail |
|
| 13,960 |
|
|
| 32 |
|
|
| 13,992 |
|
Indirect |
|
| 266,496 |
|
|
| 71 |
|
|
| 266,567 |
|
Total |
| $ | 377,132 |
|
| $ | 1,273 |
|
| $ | 378,405 |
|
As a percentage of total loans |
|
| 99.66 | % |
|
| 0.34 | % |
|
| 100.00 | % |
The following tables providetable provides an aging analysis of past due loans by class as of September 30, 2017.2023:
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, 2023 |
| |||||||||||||||||||||||||
|
| 30-59 |
|
| 60-89 |
|
| 90 |
|
| Total |
|
| Current |
|
| Total |
|
| Recorded |
| |||||||
|
| (Dollars in Thousands) |
| |||||||||||||||||||||||||
Loans secured by real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Construction, land development |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 90,051 |
|
| $ | 90,051 |
|
| $ | — |
|
Secured by 1-4 family residential |
|
| 93 |
|
|
| 36 |
|
|
| — |
|
|
| 129 |
|
|
| 83,747 |
|
|
| 83,876 |
|
|
| — |
|
Secured by multi-family residential |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 56,506 |
|
|
| 56,506 |
|
|
| — |
|
Secured by non-farm, non-residential |
|
| 1,314 |
|
|
| — |
|
|
| — |
|
|
| 1,314 |
|
|
| 197,802 |
|
|
| 199,116 |
|
|
| — |
|
Commercial and industrial loans |
|
| 22 |
|
|
| — |
|
|
| 62 |
|
|
| 84 |
|
|
| 59,285 |
|
|
| 59,369 |
|
|
| — |
|
Consumer loans: |
|
|
|
|
|
|
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Direct |
|
| 52 |
|
|
| — |
|
|
| — |
|
|
| 52 |
|
|
| 6,492 |
|
|
| 6,544 |
|
|
| — |
|
Branch retail |
|
| 100 |
|
|
| — |
|
|
| — |
|
|
| 100 |
|
|
| 9,548 |
|
|
| 9,648 |
|
|
| — |
|
Indirect |
|
| 335 |
|
|
| 171 |
|
|
| 142 |
|
|
| 648 |
|
|
| 309,542 |
|
|
| 310,190 |
|
|
| — |
|
Total |
| $ | 1,916 |
|
| $ | 207 |
|
| $ | 204 |
|
| $ | 2,327 |
|
| $ | 812,973 |
|
| $ | 815,300 |
|
| $ | — |
|
As a percentage of total loans |
|
| 0.24 | % |
|
| 0.02 | % |
|
| 0.03 | % |
|
| 0.29 | % |
|
| 99.71 | % |
|
| 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 | $ | — |
24
The following tables providetable provides an aging analysis of past due loans by class as of December 31, 2016.2022:
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, 2022 |
| |||||||||||||||||||||||||
|
| 30-59 |
|
| 60-89 |
|
| 90 |
|
| Total |
|
| Current |
|
| Total |
|
| Recorded |
| |||||||
|
| (Dollars in Thousands) |
| |||||||||||||||||||||||||
Loans secured by real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Construction, land development |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 53,914 |
|
| $ | 53,914 |
|
| $ | — |
|
Secured by 1-4 family residential |
|
| 801 |
|
|
| 87 |
|
|
| 78 |
|
|
| 966 |
|
|
| 87,029 |
|
|
| 87,995 |
|
|
| — |
|
Secured by multi-family residential |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 67,852 |
|
|
| 67,852 |
|
|
| — |
|
Secured by non-farm, non-residential |
|
| 137 |
|
|
| — |
|
|
| — |
|
|
| 137 |
|
|
| 200,019 |
|
|
| 200,156 |
|
|
| — |
|
Commercial and industrial loans |
|
| 61 |
|
|
| — |
|
|
| 300 |
|
|
| 361 |
|
|
| 73,185 |
|
|
| 73,546 |
|
|
| — |
|
Consumer loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Direct |
|
| 251 |
|
|
| 50 |
|
|
| 30 |
|
|
| 330 |
|
|
| 9,521 |
|
|
| 9,851 |
|
|
| — |
|
Branch retail |
|
| 258 |
|
|
| 85 |
|
|
| 32 |
|
|
| 375 |
|
|
| 13,617 |
|
|
| 13,992 |
|
|
| — |
|
Indirect |
|
| 186 |
|
|
| 55 |
|
|
| 71 |
|
|
| 312 |
|
|
| 266,255 |
|
|
| 266,567 |
|
|
| — |
|
Total |
| $ | 1,694 |
|
| $ | 277 |
|
| $ | 511 |
|
| $ | 2,481 |
|
| $ | 771,392 |
|
| $ | 773,873 |
|
| $ | — |
|
As a percentage of total loans |
|
| 0.21 | % |
|
| 0.04 | % |
|
| 0.07 | % |
|
| 0.32 | % |
|
| 99.68 | % |
|
| 100.00 | % |
|
|
|
The table below presents the amortized cost of loans on nonaccrual status and loans past due 90 days or more and still accruing interest as of September 30, 2023. Also presented is the balance of loans on nonaccrual status at September 30, 2023 for which there was no related allowance for credit losses recorded.
ALC |
| Loans on Non-Accrual Status |
| |||||||||||||||||||||||||||||||||||
As of December 31, 2016 |
| September 30, 2023 |
| |||||||||||||||||||||||||||||||||||
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) |
| |||||||||||||||||||||||||||||
(Dollars in Thousands) |
| Total nonaccrual |
| Nonaccrual loans with no allowance for credit losses |
| Loans past due 90 days or more and still accruing |
| |||||||||||||||||||||||||||||||
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 | — |
|
| 891 |
| 462 |
| — |
| |||||||||||||||||||||||
Secured by multi-family residential properties | — | — | — | — | — | — | — |
|
| — |
| — |
| — |
| |||||||||||||||||||||||
Secured by non-farm, non-residential properties | — | — | — | — | — | — | — |
|
| 1,314 |
| 1,314 |
| — |
| |||||||||||||||||||||||
Other | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||
Commercial and industrial loans | — | — | — | — | — | — | — |
|
| 85 |
| 77 |
| — |
| |||||||||||||||||||||||
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 | $ | — | ||||||||||||||||||||||||
Direct |
|
| — |
| — |
| — |
| ||||||||||||||||||||||||||||||
Branch retail |
|
| — |
| — |
| — |
| ||||||||||||||||||||||||||||||
Indirect |
|
| 142 |
|
| — |
|
| — |
| ||||||||||||||||||||||||||||
Total loans |
| $ | 2,432 |
| $ | 1,853 |
| $ | — |
|
25
The following table provides an analysis of non-accruingnonaccruing loans by classportfolio segment as of September 30, 2017 and December 31, 2016.2022:
| Loans on Non-Accrual Status |
| |
| December 31, 2022 |
| |
| (Dollars in Thousands) |
| |
Loans secured by real estate: |
|
| |
Construction, land development and other land loans | $ | — |
|
Secured by 1-4 family residential properties |
| 914 |
|
Secured by multi-family residential properties |
| — |
|
Secured by non-farm, non-residential properties |
| — |
|
Commercial and industrial loans |
| 605 |
|
Consumer loans: |
|
| |
Direct |
| 29 |
|
Branch retail |
| 32 |
|
Indirect |
| 71 |
|
Total loans | $ | 1,651 |
|
The following table presents the amortized cost basis of collateral dependent loans as of September 30, 2023, which loans are individually evaluated to determine credit losses:
Loans on Non-Accrual Status | ||||||||
September 30, 2017 | December 31, 2016 | |||||||
(Dollars in Thousands) | ||||||||
Loans secured by real estate: | ||||||||
Construction, land development and other land loans | $ | — | $ | 86 | ||||
Secured by 1-4 family residential properties | 418 | 570 | ||||||
Secured by multi-family residential properties | — | — | ||||||
Secured by non-farm, non-residential properties | 33 | 53 | ||||||
Commercial and industrial loans | 14 | 32 | ||||||
Consumer loans: | ||||||||
Consumer | 1,106 | 1,676 | ||||||
Indirect sales | 385 | — | ||||||
Total loans | $ | 1,956 | $ | 2,417 |
|
| September 30, 2023 |
| |||||||||
|
| Real Estate |
|
| Other |
|
| Total |
| |||
|
| (Dollars in Thousands) |
| |||||||||
Loans secured by real estate |
|
|
|
|
|
|
|
|
| |||
Construction, land development and other land loans |
| $ | — |
|
| $ | — |
|
| $ | — |
|
Secured by 1-4 family residential properties |
|
| 498 |
|
|
| — |
|
|
| 498 |
|
Secured by multi-family residential properties |
|
| — |
|
|
| — |
|
|
| — |
|
Secured by non-farm, non-residential properties |
|
| 2,353 |
|
|
| — |
|
|
| 2,353 |
|
Commercial and industrial |
|
| — |
|
|
| 126 |
|
|
| 126 |
|
Direct consumer |
|
| — |
|
|
| — |
|
|
| — |
|
Total loans individually evaluated |
| $ | 2,851 |
|
| $ | 126 |
|
| $ | 2,977 |
|
Impaired Loans26
A loan is consideredThe following table presents impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled paymentsloans as of principal or interest when due accordingDecember 31, 2022 as determined under ASC 310 prior to the contractual termsadoption 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’s existing rate or at the fair value of collateral if repayment is expected solely from the liquidation of the collateral at the Bank. At management’s discretion, additionalASC 326. Impaired loans maygenerally include nonaccrual loans and other loans deemed to 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 conditionsbut that may affect a borrower’s abilitycontinue to pay. At ALC, all real estate loans of $0.1 million or moreaccrue interest. Presented are identified for impairment analysis. There are currently no loans 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. Impaired loans, or portions thereof, are charged off when deemed uncollectable.
As of September 30, 2017, the carrying amount, unpaid principal balance and related allowance of impaired loans consistedas of December 31, 2022 by portfolio segment:
|
| December 31, 2022 |
| |||||||||
|
| Carrying |
|
| Unpaid |
|
| Related |
| |||
|
| (Dollars in Thousands) |
| |||||||||
Impaired loans with no related allowance recorded |
|
|
|
|
|
|
|
|
| |||
Loans secured by real estate |
|
|
|
|
|
|
|
|
| |||
Construction, land development and other land loans |
| $ | — |
|
| $ | — |
|
| $ | — |
|
Secured by 1-4 family residential properties |
|
| 568 |
|
|
| 568 |
|
|
| — |
|
Secured by multi-family residential properties |
|
| — |
|
|
| — |
|
|
| — |
|
Secured by non-farm, non-residential properties |
|
| 2,492 |
|
|
| 2,492 |
|
|
| — |
|
Commercial and industrial |
|
| 2,076 |
|
|
| 2,076 |
|
|
| — |
|
Direct consumer |
|
| 18 |
|
|
| 18 |
|
|
| — |
|
Total impaired loans with no related allowance recorded |
| $ | 5,154 |
|
| $ | 5,154 |
|
| $ | — |
|
Impaired loans with an allowance recorded |
|
|
|
|
|
|
|
|
| |||
Loans secured by real estate |
|
|
|
|
|
|
|
|
| |||
Construction, land development and other land loans |
| $ | — |
|
| $ | — |
|
| $ | — |
|
Secured by 1-4 family residential properties |
|
| 14 |
|
|
| 14 |
|
|
| 7 |
|
Secured by multi-family residential properties |
|
| — |
|
|
| — |
|
|
| — |
|
Secured by non-farm, non-residential properties |
|
| — |
|
|
| — |
|
|
| — |
|
Commercial and industrial |
|
| 353 |
|
|
| 353 |
|
|
| 252 |
|
Direct consumer |
|
| — |
|
|
| — |
|
|
| — |
|
Total impaired loans with an allowance recorded |
| $ | 367 |
|
| $ | 367 |
|
| $ | 259 |
|
Total impaired loans |
|
|
|
|
|
|
|
|
| |||
Loans secured by real estate |
|
|
|
|
|
|
|
|
| |||
Construction, land development and other land loans |
| $ | — |
|
| $ | — |
|
| $ | — |
|
Secured by 1-4 family residential properties |
|
| 582 |
|
|
| 582 |
|
|
| 7 |
|
Secured by multi-family residential properties |
|
| — |
|
|
| — |
|
|
| — |
|
Secured by non-farm, non-residential properties |
|
| 2,492 |
|
|
| 2,492 |
|
|
| — |
|
Commercial and industrial |
|
| 2,429 |
|
|
| 2,429 |
|
|
| 252 |
|
Direct consumer |
|
| 18 |
|
|
| 18 |
|
|
| — |
|
Total impaired loans |
| $ | 5,521 |
|
| $ | 5,521 |
|
| $ | 259 |
|
The following table details the following:
September 30, 2017 | ||||||||||||
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 | — | — | — | |||||||||
Secured by multi-family residential properties | — | — | — | |||||||||
Secured by non-farm, non-residential properties | — | — | — | |||||||||
Commercial and industrial | — | — | — | |||||||||
Total loans with no related allowance recorded | $ | — | $ | — | $ | — | ||||||
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 | |||||||||
Secured by multi-family residential properties | — | — | — | |||||||||
Secured by non-farm, non-residential properties | 535 | 535 | 55 | |||||||||
Commercial and industrial | 70 | 70 | 72 | |||||||||
Total loans with an allowance recorded | $ | 880 | $ | 880 | $ | 194 | ||||||
Total impaired loans | ||||||||||||
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 | |||||||||
Secured by multi-family residential properties | — | — | — | |||||||||
Secured by non-farm, non-residential properties | 535 | 535 | 55 | |||||||||
Commercial and industrial | 70 | 70 | 72 | |||||||||
Total impaired loans | $ | 880 | $ | 880 | $ | 194 |
As of December 31, 2016,average recorded investment and the carrying amount of impaired loans consisted of the following:
December 31, 2016 | ||||||||||||
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 | — | — | — | |||||||||
Secured by multi-family residential properties | — | — | — | |||||||||
Secured by non-farm, non-residential properties | — | — | — | |||||||||
Commercial and industrial | — | — | — | |||||||||
Total loans with no related allowance recorded | $ | — | $ | — | $ | — | ||||||
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 | |||||||||
Secured by multi-family residential properties | — | — | — | |||||||||
Secured by non-farm, non-residential properties | 549 | 549 | 107 | |||||||||
Commercial and industrial | — | — | — | |||||||||
Total loans with an allowance recorded | $ | 2,103 | $ | 2,103 | $ | 535 | ||||||
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 | |||||||||
Secured by multi-family residential properties | — | — | — | |||||||||
Secured by non-farm, non-residential properties | 549 | 549 | 107 | |||||||||
Commercial and industrial | — | — | — | |||||||||
Total impaired loans | $ | 2,103 | $ | 2,103 | $ | 535 |
The average net investment in impaired loans and interest income recognized and received on impaired loans as offor the nine months ended September 30, 2017 and the year ended December 31, 2016 were as follows:
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 |
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 million and $2.4 million as of September 30, 2017 and December 31, 2016, respectively. If interest on those loans had been accrued, there would have been $5 thousand and $35 thousand of interest accrued for the periods ended September 30, 2017 and December 31, 2016, respectively. Interest income2022, respectively, related to theseimpaired loans as of September 30, 2017 and December 31, 2016 was $3 thousand and $4 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, modifications of note structure, principal balance reductions or some combination of these concessions. There were no loans modified with concessions granted during the nine-month period ended September 30, 2017. 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 performancedetermined under the modified loan terms (generally a minimum of six months). However, performanceASC 310 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 returnedadoption of ASC 326:
|
| 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 |
|
27
Loan Modifications Made to or maintained on non-accrual status. If the borrower’s abilityBorrowers Experiencing Financial Difficulty
From time 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,time, the Company had $0.1 millionmay modify the terms of non-accruingloan agreements with borrowers that are experiencing financial difficulties. Modification of the terms of such loans that were previously restructured and that remained on non-accrual status. Fortypically include one or a combination of the following: a reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; or a permanent reduction of the recorded investment in the loan. No modifications in 2023 or 2022 resulted in the permanent reduction of the recorded investment in the loan.
