UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30,, 2017 2019
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) 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 ☒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 ☒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 4, |
Common Stock, $0.01 par value |
|
FIRST US BANCSHARES, INC. AND SUBSIDIARIES
PAGE | ||
4 | ||
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4 | ||
4 | ||
5 | ||
6 | ||
8 | ||
9 | ||
Notes to Interim Condensed Consolidated Financial Statements (Unaudited) | ||
10 | ||
| ||
45 | ||
| �� | |
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | ||
57 | ||
| ||
57 | ||
58 | ||
| ||
58 | ||
| ||
58 | ||
| ||
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS | ||
58 | ||
| ||
59 | ||
60 |
2
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, and various factors could cause results to differ materially from those contemplated by such forward-looking statements. Such factors could include those identified from time to time in the Company’s Securities and Exchange Commission (“SEC”) filings and other public announcements, including the risk factors described in Part I, Item 1A of the Company’sCompany's Annual Report on Form 10-K as of and for the year ended December 31, 2016.2018. Specifically, with respect to statements relating to loan demand, growth and earnings potential, geographic expansion and the adequacysufficiency of the allowance for loan and lease losses, for the Company,loan demand, cash flows, growth and earnings potential and expansion, these factors include, but are not limited to, the rate of growth (or lack thereof) in the economy generally and in the Company’s service areas, market conditions and investment returns, changes in interest rates, the pending discontinuation of LIBOR as an interest rate benchmark, the availability of quality loans in the Company’s service areas, the relative strength and weakness in the consumer and commercial credit sectors and in the real estate markets, collateral values and collateral values.cybersecurity threats. With respect to the Company’s acquisition of The Peoples Bank, these factors include, but are not limited to, difficulties, delays and unanticipated costs in integrating the organizations’ businesses or realized expected cost savings and other benefits; business disruptions as a result of the integration of the organizations, including possible loss of customers; diversion of management time to address integration-related issues; and changes in asset quality and credit risk as a result of the transaction. Forward-looking statements speak only as of the date they are made, and the Company undertakes no obligation to revise forward-looking statements to reflect circumstances or events that occur after the dates on which the forward-looking statements are made, except as required by law.
3
PARTPART I. FINANCIALFINANCIAL INFORMATION
FIRST US BANCSHARES, INC. AND SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
September 30, | December 31, |
| September 30, |
|
| December 31, |
| ||||||||||
2017 | 2016 |
| 2019 |
|
| 2018 |
| ||||||||||
(Unaudited) |
| (Unaudited) |
|
|
|
|
| ||||||||||
ASSETS | ASSETS | ASSETS |
| ||||||||||||||
Cash and due from banks | $ | 8,705 | $ | 7,018 |
| $ | 12,358 |
|
| $ | 9,796 |
| |||||
Interest-bearing deposits in banks | 23,849 | 16,512 |
|
| 23,077 |
|
|
| 39,803 |
| |||||||
Total cash and cash equivalents | 32,554 | 23,530 |
|
| 35,435 |
|
|
| 49,599 |
| |||||||
Federal funds sold |
|
| 10,080 |
|
|
| 8,354 |
| |||||||||
Investment securities available-for-sale, at fair value | 158,425 | 181,910 |
|
| 96,550 |
|
|
| 132,487 |
| |||||||
Investment securities held-to-maturity, at amortized cost | 27,377 | 25,904 |
|
| 17,759 |
|
|
| 21,462 |
| |||||||
Federal Home Loan Bank stock, at cost | 1,396 | 1,581 |
|
| 713 |
|
|
| 703 |
| |||||||
Loans, net of allowance for loan losses of $4,808 and $4,856, respectively | 338,026 | 322,772 | |||||||||||||||
Premises and equipment, net | 26,242 | 18,340 | |||||||||||||||
Loans, net of allowance for loan and lease losses of $5,585 and $5,055, respectively |
|
| 544,519 |
|
|
| 514,867 |
| |||||||||
Premises and equipment, net of accumulated depreciation |
|
| 29,319 |
|
|
| 27,643 |
| |||||||||
Cash surrender value of bank-owned life insurance | 14,843 | 14,603 |
|
| 15,469 |
|
|
| 15,237 |
| |||||||
Accrued interest receivable | 1,877 | 1,987 |
|
| 2,348 |
|
|
| 2,816 |
| |||||||
Goodwill and core deposit intangible, net |
|
| 8,934 |
|
|
| 9,312 |
| |||||||||
Other real estate owned | 3,819 | 4,858 |
|
| 1,248 |
|
|
| 1,505 |
| |||||||
Other assets | 10,040 | 11,407 |
|
| 9,556 |
|
|
| 7,954 |
| |||||||
Total assets | $ | 614,599 | $ | 606,892 |
| $ | 771,930 |
|
| $ | 791,939 |
| |||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||||||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | LIABILITIES AND SHAREHOLDERS’ EQUITY |
| |||||||||||||||
Deposits | $ | 508,385 | $ | 497,556 |
| $ | 677,640 |
|
| $ | 704,725 |
| |||||
Accrued interest expense | 281 | 241 |
|
| 548 |
|
|
| 424 |
| |||||||
Other liabilities | 6,444 | 7,735 |
|
| 9,731 |
|
|
| 6,826 |
| |||||||
Short-term borrowings | 10,635 | 10,119 |
|
| 221 |
|
|
| 527 |
| |||||||
Long-term debt | 10,000 | 15,000 | |||||||||||||||
Total liabilities | 535,745 | 530,651 |
|
| 688,140 |
|
|
| 712,502 |
| |||||||
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 | |||||||||||||||
Shareholders’ equity: |
|
|
|
|
|
|
|
| |||||||||
Common stock, par value $0.01 per share, 10,000,000 shares authorized; 7,568,053 and 7,562,264 shares issued, respectively; 6,222,230 and 6,298,062 shares outstanding, respectively |
|
| 75 |
|
|
| 75 |
| |||||||||
Surplus | 10,657 | 10,786 |
|
| 13,730 |
|
|
| 13,496 |
| |||||||
Accumulated other comprehensive income (loss), net of tax | 25 | (1,277 | ) | ||||||||||||||
Accumulated other comprehensive loss, net of tax |
|
| (573 | ) |
|
| (2,377 | ) | |||||||||
Retained earnings | 88,525 | 87,434 |
|
| 91,731 |
|
|
| 88,668 |
| |||||||
Less treasury stock: 1,264,202 and 1,285,958 shares at cost, respectively | (20,414 | ) | (20,764 | ) |
| ||||||||||||
Less treasury stock: 1,345,823 and 1,264,202 shares at cost, respectively |
|
| (21,173 | ) |
|
| (20,414 | ) | |||||||||
Noncontrolling interest | (12 | ) | (11 | ) |
|
|
| — |
|
|
| (11 | ) | ||||
Total shareholders’ equity | 78,854 | 76,241 | |||||||||||||||
Total liabilities and shareholders’ equity | $ | 614,599 | $ | 606,892 | |||||||||||||
Total shareholders’ equity |
|
| 83,790 |
|
|
| 79,437 |
| |||||||||
Total liabilities and shareholders’ equity |
| $ | 771,930 |
|
| $ | 791,939 |
|
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 |
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| |||||||||||||||||
(Unaudited) | (Unaudited) |
| (Unaudited) |
|
| (Unaudited) |
| |||||||||||||||||||||||||
Interest income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Interest and fees on loans | $ | 6,802 | $ | 6,773 | $ | 19,928 | $ | 19,192 |
| $ | 10,114 |
|
| $ | 8,395 |
|
| $ | 29,620 |
|
| $ | 22,815 |
| ||||||||
Interest on investment securities | 1,018 | 987 | 3,085 | 3,242 |
|
| 913 |
|
|
| 1,057 |
|
|
| 3,143 |
|
|
| 3,146 |
| ||||||||||||
Total interest income | 7,820 | 7,760 | 23,013 | 22,434 |
|
| 11,027 |
|
|
| 9,452 |
|
|
| 32,763 |
|
|
| 25,961 |
| ||||||||||||
Interest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Interest on deposits | 617 | 532 | 1,713 | 1,568 |
|
| 1,622 |
|
|
| 1,120 |
|
|
| 4,952 |
|
|
| 2,619 |
| ||||||||||||
Interest on borrowings | 68 | 55 | 189 | 115 |
|
| 58 |
|
|
| 4 |
|
|
| 58 |
|
|
| 198 |
| ||||||||||||
Total interest expense | 685 | 587 | 1,902 | 1,683 |
|
| 1,680 |
|
|
| 1,124 |
|
|
| 5,010 |
|
|
| 2,817 |
| ||||||||||||
Net interest income | 7,135 | 7,173 | 21,111 | 20,751 |
|
| 9,347 |
|
|
| 8,328 |
|
|
| 27,753 |
|
|
| 23,144 |
| ||||||||||||
Provision for loan losses | 373 | 680 | 1,464 | 1,383 | ||||||||||||||||||||||||||||
Net interest income after provision for loan losses | 6,762 | 6,493 | 19,647 | 19,368 | ||||||||||||||||||||||||||||
Provision for loan and lease losses |
|
| 883 |
|
|
| 789 |
|
|
| 1,998 |
|
|
| 2,149 |
| ||||||||||||||||
Net interest income after provision for loan and lease losses |
|
| 8,464 |
|
|
| 7,539 |
|
|
| 25,755 |
|
|
| 20,995 |
| ||||||||||||||||
Non-interest income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Service and other charges on deposit accounts | 481 | 463 | 1,406 | 1,306 |
|
| 472 |
|
|
| 489 |
|
|
| 1,375 |
|
|
| 1,400 |
| ||||||||||||
Credit insurance income | 160 | 256 | 459 | 570 |
|
| 175 |
|
|
| 198 |
|
|
| 426 |
|
|
| 516 |
| ||||||||||||
Net gain on sales and prepayments of investment securities | 178 | 259 | 228 | 657 |
|
| 45 |
|
|
| — |
|
|
| 67 |
|
|
| 105 |
| ||||||||||||
Net gain on settlement of derivative contracts |
|
| — |
|
|
| 981 |
|
|
| — |
|
|
| 981 |
| ||||||||||||||||
Mortgage fees from secondary market |
|
| 91 |
|
|
| 128 |
|
|
| 380 |
|
|
| 389 |
| ||||||||||||||||
Other income, net | 417 | 589 | 1,240 | 1,503 |
|
| 631 |
|
|
| 316 |
|
|
| 1,722 |
|
|
| 993 |
| ||||||||||||
Total non-interest income | 1,236 | 1,567 | 3,333 | 4,036 |
|
| 1,414 |
|
|
| 2,112 |
|
|
| 3,970 |
|
|
| 4,384 |
| ||||||||||||
Non-interest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Salaries and employee benefits | 4,370 | 4,334 | 13,048 | 12,734 |
|
| 5,089 |
|
|
| 4,643 |
|
|
| 15,272 |
|
|
| 13,743 |
| ||||||||||||
Net occupancy and equipment | 806 | 830 | 2,276 | 2,381 |
|
| 1,055 |
|
|
| 983 |
|
|
| 3,190 |
|
|
| 2,745 |
| ||||||||||||
Other real estate/foreclosure expense, net | 244 | 124 | 461 | 370 | ||||||||||||||||||||||||||||
Computer services |
|
| 421 |
|
|
| 328 |
|
|
| 1,105 |
|
|
| 937 |
| ||||||||||||||||
Fees for professional services |
|
| 316 |
|
|
| 242 |
|
|
| 879 |
|
|
| 781 |
| ||||||||||||||||
Acquisition expenses |
|
| — |
|
|
| 1,492 |
|
|
| — |
|
|
| 1,492 |
| ||||||||||||||||
Other expense | 1,770 | 2,060 | 5,305 | 6,184 |
|
| 1,665 |
|
|
| 1,454 |
|
|
| 5,057 |
|
|
| 4,237 |
| ||||||||||||
Total non-interest expense | 7,190 | 7,348 | 21,090 | 21,669 |
|
| 8,546 |
|
|
| 9,142 |
|
|
| 25,503 |
|
|
| 23,935 |
| ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Income before income taxes | 808 | 712 | 1,890 | 1,735 |
|
| 1,332 |
|
|
| 509 |
|
|
| 4,222 |
|
|
| 1,444 |
| ||||||||||||
Provision for income taxes | 173 | 162 | 435 | 406 |
|
| 214 |
|
|
| 269 |
|
|
| 865 |
|
|
| 431 |
| ||||||||||||
Net income | $ | 635 | $ | 550 | $ | 1,455 | $ | 1,329 |
| $ | 1,118 |
|
| $ | 240 |
|
| $ | 3,357 |
|
| $ | 1,013 |
| ||||||||
Basic net income per share | $ | 0.10 | $ | 0.09 | $ | 0.24 | $ | 0.22 |
| $ | 0.17 |
|
| $ | 0.04 |
|
| $ | 0.52 |
|
| $ | 0.17 |
| ||||||||
Diluted net income per share | $ | 0.10 | $ | 0.09 | $ | 0.22 | $ | 0.21 |
| $ | 0.16 |
|
| $ | 0.03 |
|
| $ | 0.49 |
|
| $ | 0.15 |
| ||||||||
Dividends per share | $ | 0.02 | $ | 0.02 | $ | 0.06 | $ | 0.06 |
| $ | 0.02 |
|
| $ | 0.02 |
|
| $ | 0.06 |
|
| $ | 0.06 |
|
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 INCOMECHANGES IN SHAREHOLDERS’ EQUITY
(Dollars in Thousands)Thousands, Except Share and Per Share Data)
For the three months ended September 30, 2019 and 2018 (Unaudited)
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 |
|
| Common Stock Shares Outstanding |
|
| Common Stock |
|
| Surplus |
|
| Accumulated Other Comprehensive Income (Loss) |
|
| Retained Earnings |
|
| Treasury Stock, at Cost |
|
| Non- controlling Interest |
|
| Total Shareholders’ Equity |
| ||||||||
Balance, June 30, 2018 |
|
| 6,092,264 |
|
| $ | 73 |
|
| $ | 10,970 |
|
| $ | (2,187 | ) |
| $ | 87,203 |
|
| $ | (20,414 | ) |
| $ | (11 | ) |
| $ | 75,634 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 240 |
|
|
| — |
|
|
| — |
|
|
| 240 |
|
Net change in fair value of securities available-for-sale, net of tax |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 39 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 39 |
|
Net change in fair value of derivative instruments, net of tax |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (734 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (734 | ) |
Dividends declared: $.02 per share |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (126 | ) |
|
| — |
|
|
| — |
|
|
| (126 | ) |
Impact of stock-based compensation plans, net |
|
| 93 |
|
|
| — |
|
|
| 118 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 118 |
|
Issuance of common stock |
|
| 204,355 |
|
|
| 2 |
|
|
| 2,297 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,299 |
|
Balance, September 30, 2018 |
|
| 6,296,712 |
|
| $ | 75 |
|
| $ | 13,385 |
|
| $ | (2,882 | ) |
| $ | 87,317 |
|
| $ | (20,414 | ) |
| $ | (11 | ) |
| $ | 77,470 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2019 |
|
| 6,306,161 |
|
| $ | 75 |
|
| $ | 13,646 |
|
| $ | (338 | ) |
| $ | 90,737 |
|
| $ | (20,372 | ) |
| $ | — |
|
| $ | 83,748 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,118 |
|
|
| — |
|
|
| — |
|
|
| 1,118 |
|
Net change in fair value of securities available-for-sale, net of tax |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 88 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 88 |
|
Net change in fair value of derivative instruments, net of tax |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (323 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (323 | ) |
Dividends declared: $.02 per share |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (124 | ) |
|
| — |
|
|
| — |
|
|
| (124 | ) |
Impact of stock-based compensation plans, net |
|
| 269 |
|
|
| — |
|
|
| 84 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 84 |
|
Treasury stock repurchases |
|
| (84,200 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (801 | ) |
|
| — |
|
|
| (801 | ) |
Balance, September 30, 2019 |
|
| 6,222,230 |
|
| $ | 75 |
|
| $ | 13,730 |
|
| $ | (573 | ) |
| $ | 91,731 |
|
| $ | (21,173 | ) |
| $ | — |
|
| $ | 83,790 |
|
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 nine months ended September 30, 2019 and 2018 (Unaudited)
|
| Common Stock Shares Outstanding |
|
| Common Stock |
|
| Surplus |
|
| Accumulated Other Comprehensive Income (Loss) |
|
| Retained Earnings |
|
| Treasury Stock, at Cost |
|
| Non- controlling Interest |
|
| Total Shareholders’ Equity |
| ||||||||
Balance, January 1, 2018 |
|
| 6,081,744 |
|
| $ | 73 |
|
| $ | 10,755 |
|
| $ | (868 | ) |
| $ | 86,673 |
|
| $ | (20,414 | ) |
| $ | (11 | ) |
| $ | 76,208 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,013 |
|
|
| — |
|
|
| — |
|
|
| 1,013 |
|
Net change in fair value of securities available-for-sale, net of tax |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,681 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,681 | ) |
Net change in fair value of derivative instruments, net of tax |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (333 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (333 | ) |
Dividends declared: $.06 per share |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (369 | ) |
|
| — |
|
|
| — |
|
|
| (369 | ) |
Impact of stock-based compensation plans, net |
|
| 10,613 |
|
|
| — |
|
|
| 333 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 333 |
|
Issuance of common stock |
|
| 204,355 |
|
|
| 2 |
|
|
| 2,297 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,299 |
|
Balance, September 30, 2018 |
|
| 6,296,712 |
|
| $ | 75 |
|
| $ | 13,385 |
|
| $ | (2,882 | ) |
| $ | 87,317 |
|
| $ | (20,414 | ) |
| $ | (11 | ) |
| $ | 77,470 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1, 2019 |
|
| 6,298,062 |
|
| $ | 75 |
|
| $ | 13,496 |
|
| $ | (2,377 | ) |
| $ | 88,668 |
|
| $ | (20,414 | ) |
| $ | (11 | ) |
| $ | 79,437 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,357 |
|
|
| — |
|
|
| — |
|
|
| 3,357 |
|
Net change in fair value of securities available-for-sale, net of tax |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,127 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,127 |
|
Net change in fair value of derivative instruments, net of tax |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (323 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (323 | ) |
Dividends declared: $.06 per share |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (377 | ) |
|
| — |
|
|
| — |
|
|
| (377 | ) |
Impact of stock-based compensation plans, net |
|
| 5,789 |
|
|
| — |
|
|
| 276 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 276 |
|
Reissuance of treasury stock as compensation |
|
| 2,579 |
|
|
| — |
|
|
| (42 | ) |
|
| — |
|
|
| — |
|
|
| 42 |
|
|
| — |
|
|
| — |
|
Treasury stock repurchases |
|
| (84,200 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (801 | ) |
|
| — |
|
|
| (801 | ) |
Discontinuation of partnership consolidation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 83 |
|
|
| — |
|
|
| 11 |
|
|
| 94 |
|
Balance, September 30, 2019 |
|
| 6,222,230 |
|
| $ | 75 |
|
| $ | 13,730 |
|
| $ | (573 | ) |
| $ | 91,731 |
|
| $ | (21,173 | ) |
| $ | — |
|
| $ | 83,790 |
|
The accompanying notes are an integral part of these Interim Condensed Consolidated Statements.
7
FIRST US BANCSHARES, INC. AND SUBSIDIARIES
NINTERIM CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in Thousands)
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| ||||
|
| (Unaudited) |
|
| (Unaudited) |
| ||||||||||
Net income |
| $ | 1,118 |
|
| $ | 240 |
|
| $ | 3,357 |
|
| $ | 1,013 |
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gains (losses) on securities available-for-sale arising during period, net of tax expense (benefit) of $40, $13, $726 and $(533), respectively |
|
| 122 |
|
|
| 39 |
|
|
| 2,178 |
|
|
| (1,602 | ) |
Reclassification adjustment for net gains on securities available-for -sale realized in net income, net of tax of $11, $0, $16 and $26, respectively |
|
| (34 | ) |
| — |
|
|
| (51 | ) |
|
| (79 | ) | |
Unrealized holding gains (losses) arising during the period on effective cash flow hedge derivatives, net of tax expense (benefit) of $(108), $0, $(108) and $133, respectively |
|
| (323 | ) |
|
| (3 | ) |
|
| (323 | ) |
|
| 398 |
|
Reclassification adjustment for net gains on cash flow hedge derivatives realized in net income, net of tax of $0, $243, $0 and $243, respectively |
| — |
|
|
| (731 | ) |
| — |
|
|
| (731 | ) | ||
Other comprehensive income (loss) |
|
| (235 | ) |
|
| (695 | ) |
|
| 1,804 |
|
|
| (2,014 | ) |
Total comprehensive income (loss) |
| $ | 883 |
|
| $ | (455 | ) |
| $ | 5,161 |
|
| $ | (1,001 | ) |
The accompanying notes are an integral part of these Interim Condensed Consolidated Statements.
8
OTESFIRST US BANCSHARES, INC. AND SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
|
| Nine Months Ended |
| |||||
|
| September 30, |
| |||||
|
| 2019 |
|
| 2018 |
| ||
|
| (Unaudited) |
| |||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net income |
| $ | 3,357 |
|
| $ | 1,013 |
|
Adjustments to reconcile net income to cash provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 1,205 |
|
|
| 1,078 |
|
Provision for loan and lease losses |
|
| 1,998 |
|
|
| 2,149 |
|
Deferred income tax provision |
|
| 738 |
|
|
| 821 |
|
Net gain on sale and prepayment of investment securities |
|
| (67 | ) |
|
| (105 | ) |
Stock-based compensation expense |
|
| 276 |
|
|
| 333 |
|
Net amortization of securities |
|
| 452 |
|
|
| 618 |
|
Amortization of intangible assets |
|
| 378 |
|
|
| 43 |
|
Net loss on premises and equipment and other real estate |
|
| 392 |
|
|
| 330 |
|
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
Decrease in accrued interest receivable |
|
| 468 |
|
|
| 148 |
|
Increase in other assets |
|
| (3,218 | ) |
|
| (900 | ) |
Increase (decrease) in accrued interest expense |
|
| 124 |
|
|
| (26 | ) |
Increase in other liabilities |
|
| 2,474 |
|
|
| 2,061 |
|
Net cash provided by operating activities |
|
| 8,577 |
|
|
| 7,563 |
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Net (increase) decrease in federal funds sold |
|
| (1,726 | ) |
|
| 6,439 |
|
Purchases of investment securities, available-for-sale |
|
| (2,784 | ) |
|
| (15,224 | ) |
Proceeds from sales of investment securities, available-for-sale |
|
| 12,668 |
|
|
| 4,221 |
|
Proceeds from maturities and prepayments of investment securities, available-for-sale |
|
| 28,568 |
|
|
| 30,909 |
|
Proceeds from maturities and prepayments of investment securities, held-to-maturity |
|
| 3,640 |
|
| �� | 3,950 |
|
Net (increase) decrease in Federal Home Loan Bank stock |
|
| (10 | ) |
|
| 1,471 |
|
Net cash paid for acquisition |
|
| — |
|
|
| (19,014 | ) |
Proceeds from the sale of premises and equipment and other real estate |
|
| 1,026 |
|
|
| 2,883 |
|
Net increase in loans |
|
| (32,698 | ) |
|
| (22,122 | ) |
Purchases of premises and equipment |
|
| (2,856 | ) |
|
| (653 | ) |
Net cash provided by (used in) investing activities |
|
| 5,828 |
|
|
| (7,140 | ) |
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Net increase (decrease) in deposits |
|
| (27,085 | ) |
|
| 58,307 |
|
Net decrease in short-term borrowings |
|
| (306 | ) |
|
| (25,402 | ) |
Payments on long-term Federal Home Loan Bank advances |
|
| — |
|
|
| (10,000 | ) |
Treasury stock repurchases |
|
| (801 | ) |
|
| — |
|
Dividends paid |
|
| (377 | ) |
|
| (369 | ) |
Net cash provided by (used in) financing activities |
|
| (28,569 | ) |
|
| 22,536 |
|
Net increase (decrease) in cash and cash equivalents |
|
| (14,164 | ) |
|
| 22,959 |
|
Cash and cash equivalents, beginning of period |
|
| 49,599 |
|
|
| 27,124 |
|
Cash and cash equivalents, end of period |
| $ | 35,435 |
|
| $ | 50,083 |
|
Supplemental disclosures: |
|
|
|
|
|
|
|
|
Cash paid for: |
|
|
|
|
|
|
|
|
Interest |
| $ | 3,206 |
|
| $ | 2,843 |
|
Income taxes |
|
| 188 |
|
|
| 137 |
|
Non-cash transactions: |
|
|
|
|
|
|
|
|
Assets acquired in settlement of loans |
|
| 1,048 |
|
|
| 649 |
|
Reissuance of treasury stock as compensation |
|
| 42 |
|
|
| — |
|
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)
1. | GENERAL |
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 Bank operates a finance company subsidiary, Acceptance Loan Company, Inc. (“ALC”). Management has determined that the Bank and ALC comprise Bancshares’ two reportable operating segments. All significant intercompany transactions and accounts have been eliminated.
The unaudited interim condensed consolidated financial statements, in the opinion of management, reflect all adjustments necessary for a fair presentation of the Company’s consolidated financial position, results of operations and cash flows for the periods presented. Such adjustments are of a normal, recurring nature. The results of operations for any interim period are not necessarily indicative of results expected for the fiscal year ending December 31, 2017.2019. 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, 2016.2018.
2. | BASIS OF PRESENTATION |
Summary of Significant Accounting Policies
Certain significant accounting policies followed by the Company are set forth in Note 2, “Summary of Significant Accounting Policies,” of the Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K as of and for the year ended December 31, 2016.
2018.
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 certain shares that have been accrued as of the balance sheet date as deferred compensationcompensation for members of Bancshares’ Board of Directors. Diluted net income per share is computed by dividing net income by the weighted average number of shares of common stock outstanding, during the period, adjusted for the effect of potentially dilutive stock awards outstanding during the period.period (dilutive shares). The dilutive shares consist of nonqualified stock option grants issued to employees and members of Bancshares’ Board of Directors pursuant to Bancshares’ 2013 Incentive Plan (the(as amended, the “2013 Incentive Plan”) previously approved by Bancshares’ shareholders. The following table reflects weighted average shares used to calculate basic and diluted net income per share for the periods presented.
Three Months Ended | Nine Months Ended |
| Three Months Ended |
|
| Nine Months Ended |
| |||||||||||||||||||||||||
September 30, | September 30, |
| September 30, |
|
| September 30, |
| |||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 |
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| |||||||||||||||||
Basic shares | 6,176,381 | 6,151,701 | 6,170,892 | 6,147,325 |
|
| 6,397,290 |
|
|
| 6,304,717 |
|
|
| 6,410,805 |
|
|
| 6,236,197 |
| ||||||||||||
Dilutive shares | 320,501 | 272,550 | 320,501 | 272,550 |
|
| 419,081 |
|
|
| 377,951 |
|
|
| 419,081 |
|
|
| 377,951 |
| ||||||||||||
Diluted shares | 6,496,882 | 6,424,251 | 6,491,393 | 6,419,875 |
|
| 6,816,371 |
|
|
| 6,682,668 |
|
|
| 6,829,886 |
|
|
| 6,614,148 |
|
Three Months Ended | Nine Months Ended |
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||||||||||||||||
September 30, | September 30, |
|
| September 30, |
|
| September 30, |
| ||||||||||||||||||||||||
2017 | 2016 | 2017 |
| 2016 |
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| |||||||||||||||
(Dollars in Thousands, Except Per Share Data) |
|
| (Dollars in Thousands, Except Per Share Data) |
| ||||||||||||||||||||||||||||
Net income | $ | 635 | $ | 550 | $ | 1,455 | $ | 1,329 |
| $ | 1,118 |
|
| $ | 240 |
|
| $ | 3,357 |
|
| $ | 1,013 |
| ||||||||
Basic net income per share | $ | 0.10 | $ | 0.09 | $ | 0.24 | $ | 0.22 |
| $ | 0.17 |
|
| $ | 0.04 |
|
| $ | 0.52 |
|
| $ | 0.17 |
| ||||||||
Diluted net income per share | $ | 0.10 | $ | 0.09 | $ | 0.22 | $ | 0.21 |
| $ | 0.16 |
|
| $ | 0.03 |
|
| $ | 0.49 |
|
| $ | 0.15 |
|
Comprehensive Income
Comprehensive income consists of net income, as well as unrealized holding gains and losses that arise during the period associated with the Company’sCompany’s available-for-sale securities portfolio and the effective portion of cash flow hedge derivatives. In the calculation of comprehensive income, reclassification adjustments are made for gains or losses realized in the statement of operations associated with the sale of available-for-sale securities, settlement of derivative contracts or changes in the fair value of cash flow derivatives.
10
Accounting Policies Recently Adopted
Accounting Standards Update (“ASU”) 2017-12, “Targeted Improvements to Accounting for Hedging Activities.” This ASU simplifies and expands the eligible hedging strategies for financial and nonfinancial risks by more closely aligning hedge accounting with a company’s risk management activities, and also simplifies the application of Accounting Standards Codification (“ASC”) Topic 815, Derivatives and Hedging, through targeted improvements in key practice areas. This includes expanding the list of items eligible to be hedged and amending the methods used to measure the effectiveness of hedging relationships. In addition, the ASU prescribes how hedging results should be presented and requires incremental disclosures. These changes are intended to allow preparers more flexibility and to enhance the transparency of how hedging results are presented and disclosed. Further, the ASU provides partial relief on the timing of certain aspects of hedge documentation and eliminates the requirement to recognize hedge ineffectiveness separately in earnings in the current period. ASU 2017-12 became effective for the Company on January 1, 2019. The adoption of ASU 2017-12 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 Financial Accounting Standards Board (“FASB”) to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and by disclosing key information about leasing arrangements. ASU 2016-02 requires 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. ASU 2016-02 became effective for the Company on January 1, 2019. Refer to Note 13, Leases, for additional information regarding the adoption of ASU 2016-02. As a result of implementation of the standard, the Company recorded a right-of-use asset and lease liability. As of September 30, 2019, both the right-of-use asset and lease liability totaled approximately $3.6 million.
Pending Accounting Pronouncements
ASU 2018-15, “Intangibles-Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force).” Issued in August 2018, ASU 2018-15 aims to reduce complexity in the accounting for costs of implementing a cloud computing service arrangement. ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The amendments of ASU 2018-15 require an entity to follow the guidance in FASB ASC Subtopic 350-40, “Intangibles-Goodwill and Other – Internal-Use Software,” in order to determine which implementation costs to capitalize as assets related to the service contract and which costs to expense. The amendments of ASU 2018-15 also require an entity to expense the capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement (i.e., the noncancelable period of the arrangement plus periods covered by (1) an option to extend the arrangement if the entity is reasonably certain to exercise that option, (2) an option to terminate the arrangement if the entity is reasonably certain not to exercise the option and (3) an option to extend (or not to terminate) the arrangement in which exercise of the option is in the control of the vendor). ASU 2018-15 also requires an entity to present the expense related to the capitalized implementation costs in the same line item in the statement of income as the fees associated with the hosting element (service) of the arrangement, and to classify payments for capitalized implementation costs in the statement of cash flows in the same manner as payments made for fees associated with the hosting element. ASU 2018-15 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company does not currently have any material amount of implementation costs related to hosting arrangements that are service contracts, and the Company does not expect the adoption of ASU 2018-15 to have a material impact on the Company’s consolidated financial statements.
