UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 20192020
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
☐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 001-38412
BRIDGEWATER BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
| | |
Minnesota | |
|
| | |
3800 American Boulevard West, Suite 100 | | 55431 |
(952) 893‑6868(952) 893-6868
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S‑TS-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non‑acceleratednon-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b‑212b-2 of the Exchange Act.
| | | |
Large accelerated filer | ☐ | Accelerated filer |
|
| | | |
|
| Smaller reporting company | ☒ |
| Emerging growth company ☒ | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑212b-2 of the Exchange Act). Yes ☐ No ☒
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: | Trading Symbol |
| ||||
|
| Name of each exchange on which registered: | ||||
Common Stock, $0.01 Par Value |
| BWB |
| The Nasdaq Stock Market LLC |
The number of shares of the Common Stock outstanding as of August 2, 20193, 2020 was 28,822,284. 28,842,560.
| |
3 | |
| |
3 | |
3 | |
4 | |
5 | |
6 | |
7 | |
8 | |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | 34 |
Item 3. Quantitative and Qualitative Disclosures About Market Risk | 67 |
69 | |
| |
69 | |
| |
69 | |
69 | |
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | 72 |
72 | |
72 | |
72 | |
73 | |
| |
74 | |
| |
2
PART 1 – FINANCIAL INFORMATION
Bridgewater Bancshares, Inc. and Subsidiaries
(dollars in thousands, except share data)
| | | | | | |
| | June 30, | | December 31, | ||
|
| 2020 |
| 2019 | ||
| | (Unaudited) | | | | |
ASSETS | | | | | | |
Cash and Cash Equivalents | | $ | 178,428 | | $ | 31,935 |
Bank-Owned Certificates of Deposit | |
| 2,895 | |
| 2,654 |
Securities Available for Sale, at Fair Value | |
| 326,295 | |
| 289,877 |
Loans, Net of Allowance for Loan Losses of $27,633 at June 30, 2020 (unaudited) and $22,526 at December 31, 2019 | | | 2,155,858 | |
| 1,884,000 |
Federal Home Loan Bank (FHLB) Stock, at Cost | |
| 8,617 | |
| 7,824 |
Premises and Equipment, Net | |
| 43,062 | |
| 27,628 |
Accrued Interest | |
| 8,267 | |
| 6,775 |
Goodwill | |
| 2,626 | |
| 2,626 |
Other Intangible Assets, Net | |
| 765 | |
| 861 |
Other Assets | |
| 27,650 | |
| 14,650 |
Total Assets | | $ | 2,754,463 | | $ | 2,268,830 |
| | | | | | |
LIABILITIES AND EQUITY | |
|
| |
|
|
LIABILITIES | |
|
| |
|
|
Deposits: | |
|
| |
|
|
Noninterest Bearing | | $ | 648,869 | | $ | 447,509 |
Interest Bearing | |
| 1,593,182 | |
| 1,375,801 |
Total Deposits | |
| 2,242,051 | |
| 1,823,310 |
Notes Payable | |
| 12,000 | |
| 13,000 |
FHLB Advances | |
| 147,500 | |
| 136,500 |
Subordinated Debentures, Net of Issuance Costs | |
| 73,658 | |
| 24,733 |
Accrued Interest Payable | |
| 1,953 | |
| 1,982 |
Other Liabilities | |
| 20,111 | |
| 24,511 |
Total Liabilities | |
| 2,497,273 | |
| 2,024,036 |
| | | | | | |
SHAREHOLDERS' EQUITY | |
|
| |
|
|
Preferred Stock- $0.01 par value | | | | | | |
Authorized 10,000,000; NaN Issued and Outstanding at June 30, 2020 (unaudited) and December 31, 2019 | | | — | |
| — |
Common Stock- $0.01 par value | |
| | |
|
|
Common Stock - Authorized 75,000,000; Issued and Outstanding 28,837,560 at June 30, 2020 (unaudited) and 28,973,572 at December 31, 2019 | | | 288 | |
| 290 |
Additional Paid-In Capital | |
| 110,906 | |
| 112,093 |
Retained Earnings | |
| 142,678 | |
| 127,637 |
Accumulated Other Comprehensive Income | |
| 3,318 | |
| 4,774 |
Total Shareholders' Equity | |
| 257,190 | |
| 244,794 |
Total Liabilities and Equity | | $ | 2,754,463 | | $ | 2,268,830 |
See accompanying notes to consolidated financial statements.
|
|
|
|
|
|
|
|
| June 30, |
| December 31, | ||
|
| 2019 |
| 2018 | ||
|
| (Unaudited) |
|
|
| |
ASSETS |
|
|
|
|
|
|
Cash and Cash Equivalents |
| $ | 66,389 |
| $ | 28,444 |
Bank-Owned Certificates of Deposit |
|
| 2,699 |
|
| 3,305 |
Securities Available for Sale, at Fair Value |
|
| 241,925 |
|
| 253,378 |
Loans, Net of Allowance for Loan Losses of $21,362 at June 30, 2019 (unaudited) and $20,031 at December 31, 2018 |
|
| 1,758,384 |
|
| 1,640,385 |
Federal Home Loan Bank (FHLB) Stock, at Cost |
|
| 8,064 |
|
| 7,614 |
Premises and Equipment, Net |
|
| 18,623 |
|
| 13,074 |
Foreclosed Assets |
|
| 1,033 |
|
| — |
Accrued Interest |
|
| 7,583 |
|
| 6,589 |
Goodwill |
|
| 2,626 |
|
| 2,626 |
Other Intangible Assets, Net |
|
| 956 |
|
| 1,052 |
Other Assets |
|
| 15,349 |
|
| 17,274 |
Total Assets |
| $ | 2,123,631 |
| $ | 1,973,741 |
|
|
|
|
|
|
|
LIABILITIES AND EQUITY |
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
|
|
Deposits: |
|
|
|
|
|
|
Noninterest Bearing |
| $ | 409,198 |
| $ | 369,203 |
Interest Bearing |
|
| 1,290,067 |
|
| 1,191,731 |
Total Deposits |
|
| 1,699,265 |
|
| 1,560,934 |
Federal Funds Purchased |
|
| — |
|
| 18,000 |
Notes Payable |
|
| 14,000 |
|
| 15,000 |
FHLB Advances |
|
| 142,500 |
|
| 124,000 |
Subordinated Debentures, Net of Issuance Costs |
|
| 24,681 |
|
| 24,630 |
Accrued Interest Payable |
|
| 2,109 |
|
| 1,806 |
Other Liabilities |
|
| 11,939 |
|
| 8,373 |
Total Liabilities |
|
| 1,894,494 |
|
| 1,752,743 |
|
|
|
|
|
|
|
SHAREHOLDERS' EQUITY |
|
|
|
|
|
|
Preferred Stock- $0.01 par value |
|
|
|
|
|
|
Authorized 10,000,000; None Issued and Outstanding at June 30, 2019 (unaudited) and December 31, 2018 |
|
| — |
|
| — |
Common Stock- $0.01 par value |
|
|
|
|
|
|
Common Stock - Authorized 75,000,000; Issued and Outstanding 28,986,729 at June 30, 2019 (unaudited) and 30,097,274 at December 31, 2018 |
|
| 290 |
|
| 301 |
Non-voting Common Stock- Authorized 10,000,000; Issued and Outstanding -0- at June 30, 2019 (unaudited) and December 31, 2018 |
|
| — |
|
| — |
Additional Paid-In Capital |
|
| 113,838 |
|
| 126,031 |
Retained Earnings |
|
| 111,261 |
|
| 96,234 |
Accumulated Other Comprehensive Income (Loss) |
|
| 3,748 |
|
| (1,568) |
Total Shareholders' Equity |
|
| 229,137 |
|
| 220,998 |
Total Liabilities and Equity |
| $ | 2,123,631 |
| $ | 1,973,741 |
3
Bridgewater Bancshares, Inc. and Subsidiaries
Consolidated Statements of Income
(dollars in thousands, except per share data)
(Unaudited)
| | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended | ||||||||
| | June 30, | | June 30, | | June 30, | | June 30, | ||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
| | (Unaudited) | | (Unaudited) | | (Unaudited) | | (Unaudited) | ||||
INTEREST INCOME |
| |
|
| |
|
| |
|
| |
|
Loans, Including Fees | | $ | 25,913 | | $ | 23,321 | | $ | 51,026 | | $ | 45,500 |
Investment Securities | |
| 2,091 | |
| 1,928 | |
| 4,287 | |
| 3,829 |
Other | |
| 162 | |
| 271 | |
| 321 | |
| 458 |
Total Interest Income | |
| 28,166 | |
| 25,520 | |
| 55,634 | |
| 49,787 |
| | | | | | | | | | | | |
INTEREST EXPENSE | |
| | |
|
| |
| | |
|
|
Deposits | |
| 5,170 | |
| 6,020 | |
| 10,894 | | | 11,723 |
Notes Payable | |
| 111 | |
| 130 | |
| 226 | | | 251 |
FHLB Advances | |
| 1,064 | |
| 827 | |
| 2,091 | | | 1,602 |
Subordinated Debentures | |
| 479 | |
| 393 | |
| 872 | | | 770 |
Federal Funds Purchased | |
| — | |
| 12 | |
| 107 | | | 172 |
Total Interest Expense | |
| 6,824 | |
| 7,382 | |
| 14,190 | |
| 14,518 |
| | | | | | | | | | | | |
NET INTEREST INCOME | |
| 21,342 | |
| 18,138 | |
| 41,444 | |
| 35,269 |
Provision for Loan Losses | |
| 3,000 | |
| 600 | |
| 5,100 | | | 1,200 |
| | | | | | | | | | | | |
NET INTEREST INCOME AFTER | |
|
| |
|
| |
|
| |
|
|
PROVISION FOR LOAN LOSSES | |
| 18,342 | |
| 17,538 | |
| 36,344 | |
| 34,069 |
| | | | | | | | | | | | |
NONINTEREST INCOME | |
|
| |
|
| |
|
| |
|
|
Customer Service Fees | |
| 135 | | | 189 | |
| 375 | | | 380 |
Net Gain on Sales of Available for Sale Securities | |
| 1,361 | | | 463 | |
| 1,364 | | | 458 |
Other Income | |
| 481 | | | 482 | |
| 1,957 | | | 930 |
Total Noninterest Income | |
| 1,977 | |
| 1,134 | |
| 3,696 | |
| 1,768 |
| | | | | | | | | | | | |
NONINTEREST EXPENSE | |
|
| |
|
| |
|
| |
| |
Salaries and Employee Benefits | |
| 6,348 | | | 5,124 | |
| 12,802 | | | 9,926 |
Occupancy and Equipment | |
| 672 | | | 785 | |
| 1,385 | | | 1,441 |
Other Expense | |
| 3,691 | | | 3,565 | |
| 6,270 | | | 5,992 |
Total Noninterest Expense | |
| 10,711 | |
| 9,474 | |
| 20,457 | |
| 17,359 |
| | | | | | | | | | | | |
INCOME BEFORE INCOME TAXES | |
| 9,608 | |
| 9,198 | |
| 19,583 | | | 18,478 |
Provision for Income Taxes | |
| 2,010 | | | 1,189 | |
| 4,542 | | | 3,451 |
NET INCOME | | $ | 7,598 | | $ | 8,009 | | $ | 15,041 | | $ | 15,027 |
| | | | | | | | | | | | |
EARNINGS PER SHARE | |
|
| |
|
| |
| | |
| |
Basic | | $ | 0.26 | | $ | 0.27 | | $ | 0.52 | | $ | 0.50 |
Diluted | | | 0.26 | | | 0.26 | | | 0.51 | | | 0.49 |
Dividends Paid Per Share | | | — | | | — | | | — | | | — |
See accompanying notes to consolidated financial statements.
4
Bridgewater Bancshares, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
(dollars in thousands)
(Unaudited)
| | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended | ||||||||
| | June 30, | | June 30, | ||||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Net Income | | $ | 7,598 | | $ | 8,009 | | $ | 15,041 | | $ | 15,027 |
Other Comprehensive Income (Loss): | |
| | | | | |
| | | | |
Unrealized Gains on Available for Sale Securities | | | 3,300 | | | 3,586 | | | 3,122 | | | 8,203 |
Unrealized Losses on Cash Flow Hedges | | | (741) | | | (927) | | | (3,673) | | | (1,018) |
Reclassification Adjustment for Gains Realized in Income | | | (1,307) | | | (463) | | | (1,292) | | | (458) |
Income Tax Impact | | | (263) | | | (461) | | | 387 | | | (1,411) |
Total Other Comprehensive Income (Loss), Net of Tax | | | 989 | | | 1,735 | | | (1,456) | | | 5,316 |
Comprehensive Income | | $ | 8,587 | | $ | 9,744 | | $ | 13,585 | | $ | 20,343 |
See accompanying notes to consolidated financial statements.
35
Bridgewater Bancshares, Inc. and Subsidiaries
Consolidated Statements of IncomeShareholders’ Equity
Three and Six Months Ended June 30, 2020 and 2019
(dollars in thousands, except per share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| Six Months Ended | ||||||||
|
| June 30, |
| June 30, |
| June 30, |
| June 30, | ||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 | ||||
INTEREST INCOME |
|
|
|
|
|
|
|
|
|
|
|
|
Loans, Including Fees |
| $ | 23,321 |
| $ | 18,800 |
| $ | 45,500 |
| $ | 35,848 |
Investment Securities |
|
| 1,928 |
|
| 1,473 |
|
| 3,829 |
|
| 3,040 |
Other |
|
| 271 |
|
| 119 |
|
| 458 |
|
| 214 |
Total Interest Income |
|
| 25,520 |
|
| 20,392 |
|
| 49,787 |
|
| 39,102 |
|
|
|
|
|
|
|
|
|
|
|
|
|
INTEREST EXPENSE |
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
| 6,020 |
|
| 3,522 |
|
| 11,723 |
|
| 6,531 |
Notes Payable |
|
| 130 |
|
| 146 |
|
| 251 |
|
| 298 |
FHLB Advances |
|
| 827 |
|
| 372 |
|
| 1,602 |
|
| 671 |
Subordinated Debentures |
|
| 393 |
|
| 397 |
|
| 770 |
|
| 766 |
Federal Funds Purchased |
|
| 12 |
|
| 56 |
|
| 172 |
|
| 174 |
Total Interest Expense |
|
| 7,382 |
|
| 4,493 |
|
| 14,518 |
|
| 8,440 |
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INTEREST INCOME |
|
| 18,138 |
|
| 15,899 |
|
| 35,269 |
|
| 30,662 |
Provision for Loan Losses |
|
| 600 |
|
| 900 |
|
| 1,200 |
|
| 1,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INTEREST INCOME AFTER |
|
|
|
|
|
|
|
|
|
|
|
|
PROVISION FOR LOAN LOSSES |
|
| 17,538 |
|
| 14,999 |
|
| 34,069 |
|
| 29,162 |
|
|
|
|
|
|
|
|
|
|
|
|
|
NONINTEREST INCOME |
|
|
|
|
|
|
|
|
|
|
|
|
Customer Service Fees |
|
| 189 |
|
| 185 |
|
| 380 |
|
| 355 |
Net Gain (Loss) on Sales of Available for Sale Securities |
|
| 463 |
|
| (59) |
|
| 458 |
|
| (59) |
Net Loss on Sales of Foreclosed Assets |
|
| — |
|
| (141) |
|
| — |
|
| (137) |
Other Income |
|
| 482 |
|
| 500 |
|
| 930 |
|
| 713 |
Total Noninterest Income |
|
| 1,134 |
|
| 485 |
|
| 1,768 |
|
| 872 |
|
|
|
|
|
|
|
|
|
|
|
|
|
NONINTEREST EXPENSE |
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and Employee Benefits |
|
| 5,124 |
|
| 4,306 |
|
| 9,926 |
|
| 8,624 |
Occupancy and Equipment |
|
| 785 |
|
| 597 |
|
| 1,441 |
|
| 1,171 |
Other Expense |
|
| 3,565 |
|
| 1,561 |
|
| 5,992 |
|
| 3,201 |
Total Noninterest Expense |
|
| 9,474 |
|
| 6,464 |
|
| 17,359 |
|
| 12,996 |
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE INCOME TAXES |
|
| 9,198 |
|
| 9,020 |
|
| 18,478 |
|
| 17,038 |
Provision for Income Taxes |
|
| 1,189 |
|
| 2,274 |
|
| 3,451 |
|
| 4,342 |
NET INCOME |
| $ | 8,009 |
| $ | 6,746 |
| $ | 15,027 |
| $ | 12,696 |
|
|
|
|
|
|
|
|
|
|
|
|
|
EARNINGS PER SHARE |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | 0.27 |
| $ | 0.22 |
| $ | 0.50 |
| $ | 0.45 |
Diluted |
|
| 0.26 |
|
| 0.22 |
|
| 0.49 |
|
| 0.45 |
Dividends Paid Per Share |
|
| — |
|
| — |
|
| — |
|
| — |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | Accumulated | | | | |
| | | | | | | Additional | | | | | Other | | | | ||
| | Shares | | Common Stock | | Paid-In | | Retained | | Comprehensive | | | | ||||
Three Months Ended | | Voting |
| Voting |
| Capital |
| Earnings |
| Income (Loss) |
| Total | |||||
| | | | | | | | | | | | | | | | | |
BALANCE March 31, 2019 |
| 30,097,674 | | $ | 301 | | $ | 126,209 | | $ | 103,252 | | $ | 2,013 | | $ | 231,775 |
Stock-based Compensation |
| — | |
| — | |
| 173 | |
| — | |
| — | |
| 173 |
Comprehensive Income |
| — | |
| — | |
| — | |
| 8,009 | |
| 1,735 | |
| 9,744 |
Stock Options Exercised | | 15,000 | | | — | | | 59 | | | — | | | — | | | 59 |
Stock Repurchases | | (1,125,945) | | | (11) | | | (12,603) | | | — | | | — | | | (12,614) |
BALANCE June 30, 2019 |
| 28,986,729 | | $ | 290 | | $ | 113,838 | | $ | 111,261 | | $ | 3,748 | | $ | 229,137 |
| | | | | | | | | | | | | | | | | |
BALANCE March 31, 2020 |
| 28,807,375 | | $ | 288 | | $ | 110,446 | | $ | 135,080 | | $ | 2,329 | | $ | 248,143 |
Stock-based Compensation |
| 7,490 | | | — | | | 421 | | | — | | | — | |
| 421 |
Comprehensive Income |
| — | | | — | | | — | | | 7,598 | | | 989 | |
| 8,587 |
Stock Options Exercised | | 15,500 | | | — | | | 39 | | | — | | | — | | | 39 |
Issuance of Restricted Stock Awards | | 7,195 | | | — | | | — | | | — | | | — | | | — |
BALANCE June 30, 2020 |
| 28,837,560 | | $ | 288 | | $ | 110,906 | | $ | 142,678 | | $ | 3,318 | | $ | 257,190 |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | Accumulated | | | | |
| | | | | | | Additional | | | | | Other | | | | ||
| | Shares | | Common Stock | | Paid-In | | Retained | | Comprehensive | | | | ||||
Six Months Ended |
| Voting |
| Voting |
| Capital |
| Earnings |
| Income (Loss) |
| Total | |||||
| | | | | | | | | | | | | | | | | |
BALANCE December 31, 2018 |
| 30,097,274 | | $ | 301 | | $ | 126,031 | | $ | 96,234 | | $ | (1,568) | | $ | 220,998 |
Stock-based Compensation |
| — | |
| — | |
| 348 | |
| — | |
| — | |
| 348 |
Comprehensive Income |
| — | |
| — | |
| — | |
| 15,027 | |
| 5,316 | |
| 20,343 |
Stock Options Exercised | | 15,400 | | | — | | | 62 | | | — | | | — | | | 62 |
Stock Repurchases | | (1,125,945) | |
| (11) | |
| (12,603) | |
| — | |
| — | | | (12,614) |
BALANCE June 30, 2019 |
| 28,986,729 | | $ | 290 | | $ | 113,838 | | $ | 111,261 | | $ | 3,748 | | $ | 229,137 |
| | | | | | | | | | | | | | | | | |
BALANCE December 31, 2019 | | 28,973,572 | | $ | 290 | | $ | 112,093 | | $ | 127,637 | | $ | 4,774 | | $ | 244,794 |
Stock-based Compensation |
| 15,211 | | | — | | | 822 | | | — | |
| — | |
| 822 |
Comprehensive Income (Loss) |
| — | | | — | | | — | | | 15,041 | |
| (1,456) | |
| 13,585 |
Stock Options Exercised | | 15,500 | | | — | | | 39 | | | — | | | — | | | 39 |
Stock Repurchases | | (177,864) | | | (2) | | | (2,048) | | | — | | | — | | | (2,050) |
Issuance of Restricted Stock Awards | | 11,141 | | | — | | | — | | | — | | | — | | | — |
BALANCE June 30, 2020 |
| 28,837,560 | | $ | 288 | | $ | 110,906 | | $ | 142,678 | | $ | 3,318 | | $ | 257,190 |
See accompanying notes to consolidated financial statements.