During the nine months ended September 30, 2017,2023, the Company haddid not modify any loans to borrowers experiencing financial difficulty, and there were no payment defaults on 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 the number of loans remaining in each loan category as of September 30, 2017 and December 31, 2016 that the Bank had previously modified in a troubled debt restructuring, as well as the pre- and post-modification principal balance as of each date.previous twelve months.
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 |
Other Real Estate Owned
As of September 30, 2017 and December 31, 2016, no loans that previously had been modified in a troubled debt restructuring had defaulted subsequent to modification.
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’s allowance for loan losses resulting from the modifications.
All loans with a principal balance of $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 losses. This evaluation resulted in an allowance for loan losses attributable to such restructured loans of $3 thousand as of September 30, 2017 and $15 thousand as of December 31, 2016.
|
|
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, 20172023 and 2016.2022:
September 30, 2017 | ||||||||||||||||||||
Bank | ALC | Total |
| September 30, 2023 |
|
| September 30, 2022 |
| ||||||||||||
(Dollars in Thousands) |
| (Dollars in Thousands) |
| |||||||||||||||||
Beginning balance | $ | 4,353 | $ | 505 | $ | 4,858 |
| $ | 686 |
|
| $ | 2,149 |
| ||||||
Transfers from loans | — | 87 | 87 | |||||||||||||||||
Additions |
|
| — |
|
|
| 411 |
| ||||||||||||
Sales proceeds | (649 | ) | (199 | ) | (848 | ) |
|
| — |
|
|
| (2,215 | ) | ||||||
Gross gains | 14 | — | 14 |
|
| — |
|
|
| 369 |
| |||||||||
Gross losses | (20 | ) | (101 | ) | (121 | ) |
|
| — |
|
|
| (27 | ) | ||||||
Net gains (losses) | (6 | ) | (101 | ) | (107 | ) | ||||||||||||||
Net gains |
|
| — |
|
|
| 342 |
| ||||||||||||
Impairment | (171 | ) | — |
| (171 | ) |
|
| (69 | ) |
|
| (1 | ) | ||||||
Ending balance | $ | 3,527 | $ | 292 | $ | 3,819 |
| $ | 617 |
|
| $ | 686 |
|
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$20 thousand and $1.1 millionzero as of September 30, 20172023 and 2016,September 30, 2022, respectively. In addition, the Company held $20zero and $19 thousand and $0.1 million in consumer mortgage loans collateralized by residential real estate that were in the process of foreclosure as of September 30, 20172023 and 2016,2022, respectively.
Repossessed Assets
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, 2023 and 2022:
|
| September 30, 2023 |
|
| September 30, 2022 |
| ||
|
| (Dollars in Thousands) |
| |||||
Beginning balance |
| $ | 83 |
|
| $ | 154 |
|
Transfers from loans |
|
| 1,178 |
|
|
| 635 |
|
Sales proceeds |
|
| (453 | ) |
|
| (331 | ) |
Gross gains |
|
| — |
|
|
| — |
|
Gross losses |
|
| (535 | ) |
|
| (292 | ) |
Net losses |
|
| (535 | ) |
|
| (292 | ) |
Impairment |
|
| — |
|
|
| — |
|
Ending balance |
| $ | 273 |
|
| $ | 166 |
|
Repossessed assets are included in Other Assets in the Company’s condensed consolidated balance sheets.
28
|
|
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, 20172023 and December 31, 2016.2022. Goodwill impairment was neither indicated nor recorded during the nine months ended September 30, 2023 or the year ended December 31, 2022.
|
|
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, 2023 and December 31, 2022 were as follows:
|
| September 30, 2023 |
|
| December 31, 2022 |
| ||
|
| (Dollars in Thousands) |
| |||||
Goodwill |
| $ | 7,435 |
|
| $ | 7,435 |
|
Core deposit intangible: |
|
|
|
|
|
| ||
Gross carrying amount |
|
| 2,048 |
|
|
| 2,048 |
|
Accumulated amortization |
|
| (1,841 | ) |
|
| (1,682 | ) |
Core deposit intangible, net |
|
| 207 |
|
|
| 366 |
|
Total |
| $ | 7,642 |
|
| $ | 7,801 |
|
The Company’s estimated remaining amortization expense on intangible assets as of September 30, 2023 was as follows:
|
| Amortization Expense |
| |
|
| (Dollars in Thousands) |
| |
2023 |
| $ | 36 |
|
2024 |
|
| 122 |
|
2025 |
|
| 49 |
|
Total |
| $ | 207 |
|
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.
$
38 thousand.29
|
|
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, 2023 and December 31, 2022, 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. Net of unamortized debt issuance costs, the Notes were recorded as long-term borrowings totaling $10.8 million and $15.0$10.7 million as of September 30, 20172023 and December 31, 2016,2022, respectively. The table below provides additional information related to the Notes as of and for the nine months ended September 30, 2023 and 2022.
|
| September 30, |
| September 30, |
|
| 2023 |
| 2022 |
|
| (Dollars in Thousands) | ||
Balance at period-end |
| $10,781 |
| $10,708 |
Average balance during the period |
| $10,775 |
| $10,702 |
Maximum month-end balance during the year |
| $10,781 |
| $10,708 |
Average rate paid during the period, including amortization of debt issuance costs |
| 4.16% |
| 4.16% |
Weighted average remaining maturity (in years) |
| 8.00 |
| 9.00 |
Assets
Available Credit
As an additional funding source, the Company has available unused lines of credit with correspondent banks, the FRB and the FHLB. Certain of these funding sources are subject to underlying collateral. As of September 30, 2023 and December 31, 2022, the Company’s available unused lines of credit consisted of the following:
Available Unused Lines of Credit | Collateral Requirements | September 30, 2023 | December 31, 2022 | |||
Correspondent banks | None | $48.0 million | $45.0 million | |||
FHLB advances (1) | Subject to collateral | $260.3 million | $246.8 million | |||
FRB (2) | Subject to collateral | $146.6 million | $1.2 million |
30
|
|
The provision for income taxes was $0.42.0 million and $1.4 million for both of the nine-month periodsnine months ended September 30, 20172023 and 2016.2022, respectively. The Company’s effective tax rate was 23.0%24.4% and 23.4%23.7%, 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$6.3 million and $8.7$5.2 million as of September 30, 20172023 and December 31, 2016,2022, respectively. The reduction in the net deferred tax asset, resulted primarily fromwhich is included on the impact ofinterim condensed consolidated balance 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, changes in the allowance for credit losses, and other book-to-tax temporary differences. The net deferred tax asset increased by $0.6 million as a result of the cumulative effect adjustment to adopt ASC 326, effective January 1, 2023.
|
|
Supplemental Retirement Benefits
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$3.0 million and $3.5$3.1 million as of September 30, 20172023 and December 31, 2016,2022, respectively.
Non-Employee Directors' Deferred Compensation Plan
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.stock, as applicable. Neither Bancshares nor the Bank makes any contribution to participants’ accounts under the Deferral Plan. As of September 30, 20172023 and December 31, 2016,2022, a total of 100,990111,340 and 114,547114,190 shares of Bancshares common stock, respectively, were deferredbeing held as stock equivalents in connection with the Deferral Plan. All deferred fees whether in the formand shares of cash or shares ofBancshares 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.as additional paid-in capital. The Company usesmay use issued shares or shares of treasury stock to satisfy these obligations when due.
|
|
In 2013, Bancshares’ shareholders authorized the Company, under the direction of the Compensation Committee of the Board of Directors, to provide share-based compensation awards to eligible employees, directors and consultants of the Company and its affiliates pursuant to the 2013 Incentive Plan. Available award types included stock options, stock appreciation rights, restricted stock and restricted stock units, and performance share awards. The 2013 Incentive Plan, as amended in 2019, expired in March 2023. In April 2023, Bancshares’ shareholders approved the 2023 Incentive Plan, which authorizes the Compensation Committee to grant substantially the same types of share-based awards to eligible employees, directors and consultants. Collectively, the 2013 Incentive Plan and the 2023 Incentive Plan are herein referred to as the Company’s “Incentive Plan.” In accordance with the 2013 Incentive Plan, stock awards, including stock options and restricted stock, have been granted to certain employees and non-employee directors. Sharesshares of common stock available for distributionissuance pursuant 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-basedSince the origination of the Incentive Plan, through September 30, 2023, only stock options and restricted stock have been granted. For the nine months ended September 30, 2023, stock-based compensation expense related to stock awards totaled $0.2$0.4 million, and $0.1compared to $0.3 million for the nine-month periodsnine months ended September 30, 2017 and 2016, respectively.2022.
31
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, 2023 or 2022.
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, 2023 |
|
| September 30, 2022 |
| |||||||||||||||||||||||||
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 |
|
| 419,650 |
|
| $ | 9.79 |
|
|
| 420,250 |
|
| $ | 9.79 |
| ||||||||||
Granted | 70,600 | 13.84 | 97,000 | 8.30 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||
Exercised | 19,316 | 8.15 | — | — |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||
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 |
|
|
| 419,650 |
|
| $ | 9.79 |
| ||||||||||
Options exercisable, end of period | 208,633 | $ | 8.20 | 175,550 | $ | 8.17 |
|
| 419,650 |
|
| $ | 9.79 |
|
|
| 416,249 |
|
| $ | 9.77 |
|
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$0.1 million and $0.4 millionzero as of September 30, 20172023 and 2016,2022, 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, 2016.2023 and 2022, 57,300 shares and 45,938 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 six 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 also 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 income and expense, as well as the reporting location in the interim condensed consolidated statements of operations, for the three and nine months ended September 30, 2023 and 2022:
|
| 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 income (1) |
| Lease income |
| $ | 241 |
|
| $ | 210 |
|
| $ | 707 |
|
| $ | 635 |
|
Operating lease expense (2) |
| Net occupancy and equipment |
| $ | 108 |
|
| $ | 108 |
|
| $ | 324 |
|
| $ | 326 |
|
32
The following table provides supplemental lease information for operating leases on the interim condensed consolidated balance sheet as of September 30, 2023 and December 31, 2022:
|
| Location in |
|
|
|
|
| ||
|
| Consolidated |
| September 30, |
| December 31, |
| ||
|
|
|
| (Dollars in |
| ||||
Operating lease right-of-use assets |
| Other assets |
| $ | 1,605 |
| $ | 1,883 |
|
Operating lease liabilities |
| Other liabilities |
| $ | 1,684 |
| $ | 1,961 |
|
Weighted-average remaining lease term (in years) |
|
|
|
| 4.28 |
|
| 5.03 |
|
Weighted-average discount rate |
|
|
|
| 3.30 | % |
| 3.30 | % |
The following table provides supplemental lease information for the interim condensed consolidated statements of cash flows for the nine months ended September 30, 2023 and 2022:
|
| 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 |
| $ | 323 |
|
| $ | 320 |
|
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, 2023:
|
| Minimum |
| |
|
| (Dollars in Thousands) |
| |
2023 |
| $ | 109 |
|
2024 |
|
| 438 |
|
2025 |
|
| 339 |
|
2026 |
|
| 346 |
|
2027 |
|
| 353 |
|
2028 and thereafter |
|
| 238 |
|
Total future minimum lease payments |
|
| 1,823 |
|
Less: Imputed interest |
|
| 139 |
|
Total operating lease liabilities |
| $ | 1,684 |
|
|
|
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 Bankamount, 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.
Active Hedges
In June 2023, the Company entered into athree forward interest rate swap contractcontracts on a variablepool of fixed rate FHLB advance (indexed to three-month LIBOR) withindirect consumer loans. Each of the three hedge contracts has a total$10.0 million notional amount of $10.0 million.amount. 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 a pool of fixed rate payments on the FHLB advance from the risk of variability of those payments resulting from changes in the three-month LIBOR interestindirect consumer loans to a variable rate throughout the seven-year period beginning on April 5, 2016 and ending on April 5, 2023.hedge durations in accordance with the portfolio layer method. Under the contractual arrangements, for each swap, arrangement, which became effective on April 5, 2016, the Bank will payCompany pays a fixed interest rate of 1.46% and receivereceives a variable interest rate based on three-month LIBORthe Secured Overnight Financing Rate (SOFR), on the totalnotional amounts, with monthly net settlements.