Accounting Standards Update (“ASUASU”) 2016-13 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement.” Issued in August 2018, the amendments in this ASU remove disclosure requirements in ASC Topic 820 related to (1) the amount of, and reasons for, transfers between Level 1 and Level 2 of the fair value hierarchy, (2) the policy for timing of transfers between levels and (3) the valuation processes for Level 3 fair value measurements. The ASU also modifies disclosure requirements such that (1) for investments in certain entities that calculate net asset value, an entity is required to disclose the timing of liquidation of an investee’s assets and the date that restrictions from redemption might lapse, only if the investee has communicated the timing to the entity or announced the timing publicly, and (2) it is clear that the measurement uncertainty disclosure is to communicate information about the uncertainty in measurement as of the reporting date. Additionally, this ASU adds disclosure requirements for public entities about (1) the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period, and (2) the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The amendments of ASU 2018-13 are effective for fiscal years, and interim periods within those years, beginning after December 15, 2019. Management is currently evaluating the impact that this ASU will have on the Company’s consolidated financial statements but does not expect the adoption of ASU 2018-13 to have a material impact on the Company’s consolidated financial statements.
11
ASU 2017-04, “Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” Issued in January 2017, ASU 2017-04 simplifies the manner in which an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. In computing the implied fair value of goodwill under Step 2, an entity, prior to the amendments in ASU 2017-04, had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities, including unrecognized assets and liabilities, in accordance with the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. However, under the amendments in ASU 2017-04, an entity should (1) perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount, and (2) recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, with the understanding that the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, ASU 2017-04 removes the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails such qualitative test, to perform Step 2 of the goodwill impairment test. As originally issued, ASU 2017-04 was effective prospectively for annual, or any interim, goodwill 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. Management is currently evaluating the impact that this ASU will have on the Company’s consolidated financial statements.
ASU 2016-13, "Financial Instruments -– Credit Losses: Measurement of Credit Losses on Financial Instruments.Instruments.” Issued in June 2016, ASU 2016-13 removes the thresholds that companies apply to measure credit losses on financial instruments measured at amortized cost, such as loans, receivables and held-to-maturity debt securities. Under current U.S. GAAP, companies generally recognize credit losses when it is probable that the loss has been incurred. The revised guidance will removeremoves all current recognition thresholds and will requirerequires companies to recognize an allowance for lifetime expected credit losses. Credit losses will be immediately recognized through net income;income; the amount recognized will be based on the current estimate of contractual cash flows not expected to be collected over the financial asset’s contractual term. ASU 2016-13 also amends the credit loss measurement guidance for available-for-sale debt securities. For public business entities,The standard will add new disclosures related to factors that influenced management’s estimate, including current expected credit losses, the changes in those factors and reasons for the changes, as well as the method applied to revert to historical credit loss experience. As originally issued, 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 this ASU will have onFASB approved a delay in the Company’s consolidated financial statements.
ASU 2016-09, “Compensation-Stock Compensation (Topic 718) - Improvements to Employee Share-Based Payment Accounting.” Issued in March 2016, ASU 2016-09 seeks to reduce complexity in accounting standards by simplifying several aspects of the accounting for share-based payment transactions, including (1) accounting for income taxes; (2) classification of excess tax benefits on the statement of cash flows; (3) forfeitures; (4) minimum statutory tax withholding requirements; (5) classification of employee taxes paid on the statement of cash flows when an employer withholds shares for tax withholding purposes; (6) the practical expedient for estimating the expected term; and (7) intrinsic value. ASU 2016-09 became effective for the Company on January 1, 2017. The adoptionimplementation of ASU 2016-09 did not have2016-13 by three years for smaller reporting companies, including the Company. Management has been in the process of developing a materialrevised model to calculate the allowance for loan and lease losses upon implementation of ASU 2016-13 in order to determine the impact on the Company’s consolidated financial statements.statements and, at this time, expects to recognize a one-time cumulative effect adjustment to the allowance for loan and lease losses as of the beginning of the first reporting period in which the new standard is effective. The magnitude of any such one-time adjustment is not yet known.
Revenue
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 forOn January 1, 2018, the Company on January 1, 2017. The adoption of implemented 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, codified at ASC Topic 605, Revenue Recognitionand certain cost guidance in FASB606. The Company adopted ASC Topic 605-35, Revenue Recognition – Construction-Type606 using the modified retrospective transition method. As of the implementation date, the Company had no uncompleted customer contracts and, Production-Type Contracts. ASU 2014-09 requires an entityas a result, no cumulative transition adjustment was made to recognize revenue when (or as) an entity transfers control of goodsthe Company’s accumulated deficit during the year ended December 31, 2018. Results for reporting periods beginning on or services to a customer at the amount to which the entity expectsafter January 1, 2018 are presented under ASC Topic 606, while prior period amounts continue 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 controlreported under legacy U.S. GAAP.
The majority of the goods or servicesCompany’s revenue 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 havegenerated through interest earned 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 investment securities, which falls outside the scope of ASC Topic 606. The Company also generates revenue from insurance- and lease-related contracts that fall outside the scope of ASC Topic 606.
All of the Company’s revenue that is subject to ASC Topic 606 is included in non-interest income; however, not all non-interest income is subject to ASC Topic 606. Revenue earned by the Company that is subject to ASC Topic 606 primarily consists of service and other charges on deposit accounts, mortgage fees from secondary market transactions at the Bank, ATM fee income and other non-interest income. Revenue generated from these sources for both of the nine-month periods ended September 30, 2019 and 2018 was $2.4 million, and was $0.9 million and $0.8 million for the three-month periods ended September 30, 2019 and 2018, respectively. All sources of the Company’s revenue subject to ASC Topic 606 are transaction-based, and revenue is recognized at the time at which the transaction is executed, which is the same time at which the Company’s performance obligation is satisfied. The Company had no contract liabilities or unsatisfied performance obligations with customers as of September 30, 2019.
3. | ACQUISITION ACTIVITY |
On August 31, 2018, the Company completed the acquisition of The Peoples Bank (“TPB”) and then merged TPB with and into the Bank. The acquisition of TPB provided the Company with an opportunity to enter the Knoxville, Tennessee market, as well as southwest Virginia, and was consistent with the Company’s strategy to expand in selected high-growth metropolitan markets. As of the acquisition date, TPB’s assets totaled $166.5 million, consisting primarily of pre-discounted gross loans totaling $156.8 million. Total deposits were $140.0 million. Purchase accounting adjustments were recorded as of the acquisition date, resulting in goodwill of $7.4 million.
12
The acquisition of TPB was accounted for underusing the purchase method of accounting in accordance with ASC Topic 805, Business Combinations. Assets acquired, liabilities assumed and consideration exchanged were recorded at their respective acquisition date fair values. Determining the fair value of assets and liabilities is a complicated process involving significant judgment regarding the methods and assumptions to be used. Fair values are preliminary and subject to refinement for up to one year after the closing date of the acquisition as additional information regarding the closing date fair values becomes available. No adjustments to fair value were recorded during the nine months ended September 30, 2019.
In accordance with the transaction agreement, the Company acquired 100% of the capital stock of TPB for the purchase price of $23.4 million calculated on the net book value of TPB as of December 31, 2017 and a mutually agreed upon multiple of 1.62, less certain mutually agreed upon deductions that are described in the transaction agreement, which reduced the purchase price by approximately $0.4 million. Approximately 90% of the purchase price was paid in cash, which totaled approximately $20.7 million, and approximately 10% was paid in the form of unregistered shares of the Company’s common stock, which consisted of 204,355 shares of Bancshares common stock. The aggregate purchase price was subject to adjustment following the closing date of the transaction based on determination of TPB’s final net book value as of the date of closing, which resulted in the payment by the Company of an additional cash amount of approximately $1.4 million.
A summary, at fair value, of the assets acquired and liabilities assumed in the TPB transaction, as of the acquisition date, is as follows:
FIRST US BANCSHARES, INC. AND SUBSIDIARIES
ASSETS ACQUIRED AND LIABILITIES ASSUMED FROM THE PEOPLES BANK
AUGUST 31, 2018
(Dollars in Thousands)
|
| Acquired from TPB |
|
| Fair Value Adjustments |
|
| Fair Value as of August 31, 2018 |
| |||
Assets Acquired: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 3,085 |
|
| $ | — |
|
| $ | 3,085 |
|
Investment securities, available-for-sale |
|
| 5,977 |
|
|
| — |
|
|
| 5,977 |
|
Federal Home Loan Bank stock, at cost |
|
| 565 |
|
|
| — |
|
|
| 565 |
|
Loans |
|
| 156,772 |
|
|
| (2,195 | ) |
|
| 154,577 |
|
Allowance for loan losses |
|
| (1,702 | ) |
|
| 1,702 |
|
|
| — |
|
Net loans |
|
| 155,070 |
|
|
| (493 | ) |
|
| 154,577 |
|
Premises and equipment, net |
|
| 1,198 |
|
|
| 17 |
|
|
| 1,215 |
|
Other real estate owned |
|
| 85 |
|
|
| — |
|
|
| 85 |
|
Other assets |
|
| 551 |
|
|
| (328 | ) |
|
| 223 |
|
Core deposit intangible |
|
| — |
|
|
| 2,048 |
|
|
| 2,048 |
|
Total assets acquired |
| $ | 166,531 |
|
| $ | 1,244 |
|
| $ | 167,775 |
|
Liabilities Assumed: |
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
| 140,033 |
|
|
| 342 |
|
|
| 140,375 |
|
Short-term borrowings |
|
| 10,000 |
|
|
| — |
|
|
| 10,000 |
|
Other liabilities |
|
| 437 |
|
|
| — |
|
|
| 437 |
|
Total liabilities assumed |
|
| 150,470 |
|
|
| 342 |
|
|
| 150,812 |
|
Shareholders’ Equity Assumed: |
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
| 1,027 |
|
|
| (1,027 | ) |
|
| — |
|
Surplus |
|
| 5,280 |
|
|
| (5,280 | ) |
|
| — |
|
Accumulated other comprehensive income, net of tax |
|
| 17 |
|
|
| (17 | ) |
|
| — |
|
Retained earnings |
|
| 9,737 |
|
|
| (9,737 | ) |
|
| — |
|
Total shareholders’ equity assumed |
|
| 16,061 |
|
|
| (16,061 | ) |
|
| — |
|
Total liabilities and shareholders’ equity assumed |
| $ | 166,531 |
|
| $ | (15,719 | ) |
| $ | 150,812 |
|
Net assets acquired |
|
| $ | 16,963 |
| |||||||
Purchase price |
|
|
| 24,398 |
| |||||||
Goodwill |
|
| $ | 7,435 |
|
The following is a description of the methods used to determine the fair values of significant assets and liabilities presented above.
Cash and cash equivalents — The carrying amount of these assets is a reasonable estimate of fair value based on the short-term nature of the assets.
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Investment securities — Prior to acquisition, the investment securities acquired were classified as available-for-sale and, accordingly, were recorded at fair value on a recurring basis. Fair value for most of the securities was based upon quoted prices of like or similar securities and determined using observable data including, among other things, dealer quotes, market spreads, cash flow, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus, prepayment speeds, credit information and the securities’ terms and conditions.
Federal Home Loan Bank stock, at cost — Prior to acquisition, TPB maintained a required investment in the Federal Home Loan Bank (“FHLB”) of Atlanta, which was, in part, based on TPB’s amount of borrowings with the FHLB. The investment was carried at cost as it is not readily marketable, and, accordingly, there is no established market price for the investment. Upon acquisition, the Bank was able to absorb the investment into its own holdings of stock with the FHLB of Atlanta. The Bank has the ability to be reimbursed by the FHLB of Atlanta at cost for stock holdings as borrowings with the FHLB are paid down. Accordingly, the carrying amount of the assets is considered a reasonable estimate of fair value.
Loans — Fair values for performing loans were determined based on a discounted cash flow methodology that aggregated model inputs and loan information into selected pools and calculated the loan level cash flows used to value the pools. The model calculated the contractual cash flows and expected cash flows, and then discounted the expected cash flows to present value in order to determine fair value. The assumptions used to estimate the fair value of the loans included unpaid principal balance, maturity date, coupon, prepayment speed, expected credit losses and discount rates. The fair value adjustment, also described as the discount on the purchased loans, for the performing loans is being accreted into income over the lives of the loans. Purchased credit impaired (“PCI”) loans were valued using the cost recovery method. The Company did not recognize any accretable yield, or income expected to be collected, associated with the PCI loans. The table below summarizes the carrying amounts and fair value adjustments of the loans acquired from TPB as of the acquisition date.
|
| August 31, 2018 |
| |||||||||
|
| Acquired from TPB |
|
| Fair Value Adjustments |
|
| Fair Value as of August 31, 2018 |
| |||
|
| (Dollars in Thousands) |
| |||||||||
Purchased performing loans |
| $ | 153,862 |
|
| $ | (2,116 | ) |
| $ | 151,746 |
|
Purchased credit impaired loans |
|
| 2,910 |
|
|
| (79 | ) |
|
| 2,831 |
|
Total purchased loans |
| $ | 156,772 |
|
| $ | (2,195 | ) |
| $ | 154,577 |
|
Allowance for loan losses — In accordance with U.S. GAAP, the adoptionacquired loans were adjusted to fair value, and the pre-acquisition allowance for loan losses on TPB’s balance sheet was reversed.
Premises and equipment — The fair values of ASU 2014-09 is notacquired land and buildings were determined based on independent appraisals performed by a third-party appraiser. The fair value adjustment represents the difference between fair value and the carrying value at the date of acquisition. For furniture and fixtures, carrying value was considered to be a reasonable estimate of fair value.
Other real estate owned — These assets are presented at the estimated net realizable value that management expects to receive when the properties are sold, net of related costs of disposal.
Other assets — The fair value adjustment was due primarily to changes in deferred tax assets related to the transaction, as well as adjustment of certain prepaid assets associated with TPB’s core processing vendor. Otherwise, the carrying amount of these assets was deemed to be a reasonable estimate of fair value.
Core deposit intangible — This intangible asset represents the value of the relationships that TPB had with its deposit customers. The fair value of the core deposit intangible was estimated using a discounted cash flow methodology that gave consideration to expected customer attrition rates, cost of the deposit base and the net maintenance cost attributable to havecustomer deposits.
Deposits — The fair values used for the demand and savings deposits that comprise the transaction accounts acquired equal the amount payable on demand at the acquisition date. The fair value of certificates of deposit was determined using a material impactdiscounted cash flow methodology whereby an estimate of the present value of contractual payments over the remaining life of the time deposit was determined. Future cash flows were discounted using market interest rates estimated based on the Company’s consolidated financial statements. Further, management has determined thatmedian offering rates of peer institutions at the adoption of this ASU for revenue streams reported within non-interest income that are within the scopetime of the accounting standard will not materially impactacquisition.
Short-term borrowings — TPB’s short-term borrowings were comprised of daily renewable FHLB advances. Based on the Company’s consolidated financial statements. short-term nature of the borrowings, the carrying amount of the liability was determined to be a reasonable approximation of fair value.
Other liabilities — The carrying amount of these other liabilities was deemed to be a reasonable estimate of fair value.
| INVESTMENT SECURITIES |
Details of investment securities available-for-sale and held-to-maturity as of September 30, 20172019 and December 31, 20162018 were as follows:
Available-for-Sale |
| Available-for-Sale |
| |||||||||||||||||||||||||||||
September 30, 2017 |
| September 30, 2019 |
| |||||||||||||||||||||||||||||
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 |
| $ | 47,107 |
|
| $ | 321 |
|
| $ | (320 | ) |
| $ | 47,108 |
| |||||||
Commercial | 67,781 | 62 | (705 | ) | 67,138 |
|
| 45,496 |
|
|
| 46 |
|
|
| (485 | ) |
|
| 45,057 |
| |||||||||||
Obligations of states and political subdivisions | 5,424 | 231 | — |
| 5,655 |
|
| 4,199 |
|
|
| 106 |
|
|
| — |
|
|
| 4,305 |
| |||||||||||
Obligations of U.S. government-sponsored agencies | 2,000 | 2 | — |
| 2,002 | |||||||||||||||||||||||||||
U.S. Treasury securities | 80 | — | — | 80 |
|
| 80 |
|
|
| — |
|
|
| — |
|
|
| 80 |
| ||||||||||||
Total | $ | 158,676 | $ | 772 | $ | (1,023 | ) | $ | 158,425 |
| $ | 96,882 |
|
| $ | 473 |
|
| $ | (805 | ) |
| $ | 96,550 |
|
Held-to-Maturity |
| Held-to-Maturity |
| |||||||||||||||||||||||||||||
September 30, 2017 |
| September 30, 2019 |
| |||||||||||||||||||||||||||||
Gross | Gross | Estimated |
|
|
|
|
| Gross |
|
| Gross |
|
| Estimated |
| |||||||||||||||||
Amortized | Unrealized | Unrealized | Fair |
| Amortized |
|
| Unrealized |
|
| Unrealized |
|
| Fair |
| |||||||||||||||||
Cost | Gains | Losses | Value |
| Cost |
|
| Gains |
|
| Losses |
|
| Value |
| |||||||||||||||||
(Dollars in Thousands) |
| (Dollars in Thousands) |
| |||||||||||||||||||||||||||||
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Commercial | $ | 15,976 | $ | 18 | $ | (61 | ) | $ | 15,933 |
| $ | 9,722 |
|
| $ | 1 |
|
| $ | (83 | ) |
| $ | 9,640 |
| |||||||
Obligations of U.S. government-sponsored agencies | 9,458 | 25 | (79 | ) | 9,404 |
|
| 6,410 |
|
|
| — |
|
|
| (29 | ) |
|
| 6,381 |
| |||||||||||
Obligations of states and political subdivisions | 1,943 | 26 | (3 | ) | 1,966 |
|
| 1,627 |
|
|
| 13 |
|
|
| — |
|
|
| 1,640 |
| |||||||||||
Total | $ | 27,377 | $ | 69 | $ | (143 | ) | $ | 27,303 |
| $ | 17,759 |
|
| $ | 14 |
|
| $ | (112 | ) |
| $ | 17,661 |
|
Available-for-Sale |
| Available-for-Sale |
| |||||||||||||||||||||||||||||
December 31, 2016 |
| December 31, 2018 |
| |||||||||||||||||||||||||||||
Gross | Gross | Estimated |
|
|
|
|
| Gross |
|
| Gross |
|
| Estimated |
| |||||||||||||||||
Amortized | Unrealized | Unrealized | Fair |
| Amortized |
|
| Unrealized |
|
| Unrealized |
|
| Fair |
| |||||||||||||||||
Cost | Gains | Losses | Value |
| Cost |
|
| Gains |
|
| Losses |
|
| Value |
| |||||||||||||||||
(Dollars in Thousands) |
| (Dollars in Thousands) |
| |||||||||||||||||||||||||||||
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Residential | $ | 99,922 | $ | 490 | $ | (2,003 | ) | $ | 98,409 |
| $ | 73,859 |
|
| $ | 113 |
|
| $ | (1,517 | ) |
| $ | 72,455 |
| |||||||
Commercial | 71,761 | 56 | (1,287 | ) | 70,530 |
|
| 56,101 |
|
|
| 10 |
|
|
| (1,822 | ) |
|
| 54,289 |
| |||||||||||
Obligations of states and political subdivisions | 9,759 | 390 | (7 | ) | 10,142 |
|
| 5,617 |
|
|
| 51 |
|
|
| (4 | ) |
|
| 5,664 |
| |||||||||||
Obligations of U.S. government-sponsored agencies | 2,000 | — | (7 | ) | 1,993 | |||||||||||||||||||||||||||
Corporate notes | 756 | — | — | 756 | ||||||||||||||||||||||||||||
U.S. Treasury securities | 80 | — | — | 80 |
|
| 79 |
|
|
| — |
|
|
| — |
|
|
| 79 |
| ||||||||||||
Total | $ | 184,278 | $ | 936 | $ | (3,304 | ) | $ | 181,910 |
| $ | 135,656 |
|
| $ | 174 |
|
| $ | (3,343 | ) |
| $ | 132,487 |
|
Held-to-Maturity |
| Held-to-Maturity |
| |||||||||||||||||||||||||||||
December 31, 2016 |
| December 31, 2018 |
| |||||||||||||||||||||||||||||
Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value |
| Amortized Cost |
|
| Gross Unrealized Gains |
|
| Gross Unrealized Losses |
|
| Estimated Fair Value |
| |||||||||||||||||
(Dollars in Thousands) |
| (Dollars in Thousands) |
| |||||||||||||||||||||||||||||
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Commercial | $ | 14,684 | $ | 5 | $ | (148 | ) | $ | 14,541 |
| $ | 11,716 |
|
| $ | — |
|
| $ | (349 | ) |
| $ | 11,367 |
| |||||||
Obligations of U.S. government-sponsored agencies | 9,129 | 13 | (222 | ) | 8,920 |
|
| 8,026 |
|
|
| — |
|
|
| (244 | ) |
|
| 7,782 |
| |||||||||||
Obligations of states and political subdivisions | 2,091 | 2 | (46 | ) | 2,047 |
|
| 1,720 |
|
|
| — |
|
|
| (17 | ) |
|
| 1,703 |
| |||||||||||
Total | $ | 25,904 | $ | 20 | $ | (416 | ) | $ | 25,508 |
| $ | 21,462 |
|
| $ | — |
|
| $ | (610 | ) |
| $ | 20,852 |
|
15
The scheduled maturities of investment securities available-for-sale and held-to-maturity as of September 30,, 2017 2019 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 Cost |
|
| Estimated Fair Value |
|
| Amortized Cost |
|
| Estimated Fair Value |
| ||||
|
| (Dollars in Thousands) |
| |||||||||||||
Maturing within one year |
| $ | 102 |
|
| $ | 103 |
|
| $ | — |
|
| $ | — |
|
Maturing after one to five years |
|
| 20,916 |
|
|
| 20,843 |
|
|
| 3,359 |
|
|
| 3,365 |
|
Maturing after five to ten years |
|
| 43,510 |
|
|
| 43,446 |
|
|
| 7,250 |
|
|
| 7,194 |
|
Maturing after ten years |
|
| 32,354 |
|
|
| 32,158 |
|
|
| 7,150 |
|
|
| 7,102 |
|
Total |
| $ | 96,882 |
|
| $ | 96,550 |
|
| $ | 17,759 |
|
| $ | 17,661 |
|
For purposes of the maturity table, mortgage-backed securities, which are not due at a single maturity date, have been allocated over maturity groupings based on the weighted-average contractual maturities of underlying collateral. The mortgage-backed securities generally mature earlier than their weighted-average contractual maturities because of principal prepayments.
The following table reflects 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, 20172019 and December 31, 2016.2018.
Available-for-Sale |
| Available-for-Sale |
| |||||||||||||||||||||||||||||
September 30, 2017 |
| September 30, 2019 |
| |||||||||||||||||||||||||||||
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 Value |
|
| Unrealized Losses |
|
| Fair Value |
|
| Unrealized Losses |
| |||||||||||||||||
(Dollars in Thousands) |
| (Dollars in Thousands) |
| |||||||||||||||||||||||||||||
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Residential | $ | 38,784 | $ | (115 | ) | $ | 14,350 | $ | (203 | ) |
| $ | 16,466 |
|
| $ | (135 | ) |
| $ | 11,030 |
|
| $ | (185 | ) | ||||||
Commercial | 19,576 | (145 | ) | 37,291 | (560 | ) |
|
| 4,140 |
|
|
| (10 | ) |
|
| 32,825 |
|
|
| (475 | ) | ||||||||||
U.S. Treasury securities | 80 | — |
| — | — |
|
| 80 |
|
|
| — |
|
|
| — |
|
|
| — |
| |||||||||||
Total | $ | 58,440 | $ | (260 | ) | $ | 51,641 | $ | (763 | ) |
| $ | 20,686 |
|
| $ | (145 | ) |
| $ | 43,855 |
|
| $ | (660 | ) |
Held-to-Maturity |
| Held-to-Maturity |
| |||||||||||||||||||||||||||||
September 30, 2017 |
| September 30, 2019 |
| |||||||||||||||||||||||||||||
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 Value |
|
| Unrealized Losses |
|
| Fair Value |
|
| Unrealized Losses |
| |||||||||||||||||
(Dollars in Thousands) |
| (Dollars in Thousands) |
| |||||||||||||||||||||||||||||
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Commercial | $ | 9,643 | $ | (58 | ) | $ | 423 | $ | (3 | ) |
| $ | 1,522 |
|
| $ | (9 | ) |
| $ | 7,902 |
|
| $ | (74 | ) | ||||||
Obligations of U.S. government-sponsored agencies | 3,217 | (27 | ) | 4,345 | (52 | ) |
|
| 1,403 |
|
|
| (8 | ) |
|
| 4,979 |
|
|
| (21 | ) | ||||||||||
Obligations of states and political subdivisions | — | — |
| 543 | (3 | ) |
|
| — |
|
|
| — |
|
|
| 503 |
|
|
| — |
| ||||||||||
Total | $ | 12,860 | $ | (85 | ) | $ | 5,311 | $ | (58 | ) |
| $ | 2,925 |
|
| $ | (17 | ) |
| $ | 13,384 |
|
| $ | (95 | ) |
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 |
| Available-for-Sale |
| |||||||||||||||||||||||||||||
December 31, 2016 |
| December 31, 2018 |
| |||||||||||||||||||||||||||||
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 Value |
|
| Unrealized Losses |
|
| Fair Value |
|
| Unrealized Losses |
| |||||||||||||||||
(Dollars in Thousands) |
| (Dollars in Thousands) |
| |||||||||||||||||||||||||||||
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Residential |
| $ | 9,417 |
|
| $ | (87 | ) |
| $ | 53,507 |
|
| $ | (1,430 | ) | ||||||||||||||||
Commercial | $ | 12,776 | $ | (148 | ) | $ | — | $ | — |
|
| 461 |
|
|
| (3 | ) |
|
| 53,430 |
|
|
| (1,819 | ) | |||||||
Obligations of U.S. government-sponsored agencies | 7,957 | (222 | ) | — | — |
| ||||||||||||||||||||||||||
Obligations of states and political subdivisions | 1,628 | (46 | ) | — | — |
|
| 879 |
|
|
| (2 | ) |
|
| 420 |
|
|
| (2 | ) | |||||||||||
U.S. Treasury securities |
|
| 79 |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||||||
Total | $ | 22,361 | $ | (416 | ) | $ | — | $ | — |
|
| $ | 10,836 |
|
| $ | (92 | ) |
| $ | 107,357 |
|
| $ | (3,251 | ) |
|
| Held-to-Maturity |
| |||||||||||||
|
| December 31, 2018 |
| |||||||||||||
|
| Less than 12 Months |
|
| 12 Months or More |
| ||||||||||
|
| Fair Value |
|
| Unrealized Losses |
|
| Fair Value |
|
| Unrealized Losses |
| ||||
|
| (Dollars in Thousands) |
| |||||||||||||
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
| $ | — |
|
| $ | — |
|
| $ | 11,367 |
|
| $ | (349 | ) |
Obligations of U.S. government-sponsored agencies |
|
| — |
|
|
| — |
|
|
| 7,782 |
|
|
| (244 | ) |
Obligations of states and political subdivisions |
|
| 770 |
|
|
| — |
|
|
| 933 |
|
|
| (17 | ) |
Total |
| $ | 770 |
|
| $ | — |
|
| $ | 20,082 |
|
| $ | (610 | ) |
Management evaluates securities for other-than-temporary impairment no less frequently than quarterly and more frequently when economic or market concerns warrant such evaluation. Consideration is given to: (i) the length of time and the extent to which fair value has been less than cost,cost; (ii) the financial condition and near-term prospects of the issuer,issuer; (iii) whether the Company intends to sell securities,the securities; and (iv) whether it is more likely than not that the Company will be required to sell the securities before recovery of their amortized cost bases.
As of September 30, 2017, 462019, 74 debt securities had been in a loss position for more than 12 months, and 7539 debt securities had been in a loss position for less than 12 months. As of December 31, 2016, 132018, 153 debt securities had been in a loss position for more than 12 months, and 13021 debt securities had been in a loss position for less than 12 months. As of both September 30, 20172019 and December 31, 2016,2018, the losses for all securities were considered to be a direct result of the effect that the prevailing interest rate environment had on the value of debt securities and were not related to the creditworthiness of the issuers. Most of the securities in an unrealized loss position are residential or commercial mortgage-backed securities that are either direct obligations of the U.S. government or government-sponsored entities and, accordingly, have little associated credit risk. Further, the Company has the current intent and ability to retain its investments in the issuers for a period of time that management believes to be sufficient to allow for any anticipated recovery in fair value. Therefore, the Company did not recognize any other-than-temporary impairments as of September 30, 2017 and2019 or December 31, 2016.
2018.
Investment securities available-for-sale with a carrying value of $87.1$55.4 million and $87.7$46.7 million as of September 30, 20172019 and December 31, 2016,2018, respectively, were pledged to secure public deposits and for other purposes.
| LOANS AND ALLOWANCE FOR LOAN LOSSES |
Portfolio Segments
The Company has divided the loan portfolio into eightnine portfolio segments, each with different risk characteristics described as follows:
Construction, land development and other land loans – Commercial construction, land and land development loans include 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. These loans are secured in whole or in part by the underlying real estate collateral and are generally guaranteed by the principals of the borrowing entity.
Secured by 1-4 family residential properties– These loans include conventional mortgage loans on one-to-four family residential properties. These properties may serve as the borrower’s primary residence, vacation home or investment property. Also included in this portfolio are home equity loans and lines of credit. This type of lending, which is secured by a first or second mortgage on the borrower’s residence, allows customers to borrow against the equity in their homes.home.
Secured by multi-family residential properties – This portfolio segment includes mortgage loans secured by apartment buildings.
Secured by non-farm, non-residential properties – This portfolio segment includes real estate loans secured by commercial and industrial properties, office or mixed-use facilities, strip shopping centers or other commercial property. These loans are generally guaranteed by the principals of the borrowing entity.
Other real estate loans – Other real estate loans are loans primarily for agricultural production, secured by mortgages on farmland.
Commercial and industrial loans and 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 loans – 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.
17
Branch retail – This portfolio segment includes loans secured by collateral purchased by consumers at retail stores with whom ALC has an established relationship through its branch network to provide financing for the retail products sold if applicable underwriting standards are met.
Indirect sales – This portfolio segment includes loans secured by collateral that is purchased by consumers at retail stores with whom ALC has an established, centrally-managed relationship to provide financing for the retail products sold if applicable underwriting standards are met.