46
Bridgewater Bancshares, Inc. and Subsidiaries
Consolidated Statements of Comprehensive IncomeCash Flows
(dollars in thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| Six Months Ended | ||||||||
|
| June 30, |
| June 30, | ||||||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 | ||||
Net Income |
| $ | 8,009 |
| $ | 6,746 |
| $ | 15,027 |
| $ | 12,696 |
Other Comprehensive Income (Loss): |
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized Gains (Losses) on Available for Sale Securities |
|
| 3,586 |
|
| (151) |
|
| 8,203 |
|
| (4,298) |
Unrealized Gains (Losses) on Cash Flow Hedge |
|
| (927) |
|
| 31 |
|
| (1,018) |
|
| 150 |
Reclassification Adjustment for (Gains) Losses Realized in Income |
|
| (463) |
|
| 59 |
|
| (458) |
|
| 59 |
Income Tax Impact |
|
| (461) |
|
| 13 |
|
| (1,411) |
|
| 912 |
Total Other Comprehensive Income (Loss), Net of Tax |
|
| 1,735 |
|
| (48) |
|
| 5,316 |
|
| (3,177) |
Comprehensive Income |
| $ | 9,744 |
| $ | 6,698 |
| $ | 20,343 |
| $ | 9,519 |
| | | | | | |
| | Six Months Ended | ||||
| | June 30, | ||||
| | 2020 | | 2019 | ||
CASH FLOWS FROM OPERATING ACTIVITIES | | | | | | |
Net Income | | $ | 15,041 | | $ | 15,027 |
Adjustments to Reconcile Net Income to Net Cash | |
| | |
| |
Provided by (Used for) Operating Activities: | |
| | |
| |
Net Amortization on Securities Available for Sale | |
| 1,136 | |
| 1,225 |
Net Gain on Sales of Securities Available for Sale | |
| (1,364) | |
| (458) |
Provision for Loan Losses | |
| 5,100 | |
| 1,200 |
Depreciation and Amortization of Premises and Equipment | |
| 380 | |
| 417 |
Amortization of Other Intangible Assets | |
| 96 | |
| 95 |
Amortization of Subordinated Debt Issuance Costs | | | 52 | | | 51 |
Stock-based Compensation | |
| 822 | |
| 348 |
Changes in Operating Assets and Liabilities: | |
| | |
| |
Accrued Interest Receivable and Other Assets | |
| (8,074) | |
| (1,499) |
Accrued Interest Payable and Other Liabilities | |
| (12,507) | |
| 3,870 |
Net Cash Provided by Operating Activities | |
| 682 | |
| 20,276 |
| | | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES | |
| | |
| |
(Increase) Decrease in Bank-owned Certificates of Deposit | |
| (241) | | | 606 |
Proceeds from Sales of Securities Available for Sale | |
| 34,038 | | | 40,309 |
Proceeds from Maturities, Paydowns, Payups and Calls of Securities Available for Sale | |
| 17,312 | | | 15,741 |
Purchases of Securities Available for Sale | |
| (87,215) | | | (37,618) |
Net Increase in Loans | |
| (277,092) | | | (120,232) |
Net Increase in FHLB Stock | |
| (793) | | | (450) |
Purchases of Premises and Equipment | |
| (15,935) | | | (5,966) |
Proceeds from Sales of Foreclosed Assets | |
| 134 | | | — |
Net Cash Used in Investing Activities | | | (329,792) | |
| (107,610) |
| | | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES | |
| | |
| |
Net Increase in Deposits | |
| 418,741 | | | 138,331 |
Net Decrease in Federal Funds Purchased | |
| — | | | (18,000) |
Principal Payments on Notes Payable | |
| (1,000) | | | (1,000) |
Proceeds from FHLB Advances | |
| 96,000 | | | 22,500 |
Principal Payments on FHLB Advances | | | (85,000) | | | (4,000) |
Issuance of Subordinated Debt, net of Issuance Costs | | | 48,873 | | | — |
Stock Options Exercised | | | 39 | | | 62 |
Stock Repurchases | | | (2,050) | | | (12,614) |
Net Cash Provided by Financing Activities | |
| 475,603 | |
| 125,279 |
| | | | | | |
NET CHANGE IN CASH AND CASH EQUIVALENTS | |
| 146,493 | |
| 37,945 |
Cash and Cash Equivalents Beginning | |
| 31,935 | |
| 28,444 |
Cash and Cash Equivalents Ending | | $ | 178,428 | | $ | 66,389 |
| | | | | | |
SUPPLEMENTAL CASH FLOW DISCLOSURE | |
| | |
| |
Cash Paid for Interest | | $ | 14,167 | | $ | 14,164 |
Cash Paid for Income Taxes | |
| 4,243 | |
| 2,600 |
Loans Transferred to Foreclosed Assets | |
| 134 | |
| 1,033 |
Premises and Equipment Transferred to Other Assets | | | 121 | | | — |
Net Investment Securities Sold but Not Settled | | | 1,433 | | | — |
| | | | | | |
See accompanying notes to consolidated financial statements.
57
Bridgewater Bancshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements of Shareholders’ Equity
Three and Six Months Ended June 30, 2019 and 2018
(dollars in thousands, except share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
| Additional |
|
|
|
| Other |
|
|
| ||
|
| Shares |
| Common Stock |
| Paid-In |
| Retained |
| Comprehensive |
|
|
| |||||||||
Three Months Ended |
| Voting |
| Nonvoting |
| Voting |
| Nonvoting |
| Capital |
| Earnings |
| Income (Loss) |
| Total | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE March 31, 2018 |
| 27,235,832 |
| 2,823,542 |
| $ | 272 |
| $ | 28 |
| $ | 125,326 |
| $ | 75,264 |
| $ | (1,851) |
| $ | 199,039 |
Stock-based Compensation |
| — |
| — |
|
| — |
|
| — |
|
| 190 |
|
| — |
|
| — |
|
| 190 |
Comprehensive Income (Loss) |
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| 6,746 |
|
| (48) |
|
| 6,698 |
BALANCE June 30, 2018 |
| 27,235,832 |
| 2,823,542 |
| $ | 272 |
| $ | 28 |
| $ | 125,516 |
| $ | 82,010 |
| $ | (1,899) |
| $ | 205,927 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE March 31, 2019 |
| 30,097,674 |
| — |
| $ | 301 |
| $ | — |
| $ | 126,209 |
| $ | 103,252 |
| $ | 2,013 |
| $ | 231,775 |
Stock-based Compensation |
| — |
| — |
|
| — |
|
| — |
|
| 173 |
|
| — |
|
| — |
|
| 173 |
Comprehensive Income |
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| 8,009 |
|
| 1,735 |
|
| 9,744 |
Stock Options Exercised |
| 15,000 |
| — |
|
| — |
|
| — |
|
| 59 |
|
| — |
|
| — |
|
| 59 |
Stock Repurchases |
| (1,125,945) |
| — |
|
| (11) |
|
| — |
|
| (12,603) |
|
| — |
|
| — |
|
| (12,614) |
BALANCE June 30, 2019 |
| 28,986,729 |
| — |
| $ | 290 |
| $ | — |
| $ | 113,838 |
| $ | 111,261 |
| $ | 3,748 |
| $ | 229,137 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
| Additional |
|
|
|
| Other |
|
|
| ||
|
| Shares |
| Common Stock |
| Paid-In |
| Retained |
| Comprehensive |
|
|
| |||||||||
Six Months Ended |
| Voting |
| Nonvoting |
| Voting |
| Nonvoting |
| Capital |
| Earnings |
| Income (Loss) |
| Total | ||||||
|
|
| ||||||||||||||||||||
BALANCE December 31, 2017 |
| 20,834,001 |
| 3,845,860 |
| $ | 208 |
| $ | 38 |
| $ | 66,324 |
| $ | 69,508 |
| $ | 1,084 |
| $ | 137,162 |
Stock-based Compensation |
| — |
| — |
|
| — |
|
| — |
|
| 389 |
|
| — |
|
| — |
|
| 389 |
Comprehensive Income (Loss) |
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| 12,696 |
|
| (3,177) |
|
| 9,519 |
Issuance of Common Stock, Net of Issuance Costs |
| 5,379,513 |
| — |
|
| 54 |
|
| — |
|
| 58,803 |
|
| — |
|
| — |
|
| 58,857 |
Conversion of Non-voting Stock to Voting Stock |
| 1,022,318 |
| (1,022,318) |
|
| 10 |
|
| (10) |
|
| — |
|
| — |
|
| — |
|
| — |
Reclassification of the Income Tax Effects of the Tax Cuts and Jobs Act to Retained Earnings |
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| (194) |
|
| 194 |
|
| — |
BALANCE June 30, 2018 |
| 27,235,832 |
| 2,823,542 |
| $ | 272 |
| $ | 28 |
| $ | 125,516 |
| $ | 82,010 |
| $ | (1,899) |
| $ | 205,927 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE December 31, 2018 |
| 30,097,274 |
| — |
| $ | 301 |
| $ | — |
| $ | 126,031 |
| $ | 96,234 |
| $ | (1,568) |
| $ | 220,998 |
Stock-based Compensation |
| — |
| — |
|
| — |
|
| — |
|
| 348 |
|
| — |
|
| — |
|
| 348 |
Comprehensive Income |
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| 15,027 |
|
| 5,316 |
|
| 20,343 |
Stock Options Exercised |
| 15,400 |
| — |
|
| — |
|
| — |
|
| 62 |
|
| — |
|
| — |
|
| 62 |
Stock Repurchases |
| (1,125,945) |
| — |
|
| (11) |
|
| — |
|
| (12,603) |
|
| — |
|
| — |
|
| (12,614) |
BALANCE June 30, 2019 |
| 28,986,729 |
| — |
| $ | 290 |
| $ | — |
| $ | 113,838 |
| $ | 111,261 |
| $ | 3,748 |
| $ | 229,137 |
See accompanying notes to consolidated financial statements.
6
Bridgewater Bancshares, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(dollars in thousands)
(Unaudited)
|
|
|
|
|
|
|
|
| Six Months Ended | ||||
|
| June 30, | ||||
|
| 2019 |
| 2018 | ||
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
|
Net Income |
| $ | 15,027 |
| $ | 12,696 |
Adjustments to Reconcile Net Income to Net Cash |
|
|
|
|
|
|
Provided by Operating Activities: |
|
|
|
|
|
|
Net Amortization on Securities Available for Sale |
|
| 1,225 |
|
| 1,638 |
Net (Gain) Loss on Sales of Securities Available for Sale |
|
| (458) |
|
| 59 |
Provision for Loan Losses |
|
| 1,200 |
|
| 1,500 |
Depreciation and Amortization of Premises and Equipment |
|
| 417 |
|
| 368 |
Amortization of Other Intangible Assets |
|
| 95 |
|
| 95 |
Amortization of Subordinated Debt Issuance Costs |
|
| 51 |
|
| 51 |
Net Loss on Sale of Foreclosed Assets |
|
| — |
|
| 137 |
Stock-based Compensation |
|
| 348 |
|
| 389 |
Changes in Operating Assets and Liabilities: |
|
|
|
|
|
|
Accrued Interest Receivable and Other Assets |
|
| (1,499) |
|
| (4,692) |
Accrued Interest Payable and Other Liabilities |
|
| 3,870 |
|
| 149 |
Net Cash Provided by Operating Activities |
|
| 20,276 |
|
| 12,390 |
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
(Increase) Decrease in Bank-owned Certificates of Deposit |
|
| 606 |
|
| (731) |
Proceeds from Sales of Securities Available for Sale |
|
| 40,309 |
|
| 10,950 |
Proceeds from Maturities, Paydowns, Payups and Calls of Securities Available for Sale |
|
| 15,741 |
|
| 12,539 |
Purchases of Securities Available for Sale |
|
| (37,618) |
|
| (46,004) |
Net Increase in Loans |
|
| (120,232) |
|
| (116,589) |
Net Increase in FHLB Stock |
|
| (450) |
|
| (147) |
Purchases of Premises and Equipment |
|
| (5,966) |
|
| (710) |
Proceeds from Sales of Foreclosed Assets |
|
| — |
|
| 296 |
Net Cash Used in Investing Activities |
|
| (107,610) |
|
| (140,396) |
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
Net Increase in Deposits |
|
| 138,331 |
|
| 75,341 |
Net Decrease in Federal Funds Purchased |
|
| (18,000) |
|
| (23,000) |
Principal Payments on Notes Payable |
|
| (1,000) |
|
| (1,000) |
Proceeds from FHLB Advances |
|
| 22,500 |
|
| 20,000 |
Principal Payments on FHLB Advances |
|
| (4,000) |
|
| (4,000) |
Issuance of Common Stock |
|
| — |
|
| 58,857 |
Stock Options Exercised |
|
| 62 |
|
| — |
Stock Repurchases |
|
| (12,614) |
|
| — |
Net Cash Provided by Financing Activities |
|
| 125,279 |
|
| 126,198 |
|
|
|
|
|
|
|
NET CHANGE IN CASH AND CASH EQUIVALENTS |
|
| 37,945 |
|
| (1,808) |
Cash and Cash Equivalents Beginning |
|
| 28,444 |
|
| 23,725 |
Cash and Cash Equivalents Ending |
| $ | 66,389 |
| $ | 21,917 |
|
|
|
|
|
|
|
SUPPLEMENTAL CASH FLOW DISCLOSURE |
|
|
|
|
|
|
Cash Paid for Interest |
| $ | 14,164 |
| $ | 8,320 |
Cash Paid for Income Taxes |
|
| 2,600 |
|
| 3,525 |
Loans Transferred to Foreclosed Assets |
|
| 1,033 |
|
| — |
See accompanying notes to consolidated financial statements.
7
Bridgewater Bancshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(dollars in thousands, except share data)
(Unaudited)
Note 1: Description of the Business and Summary of Significant Accounting Policies
Organization
Bridgewater Bancshares, Inc. (the “Company”) is a financial holding company whose operations consist of the ownership of its wholly-owned subsidiaries, Bridgewater Bank (the “Bank”) and Bridgewater Risk Management, Inc. The Bank commenced operations in 2005 and provides retail and commercial loan and deposit services, principally to customers within the Minneapolis-St. Paul-Bloomington, MN-WI Metropolitan Statistical Area. In 2008, the Bank formed BWB Holdings, LLC, a wholly owned subsidiary of the Bank, for the purpose of holding repossessed property. In 2018, the Bank formed Bridgewater Investment Management, Inc., a wholly owned subsidiary of the Bank, for the purpose of holding certain municipal securities and to engage in municipal lending activities.
Bridgewater Risk Management, a subsidiary of the Company, was incorporated in 2016 as a wholly-ownedwholly owned insurance company. It insures the Company and its subsidiaries against certain risks unique to the operations of the Company and for which insurance may not be currently available or economically feasible in today’s insurance marketplace. Bridgewater Risk Management pools resources with several other insurance company subsidiaries of financial institutions to spread a limited amount of risk among themselves.
Basis of Presentation
The accompanying unaudited consolidated financial statements were prepared in accordance with instructions for Form 10‑Q10-Q and, therefore, do not include all disclosures necessary for a complete presentation of the consolidated balance sheets, consolidated statements of income, consolidated statements of comprehensive income, consolidated statements of shareholders’ equity and consolidated statements of cash flows in conformity with U.S. generally accepted accounting principles (“GAAP”). However, all normal recurring adjustments which are, in the opinion of management, necessary for the fair presentation of the interim financial statements have been included. The results of operations for the three and six-month periodperiods ended June 30, 20192020 are not necessarily indicative of the results which may be expected for the entire year. For further information, refer to the consolidated financial statements and footnotes included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 14, 2019.12, 2020.
Principles of Consolidation
These consolidated financial statements include the amounts of the Company, the Bank, with locations in Bloomington, Greenwood, Minneapolis (2), St. Louis Park, Orono, and St. Paul, Minnesota, BWB Holdings, LLC, Bridgewater Investment Management, Inc., and Bridgewater Risk Management, Inc. All significant intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates in Preparation of Financial Statements
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Information available which could affect judgements includes, but is not limited to, changes in interest rates, changes in the performance of the economy, including COVID-19 pandemic related changes, and changes in the financial condition of borrowers.
8
Material estimates that are particularly susceptible to significant change in the near term include the valuation of securities, determination of the allowance for loan losses, calculation of deferred tax assets, and fair value of financial instruments.
8
instruments, and investment securities impairment.