33
Hedges Terminated in 2023
In February 2023, the Company voluntarily terminated four interest rates swap agreements each with notional amounts of $10.0 million, or an aggregate amount of $40.0 million. Two of the swaps were previously designated as cash flow hedges, while two were previously designated as fair value hedges. The termination of the cash flow hedges resulted in a net unrealized gain totaling $1.1 million. The unrealized gain was initially recorded in accumulated other comprehensive income, net of tax, and is being reclassified to reduce interest expense over the original terms of the swap contracts. The termination of the fair value hedges resulted in an unrealized gain totaling $1.0 million which is being reclassified to increase interest income over the original terms of the swap contracts.
Hedge Terminated in 2022
In May 2022, the Company voluntarily terminated one interest rate swap agreement with a notional amount of $10.0 million, with quarterly net settlements.
No ineffectiveness related to the interest rate$10.0 million. The swap was previously designated as a cash flow hedgehedge. The termination resulted in a net unrealized gain of $0.3 million. The unrealized gain was recognizedinitially recorded in accumulated other comprehensive income, net of tax, and is being reclassified to reduce interest expense over the original term of the swap contract.
Presentation
The table below reflects the notional amount and fair value of active derivative instruments included on the Company’s consolidated balance sheets on a net basis as of September 30, 2023 and December 31, 2022.
|
| As of September 30, 2023 |
|
| As of December 31, 2022 |
| ||||||||||
|
| 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 |
|
| $ | 1,101 |
|
Interest rate swaps related to fixed rate indirect consumer loans |
|
| 30,000 |
|
|
| 537 |
|
|
| — |
|
|
| — |
|
Total fair value hedges |
|
|
|
|
| 537 |
|
|
|
|
|
| 1,101 |
| ||
Cash flow hedges: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest rate swaps related to variable-rate money market deposit accounts |
|
| — |
|
|
| — |
|
|
| 20,000 |
|
|
| 1,205 |
|
Interest rate swaps related to FHLB advances |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Total cash flow hedges |
|
|
|
|
| — |
|
|
|
|
|
| 1,205 |
| ||
Total hedges designated as hedging instruments, net |
|
|
|
| $ | 537 |
|
|
|
|
| $ | 2,306 |
|
34
The following table presents the net effects of derivative hedging instruments on the Company’s interim condensed consolidated statements of operations for the three- or nine-month periodsthree and nine months ended September 30, 2017. 2023 and 2022. The accumulated net after-tax gain relatedeffects, which include the reclassification of unrealized gains on terminated swap contracts, are presented as either an increase or decrease to income before income taxes in the effective cash flow hedge included in accumulated other comprehensiverelevant caption of the Company’s interim condensed consolidated statements of operations.
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 |
| $ | 258 |
|
| $ | 45 |
|
| $ | 603 |
|
| $ | (42 | ) |
Interest expense |
| Interest on deposits |
|
| 120 |
|
|
| 24 |
|
|
| 376 |
|
|
| (103 | ) |
Interest expense |
| Interest on borrowings |
|
| 36 |
|
|
| 36 |
|
|
| 108 |
|
|
| 20 |
|
|
| Net increase (decrease) to income before income taxes |
| $ | 414 |
|
| $ | 105 |
|
| $ | 1,087 |
|
| $ | (125 | ) |
Other Operating Income
Other operating income totaled $0.2 million as of bothfor the three and nine months ended September 30, 20172023 and December 31, 2016.2022 consisted of the following:
|
|
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
|
| (Dollars in Thousands) |
| |||||||||||||
Bank-owned life insurance |
| $ | 119 |
|
| $ | 112 |
|
| $ | 348 |
|
| $ | 335 |
|
ATM fee income |
|
| 93 |
|
|
| 125 |
|
|
| 315 |
|
|
| 403 |
|
Gain on sales of premises and equipment and other assets |
|
| 18 |
|
|
| 278 |
|
|
| 18 |
|
|
| 301 |
|
Other income |
|
| 64 |
|
|
| 52 |
|
|
| 208 |
|
|
| 195 |
|
Total |
| $ | 294 |
|
| $ | 567 |
|
| $ | 889 |
|
| $ | 1,234 |
|
Under ASC Topic 280,Segment Reporting, certain information is disclosedOther Operating Expense
Other operating expense for the two reportable operating segments of Bancshares: the Bankthree and ALC. The reportable segments were determined using the internal management reporting system. These segments comprise Bancshares’nine months ended September 30, 2023 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,”2022 consisted 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. 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.following:
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 | ) | — |
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
|
| (Dollars in Thousands) |
| |||||||||||||
Postage, stationery and supplies |
| $ | 151 |
|
| $ | 164 |
|
| $ | 472 |
|
| $ | 469 |
|
Telephone/data communication |
|
| 128 |
|
|
| 159 |
|
|
| 479 |
|
|
| 518 |
|
Collection and recoveries |
|
| 71 |
|
|
| 57 |
|
|
| 252 |
|
|
| 176 |
|
Directors fees |
|
| 94 |
|
|
| 98 |
|
|
| 284 |
|
|
| 301 |
|
Software amortization |
|
| 86 |
|
|
| 133 |
|
|
| 313 |
|
|
| 331 |
|
Other real estate/foreclosure expense, net |
|
| 9 |
|
|
| (5 | ) |
|
| 30 |
|
|
| (320 | ) |
Other expense |
|
| 545 |
|
|
| 568 |
|
|
| 1,769 |
|
|
| 1,629 |
|
Total |
| $ | 1,084 |
|
| $ | 1,174 |
|
| $ | 3,599 |
|
| $ | 3,104 |
|
35
|
|
|
|
|
| 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 | ) | — |
|
|
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 |
| $ | 664 |
|
| $ | 556 |
| ||||||||
Commitments to extend credit | $ | 53,231 | $ | 41,267 |
| $ | 155,614 |
|
| $ | 186,169 |
|
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, 20172023 and December 31, 2016,2022, 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 securitiesIn accordance with the adoption of ASC 326 on January 1, 2023, the Company recorded a reserve for delayed delivery requireunfunded commitments of $0.3 million. The reserve, which is included in other liabilities in 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. AsCompany’s balance sheet, totaled $0.5 million as of both September 30, 2017 and December 31, 2016, there were no outstanding2023. Additional discussion related to the calculation of the reserve for unfunded commitments to purchase securities for delayed delivery and no outstanding commitments to sell securities for delayed delivery.is included in Note 4.
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 accrueda 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, 2023 and December 31, 2022. 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, 20172023 or the year ended December 31, 2016.2022.
37
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.U.S. Treasury securities. 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.
The following table presents assets and liabilities measured at fair value on a recurring basis as of September 30, 20172023 and December 31, 2016. There were no liabilities measured at fair value on a recurring basis for either period presented.2022.
Fair Value Measurements as of September 30, 2017 Using |
| Fair Value Measurements as of September 30, 2023 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 | $ | — |
| $ | 37,000 |
|
| $ | — |
|
| $ | 37,000 |
|
| $ | — |
| ||||||||
Commercial | 67,138 | — | 67,138 | — |
|
| 9,500 |
|
|
| — |
|
|
| 9,500 |
|
|
| — |
| ||||||||||||
Obligations of U.S. government-sponsored agencies |
|
| 10,932 |
|
|
| — |
|
|
| 10,932 |
|
|
| — |
| ||||||||||||||||
Obligations of states and political subdivisions | 5,655 | — | 5,655 | — |
|
| 1,543 |
|
|
| — |
|
|
| 1,543 |
|
|
| — |
| ||||||||||||
Obligations of U.S. government-sponsored agencies | 2,002 | — | 2,002 | — | ||||||||||||||||||||||||||||
Corporate notes |
|
| 14,681 |
|
|
| — |
|
|
| 14,681 |
|
|
| — |
| ||||||||||||||||
U.S. Treasury securities | 80 | — | 80 | — |
|
| 52,895 |
|
|
| 52,895 |
|
|
| — |
|
|
| — |
| ||||||||||||
Other assets - derivatives | 291 | — | 291 | — |
|
| 537 |
|
|
| — |
|
|
| 537 |
|
|
| — |
|
Fair Value Measurements as of December 31, 2016 Using |
| Fair Value Measurements as of December 31, 2022 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 | $ | — |
| $ | 43,957 |
|
| $ | — |
|
| $ | 43,957 |
|
| $ | — |
| ||||||||
Commercial | 70,530 | — | 70,530 | — |
|
| 11,693 |
|
|
| — |
|
|
| 11,693 |
|
|
| — |
| ||||||||||||
Obligations of U.S. government-sponsored agencies |
|
| 4,270 |
|
|
| — |
|
|
| 4,270 |
|
|
|
| |||||||||||||||||
Obligations of states and political subdivisions | 10,142 | — | 10,142 | — |
|
| 2,072 |
|
|
| — |
|
|
| 2,072 |
|
|
| — |
| ||||||||||||
Obligations of U.S. government-sponsored agencies | 1,993 | — | 1,993 | — | ||||||||||||||||||||||||||||
Corporate notes | 756 | — | 756 | — |
|
| 15,921 |
|
|
|
|
|
| 14,921 |
|
|
| 1,000 |
| |||||||||||||
U.S. Treasury securities | 80 | — | 80 | — |
|
| 52,882 |
|
|
| 52,882 |
|
|
| — |
|
|
| — |
| ||||||||||||
Other assets - derivatives | 346 | — | 346 | — |
|
| 2,306 |
|
|
| — |
|
|
| 2,306 |
|
|
| — |
|
38
Fair Value Measurements on a Non-recurring Basis
Collateral Dependent Loans
Impaired Loans
Loans thatCollateral dependent loans 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’s original effective rate as the discount rate, the loan’s observable market price, orat the fair value of the collateral securing the loan less estimated selling cost if the loan is collateral-dependent. For the Company, thecosts. The fair value of impaired loansreal estate collateral is primarily measureddetermined based on thereal estate appraisals, which are generally based on recent sales of comparable properties which are then adjusted for property specific factors. Non-real estate collateral value is based on various sources, including third party asset valuations and internally determined values based on cost, adjusted for depreciation and other judgmentally determined discount factors. Collateral dependent loans are classified as Level 3 of the collateral securingvaluation hierarchy due to the loans (typically real estate). The Company determines theunobservable inputs used in determining their fair value, of thesuch as 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 subjectiveborrower's underlying financial condition.
OREO 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.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, 2023 and December 31, 2022, 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, 20172023 and December 31, 2016.2022:
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, 2023 Using |
| |||||||||||||
|
| Totals At |
|
| Quoted |
|
| Significant |
|
| Significant |
| ||||
|
| (Dollars in Thousands) |
| |||||||||||||
Collateral dependent loans |
| $ | 62 |
|
| $ | — |
|
| $ | — |
|
| $ | 62 |
|
OREO and other assets held-for-sale |
|
| 617 |
|
|
| — |
|
|
| — |
|
|
| 617 |
|
|
| Fair Value Measurements as of December 31, 2022 Using |
| |||||||||||||
|
| Totals At |
|
| Quoted |
|
| Significant |
|
| Significant |
| ||||
|
| (Dollars in Thousands) |
| |||||||||||||
Impaired loans |
| $ | 108 |
|
| $ | — |
|
| $ | — |
|
| $ | 108 |
|
OREO and other assets held-for-sale |
|
| 686 |
|
|
| — |
|
|
| — |
|
|
| 686 |
|
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, 2017.2023. 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, 20172023 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 | ||||||||
|
| Fair Value September 30, 2017 |
|
| Valuation Technique |
| Unobservable Input |
| Quantitative Range of Unobservable Inputs (Weighted Average) | |
|
| (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%) |
|
|
|
|
|
|
|
|
|
|
|
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%) |
|
| Level 3 Significant Unobservable Input Assumptions | ||||||||||
|
| Fair Value |
|
| Valuation Technique |
| Unobservable Input |
| Quantitative Range | |||
|
| (Dollars in Thousands) |
|
|
|
|
|
|
|
|
| |
Non-recurring fair value measurements: |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
| ||
Collateral dependent loans |
| $ | 62 |
|
| Multiple data points, |
| Appraisal comparability |
| 9%-10% |
| (9.5%) |
|
|
|
|
|
|
|
|
|
|
| ||
OREO and other assets held-for-sale |
| $ | 617 |
|
| Discount to appraised |
| Appraisal comparability |
| 9%-10% |
| (9.5%) |
ImpairedCollateral Dependent Loans
ImpairedCollateral dependent 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, 20172023 and December 31, 20162022 were as follows:
September 30, 2017 |
| September 30, 2023 |
| |||||||||||||||||||||||||||||||||||||
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 | $ | — | $ | — |
| $ | 66,129 |
|
| $ | 66,129 |
|
| $ | 66,129 |
|
| $ | — |
|
| $ | — |
| ||||||||||
Investment securities available-for-sale | 158,425 | 158,425 | — | 158,425 | — |
|
| 126,551 |
|
|
| 126,551 |
|
|
| 52,895 |
|
|
| 73,656 |
|
|
| — |
| |||||||||||||||
Investment securities held-to-maturity | 27,377 | 27,303 | — | 27,303 | — |
|
| 1,272 |
|
|
| 1,183 |
|
|
| — |
|
|
| 1,183 |
|
|
| — |
| |||||||||||||||
Federal funds sold |
|
| 1,143 |
|
|
| 1,143 |
|
|
| — |
|
|
| 1,143 |
|
|
| — |
| ||||||||||||||||||||
Federal Home Loan Bank stock | 1,396 | 1,396 | — | — | 1,396 |
|
| 2,151 |
|
|
| 2,151 |
|
|
| — |
|
|
| — |
|
|
| 2,151 |
| |||||||||||||||
Loans, net of allowance for loan losses | 338,026 | 327,251 | — | — | 327,251 | |||||||||||||||||||||||||||||||||||
Loans, net of allowance for credit losses |
|
| 803,920 |
|
|
| 769,466 |
|
|
| — |
|
|
| — |
|
|
| 769,466 |
| ||||||||||||||||||||
Other assets - derivatives | 291 | 291 | — | 291 | — |
|
| 537 |
|
|
| 537 |
|
|
| — |
|
|
| 537 |
|
|
| — |
| |||||||||||||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Deposits | 508,385 | 507,298 | — | 507,298 | — |
|
| 927,038 |
|
|
| 829,435 |
|
|
| — |
|
|
| 829,435 |
|
|
| — |
| |||||||||||||||
Short-term borrowings | 10,635 | 10,634 | — | 10,634 | — |
|
| 30,000 |
|
|
| 30,000 |
|
|
| — |
|
|
| 30,000 |
|
|
| — |
| |||||||||||||||
Long-term debt | 10,000 | 10,000 | — | 10,000 | — | |||||||||||||||||||||||||||||||||||
Long-term borrowings |
|
| 10,781 |
|
|
| 9,226 |
|
|
| — |
|
|
| 9,226 |
|
|
| — |
|
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, 2022 |
| |||||||||||||||||
|
| Carrying |
|
| Estimated |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| |||||
|
| (Dollars in Thousands) |
| |||||||||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Cash and cash equivalents |
| $ | 30,152 |
|
| $ | 30,152 |
|
| $ | 30,152 |
|
| $ | — |
|
| $ | — |
|
Investment securities available-for-sale |
|
| 130,795 |
|
|
| 130,795 |
|
|
| 52,882 |
|
|
| 76,913 |
|
|
| 1,000 |
|
Investment securities held-to-maturity |
|
| 1,862 |
|
|
| 1,769 |
|
|
| — |
|
|
| 1,769 |
|
|
| — |
|
Federal funds sold |
|
| 1,768 |
|
|
| 1,768 |
|
|
| — |
|
|
| 1,768 |
|
|
| — |
|
Federal Home Loan Bank stock |
|
| 1,359 |
|
|
| 1,359 |
|
|
| — |
|
|
| — |
|
|
| 1,359 |
|
Loans, net of allowance for loan and lease losses |
|
| 764,451 |
|
|
| 730,961 |
|
|
| — |
|
|
| — |
|
|
| 730,961 |
|
Other assets - derivatives |
|
| 2,306 |
|
|
| 2,306 |
|
|
| — |
|
|
| 2,306 |
|
|
| — |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Deposits |
|
| 870,025 |
|
|
| 788,161 |
|
|
| — |
|
|
| 788,161 |
|
|
| — |
|
Short-term borrowings |
|
| 20,038 |
|
|
| 20,038 |
|
|
| — |
|
|
| 20,038 |
|
|
| — |
|
Long-term borrowings |
|
| 10,726 |
|
|
| 9,702 |
|
|
|
|
|
| 9,702 |
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2017,2023, 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 17 states, including Alabama, Arkansas, Florida, Georgia, Indiana, Iowa, Kansas, Kentucky, Mississippi, Missouri, Nebraska, 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.