As of September 30, 20172019 and December 31, 2016,2018, the composition of the loan portfolio by reporting segment and portfolio segment was as follows:
September 30, 2017 |
| September 30, 2019 |
| |||||||||||||||||||||
Bank | ALC | Total |
| Bank |
|
| ALC |
|
| Total |
| |||||||||||||
(Dollars in Thousands) |
| (Dollars in Thousands) |
| |||||||||||||||||||||
Real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Construction, land development and other land loans | $ | 20,213 | $ | — | $ | 20,213 |
| $ | 27,348 |
|
| $ | — |
|
| $ | 27,348 |
| ||||||
Secured by 1-4 family residential properties | 35,125 | 11,490 | 46,615 |
|
| 103,269 |
|
|
| 6,067 |
|
|
| 109,336 |
| |||||||||
Secured by multi-family residential properties | 16,498 | — | 16,498 |
|
| 46,843 |
|
|
| — |
|
|
| 46,843 |
| |||||||||
Secured by non-farm, non-residential properties | 107,679 | — | 107,679 |
|
| 164,941 |
|
|
| — |
|
|
| 164,941 |
| |||||||||
Other | 223 | — | 223 |
|
| 842 |
|
|
| — |
|
|
| 842 |
| |||||||||
Commercial and industrial loans | 66,320 | — | 66,320 |
|
| 90,470 |
|
|
| — |
|
|
| 90,470 |
| |||||||||
Consumer loans: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Consumer | 5,431 | 35,650 | 41,081 |
|
| 8,136 |
|
|
| 29,341 |
|
|
| 37,477 |
| |||||||||
Branch retail |
|
| — |
|
|
| 30,008 |
|
|
| 30,008 |
| ||||||||||||
Indirect sales | — | 50,553 | 50,553 |
|
| — |
|
|
| 48,073 |
|
|
| 48,073 |
| |||||||||
Total loans | 251,489 | 97,693 | 349,182 |
|
| 441,849 |
|
|
| 113,489 |
|
|
| 555,338 |
| |||||||||
Less: Unearned interest, fees and deferred cost | 367 | 5,981 | 6,348 |
|
| 204 |
|
|
| 5,030 |
|
|
| 5,234 |
| |||||||||
Allowance for loan losses | 2,422 | 2,386 | 4,808 |
|
| 3,349 |
|
|
| 2,236 |
|
|
| 5,585 |
| |||||||||
Net loans | $ | 248,700 | $ | 89,326 | $ | 338,026 |
| $ | 438,296 |
|
| $ | 106,223 |
|
| $ | 544,519 |
|
December 31, 2016 |
| December 31, 2018 |
| |||||||||||||||||||||
Bank | ALC | Total |
| Bank |
|
| ALC |
|
| Total |
| |||||||||||||
(Dollars in Thousands) |
| (Dollars in Thousands) |
| |||||||||||||||||||||
Real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Construction, land development and other land loans | $ | 23,772 | $ | — | $ | 23,772 |
| $ | 41,340 |
|
| $ | — |
|
| $ | 41,340 |
| ||||||
Secured by 1-4 family residential properties | 32,955 | 13,724 | 46,679 |
|
| 102,971 |
|
|
| 7,785 |
|
|
| 110,756 |
| |||||||||
Secured by multi-family residential properties | 16,627 | — | 16,627 |
|
| 23,009 |
|
|
| — |
|
|
| 23,009 |
| |||||||||
Secured by non-farm, non-residential properties | 102,112 | — | 102,112 |
|
| 156,162 |
|
|
| — |
|
|
| 156,162 |
| |||||||||
Other | 234 | — | 234 |
|
| 1,308 |
|
|
| — |
|
|
| 1,308 |
| |||||||||
Commercial and industrial loans | 57,963 | — | 57,963 |
|
| 85,779 |
|
|
| — |
|
|
| 85,779 |
| |||||||||
Consumer loans: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Consumer | 6,206 | 36,413 | 42,619 |
|
| 6,927 |
|
|
| 31,656 |
|
|
| 38,583 |
| |||||||||
Branch retail |
|
| — |
|
|
| 28,324 |
|
|
| 28,324 |
| ||||||||||||
Indirect sales | — | 44,775 | 44,775 |
|
| — |
|
|
| 40,609 |
|
|
| 40,609 |
| |||||||||
Total loans | 239,869 | 94,912 | 334,781 |
|
| 417,496 |
|
|
| 108,374 |
|
|
| 525,870 |
| |||||||||
Less: Unearned interest, fees and deferred cost | 218 | 6,935 | 7,153 |
|
| 331 |
|
|
| 5,617 |
|
|
| 5,948 |
| |||||||||
Allowance for loan losses | 2,409 | 2,447 | 4,856 |
|
| 2,735 |
|
|
| 2,320 |
|
|
| 5,055 |
| |||||||||
Net loans | $ | 237,242 | $ | 85,530 | $ | 322,772 |
| $ | 414,430 |
|
| $ | 100,437 |
|
| $ | 514,867 |
|
(1) | Includes equipment financing leases. |
The Company makes commercial, real estate and installment loans to its customers. Although the Company has a diversified loan portfolio, 54.8%62.9% and 56.6%63.2% 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, 20172019 and December 31, 2016,2018, respectively.
Loans with a carrying value of $29.6 million and $27.0 million were pledged as collateral to secure FHLB borrowings as of September 30, 2019 and December 31, 2018, respectively.
18
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 as of September 30, 20172019 and December 31, 20162018 were $0.5$0.9 million and $2.7$0.8 million, respectively. During the nine months ended September 30, 2017,2019, there were no$0.1 million of new loans to these parties, and repayments by active related parties were $7$8 thousand. In addition, duringDuring the year ended December 31, 2018, there were $0.5 million of new loans to these parties, and repayments by active related parties were $0.2 million.
Acquired Loans
The Company acquired loans through the TPB acquisition completed on August 31, 2018. At acquisition, certain acquired loans evidenced deterioration of credit quality since origination and it was probable that all contractually-required payments would not be collected.
Loans purchased with evidence of credit deterioration since origination and for which it is probable that all contractually required payments will not be collected are considered to be credit impaired. Evidence of credit quality deterioration as of the purchase date may include information such as past-due and nonaccrual status, borrower credit scores and recent loan to value percentages. PCI loans are accounted for under ASC Topic 310-30, Accounting for Purchased Loans with Deteriorated Credit Quality, and initially measured at fair value, which includes estimated future credit losses expected to be incurred over the life of the loan. Accordingly, an allowance for credit losses related to these loans is not carried over and recorded at the acquisition date. On the date of completion of the acquisition, the outstanding principal balance and carrying value of PCI loans accounted for under ASC Topic 310-30 were $2.9 million and $2.8 million, respectively.
The carrying amount of PCI loans, which is included within loans on the balance sheet, is set forth in the table below as of September 30, 2019 and December 31, 2018:
|
| September 30, 2019 |
|
| December 31, 2018 |
| ||
|
| (Dollars in Thousands) |
| |||||
Real estate loans: |
|
|
|
|
|
|
|
|
Construction, land development and other land loans |
| $ | — |
|
| $ | 75 |
|
Secured by 1-4 family residential properties |
|
| 231 |
|
|
| 492 |
|
Outstanding balance |
|
| 231 |
|
|
| 567 |
|
Fair value adjustment |
|
| (51 | ) |
|
| (70 | ) |
Carrying amount, net of fair value adjustment |
| $ | 180 |
|
| $ | 497 |
|
During both 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. During2019 and the year ended December 31, 2016, there was one new2018, the Company did not recognize any accretable yield, or income expected to be collected, associated with these loans. Additionally, the Company did not increase or reverse the allowance for loan losses related to a related party, and repayments by active related parties totaled $0.1 million.the remaining PCI loans.
19
The following tables present changes in the allowance for loan losses during the nine months ended September 30, 2019 and the year ended December 31, 2018 and the related loan balances by loan portfolio segment and loan type as of September 30, 20172019 and December 31, 2016.2018:
Bank | ||||||||||||||||||||||||||||||||||||
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 | $ | 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 | ||||||||||||||||||
Collectively evaluated for impairment | 145 | 243 | 115 | 775 | 2 | 895 | 53 | — | 2,228 | |||||||||||||||||||||||||||
Total allowance for loan losses | $ | 207 | $ | 248 | $ | 115 | $ | 830 | $ | 2 | $ | 967 | $ | 53 | $ | — | $ | 2,422 | ||||||||||||||||||
Ending balance of loans receivable: | ||||||||||||||||||||||||||||||||||||
Individually evaluated for impairment | $ | 86 | $ | 189 | $ | — | $ | 535 | $ | — | $ | 70 | $ | — | $ | — | $ | 880 | ||||||||||||||||||
Collectively evaluated for impairment | 20,127 | 34,936 | 16,498 | 107,144 | 223 | 66,250 | 5,431 | — | 250,609 | |||||||||||||||||||||||||||
Total loans receivable | $ | 20,213 | $ | 35,125 | $ | 16,498 | $ | 107,679 | $ | 223 | $ | 66,320 | $ | 5,431 | $ | — | $ | 251,489 |
ALC |
| Bank |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Nine Months Ended September 30, 2017 |
| Nine Months Ended September 30, 2019 |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Construction, Land | 1-4 Family | Real Estate Multi- Family | Non-Farm Non-Residential | Other | Commercial | Consumer | Indirect Sales | Total |
| Construction, Land |
|
| 1-4 Family |
|
| Real Estate Multi- Family |
|
| Non- Farm Non- Residential |
|
| Other |
|
| Commercial |
|
| Consumer |
|
| Branch Retail |
|
| Indirect Sales |
|
| Total |
| ||||||||||||||||||||||||||||||||||||||
(Dollars in Thousands) |
| (Dollars in Thousands) |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Allowance for loan losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
Beginning balance | $ | — | $ | 107 | $ | — | $ | — | $ | — | $ | — | $ | 1,717 | $ | 623 | $ | 2,447 |
| $ | 240 |
|
| $ | 322 |
|
| $ | 128 |
|
| $ | 831 |
|
| $ | 1 |
|
| $ | 1,138 |
|
| $ | 75 |
|
| $ | — |
|
| $ | — |
|
| $ | 2,735 |
| ||||||||||||||||||
Charge-offs | — | (27 | ) | — | — | — | — | (1,721 | ) | (445 | ) | (2,193 | ) |
|
| — |
|
|
| (47 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (32 | ) |
|
| — |
|
|
| — |
|
|
| (79 | ) | |||||||||||||||||||||||
Recoveries | — | 28 | — | — | — | — | 435 | 75 | 538 |
|
| — |
|
|
| 22 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3 |
|
|
| 33 |
|
|
| — |
|
|
| — |
|
|
| 58 |
| |||||||||||||||||||||||||||
Provision | — | (5 | ) | — | — | — | — | 1,134 | 465 | 1,594 |
|
| (78 | ) |
|
| 139 |
|
|
| 233 |
|
|
| 72 |
|
|
| — |
|
|
| 259 |
|
|
| 10 |
|
|
| — |
|
|
| — |
|
|
| 635 |
| ||||||||||||||||||||||||||
Ending balance | $ | — | $ | 103 | $ | — | $ | — | $ | — | $ | — | $ | 1,565 | $ | 718 | $ | 2,386 |
| $ | 162 |
|
| $ | 436 |
|
| $ | 361 |
|
| $ | 903 |
|
| $ | 1 |
|
| $ | 1,400 |
|
| $ | 86 |
|
| $ | — |
|
| $ | — |
|
| $ | 3,349 |
| ||||||||||||||||||
Ending balance of allowance attributable to loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
Individually evaluated for impairment | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — |
| $ | — |
|
| $ | 15 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 394 |
|
| $ | 9 |
|
| $ | — |
|
| $ | — |
|
| $ | 418 |
| ||||||||||||||||||
Collectively evaluated for impairment | — | 103 | — | — | — | — | 1,565 | 718 | 2,386 |
|
| 162 |
|
|
| 421 |
|
|
| 361 |
|
|
| 903 |
|
|
| 1 |
|
|
| 1,006 |
|
|
| 77 |
|
|
| — |
|
|
| — |
|
|
| 2,931 |
| |||||||||||||||||||||||||||
Loans acquired with deteriorated credit quality |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||||||||||||||||||||||||||
Total allowance for loan losses | $ | — | $ | 103 | $ | — | $ | — | $ | — | $ | — | $ | 1,565 | $ | 718 | $ | 2,386 |
| $ | 162 |
|
| $ | 436 |
|
| $ | 361 |
|
| $ | 903 |
|
| $ | 1 |
|
| $ | 1,400 |
|
| $ | 86 |
|
| $ | — |
|
| $ | — |
|
| $ | 3,349 |
| ||||||||||||||||||
Ending balance of loans receivable: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
Individually evaluated for impairment | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — |
| $ | — |
|
| $ | 702 |
|
| $ | — |
|
| $ | 496 |
|
| $ | — |
|
| $ | 4,025 |
|
| $ | 32 |
|
| $ | — |
|
| $ | — |
|
| $ | 5,255 |
| ||||||||||||||||||
Collectively evaluated for impairment | — | 11,490 | — | — | — | — | 35,650 | 50,553 | 97,693 |
|
| 27,348 |
|
|
| 102,387 |
|
|
| 46,843 |
|
|
| 164,445 |
|
|
| 842 |
|
|
| 86,445 |
|
|
| 8,104 |
|
|
| — |
|
|
| — |
|
|
| 436,414 |
| |||||||||||||||||||||||||||
Loans acquired with deteriorated credit quality |
|
| — |
|
|
| 180 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 180 |
| ||||||||||||||||||||||||||||||||||||
Total loans receivable | $ | — | $ | 11,490 | $ | — | $ | — | $ | — | $ | — | $ | 35,650 | $ | 50,553 | $ | 97,693 |
| $ | 27,348 |
|
| $ | 103,269 |
|
| $ | 46,843 |
|
| $ | 164,941 |
|
| $ | 842 |
|
| $ | 90,470 |
|
| $ | 8,136 |
|
| $ | — |
|
| $ | — |
|
| $ | 441,849 |
|
|
| ALC |
| |||||||||||||||||||||||||||||||||||||
|
| Nine Months Ended September 30, 2019 |
| |||||||||||||||||||||||||||||||||||||
|
| Construction, Land |
|
| 1-4 Family |
|
| Real Estate Multi- Family |
|
| Non- Farm Non- Residential |
|
| Other |
|
| Commercial |
|
| Consumer |
|
| Branch Retail |
|
| Indirect Sales |
|
| Total |
| ||||||||||
|
| (Dollars in Thousands) |
| |||||||||||||||||||||||||||||||||||||
Allowance for loan losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
| $ | — |
|
| $ | 24 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 1,724 |
|
| $ | 427 |
|
| $ | 145 |
|
| $ | 2,320 |
|
Charge-offs |
|
| — |
|
|
| (34 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,501 | ) |
|
| (294 | ) |
|
| (194 | ) |
|
| (2,023 | ) |
Recoveries |
|
| — |
|
|
| 6 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 470 |
|
|
| 94 |
|
|
| 6 |
|
|
| 576 |
|
Provision |
|
| — |
|
|
| 29 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 862 |
|
|
| 204 |
|
|
| 268 |
|
|
| 1,363 |
|
Ending balance |
| $ | — |
|
| $ | 25 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 1,555 |
|
| $ | 431 |
|
| $ | 225 |
|
| $ | 2,236 |
|
Ending balance of allowance attributable to loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
Collectively evaluated for impairment |
|
| — |
|
|
| 25 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,555 |
|
|
| 431 |
|
|
| 225 |
|
|
| 2,236 |
|
Total allowance for loan losses |
| $ | — |
|
| $ | 25 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 1,555 |
|
| $ | 431 |
|
| $ | 225 |
|
| $ | 2,236 |
|
Ending balance of loans receivable: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment |
| $ | — |
|
| $ | 137 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 137 |
|
Collectively evaluated for impairment |
|
| — |
|
|
| 5,930 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 29,341 |
|
|
| 30,008 |
|
|
| 48,073 |
|
|
| 113,352 |
|
Total loans receivable |
| $ | — |
|
| $ | 6,067 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 29,341 |
|
| $ | 30,008 |
|
| $ | 48,073 |
|
| $ | 113,489 |
|
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 |
| Bank and ALC |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year Ended December 31, 2016 |
| Nine Months Ended September 30, 2019 |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Construction, Land | 1-4 Family | Real Estate Multi- Family | Non-Farm Non-Residential | Other | Commercial | Consumer | Indirect Sales | Total |
| Construction, Land |
|
| 1-4 Family |
|
| Real Estate Multi- Family |
|
| Non- Farm Non- Residential |
|
| Other |
|
| Commercial |
|
| Consumer |
|
| Branch Retail |
|
| Indirect Sales |
|
| Total |
| ||||||||||||||||||||||||||||||||||||||
(Dollars in Thousands) |
| (Dollars in Thousands) |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Allowance for loan losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
Beginning balance | $ | 110 | $ | 138 | $ | 29 | $ | 351 | $ | 1 | $ | 659 | $ | 41 | $ | — | $ | 1,329 |
| $ | 240 |
|
| $ | 346 |
|
| $ | 128 |
|
| $ | 831 |
|
| $ | 1 |
|
| $ | 1,138 |
|
| $ | 1,799 |
|
| $ | 427 |
|
| $ | 145 |
|
| $ | 5,055 |
| ||||||||||||||||||
Charge-offs | — | (66 | ) | — | (40 | ) | — | (2 | ) | (43 | ) | — | (151 | ) |
|
| — |
|
|
| (81 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,533 | ) |
|
| (294 | ) |
|
| (194 | ) |
|
| (2,102 | ) | ||||||||||||||||||||||
Recoveries | 200 | 23 | — | — | — | 73 | 50 | — | 346 |
|
| — |
|
|
| 28 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3 |
|
|
| 503 |
|
|
| 94 |
|
|
| 6 |
|
|
| 634 |
| |||||||||||||||||||||||||||
Provision | 225 | 209 | 59 | 592 | 1 | (203 | ) | 2 | — | 885 |
|
| (78 | ) |
|
| 168 |
|
|
| 233 |
|
|
| 72 |
|
|
| — |
|
|
| 259 |
|
|
| 872 |
|
|
| 204 |
|
|
| 268 |
|
|
| 1,998 |
| ||||||||||||||||||||||||||
Ending balance | $ | 535 | $ | 304 | $ | 88 | $ | 903 | $ | 2 | $ | 527 | $ | 50 | $ | — | $ | 2,409 |
| $ | 162 |
|
| $ | 461 |
|
| $ | 361 |
|
| $ | 903 |
|
| $ | 1 |
|
| $ | 1,400 |
|
| $ | 1,641 |
|
| $ | 431 |
|
| $ | 225 |
|
| $ | 5,585 |
| ||||||||||||||||||
Ending balance of allowance attributable to loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
Individually evaluated for impairment | $ | 423 | $ | 5 | $ | — | $ | 107 | $ | — | $ | — | $ | — | $ | — | $ | 535 |
| $ | — |
|
| $ | 15 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 394 |
|
| $ | 9 |
|
| $ | — |
|
| $ | — |
|
| $ | 418 |
| ||||||||||||||||||
Collectively evaluated for impairment | 112 | 299 | 88 | 796 | 2 | 527 | 50 | — | 1,874 |
|
| 162 |
|
|
| 446 |
|
|
| 361 |
|
|
| 903 |
|
|
| 1 |
|
|
| 1,006 |
|
|
| 1,632 |
|
|
| 431 |
|
|
| 225 |
|
|
| 5,167 |
| |||||||||||||||||||||||||||
Loans acquired with deteriorated credit quality |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||||||||||||||||||||||||||
Total allowance for loan losses | $ | 535 | $ | 304 | $ | 88 | $ | 903 | $ | 2 | $ | 527 | $ | 50 | $ | — | $ | 2,409 |
| $ | 162 |
|
| $ | 461 |
|
| $ | 361 |
|
| $ | 903 |
|
| $ | 1 |
|
| $ | 1,400 |
|
| $ | 1,641 |
|
| $ | 431 |
|
| $ | 225 |
|
| $ | 5,585 |
| ||||||||||||||||||
Ending balance of loans receivable: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
Individually evaluated for impairment | $ | 1,361 | $ | 193 | $ | — | $ | 549 | $ | — | $ | — | $ | — | $ | — | $ | 2,103 |
| $ | — |
|
| $ | 839 |
|
| $ | — |
|
| $ | 496 |
|
| $ | — |
|
| $ | 4,025 |
|
| $ | 32 |
|
| $ | — |
|
| $ | — |
|
| $ | 5,392 |
| ||||||||||||||||||
Collectively evaluated for impairment | 22,411 | 32,762 | 16,627 | 101,563 | 234 | 57,963 | 6,206 | — | 237,766 |
|
| 27,348 |
|
|
| 108,317 |
|
|
| 46,843 |
|
|
| 164,445 |
|
|
| 842 |
|
|
| 86,445 |
|
|
| 37,445 |
|
|
| 30,008 |
|
|
| 48,073 |
|
|
| 549,766 |
| |||||||||||||||||||||||||||
Loans acquired with deteriorated credit quality |
|
| — |
|
|
| 180 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 180 |
| ||||||||||||||||||||||||||||||||||||
Total loans receivable | $ | 23,772 | $ | 32,955 | $ | 16,627 | $ | 102,112 | $ | 234 | $ | 57,963 | $ | 6,206 | $ | — | $ | 239,869 |
| $ | 27,348 |
|
| $ | 109,336 |
|
| $ | 46,843 |
|
| $ | 164,941 |
|
| $ | 842 |
|
| $ | 90,470 |
|
| $ | 37,477 |
|
| $ | 30,008 |
|
| $ | 48,073 |
|
| $ | 555,338 |
|
|
| Bank |
| |||||||||||||||||||||||||||||||||||||
|
| Year Ended December 31, 2018 |
| |||||||||||||||||||||||||||||||||||||
|
| Construction, Land |
|
| 1-4 Family |
|
| Real Estate Multi- Family |
|
| Non- Farm Non- Residential |
|
| Other |
|
| Commercial |
|
| Consumer |
|
| Branch Retail |
|
| Indirect Sales |
|
| Total |
| ||||||||||
|
| (Dollars in Thousands) |
| |||||||||||||||||||||||||||||||||||||
Allowance for loan losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
| $ | 203 |
|
| $ | 238 |
|
| $ | 116 |
|
| $ | 777 |
|
| $ | 2 |
|
| $ | 1,049 |
|
| $ | 62 |
|
| $ | — |
|
| $ | — |
|
| $ | 2,447 |
|
Charge-offs |
|
| — |
|
|
| (9 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3 | ) |
|
| (4 | ) |
|
| — |
|
|
| — |
|
|
| (16 | ) |
Recoveries |
|
| — |
|
|
| 51 |
|
|
| — |
|
|
| 4 |
|
|
| — |
|
|
| 11 |
|
|
| 23 |
|
|
| — |
|
|
| — |
|
|
| 89 |
|
Provision |
|
| 37 |
|
|
| 42 |
|
|
| 12 |
|
|
| 50 |
|
|
| (1 | ) |
|
| 81 |
|
|
| (6 | ) |
|
| — |
|
|
| — |
|
|
| 215 |
|
Ending balance |
| $ | 240 |
|
| $ | 322 |
|
| $ | 128 |
|
| $ | 831 |
|
| $ | 1 |
|
| $ | 1,138 |
|
| $ | 75 |
|
| $ | — |
|
| $ | — |
|
| $ | 2,735 |
|
Ending balance of allowance attributable to loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment |
| $ | 28 |
|
| $ | 50 |
|
| $ | — |
|
| $ | 1 |
|
| $ | — |
|
| $ | 67 |
|
| $ | 20 |
|
| $ | — |
|
| $ | — |
|
| $ | 166 |
|
Collectively evaluated for impairment |
|
| 212 |
|
|
| 272 |
|
|
| 128 |
|
|
| 830 |
|
|
| 1 |
|
|
| 1,071 |
|
|
| 55 |
|
|
| — |
|
|
| — |
|
|
| 2,569 |
|
Loans acquired with deteriorated credit quality |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Total allowance for loan losses |
| $ | 240 |
|
| $ | 322 |
|
| $ | 128 |
|
| $ | 831 |
|
| $ | 1 |
|
| $ | 1,138 |
|
| $ | 75 |
|
| $ | — |
|
| $ | — |
|
| $ | 2,735 |
|
Ending balance of loans receivable: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment |
| $ | 153 |
|
| $ | 57 |
|
| $ | — |
|
| $ | 511 |
|
| $ | — |
|
| $ | 67 |
|
| $ | 43 |
|
| $ | — |
|
| $ | — |
|
| $ | 831 |
|
Collectively evaluated for impairment |
|
| 41,114 |
|
|
| 102,490 |
|
|
| 23,009 |
|
|
| 155,651 |
|
|
| 1,308 |
|
|
| 85,712 |
|
|
| 6,884 |
|
|
| — |
|
|
| — |
|
|
| 416,168 |
|
Loans acquired with deteriorated credit quality |
|
| 73 |
|
|
| 424 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 497 |
|
Total loans receivable |
| $ | 41,340 |
|
| $ | 102,971 |
|
| $ | 23,009 |
|
| $ | 156,162 |
|
| $ | 1,308 |
|
| $ | 85,779 |
|
| $ | 6,927 |
|
| $ | — |
|
| $ | — |
|
| $ | 417,496 |
|
ALC |
| ALC |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year Ended December 31, 2016 |
| Year Ended December 31, 2018 |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Construction, Land | 1-4 Family | Real Estate Multi- Family | Non-Farm Non-Residential | Other | Commercial | Consumer | Indirect Sales | Total |
| Construction, Land |
|
| 1-4 Family |
|
| Real Estate Multi- Family |
|
| Non- Farm Non- Residential |
|
| Other |
|
| Commercial |
|
| Consumer |
|
| Branch Retail |
|
| Indirect Sales |
|
| Total |
| ||||||||||||||||||||||||||||||||||||||
(Dollars in Thousands) |
| (Dollars in Thousands) |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Allowance for loan losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
Beginning balance | $ | — | $ | 250 | $ | — | $ | — | $ | — | $ | — | $ | 1,584 | $ | 618 | $ | 2,452 |
| $ | — |
|
| $ | 52 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 1,653 |
|
| $ | 393 |
|
| $ | 229 |
|
| $ | 2,327 |
| ||||||||||||||||||
Charge-offs | — | (56 | ) | — | — |
| — | — |
| (2,218 | ) | (752 | ) | (3,026 | ) |
|
| — |
|
|
| (92 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,478 | ) |
|
| (415 | ) |
|
| (116 | ) |
|
| (3,101 | ) | |||||||||||||||||||||
Recoveries | — | 39 | — | — | — | — | 451 | 220 | 710 |
|
| — |
|
|
| 23 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 545 |
|
|
| 113 |
|
|
| 6 |
|
|
| 687 |
| |||||||||||||||||||||||||||
Provision | — | (126 | ) | — | — | — | — |
| 1,900 | 537 | 2,311 |
|
| — |
|
|
| 41 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,004 |
|
|
| 336 |
|
|
| 26 |
|
|
| 2,407 |
| |||||||||||||||||||||||||
Ending balance | $ | — | $ | 107 | $ | — | $ | — | $ | — | $ | — | $ | 1,717 | $ | 623 | $ | 2,447 |
| $ | — |
|
| $ | 24 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 1,724 |
|
| $ | 427 |
|
| $ | 145 |
|
| $ | 2,320 |
| ||||||||||||||||||
Ending balance of allowance attributable to loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
Individually evaluated for impairment | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
| ||||||||||||||||||
Collectively evaluated for impairment | — | 107 | — | — | — | — | 1,717 | 623 | 2,447 |
|
| — |
|
|
| 24 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,724 |
|
|
| 427 |
|
|
| 145 |
|
|
| 2,320 |
| |||||||||||||||||||||||||||
Total allowance for loan losses | $ | — | $ | 107 | $ | — | $ | — | $ | — | $ | — | $ | 1,717 | $ | 623 | $ | 2,447 |
| $ | — |
|
| $ | 24 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 1,724 |
|
| $ | 427 |
|
| $ | 145 |
|
| $ | 2,320 |
| ||||||||||||||||||
Ending balance of loans receivable: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
Individually evaluated for impairment | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — |
| $ | — |
|
| $ | 211 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 211 |
| ||||||||||||||||||
Collectively evaluated for impairment | — | 13,724 | — | — | — | — | 36,413 | 44,775 | 94,912 |
|
| — |
|
|
| 7,574 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 31,656 |
|
|
| 28,324 |
|
|
| 40,609 |
|
|
| 108,163 |
| |||||||||||||||||||||||||||
Total loans receivable | $ | — | $ | 13,724 | $ | — | $ | — | $ | — | $ | — | $ | 36,413 | $ | 44,775 | $ | 94,912 |
| $ | — |
|
| $ | 7,785 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 31,656 |
|
| $ | 28,324 |
|
| $ | 40,609 |
|
| $ | 108,374 |
|
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 |
|
| Bank and ALC |
| |||||||||||||||||||||||||||||||||||||
|
| Year Ended December 31, 2018 |
| |||||||||||||||||||||||||||||||||||||
|
| Construction, Land |
|
| 1-4 Family |
|
| Real Estate Multi- Family |
|
| Non- Farm Non- Residential |
|
| Other |
|
| Commercial |
|
| Consumer |
|
| Branch Retail |
|
| Indirect Sales |
|
| Total |
| ||||||||||
|
| (Dollars in Thousands) |
| |||||||||||||||||||||||||||||||||||||
Allowance for loan losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
| $ | 203 |
|
| $ | 290 |
|
| $ | 116 |
|
| $ | 777 |
|
| $ | 2 |
|
| $ | 1,049 |
|
| $ | 1,715 |
|
| $ | 393 |
|
| $ | 229 |
|
| $ | 4,774 |
|
Charge-offs |
|
| — |
|
|
| (101 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3 | ) |
|
| (2,482 | ) |
|
| (415 | ) |
|
| (116 | ) |
|
| (3,117 | ) |
Recoveries |
|
| — |
|
|
| 74 |
|
|
| — |
|
|
| 4 |
|
|
| — |
|
|
| 11 |
|
|
| 568 |
|
|
| 113 |
|
|
| 6 |
|
|
| 776 |
|
Provision |
|
| 37 |
|
|
| 83 |
|
|
| 12 |
|
|
| 50 |
|
|
| (1 | ) |
|
| 81 |
|
|
| 1,998 |
|
|
| 336 |
|
|
| 26 |
|
|
| 2,622 |
|
Ending balance |
| $ | 240 |
|
| $ | 346 |
|
| $ | 128 |
|
| $ | 831 |
|
| $ | 1 |
|
| $ | 1,138 |
|
| $ | 1,799 |
|
| $ | 427 |
|
| $ | 145 |
|
| $ | 5,055 |
|
Ending balance of allowance attributable to loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment |
| $ | 28 |
|
| $ | 50 |
|
| $ | — |
|
| $ | 1 |
|
| $ | — |
|
| $ | 67 |
|
| $ | 20 |
|
| $ | — |
|
| $ | — |
|
| $ | 166 |
|
Collectively evaluated for impairment |
|
| 212 |
|
|
| 296 |
|
|
| 128 |
|
|
| 830 |
|
|
| 1 |
|
|
| 1,071 |
|
|
| 1,779 |
|
|
| 427 |
|
|
| 145 |
|
|
| 4,889 |
|
Loans acquired with deteriorated credit quality |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Total allowance for loan losses |
| $ | 240 |
|
| $ | 346 |
|
| $ | 128 |
|
| $ | 831 |
|
| $ | 1 |
|
| $ | 1,138 |
|
| $ | 1,799 |
|
| $ | 427 |
|
| $ | 145 |
|
| $ | 5,055 |
|
Ending balance of loans receivable: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment |
| $ | 153 |
|
| $ | 268 |
|
| $ | — |
|
| $ | 511 |
|
| $ | — |
|
| $ | 67 |
|
| $ | 43 |
|
| $ | — |
|
| $ | — |
|
| $ | 1,042 |
|
Collectively evaluated for impairment |
|
| 41,114 |
|
|
| 110,064 |
|
|
| 23,009 |
|
|
| 155,651 |
|
|
| 1,308 |
|
|
| 85,712 |
|
|
| 38,540 |
|
|
| 28,324 |
|
|
| 40,609 |
|
|
| 524,331 |
|
Loans acquired with deteriorated credit quality |
|
| 73 |
|
|
| 424 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 497 |
|
Total loans receivable |
| $ | 41,340 |
|
| $ | 110,756 |
|
| $ | 23,009 |
|
| $ | 156,162 |
|
| $ | 1,308 |
|
| $ | 85,779 |
|
| $ | 38,583 |
|
| $ | 28,324 |
|
| $ | 40,609 |
|
| $ | 525,870 |
|
Credit Quality Indicators
The Bank 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 is 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.