Emerging Growth Company
The Company qualifies as an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and may take advantage of certain exemptions from various reporting requirements that are applicable to public companies that are not emerging growth companies, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. In addition, even if the Company complies with the greater obligations of public companies that are not emerging growth companies, the Company may avail itself of the reduced requirements applicable to emerging growth companies from time to time in the future, so long as the Company is an emerging growth company. The Company will continue to be an emerging growth company until the earliest to occur of: (1) the end of the fiscal year following the fifth anniversary of the date of the first sale of common equity securities under the Company’s Registration Statement on Form S-1, which was declared effective by the SEC on March 13, 2018; (2) the last day of the fiscal year in which the Company has $1.07 billion or more in annual revenues; (3) the date on which the Company is deemed to be a “large accelerated filer” under the Securities Exchange Act of 1934, as amended (the “Exchange Act”); or (4) the date on which the Company has, during the previous three-year period, issued publicly or privately, more than $1.0 billion in non-convertible debt securities. Management cannot predict if investors will find the Company’s common stock less attractive because it will rely on these exemptions. If some investors find the Company’s common stock less attractive as a result, there may be a less active trading market for its common stock and the Company’s stock price may be more volatile.
Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933 for complying with new or revised accounting standards. As an emerging growth company, the Company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. The Company elected to take advantage of the benefits of this extended transition period.
Paycheck Protection Program Loan Segment
The Company maintains a separate general valuation allowance for each portfolio segment. The Paycheck Protection Program, or PPP, loan segment was added by the Company in the second quarter of 2020. PPP loans are loans to businesses, sole proprietorships, independent contractors and self-employed individuals who meet certain criteria and eligibility requirements through a loan program established by the CARES Act and administered through the Small Business Administration (SBA). PPP loans generally have a two year term and earn interest at 1%. The Company believes that the primary source of repayment will be forgiveness granted by the SBA in accordance with the terms of the program. Credit risk in these loans is limited due to a full guarantee by the U.S. Government. The Company does not assign risk ratings to loans in this segment and will continue to monitor segment performance as circumstances evolve.
Impact of Recently IssuedAdopted Accounting StandardsGuidance
The following accounting standard updates (“ASU”) have been issued byIn January 2017, the Financial Accounting Standards Board, (“FASB”) and may impact the Company’s consolidated financial statements in future reporting periods.
In May 2014, theor FASB, issued ASU 2014‑09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014‑09”). ASU 2014‑09 implements a common revenue standard that clarifies the principles for recognizing revenue. The core principle of ASU 2014‑09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract and (v) recognize revenue when (or as) the entity satisfies a performance obligation. ASU 2015‑14, Revenue from Contracts with Customers (Topic 606) (“ASU 2015‑14”) was issued in August 2015 which defers adoption to annual reporting periods beginning after December 15, 2018 and interim reporting periods beginning after December 15, 2019. The timing of the Company’s revenue recognition is not expected to materially change. The Company’s largest portions of revenue, interest and fees on loans, are specifically excluded from the scope of the guidance, and the Company currently recognizes the majority of the remaining revenue sources in a manner that management believes is consistent with the new guidance. Because of this, management believes that revenue recognized under the new guidance will generally approximate revenue recognized under current GAAP. These observations are subject to change as the evaluation is completed.
In January 2016, the FASB issued ASU 2016‑01, Financial Instruments—Overall (Subtopic 825‑10): Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016‑01”). This guidance changes how entities account for equity investments that do not result in consolidation and are not accounted for under the equity method of accounting. Entities will be required to measure these investments at fair value at the end of each reporting period and recognize changes in fair value in net income. A practicability exception will be available for equity
9
investments that do not have readily determinable fair values; however, the exception requires the Company to adjust the carrying amount for impairment and observable price changes in orderly transactions for the identical or a similar investment of the same issuer. This guidance also changes certain disclosure requirements and other aspects of current GAAP. This guidance is effective for fiscal years beginning after December 15, 2018 and for interim reporting periods beginning after December 15, 2019. Early adoption is permitted for only one of the six amendments. The Company is evaluating the impact this new standard will have on its consolidated financial statements.
In February 2016, the FASB issued ASU 2016‑02, Leases (Topic 842) (“ASU 2016‑02”). The new guidance establishes the principles to report transparent and economically neutral information about the assets and liabilities that arise from leases. Entities will be required to recognize the lease assets and lease liabilities that arise from leases in the statement of financial position and to disclose qualitative and quantitative information about lease transactions, such as information about variable lease payments and options to renew and terminate leases. Also, in July 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements which provides an optional transition method to adopt the new requirements of ASU 2016-02 as of the adoption date with no adjustment to the presentation or disclosure of comparative prior periods included in the financial statement in the period of adoption. The guidance is effective for fiscal years beginning after December 15, 2019 and interim reporting periods beginning after December 15, 2020. The Company’s assets and liabilities will increase based on the present value of the remaining lease payments for leases in place at the adoption date; however, this is not expected to be significant to the Company’s results of operations.
In June 2016, the FASB issued ASU 2016‑13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (modified by ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments Credit Losses and ASU 2019-05, Financial Instruments Credit Losses – Targeted Transition Relief.)The amendments in this ASU affect all entities that measure credit losses on financial instruments including loans, debt securities, trade receivables, net investments in leases, off-balance sheet credit exposures, reinsurance receivables, and any other financial asset that has a contractual right to receive cash that is not specifically excluded. The main objective of this ASU is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. To achieve this objective, the amendments in this ASU replace the incurred loss impairment methodology required in current GAAP with a methodology that reflects expected credit losses that requires consideration of a broader range of reasonable and supportable information to estimate credit losses. The amendments in this ASU will affect entities to varying degrees depending on the credit quality of the assets held by the entity, the duration of the assets held, and how the entity applies the current incurred loss methodology. The amendments in this ASU are effective for fiscal years and interim reporting periods beginning after December 15, 2021.
All entities may adopt the amendments in the ASU early as of the fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Amendments should be applied using a modified retrospective transition method by means of a cumulative-effect adjustment to equity as of the beginning of the period in which the guidance is adopted. The Company is evaluating the impact this new standard will have on its consolidated financial statements. A steering committee has been established with representation from various departments across the organization to assess and implement the new standard.
In January 2017, the FASB issued ASU 2017‑04, 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The amendments in this accounting standards update, or ASU, were issued to address concerns over the cost and complexity of the two-step goodwill impairment test and resulted in the removal of the second step of the test. The amendments require an entity to apply a one-step quantitative test and record the amount of goodwill impairment as the excess of a reporting unit’s carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The new guidance does not amend the optional qualitative assessment of goodwill impairment. This ASU is intended to reduceThe Company adopted the cost and complexityaccounting standard during the first quarter of the two-step goodwill impairment test and is effective for annual and interim goodwill impairment tests in fiscal years beginning after December 15, 2021, with early adoption permitted for testing performed after January 1, 2017. Upon adoption, the amendments should be applied on a prospective basis and the entity is required to disclose the nature of and reason for the change in accounting principle upon transition. 2020. The adoption of this guidance isthe standard did not expected to have a significantmaterial impact on the Company’s consolidated financial statements.
The Company’s policy is to test goodwill for impairment annually or on an interim basis if an event triggering impairment may have occurred. The economic turmoil and market volatility resulting from the COVID-19 pandemic resulted in a substantial decrease in the Company’s stock price and market capitalization. The Company believed such decrease was a triggering event requiring an interim goodwill impairment analysis as of March
109
In March 2017,31, 2020. Under the FASB issued ASU 2017‑08, Receivables – Nonrefundable Fees and Other Costs (Subtopic 310‑20): Premium Amortization on Purchased Callable Debt Securities. The amendments in this ASU shortennew simplified guidance, the amortization period for certain callable debt securities held atCompany’s estimated fair value to a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount as discounts continue to be accreted to maturity. This ASU is intended to more closely align the amortization period of premiums and discounts to expectations incorporated in market pricing on the underlying securities. In most cases, market participants price securities to the call date that produces the worst yield when the coupon is above current market rates and prices securities to maturity when the coupon is below market rates. As a result, the amendments more closely align interest income recorded on bonds held at a premium or a discount with the economics of the underlying instrument. This ASU is intended to reduce diversity in practice and is effective for fiscal years beginning after December 15, 2019, with early adoption permitted. Upon adoption, the amendments should be applied using a modified retrospective basis through a cumulative-effect adjustment directly to retained earningsparticipant as of March 31, 2020, exceeded its carrying amount resulting in no impairment charge for the beginning of the period of adoption. Additionally, in the period of adoption, an entity should provide disclosures about a change in accounting principles. The adoption of this guidance is not expected to have a significant impact on the Company’s consolidated financial statements.period.
In August 2017, the FASB issued ASU 2017‑12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. The amendments of this ASU better align an entity’s accounting and financial reporting for hedging activities with the economic objectives of those activities. The ASU is effective for fiscal years beginning after December 15, 2019 and interim reporting periods beginning after December 15, 2020, with early adoption permitted. The Company is evaluating the impact this new standard will have on its consolidated financial statements.
In August 2018, the FASB issued ASU 2018‑13, 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. The amendments of this ASU modify the disclosure requirements for fair value measurements by removing, modifying, or adding certain disclosures. The ASU is effective for fiscal years,Company adopted this standard during the first quarter of 2020 and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. Thethe adoption of this guidance isstandard did not expected to have a significantmaterial impact on the Company’s consolidated financial statements.
In August 2018, the FASB issued ASU 2018-15, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40). The amendments in this ASU align 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). Implementation costs incurred in the application development stage are capitalized depending on the nature of the costs, while costs incurred during the preliminary project and post implementation stages are expensed as the activities are performed. The accounting foramendment also requires entities to expense the service elementcapitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement and in the same income statement line item as the fees associated with the hosting element. The Company adopted the accounting standard during the first quarter of 2020. The adoption of the standard did not have a material impact on the Company’s consolidated financial statements.
In April 2020, various regulatory agencies, including the Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Corporation, issued an interagency statement titled Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus, that encourages financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations due to the effects of the COVID-19 pandemic. The interagency statement was effective immediately and impacted accounting for loan modifications. Under Accounting Standards Codification 310-40, Receivables – Troubled Debt Restructurings by Creditors (ASC 310-40), a restructuring of debt constitutes a troubled debt restructuring, or TDR, if the creditor, for economic or legal reasons related to the debtor’s financial difficulties, grants a concession to the debtor that it would not otherwise consider. The regulatory agencies confirmed with the staff of the FASB that short-term modifications made on a good faith basis in response to the COVID-19 pandemic to borrowers who were current prior to any relief, are not to be considered TDRs. These include short-term modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant.
Additionally, Section 4013 of the Coronavirus Aid, Relief and Economic Security Act, or CARES Act, that passed on March 27, 2020 further provides banks with the option to elect either or both of the following, from March 1, 2020 until the earlier of December 31, 2020 or the date that is 60 days after the date on which the national emergency concerning the COVID-19 pandemic declared by the President of the United States under the National Emergencies Act (50 U.S.C. 1601 et seq.) terminates:
(i) | to suspend the requirements under GAAP for loan modifications related to the COVID–19 pandemic that would otherwise be categorized as a TDR; and/or |
(ii) | to suspend any determination of a loan modified as a result of the effects of the COVID–19 pandemic as being a TDR, including impairment for accounting purposes. |
If a bank elects a suspension noted above, the suspension (i) will be effective for the term of the loan modification, but solely with respect to any modification, including a forbearance arrangement, an interest rate modification, a repayment plan, and any other similar arrangement that defers or delays the payment of principal or interest, that occurs during the applicable period for a loan that was not more than 30 days past due as of December 31, 2019; and (ii) will not apply to any adverse impact on the credit of a borrower that is not affectedrelated to the COVID–19 pandemic. The Company has applied this guidance to qualifying loan modifications.
10
Impact of Recently Issued Accounting Standards
The following ASUs have been issued by these amendments.the FASB and may impact the Company’s consolidated financial statements in future reporting periods.
In January 2020, the FASB issued ASU 2020-01, Investments – Equity Securities (Topic 321), Investments – Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815): Clarifying the Interactions between Topic 321, Topic 323 and Topic 815. This ASU clarifies that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting for the purposes of applying the fair value measurement alternative. The ASU iswill be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.2020, with early adoption permitted. The adoption of this guidance isCompany does not expectedexpect adoption to have a significantmaterial impact on the Company’s consolidated financial statements.
In March 2019,2020, the FASB issued ASU No. 2019-01, Leases2020-04, Reference Rate Reform (Topic 842)848): Codification ImprovementsFacilitation of the Effects of Reference Rate Reform on Financial Reporting. This ASU provides clarificationsprovides optional expedients and exceptions for applying generally accepted accounting principles to increasecontracts, hedging relationships and other transactions that reference the London Interbank Offered Rate, or LIBOR, or another reference rate expected to be discontinued, if certain criteria are met. LIBOR is used as an index rate for the Company’s interest-rate swaps, subordinated debt, various investment securities, and approximately 8.5% of the Company’s loans as of June 30, 2020.
If reference rates are discontinued, the existing contracts will be modified to replace the discontinued rate with a replacement rate. For accounting purposes, such contract modifications would have to be evaluated to determine whether the modified contract is a new contract or a continuation of an existing contract. If they are considered new contracts, the previous contract would be extinguished. Under one of the optional expedients of ASU 2020-04, modifications of contracts within the scope of Topic 310, Receivables, and 470, Debt, will be accounted for by prospectively adjusting the effective interest rates and no such evaluation is required. When elected, the optional expedient for contract modifications must be applied consistently for all eligible contracts or eligible transactions. The expedients and exceptions in this update are available to all entities starting March 12, 2020 through December 31, 2022. The Company is in the process of evaluating the impact of this pronouncement on those financial assets and liabilities where LIBOR is used as an index rate.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The new topic supersedes Topic 840, Leases, and increases transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing essentialrequires disclosures of key information about leasing transactions. Specifically,arrangements. In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, which provides narrow amendments to clarify how to apply certain aspects of the new lease standard, and ASU 2018-11, Leases: Targeted Improvements, which was issued to provide relief to companies from restating comparative periods. Pursuant to this ASU, (i) states that for lessors that are not manufacturers or dealers, the fair value of the underlying asset is its cost, less any volume or trade discounts, as long as there isn’t a significant amount of time between acquisition of the asset and lease commencement, (ii) allows for the cash flows received for sales-type and direct financing leases to continue to be presented as results from investing, and (iii) clarifies the transition guidance related to certain interim disclosures provided in the yearperiod of adoption. adoption the Company will not restate comparative periods presented in its condensed financial statements. The effective date of this guidance for public companies is effective for reporting periods beginning after December 15, 2018. In June 2020, the FASB issued ASU 2020-05, which delays the adoption for ASU 2016-02 for non-public entities to fiscal years beginning after December 15, 20192021, and interim reporting periods beginning after December 15, 2020. The2022. As an emerging growth company as defined in the JOBS Act, the Company has elected to delay adoption of this guidanceASU until January 1, 2022. The Company continues to assess and implement changes to its accounting processes for leases to help ensure that it meets the reporting and disclosure requirements of this ASU. The Company’s assets and liabilities will increase based on the present value of the remaining lease payments for leases in place at the adoption date; however, this is not expected to have a significant impact onbe material to the Company’s consolidated financial statements.
Subsequent Events
Subsequent events have been evaluated through August 8, 2019,6, 2020, which is the date the consolidated financial statements were available to be issued.
11
Note 2: Earnings Per Share
Basic earnings per common share are computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted earnings per common share are calculated by dividing net income by the weighted average number of shares adjusted for the dilutive effect of stock options. The dilutive effect was computed usingcompensation. For the treasury stock method, which assumes thethree and six months ended June 30, 2020, stock options and restricted stock awards of approximately 561,000 and 560,000, respectively, were exercised and the hypothetical proceedsexcluded from the exercise were used bycalculation because their effect would have been anti-dilutive. For the Company to purchase common stock at the average market price during the period. The calculation of diluted earnings per common share excludes outstandingthree and six months ended June 30, 2019, stock options for whichof approximately 135,000 were excluded from the resultscalculation because their effect would have been anti-dilutive.