The Bank provides a wide rangeMississippi to the public. Through the third quarter of commercial banking services2023, ALC continued 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 owned subsidiaryservice its remaining portfolio of the Bank (“FUSB Reinsurance”), reinsures or “underwrites” credit life and credit accident and health insurance policiesloans from its headquarters. Effective October 1, 2023, all of ALC’s remaining loans were sold to the Bank’s and ALC’s consumer loan customers. FUSB Reinsurance is responsible for the first level of risk on these policies upBank in an intercompany transaction. The Bank intends to a specified maximum amount, and a third-party insurer retainsmanage the remaining risk. The third-party insurer is also responsible for performing most of the administrative functions of FUSB Reinsurance on a contract basis.portfolio through final resolution.
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 258156 full-time equivalent employees (as of September 30, 2023), 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 loancredit 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’ Annualthe Company's 2022 Form 10-K, as amended in 2023 by the adoption of ASC 326, Measurement of Credit Losses on Financial Instruments, as discussed in Note 2, “Basis of Presentation,” in the Notes to the Interim Consolidated Financial Statements included in this Quarterly Report on Form 10-K as of and for the year ended December 31, 2016.10-Q.
The emphasis of this discussion is a comparison of assets, liabilities and shareholders’shareholders’ equity as of September 30, 20172023 to December 31, 2016,2022, while comparing income and expense for the three- and nine-month periodsnine months ended September 30, 20172023 and 2016.
2022. 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 interim 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 onthe Company's 2022 Form 10-K as of and for the year ended December 31, 2016.10-K. 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, 2023 the banking industry saw a significant level of volatility due to notable banking failures that began during the first quarter of 2023, as well as ongoing increases in interest rates that have generally led to contraction of net interest margin throughout the industry. While year-over-year inflation levels have eased from 40-year highs that were reached during 2022, inflation remains elevated over the Federal Reserve Bank's ("FRB") long run target. In its ongoing effort to reduce inflation levels, the FRB has continued to raise the target federal funds rate, with four additional increases of 25 basis points during the first nine months of 2023. As of September 30, 2023, the target federal funds rate was a range of 5.25% to 5.50%.
As interest rates have increased, competitive pressures have also increased, particularly related to deposit pricing. Due primarily to the rising cost of funding, net interest margin compressed significantly throughout the banking industry during the nine months ended September 30, 2023. The substantial pace and magnitude of changes in interest rates introduced a higher level of uncertainty throughout the industry, and the impact that such change will have on the Company’s future operating results cannot be predicted with certainty. During this still-ongoing and still-volatile transition period, the yield curve has become significantly inverted at times, indicating substantial economic uncertainty, including the possibility of economic recession. The unusual yield curve effects, including inversion, may continue. Further, if the rate of inflation remains elevated or 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.
EXECUTIVE OVERVIEW
Strategic Focus and Impact on Asset Quality
During the third quarter of 2021, the Company executed strategic initiatives that were designed to improve operating efficiency, focus the Company’s loan growth activities, and fortify asset quality. The most significant component of these initiatives was the cessation of new business at ALC. This initiative, which included the closure of ALC’s branch lending locations in September 2021, served to significantly decrease the Company’s non-interest expense, and has led to substantial improvement in the Company’s consumer lending asset quality as ALC’s remaining loans pay down. Historically, ALC’s loans have produced significantly higher levels of charge-offs than the Bank’s other loan portfolios.
As of September 30, 2023, remaining loans at ALC totaled $12.1 million, compared to $20.2 million as of December 31, 2022. In 2023, as ALC’s loans have continued to decrease, the Company has realized substantially lower levels of net charge-offs on the portfolio compared to prior periods. Net charge-offs on ALC loans totaled $0.3 million, or 2.09% of average loans, during the nine months ended September 30, 2023, compared to $1.5 million, or 6.38% of average loans, during the nine months ended September 30, 2022. As of September 30, 2023, $0.2 million, or 1.3% of ALC's loans, were past due, compared to $0.8 million, or 3.8%, as of December 31, 2022.
Effective October 1, 2023, the Company sold all of ALC’s remaining loans to the Bank in an intercompany transaction. The Bank will continue to manage the remaining loans in the portfolio through final resolution. It is expected that all other assets and liabilities of ALC will be transferred to the Bank via an intercompany transaction by the end 2023.
Financial Highlights
The Company earned net income of $0.10$2.1 million, or $0.33 per diluted common share, during the three months ended September 30, 2017,2023, compared to $0.09$1.9 million, or $0.29 per diluted common share, duringfor the corresponding three-month period of 2016.three months ended September 30, 2022. For the nine months ended September 30, 2017,2023, net income totaled $0.22$6.2 million, or $0.97 per diluted common share, compared to $0.21$4.6 million, or $0.71 per diluted common share, for the corresponding nine-month period of 2016.
The composition of earnings changed significantly during both the three- and nine-month periodsnine months ended September 30, 2017,2022.
44
Summarized condensed consolidated statements of operations are included below for the three and nine months ended September 30, 2023 and 2022.
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
|
| September 30, |
|
| September 30, |
| ||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
|
| (Dollars in Thousands, Except Per Share Data) |
| |||||||||||||
Interest income |
| $ | 13,902 |
|
| $ | 10,670 |
|
| $ | 38,861 |
|
| $ | 29,576 |
|
Interest expense |
|
| 4,419 |
|
|
| 1,155 |
|
|
| 10,621 |
|
|
| 2,526 |
|
Net interest income |
|
| 9,483 |
|
|
| 9,515 |
|
|
| 28,240 |
|
|
| 27,050 |
|
Provision for credit losses |
|
| 184 |
|
|
| 1,165 |
|
|
| 753 |
|
|
| 2,781 |
|
Net interest income after provision for credit losses |
|
| 9,299 |
|
|
| 8,350 |
|
|
| 27,487 |
|
|
| 24,269 |
|
Non-interest income |
|
| 837 |
|
|
| 1,088 |
|
|
| 2,465 |
|
|
| 2,773 |
|
Non-interest expense |
|
| 7,319 |
|
|
| 7,032 |
|
|
| 21,740 |
|
|
| 20,966 |
|
Income before income taxes |
|
| 2,817 |
|
|
| 2,406 |
|
|
| 8,212 |
|
|
| 6,076 |
|
Provision for income taxes |
|
| 704 |
|
|
| 546 |
|
|
| 2,004 |
|
|
| 1,440 |
|
Net income |
| $ | 2,113 |
|
| $ | 1,860 |
|
| $ | 6,208 |
|
| $ | 4,636 |
|
Basic net income per share |
| $ | 0.35 |
|
| $ | 0.31 |
|
| $ | 1.04 |
|
| $ | 0.76 |
|
Diluted net income per share |
| $ | 0.33 |
|
| $ | 0.29 |
|
| $ | 0.97 |
|
| $ | 0.71 |
|
Dividends per share |
| $ | 0.05 |
|
| $ | 0.03 |
|
| $ | 0.15 |
|
| $ | 0.09 |
|
The discussion that follows summarizes the most significant activity that drove changes in the Company’s net income during the nine months ended September 30, 2023, as compared to the corresponding periods of the previous year. The 2017 results were positively impacted by increased netnine months ended September 30, 2022.
Net Interest Income and Margin
Net interest income as a result ofincreased by $1.2 million, or 4.4%, comparing the nine months ended September 30, 2023 to the nine months ended September 30, 2022. The increase was primarily attributable to growth in net loans which averaged $795.0 million during the nine months ended September 30, 2023, compared to $713.0 million during the nine months ended September 30, 2022. The average rate on earning assets totaled 5.41% for the nine months ended September 30, 2023, compared to 4.37% for the nine months ended September 30, 2022.
While yields on earning assets increased significantly in 2023, rates on interest-bearing liabilities increased at a faster pace, causing margin compression. Net interest margin was 3.93% for the nine months ended September 30, 2023, compared to 4.00% for the nine months ended September 30, 2022. The Company’s total funding costs, including the cost of interest and non-interest deposits, as well as decreasesborrowings, increased to 1.53% during the nine months ended September 30, 2023, compared to 0.39% during the nine months ended September 30, 2022.
Provision for Credit Losses
The provision for credit losses was $0.8 million during the nine months ended September 30, 2023, compared to $2.8 million during the nine months ended September 30, 2022. The reduction resulted primarily from reduced charge-off levels comparing the two periods, mostly related to ALC’s loans which continued to reduce following implementation of the cessation of business strategy. The Company’s net charge-offs totaled $0.7 million during the nine months ended September 30, 2023, compared to $1.7 million during the nine months ended September 30, 2022. The reduction included a decrease of $1.3 million in non-interest expenses, including regulatory assessments, insurance expense and occupancy and equipment expense. By contrast,net charge-offs associated with ALC’s portfolio, partially offset by an increase in net charge-offs associated with the 2016 results were bolstered by higherindirect consumer portfolio totaling $0.3 million. The Company’s net charge-offs as a percentage of average loans totaled 0.12% during the nine months ended September 30, 2023, compared to 0.24% during the nine months ended September 30, 2022.
Non-interest Income
Non-interest income totaled $2.5 million for the nine months ended September 30, 2023, compared to $2.8 million for the nine months ended September 30, 2022. The reduction resulted primarily from gains on the sale of securities than were experienced in 2017.
As of September 30, 2017, the Company’s net loans totaled $338.0 million, an increase of $15.3 millionpremises and $20.9 million compared to December 31, 2016 and September 30, 2016, respectively. The majority of loan growthequipment that occurred in the Bank’s commercial loan portfolio and was concentrated 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, during the third quarter of 2017,2022, but were not repeated in 2023.
45
Non-interest Expense
Non-interest expense totaled $21.7 million for the Bank completed initialnine months ended September 30, 2023, compared to $21.0 million for the nine months ended September 30, 2022. The increase resulted primarily from nonrecurring gains on the sale of OREO properties that offset non-interest expense in 2022, but were not repeated in 2023.
Balance Sheet Levels
As of September 30, 2023, the Company’s assets totaled $1,065.2 million, compared to $994.7 million as of December 31, 2022, an increase of 7.1%.
Loans
Total loans increased by $41.4 million, or 5.4%, as of September 30, 2023, compared to December 31, 2022. Loan volume increases during the first nine months of 2023 were driven primarily by growth in indirect consumer and commercial construction loans. Growth in indirect consumer lending was consistent with continued demand for the products collateralized through the Company's indirect program, including recreational vehicles, campers, boats, horse trailers and cargo trailers. Indirect loan growth tends to be seasonal due to its emphasis on outdoor recreational products, with growth typically more pronounced in the spring and early summer months. The increase in commercial construction (construction, land development and other land loans) was primarily attributable to continued growth in construction fundings on multi-family residential projects. The loan growth during the first nine months of an office complex along U.S. Highway 2802023 was partially offset by decreases in Birmingham. The office complex houses a retail branch of the Bank,residential real estate (including 1-4 family and multi-family) and commercial and industrial categories, as well as the Birmingham commercial lending teamdirect consumer and certain membersbranch retail consumer categories. Loans in direct consumer and branch retail were expected to decrease as they comprise the majority of the Bank’s executive management team. At the endALC’s remaining loan balances.
Deposit Growth
Deposits totaled $927.0 million as of the third quarter, the headquartersSeptember 30, 2023, compared to $870.0 million as of both Bancshares and the Bank were relocatedDecember 31, 2022. The year-to-date growth included an increase of $69.2 million in interest-bearing deposits, partially offset by a decrease of $12.2 million in noninterest-bearing deposits. The year-to-date shift to the newly completed office complex.