Pass (Risk Grades 1-5): Loans in this category include obligations in which the probability of default is considered low.
Special Mention (Risk Grade 6): Loans in this category exhibit potential credit weaknesses or downward trends deserving Bank management’s close attention. If left uncorrected, these potential weaknesses may result in the deterioration of the repayment prospects for the asset or in the Bank’s credit position at some future date. Special mention loans are not adversely classified and do not expose the Bank to sufficient risk to warrant adverse classification. Although a special mention asset has a higher probability of default than pass-rated categories, its default is not imminent.
Substandard (Risk Grade 7): Loans in this category have defined weaknesses that jeopardize the orderly liquidation of debt. A substandard loan is inadequately protected by the current worth and paying capacity of the obligor or by the collateral pledged, if any. Normal repayment from the borrower is in jeopardy, although no loss of principal is envisioned. There is a distinct possibility that a partial loss of interest and/or principal will occur if the deficiencies are not corrected. Loss potential, while existing in the aggregate amount of substandard assets, does not have to exist in individual assets classified as substandard.
22
|
|
|
|
| Doubtful (Risk Grade 8): Loans classified as doubtful have all of the weaknesses found in substandard loans, with the added characteristic that the weaknesses make collection of debt in full, based on currently existing facts, conditions and values, highly questionable or improbable. Serious problems exist such that partial loss of principal is likely; however, because of certain important, reasonably specific pending factors that may work to strengthen the assets, the loans’ classification as estimated losses is deferred until a more exact status may be determined. Such pending factors may include proposed merger, acquisition or liquidation procedures, capital injection, perfection of liens on additional collateral and refinancing plans. Loans classified as doubtful may include loans to borrowers that have demonstrated a history of failing to live up to agreements. The Bank did not have any loans classified as Doubtful (Risk Grade 8) as of September 30, 2019 or December 31, 2018. |
Loss (Risk Grade 9): Loans are classified in this category when borrowers are deemed incapable of repayment of unsecured debt. Loans to such borrowers are considered uncollectable and of such little value that continuance as active assets of the Bank is not warranted. This classification does not mean that the loan has absolutely no recovery or salvage value, but rather that it is not prudent to defer writing off these assets, even though partial recovery may be realized in the future. The Bank did not have any loans classified as Loss (Risk Grade 9) as of September 30, 2019 or December 31, 2018.
|
|
At ALC, because the loan portfolio is more uniform in nature, each loan is categorized into one of two risk grades, depending on whether the loan is considered to be performing or nonperforming. Performing loans are loans that are paying principal and interest in accordance with a contractual agreement. Nonperforming loans are loans that have demonstrated characteristics that indicate a probability of loss.
The tables below illustrate the carrying amount of loans by credit quality indicator as of September 30, 2017.2019:
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 |
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 |
|
| Bank |
| |||||||||||||
|
| Pass 1-5 |
|
| Special Mention 6 |
|
| Substandard 7 |
|
| Total |
| ||||
|
| (Dollars in Thousands) |
| |||||||||||||
Loans secured by real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction, land development and other land loans |
| $ | 26,997 |
|
| $ | 351 |
|
| $ | — |
|
| $ | 27,348 |
|
Secured by 1-4 family residential properties |
|
| 101,001 |
|
|
| 137 |
|
|
| 2,131 |
|
|
| 103,269 |
|
Secured by multi-family residential properties |
|
| 46,843 |
|
|
| — |
|
|
| — |
|
|
| 46,843 |
|
Secured by non-farm, non-residential properties |
|
| 159,511 |
|
|
| 4,422 |
|
|
| 1,008 |
|
|
| 164,941 |
|
Other |
|
| 842 |
|
|
| — |
|
|
| — |
|
|
| 842 |
|
Commercial and industrial loans |
|
| 85,353 |
|
|
| 720 |
|
|
| 4,397 |
|
|
| 90,470 |
|
Consumer loans |
|
| 8,096 |
|
|
| — |
|
|
| 40 |
|
|
| 8,136 |
|
Total |
| $ | 428,643 |
|
| $ | 5,630 |
|
| $ | 7,576 |
|
| $ | 441,849 |
|
The above amounts include purchased credit impaired loans. As of September 30, 2019, $0.2 million of purchased credit impaired loans were rated “Substandard.”
|
| ALC |
| |||||||||
|
| Performing |
|
| Nonperforming |
|
| Total |
| |||
|
| (Dollars in Thousands) |
| |||||||||
Loans secured by real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
Secured by 1-4 family residential properties |
| $ | 5,936 |
|
| $ | 131 |
|
| $ | 6,067 |
|
Consumer loans: |
|
|
|
|
|
|
|
|
|
|
|
|
Consumer |
|
| 28,908 |
|
|
| 433 |
|
|
| 29,341 |
|
Branch retail |
|
| 29,858 |
|
|
| 150 |
|
|
| 30,008 |
|
Indirect sales |
|
| 48,003 |
|
|
| 70 |
|
|
| 48,073 |
|
Total |
| $ | 112,705 |
|
| $ | 784 |
|
| $ | 113,489 |
|
23
The tables below illustrate the carrying amount of loans by credit quality indicator as of December 31, 2016.2018:
Bank |
| Bank |
| |||||||||||||||||||||||||||||||||
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 |
| $ | 40,200 |
|
| $ | 914 |
|
| $ | 226 |
|
| $ | 41,340 |
| ||||||||||
Secured by 1-4 family residential properties | 31,995 | 213 | 747 | — | 32,955 |
|
| 100,485 |
|
|
| 154 |
|
|
| 2,332 |
|
|
| 102,971 |
| |||||||||||||||
Secured by multi-family residential properties | 16,627 | — | — | — | 16,627 |
|
| 23,009 |
|
|
| — |
|
|
| — |
|
|
| 23,009 |
| |||||||||||||||
Secured by non-farm, non-residential properties | 99,082 | 2,315 | 715 | — | 102,112 |
|
| 153,077 |
|
|
| 1,996 |
|
|
| 1,089 |
|
|
| 156,162 |
| |||||||||||||||
Other | 234 | — | — | — | 234 |
|
| 1,308 |
|
|
| — |
|
|
| — |
|
|
| 1,308 |
| |||||||||||||||
Commercial and industrial loans | 55,481 | 2,227 | 255 | — | 57,963 |
|
| 83,261 |
|
|
| 1,977 |
|
|
| 541 |
|
|
| 85,779 |
| |||||||||||||||
Consumer loans | 6,126 | — | 80 | — | 6,206 |
|
| 6,848 |
|
|
| — |
|
|
| 79 |
|
|
| 6,927 |
| |||||||||||||||
Total | $ | 231,785 | $ | 4,755 | $ | 3,329 | $ | — | $ | 239,869 |
| $ | 408,188 |
|
| $ | 5,041 |
|
| $ | 4,267 |
|
| $ | 417,496 |
|
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 |
The above amounts include purchased credit impaired loans. As of December 31, 2018, $0.5 million of purchased credit impaired loans were rated “Substandard.”
|
| ALC |
| |||||||||
|
| Performing |
|
| Nonperforming |
|
| Total |
| |||
|
| (Dollars in Thousands) |
| |||||||||
Loans secured by real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
Secured by 1-4 family residential properties |
| $ | 7,657 |
|
| $ | 128 |
|
| $ | 7,785 |
|
Consumer loans: |
|
|
|
|
|
|
|
|
|
|
|
|
Consumer |
|
| 30,826 |
|
|
| 830 |
|
|
| 31,656 |
|
Branch retail |
|
| 28,171 |
|
|
| 153 |
|
|
| 28,324 |
|
Indirect sales |
|
| 40,491 |
|
|
| 118 |
|
|
| 40,609 |
|
Total |
| $ | 107,145 |
|
| $ | 1,229 |
|
| $ | 108,374 |
|
The following tables provide an aging analysis of past due loans by class as of September 30, 2017.2019:
Bank |
| Bank |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||
As of September 30, 2017 |
| As of September 30, 2019 |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||
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 |
| 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) |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||
Loans secured by real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||
Construction, land development and other land loans | $ | 23 | $ | — | $ | — | $ | 23 | $ | 20,190 | $ | 20,213 | $ | — |
| $ | 349 |
|
| $ | — |
|
| $ | — |
|
| $ | 349 |
|
| $ | 26,999 |
|
| $ | 27,348 |
|
| $ | — |
| ||||||||||||||
Secured by 1-4 family residential properties | 149 | — | 91 | 240 | 34,885 | 35,125 | — |
|
| 1,949 |
|
|
| 212 |
|
|
| — |
|
|
| 2,161 |
|
|
| 101,108 |
|
|
| 103,269 |
|
|
| — |
| |||||||||||||||||||||
Secured by multi-family residential properties | — | — | — | — | 16,498 | 16,498 | — |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 46,843 |
|
|
| 46,843 |
|
|
| — |
| |||||||||||||||||||||
Secured by non-farm, non-residential properties | 15 | 117 | — | 132 | 107,547 | 107,679 | — |
|
| 1,334 |
|
|
| — |
|
|
| 14 |
|
|
| 1,348 |
|
|
| 163,593 |
|
|
| 164,941 |
|
|
| — |
| |||||||||||||||||||||
Other | — | — | — | — | 223 | 223 | — |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 842 |
|
|
| 842 |
|
|
| — |
| |||||||||||||||||||||
Commercial and industrial loans | 31 | — | — | 31 | 66,289 | 66,320 | — |
|
| 918 |
|
|
| — |
|
|
| — |
|
|
| 918 |
|
|
| 89,552 |
|
|
| 90,470 |
|
|
| — |
| |||||||||||||||||||||
Consumer loans | — | — | 23 | 23 | 5,408 | 5,431 | — |
|
| 16 |
|
|
| — |
|
|
| 1 |
|
|
| 17 |
|
|
| 8,119 |
|
|
| 8,136 |
|
|
| — |
| |||||||||||||||||||||
Total | $ | 218 | $ | 117 | $ | 114 | $ | 449 | $ | 251,040 | $ | 251,489 | $ | — |
| $ | 4,566 |
|
| $ | 212 |
|
| $ | 15 |
|
| $ | 4,793 |
|
| $ | 437,056 |
|
| $ | 441,849 |
|
| $ | — |
|
The above amounts include purchased credit impaired loans. As of September 30, 2019, $0.2 million of purchased credit impaired loans were 60-89 days past due.
|
| ALC |
| |||||||||||||||||||||||||
|
| As of September 30, 2019 |
| |||||||||||||||||||||||||
|
| 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 |
|
| 60 |
|
|
| — |
|
|
| 131 |
|
|
| 191 |
|
|
| 5,876 |
|
|
| 6,067 |
|
|
| — |
|
Secured by multi-family residential properties |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Secured by non-farm, non-residential properties |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Other |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Commercial and industrial loans |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Consumer loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer |
|
| 535 |
|
|
| 275 |
|
|
| 434 |
|
|
| 1,244 |
|
|
| 28,097 |
|
|
| 29,341 |
|
|
| — |
|
Branch retail |
|
| 122 |
|
|
| 73 |
|
|
| 150 |
|
|
| 345 |
|
|
| 29,663 |
|
|
| 30,008 |
|
|
| — |
|
Indirect sales |
|
| 194 |
|
|
| 75 |
|
|
| 70 |
|
|
| 339 |
|
|
| 47,734 |
|
|
| 48,073 |
|
|
| — |
|
Total |
| $ | 911 |
|
| $ | 423 |
|
| $ | 785 |
|
| $ | 2,119 |
|
| $ | 111,370 |
|
| $ | 113,489 |
|
| $ | — |
|
ALC | ||||||||||||||||||||||||||||
As of September 30, 2017 | ||||||||||||||||||||||||||||
30-59 Days Past Due | 60-89 Days Past Due | 90 Days Or Greater | Total Past Due | Current | Total Loans | Recorded Investment > 90 Days And Accruing | ||||||||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||||||||||
Loans secured by real estate: | ||||||||||||||||||||||||||||
Construction, land development and other land loans | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||
Secured by 1-4 family residential properties | 73 | 70 | 71 | 214 | 11,276 | 11,490 | — | |||||||||||||||||||||
Secured by multi-family residential properties | — | — | — | — | — | — | — | |||||||||||||||||||||
Secured by non-farm, non-residential properties | — | — | — | — | — | — | — | |||||||||||||||||||||
Other | — | — | — | — | — | — | — | |||||||||||||||||||||
Commercial and industrial loans | — | — | — | — | — | — | — | |||||||||||||||||||||
Consumer loans: | ||||||||||||||||||||||||||||
Consumer | 506 | 433 | 1,016 | 1,955 | 33,695 | 35,650 | — | |||||||||||||||||||||
Indirect sales | 214 | 221 | 383 | 818 | 49,735 | 50,553 | — | |||||||||||||||||||||
Total | $ | 793 | $ | 724 | $ | 1,470 | $ | 2,987 | $ | 94,706 | $ | 97,693 | $ | — |
The following tables provide an aging analysis of past due loans by class as of December 31, 2016.2018:
Bank |
| Bank |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||
As of December 31, 2016 |
| As of December 31, 2018 |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||
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 |
| 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) |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||
Loans secured by real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||
Construction, land development and other land loans | $ | — | $ | — | $ | 86 | $ | 86 | $ | 23,686 | $ | 23,772 | $ | — |
| $ | 415 |
|
| $ | 582 |
|
| $ | 74 |
|
| $ | 1,071 |
|
| $ | 40,269 |
|
| $ | 41,340 |
|
| $ | — |
| ||||||||||||||
Secured by 1-4 family residential properties | 164 | 69 | 145 | 378 | 32,577 | 32,955 | — |
|
| 991 |
|
|
| 36 |
|
|
| 539 |
|
|
| 1,566 |
|
|
| 101,405 |
|
|
| 102,971 |
|
|
| — |
| |||||||||||||||||||||
Secured by multi-family residential properties | — | — | — | — | 16,627 | 16,627 | — |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 23,009 |
|
|
| 23,009 |
|
|
| — |
| |||||||||||||||||||||
Secured by non-farm, non-residential properties | 762 | — | — | 762 | 101,350 | 102,112 | — |
|
| 458 |
|
|
| 13 |
|
|
| — |
|
|
| 471 |
|
|
| 155,691 |
|
|
| 156,162 |
|
|
| — |
| |||||||||||||||||||||
Other | — | — | — | — | 234 | 234 | — |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,308 |
|
|
| 1,308 |
|
|
| — |
| |||||||||||||||||||||
Commercial and industrial loans | — | — | 14 | 14 | 57,949 | 57,963 | — |
|
| 2,608 |
|
|
| 30 |
|
|
| 384 |
|
|
| 3,022 |
|
|
| 82,757 |
|
|
| 85,779 |
|
|
| — |
| |||||||||||||||||||||
Consumer loans | — | 28 | — | 28 | 6,178 | 6,206 | — |
|
| 80 |
|
|
| — |
|
|
| 4 |
|
|
| 84 |
|
|
| 6,843 |
|
|
| 6,927 |
|
|
| — |
| |||||||||||||||||||||
Total | $ | 926 | $ | 97 | $ | 245 | $ | 1,268 | $ | 238,601 | $ | 239,869 | $ | — |
| $ | 4,552 |
|
| $ | 661 |
|
| $ | 1,001 |
|
| $ | 6,214 |
|
| $ | 411,282 |
|
| $ | 417,496 |
|
| $ | — |
|
The above amounts include purchased credit impaired loans. As of December 31, 2018, $0.3 million of purchased credit impaired loans were 90 or more days past due.
|
| ALC |
| |||||||||||||||||||||||||
|
| As of December 31, 2018 |
| |||||||||||||||||||||||||
|
| 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 |
|
| 60 |
|
|
| 65 |
|
|
| 128 |
|
|
| 253 |
|
|
| 7,532 |
|
|
| 7,785 |
|
|
| — |
|
Secured by multi-family residential properties |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Secured by non-farm, non-residential properties |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Other |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Commercial and industrial loans |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Consumer loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer |
|
| 563 |
|
|
| 354 |
|
|
| 830 |
|
|
| 1,747 |
|
|
| 29,909 |
|
|
| 31,656 |
|
|
| — |
|
Branch retail |
|
| 164 |
|
|
| 98 |
|
|
| 153 |
|
|
| 415 |
|
|
| 27,909 |
|
|
| 28,324 |
|
|
|
|
|
Indirect sales |
|
| 184 |
|
|
| 79 |
|
|
| 118 |
|
|
| 381 |
|
|
| 40,228 |
|
|
| 40,609 |
|
|
| — |
|
Total |
| $ | 971 |
|
| $ | 596 |
|
| $ | 1,229 |
|
| $ | 2,796 |
|
| $ | 105,578 |
|
| $ | 108,374 |
|
| $ | — |
|
ALC | ||||||||||||||||||||||||||||
As of December 31, 2016 | ||||||||||||||||||||||||||||
30-59 Days Past Due | 60-89 Days Past Due | 90 Days Or Greater | Total Past Due | Current | Total Loans | Recorded Investment > 90 Days And Accruing | ||||||||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||||||||||
Loans secured by real estate: | ||||||||||||||||||||||||||||
Construction, land development and other land loans | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||
Secured by 1-4 family residential properties | 61 | 29 | 213 | 303 | 13,421 | 13,724 | — | |||||||||||||||||||||
Secured by multi-family residential properties | — | — | — | — | — | — | — | |||||||||||||||||||||
Secured by non-farm, non-residential properties | — | — | — | — | — | — | — | |||||||||||||||||||||
Other | — | — | — | — | — | — | — | |||||||||||||||||||||
Commercial and industrial loans | — | — | — | — | — | — | — | |||||||||||||||||||||
Consumer loans: | ||||||||||||||||||||||||||||
Consumer | 441 | 413 | 1,104 | 1,958 | 34,455 | 36,413 | — | |||||||||||||||||||||
Indirect sales | 191 | 139 | 489 | 819 | 43,956 | 44,775 | — | |||||||||||||||||||||
Total | $ | 693 | $ | 581 | $ | 1,806 | $ | 3,080 | $ | 91,832 | $ | 94,912 | $ | — |
The following table provides an analysis of non-accruing loans by class as of September 30, 20172019 and December 31, 2016.2018:
Loans on Non-Accrual Status |
| Loans on Non-Accrual Status |
| |||||||||||||
September 30, 2017 | December 31, 2016 |
| September 30, 2019 |
|
| December 31, 2018 |
| |||||||||
(Dollars in Thousands) |
| (Dollars in Thousands) |
| |||||||||||||
Loans secured by real estate: |
|
|
|
|
|
|
|
| ||||||||
Construction, land development and other land loans | $ | — | $ | 86 |
| $ | — |
|
| $ | 73 |
| ||||
Secured by 1-4 family residential properties | 418 | 570 |
|
| 719 |
|
|
| 1,097 |
| ||||||
Secured by multi-family residential properties | — | — |
|
| — |
|
|
| — |
| ||||||
Secured by non-farm, non-residential properties | 33 | 53 |
|
| 23 |
|
|
| 14 |
| ||||||
Other |
|
| 8 |
|
|
| — |
| ||||||||
Commercial and industrial loans | 14 | 32 |
|
| 30 |
|
|
| 424 |
| ||||||
Consumer loans: |
|
|
|
|
|
|
|
| ||||||||
Consumer | 1,106 | 1,676 |
|
| 468 |
|
|
| 879 |
| ||||||
Branch retail |
|
| 150 |
|
|
| 153 |
| ||||||||
Indirect sales | 385 | — |
|
| 70 |
|
|
| 119 |
| ||||||
Total loans | $ | 1,956 | $ | 2,417 |
| $ | 1,468 |
|
| $ | 2,759 |
|
As of September 30, 2019 and December 31, 2018, purchased credit impaired loans comprised $0.2 million and $0.5 million of nonaccrual loans, respectively.
26
A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the related loan agreement. If a loan is impaired, a specific valuation allowance is allocated, if necessary, so that the loan is reported at the present value of estimated future cash flows using the loan’sloan’s existing rate or at the fair value of collateral if repayment is expected solely from the liquidation of the collateral at the Bank. All loans of $0.5 million or more that have a credit quality risk grade of seven or above are identified for impairment analysis. At management’s discretion, additional loans may be impaired based on homogeneous factors such as changes in the nature and volume of the portfolio, portfolio quality, adequacy of the underlying collateral value, loan concentrations, historical charge-off trends and economic conditions that may affect athe borrower’s ability to pay. At ALC, all real estate loans of $0.1 million$50 thousand or more that are 90 days or more past due are identified for impairment analysis. There are currentlyAs of September 30, 2019 and December 31, 2018, there were $0.1 million and $0.2 million, respectively, of impaired loans with no loansrelated allowance recorded at ALC that meet that criteria. All loans of $0.5 million or more that have a credit quality risk grade of seven or above are identified for impairment analysis.ALC. Impaired loans, or portions thereof, are charged off when deemed uncollectable.
As of September 30, 2017,2019, the carrying amount of impaired loans at the Bank and ALC consisted of 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 |
|
| September 30, 2019 |
| |||||||||
|
| Carrying Amount |
|
| Unpaid Principal Balance |
|
| Related Allowances |
| |||
|
| (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 |
|
| 997 |
|
|
| 997 |
|
|
| — |
|
Secured by multi-family residential properties |
|
| — |
|
|
| — |
|
|
| — |
|
Secured by non-farm, non-residential properties |
|
| 496 |
|
|
| 496 |
|
|
| — |
|
Commercial and industrial |
|
| — |
|
|
| — |
|
|
| — |
|
Consumer |
|
| — |
|
|
| — |
|
|
| — |
|
Total loans with no related allowance recorded |
| $ | 1,493 |
|
| $ | 1,493 |
|
| $ | — |
|
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 |
|
| 22 |
|
|
| 22 |
|
|
| 15 |
|
Secured by multi-family residential properties |
|
| — |
|
|
| — |
|
|
| — |
|
Secured by non-farm, non-residential properties |
|
| — |
|
|
| — |
|
|
| — |
|
Commercial and industrial |
|
| 4,025 |
|
|
| 4,025 |
|
|
| 394 |
|
Consumer |
|
| 32 |
|
|
| 32 |
|
|
| 9 |
|
Total loans with an allowance recorded |
| $ | 4,079 |
|
| $ | 4,079 |
|
| $ | 418 |
|
Total impaired loans |
|
|
|
|
|
|
|
|
|
|
|
|
Loans secured by real estate |
|
|
|
|
|
|
|
|
|
|
|
|
Construction, land development and other land loans |
| $ | — |
|
| $ | — |
|
| $ | — |
|
Secured by 1-4 family residential properties |
|
| 1,019 |
|
|
| 1,019 |
|
|
| 15 |
|
Secured by multi-family residential properties |
|
| — |
|
|
| — |
|
|
| — |
|
Secured by non-farm, non-residential properties |
|
| 496 |
|
|
| 496 |
|
|
| — |
|
Commercial and industrial |
|
| 4,025 |
|
|
| 4,025 |
|
|
| 394 |
|
Consumer |
|
| 32 |
|
|
| 32 |
|
|
| 9 |
|
Total impaired loans |
| $ | 5,572 |
|
| $ | 5,572 |
|
| $ | 418 |
|
The above amounts include purchased credit impaired loans. As of September 30, 2019, purchased credit impaired loans comprised $0.2 million of impaired loans without a related allowance recorded.
27
As of December 31, 2016,2018, the carrying amount of impaired loans at the Bank and ALC consisted of the following:
|
| December 31, 2018 |
| |||||||||||||||||||||
|
| Carrying Amount |
|
| Unpaid Principal Balance |
|
| Related Allowances |
| |||||||||||||||
December 31, 2016 |
| (Dollars in Thousands) |
| |||||||||||||||||||||
Impaired loans with no related allowance recorded | Carrying Amount | Unpaid Principal Balance | Related Allowances |
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
(Dollars in Thousands) | ||||||||||||||||||||||||
Loans secured by real estate |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Construction, land development and other land loans | $ | — | $ | — | $ | — |
| $ | 73 |
|
| $ | 73 |
|
| $ | — |
| ||||||
Secured by 1-4 family residential properties | — | — | — |
|
| 635 |
|
|
| 635 |
|
|
| — |
| |||||||||
Secured by multi-family residential properties | — | — | — |
|
| — |
|
|
| — |
|
|
| — |
| |||||||||
Secured by non-farm, non-residential properties | — | — | — |
|
| — |
|
|
| — |
|
|
| — |
| |||||||||
Commercial and industrial | — | — | — |
|
| — |
|
|
| — |
|
|
| — |
| |||||||||
Consumer |
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||
Total loans with no related allowance recorded | $ | — | $ | — | $ | — |
| $ | 708 |
|
| $ | 708 |
|
| $ | — |
| ||||||
Impaired loans with an allowance recorded |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Loans secured by real estate |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Construction, land development and other land loans | $ | 1,361 | $ | 1,361 | $ | 423 |
| $ | 153 |
|
| $ | 153 |
|
| $ | 28 |
| ||||||
Secured by 1-4 family residential properties | 193 | 193 | 5 |
|
| 57 |
|
|
| 57 |
|
|
| 50 |
| |||||||||
Secured by multi-family residential properties | — | — | — |
|
| — |
|
|
| — |
|
|
| — |
| |||||||||
Secured by non-farm, non-residential properties | 549 | 549 | 107 |
|
| 511 |
|
|
| 511 |
|
|
| 1 |
| |||||||||
Commercial and industrial | — | — | — |
|
| 67 |
|
|
| 67 |
|
|
| 67 |
| |||||||||
Consumer |
|
| 43 |
|
|
| 43 |
|
|
| 20 |
| ||||||||||||
Total loans with an allowance recorded | $ | 2,103 | $ | 2,103 | $ | 535 |
| $ | 831 |
|
| $ | 831 |
|
| $ | 166 |
| ||||||
Total impaired loans |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Loans secured by real estate |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Construction, land development and other land loans | $ | 1,361 | $ | 1,361 | $ | 423 |
| $ | 226 |
|
| $ | 226 |
|
| $ | 28 |
| ||||||
Secured by 1-4 family residential properties | 193 | 193 | 5 |
|
| 692 |
|
|
| 692 |
|
|
| 50 |
| |||||||||
Secured by multi-family residential properties | — | — | — |
|
| — |
|
|
| — |
|
|
| — |
| |||||||||
Secured by non-farm, non-residential properties | 549 | 549 | 107 |
|
| 511 |
|
|
| 511 |
|
|
| 1 |
| |||||||||
Commercial and industrial | — | — | — |
|
| 67 |
|
|
| 67 |
|
|
| 67 |
| |||||||||
Consumer |
|
| 43 |
|
|
| 43 |
|
|
| 20 |
| ||||||||||||
Total impaired loans | $ | 2,103 | $ | 2,103 | $ | 535 |
| $ | 1,539 |
|
| $ | 1,539 |
|
| $ | 166 |
|
The above amounts include purchased credit impaired loans. As of December 31, 2018, purchased credit impaired loans comprised $0.5 million of impaired loans without a related allowance recorded.
The average net investment in impaired loans and interest income recognized and received on impaired loans as ofduring the nine months ended September 30, 20172019 and the year ended December 31, 20162018 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 |
|
| Nine Months Ended September 30, 2019 |
| |||||||||
|
| Average Recorded Investment |
|
| Interest Income Recognized |
|
| Interest Income Received |
| |||
|
| (Dollars in Thousands) |
| |||||||||
Loans secured by real estate |
|
|
|
|
|
|
|
|
|
|
|
|
Construction, land development and other land loans |
| $ | 181 |
|
| $ | — |
|
| $ | — |
|
Secured by 1-4 family residential properties |
|
| 1,021 |
|
|
| 43 |
|
|
| 37 |
|
Secured by multi-family residential properties |
|
| — |
|
|
| — |
|
|
| — |
|
Secured by non-farm, non-residential properties |
|
| 645 |
|
|
| 22 |
|
|
| 21 |
|
Other |
|
| — |
|
|
| — |
|
|
| — |
|
Commercial and industrial |
|
| 991 |
|
|
| 5 |
|
|
| 5 |
|
Consumer |
|
| 38 |
|
|
| 1 |
|
|
| 1 |
|
Total |
| $ | 2,876 |
|
| $ | 71 |
|
| $ | 64 |
|
|
| Year Ended December 31, 2018 |
| |||||||||
|
| Average Recorded Investment |
|
| Interest Income Recognized |
|
| Interest Income Received |
| |||
|
| (Dollars in Thousands) |
| |||||||||
Loans secured by real estate |
|
|
|
|
|
|
|
|
|
|
|
|
Construction, land development and other land loans |
| $ | 70 |
|
| $ | 8 |
|
| $ | 8 |
|
Secured by 1-4 family residential properties |
|
| 794 |
|
|
| 16 |
|
|
| 16 |
|
Secured by multi-family residential properties |
|
| — |
|
|
| — |
|
|
| — |
|
Secured by non-farm, non-residential properties |
|
| 523 |
|
|
| 34 |
|
|
| 35 |
|
Other |
|
| 1 |
|
|
| — |
|
|
| — |
|
Commercial and industrial |
|
| 57 |
|
|
| 4 |
|
|
| 5 |
|
Consumer |
|
| 15 |
|
|
| 3 |
|
|
| 3 |
|
Total |
| $ | 1,460 |
|
| $ | 65 |
|
| $ | 67 |
|
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$1.5 million and $2.4$2.8 million as of September 30, 20172019 and December 31, 2016,2018, respectively. If interest on those loans had been accrued, there would have been $5$30 thousand and $35$44 thousand of interest accrued for the periods ended September 30, 20172019 and December 31, 2016,2018, respectively. Interest income related to these loans as offor the nine months ended September 30, 20172019 and the year ended December 31, 20162018 was $3$13 thousand and $4$27 thousand, respectively.
Troubled Debt Restructurings
Troubled debt restructurings include loans with respect to which concessions have been granted to borrowers that generally would not have otherwise been considered had the borrowers not been experiencing financial difficulty. The concessions granted may include payment schedule modifications, interest rate reductions, maturity date extensions, modificationsmodifications of note structure, principal balance reductions or some combination of these concessions. There were no loans modified with concessions granted during the nine-month period ended September 30, 2017.2019 or the year ended December 31, 2018. Restructured loans may involve loans remaining on non-accrual, moving to non-accrual or continuing on accrual status, depending on the individual facts and circumstances of the borrower. Non-accrual restructured loans are included with all other non-accrual loans. In addition, all accruing restructured loans are reported as troubled debt restructurings. Generally, restructured loans remain on non-accrual until the customer has attained a sustained period of repayment performance under the modified loan terms (generally a minimum of six months). However, performance prior to the restructuring, or significant events that coincide with the restructuring, are considered in assessing whether the borrower can meet the new terms and whether the loan should be returned to or maintained on non-accrual status. If the borrower’s ability to meet the revised payment schedule is not reasonably assured, then the loan remains on non-accrual. As of both September 30, 20172019 and December 31, 2016,2018, the Company had $0.1 million$18 thousand and $65 thousand, respectively, of non-accruing loans that were previously restructured and that remained on non-accrual status. For both the nine months ended September 30, 2017,2019 and the year ended December 31, 2018, the Company had no loans that were restored to accrual status based on a sustained period of repayment performance. For the year ended December 31, 2016, the Company had $0.3 million in restructured loans that were restored to accrual status based on a sustained period of repayment performance.
The following table provides, as of September 30, 2019 and December 31, 2018, 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.