The following table presents the numerators and denominators for basic and diluted earnings per share computations for the three and six months ended June 30, 20192020 and 2018:
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|
|
| Three Months Ended |
| Six Months Ended | ||||||||
|
| June 30, |
| June 30, | ||||||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 | ||||
Net Income Available to Common Shareholders |
| $ | 8,009 |
| $ | 6,746 |
| $ | 15,027 |
| $ | 12,696 |
Weighted Average Common Stock Outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Common Stock Outstanding (Basic) |
|
| 29,703,024 |
|
| 30,059,374 |
|
| 29,899,241 |
|
| 27,919,457 |
Stock Options |
|
| 609,015 |
|
| 427,427 |
|
| 610,939 |
|
| 426,387 |
Weighted Average Common Stock Outstanding (Dilutive) |
|
| 30,312,039 |
|
| 30,486,801 |
|
| 30,510,180 |
|
| 28,345,844 |
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|
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|
|
|
|
|
|
|
|
|
Basic Earnings per Common Share |
| $ | 0.27 |
| $ | 0.22 |
| $ | 0.50 |
| $ | 0.45 |
Diluted Earnings per Common Share |
|
| 0.26 |
|
| 0.22 |
|
| 0.49 |
|
| 0.45 |
2019:
| | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended | ||||||||
| | June 30, | | June 30, | ||||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Net Income Available to Common Shareholders | | $ | 7,598 | | $ | 8,009 | | $ | 15,041 | | $ | 15,027 |
Weighted Average Common Stock Outstanding: | | | | | | | | | | | | |
Weighted Average Common Stock Outstanding (Basic) | | | 28,676,441 | �� | | 29,703,024 | | | 28,733,968 | | | 29,899,241 |
Dilutive Effect of Stock Compensation | | | 488,716 | | | 609,015 | | | 616,458 | | | 610,939 |
Weighted Average Common Stock Outstanding (Dilutive) | | | 29,165,157 | | | 30,312,039 | | | 29,350,426 | | | 30,510,180 |
| | | | | | | | | | | | |
Basic Earnings per Common Share | | $ | 0.26 | | $ | 0.27 | | $ | 0.52 | | $ | 0.50 |
Diluted Earnings per Common Share | | | 0.26 | | | 0.26 | | | 0.51 | | | 0.49 |
Note 3: Securities
The following tables present the amortized cost and estimated fair value of securities with gross unrealized gains and losses at June 30, 20192020 and December 31, 2018:2019:
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| June 30, 2019 | ||||||||||||||||||||||
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| Gross |
| Gross |
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| ||||||||||||||
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| Amortized |
| Unrealized |
| Unrealized |
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| |||||||||||||||
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| Cost |
| Gains |
| Losses |
| Fair Value | ||||||||||||||||
| | | | | | | | | | | | | ||||||||||||
| | June 30, 2020 | ||||||||||||||||||||||
| | | | | Gross | | Gross | | | | ||||||||||||||
| | Amortized | | Unrealized | | Unrealized | | | | |||||||||||||||
|
| Cost |
| Gains |
| Losses |
| Fair Value | ||||||||||||||||
Securities Available for Sale: |
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|
| | | | | | | | | | | | |
U.S. Treasury Securities |
| $ | 14,924 |
| $ | 18 |
| $ | — |
| $ | 14,942 | ||||||||||||
Municipal Bonds |
|
| 98,380 |
|
| 5,118 |
|
| (58) |
|
| 103,440 | | $ | 93,780 | | $ | 7,705 | | $ | (763) | | $ | 100,722 |
Mortgage-Backed Securities |
|
| 47,192 |
|
| 611 |
|
| (161) |
|
| 47,642 | |
| 92,800 | |
| 2,159 | |
| (335) | |
| 94,624 |
Corporate Securities |
|
| 33,216 |
|
| 475 |
|
| (5) |
|
| 33,686 | |
| 55,258 | |
| 898 | |
| (526) | |
| 55,630 |
SBA Securities |
|
| 42,803 |
|
| 16 |
|
| (604) |
|
| 42,215 | |
| 44,599 | |
| 19 | |
| (564) | |
| 44,054 |
Asset-Backed Securities | | | 31,437 | | | 367 | | | (539) | | | 31,265 | ||||||||||||
Total Securities Available for Sale |
| $ | 236,515 |
| $ | 6,238 |
| $ | (828) |
| $ | 241,925 | | $ | 317,874 | | $ | 11,148 | | $ | (2,727) | | $ | 326,295 |
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| December 31, 2018 | ||||||||||||||||||||||
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| Gross |
| Gross |
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| Amortized |
| Unrealized |
| Unrealized |
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| Cost |
| Gains |
| Losses |
| Fair Value | ||||||||||||||||
| | | | | | | | | | | | | ||||||||||||
| | December 31, 2019 | ||||||||||||||||||||||
| | | | | Gross | | Gross | | | | ||||||||||||||
| | Amortized | | Unrealized | | Unrealized | | | | |||||||||||||||
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| Cost |
| Gains |
| Losses |
| Fair Value | ||||||||||||||||
Securities Available for Sale: |
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|
| | | | | | | | | | | | |
U.S. Treasury Securities |
| $ | 17,862 |
| $ | 54 |
| $ | (19) |
| $ | 17,897 | | $ | 4,990 | | $ | 8 | | $ | — | | $ | 4,998 |
Municipal Bonds |
|
| 117,991 |
|
| 1,257 |
|
| (1,115) |
|
| 118,133 | | | 99,441 | | | 6,338 | | | (36) | | | 105,743 |
Mortgage-Backed Securities |
|
| 48,816 |
|
| 52 |
|
| (1,692) |
|
| 47,176 | |
| 64,312 | |
| 697 | |
| (281) | |
| 64,728 |
Corporate Securities |
|
| 21,170 |
|
| 72 |
|
| (124) |
|
| 21,118 | |
| 49,674 | |
| 633 | |
| (131) | |
| 50,176 |
SBA Securities |
|
| 49,876 |
|
| 13 |
|
| (835) |
|
| 49,054 | |
| 50,126 | |
| 35 | |
| (602) | |
| 49,559 |
Asset-Backed Securities | | | 14,673 | | | — | | | — | | | 14,673 | ||||||||||||
Total Securities Available for Sale |
| $ | 255,715 |
| $ | 1,448 |
| $ | (3,785) |
| $ | 253,378 | | $ | 283,216 | | $ | 7,711 | | $ | (1,050) | | $ | 289,877 |
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The following tables present the fair value and gross unrealized losses of securities with unrealized losses, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at June 30, 20192020 and December 31, 2018:2019:
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| Less Than 12 Months |
| 12 Months or Greater |
| Total | ||||||||||||||||||||||||||||||
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| Unrealized |
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| Unrealized |
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| Unrealized | |||||||||||||||||||||
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| Fair Value |
| Losses |
| Fair Value |
| Losses |
| Fair Value |
| Losses | ||||||||||||||||||||||||
June 30, 2019 |
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| | | | | | | | | | | | | | | | | | | ||||||||||||||||||
| | Less Than 12 Months | | 12 Months or Greater | | Total | ||||||||||||||||||||||||||||||
| | | | | Unrealized | | | | | Unrealized | | | | | Unrealized | |||||||||||||||||||||
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| Fair Value |
| Losses |
| Fair Value |
| Losses |
| Fair Value |
| Losses | ||||||||||||||||||||||||
June 30, 2020 | June 30, 2020 | | | | | | | | | |||||||||||||||||||||||||||
Municipal Bonds |
| $ | — |
| $ | — |
| $ | 6,633 |
| $ | (58) |
| $ | 6,633 |
| $ | (58) | | $ | 15,521 | | $ | (756) | | $ | 223 | | $ | (7) | | $ | 15,744 | | $ | (763) |
Mortgage-Backed Securities |
|
| 12,155 |
|
| (79) |
|
| 5,759 |
|
| (82) |
|
| 17,914 |
|
| (161) | |
| 31,775 | | | (299) | | | 13,102 | | | (36) | |
| 44,877 | |
| (335) |
Corporate Securities |
|
| 1,495 |
|
| (5) |
|
| — |
|
| — |
|
| 1,495 |
|
| (5) | |
| 20,692 | | | (526) | | | — | | | — | |
| 20,692 | |
| (526) |
SBA Securities |
|
| 1,935 |
|
| (3) |
|
| 36,094 |
|
| (601) |
|
| 38,029 |
|
| (604) | |
| 13,061 | | | (106) | | | 27,121 | | | (458) | |
| 40,182 | |
| (564) |
Asset-Backed Securities | | | 17,003 | | | (539) | | | — | | | — | | | 17,003 | | | (539) | ||||||||||||||||||
Total Securities Available for Sale |
| $ | 15,585 |
| $ | (87) |
| $ | 48,486 |
| $ | (741) |
| $ | 64,071 |
| $ | (828) | | $ | 98,052 | | $ | (2,226) | | $ | 40,446 | | $ | (501) | | $ | 138,498 | | $ | (2,727) |
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| Less Than 12 Months |
| 12 Months or Greater |
| Total | ||||||||||||||||||||||||||||||
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|
| Unrealized |
|
|
|
| Unrealized |
|
|
|
| Unrealized | |||||||||||||||||||||
|
| Fair Value |
| Losses |
| Fair Value |
| Losses |
| Fair Value |
| Losses | ||||||||||||||||||||||||
December 31, 2018 |
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||
U.S. Treasury Securities |
| $ | 14,866 |
| $ | (19) |
| $ | — |
| $ | — |
| $ | 14,866 |
| $ | (19) | ||||||||||||||||||
| | | | | | | | | | | | | | | | | | | ||||||||||||||||||
| | Less Than 12 Months | | 12 Months or Greater | | Total | ||||||||||||||||||||||||||||||
| | | | | Unrealized | | | | | Unrealized | | | | | Unrealized | |||||||||||||||||||||
|
| Fair Value |
| Losses |
| Fair Value |
| Losses |
| Fair Value |
| Losses | ||||||||||||||||||||||||
December 31, 2019 | December 31, 2019 | | | | | | | | | |||||||||||||||||||||||||||
Municipal Bonds |
|
| 15,405 |
|
| (199) |
|
| 34,172 |
|
| (916) |
|
| 49,577 |
|
| (1,115) | | $ | 2,760 | | $ | (23) | | $ | 1,390 | | $ | (13) | | $ | 4,150 | | $ | (36) |
Mortgage-Backed Securities |
|
| 1,751 |
|
| (21) |
|
| 41,776 |
|
| (1,671) |
|
| 43,527 |
|
| (1,692) | |
| 32,276 | | | (242) | | | 3,098 | | | (39) | |
| 35,374 | |
| (281) |
Corporate Securities |
|
| 9,063 |
|
| (74) |
|
| 1,996 |
|
| (50) |
|
| 11,059 |
|
| (124) | |
| 8,350 | | | (131) | | | — | | | — | |
| 8,350 | |
| (131) |
SBA Securities |
|
| 28,186 |
|
| (366) |
|
| 15,878 |
|
| (469) |
|
| 44,064 |
|
| (835) | |
| 11,907 | | | (64) | | | 31,036 | | | (538) | |
| 42,943 | |
| (602) |
Total Securities Available for Sale |
| $ | 69,271 |
| $ | (679) |
| $ | 93,822 |
| $ | (3,106) |
| $ | 163,093 |
| $ | (3,785) | | $ | 55,293 | | $ | (460) | | $ | 35,524 | | $ | (590) | | $ | 90,817 | | $ | (1,050) |
At June 30, 2019, 902020, 167 debt securities had unrealized losses with aggregate depreciation of approximately 1.2%1.9% from the Company’s amortized cost basis. At December 31, 2018, 1952019, 110 debt securities had unrealized losses with aggregate depreciation of approximately 2.3%1.1% from the Company’s amortized cost basis. These unrealized losses relaterelated principally to changes in interest rates and arewere not due to changes in the financial condition of the issuer, the quality of any underlying assets, or applicable credit enhancements. In analyzing whether unrealized losses on debt securities are other than temporary, management considers whether the securities are issued by a government body or agency, whether a rating agency has downgraded the securities, industry analysts’ reports, the financial condition and performance of the issuer, and the quality of any underlying assets or credit enhancements. Since management has the ability and intent to hold these debt securities for the foreseeable future, no declines were deemed to be other than temporary as of June 30, 2019.2020.
The following ispresents a summary of amortized cost and estimated fair value of debt securities by the lesser of expected call date or contractual maturity as of June 30, 2019.2020. Call date is used when a call of the debt security is expected, which is determined by the Company when the security has a market value above its amortized cost. Contractual maturities will differ from expected maturities for mortgage-backed, SBA securities and SBAasset-backed securities because borrowers may have the right to call or prepay obligations without penalties.
|
|
|
|
|
|
| ||||||
June 30, 2019 |
| Amortized Cost |
| Fair Value | ||||||||
| | | | | | | ||||||
June 30, 2020 |
| Amortized Cost |
| Fair Value | ||||||||
Due in One Year or Less |
| $ | 25,149 |
| $ | 25,219 | | $ | 2,680 | | $ | 2,699 |
Due After One Year Through Five Years |
|
| 36,983 |
|
| 37,797 | |
| 44,248 | |
| 45,376 |
Due After Five Years Through 10 Years |
|
| 69,996 |
|
| 73,253 | |
| 85,119 | |
| 89,275 |
Due After 10 Years |
|
| 14,392 |
|
| 15,799 | |
| 16,991 | |
| 19,002 |
Subtotal |
|
| 146,520 |
|
| 152,068 | |
| 149,038 | |
| 156,352 |
Mortgage-Backed Securities |
|
| 47,192 |
|
| 47,642 | |
| 92,800 | |
| 94,624 |
SBA Securities |
|
| 42,803 |
|
| 42,215 | |
| 44,599 | |
| 44,054 |
Asset-Backed Securities | | | 31,437 | | | 31,265 | ||||||
Totals |
| $ | 236,515 |
| $ | 241,925 | | $ | 317,874 | | $ | 326,295 |
As of June 30, 20192020 and December 31, 2018,2019, the securities portfolio was unencumbered.
13
The following istable presents a summary of the proceeds from sales of securities available for sale, as well as gross gains and losses, for the three and six months ended June 30, 20192020 and 2018:2019:
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
|
| Three Months Ended |
| Six Months Ended | ||||||||||||||||||||
|
| June 30, |
| June 30, | ||||||||||||||||||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 | ||||||||||||||||
| | | | | | | | | | | | | ||||||||||||
| | Three Months Ended | | Six Months Ended | ||||||||||||||||||||
| | June 30, | | June 30, | ||||||||||||||||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||||||||||||||
Proceeds From Sales of Securities |
| $ | 32,159 |
| $ | 10,950 |
| $ | 40,309 |
| $ | 10,950 | | $ | 31,936 | | $ | 32,159 | | $ | 34,038 | | $ | 40,309 |
Gross Gains on Sales |
|
| 640 |
|
| 53 |
|
| 716 |
|
| 53 | |
| 1,435 | |
| 640 | |
| 1,438 | |
| 716 |
Gross Losses on Sales |
|
| (177) |
|
| (112) |
|
| (258) |
|
| (112) | |
| (74) | |
| (177) | |
| (74) | |
| (258) |
Note 4: Loans
The following table presents the components of the loan portfolio at June 30, 20192020 and December 31, 2018:2019:
|
|
|
|
|
|
| ||||||
|
| June 30, |
| December 31, | ||||||||
|
| 2019 |
| 2018 | ||||||||
| | | | | | | ||||||
| | June 30, | | December 31, | ||||||||
|
| 2020 |
| 2019 | ||||||||
Commercial |
| $ | 287,804 |
| $ | 260,833 | | $ | 302,536 | | $ | 276,035 |
Paycheck Protection Program | | | 180,228 | | | — | ||||||
Construction and Land Development |
|
| 195,568 |
|
| 210,041 | |
| 191,768 | |
| 196,776 |
Real Estate Mortgage: |
|
|
|
|
|
| |
| | |
| |
1-4 Family Mortgage |
|
| 247,029 |
|
| 226,773 | |
| 289,456 | |
| 260,611 |
Multifamily |
|
| 437,198 |
|
| 407,934 | |
| 522,491 | |
| 515,014 |
CRE Owner Occupied |
|
| 68,681 |
|
| 64,458 | | | 73,539 | | | 66,584 |
CRE Non-owner Occupied |
|
| 544,579 |
|
| 490,632 | | | 627,651 | | | 592,545 |
Total Real Estate Mortgage Loans |
|
| 1,297,487 |
|
| 1,189,797 | | | 1,513,137 | | | 1,434,754 |
Consumer and Other |
|
| 4,044 |
|
| 4,260 | | | 6,109 | | | 4,473 |
Total Loans, Gross |
|
| 1,784,903 |
|
| 1,664,931 | |
| 2,193,778 | |
| 1,912,038 |
Allowance for Loan Losses |
|
| (21,362) |
|
| (20,031) | |
| (27,633) | |
| (22,526) |
Net Deferred Loan Fees |
|
| (5,157) |
|
| (4,515) | |
| (10,287) | |
| (5,512) |
Total Loans, Net |
| $ | 1,758,384 |
| $ | 1,640,385 | | $ | 2,155,858 | | $ | 1,884,000 |
The following table presents the activity in the allowance for loan losses, by segment, for the three months ended June 30, 20192020 and 2018:2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||
|
|
|
|
| Construction |
|
|
|
|
|
| CRE |
| CRE |
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||
|
|
|
|
| and Land |
| 1-‑4 Family |
|
|
| Owner |
| Non‑owner |
| Consumer |
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||||||
| | | | | Paycheck | | Construction | | | | | | | CRE | | CRE | | | | | | | | | | ||||||||||||||||||||||||||||||||
| | | | | Protection | | and Land | | 1--4 Family | | | | Owner | | Non-owner | | Consumer | | | | | | | ||||||||||||||||||||||||||||||||||
Three Months Ended June 30, 2020 |
| Commercial |
| Program | | Development |
| Mortgage |
| Multifamily |
| Occupied |
| Occupied |
| and Other |
| Unallocated |
| Total | |||||||||||||||||||||||||||||||||||||
Allowance for Loan Losses: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||||||
Beginning Balance | | $ | 3,557 | | $ | — | | $ | 2,131 | | $ | 3,202 | | $ | 6,556 | | $ | 938 | | $ | 8,003 | | $ | 92 | | $ | 106 | | $ | 24,585 | |||||||||||||||||||||||||||
Provision for Loan Losses | |
| 1,633 | | | 90 | | | 42 | | | 74 | | | 141 | | | 26 | | | 320 | | | 82 | | | 592 | |
| 3,000 | |||||||||||||||||||||||||||
Loans Charged-off | |
| — | | | — | | | — | | | — | | | — | | | — | | | — | | | (1) | | | — | |
| (1) | |||||||||||||||||||||||||||
Recoveries of Loans | |
| 2 | | | — | | | — | | | 46 | | | — | | | — | | | — | | | 1 | | | — | |
| 49 | |||||||||||||||||||||||||||
Total Ending Allowance Balance | | $ | 5,192 | | $ | 90 | | $ | 2,173 | | $ | 3,322 | | $ | 6,697 | | $ | 964 | | $ | 8,323 | | $ | 174 | | $ | 698 | | $ | 27,633 | |||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||||||
Three Months Ended June 30, 2019 |
| Commercial |
| Development |
| Mortgage |
| Multifamily |
| Occupied |
| Occupied |
| and Other |
| Unallocated |
| Total | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||
Allowance for Loan Losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Beginning Balance |
| $ | 3,361 |
| $ | 2,097 |
| $ | 2,611 |
| $ | 4,715 |
| $ | 790 |
| $ | 6,349 |
| $ | 61 |
| $ | 623 |
| $ | 20,607 | | $ | 3,361 | | $ | — | | $ | 2,097 | | $ | 2,611 | | $ | 4,715 | | $ | 790 | | $ | 6,349 | | $ | 61 | | $ | 623 | | $ | 20,607 |
Provision for Loan Losses |
|
| (181) |
|
| 148 |
|
| 63 |
|
| 279 |
|
| 54 |
|
| 136 |
|
| 5 |
|
| 96 |
|
| 600 | |
| (181) | | | — | | | 148 | | | 63 | | | 279 | | | 54 | | | 136 | | | 5 | | | 96 | |
| 600 |
Loans Charged-off |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (3) |
|
| — |
|
| (3) | |
| — | | | — | | | — | | | — | | | — | | | — | | | — | | | (3) | | | — | |
| (3) |
Recoveries of Loans |
|
| 1 |
|
| 1 |
|
| 153 |
|
| — |
|
| — |
|
| — |
|
| 3 |
|
| — |
|
| 158 | |
| 1 | | | — | | | 1 | | | 153 | | | — | | | — | | | — | | | 3 | | | — | |
| 158 |
Total Ending Allowance Balance |
| $ | 3,181 |
| $ | 2,246 |
| $ | 2,827 |
| $ | 4,994 |
| $ | 844 |
| $ | 6,485 |
| $ | 66 |
| $ | 719 |
| $ | 21,362 | | $ | 3,181 | | $ | — | | $ | 2,246 | | $ | 2,827 | | $ | 4,994 | | $ | 844 | | $ | 6,485 | | $ | 66 | | $ | 719 | | $ | 21,362 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||
Three Months Ended June 30, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||
Allowance for Loan Losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||
Beginning Balance |
| $ | 2,225 |
| $ | 1,765 |
| $ | 2,418 |
| $ | 3,476 |
| $ | 914 |
| $ | 5,407 |
| $ | 50 |
| $ | 866 |
| $ | 17,121 | ||||||||||||||||||||||||||||||
Provision for Loan Losses |
|
| 21 |
|
| 557 |
|
| 146 |
|
| 76 |
|
| (91) |
|
| 204 |
|
| 10 |
|
| (23) |
|
| 900 | ||||||||||||||||||||||||||||||
Loans Charged-off |
|
| — |
|
| (357) |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (4) |
|
| — |
|