Additional financial resultsinterest-bearing deposits is consistent with deposit holders seeking to maximize interest earnings on their accounts. In addition, deposit growth for the first nine months of 2017 are summarized below.2023 included growth of $30.2 million in wholesale brokered deposits that were acquired in order to further enhance the Company’s liquidity position following the bank failures that began during the first quarter of 2023. As of September 30, 2023, core deposits, which exclude time deposits of $250 thousand or more and all brokered deposits, totaled $786.8 million, or 84.9% of total deposits, compared to $778.1 million, or 89.4% of total deposits, as of December 31, 2022.
|
Deployment of Funds Management seeks to deploy earning assets in an efficient manner to maximize net interest income while maintaining appropriate levels of liquidity to protect the safety and soundness of the organization. Management’s decisions during the first nine months of 2023, particularly following the bank failures that occurred, were focused on maintaining the Company’s strong liquidity position. As part of this focus, management elected to hold higher levels of cash and cash equivalents. Cash and cash equivalents totaled $66.1 million as of September 30, 2023, compared to $30.2 million as of December 31, 2022. Investment securities, including both the available-for-sale and held-to-maturity portfolios, totaled $127.8 million as of September 30, 2023, compared to $132.7 million as of December 31, 2022. The expected average life of securities in the investment portfolio was 3.9 years as of September 30, 2023, compared to 3.5 years as of December 31, 2022. Management will continue to evaluate opportunities to invest excess cash balances within the context of anticipated loan and deposit growth and current liquidity needs. Shareholders’ Equity Shareholders’ equity increased by $2.3 million, or 2.7%, as of September 30, 2023, compared to December 31, 2022. The increase in shareholders’ equity resulted from earnings, net of dividends paid, partially offset by the CECL transition adjustment which reduced retained earnings by $1.8 million, net of tax, as well as a net increase in accumulated other comprehensive loss of $1.7 million associated with fair value declines in the available-for-sale investment portfolio and reclassification adjustments associated with terminated interest rate swaps. Cash Dividends The Company declared cash dividends totaling $0.15 per share on its common stock during the nine months ended September 30, 2023, compared to cash dividends totaling $0.09 per share on its common stock during the nine months ended September 30, 2022. 46 Regulatory Capital During the nine months ended September 30, 2023, 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, 2023, the Bank’s common equity Tier 1 capital and Tier 1 risk-based capital ratios were each 10.81%. Its total capital ratio was 12.06%, and its Tier 1 leverage ratio was 9.09%. Liquidity As of September 30, 2023, the |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company continues to maintain excess funding capacity sufficient to provide adequate liquidity for loan growth, capital expenditures and ongoing operations. The Company benefits from a strong core 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”)FHLB advances and brokered deposits. Management believesIn addition, the Company has access to the FRB's discount window and its Bank Term Funding Program (BTFP), the latter of which was established in response to the recent liquidity events that continued successhave occurred in loan growththe banking industry. Both the discount window and the BTFP allow borrowing on pledged collateral that includes eligible investment securities and, in certain circumstances, eligible loans. In response to heightened liquidity concerns in the banking industry, during 2023 management undertook measures designed to enhance the Company’s liquidity position. These procedures included holding higher levels of on-balance sheet cash, as well as enhancing the availability of off-balance sheet borrowing capacity. As part of these efforts, at bothduring the Bank and ALC, combined with adherence to established credit underwriting standards, will strengthen boththird quarter of 2023, the diversity and credit qualityCompany completed the establishment of additional borrowing capacity through the FRB's discount window, primarily via the pledging of the majority of the Company’s indirect loan portfolio while improving interest and fee incomeas collateral. Due to these efforts, the Company’s immediate borrowing capacity based on loans.collateral pledged through the discount window increased to $146.6 million as of September 30, 2023, compared to $1.2 million as of December 31, 2022.
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, 20172023 and 2016.2022. 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.
47
|
| 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, 2023 |
|
| September 30, 2022 |
| ||||||||||||||||||
|
| Average |
|
| Interest |
|
| Annualized |
|
| Average |
|
| Interest |
|
| Annualized |
| ||||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total loans (Note A) |
| $ | 821,294 |
|
| $ | 12,584 |
|
|
| 6.08 | % |
| $ | 743,145 |
|
| $ | 9,750 |
|
|
| 5.21 | % |
Taxable investment securities |
|
| 123,290 |
|
|
| 682 |
|
|
| 2.19 | % |
|
| 148,964 |
|
|
| 748 |
|
|
| 1.99 | % |
Tax-exempt investment securities |
|
| 1,037 |
|
|
| 3 |
|
|
| 1.15 | % |
|
| 2,322 |
|
|
| 8 |
|
|
| 1.37 | % |
Federal Home Loan Bank stock |
|
| 1,001 |
|
|
| 21 |
|
|
| 8.32 | % |
|
| 1,808 |
|
|
| 17 |
|
|
| 3.73 | % |
Federal funds sold |
|
| 1,069 |
|
|
| 14 |
|
|
| 5.20 | % |
|
| 1,984 |
|
|
| 11 |
|
|
| 2.20 | % |
Interest-bearing deposits in banks |
|
| 44,379 |
|
|
| 598 |
|
|
| 5.35 | % |
|
| 23,166 |
|
|
| 136 |
|
|
| 2.33 | % |
Total interest-earning assets |
|
| 992,070 |
|
|
| 13,902 |
|
|
| 5.56 | % |
|
| 921,389 |
|
|
| 10,670 |
|
|
| 4.59 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Noninterest-earning assets |
|
| 61,235 |
|
|
|
|
|
|
|
|
| 64,593 |
|
|
|
|
|
|
| ||||
Total |
| $ | 1,053,305 |
|
|
|
|
|
|
|
| $ | 985,982 |
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Interest-bearing deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Demand deposits |
| $ | 206,540 |
|
| $ | 176 |
|
|
| 0.34 | % |
| $ | 243,131 |
|
| $ | 182 |
|
|
| 0.30 | % |
Savings deposits |
|
| 244,932 |
|
|
| 1,570 |
|
|
| 2.54 | % |
|
| 211,724 |
|
|
| 342 |
|
|
| 0.64 | % |
Time deposits |
|
| 323,824 |
|
|
| 2,476 |
|
|
| 3.03 | % |
|
| 209,361 |
|
|
| 340 |
|
|
| 0.64 | % |
Total interest-bearing deposits |
|
| 775,296 |
|
|
| 4,222 |
|
|
| 2.16 | % |
|
| 664,216 |
|
|
| 864 |
|
|
| 0.52 | % |
Noninterest-bearing demand deposits |
|
| 161,381 |
|
|
| — |
|
|
| — |
|
|
| 183,612 |
|
|
| — |
|
|
| — |
|
Total deposits |
|
| 936,677 |
|
|
| 4,222 |
|
|
| 1.79 | % |
|
| 847,828 |
|
|
| 864 |
|
|
| 0.40 | % |
Borrowings |
|
| 19,468 |
|
|
| 197 |
|
|
| 4.01 | % |
|
| 45,427 |
|
|
| 291 |
|
|
| 2.54 | % |
Total funding costs |
|
| 956,145 |
|
|
| 4,419 |
|
|
| 1.83 | % |
|
| 893,255 |
|
|
| 1,155 |
|
|
| 0.51 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Other noninterest-bearing liabilities |
|
| 10,263 |
|
|
|
|
|
|
|
|
| 8,642 |
|
|
|
|
|
|
| ||||
Shareholders’ equity |
|
| 86,897 |
|
|
|
|
|
|
|
|
| 84,085 |
|
|
|
|
|
|
| ||||
Total |
| $ | 1,053,305 |
|
|
|
|
|
|
|
| $ | 985,982 |
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Net interest income (Note B) |
|
|
|
| $ | 9,483 |
|
|
|
|
|
|
|
| $ | 9,515 |
|
|
|
| ||||
Net interest margin |
|
|
|
|
|
|
|
| 3.79 | % |
|
|
|
|
|
|
|
| 4.10 | % |
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 |
|
| 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 | % |
48
|
| Nine Months Ended |
|
| Nine Months Ended |
| ||||||||||||||||||
|
| September 30, 2023 |
|
| September 30, 2022 |
| ||||||||||||||||||
|
| Average |
|
| Interest |
|
| Annualized Yield/ |
|
| Average |
|
| Interest |
|
| Annualized Yield/ |
| ||||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total loans (Note A) |
| $ | 795,033 |
|
| $ | 35,330 |
|
|
| 5.94 | % |
| $ | 713,015 |
|
| $ | 27,339 |
|
|
| 5.13 | % |
Taxable investment securities |
|
| 126,341 |
|
|
| 2,033 |
|
|
| 2.15 | % |
|
| 142,425 |
|
|
| 1,896 |
|
|
| 1.78 | % |
Tax-exempt investment securities |
|
| 1,048 |
|
|
| 10 |
|
|
| 1.28 | % |
|
| 2,543 |
|
|
| 31 |
|
|
| 1.63 | % |
Federal Home Loan Bank stock |
|
| 1,347 |
|
|
| 75 |
|
|
| 7.44 | % |
|
| 1,165 |
|
|
| 33 |
|
|
| 3.79 | % |
Federal funds sold |
|
| 1,415 |
|
|
| 51 |
|
|
| 4.82 | % |
|
| 853 |
|
|
| 12 |
|
|
| 1.88 | % |
Interest-bearing deposits in banks |
|
| 35,437 |
|
|
| 1,362 |
|
|
| 5.14 | % |
|
| 45,133 |
|
|
| 265 |
|
|
| 0.79 | % |
Total interest-earning assets |
|
| 960,621 |
|
|
| 38,861 |
|
|
| 5.41 | % |
|
| 905,134 |
|
|
| 29,576 |
|
|
| 4.37 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Noninterest-earning assets |
|
| 61,484 |
|
|
|
|
|
|
|
|
| 65,379 |
|
|
|
|
|
|
| ||||
Total |
| $ | 1,022,105 |
|
|
|
|
|
|
|
| $ | 970,513 |
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Interest-bearing deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Demand deposits |
| $ | 216,445 |
|
| $ | 557 |
|
|
| 0.34 | % |
| $ | 249,183 |
|
| $ | 438 |
|
|
| 0.24 | % |
Savings deposits |
|
| 221,293 |
|
|
| 3,279 |
|
|
| 1.98 | % |
|
| 206,294 |
|
|
| 693 |
|
|
| 0.45 | % |
Time deposits |
|
| 297,708 |
|
|
| 5,845 |
|
|
| 2.62 | % |
|
| 208,621 |
|
|
| 833 |
|
|
| 0.53 | % |
Total interest-bearing deposits |
|
| 735,446 |
|
|
| 9,681 |
|
|
| 1.76 | % |
|
| 664,098 |
|
|
| 1,964 |
|
|
| 0.40 | % |
Noninterest-bearing demand deposits |
|
| 162,084 |
|
|
| — |
|
|
| — |
|
|
| 182,862 |
|
|
| — |
|
|
| — |
|
Total deposits |
|
| 897,530 |
|
|
| 9,681 |
|
|
| 1.44 | % |
|
| 846,960 |
|
|
| 1,964 |
|
|
| 0.31 | % |
Borrowings |
|
| 29,375 |
|
|
| 940 |
|
|
| 4.28 | % |
|
| 27,994 |
|
|
| 562 |
|
|
| 2.68 | % |
Total funding costs |
|
| 926,905 |
|
|
| 10,621 |
|
|
| 1.53 | % |
|
| 874,954 |
|
|
| 2,526 |
|
|
| 0.39 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Other noninterest-bearing liabilities |
|
| 9,722 |
|
|
|
|
|
|
|
|
| 8,833 |
|
|
|
|
|
|
| ||||
Shareholders’ equity |
|
| 85,478 |
|
|
|
|
|
|
|
|
| 86,726 |
|
|
|
|
|
|
| ||||
Total |
| $ | 1,022,105 |
|
|
|
|
|
|
|
| $ | 970,513 |
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Net interest income (Note B) |
|
|
|
| $ | 28,240 |
|
|
|
|
|
|
|
| $ | 27,050 |
|
|
|
| ||||
Net interest margin |
|
|
|
|
|
|
|
| 3.93 | % |
|
|
|
|
|
|
|
| 4.00 | % |
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
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, 2023 |
|
| Nine Months Ended September 30, 2023 |
| ||||||||||||||||||
|
| Compared to |
|
| Compared to |
| ||||||||||||||||||
|
| Three Months Ended September 30, 2022 |
|
| Nine Months Ended September 30, 2022 |
| ||||||||||||||||||
|
| 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 |
| $ | 1,025 |
|
| $ | 1,809 |
|
| $ | 2,834 |
|
| $ | 3,145 |
|
| $ | 4,846 |
|
| $ | 7,991 |
|
Taxable investment securities |
|
| (129 | ) |
|
| 63 |
|
|
| (66 | ) |
|
| (214 | ) |
|
| 351 |
|
|
| 137 |
|
Tax-exempt investment securities |
|
| (4 | ) |
|
| (1 | ) |
|
| (5 | ) |
|
| (18 | ) |
|
| (3 | ) |
|
| (21 | ) |
Federal Home Loan Bank stock |
|
| (8 | ) |
|
| 12 |
|
|
| 4 |
|
|
| 5 |
|
|
| 37 |
|
|
| 42 |
|
Federal funds sold |
|
| (5 | ) |
|
| 8 |
|
|
| 3 |
|
|
| 8 |
|
|
| 31 |
|
|
| 39 |
|
Interest-bearing deposits in banks |
|
| 125 |
|
|
| 337 |
|
|
| 462 |
|
|
| (57 | ) |
|
| 1,154 |
|
|
| 1,097 |
|
Total interest-earning assets |
|
| 1,004 |
|
|
| 2,228 |
|
|
| 3,232 |
|
|
| 2,869 |
|
|
| 6,416 |
|
|
| 9,285 |
|
Interest expense on: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Demand deposits |
|
| (27 | ) |
|
| 21 |
|
|
| (6 | ) |
|
| (58 | ) |
|
| 177 |
|
|
| 119 |
|
Savings deposits |
|
| 54 |
|
|
| 1,174 |
|
|
| 1,228 |
|
|
| 50 |
|
|
| 2,536 |
|
|
| 2,586 |
|
Time deposits |
|
| 186 |
|
|
| 1,950 |
|
|
| 2,136 |
|
|
| 356 |
|
|
| 4,656 |
|
|
| 5,012 |
|
Borrowings |
|
| (166 | ) |
|
| 72 |
|
|
| (94 | ) |
|
| 28 |
|
|
| 350 |
|
|
| 378 |
|
Total interest-bearing liabilities |
|
| 47 |
|
|
| 3,217 |
|
|
| 3,264 |
|
|
| 376 |
|
|
| 7,719 |
|
|
| 8,095 |
|
Increase (decrease) in net interest income |
| $ | 957 |
|
| $ | (989 | ) |
| $ | (32 | ) |
| $ | 2,493 |
|
| $ | (1,303 | ) |
| $ | 1,190 |
|
Interest income earned on loans atincreased by $9.3 million, comparing the Bank increased in both the three- and nine- month periodsnine months ended September 30, 2017 compared2023 to the corresponding periods ofnine months ended September 30, 2022. Of the previous year as a result ofincrease, $6.4 million was attributable to higher average yields on interest-earning assets, while $2.9 million was attributable to growth in average loan volume. At ALC, despitevolume comparing the two periods. The increase in average yield was attributable to the rise in market interest rates that began in 2022 and has continued growth in loan volume,2023. The increase in interest income decreased during both 2017 periods compared to the corresponding periods of 2016 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 of ALC’s portfolio,associated 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 strategywas attributable 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 in 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, as well as modest increases in rate commensurate with the interest rate environment experienced during the nine months ended September 30, 2017.2023 of $41.4 million, or 5.4%.