September 30, 2017 | December 31, 2016 | |||||||||||||||||||||||
Number of Loans | Pre- Modification Outstanding Principal Balance | Post- Modification Principal Balance | Number of Loans | Pre- Modification Outstanding Principal Balance | Post- Modification Principal Balance | |||||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||||||
Loans secured by real estate: | ||||||||||||||||||||||||
Construction, land development and other land loans | 1 | $ | 107 | $ | 84 | 2 | $ | 1,960 | $ | 1,286 | ||||||||||||||
Secured by 1-4 family residential properties | 3 | 318 | 188 | 3 | 318 | 249 | ||||||||||||||||||
Secured by non-farm, non-residential properties | 1 | 53 | 38 | 1 | 53 | 41 | ||||||||||||||||||
Commercial loans | 2 | 116 | 83 | 2 | 116 | 88 | ||||||||||||||||||
Total | 7 | $ | 594 | $ | 393 | 8 | $ | 2,447 | $ | 1,664 |
|
| September 30, 2019 |
|
| December 31, 2018 |
| ||||||||||||||||||
|
| 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 |
|
| $ | 66 |
|
|
| 1 |
|
| $ | 107 |
|
| $ | 73 |
|
Secured by 1-4 family residential properties |
|
| 3 |
|
|
| 318 |
|
|
| 30 |
|
|
| 3 |
|
|
| 318 |
|
|
| 118 |
|
Secured by non-farm, non-residential properties |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1 |
|
|
| 53 |
|
|
| 34 |
|
Commercial loans |
|
| 2 |
|
|
| 116 |
|
|
| 63 |
|
|
| 2 |
|
|
| 116 |
|
|
| 72 |
|
Total |
|
| 6 |
|
| $ | 541 |
|
| $ | 159 |
|
|
| 7 |
|
| $ | 594 |
|
| $ | 297 |
|
As of September 30, 20172019 and December 31, 2016,2018, no loans that previously had been modified in a troubled debt restructuring had defaulted subsequent to modification.
29
Restructured loan modifications primarily included maturity date extensions and payment schedule modifications. There were no modifications to principal balances of the loans that were restructured. Accordingly, there was no impact on the Company’sCompany’s allowance for loan 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$1 thousand and $2 thousand as of September 30, 20172019 and $15 thousand as of December 31, 2016.2018, respectively.
| OTHER REAL ESTATE OWNED AND REPOSSESSIONS |
Other Real Estate Owned
Other real estate and certain other assets acquired in foreclosure are reported at the lower of the investment in the loan or the fairnet realizable value of the property, less estimated costs to sell. The following table summarizestables summarize foreclosed property activity foras of the nine months ended September 30, 20172019 and 2016.2018:
September 30, 2017 |
| September 30, 2019 |
| |||||||||||||||||||||
Bank | ALC | Total |
| Bank |
|
| ALC |
|
| Total |
| |||||||||||||
(Dollars in Thousands) |
| (Dollars in Thousands) |
| |||||||||||||||||||||
Beginning balance | $ | 4,353 | $ | 505 | $ | 4,858 |
| $ | 1,401 |
|
| $ | 104 |
|
| $ | 1,505 |
| ||||||
Transfers from loans | — | 87 | 87 | |||||||||||||||||||||
Additions (1) |
|
| 224 |
|
|
| 88 |
|
|
| 312 |
| ||||||||||||
Sales proceeds | (649 | ) | (199 | ) | (848 | ) |
|
| (443 | ) |
|
| (80 | ) |
|
| (523 | ) | ||||||
Gross gains | 14 | — | 14 |
|
| 37 |
|
|
| 2 |
|
|
| 39 |
| |||||||||
Gross losses | (20 | ) | (101 | ) | (121 | ) |
|
| (21 | ) |
|
| (26 | ) |
|
| (47 | ) | ||||||
Net gains (losses) | (6 | ) | (101 | ) | (107 | ) |
|
| 16 |
|
|
| (24 | ) |
|
| (8 | ) | ||||||
Impairment | (171 | ) | — |
| (171 | ) |
|
| — |
|
|
| (38 | ) |
|
| (38 | ) | ||||||
Ending balance | $ | 3,527 | $ | 292 | $ | 3,819 |
| $ | 1,198 |
|
| $ | 50 |
|
| $ | 1,248 |
|
September 30, 2016 |
| September 30, 2018 |
| |||||||||||||||||||||
Bank | ALC | Total |
| Bank |
|
| ALC |
|
| Total |
| |||||||||||||
(Dollars in Thousands) |
| (Dollars in Thousands) |
| |||||||||||||||||||||
Beginning balance | $ | 5,327 | $ | 711 | $ | 6,038 |
| $ | 3,527 |
|
| $ | 265 |
|
| $ | 3,792 |
| ||||||
Transfers from loans | 255 | 149 | 404 | |||||||||||||||||||||
Additions (1) |
|
| 191 |
|
|
| 58 |
|
|
| 249 |
| ||||||||||||
Sales proceeds | (655 | ) | (259 | ) | (914 | ) |
|
| (2,453 | ) |
|
| (77 | ) |
|
| (2,530 | ) | ||||||
Gross gains | — | 27 | 27 |
|
| 267 |
|
|
| 8 |
|
|
| 275 |
| |||||||||
Gross losses | (40 | ) | (73 | ) | (113 | ) |
|
| (46 | ) |
|
| (54 | ) |
|
| (100 | ) | ||||||
Net gains (losses) | (40 | ) | (46 | ) | (86 | ) |
|
| 221 |
|
|
| (46 | ) |
|
| 175 |
| ||||||
Impairment | — | (51 | ) | (51 | ) |
|
| (167 | ) |
|
| (30 | ) |
|
| (197 | ) | |||||||
Ending balance | $ | 4,887 | $ | 504 | $ | 5,391 |
| $ | 1,319 |
|
| $ | 170 |
|
| $ | 1,489 |
|
(1) | Additions to other real estate owned (“OREO”) include transfers from loans and capitalized improvements to existing OREO properties. |
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$0.2 million and $1.1$0.5 million as of September 30, 20172019 and 2016,2018, respectively. In addition, the Company held $20$40 thousand and $0.1 million inof consumer mortgage loans collateralized by residential real estate that were in the process of foreclosure as of September 30, 20172019, and 2016,did not hold any of these loans as of September 30, 2018.
Repossessions
In addition to the other real estate and other assets acquired in foreclosure, the Bank and ALC also acquire assets through the repossession of the underlying collateral of loans in default. Total repossessed assets as of September 30, 2019 and December 31, 2018 were $0.1 million and $0.2 million, respectively.
|
|
The Company holds an investment in an affordable housing project for which it provides funding as a limited partner and has received tax credits related to its investment in the project based on its partnership share. The net assetsrecorded $7.4 million 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. Assets recorded by the Companygoodwill as a result of its acquisition of TPB in 2018. The Company’s goodwill impairment testing is being performed during the consolidation were lessfourth quarter of 2019. Goodwill impairment was neither indicated nor recorded during the nine months ended September 30, 2019 or the year ended December 31, 2018.
30
Goodwill is tested annually, or more often if circumstances warrant, for impairment. If the implied fair value of goodwill is lower than $0.1its carrying amount, goodwill impairment is indicated, and goodwill is written down to its implied fair value. Subsequent increases in goodwill value are not recognized in the consolidated financial statements. Goodwill totaled $7.4 million as of both September 30, 20172019 and December 31, 2016.2018.
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 intangibles (carrying basis and accumulated amortization) as of September 30, 2019 were as follows:
|
| September 30, 2019 |
| |
|
| (Dollars in Thousands) |
| |
Goodwill |
| $ | 7,435 |
|
Core deposit intangible: |
|
|
|
|
Gross carrying amount |
|
| 2,048 |
|
Accumulated amortization |
|
| (549 | ) |
Core deposit intangible, net |
|
| 1,499 |
|
Total |
| $ | 8,934 |
|
The Company’s estimated remaining amortization expense on intangibles as of September 30, 2019 was as follows:
|
| Amortization Expense |
| |
|
| (Dollars in Thousands) |
| |
2019 |
| $ | 110 |
|
2020 |
|
| 414 |
|
2021 |
|
| 341 |
|
2022 |
|
| 268 |
|
2023 |
|
| 195 |
|
2024 |
|
| 122 |
|
2025 |
|
| 49 |
|
Total |
| $ | 1,499 |
|
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 the 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 its 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$0.2 million and $10.1$0.5 million as of September 30, 20172019 and December 31, 2016,2018, respectively.
Federal funds purchased, which represent unsecured lines of credit that generally mature within one to four days, are available to the Bank through arrangements with correspondent banks and the Federal Reserve. As of both September 30, 20172019 and December 31, 2016,2018, there were no federal funds purchased outstanding, and theoutstanding. The Bank had $18.8$61.8 million and $72.2 million in available unused lines of credit with correspondent banks and the Federal Reserve.
Reserve as of September 30, 2019 and December 31, 2018, respectively.
Securities sold under repurchase agreements, which are secured borrowings, generally are reflected at the amount of cash received in connection with the transaction. The Bank may be required to provide additional collateral based on the fair value of the underlying securities. The Bank monitors the fair value of the underlying securities on a daily basis. Securities sold under repurchase agreements as of September 30, 20172019 and December 31, 20162018 totaled $0.6$0.2 million and $0.1$0.5 million, respectively.
Short-term FHLB advances are secured borrowings available to the Bank as an alternative funding source. As of both September 30, 20172019 and December 31, 2016,2018, the Bank had $10.0 million in did not have any outstanding FHLB advances with original maturities of less than one year.
| LONG-TERM DEBT |
The Company uses FHLB advances 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, 2019 and December 31, 2018, the Company haddid not have any long-term FHLB advances outstanding of $10.0outstanding.
31
Assets pledged (including loans and investment securities) associated with FHLB advances totaled $29.6 million and $15.0$27.0 million as of September 30, 20172019 and December 31, 2016, respectively.
Assets pledged associated with FHLB advances totaled $22.3 million and $28.0 million as of September 30, 2017 and December 31, 2016,2018, respectively. As of September 30, 20172019 and December 31, 2016,2018, the CompanyBank had $164.8$233.0 million and $155.0$282.2 million, respectively, in remaining credit from the FHLB (subject to available collateral).
| INCOME TAXES |
The provision for income taxes was $0.4$0.9 million and $0.4 million for both of the nine-month periods ended September 30, 20172019 and 2016.2018, respectively. The Company’s effective tax rate was 23.0%20.5% and 23.4%29.8%, 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.
Additionally, the Company’s increased effective tax rate in 2018 was primarily due to certain non-deductible expenses associated with the acquisition of TPB in 2018.
The Company had a net deferred tax asset of $7.7$3.3 million and $8.7$4.6 million as of September 30, 20172019 and December 31, 2016,2018, respectively. The reductiondecrease in the net deferred tax asset resulted primarily from the impact of changes in the fair value of securities available-for-sale, as well as the reduction of federalcombined with reductions in net operating loss carry-forwards.
carryforwards and other book-to-tax temporary differences.
| DEFERRED COMPENSATION PLANS |
The BankCompany has entered into supplemental retirement compensation benefits agreements with certain directors and 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$3.3 million and $3.5$3.4 million as of September 30, 20172019 and December 31, 2016,2018, respectively.
Non-employee directors may elect to defer payment of all or any portion of their Bancshares and Bank director fees under Bancshares’ Non-Employee Directors’ Deferred Compensation Plan (the “Deferral Plan”). The Deferral Plan which was ratified by Bancshares’ shareholders at the annual meeting held on May 11, 2004, permits non-employee directors to invest their directors’ fees and to receive the adjusted value of the deferred amounts in cash and/or shares of Bancshares’ common stock. Neither Bancshares nor the Bank makes any contribution to participants’ accounts under the Deferral Plan. As of September 30, 20172019 and December 31, 2016,2018, a total of 100,990122,271 and 114,547116,766 shares of Bancshares common stock, respectively, were deferred in connection with the Deferral Plan. All deferred fees, whether in the form of cash or shares of Bancshares common stock, are reflected as compensation expense in the period earned. The Company classifies all deferred directors'directors’ fees allocated to be paid in shares of stock as equity surplus. The Company usesmay use issued shares or shares of treasury stock to satisfy these obligations when due.
| STOCK AWARDS |
In accordance with the Company’s 2013 Incentive Plan, stock awards, including stock options and restricted stock, have been granted to certain employees and non-employee directors. Shares of common stock available for distribution to satisfy the grants may consist, in whole or in part, of authorized and unissued shares, treasury shares or shares reacquired by the Company in any manner. Stock-based compensation expense related to stock awards totaled $0.2 million and $0.1 million for both of the nine-month periods ended September 30, 20172019 and 2016, respectively.2018.
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-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 on the assumptions noted in the table below. Expected volatilities are based on historical volatilities of Bancshares’the Company’s common stock.
2017 | 2016 |
| 2019 |
|
| 2018 |
| |||||||||
Risk-free interest rate | 2.23 | % | 1.58 | % |
|
| 2.59 | % |
|
| 2.77 | % | ||||
Expected term | 7.5 years | 7.5 years | ||||||||||||||
Expected term (in years) |
|
| 7.5 |
|
|
| 7.5 |
| ||||||||
Expected stock price volatility | 25.36 | % | 25.25 | % |
|
| 30.9 | % |
|
| 28.3 | % | ||||
Dividend yield | 1.50 | % | 1.50 | % |
|
| 1.25 | % |
|
| 1.50 | % | ||||
Fair value of stock option |
|
| 3.30 |
|
|
| 3.51 |
|
32
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, 2019 |
|
| September 30, 2018 |
| |||||||||||||||||||||||||
Number of Shares | Average Exercise Price | Number of Shares | Average Exercise Price |
| Number of Shares |
|
| Average Exercise Price |
|
| Number of Shares |
|
| Average Exercise Price |
| |||||||||||||||||
Options: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Outstanding, beginning of period | 272,550 | $ | 8.21 | 175,550 | $ | 8.17 |
|
| 377,950 |
|
| $ | 9.80 |
|
|
| 318,000 |
|
| $ | 9.43 |
| ||||||||||
Granted | 70,600 | 13.84 | 97,000 | 8.30 |
|
| 68,150 |
|
|
| 9.99 |
|
|
| 62,150 |
|
|
| 11.71 |
| ||||||||||||
Exercised | 19,316 | 8.15 | — | — |
|
| 719 |
|
|
| 8.30 |
|
|
| 500 |
|
|
| 8.12 |
| ||||||||||||
Expired | — | — | — | — |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||
Forfeited | 3,334 | 11.79 | — | — |
|
| 26,300 |
|
|
| 11.96 |
|
|
| 1,700 |
|
|
| 11.15 |
| ||||||||||||
Options outstanding, end of period | 320,500 | $ | 9.42 | 272,550 | $ | 8.21 |
|
| 419,081 |
|
| $ | 9.70 |
|
|
| 377,950 |
|
| $ | 9.80 |
| ||||||||||
Options exercisable, end of period | 208,633 | $ | 8.20 | 175,550 | $ | 8.17 |
|
| 304,748 |
|
| $ | 9.14 |
|
|
| 249,467 |
|
| $ | 8.72 |
|
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$0.2 million and $0.4$0.7 million as of September 30, 20172019 and 2016,2018, 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, 2016.2019 and 2018, respectively, 5,520 shares and 10,520 shares 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.
13. | LEASES |
The Bank and ALC are involved in a number of operating leases, primarily for branch locations. Branch leases have remaining lease terms ranging from less than one year to 15 years, some of which include options to extend the leases for up to five years, and some of which include an option to terminate the lease within one year. The Bank leases certain office facilities to third parties and classifies these leases as operating leases.
The following table provides a summary of the components of lease expense, as well as the reporting location in the Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2019 and 2018:
|
| Location in the Condensed |
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| Consolidated Statements of Operations |
| September 30, 2019 |
|
| September 30, 2018 |
|
| September 30, 2019 |
|
| September 30, 2018 |
| ||||
|
|
|
| (Dollars in Thousands) |
|
| (Dollars in Thousands) |
| ||||||||||
Operating lease expense (1) |
| Net occupancy and equipment |
| $ | 206 |
|
| $ | 136 |
|
| $ | 627 |
|
| $ | 431 |
|
Operating lease income (2) |
| Other income, net |
| $ | 212 |
|
| $ | 10 |
|
| $ | 633 |
|
| $ | 44 |
|
| Includes short-term lease costs. For the three- and nine-month periods ended September 30, 2019 and 2018, short-term lease costs were nominal in amount. |
(2) | Operating lease income includes rental income from owned properties. |
The following table provides supplemental lease information for operating leases on the Condensed Consolidated Balance Sheet as of September 30, 2019:
|
| Location in the Condensed |
|
|
|
|
|
| Consolidated Balance Sheet |
| September 30, 2019 |
| |
|
|
|
| (Dollars in Thousands) |
| |
Operating lease right-of-use assets |
| Other assets |
| $ | 3,609 |
|
Operating lease liabilities |
| Other liabilities |
| $ | 3,633 |
|
Weighted-average remaining lease term (in years) |
|
|
|
| 7.03 |
|
Weighted-average discount rate |
|
|
|
| 3.19 | % |
33
The following table provides supplemental lease information for the Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2019 and 2018:
|
| Nine Months Ended |
| |||||
|
| September 30, 2019 |
|
| September 30, 2018 |
| ||
|
| (Dollars in Thousands) |
| |||||
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
|
|
|
|
Operating cash flows from operating leases |
| $ | 574 |
|
| $ | 370 |
|
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, 2019:
|
| Minimum Rental Payments |
| |
|
| (Dollars in Thousands) |
| |
2019 |
| $ | 190 |
|
2020 |
|
| 677 |
|
2021 |
|
| 574 |
|
2022 |
|
| 512 |
|
2023 |
|
| 453 |
|
2024 and thereafter |
|
| 1,714 |
|
Total future minimum lease payments |
| $ | 4,120 |
|
Less: Imputed interest |
|
| 487 |
|
Total operating lease liabilities |
| $ | 3,633 |
|
14. | DERIVATIVE FINANCIAL INSTRUMENTS |
On April 1, 2016,The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity and credit risk, primarily by managing the amount, sources and duration of certain balance sheet assets and liabilities. In the normal course of business, the Company also uses derivative financial instruments to add stability to interest income or expense and to manage its exposure to movements in interest rates. The Company does not use derivatives for trading or speculative purposes and only enters into transactions that have a qualifying hedge relationship. The Company’s hedging strategies involving interest rate derivatives are classified as either fair value hedges or cash flow hedges, depending upon the rate characteristic of the hedged item.
Cash Flow Hedges
Effective July 8, 2019, the Bank entered into a forward interest rate swap contract on a variable rate FHLB advancecertain variable-rate money market deposit accounts (indexed to three-month LIBOR)the Federal Funds effective rate’s daily weighted average) with a total notional amount of $10.0 million. The money market account balances are expected to exceed $10 million for the next seven years and the rates on these deposits are anticipated to move closely with changes in one-month LIBOR, or a comparable benchmark interest rate. The interest rate swap contract was designated as a derivative instrument in a cash flow hedge under ASC Topic 815, Derivatives and Hedging,with the objective of protectingconverting the quarterlyfloating interest rate payments on the FHLB advance from the risk of variability of those payments resulting from changes in the three-month LIBOR interestto a fixed rate throughout the seven-year period beginning on April 5, 2016July 8, 2019 and ending on April 5, 2023.July 8, 2026. Under the swap arrangement, which became effective on April 5, 2016, the Bank will pay a fixed interest rate of 1.46%1.790% and receive a variable interest rate based on three-monthone-month LIBOR, or a comparable benchmark interest rate, on the total notional amount of $10.0 million, with quarterlymonthly net settlements.
No ineffectiveness related toEffective July 22, 2019, the Bank entered into a forward interest rate swap contract on certain variable-rate money market deposit accounts (indexed to the Federal Funds effective rate’s daily weighted average) with a total notional amount of $10.0 million. The money market account balances are expected to exceed $10 million for the next five years and the rates on these deposits are anticipated to move closely with changes in one-month LIBOR, or a comparable benchmark interest rate. The interest rate swap was designated as a cash flow hedge was recognizedderivative instrument in the consolidated statements of operations for the three- or nine-month periods ended September 30, 2017. The accumulated net after-tax gain related to the effectivea cash flow hedge included in accumulated other comprehensive income totaled $0.2with the objective of converting the floating interest payments to a fixed rate throughout the five-year period beginning on July 22, 2019 and ending on July 22, 2024. Under the swap arrangement, the Bank will pay a fixed interest rate of 1.698% and receive a variable interest rate based on one-month LIBOR, or a comparable benchmark interest rate, on the notional amount of $10.0 million, as of both September 30, 2017 and December 31, 2016.with monthly net settlements.
Fair Value Hedges
Effective August 9, 2019, the Bank entered into a forward interest rate swap contract on fixed rate commercial real estate loans with a total notional amount of $10.0 million. The interest rate swap was designated as a derivative instrument in a fair value hedge with the objective of effectively converting a pool of fixed rate assets to variable rate throughout the five-year period beginning on August 9, 2019 and ending on
34
August 9, 2024. Under the swap arrangement, the Bank will pay a fixed interest rate of 1.406% and receive a variable interest rate based on one-month LIBOR, or a comparable benchmark interest rate, on the notional amount of $10.0 million, with monthly net settlements.
Effective August 21, 2019, the Bank entered into a forward interest rate swap contract on fixed rate commercial real estate loans with a total notional amount of $10.0 million. The interest rate swap was designated as a derivative instrument in a fair value hedge with the objective of effectively converting a pool of fixed rate assets to variable rate throughout the five-year period beginning on August 21, 2019 and ending on August 21, 2024. Under the swap arrangement, the Bank will pay a fixed interest rate of 1.292% and receive a variable interest rate based on one-month LIBOR, or a comparable benchmark interest rate, on the notional amount of $10.0 million, with monthly net settlements.
The Company has elected the last-of-layer method with respect to both of its fair value hedges. This approach allows the Company to designate as the hedged item a stated amount of the assets that are not expected to be affected by prepayments, defaults and other factors affecting the timing and amount of cash flows. Relative to the identified pools of loans, this represents the last dollar amount of the designated commercial loans, which is equivalent to the notional amounts of the derivative instruments.
The following amounts were recorded on the balance sheet related to cumulative basis adjustments for fair value hedges:
Location in the Condensed Consolidated Balance Sheet in Which the Hedged |
| Carrying Amount of the Hedged Assets |
|
| Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets |
| ||
Item is Included |
| September 30, 2019 |
| |||||
|
| (Dollars in Thousands) |
| |||||
Loans and leases, net of allowance for loan and lease losses (1) |
| $ | 64,189 |
|
| $ | (133 | ) |
|
|
35
Under ASC Topic 280,Segment Reporting, certain information is disclosed for the two reportable operating segments of Bancshares: the Bank and ALC. The reportable segments were determined using the internal management reporting system. These segments comprise Bancshares’ and the Bank’s significant subsidiaries. The accounting policies for each segment are the same as those described in Note 2, “Summary of Significant Accounting Policies,” of the Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K as of and for the year ended December 31, 2016.2018. The segment results include certain overhead allocations and intercompany transactions that were recorded at current market prices. All intercompany transactions have been eliminated to determine the consolidated balances. The results for the two reportable segments of the Company are included in the tables below.
All |
|
|
|
|
|
|
|
|
| All |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Bank | ALC | Other | Eliminations | Consolidated |
| Bank |
|
| ALC |
|
| Other |
|
| Eliminations |
|
| Consolidated |
| |||||||||||||||||||||
(Dollars in Thousands) |
| (Dollars in Thousands) |
| |||||||||||||||||||||||||||||||||||||
As of and for the three months ended September 30, 2017: | ||||||||||||||||||||||||||||||||||||||||
As of and for the three months ended September 30, 2019: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Net interest income | $ | 4,192 | $ | 2,940 | $ | 3 | $ | — | $ | 7,135 |
| $ | 6,205 |
|
| $ | 3,136 |
|
| $ | 6 |
|
| $ | — |
|
| $ | 9,347 |
| ||||||||||
Provision (reduction in reserve) for loan losses | (130 | ) | 503 | — | — | 373 | ||||||||||||||||||||||||||||||||||
Provision for loan losses |
|
| 545 |
|
|
| 338 |
|
|
| — |
|
|
| — |
|
|
| 883 |
| ||||||||||||||||||||
Total non-interest income | 1,005 | 219 | 954 | (942 | ) | 1,236 |
|
| 1,176 |
|
|
| 212 |
|
|
| 1,520 |
|
|
| (1,494 | ) |
|
| 1,414 |
| ||||||||||||||
Total non-interest expense | 4,699 | 2,303 | 336 | (148 | ) | 7,190 |
|
| 5,773 |
|
|
| 2,467 |
|
|
| 455 |
|
|
| (149 | ) |
|
| 8,546 |
| ||||||||||||||
Income before income taxes | 628 | 353 | 621 | (794 | ) | 808 |
|
| 1,063 |
|
|
| 543 |
|
|
| 1,071 |
|
|
| (1,345 | ) |
|
| 1,332 |
| ||||||||||||||
Provision for income taxes | 48 | 202 | (77 | ) | — | 173 |
|
| 136 |
|
|
| 139 |
|
|
| (61 | ) |
|
| — |
|
|
| 214 |
| ||||||||||||||
Net income | $ | 580 | $ | 151 | $ | 698 | $ | (794 | ) | $ | 635 |
| $ | 927 |
|
| $ | 404 |
|
| $ | 1,132 |
|
| $ | (1,345 | ) |
| $ | 1,118 |
| |||||||||
Other significant items: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Total assets | $ | 616,820 | $ | 92,942 | $ | 84,170 | $ | (179,333 | ) | $ | 614,599 |
| $ | 773,036 |
|
| $ | 109,852 |
|
| $ | 89,141 |
|
| $ | (200,099 | ) |
| $ | 771,930 |
| |||||||||
Total investment securities | 185,722 | — | 80 | — | 185,802 |
|
| 114,229 |
|
|
| — |
|
|
| 80 |
|
|
| — |
|
|
| 114,309 |
| |||||||||||||||
Total loans, net | 329,327 | 89,326 | — | (80,627 | ) | 338,026 |
|
| 533,861 |
|
|
| 106,223 |
|
|
| — |
|
|
| (95,565 | ) |
|
| 544,519 |
| ||||||||||||||
Goodwill and core deposit intangible, net |
|
| 8,934 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 8,934 |
| ||||||||||||||||||||
Investment in subsidiaries | 5 | — | 78,469 | (78,469 | ) | 5 |
|
| 5 |
|
|
| — |
|
|
| 83,460 |
|
|
| (83,460 | ) |
|
| 5 |
| ||||||||||||||
Fixed asset additions | 818 | 13 | — | — | 831 |
|
| 172 |
|
|
| 42 |
|
|
| — |
|
|
| — |
|
|
| 214 |
| |||||||||||||||
Depreciation and amortization expense | 238 | 41 | — | — | 279 |
|
| 372 |
|
|
| 37 |
|
|
| — |
|
|
| — |
|
|
| 409 |
| |||||||||||||||
Total interest income from external customers | 3,596 | 4,224 | — | — | 7,820 |
|
| 6,546 |
|
|
| 4,480 |
|
|
| 1 |
|
|
| — |
|
|
| 11,027 |
| |||||||||||||||
Total interest income from affiliates | 1,284 | — | 3 | (1,287 | ) | — |
|
| 1,345 |
|
|
| — |
|
|
| 6 |
|
|
| (1,351 | ) |
|
| — |
| ||||||||||||||
For the nine months ended September 30, 2017: | ||||||||||||||||||||||||||||||||||||||||
For the nine months ended September 30, 2019: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Net interest income | $ | 12,168 | $ | 8,933 | $ | 10 | $ | — | $ | 21,111 |
| $ | 18,200 |
|
| $ | 9,534 |
|
| $ | 19 |
|
| $ | — |
|
| $ | 27,753 |
| ||||||||||
Provision (reduction in reserve) for loan losses | (130 | ) | 1,594 | — | — | 1,464 | ||||||||||||||||||||||||||||||||||
Provision for loan losses |
|
| 635 |
|
|
| 1,363 |
|
|
| — |
|
|
| — |
|
|
| 1,998 |
| ||||||||||||||||||||
Total non-interest income | 2,647 | 700 | 2,451 | (2,465 | ) | 3,333 |
|
| 3,362 |
|
|
| 659 |
|
|
| 4,485 |
|
|
| (4,536 | ) |
|
| 3,970 |
| ||||||||||||||
Total non-interest expense | 13,522 | 6,966 | 1,074 | (472 | ) | 21,090 |
|
| 17,404 |
|
|
| 7,201 |
|
|
| 1,375 |
|
|
| (477 | ) |
|
| 25,503 |
| ||||||||||||||
Income before income taxes | 1,423 | 1,073 | 1,387 | (1,993 | ) | 1,890 |
|
| 3,523 |
|
|
| 1,629 |
|
|
| 3,129 |
|
|
| (4,059 | ) |
|
| 4,222 |
| ||||||||||||||
Provision for income taxes | 249 | 458 | (272 | ) | — | 435 |
|
| 647 |
|
|
| 403 |
|
|
| (185 | ) |
|
| — |
|
|
| 865 |
| ||||||||||||||
Net income | $ | 1,174 | $ | 615 | $ | 1,659 | $ | (1,993 | ) | $ | 1,455 |
| $ | 2,876 |
|
| $ | 1,226 |
|
| $ | 3,314 |
|
| $ | (4,059 | ) |
| $ | 3,357 |
| |||||||||
Other significant items: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Fixed asset additions | 8,578 | 103 | — | — | 8,681 |
|
| 2,736 |
|
|
| 120 |
|
|
| — |
|
|
| — |
|
|
| 2,856 |
| |||||||||||||||
Depreciation and amortization expense | 657 | 124 | — | — | 781 |
|
| 1,100 |
|
|
| 105 |
|
|
| — |
|
|
| — |
|
|
| 1,205 |
| |||||||||||||||
Total interest income from external customers | 10,493 | 12,520 | — | — | 23,013 |
|
| 19,515 |
|
|
| 13,246 |
|
|
| 2 |
|
|
| — |
|
|
| 32,763 |
| |||||||||||||||
Total interest income from affiliates | 3,587 | — | 9 | (3,596 | ) | — |
|
| 3,712 |
|
|
| — |
|
|
| 18 |
|
|
| (3,730 | ) |
|
| — |
|
|
|
|
|
|
|
|
|
|
| All |
|
|
|
|
|
|
|
|
| |
|
| Bank |
|
| ALC |
|
| Other |
|
| Eliminations |
|
| Consolidated |
| |||||
|
| (Dollars in Thousands) |
| |||||||||||||||||
As of and for the three months ended September 30, 2018: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
| $ | 5,001 |
|
| $ | 3,322 |
|
| $ | 5 |
|
| $ | — |
|
| $ | 8,328 |
|
Provision for loan losses |
|
| 176 |
|
|
| 613 |
|
|
| — |
|
|
| — |
|
|
| 789 |
|
Total non-interest income |
|
| 1,850 |
|
|
| 268 |
|
|
| 630 |
|
|
| (636 | ) |
|
| 2,112 |
|
Total non-interest expense |
|
| 6,508 |
|
|
| 2,384 |
|
|
| 455 |
|
|
| (205 | ) |
|
| 9,142 |
|
Income before income taxes |
|
| 167 |
|
|
| 593 |
|
|
| 180 |
|
|
| (431 | ) |
|
| 509 |
|
Provision for income taxes |
|
| 195 |
|
|
| 131 |
|
|
| (57 | ) |
|
| — |
|
|
| 269 |
|
Net income |
| $ | (28 | ) |
| $ | 462 |
|
| $ | 237 |
|
| $ | (431 | ) |
| $ | 240 |
|
Other significant items: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
| $ | 805,007 |
|
| $ | 105,859 |
|
| $ | 84,362 |
|
| $ | (192,663 | ) |
| $ | 802,565 |
|
Total investment securities |
|
| 159,416 |
|
|
| — |
|
|
| 80 |
|
|
| — |
|
|
| 159,496 |
|
Total loans, net |
|
| 509,695 |
|
|
| 103,106 |
|
|
| — |
|
|
| (92,979 | ) |
|
| 519,822 |
|
Goodwill and core deposit intangible, net |
|
| 9,557 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 9,557 |
|
Investment in subsidiaries |
|
| 5 |
|
|
| — |
|
|
| 77,242 |
|
|
| (77,242 | ) |
|
| 5 |
|
Fixed asset additions |
|
| 195 |
|
|
| 97 |
|
|
| — |
|
|
| — |
|
|
| 292 |
|
Depreciation and amortization expense |
|
| 334 |
|
|
| 40 |
|
|
| — |
|
|
| — |
|
|
| 374 |
|
Total interest income from external customers |
|
| 4,916 |
|
|
| 4,536 |
|
|
| — |
|
|
| — |
|
|
| 9,452 |
|
Total interest income from affiliates |
|
| 1,212 |
|
|
| — |
|
|
| 5 |
|
|
| (1,217 | ) |
|
| — |
|
For the nine months ended September 30, 2018: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
| $ | 13,362 |
|
| $ | 9,769 |
|
| $ | 13 |
|
| $ | — |
|
| $ | 23,144 |
|
Provision for loan losses |
|
| 215 |
|
|
| 1,934 |
|
|
| — |
|
|
| — |
|
|
| 2,149 |
|
Total non-interest income |
|
| 3,665 |
|
|
| 796 |
|
|
| 2,167 |
|
|
| (2,244 | ) |
|
| 4,384 |
|
Total non-interest expense |
|
| 15,927 |
|
|
| 7,334 |
|
|
| 1,267 |
|
|
| (593 | ) |
|
| 23,935 |
|
Income before income taxes |
|
| 885 |
|
|
| 1,297 |
|
|
| 913 |
|
|
| (1,651 | ) |
|
| 1,444 |
|
Provision for income taxes |
|
| 325 |
|
|
| 283 |
|
|
| (177 | ) |
|
| — |
|
|
| 431 |
|
Net income |
| $ | 560 |
|
| $ | 1,014 |
|
| $ | 1,090 |
|
| $ | (1,651 | ) |
| $ | 1,013 |
|
Other significant items: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed asset additions |
|
| 500 |
|
|
| 153 |
|
|
| — |
|
|
| — |
|
|
| 653 |
|
Depreciation and amortization expense |
|
| 973 |
|
|
| 105 |
|
|
| — |
|
|
| — |
|
|
| 1,078 |
|
Total interest income from external customers |
|
| 12,736 |
|
|
| 13,225 |
|
|
| — |
|
|
| — |
|
|
| 25,961 |
|
Total interest income from affiliates |
|
| 3,455 |
|
|
| — |
|
|
| 13 |
|
|
| (3,468 | ) |
|
| — |
|
16. | OTHER OPERATING INCOME AND EXPENSES |
Other operating income for the three and nine months ended September 30, 2019 and 2018 consisted of the following:
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| ||||
|
| (Dollars in Thousands, Except Per Share Data) |
| |||||||||||||
Bank-owned life insurance |
| $ | 109 |
|
| $ | 107 |
|
| $ | 323 |
|
| $ | 319 |
|
Lease income |
|
| 212 |
|
|
| 10 |
|
|
| 633 |
|
|
| 44 |
|
Auto Club revenue |
|
| 49 |
|
|
| 57 |
|
|
| 149 |
|
|
| 176 |
|
ATM fee income |
|
| 107 |
|
|
| 93 |
|
|
| 323 |
|
|
| 285 |
|
Wire transfer fees |
|
| 17 |
|
|
| 8 |
|
|
| 39 |
|
|
| 25 |
|
Other income |
|
| 137 |
|
|
| 41 |
|
|
| 255 |
|
|
| 144 |
|
Total |
| $ | 631 |
|
| $ | 316 |
|
| $ | 1,722 |
|
| $ | 993 |
|
37
Other operating expenses for the three and nine months ended September 30, 2019 and 2018 consisted of the following:
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| ||||
|
| (Dollars in Thousands, Except Per Share Data) |
| |||||||||||||
Postage, stationery and supplies |
| $ | 208 |
|
| $ | 207 |
|
| $ | 658 |
|
| $ | 609 |
|
Telephone/data communication |
|
| 228 |
|
|
| 207 |
|
|
| 646 |
|
|
| 595 |
|
Advertising and marketing |
|
| 51 |
|
|
| 50 |
|
|
| 143 |
|
|
| 130 |
|
Travel and business development |
|
| 91 |
|
|
| 85 |
|
|
| 303 |
|
|
| 232 |
|
Collection and recoveries |
|
| 14 |
|
|
| 34 |
|
|
| 114 |
|
|
| 112 |
|
Other services |
|
| 77 |
|
|
| 130 |
|
|
| 220 |
|
|
| 358 |
|
Insurance expense |
|
| 139 |
|
|
| 137 |
|
|
| 454 |
|
|
| 391 |
|
FDIC insurance and state assessments |
|
| 28 |
|
|
| 69 |
|
|
| 186 |
|
|
| 192 |
|
Gain or loss on sale of fixed assets |
|
| 127 |
|
|
| 104 |
|
|
| 347 |
|
|
| 309 |
|
Core deposit intangible amortization |
|
| 122 |
|
|
| 43 |
|
|
| 378 |
|
|
| 43 |
|
Other real estate/foreclosure expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Write-downs, net of gain or loss on sale |
|
| 19 |
|
|
| (79 | ) |
|
| 46 |
|
|
| 22 |
|
Carrying costs |
|
| 35 |
|
|
| 32 |
|
|
| 97 |
|
|
| 107 |
|
Total other real estate/foreclosure expense |
|
| 54 |
|
|
| (47 | ) |
|
| 143 |
|
|
| 129 |
|
Other expense |
|
| 526 |
|
|
| 435 |
|
|
| 1,465 |
|
|
| 1,137 |
|
Total |
| $ | 1,665 |
|
| $ | 1,454 |
|
| $ | 5,057 |
|
| $ | 4,237 |
|
|
|
|
|
|
| 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 | ) | — |
| GUARANTEES, COMMITMENTS AND CONTINGENCIES |
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, 2019 |
|
| December 31, 2018 |
| |||||||||
(Dollars in Thousands) |
| (Dollars in Thousands) |
| |||||||||||||
Standby letters of credit | $ | 180 | $ | 183 |
| $ | 180 |
|
| $ | 180 |
| ||||
Standby performance letters of credit |
|
| 652 |
|
|
| 704 |
| ||||||||
Commitments to extend credit | $ | 53,231 | $ | 41,267 |
| $ | 103,360 |
|
| $ | 85,972 |
|
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, 20172019 and December 31, 2016,2018, the potential amountamounts of future payments that the Bank could be required to make under its standby letters of credit and standby performance letters of credit, which represent the Bank’s total credit risk in this category, isthese categories, are included in the table above.