| (361) | ||||||||||||||||||||||||||||||
Recoveries of Loans |
|
| 2 |
|
| — |
|
| 3 |
|
| — |
|
| — |
|
| — |
|
| 1 |
|
| — |
|
| 6 | ||||||||||||||||||||||||||||||
Total Ending Allowance Balance |
| $ | 2,248 |
| $ | 1,965 |
| $ | 2,567 |
| $ | 3,552 |
| $ | 823 |
| $ | 5,611 |
| $ | 57 |
| $ | 843 |
| $ | 17,666 |
14
The following table presents the activity in the allowance for loan losses, by segment, for the six months ended June 30, 20192020 and 2018:2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||
|
|
|
|
| Construction |
|
|
|
|
|
| CRE |
| CRE |
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||
|
|
|
|
| and Land |
| 1-‑4 Family |
|
|
| Owner |
| Non‑owner |
| Consumer |
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||||||
| | | | | Paycheck | | Construction | | | | | | | CRE | | CRE | | | | | | | | | | ||||||||||||||||||||||||||||||||
| | | | | Protection | | and Land | | 1--4 Family | | | | Owner | | Non-owner | | Consumer | | | | | | | ||||||||||||||||||||||||||||||||||
Six Months Ended June 30, 2020 |
| Commercial | | Program | | Development |
| Mortgage |
| Multifamily |
| Occupied |
| Occupied |
| and Other |
| Unallocated |
| Total | |||||||||||||||||||||||||||||||||||||
Allowance for Loan Losses: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||||||
Beginning Balance | | $ | 3,058 | | $ | — | | $ | 2,202 | | $ | 2,839 | | $ | 5,824 | | $ | 792 | | $ | 6,972 | | $ | 85 | | $ | 754 | | $ | 22,526 | |||||||||||||||||||||||||||
Provision for Loan Losses | |
| 2,164 | | | 90 | | | (29) | | | 435 | | | 873 | | | 172 | | | 1,351 | | | 100 | | | (56) | |
| 5,100 | |||||||||||||||||||||||||||
Loans Charged-off | |
| (34) | | | — | | | — | | | — | | | — | | | — | | | — | | | (14) | | | — | |
| (48) | |||||||||||||||||||||||||||
Recoveries of Loans | |
| 4 | | | — | | | — | | | 48 | | | — | | | — | | | — | | | 3 | | | — | |
| 55 | |||||||||||||||||||||||||||
Total Ending Allowance Balance | | $ | 5,192 | | $ | 90 | | $ | 2,173 | | $ | 3,322 | | $ | 6,697 | | $ | 964 | | $ | 8,323 | | $ | 174 | | $ | 698 | | $ | 27,633 | |||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||||||
Six Months Ended June 30, 2019 |
| Commercial |
| Development |
| Mortgage |
| Multifamily |
| Occupied |
| Occupied |
| and Other |
| Unallocated |
| Total | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||
Allowance for Loan Losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Beginning Balance |
| $ | 2,898 |
| $ | 2,451 |
| $ | 2,597 |
| $ | 4,644 |
| $ | 808 |
| $ | 5,872 |
| $ | 65 |
| $ | 696 |
| $ | 20,031 | | $ | 2,898 | | $ | — | | $ | 2,451 | | $ | 2,597 | | $ | 4,644 | | $ | 808 | | $ | 5,872 | | $ | 65 | | $ | 696 | | $ | 20,031 |
Provision for Loan Losses |
|
| 299 |
|
| (206) |
|
| 68 |
|
| 350 |
|
| 36 |
|
| 613 |
|
| 17 |
|
| 23 |
|
| 1,200 | |
| 299 | | | — | | | (206) | | | 68 | | | 350 | | | 36 | | | 613 | | | 17 | | | 23 | |
| 1,200 |
Loans Charged-off |
|
| (19) |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (20) |
|
| — |
|
| (39) | |
| (19) | | | — | | | — | | | — | | | — | | | — | | | — | | | (20) | | | — | |
| (39) |
Recoveries of Loans |
|
| 3 |
|
| 1 |
|
| 162 |
|
| — |
|
| — |
|
| — |
|
| 4 |
|
| — |
|
| 170 | |
| 3 | | | — | | | 1 | | | 162 | | | — | | | — | | | — | | | 4 | | | — | |
| 170 |
Total Ending Allowance Balance |
| $ | 3,181 |
| $ | 2,246 |
| $ | 2,827 |
| $ | 4,994 |
| $ | 844 |
| $ | 6,485 |
| $ | 66 |
| $ | 719 |
| $ | 21,362 | | $ | 3,181 | | $ | — | | $ | 2,246 | | $ | 2,827 | | $ | 4,994 | | $ | 844 | | $ | 6,485 | | $ | 66 | | $ | 719 | | $ | 21,362 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||
Six Months Ended June 30, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||
Allowance for Loan Losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||
Beginning Balance |
| $ | 2,435 |
| $ | 1,892 |
| $ | 2,317 |
| $ | 3,170 |
| $ | 956 |
| $ | 5,087 |
| $ | 60 |
| $ | 585 |
| $ | 16,502 | ||||||||||||||||||||||||||||||
Provision for Loan Losses |
|
| (209) |
|
| 430 |
|
| 237 |
|
| 382 |
|
| (133) |
|
| 524 |
|
| 11 |
|
| 258 |
|
| 1,500 | ||||||||||||||||||||||||||||||
Loans Charged-off |
|
| — |
|
| (357) |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (16) |
|
| — |
|
| (373) | ||||||||||||||||||||||||||||||
Recoveries of Loans |
|
| 22 |
|
| — |
|
| 13 |
|
| — |
|
| — |
|
| — |
|
| 2 |
|
| — |
|
| 37 | ||||||||||||||||||||||||||||||
Total Ending Allowance Balance |
| $ | 2,248 |
| $ | 1,965 |
| $ | 2,567 |
| $ | 3,552 |
| $ | 823 |
| $ | 5,611 |
| $ | 57 |
| $ | 843 |
| $ | 17,666 |
The following tables present the balance in the allowance for loan losses and the recorded investment in loans, by segment, based on impairment method as of June 30, 20192020 and December 31, 2018:2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||
|
|
|
| Construction |
|
|
|
|
|
|
| CRE |
| CRE |
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||
|
|
|
| and Land |
| 1-‑4 Family |
|
|
|
| Owner |
| Non‑owner |
| Consumer |
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
Allowance for Loan Losses at June 30, 2019 |
| Commercial |
| Development |
| Mortgage |
| Multifamily |
| Occupied |
| Occupied |
| and Other |
| Unallocated |
| Total | |||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||||||
| | | | Paycheck | | Construction | | | | | | | | CRE | | CRE | | | | | | | | | | ||||||||||||||||||||||||||||||||
| | | | Protection | | and Land | | 1--4 Family | | | | | Owner | | Non-owner | | Consumer | | | | | | | ||||||||||||||||||||||||||||||||||
Allowance for Loan Losses at June 30, 2020 |
| Commercial | | Program |
| Development |
| Mortgage |
| Multifamily |
| Occupied |
| Occupied |
| and Other |
| Unallocated |
| Total | |||||||||||||||||||||||||||||||||||||
Individually Evaluated for Impairment |
| $ | 49 |
| $ | — |
| $ | 60 |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | 109 | | $ | 34 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 33 | | $ | — | | $ | 67 |
Collectively Evaluated for Impairment |
|
| 3,132 |
|
| 2,246 |
|
| 2,767 |
|
| 4,994 |
|
| 844 |
|
| 6,485 |
|
| 66 |
|
| 719 |
|
| 21,253 | | | 5,158 | | | 90 | | | 2,173 | | | 3,322 | | | 6,697 | | | 964 | | | 8,323 | | | 141 | | | 698 | |
| 27,566 |
Totals |
| $ | 3,181 |
| $ | 2,246 |
| $ | 2,827 |
| $ | 4,994 |
| $ | 844 |
| $ | 6,485 |
| $ | 66 |
| $ | 719 |
| $ | 21,362 | | $ | 5,192 | | $ | 90 | | $ | 2,173 | | $ | 3,322 | | $ | 6,697 | | $ | 964 | | $ | 8,323 | | $ | 174 | | $ | 698 | | $ | 27,633 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||
Allowance for Loan Losses at December 31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||||||
Allowance for Loan Losses at December 31, 2019 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||||||
Individually Evaluated for Impairment |
| $ | 8 |
| $ | — |
| $ | 17 |
| $ | — |
| $ | 22 |
| $ | — |
| $ | — |
| $ | — |
| $ | 47 | | $ | 31 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 14 | | $ | — | | $ | 45 |
Collectively Evaluated for Impairment |
|
| 2,890 |
|
| 2,451 |
|
| 2,580 |
|
| 4,644 |
|
| 786 |
|
| 5,872 |
|
| 65 |
|
| 696 |
|
| 19,984 | |
| 3,027 | | | — | | | 2,202 | | | 2,839 | | | 5,824 | | | 792 | | | 6,972 | | | 71 | | | 754 | |
| 22,481 |
Totals |
| $ | 2,898 |
| $ | 2,451 |
| $ | 2,597 |
| $ | 4,644 |
| $ | 808 |
| $ | 5,872 |
| $ | 65 |
| $ | 696 |
| $ | 20,031 | | $ | 3,058 | | $ | — | | $ | 2,202 | | $ | 2,839 | | $ | 5,824 | | $ | 792 | | $ | 6,972 | | $ | 85 | | $ | 754 | | $ | 22,526 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
|
|
|
| Construction |
|
|
|
|
|
|
| CRE |
| CRE |
|
|
|
|
|
| |||||||||||||||||||||||||||||||
|
|
|
| and Land |
| 1-‑4 Family |
|
|
|
| Owner |
| Non‑owner |
| Consumer |
|
|
| |||||||||||||||||||||||||||||||||
Loans at June 30, 2019 |
| Commercial |
| Development |
| Mortgage |
| Multifamily |
| Occupied |
| Occupied |
| and Other |
| Total | |||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||
| | | | Paycheck | | Construction | | | | | | | | CRE | | CRE | | | | | | | |||||||||||||||||||||||||||||
| | | | Protection | | and Land | | 1--4 Family | | | | | Owner | | Non-owner | | Consumer | | | | |||||||||||||||||||||||||||||||
Loans at June 30, 2020 |
| Commercial |
| Program |
| Development |
| Mortgage |
| Multifamily |
| Occupied |
| Occupied |
| and Other |
| Total | |||||||||||||||||||||||||||||||||
Individually Evaluated for Impairment |
| $ | 582 |
| $ | 2,751 |
| $ | 1,710 |
| $ | — |
| $ | 338 |
| $ | — |
| $ | 54 |
| $ | 5,435 | | $ | 254 | | $ | — | | $ | 164 | | $ | 1,229 | | $ | — | | $ | 1,840 | | $ | 220 | | $ | 33 | | $ | 3,740 |
Collectively Evaluated for Impairment |
|
| 287,222 |
|
| 192,817 |
|
| 245,319 |
|
| 437,198 |
|
| 68,343 |
|
| 544,579 |
|
| 3,990 |
|
| 1,779,468 | |
| 302,282 | | | 180,228 | | | 191,604 | | | 288,227 | | | 522,491 | | | 71,699 | | | 627,431 | | | 6,076 | |
| 2,190,038 |
Totals |
| $ | 287,804 |
| $ | 195,568 |
| $ | 247,029 |
| $ | 437,198 |
| $ | 68,681 |
| $ | 544,579 |
| $ | 4,044 |
| $ | 1,784,903 | | $ | 302,536 | | $ | 180,228 | | $ | 191,768 | | $ | 289,456 | | $ | 522,491 | | $ | 73,539 | | $ | 627,651 | | $ | 6,109 | | $ | 2,193,778 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Loans at December 31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||
Loans at December 31, 2019 | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||
Individually Evaluated for Impairment |
| $ | 8 |
| $ | 198 |
| $ | 1,676 |
| $ | — |
| $ | 365 |
| $ | — |
| $ | 58 |
| $ | 2,305 | | $ | 273 | | $ | — | | $ | 176 | | $ | 1,059 | | $ | — | | $ | 236 | | $ | — | | $ | 14 | | $ | 1,758 |
Collectively Evaluated for Impairment |
|
| 260,825 |
|
| 209,843 |
|
| 225,097 |
|
| 407,934 |
|
| 64,093 |
|
| 490,632 |
|
| 4,202 |
|
| 1,662,626 | |
| 275,762 | | | — | | | 196,600 | | | 259,552 | | | 515,014 | | | 66,348 | | | 592,545 | | | 4,459 | |
| 1,910,280 |
Totals |
| $ | 260,833 |
| $ | 210,041 |
| $ | 226,773 |
| $ | 407,934 |
| $ | 64,458 |
| $ | 490,632 |
| $ | 4,260 |
| $ | 1,664,931 | | $ | 276,035 | | $ | — | | $ | 196,776 | | $ | 260,611 | | $ | 515,014 | | $ | 66,584 | | $ | 592,545 | | $ | 4,473 | | $ | 1,912,038 |
15
The following table presents information regarding total carrying amounts and total unpaid principal balances of impaired loans by loan segment as of June 30, 20192020 and December 31, 2018:2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
|
| June 30, 2019 |
| December 31, 2018 | ||||||||||||||||||||||||||||||||
|
| Recorded |
| Principal |
| Related |
| Recorded |
| Principal |
| Related | ||||||||||||||||||||||||
|
| Investment |
| Balance |
| Allowance |
| Investment |
| Balance |
| Allowance | ||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | ||||||||||||||||||
| | June 30, 2020 | | December 31, 2019 | ||||||||||||||||||||||||||||||||
| | Recorded | | Principal | | Related | | Recorded | | Principal | | Related | ||||||||||||||||||||||||
|
| Investment |
| Balance |
| Allowance |
| Investment |
| Balance |
| Allowance | ||||||||||||||||||||||||
Loans With No Related Allowance for Loan Losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | | | |
Commercial |
| $ | 446 |
| $ | 446 |
| $ | — |
| $ | — |
| $ | — |
| $ | — | | $ | 145 | | $ | 145 | | $ | — | | $ | 167 | | $ | 167 | | $ | — |
Construction and Land Development |
|
| 2,751 |
|
| 3,360 |
|
| — |
|
| 198 |
|
| 807 |
|
| — | | | 164 | | | 773 | | | — | | | 176 | | | 785 | | | — |
Real Estate Mortgage: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| | |
| | |
| | |
|
| |
|
| |
|
|
HELOC and 1-4 Family Junior Mortgage |
|
| 155 |
|
| 155 |
|
| — |
|
| 157 |
|
| 157 |
|
| — | |
| 305 | |
| 492 | |
| — | |
| 302 | |
| 489 | |
| — |
1st REM - 1-4 Family |
|
| 617 |
|
| 617 |
|
| — |
|
| 253 |
|
| 253 |
|
| — | ||||||||||||||||||
1st REM - Rentals |
|
| 633 |
|
| 632 |
|
| — |
|
| 957 |
|
| 957 |
|
| — | |
| 924 | | | 924 | |
| — | |
| 757 | |
| 757 | |
| — |
CRE Owner Occupied |
|
| 338 |
|
| 338 |
|
| — |
|
| 209 |
|
| 209 |
|
| — | |
| 1,840 | |
| 1,840 | |
| — | |
| 236 | |
| 236 | |
| — |
CRE Non Owner Occupied | | | 220 | | | 220 | | | — | | | — | | | — | | | — | ||||||||||||||||||
Totals | |
| 3,598 | |
| 4,394 | |
| — | |
| 1,638 | |
| 2,434 | |
| — | ||||||||||||||||||
| | | | | | | | | | | | | | | | | | | ||||||||||||||||||
Loans With An Allowance for Loan Losses: | | | | |
|
| |
|
| | | | |
|
| |
|
| ||||||||||||||||||
Commercial | |
| 109 | | | 111 | | | 34 | |
| 106 | |
| 109 | |
| 31 | ||||||||||||||||||
Consumer and Other |
|
| 54 |
|
| 75 |
|
| — |
|
| 58 |
|
| 78 |
|
| — | | | 33 | | | 33 | | | 33 | | | 14 | | | 14 | | | 14 |
Totals |
|
| 4,994 |
|
| 5,623 |
|
| — |
|
| 1,832 |
|
| 2,461 |
|
| — | |
| 142 | |
| 144 | |
| 67 | |
| 120 | |
| 123 | |
| 45 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
Loans With An Allowance for Loan Losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
Commercial |
|
| 136 |
|
| 136 |
|
| 49 |
|
| 8 |
|
| 8 |
|
| 8 | ||||||||||||||||||
Real Estate Mortgage: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
HELOC and 1-4 Family Junior Mortgage |
|
| 305 |
|
| 331 |
|
| 60 |
|
| 309 |
|
| 336 |
|
| 17 | ||||||||||||||||||
CRE Owner Occupied |
|
| — |
|
| — |
|
| — |
|
| 156 |
|
| 156 |
|
| 22 | ||||||||||||||||||
Totals |
|
| 441 |
|
| 467 |
|
| 109 |
|
| 473 |
|
| 500 |
|
| 47 | ||||||||||||||||||
Grand Totals |
| $ | 5,435 |
| $ | 6,090 |
| $ | 109 |
| $ | 2,305 |
| $ | 2,961 |
| $ | 47 | | $ | 3,740 | | $ | 4,538 | | $ | 67 | | $ | 1,758 | | $ | 2,557 | | $ | 45 |
16
The following table presents information regarding the average balances and interest income recognized on impaired loans by loan segment for the three and six months ended June 30, 20192020 and 2018:2019:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, | ||||||||||||||||||||
| | 2020 |
| 2019 | | 2020 |
| 2019 | ||||||||||||||||
| | Average | | Interest | | Average | | Interest | | Average | | Interest | | Average | | Interest | ||||||||
| | Investment |
| Recognized |
| Investment |
| Recognized |
| Investment |
| Recognized |
| Investment |
| Recognized | ||||||||
Loans With No Related Allowance for Loan Losses: | | | | | | | | | | | | | | | | | | | | | | | | |
Commercial | | $ | 150 | | $ | 3 | | $ | 552 | | $ | 8 | | $ | 156 | | $ | 5 | | $ | 565 | | $ | 16 |
Construction and Land Development | | | 168 | | | — | | | 2,796 | | | 87 | | | 172 | | | — | | | 2,899 | | | 87 |
Real Estate Mortgage: | |
| | | | | | | | | | | |
| | | | | | | | | | |
HELOC and 1-4 Family Junior Mortgage | | | 329 | | | — | | | 156 | | | 2 | | | 329 | | | — | | | 156 | | | 4 |
1st REM - 1-4 Family | | | — | | | — | | | 617 | | | 12 | | | — | | | — | | | 617 | | | 12 |
1st REM - Rentals | |
| 926 | | | 11 | | | 635 | | | 9 | |
| 929 | | | 22 | | | 1,451 | | | 18 |
CRE Owner Occupied | |
| 1,844 | | | 25 | | | 434 | | | 6 | |
| 1,840 | | | 50 | | | 441 | | | 13 |
CRE Non Owner Occupied | | | 222 | | | 3 | | | — | | | — | | | 224 | | | 6 | | | — | | | — |
Consumer and Other | |
| — | | | — | | | 54 | | | — | |
| — | | | — | | | 55 | | | — |
Totals | |
| 3,639 | |
| 42 | |
| 5,244 | |
| 124 | |
| 3,650 | |
| 83 | |
| 6,184 | |
| 150 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Loans With An Allowance for Loan Losses: | |
|
| |
| | |
|
| |
|
| |
|
| |
| | |
|
| |
|
|
Commercial | |
| 109 | | | — | | | 137 | | | 2 | |
| 110 | | | 1 | | | 137 | | | 2 |
Real Estate Mortgage: | |
| | | | | | | | | | | |
| | | | | | | | | | |
HELOC and 1-4 Family Junior Mortgage | | | — | | | — | | | 305 | | | — | | | — | | | — | | | 306 | | | — |
1st REM - Rentals | |
| — | | | — | | | — | | | — | |
| — | | | — | | | 191 | | | — |
Consumer and Other | | | 34 | | | 1 | | | — | | | — | | | 34 | | | 1 | | | — | | | — |
| |
| 143 | |
| 1 | |
| 442 | |
| 2 | |
| 144 | |
| 2 | |
| 634 | |
| 2 |
Grand Totals | | $ | 3,782 | | $ | 43 | | $ | 5,686 | | $ | 126 | | $ | 3,794 | | $ | 85 | | $ | 6,818 | | $ | 152 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended June 30, |
| Six Months Ended June 30, | ||||||||||||||||||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 | ||||||||||||||||
|
| Average |
| Interest |
| Average |
| Interest |
| Average |
| Interest |
| Average |
| Interest | ||||||||
|
| Investment |
| Recognized |
| Investment |
| Recognized |
| Investment |
| Recognized |
| Investment |
| Recognized | ||||||||
Loans With No Related Allowance for Loan Losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Commercial |
| $ | 552 |
| $ | 8 |
| $ | — |
| $ | — |
| $ | 565 |
| $ | 16 |
| $ | — |
| $ | — |
Construction and Land Development |
|
| 2,796 |
|
| 87 |
|
| — |
|
| — |
|
| 2,899 |
|
| 87 |
|
| — |
|
| — |
Real Estate Mortgage: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HELOC and 1-4 Family Junior Mortgage |
|
| 156 |
|
| 2 |
|
| 506 |
|
| 1 |
|
| 156 |
|
| 4 |
|
| 509 |
|
| 4 |
1st REM - 1-4 Family |
|
| 617 |
|
| 12 |
|
| 376 |
|
| 5 |
|
| 617 |
|
| 12 |
|
| 378 |
|
| 5 |
1st REM - Rentals |
|
| 635 |
|
| 9 |
|
| 981 |
|
| 11 |
|
| 1,451 |
|
| 18 |
|
| 986 |
|
| 24 |
Multifamily |
|
| — |
|
| — |
|
| 65 |
|
| 1 |
|
| — |
|
| — |
|
| 33 |
|
| 1 |
CRE Owner Occupied |
|
| 434 |
|
| 6 |
|
| 512 |
|
| 7 |
|
| 441 |
|
| 13 |
|
| 518 |
|
| 14 |
Consumer and Other |
|
| 54 |
|
| — |
|
| 67 |
|
| — |
|
| 55 |
|
| — |
|
| 69 |
|
| — |
Totals |
|
| 5,244 |
|
| 124 |
|
| 2,507 |
|
| 25 |
|
| 6,184 |
|
| 150 |
|
| 2,493 |
|
| 48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans With An Allowance for Loan Losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
| 137 |
|
| 2 |
|
| 14 |
|
| — |
|
| 137 |
|
| 2 |
|
| 14 |
|
| — |
Construction and Land Development |
|
| — |
|
| — |
|
| 216 |
|
| — |
|
| — |
|
| — |
|
| 110 |
|
| — |
Real Estate Mortgage: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HELOC and 1-4 Family Junior Mortgage |
|
| 305 |
|
| — |
|
| — |
|
| — |
|
| 306 |
|
| — |
|
| — |
|
| — |
LOCs and 2nd REM - Rentals |
|
| — |
|
| — |
|
| 64 |
|
| 1 |
|
| — |
|
| — |
|
| 64 |
|
| 2 |
1st REM - Rentals |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 191 |
|
| — |
|
| 67 |
|
| 1 |
Multifamily |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 33 |
|
| 1 |
CRE Owner Occupied |
|
| — |
|
| — |
|
| 158 |
|
| 2 |
|
| — |
|
| — |
|
| 158 |
|
| 4 |
Totals |
|
| 442 |
|
| 2 |
|
| 452 |
|
| 3 |
|
| 634 |
|
| 2 |
|
| 446 |
|
| 8 |
Grand Totals |
| $ | 5,686 |
| $ | 126 |
| $ | 2,959 |
| $ | 28 |
| $ | 6,818 |
| $ | 152 |
| $ | 2,939 |
| $ | 56 |
16
The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information and current economic trends, among other factors. The process of analyzing loans for changes in risk rating is ongoing through routine monitoring of the portfolio and annual internal credit reviews for credits meeting certain thresholds.