We expect that continuedThe increase in interest income was partially offset by an increase in interest expense of $8.1 million, comparing the nine months ended September 30, 2023 to the nine months ended September 30, 2022. Of the increase, $7.7 million was attributable to the rise in market interest rates, while $0.4 million was attributable to growth in interest-bearing liabilities, primarily time deposits and borrowings. During the latter half of 2022 and through the first nine months of 2023, the Company has focused a portion of its deposit marketing efforts on growth in time deposits of various maturities in an effort to increase the predictability of funding cash flows. Additionally, the Company has utilized wholesale brokered deposits and short-term FHLB borrowings to a larger extent, particularly during the nine months ended September 30, 2023, in order to enhance the Company’s on-balance sheet liquidity position. Efforts to enhance the Company’s on-balance sheet liquidity were taken primarily as precautionary measures in the wake of liquidity events that impacted the banking industry during 2023.
The rising market interest rate environment has had, and continues to have, a significant impact on the Company and the banking industry in general. Beginning in March 2022 and through September 30, 2023, the FRB raised the federal funds rate by a total of 525 basis points. Statements by FRB officials have indicated that further interest rate increases are possible to address ongoing inflationary pressures. While the Company has generally been positioned to benefit from the rising interest rate environment that has occurred, the Company’s net loan volumeinterest margin began to decline during the nine months ended September 30, 2023 as the cost of interest-bearing liabilities increased at botha faster pace than interest-earning assets. Further, in connection with the Bank and ALCliquidity events that have occurred in the banking industry, competition for deposits has intensified significantly. This increased competition, coupled with loansthe volatility of sufficient credit quality will enhancethe industry, has introduced additional uncertainty into the market. Should market interest rates continue to rise or reduce at significant levels, the Company’s 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 competitionbe negatively impacted.
50
Provision for quality loan opportunities, lower reinvestment yields and fewer opportunities to reduce future funding costs.Credit Losses
Provision (Reduction in Reserve) for Loan Losses
The provision for loancredit losses is an expense usedwas $0.8 million during the nine months ended September 30, 2023, compared to establish$2.8 million during the nine months ended September 30, 2022. The year-to-date decrease in 2023 compared to 2022 was primarily the result of the cessation of business strategy at ALC, which has led to significantly reduced net charge-offs as ALC’s loans have paid down. Net charge-offs on ALC loans totaled $0.3 million, or 2.09% of average loans, during the nine months ended September 30, 2023, compared to $1.5 million, or 6.38% of average loans, during the nine months ended September 30, 2022.
While the Company experienced improved charge-off metrics during the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022, the timing of charge-offs, economic developments, and other factors that could impact the provision for credit losses cannot be fully predicted with certainty. Sustained levels of high inflation, combined with the recent rapid rise in market interest rates, could negatively impact the Company’s borrowers, which could lead to increased provisions for credit losses in the future.
Effective January 1, 2023, the Company adopted the CECL model to account for credit losses on financial instruments, including loans and leases, unfunded commitments and held-to-maturity securities. The adoption of the CECL model resulted in a transition adjustment totaling $2.4 million, increasing the Company’s allowance for credit losses on loans and leases by $2.1 million, and establishing a reserve for unfunded commitments of $0.3 million. As of September 30, 2023, the Company’s allowance for credit losses totaled 1.40% of total loans, compared to 1.22% as of December 31, 2022. While management believes that the allowance for loan losses. Actual loancredit losses net of recoveries, are charged directly toon loans and leases, as well as the allowancereserve 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 allowanceunfunded commitments, was sufficient to absorb life-of-loan credit losses inherent in the portfoliobased on circumstances existing as of the balance sheet date. The following table presents the provision (reduction in reserve) for loan losses for the Bank and ALC for 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 |
At 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,date, combined with continued net recoveries, enabled the Bank to reduce the allowance for loan losses by $0.1 million during the third quarter. The Bank’s allowance for loan losses as a percentage of loans totaled 0.96% as of September 30, 2017, compared to 1.01% as of December 31, 2016.
At ALC, the provision for loan losses decreased during both the three-reasonable 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.
For the Company, 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 insupportable forecasts, the determination of the allowance is complex and requires judgment by management about the effects of matters that are adequate, our conclusions are based on estimates andinherently uncertain. Changing economic circumstances or forecasts, or changes in management’s judgments and are, therefore, approximate and imprecise. Factors beyond our control, such as changesestimates, could result in economic conditions impacting the national economy or the local service areasadditional credit loss expense 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.future periods.
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 significantincome for the periods indicated:
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||||||||||||||||||
|
| 2023 |
|
| 2022 |
|
| $ Change |
|
| % Change |
|
| 2023 |
|
| 2022 |
|
| $ Change |
|
| % Change |
| ||||||||
|
| (Dollars in Thousands) |
|
|
|
|
| (Dollars in Thousands) |
|
|
|
| ||||||||||||||||||||
Service charges and other fees on deposit accounts |
| $ | 302 |
|
| $ | 311 |
|
| $ | (9 | ) |
|
| (2.9 | )% |
| $ | 869 |
|
| $ | 904 |
|
| $ | (35 | ) |
|
| (3.9 | )% |
Bank-owned life insurance |
|
| 119 |
|
|
| 112 |
|
|
| 7 |
|
|
| 6.3 | % |
|
| 348 |
|
|
| 335 |
|
|
| 13 |
|
|
| 3.9 | % |
Gain on sales of premises and equipment and other assets |
|
| 18 |
|
|
| 278 |
|
|
| (260 | ) |
|
| (93.5 | )% |
|
| 18 |
|
|
| 301 |
|
|
| (283 | ) |
|
| (94.0 | )% |
Lease income |
|
| 241 |
|
|
| 210 |
|
|
| 31 |
|
|
| 14.8 | % |
|
| 707 |
|
|
| 635 |
|
|
| 72 |
|
|
| 11.3 | % |
ATM fee income |
|
| 93 |
|
|
| 125 |
|
|
| (32 | ) |
|
| (25.6 | )% |
|
| 315 |
|
|
| 403 |
|
|
| (88 | ) |
|
| (21.8 | )% |
Other income |
|
| 64 |
|
|
| 52 |
|
|
| 12 |
|
|
| 23.1 | % |
|
| 208 |
|
|
| 195 |
|
|
| 13 |
|
|
| 6.7 | % |
Total non-interest income |
| $ | 837 |
|
| $ | 1,088 |
|
| $ | (251 | ) |
|
| (23.1 | )% |
| $ | 2,465 |
|
| $ | 2,773 |
|
| $ | (308 | ) |
|
| (11.1 | )% |
51
The Company’s non-interest income items and fluctuations is provided belowdecreased by $0.3 million comparing 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 months ended September 30, 2017 compared2023 to the three and nine months ended September 30, 2016 resulted2022 due primarily to gains on the sale of premises and equipment that occurred during the third quarter of 2022, but were not repeated in 2023. In recent periods, the Company’s sources of non-interest revenue have not fluctuated significantly, with the exception of nonrecurring increases or decreases that have occurred from increased fees generatedtime to time due to gains or losses on sales of assets or other nonrecurring sources. The majority of the Company’s sources of non-interest income are relatively stable and are not expected to change significantly in the near term. However, non-interest revenues earned from service charges and other fees on deposit accounts. Periodically, management evaluates the fee structure on the Bank’s deposit accounts have generally declined in order to ensure that fees charged are competitive in the currentrecent years for a number of reasons, including a changing regulatory environment and compliantassociated with regulatory guidance. In addition, managementthese types of revenues. Management continues to evaluate opportunities for depositto add non-interest revenue streams or grow existing streams; however, significant 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, 2017 compared to the corresponding periods of 2016 resulted primarily from a focus by ALC management on product lines that dois not facilitate the generation of these types of sales. Although revenues in this category decreased during the three and nine months ended September 30, 2017 compared to 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. Management continues to seek opportunities to grow revenues 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 categoryexpected in the future.near term.
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 sources in the future.
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 discussion of certain significantindicated:
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||||||||||||||||||
|
| 2023 |
|
| 2022 |
|
| $ Change |
|
| % Change |
|
| 2023 |
|
| 2022 |
|
| $ Change |
|
| % Change |
| ||||||||
|
| (Dollars in Thousands) |
|
|
|
|
| (Dollars in Thousands) |
|
|
|
| ||||||||||||||||||||
Salaries and employee benefits |
| $ | 4,120 |
|
| $ | 4,007 |
|
| $ | 113 |
|
|
| 2.8 | % |
| $ | 12,310 |
|
| $ | 12,389 |
|
| $ | (79 | ) |
|
| (0.6 | )% |
Net occupancy and equipment |
|
| 897 |
|
|
| 861 |
|
|
| 36 |
|
|
| 4.2 | % |
|
| 2,625 |
|
|
| 2,468 |
|
|
| 157 |
|
|
| 6.4 | % |
Computer services |
|
| 464 |
|
|
| 417 |
|
|
| 47 |
|
|
| 11.3 | % |
|
| 1,315 |
|
|
| 1,224 |
|
|
| 91 |
|
|
| 7.4 | % |
Insurance expense and assessments |
|
| 423 |
|
|
| 310 |
|
|
| 113 |
|
|
| 36.5 | % |
|
| 1,156 |
|
|
| 970 |
|
|
| 186 |
|
|
| 19.2 | % |
Fees for professional services |
|
| 331 |
|
|
| 263 |
|
|
| 68 |
|
|
| 25.9 | % |
|
| 735 |
|
|
| 811 |
|
|
| (76 | ) |
|
| (9.4 | )% |
Postage, stationery and supplies |
|
| 151 |
|
|
| 164 |
|
|
| (13 | ) |
|
| (7.9 | )% |
|
| 472 |
|
|
| 469 |
|
|
| 3 |
|
|
| 0.6 | % |
Telephone/data communications |
|
| 128 |
|
|
| 159 |
|
|
| (31 | ) |
|
| (19.5 | )% |
|
| 479 |
|
|
| 518 |
|
|
| (39 | ) |
|
| (7.5 | )% |
Collection and recoveries |
|
| 71 |
|
|
| 57 |
|
|
| 14 |
|
|
| 24.6 | % |
|
| 252 |
|
|
| 176 |
|
|
| 76 |
|
|
| 43.2 | % |
Directors fees |
|
| 94 |
|
|
| 98 |
|
|
| (4 | ) |
|
| (4.1 | )% |
|
| 284 |
|
|
| 301 |
|
|
| (17 | ) |
|
| (5.6 | )% |
Software amortization |
|
| 86 |
|
|
| 133 |
|
|
| (47 | ) |
|
| (35.3 | )% |
|
| 313 |
|
|
| 331 |
|
|
| (18 | ) |
|
| (5.4 | )% |
Other real estate/foreclosure expense, net |
|
| 9 |
|
|
| (5 | ) |
|
| 14 |
|
|
| (280.0 | )% |
|
| 30 |
|
|
| (320 | ) |
|
| 350 |
|
|
| (109.4 | )% |
Other expense |
|
| 545 |
|
|
| 568 |
|
|
| (23 | ) |
|
| (4.0 | )% |
|
| 1,769 |
|
|
| 1,629 |
|
|
| 140 |
|
|
| 8.6 | % |
Total non-interest expense |
| $ | 7,319 |
|
| $ | 7,032 |
|
| $ | 287 |
|
|
| 4.1 | % |
| $ | 21,740 |
|
| $ | 20,966 |
|
| $ | 774 |
|
|
| 3.7 | % |
The Company’s non-interest expense items and fluctuations is provided below the table.