A commitment to extend credit is an agreement to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon the extension of credit, is based on management’s credit evaluation of the counterparty. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment and income-producing commercial properties.
Commitments to purchase securities for delayed delivery require the Bank to purchase a specified security at a specified price for delivery on a specified date. Similarly, commitments to sell securities for delayed delivery require the Bank to sell a specified security at a specified price for delivery on a specified date. Market risk arises from potential movements in security values and interest rates between the commitment and delivery dates. As of both September 30, 2017 and December 31, 2016, there were no outstanding commitments to purchase securities for delayed delivery and no outstanding commitments to sell securities for delayed delivery.
The Company is self-insured for a significant portion of employee health benefits. However, the Company maintains stop-loss coverage with third-party insurers to limit the Company’s individual claim and total exposure related to self-insurance. The Company estimates an accrued liability for the ultimate costs to closesettle known claims, as well as claims incurred but not yet reported, as of the balance sheet date. The Company’s recorded estimated liability for self-insurance is based on the insurance companies’ 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 and $0.1 million as of September 30, 2019 and December 31, 2018, respectively. 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.
38
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.
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.
| FAIR VALUE OF FINANCIAL INSTRUMENTS |
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 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:
Level 1 — Valuations for assets and liabilities traded in active exchange markets, such as the New York Stock Exchange or Nasdaq. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.
|
|
Level 2 — Valuations for assets and liabilities traded in less active dealer or broker markets. Valuations are obtained from third-party pricing services for identical or similar assets or liabilities.
|
|
Level 3 — Valuations for assets and liabilities that are derived from other valuation methodologies, including option pricing models, discounted cash flow models and similar techniques, and not based on market exchange, dealer or broker-traded transactions. Level 3 valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets or liabilities.
|
|
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, 20172019 or the year ended December 31, 2016.
2018.
Fair Value Measurements on a Recurring Basis
Securities Available-for-Sale
Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities include exchange-traded equities. Level 2 securities include U.S. Treasury and agency securities, mortgage-backed agency securities, obligations of states and political subdivisions and certain corporate, asset-backed and other securities. Level 2 fair values are obtained from quoted prices of securities with similar characteristics. In certain cases, where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy.
39
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, 20172019 and December 31, 2016.2018. There were no liabilities measured at fair value on a recurring basis for either period presented.as of December 31, 2018.
Fair Value Measurements as of September 30, 2017 Using |
| Fair Value Measurements as of September 30, 2019 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 September 30, 2019 |
|
| Quoted Prices in Active Markets For Identical Assets (Level 1) |
|
| Significant Other Observable Inputs (Level 2) |
|
| Significant Unobservable Inputs (Level 3) |
| |||||||||||||||||
(Dollars in Thousands) |
| (Dollars in Thousands) |
| |||||||||||||||||||||||||||||
Investment securities, available-for-sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Residential | $ | 83,550 | $ | — | $ | 83,550 | $ | — |
| $ | 47,108 |
|
| $ | — |
|
| $ | 47,108 |
|
| $ | — |
| ||||||||
Commercial | 67,138 | — | 67,138 | — |
|
| 45,057 |
|
|
| — |
|
|
| 45,057 |
|
|
| — |
| ||||||||||||
Obligations of states and political subdivisions | 5,655 | — | 5,655 | — |
|
| 4,305 |
|
|
| — |
|
|
| 4,305 |
|
|
| — |
| ||||||||||||
Obligations of U.S. government-sponsored agencies | 2,002 | — | 2,002 | — | ||||||||||||||||||||||||||||
U.S. Treasury securities | 80 | — | 80 | — |
|
| 80 |
|
|
| — |
|
|
| 80 |
|
|
| — |
| ||||||||||||
Other assets - derivatives | 291 | — | 291 | — | ||||||||||||||||||||||||||||
Other liabilities - derivatives |
|
| 298 |
|
|
| — |
|
|
| 298 |
|
|
| — |
|
Fair Value Measurements as of December 31, 2016 Using |
| Fair Value Measurements as of December 31, 2018 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 December 31, 2018 |
|
| Quoted Prices in Active Markets For Identical Assets (Level 1) |
|
| Significant Other Observable Inputs (Level 2) |
|
| Significant Unobservable Inputs (Level 3) |
| |||||||||||||||||
(Dollars in Thousands) |
| (Dollars in Thousands) |
| |||||||||||||||||||||||||||||
Investment securities, available-for-sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Residential | $ | 98,409 | $ | — | $ | 98,409 | $ | — |
| $ | 72,455 |
|
| $ | — |
|
| $ | 72,455 |
|
| $ | — |
| ||||||||
Commercial | 70,530 | — | 70,530 | — |
|
| 54,289 |
|
|
| — |
|
|
| 54,289 |
|
|
| — |
| ||||||||||||
Obligations of states and political subdivisions | 10,142 | — | 10,142 | — |
|
| 5,664 |
|
|
| — |
|
|
| 5,664 |
|
|
| — |
| ||||||||||||
Obligations of U.S. government-sponsored agencies | 1,993 | — | 1,993 | — | ||||||||||||||||||||||||||||
Corporate notes | 756 | — | 756 | — | ||||||||||||||||||||||||||||
U.S. Treasury securities | 80 | — | 80 | — |
|
| 79 |
|
|
| — |
|
|
| 79 |
|
|
| — |
| ||||||||||||
Other assets - derivatives | 346 | — | 346 | — |
Fair Value Measurements on a Non-recurring Basis
Impaired Loans
Loans that are considered impaired are loans for which, based on current information and events, it is probable that the Company will be unable to collect all principal and interest payments due under the contractual terms of the loan agreement. Impaired loans can be measured based on the present value of expected payments using the loan’sloan’s original effective rate as the discount rate, the loan’s observable market price or the fair value of the collateral less estimated selling cost if the loan is collateral-dependent. For the Company, the fair value of impaired loans is primarily measured based on the value of the collateral securing the loans (typically real estate). The Company determines the fair value of the collateral based on independent appraisals performed by qualified licensed appraisers. The appraisals may include a single valuation approach or a combination of approaches, including comparable sales and income approaches. Appraised values are discounted for estimated costs to sell and may be discounted further based on management’s knowledge of the collateral, changes in market conditions since the most recent appraisal and/or management’s knowledge of the borrower and the borrower’s business. Such discounts by management are subjective and are typically significant unobservable inputs for determining fair value. Impaired loans are evaluated by management for additional impairment at least quarterly and are adjusted accordingly.
Other Real Estate Owned (OREO)
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.
40
Included within other assets are 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 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, 20172019 and December 31, 2016.2018:
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 December 31, 2016 Using |
| Fair Value Measurements as of September 30, 2019 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 September 30, 2019 |
|
| Quoted Prices in Active Markets For Identical Assets (Level 1) |
|
| Significant Other Observable Inputs (Level 2) |
|
| Significant Unobservable Inputs (Level 3) |
| |||||||||||||||||
(Dollars in Thousands) |
| (Dollars in Thousands) |
| |||||||||||||||||||||||||||||
Impaired loans | $ | 1,568 | $ | — | $ | — | $ | 1,568 |
| $ | 3,661 |
|
| $ | — |
|
| $ | — |
|
| $ | 3,661 |
| ||||||||
OREO | 4,858 | — | — | 4,858 |
|
| 1,248 |
|
|
| — |
|
|
| — |
|
|
| 1,248 |
| ||||||||||||
Other assets | 280 | — | — | 280 | ||||||||||||||||||||||||||||
Assets held-for-sale |
|
| 198 |
|
|
| — |
|
|
| — |
|
|
| 198 |
|
|
| Fair Value Measurements as of December 31, 2018 Using |
| |||||||||||||
|
| Totals At December 31, 2018 |
|
| 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 |
| $ | 665 |
|
| $ | — |
|
| $ | — |
|
| $ | 665 |
|
OREO |
|
| 1,505 |
|
|
| — |
|
|
| — |
|
|
| 1,505 |
|
Assets held-for-sale |
|
| 198 |
|
|
| — |
|
|
| — |
|
|
| 198 |
|
41
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, 2017.2019. 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, 20172019 are both included. Following the table is a description of the valuation technique and the sensitivity of the technique to changes in the significant unobservable input.
|
| Level 3 Significant Unobservable Input Assumptions |
| Level 3 Significant Unobservable Input Assumptions | ||||||||||||||||||
|
| Fair Value September 30, 2017 |
|
| Valuation Technique |
| Unobservable Input |
| Quantitative Range of Unobservable Inputs (Weighted Average) |
| Fair Value September 30, 2019 |
|
| Valuation Technique |
| Unobservable Input |
| Quantitative Range of Unobservable Inputs (Weighted Average) | ||||
|
| (Dollars in Thousands) |
| (Dollars in Thousands) |
|
|
|
|
|
|
|
|
| |||||||||
Non-recurring fair value measurements: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans |
| $ | 686 |
|
| Multiple data points, including discount to appraised value of collateral based on recent market activity |
| Appraisal comparability adjustment (discount) |
| 9% - 10% (9.5%) |
| $ | 3,661 |
|
| 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%) |
| $ | 1,248 |
|
| 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%) | ||||||||||||
Assets held-for-sale |
| $ | 198 |
|
| Discount to appraised value of property based on recent market activity for sales of similar properties |
| Appraisal comparability adjustment (discount) |
| 9%-10% |
| (9.5%) |
Impaired Loans
Impaired loans are valued based on multiple data points indicating the fair value for each loan. The primary data point is the appraisal value of the underlying collateral, to which a discount is applied. Management establishes this discount or comparability adjustment based on recent sales of similar property types. As liquidity in the market increases or decreases, the comparability adjustment and the resulting asset valuation are impacted.
OREO
OREO 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.
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:
42
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, 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 presentfair 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, 20172019 and December 31, 20162018 were as follows:
September 30, 2017 |
| September 30, 2019 |
| |||||||||||||||||||||||||||||||||||||
Carrying Amount | Estimated Fair Value | Level 1 | Level 2 | Level 3 |
| Carrying Amount |
|
| Estimated Fair Value |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| |||||||||||||||||||||
(Dollars in Thousands) |
| (Dollars in Thousands) |
| |||||||||||||||||||||||||||||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Cash and cash equivalents | $ | 32,554 | $ | 32,554 | $ | 32,554 | $ | — | $ | — |
| $ | 35,435 |
|
| $ | 35,435 |
|
| $ | 35,435 |
|
| $ | — |
|
| $ | — |
| ||||||||||
Investment securities available-for-sale | 158,425 | 158,425 | — | 158,425 | — |
|
| 96,550 |
|
|
| 96,550 |
|
|
| — |
|
|
| 96,550 |
|
|
| — |
| |||||||||||||||
Investment securities held-to-maturity | 27,377 | 27,303 | — | 27,303 | — |
|
| 17,759 |
|
|
| 17,661 |
|
|
| — |
|
|
| 17,661 |
|
|
| — |
| |||||||||||||||
Federal funds sold |
|
| 10,080 |
|
|
| 10,080 |
|
|
| — |
|
|
| 10,080 |
|
|
| — |
| ||||||||||||||||||||
Federal Home Loan Bank stock | 1,396 | 1,396 | — | — | 1,396 |
|
| 713 |
|
|
| 713 |
|
|
| — |
|
|
| — |
|
|
| 713 |
| |||||||||||||||
Loans, net of allowance for loan losses | 338,026 | 327,251 | — | — | 327,251 |
|
| 544,519 |
|
|
| 561,998 |
|
|
| — |
|
|
| — |
|
|
| 561,998 |
| |||||||||||||||
Other assets - derivatives | 291 | 291 | — | 291 | — | |||||||||||||||||||||||||||||||||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Deposits | 508,385 | 507,298 | — | 507,298 | — |
|
| 677,640 |
|
|
| 678,370 |
|
|
| — |
|
|
| 678,370 |
|
|
| — |
| |||||||||||||||
Short-term borrowings | 10,635 | 10,634 | — | 10,634 | — |
|
| 221 |
|
|
| 221 |
|
|
| — |
|
|
| 221 |
|
|
| — |
| |||||||||||||||
Long-term debt | 10,000 | 10,000 | — | 10,000 | — | |||||||||||||||||||||||||||||||||||
Other liabilities - derivatives |
|
| 298 |
|
|
| 298 |
|
|
| — |
|
|
| 298 |
|
|
| — |
|
|
| December 31, 2018 |
| |||||||||||||||||
|
| Carrying Amount |
|
| Estimated Fair Value |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| |||||
|
| (Dollars in Thousands) |
| |||||||||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 49,599 |
|
| $ | 49,599 |
|
| $ | 49,599 |
|
| $ | — |
|
| $ | — |
|
Investment securities available-for-sale |
|
| 132,487 |
|
|
| 132,487 |
|
|
| — |
|
|
| 132,487 |
|
|
| — |
|
Investment securities held-to-maturity |
|
| 21,462 |
|
|
| 20,852 |
|
|
| — |
|
|
| 20,852 |
|
|
| — |
|
Federal funds sold |
|
| 8,354 |
|
|
| 8,354 |
|
|
| — |
|
|
| 8,354 |
|
|
| — |
|
Federal Home Loan Bank stock |
|
| 703 |
|
|
| 703 |
|
|
| — |
|
|
| — |
|
|
| 703 |
|
Loans, net of allowance for loan losses |
|
| 514,867 |
|
|
| 516,420 |
|
|
| — |
|
|
| — |
|
|
| 516,420 |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
| 704,725 |
|
|
| 702,832 |
|
|
| — |
|
|
| 702,832 |
|
|
| — |
|
Short-term borrowings |
|
| 527 |
|
|
| 527 |
|
|
| — |
|
|
| 527 |
|
|
| — |
|
44
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 | — |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
DESCRIPTION OF THE BUSINESS
First US Bancshares, Inc., a Delaware corporation (“Bancshares”), 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, 2017,2019, the Bank operated and served its customers through sixteen20 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 and Ewing, Virginia. In addition, to aas of September 30, 2019, the Bank operated loan production officeoffices in Mountain Brook, Alabama.
Mobile, Alabama and the Chattanooga, Tennessee area.
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 is the funding source for ALC. As of September 30, 2017,Alabama that performs both indirect lending through third-party retailers and conventional consumer finance lending through a branch network. ALC conducts indirect lending in addition to its principal office, ALC operated twenty-one11 states, including Alabama, Florida, Georgia, Kentucky, Mississippi, Missouri, North Carolina, South Carolina, Tennessee, Texas and Virginia, with loans underwritten centrally at ALC’s headquarters location. ALC’s branch network serves customers through 21 offices located in Alabama and southeast Mississippi.
The Bank serves as the primary funding source for ALC’s operations. In recent years, ALC’s indirect lending portfolio has grown at a more rapid pace than conventional consumer finance lending. In general, the credit quality of indirect lending exceeds the credit quality of conventional consumer finance lending, with a commensurate reduction in yield and lower loss ratios. On October 25, 2019, Bancshares announced plans to transfer the indirect lending portfolio into the Bank from ALC, effective January 1, 2020.
The Bank provides a wide range of commercial banking services to small- and medium-sized businesses, property managers, business executives, professionals and other individuals, while ALC’sALC’s business is focused on consumer lending.
FUSB Reinsurance, Inc., an Arizona corporation and a wholly ownedwholly-owned subsidiary of the Bank (“FUSB Reinsurance”), reinsures or “underwrites” credit life and credit accident and health insurance policies sold to the Bank’s and ALC’s consumer loan customers. FUSB Reinsurance is responsible for the first level of risk on these policies up to a specified maximum amount, and a primary third-party insurer retains the remaining risk. TheA third-party insureradministrator is also responsible for performing most of the administrative functions of FUSB Reinsurance on a contract basis.
Delivery of the best possible financial services to customers remains an overall operational focus of Bancshares and its subsidiaries (collectively, the “Company”). We recognizeThe 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 258284 full-time equivalent employees (as of September 30, 2019), to ensure customer satisfaction and convenience.
The preparation of the Company’sCompany’s consolidated financial statements requires management to make subjective judgments associated with estimates. These estimates are necessary to comply with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and general banking practices. These estimates include accounting for the allowance for loan and lease losses, goodwill and other intangible assets, other real estate owned, valuation of deferred tax assets and fair value measurements. A description of these estimates, which significantly affect the determination of the Company’s consolidated financial position, results of operations and cash flows, is set forth in Note 2, “Summary of Significant Accounting Policies,” of the Notes to Consolidated Financial Statements in Bancshares’ Annual Report on Form 10-K as of and for the year ended December 31, 2016.
2018.
The emphasis of this discussion is a comparison of assets, liabilities and shareholders’shareholders’ equity as of September 30, 20172019 to December 31, 2016,2018, while comparing income and expense for the three- and nine-month periods ended September 30, 20172019 and 2016.
2018.
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 consolidated financial statements and related notes appearing elsewhere in this report and Management’s Discussion and Analysis of Financial Condition and Results of Operations appearing in Bancshares’ Annual Report on Form 10-K as of and for the year ended December 31, 2016.2018. 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.
EXECUTIVE OVERVIEW
The Company earned net income of $0.10$1.1 million, or $0.16 per diluted common share, during the three months ended September 30, 2017,2019, compared to $0.09$0.2 million, or $0.03 per diluted common share, duringfor the corresponding three-month period of 2016.three months ended September 30, 2018. For the nine months ended September 30, 2017,2019, net income totaled $0.22$3.4 million, or $0.49 per diluted common share, compared to $0.21$1.0 million, or $0.15 per diluted common share, for the corresponding nine-month period of 2016. 2018.
45
The compositionSummarized condensed consolidated statements of earnings changed significantly during bothoperations are included below for the three-three-month and nine-month periods ended September 30, 2017,2019 and 2018, respectively.
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
|
| September 30, |
|
| September 30, |
| ||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| ||||
|
| (Dollars in Thousands) |
| |||||||||||||
Interest income |
| $ | 11,027 |
|
| $ | 9,452 |
|
| $ | 32,763 |
|
| $ | 25,961 |
|
Interest expense |
|
| 1,680 |
|
|
| 1,124 |
|
|
| 5,010 |
|
|
| 2,817 |
|
Net interest income |
|
| 9,347 |
|
|
| 8,328 |
|
|
| 27,753 |
|
|
| 23,144 |
|
Provision for loan and lease losses |
|
| 883 |
|
|
| 789 |
|
|
| 1,998 |
|
|
| 2,149 |
|
Net interest income after provision for loan and lease losses |
|
| 8,464 |
|
|
| 7,539 |
|
|
| 25,755 |
|
|
| 20,995 |
|
Non-interest income |
|
| 1,414 |
|
|
| 2,112 |
|
|
| 3,970 |
|
|
| 4,384 |
|
Non-interest expense |
|
| 8,546 |
|
|
| 9,142 |
|
|
| 25,503 |
|
|
| 23,935 |
|
Income before income taxes |
|
| 1,332 |
|
|
| 509 |
|
|
| 4,222 |
|
|
| 1,444 |
|
Provision for income taxes |
|
| 214 |
|
|
| 269 |
|
|
| 865 |
|
|
| 431 |
|
Net income |
| $ | 1,118 |
|
| $ | 240 |
|
| $ | 3,357 |
|
| $ | 1,013 |
|
Significant Impacts on Earnings
The following discussion summarizes the most significant activity that drove changes in the Company’s net income during the nine months ended September 30, 2019 as compared to the corresponding periods of the previous year. The 2017 results were positively impacted by increased netnine months ended September 30, 2018.
Net Interest Income
Net interest income asincreased by $4.6 million, or 19.9%, comparing the nine months ended September 30, 2019 to the same period in 2018, due primarily to increases in average loans outstanding following the acquisition of The Peoples Bank (“TPB”). The average loan balance for the nine months ended September 30, 2019 was $521.3 million, compared to $377.1 million for the nine months ended September 30, 2018. The increases in interest income resulting from loan growth were partially offset by increases in interest expense due to an increase in average interest-bearing liabilities following the acquisition of TPB. The average balance of interest-bearing liabilities was $582.8 million during the nine months ended September 30, 2019, compared to $477.2 million during the corresponding period of 2018. Net interest margin decreased to 5.20% for the nine months ended September 30, 2019, compared to 5.27% for the nine months ended September 30, 2018. Yields earned on interest-earning assets improved by 23 basis points comparing the nine-month period ended September 30, 2019 to the same period of 2018; however, these gains were offset by a result36-basis point increase in rates on interest-bearing liabilities, comparing the two periods. There was a decrease in the average yield on loans at ALC due to a continued shift toward indirect sales loans with a lower yield but higher credit quality.
Provision for Loan and Lease Losses
The provision for loan and lease losses decreased by $0.2 million during the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018. The provision for loan and lease losses increased by $0.4 million at the Bank comparing the nine months ended September 30, 2019 to the corresponding period to 2018, primarily due to substantial loan growth at the Bank during 2019. This increase was offset by a decrease of growth$0.6 million in net loans,the provision for loan and lease losses at ALC comparing the 2019 period to the same period in 2018, due primarily to slower loan growth, as well as decreasesreduced charge-offs, at ALC in non-interest expenses, including regulatory assessments, insurance expense2019 compared to 2018. During the nine months ended September 30, 2019, ALC’s branch retail and occupancyindirect sales portfolios increased by $1.7 million and equipment expense. By contrast,$7.5 million, respectively, compared to increases of $3.5 million and $12.5 million, respectively, during the 2016 results were bolsterednine months ended September 30, 2018.
Non-interest Income
Non-interest income decreased by higher$0.4 million comparing the nine months ended September 30, 2019 to the corresponding period of 2018. The decrease was mostly attributable to nonrecurring gains on the salesettlement of securities thanderivative contracts of $1.0 million recognized in the third quarter of 2018, which was partially offset by rental income of $0.6 million during 2019 associated with the lease-up of previously unused office space at the Company’s headquarters location in Birmingham, Alabama. Lease-up of the space occurred at the end of the fourth quarter of 2018.
Non-interest Expense
Non-interest expense increased by $1.6 million comparing the nine months ended September 30, 2019 to the same period of 2018. The increase was attributable primarily to additional salaries and benefits, occupancy and other expenses associated with the addition of employees, facilities and other services in connection with the acquisition of TPB.
46
The Company’s effective tax rate decreased to 20.5% during the nine months ended September 30, 2019, compared to 29.8% during the corresponding period of 2018. The reduction in the Company’s effective tax rate comparing 2019 to 2018 resulted primarily from certain non-deductible expenses associated with the acquisition of TPB in 2018 that were experiencednot incurred in 2017.2019.
Balance Sheet Management
As of September 30, 2017,2019, the Company’s net loansCompany’s assets totaled $338.0 million, an increase of $15.3 million and $20.9$771.9 million, compared to $791.9 million as of December 31, 2016 and2018, a decrease of 2.53%. The discussion below presents significant balance sheet components comparing September 30, 2016,2019 to December 31, 2018.
Loans and Credit Quality
Net loans increased to $544.5 million as of September 30, 2019, compared to $514.9 as of December 31, 2018. This growth included $23.9 million attributable to the Bank’s commercial lending efforts, along with $5.8 million in growth at ALC. ALC’s growth was most pronounced in its indirect sales portfolio, which has been an area of focus for management over the past several years.
As of September 30, 2019 and December 31, 2018, the allowance for loan and lease losses totaled $5.6 million and $5.1 million, respectively, or 1.02% and 0.97% of gross loans outstanding, respectively. In accordance with generally accepted accounting principles for acquisition accounting, the loans acquired through the TPB acquisition in 2018 were recorded at fair value; accordingly, there was no allowance for loan and lease losses associated with the acquired loan portfolio at the acquisition date. Management continues to evaluate the need for an allowance on the acquired portfolio, factoring in the remaining fair value discount on the loans, which totaled 1.14% and 1.27% of gross acquired loans as of September 30, 2019 and December 31, 2018, respectively. The majorityallowance for loan and lease losses as a percentage of non-acquired gross loans outstanding was 1.27% and 1.36% as of September 30, 2019 and December 31, 2018, respectively.
Nonperforming assets, including loans in non-accrual status and other real estate owned (OREO), decreased to $2.7 million as of September 30, 2019, compared to $4.3 million as of December 31, 2018. As a percentage of total assets, non-performing assets totaled 0.35% as of September 30, 2019, compared to 0.54% of total assets as of December 31, 2018. Non-accrual loans totaled $1.5 million as of September 30, 2019, compared to $2.8 million as of December 31, 2018.