17
The following tables present the risk category of loans by loan segment as of June 30, 20192020 and December 31, 2018,2019, based on the most recent analysis performed by management:
| | | | | | | | | | | | |
| | June 30, 2020 | ||||||||||
|
| Pass |
| Watch |
| Substandard |
| Total | ||||
Commercial | | $ | 280,767 | | $ | 21,515 | | $ | 254 | | $ | 302,536 |
Paycheck Protection Program | | | 180,228 | | | — | | | — | | | 180,228 |
Construction and Land Development | |
| 191,472 | | | 132 | | | 164 | |
| 191,768 |
Real Estate Mortgage: | |
| | | | | | | | |
| |
HELOC and 1-4 Family Junior Mortgage | |
| 30,142 | | | 137 | | | — | |
| 30,279 |
1st REM - 1-4 Family | |
| 39,235 | | | 123 | | | 174 | |
| 39,532 |
LOCs and 2nd REM - Rentals | |
| 19,759 | | | 474 | | | 305 | |
| 20,538 |
1st REM - Rentals | |
| 197,594 | | | 763 | | | 750 | |
| 199,107 |
Multifamily | |
| 522,491 | | | — | | | — | |
| 522,491 |
CRE Owner Occupied | |
| 70,881 | | | 818 | | | 1,840 | |
| 73,539 |
CRE Non-owner Occupied | | | 605,742 | | | 21,689 | | | 220 | | | 627,651 |
Consumer and Other | |
| 6,076 | | | — | | | 33 | |
| 6,109 |
Totals | | $ | 2,144,387 | | $ | 45,651 | | $ | 3,740 | | $ | 2,193,778 |
| | | | | | | | | | | | |
| | December 31, 2019 | ||||||||||
|
| Pass |
| Watch |
| Substandard |
| Total | ||||
Commercial | | $ | 275,741 | $ | | 21 | $ | | 273 | | $ | 276,035 |
Construction and Land Development | |
| 196,462 | | | 138 | | | 176 | |
| 196,776 |
Real Estate Mortgage: | |
| | | | | | | | |
| |
HELOC and 1-4 Family Junior Mortgage | |
| 28,483 | | | 138 | | | — | |
| 28,621 |
1st REM - 1-4 Family | |
| 36,370 | | | 124 | | | 177 | |
| 36,671 |
LOCs and 2nd REM - Rentals | |
| 17,890 | | | 479 | | | 302 | |
| 18,671 |
1st REM - Rentals | |
| 174,781 | | | 1,287 | | | 580 | |
| 176,648 |
Multifamily | |
| 515,014 | | | — | | | — | |
| 515,014 |
CRE Owner Occupied | |
| 65,411 | | | — | | | 1,173 | |
| 66,584 |
CRE Non-owner Occupied | | | 589,457 | | | 3,088 | | | — | | | 592,545 |
Consumer and Other | |
| 4,459 | | | — | | | 14 | |
| 4,473 |
Totals | | $ | 1,904,068 | | $ | 5,275 | | $ | 2,695 | | $ | 1,912,038 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| June 30, 2019 | ||||||||||
|
| Pass |
| Watch |
| Substandard |
| Total | ||||
Commercial |
| $ | 287,222 |
| $ | — |
| $ | 582 |
| $ | 287,804 |
Construction and Land Development |
|
| 192,672 |
|
| 145 |
|
| 2,751 |
|
| 195,568 |
Real Estate Mortgage: |
|
|
|
|
|
|
|
|
|
|
|
|
HELOC and 1-4 Family Junior Mortgage |
|
| 31,232 |
|
| 138 |
|
| — |
|
| 31,370 |
1st REM - 1-4 Family |
|
| 40,123 |
|
| 125 |
|
| 796 |
|
| 41,044 |
LOCs and 2nd REM - Rentals |
|
| 14,983 |
|
| 498 |
|
| 461 |
|
| 15,942 |
1st REM - Rentals |
|
| 156,830 |
|
| 1,390 |
|
| 453 |
|
| 158,673 |
Multifamily |
|
| 437,198 |
|
| — |
|
| — |
|
| 437,198 |
CRE Owner Occupied |
|
| 66,989 |
|
| — |
|
| 1,692 |
|
| 68,681 |
CRE Non-owner Occupied |
|
| 541,426 |
|
| 3,153 |
|
| — |
|
| 544,579 |
Consumer and Other |
|
| 3,967 |
|
| 23 |
|
| 54 |
|
| 4,044 |
Totals |
| $ | 1,772,642 |
| $ | 5,472 |
| $ | 6,789 |
| $ | 1,784,903 |
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2018 | ||||||||||
|
| Pass |
| Watch |
| Substandard |
| Total | ||||
Commercial |
| $ | 260,225 |
| $ | 600 |
| $ | 8 |
| $ | 260,833 |
Construction and Land Development |
|
| 207,174 |
|
| 2,669 |
|
| 198 |
|
| 210,041 |
Real Estate Mortgage: |
|
|
|
|
|
|
|
|
|
|
|
|
HELOC and 1-4 Family Junior Mortgage |
|
| 30,669 |
|
| 587 |
|
| — |
|
| 31,256 |
1st REM - 1-4 Family |
|
| 37,526 |
|
| 126 |
|
| 253 |
|
| 37,905 |
LOCs and 2nd REM - Rentals |
|
| 11,341 |
|
| 628 |
|
| 474 |
|
| 12,443 |
1st REM - Rentals |
|
| 142,357 |
|
| 1,854 |
|
| 958 |
|
| 145,169 |
Multifamily |
|
| 407,934 |
|
| — |
|
| — |
|
| 407,934 |
CRE Owner Occupied |
|
| 62,223 |
|
| — |
|
| 2,235 |
|
| 64,458 |
CRE Non-owner Occupied |
|
| 487,438 |
|
| 3,194 |
|
| — |
|
| 490,632 |
Consumer and Other |
|
| 4,202 |
|
| — |
|
| 58 |
|
| 4,260 |
Totals |
| $ | 1,651,089 |
| $ | 9,658 |
| $ | 4,184 |
| $ | 1,664,931 |
The following tables present the aging of the recorded investment in past due loans by loan segment as of June 30, 20192020 and December 31, 2018:2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
|
| Accruing Interest |
|
|
|
|
|
| ||||||||||||||||||||||
|
|
|
|
| 30-89 Days |
| 90 Days or |
|
|
|
|
|
| |||||||||||||||||
June 30, 2019 |
| Current |
| Past Due |
| More Past Due |
| Nonaccrual |
| Total | ||||||||||||||||||||
| | | | | | | | | | | | | | | | |||||||||||||||
| | Accruing Interest | | | | | | | ||||||||||||||||||||||
| | | | | 30-89 Days | | 90 Days or | | | | | | | |||||||||||||||||
June 30, 2020 |
| Current |
| Past Due |
| More Past Due |
| Nonaccrual |
| Total | ||||||||||||||||||||
Commercial |
| $ | 287,765 |
| $ | 31 |
| $ | — |
| $ | 8 |
| $ | 287,804 | | $ | 302,508 | | $ | 21 | | $ | — | | $ | 7 | | $ | 302,536 |
Paycheck Protection Program | | | 180,228 | | | — | | | — | | | — | | | 180,228 | |||||||||||||||
Construction and Land Development |
|
| 195,330 |
|
| 50 |
|
| — |
|
| 188 |
|
| 195,568 | |
| 191,604 | | | — | | | — | | | 164 | |
| 191,768 |
Real Estate Mortgage: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| | | | | | | | | | | |
| |
HELOC and 1-4 Family Junior Mortgage |
|
| 31,370 |
|
| — |
|
| — |
|
| — |
|
| 31,370 | |
| 30,279 | | | — | | | — | | | — | |
| 30,279 |
1st REM - 1-4 Family |
|
| 41,044 |
|
| — |
|
| — |
|
| — |
|
| 41,044 | |
| 39,532 | | | — | | | — | | | — | |
| 39,532 |
LOCs and 2nd REM - Rentals |
|
| 15,467 |
|
| 170 |
|
| — |
|
| 305 |
|
| 15,942 | |
| 20,233 | | | — | | | — | | | 305 | |
| 20,538 |
1st REM - Rentals |
|
| 158,459 |
|
| 214 |
|
| — |
|
| — |
|
| 158,673 | |
| 198,981 | | | — | | | — | | | 126 | |
| 199,107 |
Multifamily |
|
| 437,198 |
|
| — |
|
| — |
|
| — |
|
| 437,198 | |
| 522,491 | | | — | | | — | | | — | |
| 522,491 |
CRE Owner Occupied |
|
| 68,681 |
|
| — |
|
| — |
|
| — |
|
| 68,681 | |
| 73,407 | | | 132 | | | — | | | — | |
| 73,539 |
CRE Non-owner Occupied |
|
| 544,579 |
|
| — |
|
| — |
|
| — |
|
| 544,579 | |
| 627,651 | | | — | | | — | | | — | |
| 627,651 |
Consumer and Other |
|
| 3,985 |
|
| 5 |
|
| — |
|
| 54 |
|
| 4,044 | |
| 6,109 | | | — | | | — | | | — | |
| 6,109 |
Totals |
| $ | 1,783,878 |
| $ | 470 |
| $ | — |
| $ | 555 |
| $ | 1,784,903 | | $ | 2,193,023 | | $ | 153 | | $ | — | | $ | 602 | | $ | 2,193,778 |
| | | | | | | | | | | | | | | |
| | Accruing Interest | | | | | | | |||||||
| | | | | 30-89 Days | | 90 Days or | | | | | | | ||
December 31, 2019 |
| Current |
| Past Due |
| More Past Due |
| Nonaccrual |
| Total | |||||
Commercial | | $ | 276,028 | | $ | — | | $ | — | | $ | 7 | | $ | 276,035 |
Construction and Land Development | |
| 196,600 | | | — | | | — | | | 176 | |
| 196,776 |
Real Estate Mortgage: | |
| | | | | | | | | | | |
| |
HELOC and 1-4 Family Junior Mortgage | |
| 28,621 | | | — | | | — | | | — | |
| 28,621 |
1st REM - 1-4 Family | |
| 36,671 | | | — | | | — | | | — | |
| 36,671 |
LOCs and 2nd REM - Rentals | |
| 18,527 | | | — | | | — | | | 144 | |
| 18,671 |
1st REM - Rentals | |
| 176,114 | | | 400 | | | — | | | 134 | |
| 176,648 |
Multifamily | |
| 515,014 | | | — | | | — | | | — | |
| 515,014 |
CRE Owner Occupied | |
| 66,584 | | | — | | | — | | | — | |
| 66,584 |
CRE Non-owner Occupied | |
| 592,545 | | | — | | | — | | | — | |
| 592,545 |
Consumer and Other | |
| 4,470 | | | 3 | | | — | | | — | |
| 4,473 |
Totals | | $ | 1,911,174 | | $ | 403 | | $ | — | | $ | 461 | | $ | 1,912,038 |
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accruing Interest |
|
|
|
|
|
| |||||||
|
|
|
|
| 30-89 Days |
| 90 Days or |
|
|
|
|
|
| ||
December 31, 2018 |
| Current |
| Past Due |
| More Past Due |
| Nonaccrual |
| Total | |||||
Commercial |
| $ | 260,813 |
| $ | 12 |
| $ | — |
| $ | 8 |
| $ | 260,833 |
Construction and Land Development |
|
| 209,843 |
|
| — |
|
| — |
|
| 198 |
|
| 210,041 |
Real Estate Mortgage: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HELOC and 1-4 Family Junior Mortgage |
|
| 30,939 |
|
| — |
|
| — |
|
| 317 |
|
| 31,256 |
1st REM - 1-4 Family |
|
| 37,705 |
|
| 200 |
|
| — |
|
| — |
|
| 37,905 |
LOCs and 2nd REM - Rentals |
|
| 12,443 |
|
| — |
|
| — |
|
| — |
|
| 12,443 |
1st REM - Rentals |
|
| 145,169 |
|
| — |
|
| — |
|
| — |
|
| 145,169 |
Multifamily |
|
| 407,934 |
|
| — |
|
| — |
|
| — |
|
| 407,934 |
CRE Owner Occupied |
|
| 64,360 |
|
| 98 |
|
| — |
|
| — |
|
| 64,458 |
CRE Non-owner Occupied |
|
| 490,632 |
|
| — |
|
| — |
|
| — |
|
| 490,632 |
Consumer and Other |
|
| 4,201 |
|
| 1 |
|
| — |
|
| 58 |
|
| 4,260 |
Totals |
| $ | 1,664,039 |
| $ | 311 |
| $ | — |
| $ | 581 |
| $ | 1,664,931 |
At June 30, 2019,2020, there were four4 loans classified as troubled debt restructurings with a current outstanding balance of $522. In comparison, at$830. At December 31, 2018,2019, there were three3 loans classified as troubled debt restructurings with an outstanding balance of $437.$452. There was one1 new loan classified as a troubled debt restructuring during the six month period ended June 30, 2019,2020 and no0 loans classified as troubled debt restructurings during the previous twelve months subsequently defaulted during the six months ended June 30, 2019.2020.
In response to the COVID-19 pandemic, the Company has developed programs for clients who are experiencing business and personal disruptions due to the COVID-19 pandemic pursuant to which the Company may provide loan payment deferrals or interest-only modifications. In accordance with interagency regulatory guidance and the CARES Act, qualifying loans modified in response to the COVID-19 pandemic will not be considered troubled debt restructurings.