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, the largest category of non-interest expense, totaled $3.0 million at the Bank and $1.4 million at ALC for the third quarter of 2017, compared to $2.9 million at the Bank and $1.4 million at ALC during the third quarter of 2016. For the nine-month period ended September 30, 2017, salaries and benefits expense totaled $8.7 million at the Bank and $4.3 million at ALC, compared to $8.3 million at the Bank and $4.4 million at ALC for the nine-month period ended September 30, 2016. The expense amounts for the Bank are inclusive of salaries and benefits paid to certain members of management and employees for work performed on behalf of Bancshares, as well as current and deferred fees paid to members of the Bank’s and Bancshares’ Boards 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 expense at the Bank. Occupancy and equipment expense is expected to increase over time 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, 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, and the headquarters of 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 utilizedincreased 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 and ALC utilize different core processors. The increase in expense in this category3.7% comparing the nine months ended September 30, 20172023 to the nine months ended September 30, 2016 was associated with additional information technology services provided by2022. The majority of the Bank’s core processorincrease resulted from nonrecurring gains on the sale of properties that significantly enhancedreduced other real/estate expense in 2022, but were not repeated in 2023. In addition, the Bank’s technology platform, including increased protections against data security risk and enhanced disaster recovery planning. Given the rapid pace of technological change,Company has experienced 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 categorycategories commensurate with the inflationary environment. Increases in certain categories of non-interest expense includes the cost of corporate insurance maintainedwere partially offset by the Company, as well as FDIC insurancedecreases in other categories, most notably salaries 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 determinedemployee benefits which decreased by regulatory examinations. The decrease in this expense category0.6% comparing the three and nine months ended September 30, 20172023 to the three and nine months ended September 30, 20162022. The reduction in salaries and benefits expense resulted primarily from reductions in FDIC assessments. In the near term, based on current regulatory guidelines, this categoryimpact of expense is expected to decline. However, over a longer-term time horizon, management expects this category of expenses to increase based on growththe strategic initiatives undertaken by the Company beginning in the Company’s balance sheet and expansionthird quarter of 2021 to, among other things, improve the Company’s activities.
Fees for Professional Services
Fees for professional services include fees associated with legal, accountingoperating efficiency. These initiatives reduced the Company’s expense profile significantly in 2022 and, auditing, compliancein some expense areas such as salaries and other consulting services. The decrease in these expenses forbenefits, continued to benefit the three andCompany during the nine months ended September 30, 2017 compared2023. However, the current inflationary environment is expected to the same periodscontinue to put upward pressure on non-interest expenses. Accordingly, management will remain focused on efforts to streamline business processes in 2016 resulted primarily from a decrease in professional fees associated with collections and other legal matters, which 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 withan effort to continue to improve the Company’s growth and development.overall efficiency levels.
Postage, Stationery and Supplies
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 efforts are expected to create long-term benefits in improved efficiency and technical capabilities that will benefit both 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 / foreclosure 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 reduction in the level of OREO at both 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 cannot be expected with any level of certainty. Furthermore, if the national or local economy weakens, or if real estate values decline further in the Company’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 expected to be offset in future quarters; however, management continues to maintain vigilance in efforts to reduce these costs where opportunities to do so exist.
Provision for Income Taxes
The provision for income taxes was $0.2$2.0 million for both of the three-month periods ended September 30, 2017 and 2016. The Company’s effective tax rate was 21.4%$1.4 million for the third quarter of 2017, compared to 22.8% for the third quarter of 2016. For the nine months ended September 30, 20172023 and 2016,2022, respectively, and the Company’s effective tax rate was 23.0%24.4% and 23.4%23.7%, 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.
52
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 2.73.9 years and 3.13.5 years as of September 30, 20172023 and December 31, 2016,2022, 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,loss, a separate component of shareholders’ equity. As of September 30, 2017,2023, available-for-sale securities totaled $158.4$126.6 million, or 85.3%99.0% of the total investment portfolio, compared to $181.9$130.8 million, or 87.5%98.6% of the total investment portfolio, as of December 31, 2016.2022. 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, 2017,2023, held-to-maturity securities totaled $27.4$1.3 million, or 14.7%1.0% of the total investment portfolio, compared to $25.9$1.9 million, or 12.5%1.4% of the total investment portfolio, as of December 31, 2016.2022. Held-to-maturity securities consisted of commercial mortgage-backed securities, obligations of U.S. government-sponsored agencies, and obligations of state and political subdivisions.
Due to the increasing interest rate environment, during the nine months ended September 30, 2023, gross unrealized losses increased, particularly within the Company’s available-for-sale portfolio. Gross unrealized losses in the available-for-sale portfolio totaled $12.8 million as of September 30, 2023, compared to $11.1 million as of December 31, 2022. Unrealized losses within the available-for-sale portfolio were recognized, net of tax, in accumulated other comprehensive loss.
As of September 30, 2023, the Company evaluated both the available-for-sale and held-to-maturity portfolios for credit loss in accordance with the revised accounting guidance of ASC 326. Based on these evaluations, management concluded that no credit losses were included in either portfolio and that the unrealized losses in both portfolios resulted from the prevailing interest rate environment.
Loans and Allowance for LoanCredit Losses
The Company’s total loan portfolio increased by $41.4 million, or 5.4%, as of September 30, 2023, compared to December 31, 2022. 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 inwell as the allowance for loancredit losses, atas of the end of each of the most recent five quarters as of September 30, 2017 at both2023:
|
| Quarter Ended |
| |||||||||||||||||
|
| 2023 |
|
| 2022 |
| ||||||||||||||
|
| September |
|
| June |
|
| March |
|
| December |
|
| September |
| |||||
|
| (Dollars in Thousands) |
| |||||||||||||||||
Real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Construction, land development and other land loans |
| $ | 90,051 |
|
| $ | 91,231 |
|
| $ | 69,398 |
|
| $ | 53,914 |
|
| $ | 36,230 |
|
Secured by 1-4 family residential properties |
|
| 83,876 |
|
|
| 85,101 |
|
|
| 86,622 |
|
|
| 87,995 |
|
|
| 84,452 |
|
Secured by multi-family residential properties |
|
| 56,506 |
|
|
| 54,719 |
|
|
| 63,368 |
|
|
| 67,852 |
|
|
| 72,377 |
|
Secured by non-farm, non-residential properties |
|
| 199,116 |
|
|
| 204,270 |
|
|
| 198,266 |
|
|
| 200,156 |
|
|
| 200,707 |
|
Commercial and industrial loans |
|
| 59,369 |
|
|
| 60,568 |
|
|
| 65,708 |
|
|
| 73,546 |
|
|
| 65,935 |
|
Consumer loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Direct |
|
| 6,544 |
|
|
| 7,593 |
|
|
| 8,435 |
|
|
| 9,851 |
|
|
| 11,950 |
|
Branch retail |
|
| 9,648 |
|
|
| 10,830 |
|
|
| 12,222 |
|
|
| 13,992 |
|
|
| 15,878 |
|
Indirect |
|
| 310,190 |
|
|
| 300,182 |
|
|
| 271,870 |
|
|
| 266,567 |
|
|
| 262,742 |
|
Total loans |
| $ | 815,300 |
|
| $ | 814,494 |
|
| $ | 775,889 |
|
| $ | 773,873 |
|
| $ | 750,271 |
|
Allowance for credit losses |
|
| 11,380 |
|
|
| 11,536 |
|
|
| 11,599 |
|
|
| 9,422 |
|
|
| 9,373 |
|
Net loans |
| $ | 803,920 |
|
| $ | 802,958 |
|
| $ | 764,290 |
|
| $ | 764,451 |
|
| $ | 740,898 |
|
53
The tables below summarize changes in the Bankallowance for credit losses on loans and ALC.leases for each of the most recent five quarters as of September 30, 2023:
Bank |
| Quarter Ended |
| |||||||||||||||||||||||||||||||||||||
2017 | 2016 |
| 2023 |
|
| 2022 |
| |||||||||||||||||||||||||||||||||
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 |
| $ | 11,536 |
|
| $ | 11,599 |
|
| $ | 9,422 |
|
| $ | 9,373 |
|
| $ | 8,751 |
| ||||||||||
Charge-offs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Construction, land development and other land loans | — | — | — | — | — |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| |||||||||||||||
Secured by 1-4 family residential properties | — | — | — | (56 | ) | (3 | ) |
|
| (41 | ) |
|
| (47 | ) |
|
| (8 | ) |
|
| (30 | ) |
|
| (3 | ) | |||||||||||||
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 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||||||||||
Consumer loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Direct |
|
| (109 | ) |
|
| (197 | ) |
|
| (215 | ) |
|
| (451 | ) |
|
| (417 | ) | ||||||||||||||||||||
Branch retail |
|
| (93 | ) |
|
| (111 | ) |
|
| (155 | ) |
|
| (111 | ) |
|
| (200 | ) | ||||||||||||||||||||
Indirect |
|
| (198 | ) |
|
| (146 | ) |
|
| (156 | ) |
|
| (144 | ) |
|
| (136 | ) | ||||||||||||||||||||
Total charge-offs | (1 | ) | (76 | ) | (2 | ) | (70 | ) | (47 | ) |
|
| (441 | ) |
|
| (501 | ) |
|
| (534 | ) |
|
| (736 | ) |
|
| (756 | ) | ||||||||||
Recoveries | 27 | 81 | 114 | 28 | 25 |
|
| 225 |
|
|
| 228 |
|
|
| 319 |
|
|
| 258 |
|
|
| 213 |
| |||||||||||||||
Net recoveries (charge-offs) | 26 |
| 5 |
| 112 |
| (42 | ) | (22 | ) | ||||||||||||||||||||||||||||||
Provision (reduction in reserve) for loan losses | (130 | ) | — |
| — |
| 1,235 |
| 100 |
| ||||||||||||||||||||||||||||||
Net charge-offs |
|
| (216 | ) |
|
| (273 | ) |
|
| (215 | ) |
|
| (478 | ) |
|
| (543 | ) | ||||||||||||||||||||
Impact of adopting CECL |
|
| — |
|
|
| — |
|
|
| 2,123 |
|
|
| — |
|
|
| — |
| ||||||||||||||||||||
Provision for credit losses |
|
| 60 |
|
|
| 210 |
|
|
| 269 |
|
|
| 527 |
|
|
| 1,165 |
| ||||||||||||||||||||
Ending balance | $ | 2,422 | $ | 2,526 | $ | 2,521 | $ | 2,409 | $ | 1,216 |
| $ | 11,380 |
|
| $ | 11,536 |
|
| $ | 11,599 |
|
| $ | 9,422 |
|
| $ | 9,373 |
| ||||||||||
as a percentage of loans | 0.96 | % | 1.03 | % | 1.07 | % | 1.01 | % | 0.52 | % | ||||||||||||||||||||||||||||||
Ending balance as a percentage of loans |
|
| 1.40 | % |
|
| 1.42 | % |
|
| 1.49 | % |
|
| 1.22 | % |
|
| 1.25 | % | ||||||||||||||||||||
Net charge-offs as a percentage of average loans |
|
| 0.10 | % |
|
| 0.14 | % |
|
| 0.11 | % |
|
| 0.25 | % |
|
| 0.29 | % |
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 | % |
The adoption of CECL was most impactful on the Company’s consumer indirect loan portfolio due primarily to the extension of the loss estimate period to the estimated life of loans in this category. As of January 1, 2023, the estimated average remaining life of the indirect portfolio was between four and five years. As of September 30, 2023, the estimated average remaining life of the indirect portfolio was between five and six years. The branch retail portfolio, which represents indirect lending conducted by ALC, was similarly impacted by the transition to CECL. In addition, the Company’s consumer portfolios were impacted by current economic forecasts using data provided by the Federal Reserve on inflation, unemployment, and the forecasted movement of interest rates.
Reserve for Unfunded Lending Commitments
In connection with the adoption of the CECL accounting model, the Company also reserved approximately $0.3 million in other liabilities for unfunded lending commitments. Unfunded lending commitments are off-balance sheet arrangements that represent unconditional commitments of the Company to lend to a borrower that are unfunded as of the balance sheet date. These may include unfunded loan commitments, standby letters of credit, and financial guarantees. The CECL accounting guidance requires that an estimate of expected credit loss be measured on commitments in which an entity is exposed to credit risk via a present contractual obligation to extend credit unless the obligation is unconditionally cancellable by the issuer. For the Company, unconditional lending commitments generally include unfunded term loan agreements, home equity lines of credit, lines of credit, and demand deposit account overdraft protection. As of September 30, 2023, the Company’s reserve for unfunded commitments, which is recorded in other liabilities in the Company’s consolidated balance sheets, totaled $0.5 million. No reserve for unfunded commitments was recorded by the Company as of December 31, 2022.
54
Nonperforming Assets
Nonperforming assets at the end of the five most recent quarters as of September 30, 20172023 were as follows:
Consolidated |
| Quarter Ended |
| |||||||||||||||||||||||||||||||||||||
2017 | 2016 |
| 2023 |
|
| 2022 |
| |||||||||||||||||||||||||||||||||
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 |
| $ | 2,432 |
|
| $ | 979 |
|
| $ | 1,214 |
|
| $ | 1,651 |
|
| $ | 2,077 |
| ||||||||||
Other real estate owned | 3,819 | 4,351 | 4,587 | 4,858 | 5,391 |
|
| 617 |
|
|
| 617 |
|
|
| 617 |
|
|
| 686 |
|
|
| 686 |
| |||||||||||||||
Total | $ | 5,775 | $ | 6,198 | $ | 6,792 | $ | 7,275 | $ | 7,657 |
| $ | 3,049 |
|
| $ | 1,596 |
|
| $ | 1,831 |
|
| $ | 2,337 |
|
| $ | 2,763 |
| ||||||||||
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 | % |
|
| 0.29 | % |
|
| 0.15 | % |
|
| 0.18 | % |
|
| 0.24 | % |
|
| 0.28 | % |
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 increase in nonperforming assets during the third quarter of 2023 resulted primarily from one commercial real estate loan that moved into non-accrual status during the quarter.