Investment Securities
The investment securities portfolio continues to provide the Company with additional liquidity and allows management to fund a portion of loan growth occurredfrom the maturity and payoff of securities within the portfolio. During the nine months ended September 30, 2019 and the year ended December 31, 2018, investment maturities and sales outpaced purchases as management generally re-deployed maturing securities into other interest-earning assets, including loans or excess cash and federal funds sold that may be used to fund future loan growth. As of September 30, 2019, the investment securities portfolio totaled $114.3 million, compared to $153.9 million as of December 31, 2018. Management monitors its liquidity position, including forecasted expectations related to loan growth, when making determinations about whether to re-invest in the Bank’s commercial loan portfoliosecurities portfolio.
Right-of-Use Asset and was concentratedLease Liability
Effective January 1, 2019, the Company adopted ASU 2016-02, Leases, by recognizing a right-of-use asset and lease liability associated with certain leases in which the Bank’s larger metropolitan service territoriesBank or ALC is lessee. As of BirminghamSeptember 30, 2019, the right-of-use asset and Tuscaloosa, Alabama.lease liability both totaled $3.6 million. The Bank’s commercial loan growth strategy has been focusedright-of-use asset is included in other assets on these larger metropolitan growth markets over the past 24 months. Consistentbalance sheet, while the lease liability is included in other liabilities. The adoption of ASU 2016-02 did not have a material impact on the Company’s income or expenses associated with that strategy,its existing leases.
Deposits and Borrowings
Deposits totaled $677.6 million as of September 30, 2019, compared to $704.7 million as of December 31, 2018. In an effort to improve the efficiency of the Company’s balance sheet and reduce interest expense, during the third quarter of 2017, the Bank completed initial construction of an office complex along U.S. Highway 280 in Birmingham. The office complex houses a retail branch of the Bank, as well as the Birmingham commercial lending team and certain members of the Bank’s executive management team. At the end of the third quarter, the headquarters of both Bancshares and the Bank were relocated to the newly completed office complex.
Additional financial results for the first nine months of 2017 are summarized below.ended September 30, 2019, management reduced wholesale deposit funding sources by allowing $25.9 million in net brokered deposits to mature without renewal. Core deposits decreased slightly by $1.2 million during the nine-month period ended September 30, 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liquidity and Capital
The Company continues to maintain excess funding capacity to provide adequate liquidity for loan growth, capital expenditures and ongoing operations. The Company benefits from a strong deposit base, a liquid investment securities portfolio and access to funding from a variety of sources, including federal funds lines, Federal Home Loan Bank (“FHLB”)FHLB advances and brokered deposits. Management believes that continued success in loan growth efforts at both the Bank and ALC, combined with continued adherence to established credit underwriting standards, will strengthen both the diversity and credit quality of the Company’s loan portfolio, while improving interest and fee income on loans.
During the third quarter of 2019, the Bank continued to maintain capital ratios at higher levels than the ratios required to be considered a “well-capitalized” institution under applicable banking regulations. As of September 30, 2019, the Bank’s common equity Tier 1 capital and Tier 1 risk-based capital ratios were each 12.66%. Its total capital ratio was 13.62%, and its Tier 1 leverage ratio was 9.55%.
47
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, and 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 borrowings 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- and nine-month periods ended September 30, 20172019 and 2016.2018. 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.
|
| Three Months Ended |
|
| Three Months Ended |
|
| Three Months Ended |
|
| Three Months Ended |
| ||||||||||||||||||||||||||||||||||||
|
| September 30, 2017 |
|
| September 30, 2016 |
|
| September 30, 2019 |
|
| September 30, 2018 |
| ||||||||||||||||||||||||||||||||||||
|
| Average Balance |
|
| Interest |
|
| Annualized Yield/ Rate % |
|
| Average Balance |
|
| Interest |
|
| Annualized Yield/ Rate % |
|
| Average Balance |
|
| Interest |
|
| Annualized Yield/ Rate % |
|
| Average Balance |
|
| Interest |
|
| Annualized Yield/ Rate % |
| ||||||||||||
|
| (Dollars in Thousands) |
|
| (Dollars in Thousands) |
| ||||||||||||||||||||||||||||||||||||||||||
ASSETS | ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Loans – Bank (Note A) |
| $ | 240,006 |
| $ | 2,578 |
| 4.26 | % |
| $ | 223,739 |
| $ | 2,428 |
| 4.34 | % |
| $ | 430,307 |
|
| $ | 5,634 |
|
|
| 5.19 | % |
| $ | 315,278 |
|
| $ | 3,859 |
|
|
| 4.86 | % | ||||||
Loans – ALC (Note A) |
|
| 91,193 |
|
| 4,224 |
| 18.38 | % |
|
| 88,783 |
|
| 4,345 |
| 19.57 | % |
|
| 107,987 |
|
|
| 4,480 |
|
|
| 16.46 | % |
|
| 104,447 |
|
|
| 4,536 |
|
|
| 17.23 | % | ||||||
Taxable investment securities |
|
| 187,670 |
|
| 857 |
| 1.81 | % |
|
| 199,835 |
|
| 845 |
| 1.68 | % |
|
| 125,730 |
|
|
| 648 |
|
|
| 2.04 | % |
|
| 161,560 |
|
|
| 814 |
|
|
| 2.00 | % | ||||||
Non-taxable investment securities |
|
| 8,225 |
|
| 75 |
| 3.62 | % |
|
| 11,927 |
|
| 106 |
| 3.56 | % | ||||||||||||||||||||||||||||||
Tax-exempt investment securities |
|
| 1,981 |
|
|
| 14 |
|
|
| 2.80 | % |
|
| 2,217 |
|
|
| 16 |
|
|
| 2.86 | % | ||||||||||||||||||||||||
Federal funds sold | — | — | — | % | 8,967 | 12 | 0.54 | % |
|
| 14,442 |
|
|
| 85 |
|
|
| 2.34 | % |
|
| 15,102 |
|
|
| 79 |
|
|
| 2.08 | % | ||||||||||||||||
Interest-bearing deposits in banks | 27,249 | 86 | 1.25 | % | 18,300 | 24 | 0.52 | % |
|
| 28,858 |
|
|
| 166 |
|
|
| 2.28 | % |
|
| 30,236 |
|
|
| 148 |
|
|
| 1.94 | % | ||||||||||||||||
Total interest-earning assets |
|
| 554,343 |
|
| 7,820 |
|
| 5.60 | % |
|
| 551,551 |
|
| 7,760 |
|
| 5.63 | % |
|
| 709,305 |
|
|
| 11,027 |
|
|
| 6.17 | % |
|
| 628,840 |
|
|
| 9,452 |
|
|
| 5.96 | % | ||||
Non-interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Other assets |
|
| 58,786 |
|
|
|
|
|
|
|
| 49,796 |
|
|
|
|
|
|
| 72,414 |
|
|
|
|
|
|
|
|
|
|
| 61,923 |
|
|
|
|
|
|
|
|
| |||||||
Total |
| $ | 613,129 |
|
|
|
|
|
|
| $ | 601,347 |
|
|
|
|
|
|
| $ | 781,719 |
|
|
|
|
|
|
|
|
|
| $ | 690,763 |
|
|
|
|
|
|
|
|
| ||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Demand deposits |
| $ | 164,852 |
| $ | 161 |
| 0.39 | % |
| $ | 151,365 |
| $ | 140 |
| 0.37 | % |
| $ | 165,877 |
|
| $ | 217 |
|
|
| 0.52 | % |
| $ | 156,142 |
|
| $ | 181 |
|
|
| 0.46 | % | ||||||
Savings deposits |
|
| 82,201 |
|
| 53 |
| 0.26 | % |
|
| 78,415 |
|
| 37 |
| 0.19 | % |
|
| 157,822 |
|
|
| 389 |
|
|
| 0.98 | % |
|
| 134,673 |
|
|
| 277 |
|
|
| 0.82 | % | ||||||
Time deposits |
|
| 182,405 |
|
| 403 |
| 0.88 | % |
|
| 182,567 |
|
| 355 |
| 0.78 | % |
|
| 241,433 |
|
|
| 1,016 |
|
|
| 1.67 | % |
|
| 217,288 |
|
|
| 662 |
|
|
| 1.21 | % | ||||||
Borrowings |
|
| 20,099 |
|
| 68 |
|
| 1.34 | % |
|
| 20,289 |
|
| 55 |
|
| 1.08 | % |
|
| 10,166 |
|
|
| 58 |
|
|
| 2.26 | % |
|
| 5,888 |
|
|
| 4 |
|
|
| 0.27 | % | ||||
Total interest-bearing liabilities |
|
| 449,557 |
|
| 685 |
|
| 0.60 | % |
|
| 432,636 |
|
| 587 |
|
| 0.54 | % |
|
| 575,298 |
|
|
| 1,680 |
|
|
| 1.16 | % |
|
| 513,991 |
|
|
| 1,124 |
|
|
| 0.87 | % | ||||
Non-interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Demand deposits |
|
| 77,723 |
|
|
|
|
|
|
|
| 82,097 |
|
|
|
|
|
|
|
| 111,845 |
|
|
|
|
|
|
|
|
|
|
| 92,841 |
|
|
|
|
|
|
|
|
| ||||||
Other liabilities |
|
| 7,282 |
|
|
|
|
|
|
|
| 7,919 |
|
|
|
|
|
|
|
| 10,585 |
|
|
|
|
|
|
|
|
|
|
| 7,628 |
|
|
|
|
|
|
|
|
| ||||||
Shareholders’ equity |
|
| 78,567 |
|
|
|
|
|
|
|
| 78,695 |
|
|
|
|
|
| ||||||||||||||||||||||||||||||
Shareholders’ equity |
|
| 83,991 |
|
|
|
|
|
|
|
|
|
|
| 76,303 |
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Total |
| $ | 613,129 |
|
|
|
|
|
|
| $ | 601,347 |
|
|
|
|
|
|
| $ | 781,719 |
|
|
|
|
|
|
|
|
|
| $ | 690,763 |
|
|
|
|
|
|
|
|
| ||||||
Net interest income (Note B) |
|
|
|
| $ | 7,135 |
|
|
|
|
|
|
| $ | 7,173 |
|
|
|
|
|
|
|
| $ | 9,347 |
|
|
|
|
|
|
|
|
|
| $ | 8,328 |
|
|
|
|
| ||||||
Net yield on interest-earning assets |
|
|
|
|
|
|
|
| 5.11 | % |
|
|
|
|
|
|
|
| 5.20 | % | ||||||||||||||||||||||||||||
Net interest margin |
|
|
|
|
|
|
|
|
|
| 5.23 | % |
|
|
|
|
|
|
|
|
|
| 5.25 | % |
— | For the purpose of these computations, non-accruing loans are included in the average loan amounts outstanding. At the Bank, these loans averaged |
48
— | Loan fees are included in the interest amounts presented. At the Bank, loan fees totaled $ 0.1 million for both of the three-month periods ended September 30, 2019 and 2018. At ALC, loan fees totaled $0.2 million and $0.4 million for the respective periods presented. |
|
| Nine Months Ended |
|
| Nine Months Ended |
| ||||||||||||||||||
|
| September 30, 2019 |
|
| September 30, 2018 |
| ||||||||||||||||||
|
| Average Balance |
|
| Interest |
|
| Annualized Yield/ Rate % |
|
| Average Balance |
|
| Interest |
|
| Annualized Yield/ Rate % |
| ||||||
|
| (Dollars in Thousands) |
| |||||||||||||||||||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans – Bank (Note A) |
| $ | 417,018 |
|
| $ | 16,374 |
|
|
| 5.25 | % |
| $ | 277,839 |
|
| $ | 9,590 |
|
|
| 4.61 | % |
Loans – ALC (Note A) |
|
| 104,286 |
|
|
| 13,246 |
|
|
| 16.98 | % |
|
| 99,222 |
|
|
| 13,225 |
|
|
| 17.82 | % |
Taxable investment securities |
|
| 138,646 |
|
|
| 2,201 |
|
|
| 2.12 | % |
|
| 170,671 |
|
|
| 2,548 |
|
|
| 2.00 | % |
Tax-exempt investment securities |
|
| 2,125 |
|
|
| 43 |
|
|
| 2.71 | % |
|
| 4,426 |
|
|
| 116 |
|
|
| 3.50 | % |
Federal funds sold |
|
| 12,246 |
|
|
| 227 |
|
|
| 2.48 | % |
|
| 9,838 |
|
|
| 144 |
|
|
| 1.96 | % |
Interest-bearing deposits in banks |
|
| 38,890 |
|
|
| 672 |
|
|
| 2.31 | % |
|
| 25,074 |
|
|
| 338 |
|
|
| 1.80 | % |
Total interest-earning assets |
|
| 713,211 |
|
|
| 32,763 |
|
|
| 6.14 | % |
|
| 587,070 |
|
|
| 25,961 |
|
|
| 5.91 | % |
Non-interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets |
|
| 71,834 |
|
|
|
|
|
|
|
|
|
|
| 59,550 |
|
|
|
|
|
|
|
|
|
Total |
| $ | 785,045 |
|
|
|
|
|
|
|
|
|
| $ | 646,620 |
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits |
| $ | 168,284 |
|
| $ | 639 |
|
|
| 0.51 | % |
| $ | 160,094 |
|
| $ | 520 |
|
|
| 0.43 | % |
Savings deposits |
|
| 163,981 |
|
|
| 1,309 |
|
|
| 1.07 | % |
|
| 107,444 |
|
|
| 488 |
|
|
| 0.61 | % |
Time deposits |
|
| 246,961 |
|
|
| 3,004 |
|
|
| 1.63 | % |
|
| 192,750 |
|
|
| 1,611 |
|
|
| 1.12 | % |
Borrowings |
|
| 3,574 |
|
|
| 58 |
|
|
| 2.17 | % |
|
| 16,895 |
|
|
| 198 |
|
|
| 1.57 | % |
Total interest-bearing liabilities |
|
| 582,800 |
|
|
| 5,010 |
|
|
| 1.15 | % |
|
| 477,183 |
|
|
| 2,817 |
|
|
| 0.79 | % |
Non-interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits |
|
| 110,291 |
|
|
|
|
|
|
|
|
|
|
| 86,490 |
|
|
|
|
|
|
|
|
|
Other liabilities |
|
| 9,633 |
|
|
|
|
|
|
|
|
|
|
| 7,088 |
|
|
|
|
|
|
|
|
|
Shareholders’ equity |
|
| 82,321 |
|
|
|
|
|
|
|
|
|
|
| 75,859 |
|
|
|
|
|
|
|
|
|
Total |
| $ | 785,045 |
|
|
|
|
|
|
|
|
|
| $ | 646,620 |
|
|
|
|
|
|
|
|
|
Net interest income (Note B) |
|
|
|
|
| $ | 27,753 |
|
|
|
|
|
|
|
|
|
| $ | 23,144 |
|
|
|
|
|
Net interest margin |
|
|
|
|
|
|
|
|
|
| 5.20 | % |
|
|
|
|
|
|
|
|
|
| 5.27 | % |
— | For the purpose of these computations, non-accruing loans are included in the average loan amounts outstanding. At the Bank, these loans averaged $0.9 million and $0.6 million for the nine months ended September 30, 2019 and 2018, respectively. At ALC, these loans averaged $0.9 million and $1.5 million for the respective periods presented. | |
Note B | — | Loan fees are included in the interest amounts presented. At the Bank, loan fees totaled |
|
| 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 | % |
|
|
|
|
|
|
Interest income earned on loans at the Bank increased in both the three- and nine- monthnine-month periods ended September 30, 20172019 compared to the corresponding periods of the previous year, as a result of growthprimarily due to the increase in average loan volume.balance resulting from the acquisition of TPB. Comparing the three- and nine-month periods, the average loan balance increased by $115.0 million and $139.2 million, respectively. Yield on loans at the Bank increased in part due to higher yielding loans acquired from TPB, as well as accretion of the purchase accounting discount, which is included in interest income. At ALC, despite continued growth in loan volume, interest income was flat comparing the three and nine months ended September 30, 2019 to the corresponding periods of 2018. Increases in the average balance of loans at ALC were generally offset by a decrease in average yield resulting from the continuing shift of ALC’s earning assets mix to a higher percentage of indirect sales loans relative to the loan portfolio total. Indirect sales lending has been ALC’s prominent focus over the past several years, and generally provides loans of higher credit quality than ALC’s other consumer loan categories, but at lower yields. Interest income from taxable and tax-exempt investment securities decreased duringin both 2017the three- and nine-month periods ended September 30, 2019 compared to the corresponding periods of 2016 as a result of reductions in yield. The decrease in yield at ALC wasthe previous year, primarily due to continued focus on credit quality improvement. These activities have been ongoing for the past several yearsmaturities and have resulted in significant improvement in the credit qualitysales of ALC’s portfolio, with a corresponding decrease in yield commensurate with reduced risk. The loan volume increases were partially offset by decreases in the average balances of taxable and non-taxable investments andinvestment securities. Interest income from other earnings assets, including federal funds sold. The shiftsold and interest-bearing deposits in the mix of earning assets is consistent with management’s ongoing strategy to utilize cash flows from the maturity and paydown of investment securities to fund loan growth as opportunities permit. The investment portfolio has been structured to provide monthly cash flows through the maturity and paydown of securities in a manner that management believes can continue to fund a substantial portion of loan growth over time.
Interest expensebanks, increased in both the three- and nine-month periods ended September 30, 20172019 compared to the corresponding periods of 2016the previous year, primarily due to increases inhigher yields.
49
Interest expense increased comparing the volume of interest-bearing liabilities, as well as modest increases in rate commensurate with the interest rate environment experienced during thethree and nine months ended September 30, 2017.2019 to the corresponding periods of 2018, primarily due to an increase in average interest-bearing liabilities resulting from the acquisition of TPB. Average interest-bearing liabilities increased $61.3 million and $105.6 million comparing the three- and nine-month periods ended September 30, 2019 to the corresponding periods of 2018, respectively. Additionally, the average rate on interest-bearing liabilities increased 29 and 36 basis points comparing the three- and nine-month periods ended September 30, 2019 to the corresponding periods of 2018, respectively.
We expect that continued growth in net loan volume at both the Bank and ALC with loans of sufficient credit quality will enhance net interest income, particularly as resources are shifted from lower-earning excess cash balances, federal funds sold and investment securities tointo 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. In addition, the Bank experiences significant competitive pressure to both obtain and retain deposits. Net interest income could experience downward pressure as a result of increased competition for quality loan opportunities, lower reinvestment yields and fewer opportunities to reduce futuredeposit funding costs.
opportunities.
Provision (Reduction in Reserve) for Loan and Lease Losses
The provision for loan and lease losses is an expense used to establish the allowance for loan and lease losses. Actual loan losses, net of recoveries, are charged directly to the allowance for loan and lease losses. The expense recorded for each reporting period is a reflection of actual net losses experienced during the period and management’smanagement’s judgment as to the adequacy of the allowance to absorb losses inherent in the portfolio as of the balance sheet date. The following table presents the provision (reduction in reserve) for loan and lease losses for the Bank and ALC for the three and nine months ended September 30, 20172019 and 2016.2018.
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||
September 30, | September 30, | September 30, | September 30, |
| Three Months Ended |
|
| Nine Months Ended |
| |||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 |
| September 30, |
|
| September 30, |
|
| September 30, |
|
| September 30, |
| |||||||||||||||||
(Dollars in Thousands) | (Dollars in Thousands) |
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| |||||||||||||||||||
Bank | $ | (130 | ) | $ | 100 |
| $ | (130 | ) | $ | (350 | ) |
| $ | 545 |
|
| $ | 176 |
|
| $ | 635 |
|
| $ | 215 |
| ||||
ALC | 503 | 580 | 1,594 | 1,733 |
|
| 338 |
|
|
| 613 |
|
|
| 1,363 |
|
|
| 1,934 |
| ||||||||||||
Total | $ | 373 | $ | 680 |
| $ | 1,464 | $ | 1,383 |
| $ | 883 |
|
| $ | 789 |
|
| $ | 1,998 |
|
| $ | 2,149 |
|
At the Bank, the increase in provision expense comparing the three and nine months ended September 30, 2019 and 2018 was due to an increase in loan volume during both the three-three and nine-month periodsnine months ended September 30, 2017, recoveries of previously charged-off loans exceeded current period charge-offs. In addition,2019 that was not experienced during the third quarter,corresponding periods of 2018, not factoring in growth in 2018 that resulted from the acquisition of TPB. The Bank resolved a previously impairedexperienced loan relationship through the collectiongrowth of contractual amounts due. The resolution of the impairment, combined with continued net recoveries, enabled the Bank to reduce the allowance for loan losses by $0.1$23.9 million during the third quarter.nine months ended September 30, 2019 attributable to the Bank’s commercial lending efforts, compared to $6.9 million in loan growth during the same period of 2018. The Bank’s allowance for loan and lease losses as a percentage of loans totaled 0.96%0.76% as of September 30, 2017,2019, compared to 1.01%0.65% as of December 31, 2016.
September 30, 2018. In accordance with generally accepted accounting principles for acquisition accounting, the loans acquired through the TPB acquisition during the third quarter of 2018 were recorded at fair value; accordingly, there was no allowance for loan and lease losses associated with the acquired loan portfolio at the acquisition date. Management continues to evaluate the need for an allowance on the acquired portfolio, factoring in the remaining fair value discount on the loans, which totaled 1.14% and 1.51% of gross acquired loans as of September 30, 2019 and 2018, respectively. At the Bank, the allowance for loan and lease losses as a percentage of non-acquired gross loans outstanding was 1.01% and 1.03% as of September 30, 2019 and 2018, respectively.
At ALC, the provision for loan and lease losses decreased during bothcomparing the three-three and nine- month periodsnine months ended September 30, 2017, based primarily on modest improvements in charge-off experience2019 and 2018 due to slower loan growth and reduced charge-offs at ALC during the period.nine months ended September 30, 2019 compared to the same period of 2018. During the nine months ended September 30, 2019, ALC’s branch retail and indirect sales portfolios increased by $1.7 million and $7.5 million, respectively, compared to increases of $3.5 million and $12.5 million, respectively, during the nine months ended September 30, 2018. Net charge-offs as a percentage of average loans at ALC totaled 1.39% and 1.87% for the nine months ended September 30, 2019 and 2018, respectively. ALC’s allowance for loan and lease losses as a percentage of loans totaled 2.60%2.06% as of September 30, 2017,2019, compared to 2.78%2.28% as of December 31, 2016.
September 30, 2018. The decrease in net charge-offs and the allowance for loan and lease losses as a percentage of loans was due to the changing mix of ALC’s portfolio to indirect lending, which has enhanced the credit quality of ALC’s loan portfolio.
For the Company, the allowance for loan and lease losses as a percentage of loans totaled 1.40%1.02% as of September 30, 2017,2019, compared to 1.48%0.97% as of December 31, 2016.September 30, 2018. For the Company, the allowance for loan and lease losses as a percentage of non-acquired gross loans outstanding was 1.27% and 1.38% as of September 30, 2019 and 2018, respectively. Based on our evaluation of the loan portfolio, we believe that the allowance for loan and lease losses at both the Bank and ALC is adequate to absorb losses inherent in the loan portfolio as of September 30, 2017.2019. While we believe that the methodologies and calculations that have been used in the determination of the allowance are adequate, our conclusions are based on estimates and judgments and are, therefore, approximate and imprecise.judgments. Factors beyond our control, such as changes in economic conditions impacting the national economy or the local service areas in which the Bank and ALC operate, may negatively and materially affect asset quality and the adequacy of the allowance for loan and lease losses, as well as the resulting provision for loan and lease losses. In general, we expect the provision for loan and lease 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.ALC.
50
Non-interest income represents fees and income derived from sources other than interest-earning assets.assets. The following table presents the major components of non-interest income. Expanded discussion of certain significant non-interest income items and fluctuations is provided belowfor the table.periods indicated:
Three Months Ended September 30, | Nine Months Ended September 30, |
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2017 | 2016 | $ Change | % Change | 2017 | 2016 | $ Change | % Change |
| 2019 |
|
| 2018 |
|
| $ Change |
|
| % Change |
|
| 2019 |
|
| 2018 |
|
| $ Change |
|
| % Change |
| |||||||||||||||||||||||||||||||||||
(Dollars in Thousands) | (Dollars in Thousands) |
| (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 | % |
| $ | 472 |
|
| $ | 489 |
|
| $ | (17 | ) |
|
| (3.5 | )% |
| $ | 1,375 |
|
| $ | 1,400 |
|
| $ | (25 | ) |
|
| (1.8 | )% | ||||||||||||||||||
Credit insurance commissions and fees | 160 | 256 | (96 | ) | (37.5 | ) | % | 459 | 570 | (111 | ) | (19.5 | ) | % |
|
| 175 |
|
|
| 198 |
|
|
| (23 | ) |
|
| (11.6 | )% |
|
| 426 |
|
|
| 516 |
|
|
| (90 | ) |
|
| (17.4 | )% | ||||||||||||||||||||
Bank-owned life insurance | 106 | 105 | 1 | 0.1 | % | 318 | 316 | 2 | 0.6 | % |
|
| 109 |
|
|
| 108 |
|
|
| 1 |
|
|
| 0.9 | % |
|
| 323 |
|
|
| 319 |
|
|
| 4 |
|
|
| 1.3 | % | ||||||||||||||||||||||||
Net gain on sale and prepayment of investment securities | 178 | 259 | (81 | ) | (31.3 | ) | % | 228 | 657 | (429 | ) | (65.3 | ) | % |
|
| 45 |
|
|
| — |
|
|
| 45 |
|
| NM |
|
|
| 67 |
|
|
| 105 |
|
|
| (38 | ) |
|
| (36.2 | )% | |||||||||||||||||||||
Net gain on settlement of derivative contracts |
|
| — |
|
|
| 981 |
|
|
| (981 | ) |
| NM |
|
|
| — |
|
|
| 981 |
|
|
| (981 | ) |
| NM |
| ||||||||||||||||||||||||||||||||||||
Mortgage fees from secondary market |
|
| 91 |
|
|
| 128 |
|
|
| (37 | ) |
|
| (28.9 | )% |
|
| 380 |
|
|
| 389 |
|
|
| (9 | ) |
|
| (2.3 | )% | ||||||||||||||||||||||||||||||||||
Lease income |
|
| 212 |
|
|
| 10 |
|
|
| 202 |
|
| NM |
|
|
| 633 |
|
|
| 44 |
|
|
| 589 |
|
| NM |
| ||||||||||||||||||||||||||||||||||||
Other income | 311 | 484 | (173 | ) | (35.7 | ) | % | 922 | 1,187 | (265 | ) | (22.3 | ) | % |
|
| 310 |
|
|
| 198 |
|
|
| 112 |
|
|
| 56.6 | % |
|
| 766 |
|
|
| 630 |
|
|
| 136 |
|
|
| 21.6 | % | ||||||||||||||||||||
Total non-interest income | $ | 1,236 | $ | 1,567 | $ | (331 | ) | (21.1 | ) | % | $ | 3,333 | $ | 4,036 | $ | (703 | ) | (17.4 | ) | % |
| $ | 1,414 |
|
| $ | 2,112 |
|
| $ | (698 | ) |
|
| (33.0 | )% |
| $ | 3,970 |
|
| $ | 4,384 |
|
| $ | (414 | ) |
|
| (9.4 | )% |
Service Charges and Other Fees on Deposit AccountsNM: Not meaningful
ServiceNon-interest income at the Bank consists of service charges and other fees are generated on deposit accounts held ataccounts; bank-owned life insurance; net gains on the Bank. The increase in this categorysale and prepayment of investment securities; net gains on the settlement of derivative contracts; fees from the secondary market mortgage activities; lease income; and other non-interest income, during the three and nine months ended September 30, 2017 compared to the three and nine months ended September 30, 2016 resulted primarily from increased fees generated from service charges on deposit accounts. Periodically, management evaluates the fee structure on the Bank’s deposit accounts in order to ensure that fees charged are competitive in the current environment and compliant with regulatory guidance. In addition, management continues to evaluate opportunities for deposit growth through further penetration in existing service territories. We expect that income from these sources will grow over time as deposit levels grow. However, there is significant competition among financial institutions for deposits. Accordingly, we cannot predict with certainty the level of revenues that will be derived in this category in the future.
Credit Insurance Commissions and Fees
Credit insurance commissions and fees are generated from credit life and credit accident and health insurance policies offered primarily at ALC to consumer loan customers through FUSB Reinsurance. The decrease in non-interest income in this category during the three and nine months ended September 30, 2017 compared to the corresponding periods of 2016 resulted primarily from a focus by ALC management on product lines that do 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 category in the future.
Bank-owned Life Insurance
The Bank utilizes bank-owned life insurance as a tool to offset the cost of certain retirement benefit programs. The income derived from bank-owned life insurance represents the increase in the cash surrender value of the policies (which is generally non-taxable) over the periods presented. The cash surrender value of the policies totaled $14.8 million and $14.6 million as of September 30, 2017 and December 31, 2016, respectively. The insurance policies are adjustable-rate assets with minimum guaranteed rates of interest between 2% and 4%. Accordingly, management does not expect significant fluctuation in the income derived from these assets.
Net Gain on Sale and Prepayment of Investment Securities
The investment securities portfolio is used by management to provide liquidity, to generate interest income and for use as collateral for public deposits and wholesale funding. Management reviews the securities in the investment portfolio periodically and, from time to time, may determine that it is appropriate to sell securities that are designated as securities available-for-sale. When this occurs, a gain or loss is recorded as the difference between the fair value of the security on the date of sale and the security’s carrying value. In addition, a gain may be recognized for prepayment penalties earned by the Company when a security is called by the debtor prior to its maturity date. Because determinations of whether to sell investment securities are made by management based on specific facts and circumstances at a given point in time, no assessment can be made as to the level of gains or losses that could be incurred related to sales of investment securities or prepayment penalties in the future.
Other Income
Other non-interest incomewhich includes fee income generated by the Bank, such as ATM fees and real estate rental income. Non-interest income at ALC consists of credit insurance commissions and fees and other non-interest income generated 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.program. The decrease in other non-interest income duringcomparing both the threethird quarter of 2019 to the third quarter of 2018, as well as the nine months ended September 30, 2019 to the nine months ended September 30, 2018, was mostly attributable to nonrecurring gains on the settlement of derivative contracts of $1.0 million in the third quarter of 2018. The decrease was partially offset by lease income in both the third quarter and nine months ended September 30, 2017 compared to2019 associated with the corresponding periodslease-up of 2016 resulted primarily from reductions in ACH fees and servicespreviously unused office space at the Bank andCompany’s headquarters location 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 natureBirmingham, Alabama. Lease-up of the typesspace occurred at the end of the fourth quarter of 2018. Certain categories of non-interest income are expected to provide a relatively stable source of revenues, categorized aswhile others may fluctuate significantly based on changes in economic conditions, regulation or other income, there is uncertainty as to the level of revenue that will be derived from these sources in the future.
factors.