18
The following table presents a summary of closed loan modifications made in response to the COVID-19 pandemic, by loan segment and modification type, as of June 30, 2020:
| | | | | | | | | | | | | | | |
| | Interest-Only | | Payment Deferral | | Total | |||||||||
|
| Amount |
| # of Loans |
| Amount |
| # of Loans |
| Amount |
| # of Loans | |||
Commercial | | $ | 17,615 | | 36 | | $ | 13,355 | | 14 | | $ | 30,970 | | 50 |
Construction and Land Development | | | 133 | | 1 | | | — | | — | | | 133 | | 1 |
Real Estate Mortgage: | | | | | | | | | | | | | | | |
1 - 4 Family Mortgage | | | 8,037 | | 22 | | | 420 | | 2 | | | 8,457 | | 24 |
Multifamily | | | 41,320 | | 6 | | | 16,251 | | 3 | | | 57,571 | | 9 |
CRE Owner Occupied | | | 7,397 | | 14 | | | 1,502 | | 3 | | | 8,899 | | 17 |
CRE Nonowner Occupied | | | 100,805 | | 41 | | | 86,175 | | 18 | | | 186,980 | | 59 |
Consumer and Other | | | — | | — | | | — | | — | | | — | | — |
Totals | | $ | 175,307 | | 120 | | $ | 117,703 | | 40 | | $ | 293,010 | | 160 |
Note 5: Premises and Equipment
Premises and equipment are summarized as follows as of June 30, 2020 and December 31, 2019:
| | | | | | | | |
| | Range of | | June 30, | | December 31, | ||
| | Useful Lives |
| 2020 |
| 2019 | ||
Land | | N/A | | $ | 5,174 | | $ | 5,174 |
Building | | 15 - 39 Years | |
| 3,486 | |
| 3,487 |
Leasehold Improvements | | 3 ‑ 10 Years | |
| 3,344 | |
| 3,344 |
Furniture and Equipment | | 3 ‑ 5 Years | |
| 5,184 | |
| 3,902 |
Construction in Progress | | N/A | |
| 31,157 | |
| 16,693 |
Subtotal | | | |
| 48,345 | |
| 32,600 |
Accumulated Depreciation | | | |
| (5,283) | |
| (4,972) |
Totals | | | | $ | 43,062 | | $ | 27,628 |
Depreciation and amortization expense charged to noninterest expense for the three months ended June 30, 2020 and 2019 totaled $193 and $207, respectively. Depreciation and amortization expense charged to noninterest expense for the six months ended June 30, 2020 and 2019 totaled $380 and $417, respectively. Construction in progress represents amounts paid for the construction of the Company’s new corporate headquarters building. Construction is expected to be completed in the third quarter of 2020.
Note 6: Deposits
The following table presents the composition of deposits at June 30, 20192020 and December 31, 2018:2019:
|
|
|
|
|
|
| ||||||
|
| June 30, |
| December 31, | ||||||||
|
| 2019 |
| 2018 | ||||||||
| | | | | | | ||||||
| | June 30, | | December 31, | ||||||||
|
| 2020 |
| 2019 | ||||||||
Transaction Deposits |
| $ | 640,516 |
| $ | 548,770 | | $ | 934,255 | | $ | 712,136 |
Savings and Money Market Deposits |
|
| 456,447 |
|
| 402,639 | |
| 516,543 | |
| 516,785 |
Time Deposits |
|
| 359,338 |
|
| 318,356 | |
| 382,187 | |
| 360,027 |
Brokered Deposits |
|
| 242,964 |
|
| 291,169 | |
| 409,066 | |
| 234,362 |
Totals |
| $ | 1,699,265 |
| $ | 1,560,934 | | $ | 2,242,051 | | $ | 1,823,310 |
19
Note 7: Derivative Instruments and Hedging Activities
The Company uses derivative financial instruments, which consist of interest rate swaps, to assist in its interest rate risk management. The notional amount does not represent amounts exchanged by the parties. The amount exchanged is determined by reference to the notional amount and the other terms of the individual agreements. Derivative financial instruments are reported at fair value in other assets or other liabilities. The accounting for changes in the fair value of a derivative depends on whether it has been designated and qualifies as part of a hedging relationship. For derivatives not designated as hedges, the gain or loss is recognized in current earnings.
Non-hedge Derivatives
The Company enters into interest rate swaps to facilitate client transactions and meet their financing needs. Upon entering into these instruments to meet client needs, the Company enters into offsetting positions with large U.S. financial institutions in order to minimize the risk to the Company. These swaps are derivatives, but are not designated as hedging instruments.
Interest rate swap contracts involve the risk of dealing with counterparties and their ability to meet contractual terms. When the fair value of a derivative instrument contract is positive, this generally indicates that the counter party or client owes the Company, and results in credit risk to the Company. When the fair value of a derivative instrument contract is negative, the Company owes the client or counterparty and therefore, the Company has no credit risk.
The following table presents a summary of the Company’s interest rate swaps to facilitate customer transactions as of June 30, 2020 and December 31, 2019:
| | | | | | | | | | | | |
| | June 30, 2020 | | December 31, 2019 | ||||||||
| | Notional | | Estimated | | Notional | | Estimated | ||||
| | Amount | | Fair Value | | Amount | | Fair Value | ||||
Interest Rate Swap Agreements: | | | | | | | | | | | | |
Assets | | $ | 49,983 | | $ | 3,749 | | $ | 7,140 | | $ | 150 |
Liabilities | |
| 49,983 | |
| (3,749) | |
| 7,140 | |
| (150) |
Total | | $ | 99,966 | | $ | — | | $ | 14,280 | | $ | — |
Cash Flow Hedging Derivatives
For derivative instruments that are designated and qualify as a cash flow hedge, the aggregate fair value of the derivative instrument is recorded in other assets or other liabilities with any gain or loss related to changes in fair value recorded in accumulated other comprehensive income, net of tax. The gain or loss is reclassified into earnings in the same period during which the hedged asset or liability affects earnings and is presented in the same income statement line item as the earnings effect of the hedged asset or liability. The Company utilizes cash flow hedges to manage interest rate exposure for the brokered certificate of deposit, wholesale borrowing, and notes payable portfolios. During the next 12 months, the Company estimates that $796 will be reclassified to interest expense.
The following tables present a summary of the Company’s interest rate swaps designated as cash flow hedges as of June 30, 2020 and December 31, 2019:
| | | | | | | |
|
| June 30, 2020 |
| December 31, 2019 | | ||
Notional Amount | | $ | 107,000 | | $ | 48,000 | |
Weighted Average Pay Rate | | | 1.30 | % | | 1.89 | % |
Weighted Average Receive Rate | | | 1.05 | % | | 2.25 | % |
Weighted Average Maturity (Years) | | | 4.29 | | | 3.53 | |
Net Unrealized Loss | | $ | (4,220) | | $ | (618) | |
20
| | | | | | | | | | | | |
| | June 30, 2020 | | December 31, 2019 | ||||||||
| | Notional | | Estimated | | Notional | | Estimated | ||||
| | Amount | | Fair Value | | Amount | | Fair Value | ||||
Interest Rate Swap Agreements: | | | | | | | | | | | | |
Assets | | $ | — | | $ | — | | $ | 18,000 | | $ | 134 |
Liabilities | | | 107,000 | | | (4,220) | | | 30,000 | | | (752) |
The following table presents the effect of derivative instruments in cash flow hedging relationships on the consolidated statements of income for the six months ended June 30, 2020 and 2019:
| | | | | | | | |
| | | Six Months Ended June 30, | |||||
(dollars in thousands) | 2020 | 2019 | ||||||
Derivatives in | | Location of Gain or | Gain (Loss) | |||||
Cash Flow Hedging | | (Loss) Reclassified | Reclassified from | |||||
Relationships | | from AOCI into Income | AOCI into Earnings | |||||
Interest Rate Swaps | | Interest Expense | | $ | (72) | | $ | — |
NaN amounts were reclassified from accumulated other comprehensive income into net income related to hedge ineffectiveness for these derivatives during the three and six months ended June 30, 2020 and 2019, and 0 amounts are expected to be reclassified from accumulated other comprehensive income into net income related to hedge ineffectiveness over the next twelve months.
Note 6:8: Subordinated Debentures
On June 19, 2020, the Company entered into a Subordinated Note Purchase Agreement with certain institutional accredited investors and qualified institutional buyers pursuant to which the Company sold and issued $50,000 in aggregate principal amount of 5.25% Fixed-to-Floating Rate Subordinated Notes due 2030 (the “2030 Notes”). The 2030 Notes were issued by the Company to the purchasers at a price equal to 100% of their face amount. Issuance costs were $1,127 and have been netted against subordinated debt on the consolidated balance sheets. These costs are being amortized over five years, which represents the period from issuance to the first redemption date of July 1, 2025. There was 0 amortization expense relating to the 2030 Notes as of June 30, 2020.
The 2030 Notes mature on July 1, 2030, with a fixed rate of 5.25% payable semi-annually for five years until July 1, 2025. Thereafter, the interest rate converts to a variable interest rate equal to the three-month term Secured Overnight Financing Rate, or SOFR, plus 513 basis points quarterly in arrears until either the early redemption date or the maturity date. The Notes are not convertible into or exchangeable for any other securities or assets of the Company or any of its subsidiaries. The Notes are redeemable by the Company, in whole or in part, on or after July 1, 2025, and at any time upon the occurrence of certain events. Any redemption by the Company would be at a redemption price equal to 100% of the outstanding principal amount of the 2030 Notes being redeemed, including any accrued and unpaid interest thereon.
On July 12, 2017, the Company entered into a Subordinated Note Purchase Agreement with certain institutional accredited investors whereby the Company sold and issued $25,000 in aggregate principal amount of 5.875% Fixed-to-Floating Rate Subordinated Notes due 2027 (the “2027 Notes”). The 2027 Notes were issued by the Company to the purchasers at a price equal to 100% of their face amount. Issuance costs were $516 and have been netted against subordinated debt on the consolidated balance sheets. These costs are being amortized over five years, which represents the period from issuance to the first redemption date of July 15, 2022. Total amortization expense for the three months and six months ended June 30, 2020, was $26 and $52, respectively, with $215 remaining to be amortized as of June 30, 2020.
21
The 2027 Notes mature on July 15, 2027, with a fixed interest rate of 5.875% payable semi-annually in arrears for five years until July 15, 2022. Thereafter, the Company will be obligated to pay interest at a rate equal to 3-month LIBOR plus 388 basis points quarterly in arrears until either the early redemption date or the maturity date. The 2027 Notes are not convertible into or exchangeable for any other securities or assets of the Company or any of its subsidiaries. The 2027 Notes are redeemable by the Company, in whole or in part, on or after July 15, 2022, and at any time upon the occurrence of certain events. Any redemption by the Company would be at a redemption price equal to 100% of the outstanding principal amount of the 2027 Notes being redeemed, including any accrued and unpaid interest thereon.
Note 9: Tax Credit Investments
The Company invests in qualified affordable housing projects and federal historic projects for the purpose of community reinvestment and obtaining tax credits. The Company’s tax credit investments are limited to existing lending relationships with well-known developers and projects within the Company’s market area.
The following table presents the Company’s investments in qualified affordable housing projects and other tax credit investments at June 30, 20192020 and December 31, 2018:2019:
| | | | | | | | | | | | | | |
| | | | June 30, 2020 | | December 31, 2019 | ||||||||
Investment | | Accounting Method | | | Investment | | | Unfunded Commitment (1) | | | Investment | | | Unfunded Commitment |
Low Income Housing Tax Credit (LIHTC) | | Proportional Amortization | | $ | 2,007 | | $ | — | | $ | 2,148 | | $ | — |
Federal Historic Tax Credit (FHTC) | | Equity | | | 2,490 | | | 3,405 | | | 2,262 | | | 3,395 |
Total | | | | $ | 4,497 | | $ | 3,405 | | $ | 4,410 | | $ | 3,395 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| June 30, 2019 |
| December 31, 2018 | ||||||||
Investment |
| Accounting Method |
|
| Investment |
|
| Unfunded Commitment (1) |
|
| Investment |
|
| Unfunded Commitment |
Low Income Housing Tax Credit (LIHTC) |
| Proportional Amortization |
| $ | 2,292 |
| $ | — |
| $ | 2,436 |
| $ | — |
Federal Historic Tax Credit (FHTC) |
| Equity |
|
| 2,425 |
|
| 5,067 |
|
| 1,814 |
|
| 3,226 |
Total |
|
|
| $ | 4,717 |
| $ | 5,067 |
| $ | 4,250 |
| $ | 3,226 |
(1) | All commitments are expected to be paid by the Company by |
19
The following table presents the amortization expense and tax benefit recognized for the Company’s qualified affordable housing projects and other tax credit investments for the three and six months ended June 30, 20192020 and 2018:2019:
| | | | | | | | | | | |
| Three Months Ended | | Six Months Ended | ||||||||
| June 30, | | June 30, | ||||||||
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Amortization Expense (1) | | | | | | | | | | | |
LIHTC | $ | 70 | | $ | 72 | | $ | 141 | | $ | 144 |
FHTC | | 362 | | | 1,390 | | | 447 | | | 1,567 |
Total | $ | 432 | | $ | 1,462 | | $ | 588 | | $ | 1,711 |
Tax Benefit Recognized (2) | | | | | | | | | | | |
LIHTC | $ | (82) | | $ | (83) | | $ | (165) | | $ | (165) |
FHTC | | (447) | | | (1,684) | | | (617) | | | (1,898) |
Total | $ | (529) | | $ | (1,767) | | $ | (782) | | $ | (2,063) |
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| Six Months Ended | ||||||||
| June 30, |
| June 30, | ||||||||
| 2019 |
| 2018 |
| 2019 |
| 2018 | ||||
Amortization Expense (1) |
|
|
|
|
|
|
|
|
|
|
|
LIHTC | $ | 72 |
| $ | 67 |
| $ | 144 |
| $ | 161 |
FHTC |
| 1,390 |
|
| — |
|
| 1,567 |
|
| — |
Total | $ | 1,462 |
| $ | 67 |
| $ | 1,711 |
| $ | 161 |
Tax Benefit Recognized (2) |
|
|
|
|
|
|
|
|
|
|
|
LIHTC | $ | (83) |
| $ | (66) |
| $ | (165) |
| $ | (165) |
FHTC |
| (1,684) |
|
| — |
|
| (1,898) |
|
| — |
Total | $ | (1,767) |
| $ | (66) |
| $ | (2,063) |
| $ | (165) |
(1) | The amortization expense for the LIHTC investments are included in income tax expense. The amortization for the FHTC tax credits are included in noninterest expense. |
(2) | All of the tax benefits recognized are included in income tax expense. The tax benefit recognized for the FHTC investments primarily reflects the tax credits generated from the investments, and excludes the net tax expense/benefit of the investments’ income/loss. |
22
Note 7:10: Commitments, Contingencies and Credit Risk
Financial Instruments with Off-Balance Sheet Credit Risk
The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated balance sheets.
The Company’s exposure to credit loss is represented by the contractual, or notional, amount of these commitments. The Company follows the same credit policies in making commitments as it does for on-balance sheet instruments. Since some of the commitments are expected to expire without being drawn upon and some of the commitments may not be drawn upon to the total extent of the commitment, the notional amount of these commitments does not necessarily represent future cash requirements.
The following commitments were outstanding at June 30, 20192020 and December 31, 2018:2019:
|
|
|
|
|
|
| ||||||
|
| June 30, |
| December 31, | ||||||||
|
| 2019 |
| 2018 | ||||||||
| | | | | | | ||||||
| | June 30, | | December 31, | ||||||||
|
| 2020 |
| 2019 | ||||||||
Unfunded Commitments Under Lines of Credit |
| $ | 456,578 |
| $ | 395,032 | | $ | 492,373 | | $ | 500,962 |
Letters of Credit |
|
| 78,407 |
|
| 81,053 | |
| 82,677 | |
| 79,225 |
Totals |
| $ | 534,985 |
| $ | 476,085 | | $ | 575,050 | | $ | 580,187 |
The Company had outstanding letters of credit with the FHLB in total amounts of $119,011$94,469 and $129,152$108,502 at June 30, 20192020 and December 31, 2018,2019, respectively, on behalf of customers and to secure public deposits.
On August 27, 2018, the Bank and Reuter Walton Commercial, LLC (the “Contractor”) entered into a Standard Form of Agreement Between Owner and Contractor and the corresponding General Conditions of the Contract for Construction (collectively, the “Construction Contract”). Under the Construction Contract, the Contractor will constructis constructing the core and shell of a new headquarters building for the Bank in St. Louis Park, Minnesota, and the Bank will pay the Contractor a contract price consisting of the cost of work plus a fee equal to 3.75% of the cost of work, subject to a guaranteed maximum price of $23,000, with anticipated construction completed in the third quarter of 2020. As of June 30, 2019, $6,937 has2020, $22,906 had been paid under this Construction Contract.
20
Table On December 3, 2019, the Bank entered into a separate contract with a third party relating to the construction of Contentsthe build-out of the new headquarters building for the Bank. The total amount to be paid by the Bank under the contract is $6,321, with construction anticipated to be completed in the third quarter of 2020. As of June 30, 2020, $4,975 had been paid under this contract.
Legal Contingencies
Neither the Company nor any of its subsidiaries is a party, and no property of these entities is subject, to any material pending legal proceedings, other than ordinary routine litigation incidental to the Bank’s business. The Company does not know of any proceeding contemplated by a governmental authority against the Company or any of its subsidiaries. subsidiaries.
Note 8:11: Stock Options and Restricted Stock Awards
The Company established the Bridgewater Bancshares, Inc. 2012 Combined Incentive and Non-Statutory Stock Option Plan (the “2012 Plan”) under which the Company may grant options to its directors, officers, employees, and consultants for up to 750,000 shares of common stock. Both incentive stock options and nonqualified stock options may be granted under the 2012 Plan. The exercise price of each option equals the fair market value of the Company’s stock on the date of grant and the maximum term of each outstanding option is ten years. All outstanding options have been granted with vesting periods of five years. As of June 30, 2020 and December 31, 2019, there were 0 remaining shares of the Company’s common stock reserved for future option grants under the 2012 Plan.
23
In 2017, the Company approvedadopted the Bridgewater Bancshares, Inc. 2017 Combined Incentive and Non-Statutory Stock Option Plan (the “2017 Plan”). Under the 2017 Plan, the Company may grant options to its directors, officers, employees and employeesconsultants for up to 1,500,000 shares of common stock. Both incentive stock options and nonqualified stock options may be granted under the 2017 Plan. The exercise price of each option equals the estimated fair market value of the Company’s stock on the date of grant and an option’sthe maximum term of each outstanding option is ten years. All outstanding options have been granted with a vesting periodperiods offour or five years. As of June 30, 20192020 and December 31, 2018,2019, there were 538,600 and 540,000, respectively, unissued310,600 remaining shares of the Company’s common stock authorizedreserved for future option grants under the 2017 Plan.