DepositsAllocation of Allowance for Credit Losses
While no portion of the allowance for credit 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 credit losses as of September 30, 2023 and December 31, 2022:
|
| September 30, 2023 |
|
| December 31, 2022 |
| ||||||||||||||||||
|
| Allocation |
|
| Percent of |
|
| Percent of |
|
| Allocation |
|
| Percent of |
|
| Percent of |
| ||||||
|
| (Dollars in Thousands) |
| |||||||||||||||||||||
Real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Construction, land development and other land loans |
| $ | 580 |
|
|
| 5.1 | % |
|
| 11.0 | % |
| $ | 517 |
|
|
| 5.5 | % |
|
| 7.0 | % |
Secured by 1-4 family residential properties |
|
| 754 |
|
|
| 6.6 | % |
|
| 10.3 | % |
|
| 832 |
|
|
| 8.8 | % |
|
| 11.4 | % |
Secured by multi-family residential properties |
|
| 405 |
|
|
| 3.6 | % |
|
| 6.9 | % |
|
| 646 |
|
|
| 6.9 | % |
|
| 8.8 | % |
Secured by non-farm, non-residential properties |
|
| 1,622 |
|
|
| 14.3 | % |
|
| 24.4 | % |
|
| 1,970 |
|
|
| 20.9 | % |
|
| 25.8 | % |
Commercial and industrial loans |
|
| 530 |
|
|
| 4.7 | % |
|
| 7.3 | % |
|
| 919 |
|
|
| 9.8 | % |
|
| 9.5 | % |
Consumer loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Direct |
|
| 487 |
|
|
| 4.3 | % |
|
| 0.8 | % |
|
| 866 |
|
|
| 9.2 | % |
|
| 1.3 | % |
Branch retail |
|
| 835 |
|
|
| 7.3 | % |
|
| 1.3 | % |
|
| 518 |
|
|
| 5.5 | % |
|
| 1.8 | % |
Indirect |
|
| 6,167 |
|
|
| 54.1 | % |
|
| 38.0 | % |
|
| 3,154 |
|
|
| 33.4 | % |
|
| 34.4 | % |
Total allowance for credit losses |
| $ | 11,380 |
|
|
| 100.0 | % |
|
| 100.0 | % |
| $ | 9,422 |
|
|
| 100.0 | % |
|
| 100.0 | % |
Deposits
Total deposits increased by 2.2% to $508.4$927.0 million as of September 30, 2017,2023, from $497.6$870.0 million as of December 31, 2016.2022, an increase of 6.6%. Core deposits, which exclude time deposits of $250 thousand or more and all brokered deposits, provide a relatively stable funding source that supports earning assets. Core deposits totaled $479.7$786.8 million, or 94.4%84.9% of total deposits, as of September 30, 2017,2023, compared to $461.8$778.1 million, or 92.8%89.4% of total deposits, as of December 31, 2016.2022.
Deposits, in particular coreCore 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 ReserveFRB and other central banks.
55
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 quarterAs of 2017, these borrowings represented 4.5%September 30, 2023, other interest-bearing liabilities totaled 5.0% of averagetotal interest-bearing liabilities, compared to 2.6% in the third quarter4.2% as of 2016.December 31, 2022.
Shareholders’ Equity
Shareholders’ Equity
The Company has historically placed great emphasis on maintaining its strong capital base. As of September 30, 2017,2023, shareholders’ equity totaled $78.9$87.4 million, or 12.8%8.2% of total assets, compared to $76.2$85.1 million, or 12.6%8.6% 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.2022. The increase in shareholders’ equity during the period ended September 30, 2017 resulted from increasesearnings, net of dividends paid, partially offset by the CECL transition adjustment which reduced retained earnings by $1.8 million, net of tax, as well as a net increase in accumulated other comprehensive income related to changesloss of $1.7 million associated with fair value declines in the fair value ofavailable-for-sale investment securities available-for-sale. The fair value ofportfolio and reclassification adjustments associated with terminated interest rate swaps.
During the available-for-sale portfolio fluctuates based primarily on changesnine months ended September 30, 2023, the Company declared dividends totaling $0.15 per common share, or approximately $0.9 million in interest rates. Accordingly, the net unrealized gainsaggregate amount, compared to $0.09 per common share, or approximately $0.5 million in aggregate amount, during the third quarter of 2017 are not necessarily indicative of future performance of the portfolio.
Bancshares’nine months ended September 30, 2022. 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.
56
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$227.8 million as of September 30, 20172023 and $127.3$212.5 million as of December 31, 2016.2022. Investment securities forecasted to mature or reprice in one year or less were estimated to be $10.5$20.5 million and $7.1 million of the investment portfolio as of September 30, 2017.2023 and December 31, 2022, 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 2.73.9 years and approximately 86.33%3.5 years as of the portfolio (including both available-for-saleSeptember 30, 2023 and held-to-maturity investments) was expected to be repaid within five years.December 31, 2022, 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 $30.0 million and $20.0 million and $25.0 million, respectively, inof outstanding borrowings under FHLB advances. advances as of September 30, 2023 and December 31, 2022, 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 $10.8 million and $10.7 million as of September 30, 2023 and December 31, 2022, respectively.
The Company had up to $164.8$260.3 million and $155.0$246.8 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, 20172023 and December 31, 2016,2022, respectively. In addition, the Company had $18.8$48.0 million and $45.0 million in unused established federal funds lines as of September 30, 2023 and December 31, 2022, respectively.
The Company also has access to the FRB’s discount window and its Bank Term Funding Program (BTFP), the latter of which was established in response to the recent liquidity events that have occurred in the banking industry. Both the discount window and the BTFP allow borrowing on pledged collateral that includes eligible investment securities and, in certain circumstances, eligible loans. In response to heightened liquidity concerns in the banking industry, during 2023 management undertook measures designed to enhance the Company’s liquidity position. These procedures included holding higher levels of on-balance sheet cash, as well as enhancing the availability of off-balance sheet borrowing capacity. As part of these efforts, during the third quarter of 2023, the Company completed the establishment of additional borrowing capacity through the FRB's discount window, primarily via the pledging of the majority of the Company’s indirect loan portfolio as collateral. Due to these efforts, the Company’s immediate borrowing capacity based on collateral pledged through the discount window increased to $146.6 million as of September 30, 2023, compared to $1.2 million as of December 31, 2022.
57
RESPONSE TO RECENT LIQUIDITY EVENTS
In response to heightened liquidity concerns for the banking industry during 2023, management undertook measures designed to enhance the Company’s liquidity position, including holding higher levels of on-balance sheet cash and enhancing the Company’s off-balance sheet borrowing capacity through both secured and unsecured sources. Although the liquidity events that have occurred in 2023 have strained the banking industry as a whole, the Company’s management remains confident in the stability of the Company’s core deposit base which has served as the Company’s primary funding source for many years. Excluding wholesale brokered deposits, as of September 30, 2023, the Company had over 29 thousand deposit accounts with an average balance of approximately $28.9 thousand per account. Estimated uninsured/uncollateralized deposits (calculated as deposit amounts per deposit holder in excess of $250 thousand, the maximum amount of federal deposit insurance, and excluding deposits secured by pledged assets) totaled $173.0 million, or 18.7% of total deposits, as of September 30, 2023, compared to $148.3 million, or 17.1% of total deposits, as of December 31, 2022.
The table below provides information on the Company’s on-balance sheet liquidity, as well as readily available off-balance sheet sources of liquidity as of both September 30, 20172023 and December 31, 2016.2022.
| September 30, |
|
| December 31, |
| ||
| (Dollars in Thousands) |
| |||||
| (Unaudited) |
|
| (Unaudited) |
| ||
Liquidity from cash and federal funds sold: |
|
|
|
|
| ||
Cash and cash equivalents | $ | 66,129 |
|
| $ | 30,152 |
|
Federal funds sold |
| 1,143 |
|
|
| 1,768 |
|
Liquidity from cash and federal funds sold |
| 67,272 |
|
|
| 31,920 |
|
Liquidity from pledgeable investment securities: |
|
|
|
|
| ||
Investment securities available-for sale, at fair value |
| 126,551 |
|
|
| 130,795 |
|
Investment securities held-to-maturity, at amortized cost |
| 1,272 |
|
|
| 1,862 |
|
Less: securities pledged |
| (42,340 | ) |
|
| (54,717 | ) |
Less: estimated collateral value discounts |
| (10,943 | ) |
|
| (7,833 | ) |
Liquidity from pledgeable investment securities |
| 74,540 |
|
|
| 70,107 |
|
Liquidity from unused lendable collateral (loans) at FHLB |
| 6,676 |
|
|
| 18,215 |
|
Liquidity from unused lendable collateral (loans and securities) at FRB |
| 146,613 |
|
|
| 1,198 |
|
Unsecured lines of credit with banks |
| 48,000 |
|
|
| 45,000 |
|
Total readily available liquidity | $ | 343,101 |
|
| $ | 166,440 |
|
The table calculates readily available sources of liquidity, including cash and cash equivalents, federal funds sold, and other liquidity sources. Certain of the measures have not been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”); however, management believes that the non-GAAP measures are beneficial to the reader as they enhance the overall understanding of the Company’s liquidity position and can be used as a supplement to GAAP-based measures of liquidity. Specifically, liquidity from pledgeable investment securities and total readily available liquidity are non-GAAP measures used by management and regulators to analyze a portion of the Company's liquidity. Pledgeable investment securities are considered by management as a readily available source of liquidity since the Company has the ability to pledge the securities with the FHLB or FRB to obtain immediate funding. Both available-for-sale and held-for-maturity securities may be pledged at fair value with the FHLB and through the FRB discount window. The amounts shown as liquidity from pledgeable investment securities represents total investment securities as recorded on the balance sheet, less reductions for securities already pledged and discounts expected to be taken by the lender to determine collateral value. The calculations are intended to reflect minimum levels of liquidity readily available to the Company through the pledging of investment securities, and do not contemplate the additional available liquidity that could be available from the FRB through the BTFP. The non-GAAP financial measures that are discussed in this Quarterly Report should not be considered in isolation or as a substitute for the most directly comparable or other financial measures calculated in accordance with GAAP.
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.
|
58
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. Because of limitations inherent in any approach used to measure interest rate risk, simulation results are not intended as a forecast of the actual effect of a change in market interest rates on our results but rather as a means to better plan and execute appropriate asset-liability management strategies and manage our interest rate risk.
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 monthlyquarterly 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 increase2023, pre-tax net interest margin and net interest income are forecasted to change over timeframes of one year and two years under the six 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):
|
|
| 1 Year |
|
| 2 Years |
| ||
+1% |
|
| 11 |
|
|
| 10 |
|
+2% |
|
| 19 |
|
|
| 17 |
|
+3% |
|
| 23 |
|
|
| 19 |
|
-1% |
|
| (13 | ) |
|
| (11 | ) |
-2% |
|
| (28 | ) |
|
| (26 | ) |
-3% |
|
| (44 | ) |
|
| (41 | ) |
Cumulative Change in Net Interest Income from Level Interest Rate Forecast (dollars in thousands, pre-tax):
|
| 1 Year |
|
| 2 Years |
| ||
+1% |
| $ | 1,149 |
|
| $ | 2,119 |
|
+2% |
|
| 2,047 |
|
|
| 3,646 |
|
+3% |
|
| 2,461 |
|
|
| 4,119 |
|
-1% |
|
| (1,378 | ) |
|
| (2,468 | ) |
-2% |
|
| (3,056 | ) |
|
| (5,592 | ) |
-3% |
|
| (4,736 | ) |
|
| (8,842 | ) |
59
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, 2017,2023, 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, 2017,2023, 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, 20172023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
60
PARTPART II. OTHER INFORMATION
|
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 to the other information set forth in this report, you should carefully consider theA list of factors discussed in Part I, Item 1A, “Risk Factors,” in 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 and/or future results. The risks describedoperating results is included in Bancshares’ Annual Report onPart I, Item 1A, “Risk Factors” in the Company's 2022 Form 10-K are not the only risks facing the Company.10-K. There have been no material changes to such risk factors, except as set forth below. 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.
|
Adverse developments affecting the financial services industry, such as recent bank failures or concerns involving liquidity, may have a material effect on the Company’s operations.
Recent events relating to the failures of certain banking entities in March and April 2023, including Silicon Valley Bank, Signature Bank and First Republic Bank, have caused general uncertainty and concern regarding the liquidity adequacy of the banking sector as a whole. Our ability to engage in routine funding transactions could be adversely affected by the actions and commercial soundness of other financial institutions. Financial services institutions are interrelated as a result of trading, clearing, counterparty, or other relationships. We have exposure to many different counterparties, and we routinely execute transactions with counterparties in the financial services industry, including brokers and dealers, banks, investment banks, mutual funds, and other institutional entities. As a result, defaults by, or even rumors or questions about, one or more financial services institutions, or the financial services industry generally, have led to market-wide liquidity problems and could lead to losses or defaults by us or by other institutions. Many of these transactions expose us to credit risk in the event of default of our counterparty or client. Any such losses could be material and could materially and adversely affect our business, financial condition and results of operations. In addition, we anticipate increased regulatory scrutiny and new regulations directed towards regional banks, and potentially community banks of similar size to us, designed to address the recent negative developments in the banking industry, all of which may increase our costs of doing business and reduce our profitability. In addition, the cost of resolving recent bank failures may prompt the FDIC to increase its premium above the recently increased levels or to issue additional special assessments.
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 2017.2023:
Issuer Purchases of Equity Securities
Period |
| Total Number |
|
| Average |
|
| Total Number |
|
| Maximum Number |
| ||||
July 1 – July 31 |
|
| 1,181 |
|
| $ | 8.62 |
|
|
| — |
|
|
| 596,813 |
|
August 1 – August 31 |
|
| 110 |
|
| $ | 8.93 |
|
|
| — |
|
|
| 596,813 |
|
September 1 – September 30 |
|
| 110 |
|
| $ | 8.80 |
|
|
| — |
|
|
| 596,813 |
|
Total |
|
| 1,401 |
|
| $ | 8.65 |
|
|
| — |
|
|
| 596,813 |
|
61
ITEM 6. EXHIBITS
|
|
|
|
| ||||||||||||
|
| Description |
| |||||||||||||
|
|
| ||||||||||||||
|
| |||||||||||||||
|
|
|
|
| |
3.1A | ||
3.2 | ||
10.1 | First US Bancshares, Inc. Non-Employee Directors' Deferred Compensation Plan | |
31.1* | ||
31.2* | ||
32* | ||
101 | The following financial statements from the Quarterly Report on Form 10-Q for the quarter ended September 30, |
|
| |
104 | The cover page from the Quarterly Report on Form 10-Q for the quarter ended September 30, 2023, formatted in |
|
________________
The exhibits listed in the Index to Exhibits below are filed*Filed herewith and are incorporated herein by reference.
62
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,, 2017 2023
| /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) |
INDEX TO EXHIBITS63
|
| |
| ||
| ||
| ||
| ||
| ||
|
|