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 significant non-interest expense items and fluctuations is provided below the table.indicated:
Three Months Ended September 30, | Nine Months Ended September 30, |
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2017 | 2016 | $ Change | % Change | 2017 | 2016 | $ | % Change |
| 2019 |
|
| 2018 |
|
| $ Change |
|
| % Change |
|
| 2019 |
|
| 2018 |
|
| $ Change |
|
| % Change |
| |||||||||||||||||||||||||||||||||||
(Dollars in Thousands) | (Dollars in Thousands) |
| (Dollars in Thousands) |
|
|
|
|
|
| (Dollars in Thousands) |
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||
Salaries and employee benefits | $ | 4,370 | $ | 4,334 | $ | 36 | 0.8 |
| % | $ | 13,048 | $ | 12,734 | $ | 314 | 2.5 | % |
| $ | 5,089 |
|
| $ | 4,643 |
|
| $ | 446 |
|
|
| 9.6 | % |
| $ | 15,272 |
|
| $ | 13,743 |
|
| $ | 1,529 |
|
|
| 11.1 | % | |||||||||||||||||
Net occupancy and equipment expense | 806 | 830 | (24 | ) | (2.9 | ) | % | 2,276 | 2,381 | (105 | ) | (4.4 | ) | % |
|
| 1,055 |
|
|
| 983 |
|
|
| 72 |
|
|
| 7.3 | % |
|
| 3,190 |
|
|
| 2,745 |
|
|
| 445 |
|
|
| 16.2 | % | ||||||||||||||||||||
Computer services | 337 | 364 | (27 | ) | (7.4 | ) | % | 1,035 | 1,021 | 14 | 1.4 | % |
|
| 421 |
|
|
| 328 |
|
|
| 93 |
|
|
| 28.4 | % |
|
| 1,105 |
|
|
| 937 |
|
|
| 168 |
|
|
| 17.9 | % | ||||||||||||||||||||||
Insurance expense and assessments | 161 | 255 | (94 | ) | (36.9 | ) | % | 479 | 775 | (296 | ) | (38.2 | ) | % |
|
| 167 |
|
|
| 206 |
|
|
| (39 | ) |
|
| (18.9 | )% |
|
| 640 |
|
|
| 583 |
|
|
| 57 |
|
|
| 9.8 | % | ||||||||||||||||||||
Fees for professional services | 187 | 231 | (44 | ) | (19.0 | ) | % | 650 | 748 | (98 | ) | (13.1 | ) | % |
|
| 316 |
|
|
| 242 |
|
|
| 74 |
|
|
| 30.6 | % |
|
| 879 |
|
|
| 781 |
|
|
| 98 |
|
|
| 12.5 | % | ||||||||||||||||||||
Postage, stationery and supplies | 174 | 183 | (9 | ) | (4.9 | ) | % | 479 | 562 | (83 | ) | (14.8 | ) | % |
|
| 208 |
|
|
| 207 |
|
|
| 1 |
|
|
| 0.5 | % |
|
| 658 |
|
|
| 609 |
|
|
| 49 |
|
|
| 8.0 | % | ||||||||||||||||||||
Telephone/data communications | 206 | 164 | 42 | 25.6 | % | 628 | 502 | 126 | 25.1 | % |
|
| 228 |
|
|
| 207 |
|
|
| 21 |
|
|
| 10.1 | % |
|
| 646 |
|
|
| 595 |
|
|
| 51 |
|
|
| 8.6 | % | ||||||||||||||||||||||||
Acquisition expenses |
|
| — |
|
|
| 1,492 |
|
|
| (1,492 | ) |
| NM |
|
|
| — |
|
|
| 1,492 |
|
|
| (1,492 | ) |
| NM |
| ||||||||||||||||||||||||||||||||||||
Other real estate/foreclosure expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||
Write-downs, net of gain or loss on sale | 196 | 47 | 149 | 317.0 |
| % | 277 | 137 | 140 | 102.2 | % |
|
| 19 |
|
|
| (79 | ) |
|
| 98 |
|
|
| (124.1 | )% |
|
| 46 |
|
|
| 22 |
|
|
| 24 |
|
|
| 109.1 | % | |||||||||||||||||||||||
Carrying costs | 48 | 77 | (29 | ) | (37.7 | ) | % | 184 | 233 | (49 | ) | (21.0 | ) | % |
|
| 35 |
|
|
| 32 |
|
|
| 3 |
| �� |
| 9.4 | % |
|
| 97 |
|
|
| 107 |
|
|
| (10 | ) |
|
| (9.3 | )% | ||||||||||||||||||||
Total other real estate/foreclosure expense | 244 | 124 | 120 | 96.8 |
| % | 461 | 370 | 91 | 24.6 | % |
|
| 54 |
|
|
| (47 | ) |
|
| 101 |
|
|
| (214.9 | )% |
|
| 143 |
|
|
| 129 |
|
|
| 14 |
|
|
| 10.9 | % | |||||||||||||||||||||||
Other | 705 | 863 | (158 | ) | (18.3 | ) | % | 2,034 | 2,576 | (542 | ) | (21.0 | ) | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Other expense |
|
| 1,008 |
|
|
| 881 |
|
|
| 127 |
|
|
| 14.4 | % |
|
| 2,970 |
|
|
| 2,321 |
|
|
| 649 |
|
|
| 28.0 | % | ||||||||||||||||||||||||||||||||||
Total non-interest expense | $ | 7,190 | $ | 7,348 | $ | (158 | ) | (2.2 | ) | % | $ | 21,090 | $ | 21,669 | $ | (579 | ) | (2.7 | ) | % |
| $ | 8,546 |
|
| $ | 9,142 |
|
| $ | (596 | ) |
|
| (6.5 | )% |
| $ | 25,503 |
|
| $ | 23,935 |
|
| $ | 1,568 |
|
|
| 6.6 | % |
Salaries and Employee Benefits51
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.NM: Not meaningful
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 categorynon-interest expense for the three and nine months ended September 30, 20172019 compared to the three and nine months ended September 30, 2016 resultedsame period in 2018 was attributable primarily from a decreaseto nonrecurring acquisition expenses of $1.5 million that were recorded 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 were2018 associated with the construction acquisition of TPB. This expense decrease was partially offset by an office complexincrease in Birmingham, Alabama. Initial construction of the office complex was completed during the third quarter,salaries and the headquarters of the Companybenefits, occupancy and the Bank were relocated to that location at the end of the third quarter. Approximately 25% of the square footage of the office complex is being utilized by the Bank, with the remainder to be leased to commercial tenants. Based on management's current estimates, it is expected that placement of the office complex into service will result in approximately $0.5 million in additional depreciation expense annually. Upon full lease-up of the office complex, management expects that the majority of depreciation expense, as well as additional operating costsother expenses associated with the complex, will be recovered through lease revenue; however, no assurance can be given regardingaddition of employees, facilities and other services in connection with the office complex being fully leased by third-party tenants or the timingacquisition 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.TPB. The increase in non-interest expense in this category comparingfor the nine months ended September 30, 20172019 compared to the nine months ended September 30, 20162018 was associated with additional information technology services provided bymostly due to a full nine-month period of combined operations following the Bank’s core processor that significantly enhanced the Bank’s technology platform, including increased protections against data security risk and enhanced disaster recovery planning. Given the rapid paceacquisition of technological change, increases in this categoryTPB as of expense are generally expectedSeptember 30, 2019, compared to occur at a more rapid pace than in other expense categories.
Insurance Expense and Assessments
This categoryonly one month as of September 30, 2018. In general, non-interest expense includes the cost of corporate insurance maintained by the Company, as well as FDIC insurance and state banking assessments. The Bank pays assessments to the FDIC based on a prescribed regulatory calculation that factors in average total assets and the Company’s supervisory ratings, as determined by regulatory examinations. The decrease in this expense category comparing the three and nine months ended September 30, 2017 to the three and nine months ended September 30, 2016 resulted primarily from reductions in FDIC assessments. In the near term, based on current regulatory guidelines, this category of expense is expected to decline. However, over a longer-term time horizon, management expects this category of expenses to increase based on growth in the Company’s balance sheet and expansion of the Company’s activities.
Fees for Professional Services
Fees for professional services include fees associated with legal, accounting and auditing, compliance and other consulting services. The decrease in these expenses for the three and nine months ended September 30, 2017 compared to the same periods 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 with the Company’s growth and development.
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;pressures; 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$0.9 million and $0.4 million for both of the three-monthnine-month periods ended September 30, 20172019 and 2016.2018, respectively. The Company’s effective tax rate was 21.4%20.5% and 29.8%, respectively, for the third quarter of 2017, compared to 22.8% forsame periods. The reduction in the third quarter of 2016. For the nine months ended September 30, 2017 and 2016, theCompany’s effective tax rate was 23.0% and 23.4%, respectively. comparing 2019 to 2018 resulted primarily from certain non-deductible expenses associated with the acquisition of TPB in 2018 that were not incurred in 2019.
The effective tax rate is expected to fluctuate based onimpacted by recurring items, such as changes in tax-exempt interest income earned from bank-qualified municipal bonds and loans and the cash surrender value of bank-owned life insurance. Management makes decisions about whether to invest in tax-exempt instruments on a case-by-case basis after considering a number of factors, including investment return, credit quality and the consistency of such investments with the Company’s overall strategy. The Company’s effective tax rate is expected to fluctuate commensurate with the level of these investments as compared to total pre-tax income.
BALANCE SHEET ANALYSIS
Investment Securities
The investment securities portfolio is used by management to provide liquidity, to generate interest income and for use as collateral for public deposits and wholesale funding. Risk and return can be adjusted by altering the duration, composition and/or balance of the portfolio. The expected average life of securities in the investment portfolio was 2.72.5 years and 3.12.9 years as of September 30, 20172019 and December 31, 2016,2018, respectively.
Available-for-sale securities are recorded at estimated fair value, with unrealized gains or losses recognized, net of taxes, in accumulated other comprehensive income, a separate component of shareholders’ equity. As of September 30, 2017,2019, available-for-sale securities totaled $158.4$96.6 million, or 85.3%84.5% of the total investment portfolio, compared to $181.9$132.5 million, or 87.5%86.1% of the total investment portfolio, as of December 31, 2016.2018. Available-for-sale securities consisted of residential and commercial mortgage-backed securities, U.S. Treasury securities 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, 2017,2019, held-to-maturity securities totaled $27.4$17.8 million, or 14.7%15.5% of the total investment portfolio, compared to $25.9$21.5 million, or 12.5%13.9% of the total investment portfolio, as of December 31, 2016.2018. Held-to-maturity securities consisted of commercial mortgage-backed securities, obligations of U.S. government-sponsored agencies and obligations of statestates and political subdivisions.
52
Loans and Allowance for Loan and Lease Losses
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, 2017.2019:
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 |
|
| Bank |
| |||||||||||||||||
|
| 2019 |
|
| 2018 |
| ||||||||||||||
|
| September 30, |
|
| June 30, |
|
| March 31, |
|
| December 31, |
|
| September 30, |
| |||||
|
| (Dollars in Thousands) |
| |||||||||||||||||
Real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction, land development and other land loans |
| $ | 27,348 |
|
| $ | 27,521 |
|
| $ | 27,065 |
|
| $ | 41,340 |
|
| $ | 43,501 |
|
Secured by 1-4 family residential properties |
|
| 103,269 |
|
|
| 96,805 |
|
|
| 99,933 |
|
|
| 102,971 |
|
|
| 111,555 |
|
Secured by multi-family residential properties |
|
| 46,843 |
|
|
| 28,033 |
|
|
| 27,602 |
|
|
| 23,009 |
|
|
| 22,915 |
|
Secured by non-farm, non-residential properties |
|
| 164,941 |
|
|
| 158,748 |
|
|
| 157,023 |
|
|
| 156,162 |
|
|
| 150,523 |
|
Other |
|
| 842 |
|
|
| 880 |
|
|
| 949 |
|
|
| 1,308 |
|
|
| 1,100 |
|
Commercial and industrial loans |
|
| 90,470 |
|
|
| 91,489 |
|
|
| 87,865 |
|
|
| 85,779 |
|
|
| 83,087 |
|
Consumer loans |
|
| 8,136 |
|
|
| 7,241 |
|
|
| 6,484 |
|
|
| 6,927 |
|
|
| 7,075 |
|
Total loans |
| $ | 441,849 |
|
| $ | 410,717 |
|
| $ | 406,921 |
|
| $ | 417,496 |
|
| $ | 419,756 |
|
Less unearned interest, fees and deferred cost |
|
| 204 |
|
|
| 411 |
|
|
| 352 |
|
|
| 331 |
|
|
| 331 |
|
Allowance for loan and lease losses |
|
| 3,349 |
|
|
| 2,798 |
|
|
| 2,711 |
|
|
| 2,735 |
|
|
| 2,709 |
|
Net loans |
| $ | 438,296 |
|
| $ | 407,508 |
|
| $ | 403,858 |
|
| $ | 414,430 |
|
| $ | 416,716 |
|
|
| ALC |
| |||||||||||||||||
|
| 2019 |
|
| 2018 |
| ||||||||||||||
|
| 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 |
|
| 6,067 |
|
|
| 6,549 |
|
|
| 7,058 |
|
|
| 7,785 |
|
|
| 8,472 |
|
Secured by multi-family residential properties |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Secured by non-farm, non-residential properties |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Other |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Commercial and industrial loans |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Consumer loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer |
|
| 29,341 |
|
|
| 29,919 |
|
|
| 29,808 |
|
|
| 31,656 |
|
|
| 31,965 |
|
Branch retail |
|
| 30,008 |
|
|
| 29,609 |
|
|
| 27,066 |
|
|
| 28,324 |
|
|
| 29,904 |
|
Indirect sales |
|
| 48,073 |
|
|
| 45,466 |
|
|
| 42,280 |
|
|
| 40,609 |
|
|
| 41,101 |
|
Total loans |
| $ | 113,489 |
|
| $ | 111,543 |
|
| $ | 106,212 |
|
| $ | 108,374 |
|
| $ | 111,442 |
|
Less unearned interest, fees and deferred cost |
|
| 5,030 |
|
|
| 5,247 |
|
|
| 5,097 |
|
|
| 5,617 |
|
|
| 5,929 |
|
Allowance for loan and lease losses |
|
| 2,236 |
|
|
| 2,289 |
|
|
| 2,213 |
|
|
| 2,320 |
|
|
| 2,407 |
|
Net loans |
| $ | 106,223 |
|
| $ | 104,007 |
|
| $ | 98,902 |
|
| $ | 100,437 |
|
| $ | 103,106 |
|
53
The tables below summarize changes in the allowance for loan and lease losses at the end offor each of the most recent five quarters as of September 30, 20172019 at both the Bank and ALC.ALC:
Bank | ||||||||||||||||||||
2017 | 2016 | |||||||||||||||||||
Third Quarter | Second Quarter | First Quarter | Fourth Quarter | Third Quarter | ||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||
Balance at beginning of period | $ | 2,526 | $ | 2,521 | $ | 2,409 | $ | 1,216 | $ | 1,138 | ||||||||||
Charge-offs: | ||||||||||||||||||||
Real estate loans: | ||||||||||||||||||||
Construction, land development and other land loans | — | — | — | — | — | |||||||||||||||
Secured by 1-4 family residential properties | — | — | — | (56 | ) | (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 | — |
| — |
| — |
| — |
| — |
| ||||||||||
Total charge-offs | (1 | ) | (76 | ) | (2 | ) | (70 | ) | (47 | ) | ||||||||||
Recoveries | 27 | 81 | 114 | 28 | 25 | |||||||||||||||
Net recoveries (charge-offs) | 26 |
| 5 |
| 112 |
| (42 | ) | (22 | ) | ||||||||||
Provision (reduction in reserve) for loan losses | (130 | ) | — |
| — |
| 1,235 |
| 100 |
| ||||||||||
Ending balance | $ | 2,422 | $ | 2,526 | $ | 2,521 | $ | 2,409 | $ | 1,216 | ||||||||||
as a percentage of loans | 0.96 | % | 1.03 | % | 1.07 | % | 1.01 | % | 0.52 | % |
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 | % |
|
| Bank |
| |||||||||||||||||
|
| 2019 |
|
| 2018 |
| ||||||||||||||
|
| Third Quarter |
|
| Second Quarter |
|
| First Quarter |
|
| Fourth Quarter |
|
| Third Quarter |
| |||||
|
| (Dollars in Thousands) |
| |||||||||||||||||
Balance at beginning of period |
| $ | 2,798 |
|
| $ | 2,711 |
|
| $ | 2,735 |
|
| $ | 2,709 |
|
| $ | 2,520 |
|
Charge-offs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction, land development and other land loans |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Secured by 1-4 family residential properties |
|
| — |
|
|
| (13 | ) |
|
| (34 | ) |
|
| — |
|
|
| — |
|
Secured by multi-family residential properties |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Secured by non-farm, non-residential properties |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Other |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Commercial and industrial |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Consumer loans |
|
| (17 | ) |
|
| — |
|
|
| (15 | ) |
|
| (1 | ) |
|
| — |
|
Other loans |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1 | ) |
|
| (3 | ) |
Total charge-offs |
|
| (17 | ) |
|
| (13 | ) |
|
| (49 | ) |
|
| (2 | ) |
|
| (3 | ) |
Recoveries |
|
| 23 |
|
|
| 10 |
|
|
| 25 |
|
|
| 28 |
|
|
| 16 |
|
Net recoveries (charge-offs) |
|
| 6 |
|
|
| (3 | ) |
|
| (24 | ) |
|
| 26 |
|
|
| 13 |
|
Provision (reduction in reserve) for loan losses |
|
| 545 |
|
|
| 90 |
|
|
| — |
|
|
| — |
|
|
| 176 |
|
Ending balance |
| $ | 3,349 |
|
| $ | 2,798 |
|
| $ | 2,711 |
|
| $ | 2,735 |
|
| $ | 2,709 |
|
as a percentage of loans |
|
| 0.76 | % |
|
| 0.68 | % |
|
| 0.67 | % |
|
| 0.66 | % |
|
| 0.65 | % |
as a percentage of loans, excluding acquired loans |
|
| 1.01 | % |
|
| 1.00 | % |
|
| 1.01 | % |
|
| 1.01 | % |
|
| 1.03 | % |
|
| ALC |
| |||||||||||||||||
|
| 2019 |
|
| 2018 |
| ||||||||||||||
|
| Third Quarter |
|
| Second Quarter |
|
| First Quarter |
|
| Fourth Quarter |
|
| Third Quarter |
| |||||
|
| (Dollars in Thousands) |
| |||||||||||||||||
Balance at beginning of period |
| $ | 2,289 |
|
| $ | 2,213 |
|
| $ | 2,320 |
|
| $ | 2,407 |
|
| $ | 2,432 |
|
Charge-offs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction, land development and other land loans |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Secured by 1-4 family residential properties |
|
| (4 | ) |
|
| (11 | ) |
|
| (19 | ) |
|
| (19 | ) |
|
| (41 | ) |
Secured by multi-family residential properties |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Secured by non-farm, non-residential properties |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Other |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Commercial and industrial |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Consumer loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer |
|
| (426 | ) |
|
| (554 | ) |
|
| (521 | ) |
|
| (637 | ) |
|
| (628 | ) |
Branch retail |
|
| (93 | ) |
|
| (103 | ) |
|
| (98 | ) |
|
| (73 | ) |
|
| (123 | ) |
Indirect sales |
|
| (66 | ) |
|
| (76 | ) |
|
| (52 | ) |
|
| (36 | ) |
|
| (21 | ) |
Other loans |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Total charge-offs |
|
| (589 | ) |
|
| (744 | ) |
|
| (690 | ) |
|
| (765 | ) |
|
| (813 | ) |
Recoveries |
|
| 198 |
|
|
| 195 |
|
|
| 183 |
|
|
| 204 |
|
|
| 176 |
|
Net recoveries (charge-offs) |
|
| (391 | ) |
|
| (549 | ) |
|
| (507 | ) |
|
| (561 | ) |
|
| (637 | ) |
Provision (reduction in reserve) for loan losses |
|
| 338 |
|
|
| 625 |
|
|
| 400 |
|
|
| 474 |
|
|
| 612 |
|
Ending balance |
| $ | 2,236 |
|
| $ | 2,289 |
|
| $ | 2,213 |
|
| $ | 2,320 |
|
| $ | 2,407 |
|
as a percentage of loans |
|
| 2.06 | % |
|
| 2.15 | % |
|
| 2.19 | % |
|
| 2.26 | % |
|
| 2.28 | % |
54
Nonperforming assets at the end of the five most recent quarters as of September 30, 20172019 were as follows:
Consolidated | ||||||||||||||||||||
2017 | 2016 | |||||||||||||||||||
September 30, | June 30, | March 31, | December 31, | September 30, | ||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||
Non-accrual loans | $ | 1,956 | $ | 1,847 | $ | 2,205 | $ | 2,417 | $ | 2,266 | ||||||||||
Other real estate owned | 3,819 | 4,351 | 4,587 | 4,858 | 5,391 | |||||||||||||||
Total | $ | 5,775 | $ | 6,198 | $ | 6,792 | $ | 7,275 | $ | 7,657 | ||||||||||
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 | % |
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 | % |
|
| Consolidated |
| |||||||||||||||||
|
| 2019 |
|
| 2018 |
| ||||||||||||||
|
| September 30, |
|
| June 30, |
|
| March 31, |
|
| December 31, |
|
| September 30, |
| |||||
|
| (Dollars in Thousands) |
| |||||||||||||||||
Non-accrual loans |
| $ | 1,468 |
|
| $ | 1,479 |
|
| $ | 1,864 |
|
| $ | 2,759 |
|
| $ | 3,782 |
|
Other real estate owned | �� |
| 1,248 |
|
|
| 1,258 |
|
|
| 1,222 |
|
|
| 1,505 |
|
|
| 1,489 |
|
Total |
| $ | 2,716 |
|
| $ | 2,737 |
|
| $ | 3,086 |
|
| $ | 4,264 |
|
| $ | 5,271 |
|
Nonperforming assets as a percentage of loans and other real estate |
|
| 0.49 | % |
|
| 0.53 | % |
|
| 0.61 | % |
|
| 0.82 | % |
|
| 1.00 | % |
Nonperforming assets as a percentage of total assets |
|
| 0.35 | % |
|
| 0.35 | % |
|
| 0.39 | % |
|
| 0.54 | % |
|
| 0.66 | % |
|
| Bank |
| |||||||||||||||||
|
| 2019 |
|
| 2018 |
| ||||||||||||||
|
| September 30, |
|
| June 30, |
|
| March 31, |
|
| December 31, |
|
| September 30, |
| |||||
|
| (Dollars in Thousands) |
| |||||||||||||||||
Non-accrual loans |
| $ | 684 |
|
| $ | 642 |
|
| $ | 749 |
|
| $ | 1,530 |
|
| $ | 2,581 |
|
Other real estate owned |
|
| 1,198 |
|
|
| 1,258 |
|
|
| 1,200 |
|
|
| 1,401 |
|
|
| 1,319 |
|
Total |
| $ | 1,882 |
|
| $ | 1,900 |
|
| $ | 1,949 |
|
| $ | 2,931 |
|
| $ | 3,900 |
|
Nonperforming assets as a percentage of loans and other real estate |
|
| 0.42 | % |
|
| 0.46 | % |
|
| 0.48 | % |
|
| 0.70 | % |
|
| 0.93 | % |
Nonperforming assets as a percentage of total assets |
|
| 0.24 | % |
|
| 0.24 | % |
|
| 0.24 | % |
|
| 0.37 | % |
|
| 0.48 | % |
|
| ALC |
| |||||||||||||||||
|
| 2019 |
|
| 2018 |
| ||||||||||||||
|
| September 30, |
|
| June 30, |
|
| March 31, |
|
| December 31, |
|
| September 30, |
| |||||
|
| (Dollars in Thousands) |
| |||||||||||||||||
Non-accrual loans |
| $ | 784 |
|
| $ | 837 |
|
| $ | 1,115 |
|
| $ | 1,229 |
|
| $ | 1,201 |
|
Other real estate owned |
|
| 50 |
|
|
| — |
|
|
| 22 |
|
|
| 104 |
|
|
| 170 |
|
Total |
| $ | 834 |
|
| $ | 837 |
|
| $ | 1,137 |
|
| $ | 1,333 |
|
| $ | 1,371 |
|
Nonperforming assets as a percentage of loans and other real estate |
|
| 0.77 | % |
|
| 0.79 | % |
|
| 1.12 | % |
|
| 1.30 | % |
|
| 1.30 | % |
Nonperforming assets as a percentage of total assets |
|
| 0.76 | % |
|
| 0.78 | % |
|
| 1.11 | % |
|
| 1.29 | % |
|
| 1.30 | % |
Deposits
Total deposits increaseddecreased by 2.2%3.84% to $508.4$677.6 million as of September 30, 2017,2019, from $497.6$704.7 million as of December 31, 2016.2018. Core deposits, which exclude time deposits of $250 thousand or more, provide a relatively stable funding source that supports earning assets. Core deposits totaled $479.7$623.7 million, or 94.4%92.0% of total deposits, as of September 30, 2017,2019, compared to $461.8$634.1 million, or 92.8%90.0% of total deposits, as of December 31, 2016.
2018.
Deposits, in particular core deposits, have historically been the Company’s primary source of funding and have enabled the Company to successfully meet both short-term and long-term liquidity needs. Management anticipates that such deposits will continue to be one of the Company’s primary sources of funding in the future, and wefuture. We will continue to monitor deposit levels closely to help ensure an adequate level of funding for the Company’s activities. However, various economic and competitive factors could affect this funding source in the future, including increased competition from other financial institutions in deposit gathering, national and local economic conditions and interest rate policies adopted by the Federal Reserve and other central banks.
Other Interest-Bearing Liabilities
Other interest-bearing liabilities consist of federal funds purchased, securities sold under agreements to repurchase and FHLB advances. This category continues to be utilized as an alternative source of funds. During the third quarter of 2017,2019, these borrowings represented 4.5%1.8% of average interest-bearing liabilities, compared to 2.6%1.1% in the third quarter of 2016.2018.
55
Shareholders’ Equity
The Company has historically placed greatsignificant emphasis on maintaining its strong capital base. As of September 30, 2017,2019, shareholders’ equity totaled $78.9$83.8 million, or 12.8%10.9% of total assets, compared to $76.2$79.4 million, or 12.6%10.0% of total assets, as of December 31, 2016.2018. 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. The increase in shareholders’ equity during the period ended September 30, 20172019 resulted primarily from increasesgrowth in retained earnings and a decrease in accumulated other comprehensive income related to changesloss associated with unrealized losses in the fair value of investmentavailable-for-sale securities available-for-sale.during the nine months ended September 30, 2019. The fair value of the available-for-sale portfolio fluctuates based primarily on changes in interest rates. Accordingly, the net unrealized gainslosses during the third quarter of 2017nine-month period ended September 30, 2019 are not necessarily indicative of future performance of the portfolio.
Bancshares’Bancshares’ Board of Directors evaluates dividend payments based on the Company’s level of earnings and our desire to maintain a strong capital base, as well as regulatory requirements relating to the payment of dividends. During eachboth of the three-month periods ended September 30, 20172019 and 2016,2018, Bancshares declared dividendsa dividend of $0.02 per common share, or approximately $0.1 million in aggregate amount.
As of September 30, 20172019 and December 31, 2016,2018, the Company retained approximately $21.2 million and $20.4 million and $20.8 million in treasurytreasury 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 BancsharesBancshares’ 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, 2017.2019. There are 242,303were 158,103 shares available for repurchase under this program at management’s discretion. Noas of September 30, 2019. During the nine months ended September 30, 2019, 84,200 shares were purchasedrepurchased under this program, and no shares were repurchased in 2018. Share repurchases under the program may be made through open market and privately negotiated transactions at times and in such amounts as management deems appropriate, subject to date in 2017 or in 2016.
applicable regulatory requirements.
As of September 30, 20172019 and December 31, 2016,2018, a total of 100,990122,271 and 114,547116,766 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 Bancshares common stock. All deferred fees, whether in the form of cash or shares of Bancshares common stock, are reflected as compensation expense in the period earned. The Company classifies all deferred directors'directors’ fees allocated to be paid in shares of stock as equity surplus. The Company usesmay use issued shares or 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 two sources: (1) principal payments and maturities of loans and (2) maturitiesprincipal payments and principal paymentsmaturities 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$158.6 million as of September 30, 20172019 and $127.3$75.2 million as of December 31, 2016.2018. Investment securities forecasted to mature or reprice in one year or less were estimated to be $10.5$7.5 million and $8.1 million of the investment portfolio as of September 30, 2017.
2019 and December 31, 2018, 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, 2017,2019, the investment securities portfolio had an estimated average life of 2.7 years, and approximately 86.33% of the portfolio (including both available-for-sale and held-to-maturity investments) was expected to be repaid within five2.5 years. 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 both September 30, 20172019 and December 31, 2016,2018, the Company had $20.0 million and $25.0 million, respectively, indid not have any outstanding borrowings under FHLB advances. The Company had up to $164.8$233.0 million and $155.0$282.2 million in remaining unused credit from the FHLB (subject to available collateral) as of September 30, 20172019 and December 31, 2016,2018, respectively. In addition, the Company had $18.8$61.8 million and $72.2 million in unused established federal funds lines as of both September 30, 20172019 and December 31, 2016.
2018, respectively.
Management believes that the Company has adequate sources of liquidity to more than cover its contractual obligations and commitments over the next twelve months. Management is not aware of any condition that currently exists that would have ana materially adverse effect on the liquidity, capital resources or operation of the Company.
56
The primary purpose inof managing interest rate risk is to invest capital effectively and preserve the value created by our 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, 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.
Measuring Interest Rate Sensitivity
Interest rate sensitivity is a function of the repricing characteristics of all of the Company’sCompany’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 monthly basis through income simulation over various interest rate shock scenarios, including plus or minus 1%, 2%, 3% and 4% scenarios. Each month, management evaluates how changes in short- and long-term interest rates may impact future profitability, as reflected in the Company’sCompany’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-term net interest margin simulations. 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’Bancshares' Annual Report on Form 10-K as of and for the year ended December 31, 20162018 for additional disclosures related to market risk. Management’s evaluation as of September 30, 2017 did not indicate any significant increase in the Company’s exposure to market risk from those disclosed as of December 31, 2016.
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, 2017,2019, 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, 2017,2019, that Bancshares’ disclosure controls and procedures arewere effective 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, 20172019 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
57
PARTPART II. OTHER INFORMATION
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.
In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, Item 1A, “Risk Factors,” in Bancshares’Bancshares’ Annual Report on Form 10-K as of and for the year ended December 31, 20162018 that could materially affect the Company’s business, financial condition or future results. The risks described in Bancshares’ Annual Report on Form 10-K are not the only risks facing the Company. 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.
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 2017.2019:
Issuer Purchases of Equity Securities
|
|
|
|
| ||||||||||||
|
|
| ||||||||||||||
|
|
| ||||||||||||||
|
|
| ||||||||||||||
|
|
|
Period |
| Total Number of Shares Purchased (1) |
|
| Average Price Paid per Share |
|
| Total Number of Shares Purchased as Part of Publicly Announced Programs (1) |
|
| Maximum Number of Shares that May Yet Be Purchased Under the Programs (1) |
| ||||
July 1 – July 31 |
|
| — |
|
| $ | — |
|
|
| — |
|
|
| 242,303 |
|
August 1 – August 31 |
|
| 33,100 |
|
| $ | 9.48 |
|
|
| 33,100 |
|
|
| 209,203 |
|
September 1 – September 30 |
|
| 51,100 |
|
| $ | 9.53 |
|
|
| 51,100 |
|
|
| 158,103 |
|
Total |
|
| 84,200 |
|
| $ | 9.51 |
|
|
| 84,200 |
|
|
| 158,103 |
|
(1) | On December |
No unregistered securities were sold by the Company during the period covered by this report.
58
|
|
|
The exhibits listed in the Index to Exhibits below are filed herewith and are incorporated herein by reference.
Exhibit No. | Description | |
3.1 | ||
3.1A | ||
3.2 | ||
31.1 | ||
31.2 | ||
32 | ||
101 | Interactive Data Files for the Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2019. |
59
URES
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, 20176, 2019
| /s/ Thomas S. Elley | |
Thomas S. Elley | ||
Its Vice President, Treasurer and Assistant Secretary, Chief Financial Officer and Principal Accounting Officer | ||
(Duly Authorized Officer and Principal Financial Officer) |
INDEX TO EXHIBITS
60
|
| |
| ||
| ||
| ||
| ||
| ||
|
|