In 2019, the Company adopted the Bridgewater Bancshares, Inc. 2019 Equity Incentive Plan (the “2019 EIP”). The types of awards which may be granted under the 2019 EIP include incentive and nonqualified stock options, stock appreciation rights, stock awards, restricted stock units, restricted stock and cash incentive awards. The Company may grant these awards to its directors, officers, employees and certain other service providers for up to 1,000,000 shares of common stock. The exercise price of each option equals the fair market value of the Company’s stock on the date of grant and the maximum term of each award is ten years. All outstanding awards have been granted with a vesting period of four years. As of June 30, 2020 and December 31, 2019, there were 780,688 and 867,040 of remaining shares of the Company’s common stock reserved for future grants under the 2019 EIP.
Stock Options
The fair market value of each option award is estimated on the date of grant using a closed form option valuation (Black-Scholes) model that uses the assumptions noted in the table below. Expected volatilities are based on an industry index as described below. The expected term of options granted is based on historical data and represents the period of time that options granted are expected to be outstanding, which takes into account that the options are not transferable. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of the grant. Historically, the Company has not paid a dividend on its common stock and does not expect to do so in the near future.
The Company used the S&P 600 CM Bank Index as its historical volatility index. The S&P 600 CM Bank Index is an index of publicly traded small capitalization, regional, commercial banks located throughout the United States. There were 4454 banks in the index ranging in market capitalization from $470.0$500 million up to $4.5 billion.
The weighted average assumptions used in the model for valuing stock option grants for the six months ended June 30, 2019,2020, are as follows:
| | | |
| | June 30, | |
|
| ||
| |||
Dividend Yield |
| — | % |
Expected Life |
| 7 | Years |
Expected Volatility |
|
| % |
Risk-Free Interest Rate |
|
| % |
24
The following table presents a summary of the status of the Company’s stock option plansgrants for the six months ended June 30, 2019:2020:
|
|
|
|
|
| |||||
|
| June 30, 2019 | ||||||||
|
|
|
| Weighted | ||||||
|
|
|
| Average | ||||||
|
| Shares |
| Exercise Price | ||||||
| | | | | | |||||
| | June 30, 2020 | ||||||||
|
|
|
| Weighted | ||||||
| | | | Average | ||||||
| | Shares | | Exercise Price | ||||||
Outstanding at Beginning of Year |
| 1,807,100 |
| $ | 6.24 |
| 1,961,650 | | $ | 7.08 |
Granted |
| 10,000 |
|
| 11.15 |
| 60,000 | |
| 10.61 |
Exercised |
| (15,400) |
|
| 4.00 |
| (15,500) | |
| 2.55 |
Forfeitures |
| (8,600) |
|
| 10.65 |
| — | |
| — |
Outstanding at Period End |
| 1,793,100 |
| $ | 6.26 |
| 2,006,150 | | $ | 7.22 |
|
|
|
|
|
| |||||
| | | | | | |||||
Options Exercisable at Period End |
| 824,700 |
| $ | 4.09 |
| 993,550 | | $ | 5.09 |
21
For the three months ended June 30, 20192020 and 2018,2019, the Company recognized compensation expense for stock options of $174$230 and $190,$174, respectively. For the six months ended June 30, 20192020 and 2018,2019, the Company recognized compensation expense for stock options of $348$448 and $389,$348, respectively.
The following table presents information pertaining to options outstanding at June 30, 2019:2020:
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
|
|
| Options Outstanding |
| Options Exercisable | |||||||||||||||||||
|
|
| Number |
| Remaining |
|
|
|
| Number | ||||||||||||||
| | | | | | | | | | | | | ||||||||||||
| | | Options Outstanding | | Options Exercisable | |||||||||||||||||||
| | | Number | | Remaining | | |
| | | Number | |||||||||||||
Exercise Price | Exercise Price |
| Outstanding |
| Contractual Life |
| Exercise Price |
| Outstanding | Exercise Price |
| Outstanding |
| Contractual Life | | | Exercise Price |
| Outstanding | |||||
$ | 1.65 |
| 7,500 |
| 2.4 | Years |
| $ | 1.65 |
|
| 7,500 | 2.13 |
| 66,750 |
| 2.8 | Years | | $ | 2.13 |
| | 66,750 |
| 2.13 |
| 80,000 |
| 3.8 | Years |
|
| 2.13 |
|
| 80,000 | ||||||||||||
| 3.00 |
| 490,000 |
| 4.5 | Years |
|
| 3.00 |
|
| 490,000 | ||||||||||||
| 3.58 |
| 50,000 |
| 5.5 | Years |
|
| 3.58 |
|
| 40,000 | ||||||||||||
| 7.47 |
| 1,030,600 |
| 8.3 | Years |
|
| 7.47 |
|
| 202,200 | ||||||||||||
| 13.22 |
| 25,000 |
| 8.9 | Years |
|
| 13.22 |
|
| 5,000 | ||||||||||||
| 12.86 |
| 45,000 |
| 9.2 | Years |
|
| 12.86 |
|
| — | ||||||||||||
| 12.94 |
| 30,000 |
| 9.3 | Years |
|
| 12.94 |
|
| — | ||||||||||||
| 11.59 |
| 25,000 |
| 9.3 | Years |
|
| 11.59 |
|
| — | ||||||||||||
| 11.15 |
| 10,000 |
| 9.7 | Years |
|
| 11.15 |
|
| — | ||||||||||||
| Totals |
| 1,793,100 |
| 7.0 | Years |
| $ | 6.26 |
| $ | 824,700 | ||||||||||||
| 3.00 |
| 447,500 |
| 3.5 | Years | |
| 3.00 |
| | 447,500 | ||||||||||||
| 3.58 |
| 45,000 |
| 4.5 | Years | |
| 3.58 |
| | 45,000 | ||||||||||||
| 7.47 |
| 1,023,900 |
| 7.3 | Years | |
| 7.47 |
| | 402,300 | ||||||||||||
| 13.22 | | 25,000 | | 7.9 | Years | | | 13.22 | | | 10,000 | ||||||||||||
| 12.86 | | 45,000 | | 8.2 | Years | | | 12.86 | | | 9,000 | ||||||||||||
| 12.94 | | 30,000 | | 8.3 | Years | | | 12.94 | | | 6,000 | ||||||||||||
| 11.59 | | 25,000 | | 8.3 | Years | | | 11.59 | | | 5,000 | ||||||||||||
| 11.15 | | 10,000 | | 8.7 | Years | | | 11.15 | | | 2,000 | ||||||||||||
| 11.13 | | 50,000 | | 9.2 | Years | | | 11.13 | | | — | ||||||||||||
| 12.92 | | 178,000 | | 9.4 | Years | | | 12.92 | | | — | ||||||||||||
| 12.67 | | 25,000 | | 9.7 | Years | | | 12.67 | | | — | ||||||||||||
| 8.76 | | 25,000 | | 9.8 | Years | | | 8.76 | | | — | ||||||||||||
| 10.08 | | 10,000 | | 9.9 | Years | | | 10.08 | | | — | ||||||||||||
| Totals |
| 2,006,150 |
| 6.6 | Years | | $ | 7.22 | | | 993,550 |
As of June 30, 2019,2020, there was $2,319$2,553 of total unrecognized compensation cost related to nonvested share-based compensation arrangementsstock options granted under the 2012 Plan, 2017 Plan and 2019 EIP that is expected to be recognized over a weighted-average period of 4.8 years.
25
The following presents an analysis of nonvested stock options issued and outstanding for the six months ended June 30, 2020:
| | | | | |
|
|
|
| Weighted | |
| | Number of | | Average Grant | |
| | Shares | | Date Fair Value | |
Nonvested Options at December 31, 2019 |
| 969,600 | | $ | 3.08 |
Granted |
| 60,000 | | | 4.39 |
Vested |
| (17,000) | | | 2.61 |
Forfeited | | — | |
| — |
Nonvested Options at June 30, 2020 |
| 1,012,600 | | $ | 3.16 |
Restricted Stock Awards
In 2019, the Company began granting restricted stock awards out of the 2019 EIP. These awards vest in equal annual installments on the first four anniversaries of the date of the grant. Nonvested restricted stock awards are classified as outstanding shares with voting and forfeitable dividend rights.
The following table presents an analysis of nonvested restricted stock awards outstanding for the six months ended June 30, 2020:
| | | | | |
|
|
|
| Weighted | |
| | Number of | | Average Grant | |
| | Shares | | Date Fair Value | |
Nonvested Awards at December 31, 2019 |
| 132,960 | | $ | 12.92 |
Granted |
| 11,141 | | | 10.32 |
Vested |
| — | | | — |
Forfeited | | — | | | — |
Nonvested Awards at June 30, 2020 |
| 144,101 | | $ | 12.72 |
Compensation expense associated with the restricted stock awards is recognized on a straight-line basis over the period that the restrictions associated with the awards lapse based on the total cost of the award at the grant date. For the three and six months ended June 30, 2020, the Company recognized compensation expense for restricted stock awards of $113 and $221, respectively. NaN compensation expense was recognized for restricted stock awards for the three and six months ended June 30, 2019.
As of June 30, 2020, there was $1,582 of total unrecognized compensation cost related to nonvested restricted stock awards granted under the 2019 EIP that is expected to be recognized over a period of fivefour years.
The following is an analysis of nonvested options to purchase shares of the Company’s stock issued and outstanding forIn addition, during the six months ended June 30, 2019:2020, the Company issued 15,211 shares of common stock to directors as a part of their compensation for their annual services on the Company’s board of directors. The aggregate value of the shares issued to directors of $152 is included in stock based compensation expense in the accompanying consolidated statements of shareholders’ equity.
|
|
|
|
|
|
|
|
|
| Weighted | |
|
| Number of |
| Average Grant | |
|
| Shares |
| Date Fair Value | |
Nonvested Options at December 31, 2018 |
| 1,086,000 |
| $ | 2.78 |
Granted |
| 10,000 |
|
| 3.30 |
Vested |
| (119,000) |
|
| 1.67 |
Forfeited |
| (8,600) |
|
| 2.80 |
Nonvested Options at June 30, 2019 |
| 968,400 |
| $ | 2.92 |
26
Note 9:12: Regulatory Capital
Effective January 1, 2015, the capital requirements of the Company and the Bank were changed to implement the regulatory requirements of the Basel III capital reforms. The Basel III requirements, among other things, (i) apply a strengthened set of capital requirements to the Company and Bank, including requirements related to common equity as a component of core capital, (ii) implement a “capital conservation buffer” against risk and higher minimum tier 1 capital requirement, and (iii) revise the rules for calculating risk-weighted assets for purposes of such requirements. The rules made corresponding revisions to the prompt corrective action framework and include the new capital ratios and buffer requirements which were phased in incrementally, with full implementation on January 1, 2019. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve qualitative measures of their assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.
22
Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the tables below and defined in the regulations) of Total Capital to Risk Weighted Assets, Tier 1 Capital to Risk Weighted Assets, Common Equity Tier 1 Capital to Risk Weighted Assets, and Tier 1 Capital to Average Assets.
The following tables present the Company and the Bank’s capital amounts and ratios as of June 30, 20192020 and December 31, 2018:2019:
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Minimum Required | | For Capital Adequacy | | To be Well Capitalized | | |||||||||
| | | | | | | For Capital Adequacy | | Purposes Plus Capital | | Under Prompt Corrective | | |||||||||
| | Actual | | Purposes | | Conservation Buffer | | Action Regulations | | ||||||||||||
June 30, 2020 |
| Amount |
| Ratio |
| Amount |
| Ratio |
| Amount |
| Ratio | | Amount |
| Ratio | | ||||
| | (dollars in thousands) | | ||||||||||||||||||
Company (Consolidated): | | | | | | | | | | | | | | | | | | | | | |
Total Risk-Based Capital | | $ | 351,627 | | 15.99 | % | $ | 175,889 | | 8.00 | % | $ | 230,854 | | 10.50 | % | | N/A | | N/A | |
Tier 1 Risk-Based Capital | | | 250,480 | | 11.39 | | | 131,917 | | 6.00 | | | 186,882 | | 8.50 | | | N/A | | N/A | |
Common Equity Tier 1 Capital | | | 250,480 | | 11.39 | | | 98,937 | | 4.50 | | | 153,903 | | 7.00 | | | N/A | | N/A | |
Tier 1 Leverage Ratio | | | 250,480 | | 9.94 | | | 100,750 | | 4.00 | | | 100,750 | | 4.00 | | | N/A | | N/A | |
Bank: | | | | | | | | | | | | | | | | | | | | | |
Total Risk-Based Capital | | $ | 312,358 | | 14.21 | % | $ | 175,816 | | 8.00 | % | $ | 230,759 | | 10.50 | % | $ | 219,770 | | 10.00 | % |
Tier 1 Risk-Based Capital | | | 284,880 | | 12.96 | | | 131,862 | | 6.00 | | | 186,805 | | 8.50 | | | 175,816 | | 8.00 | |
Common Equity Tier 1 Capital | | | 284,880 | | 12.96 | | | 98,897 | | 4.50 | | | 153,839 | | 7.00 | | | 142,851 | | 6.50 | |
Tier 1 Leverage Ratio | | | 284,880 | | 11.36 | | | 100,289 | | 4.00 | | | 100,289 | | 4.00 | | | 125,361 | | 5.00 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Minimum Required |
| For Capital Adequacy |
| To be Well Capitalized |
| |||||||||
|
|
|
|
|
|
| For Capital Adequacy |
| Purposes Plus Capital |
| Under Prompt Corrective |
| |||||||||
|
| Actual |
| Purposes |
| Conservation Buffer |
| Action Regulations |
| ||||||||||||
June 30, 2019 |
| Amount |
| Ratio |
| Amount |
| Ratio |
| Amount |
| Ratio |
| Amount |
| Ratio |
| ||||
|
| (dollars in thousands) |
| ||||||||||||||||||
Company (Consolidated): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Risk-Based Capital |
| $ | 264,671 |
| 13.70 | % | $ | 154,553 |
| 8.00 | % | $ | 202,851 |
| 10.50 | % |
| N/A |
| N/A |
|
Tier 1 Risk-Based Capital |
|
| 221,806 |
| 11.48 |
|
| 115,915 |
| 6.00 |
|
| 164,213 |
| 8.50 |
|
| N/A |
| N/A |
|
Common Equity Tier 1 Capital |
|
| 221,806 |
| 11.48 |
|
| 86,936 |
| 4.50 |
|
| 135,234 |
| 7.00 |
|
| N/A |
| N/A |
|
Tier 1 Leverage Ratio |
|
| 221,806 |
| 10.75 |
|
| 82,551 |
| 4.00 |
|
| 82,551 |
| 4.00 |
|
| N/A |
| N/A |
|
Bank: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Risk-Based Capital |
| $ | 244,419 |
| 12.67 | % | $ | 154,339 |
| 8.00 | % | $ | 202,569 |
| 10.50 | % | $ | 192,923 |
| 10.00 | % |
Tier 1 Risk-Based Capital |
|
| 226,235 |
| 11.73 |
|
| 115,754 |
| 6.00 |
|
| 163,985 |
| 8.50 |
|
| 154,339 |
| 8.00 |
|
Common Equity Tier 1 Capital |
|
| 226,235 |
| 11.73 |
|
| 86,815 |
| 4.50 |
|
| 135,046 |
| 7.00 |
|
| 125,400 |
| 6.50 |
|
Tier 1 Leverage Ratio |
|
| 226,235 |
| 10.99 |
|
| 82,372 |
| 4.00 |
|
| 82,372 |
| 4.00 |
|
| 102,965 |
| 5.00 |
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Minimum Required |
| For Capital Adequacy |
| To be Well Capitalized |
| |||||||||
|
|
|
|
|
|
| For Capital Adequacy |
| Purposes Plus Capital |
| Under Prompt Corrective |
| |||||||||
|
| Actual |
| Purposes |
| Conservation Buffer |
| Action Regulations |
| ||||||||||||
December 31, 2018 |
| Amount |
| Ratio |
| Amount |
| Ratio |
| Amount |
| Ratio |
| Amount |
| Ratio |
| ||||
|
| (dollars in thousands) |
| ||||||||||||||||||
Company (Consolidated): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Risk-Based Capital |
| $ | 263,909 |
| 14.55 | % | $ | 145,111 |
| 8.00 | % | $ | 179,121 |
| 9.875 | % |
| N/A |
| N/A |
|
Tier 1 Risk-Based Capital |
|
| 218,888 |
| 12.07 |
|
| 108,833 |
| 6.00 |
|
| 142,844 |
| 7.875 |
|
| N/A |
| N/A |
|
Common Equity Tier 1 Capital |
|
| 218,888 |
| 12.07 |
|
| 81,625 |
| 4.50 |
|
| 115,635 |
| 6.375 |
|
| N/A |
| N/A |
|
Tier 1 Leverage Ratio |
|
| 218,888 |
| 11.23 |
|
| 77,971 |
| 4.00 |
|
| 77,971 |
| 4.00 |
|
| N/A |
| N/A |
|
Bank: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Risk-Based Capital |
| $ | 230,865 |
| 12.76 | % | $ | 144,776 |
| 8.00 | % | $ | 178,707 |
| 9.875 | % | $ | 180,970 |
| 10.00 | % |
Tier 1 Risk-Based Capital |
|
| 210,474 |
| 11.63 |
|
| 108,582 |
| 6.00 |
|
| 142,514 |
| 7.875 |
|
| 144,776 |
| 8.00 |
|
Common Equity Tier 1 Capital |
|
| 210,474 |
| 11.63 |
|
| 81,436 |
| 4.50 |
|
| 115,368 |
| 6.375 |
|
| 117,630 |
| 6.50 |
|
Tier 1 Leverage Ratio |
|
| 210,474 |
| 10.82 |
|
| 77,795 |
| 4.00 |
|
| 77,795 |
| 4.00 |
|
| 97,244 |
| 5.00 |
|
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Minimum Required | | For Capital Adequacy | | To be Well Capitalized | | |||||||||
| | | | | | | For Capital Adequacy | | Purposes Plus Capital | | Under Prompt Corrective | | |||||||||
| | Actual | | Purposes | | Conservation Buffer | | Action Regulations | | ||||||||||||
December 31, 2019 |
| Amount |
| Ratio |
| Amount |
| Ratio |
| Amount |
| Ratio | | Amount |
| Ratio | | ||||
| | (dollars in thousands) | | ||||||||||||||||||
Company (Consolidated): | | | | | | | | | | | | | | | | | | | | | |
Total Risk-Based Capital | | $ | 269,613 | | 12.98 | % | $ | 166,163 | | 8.00 | % | $ | 218,089 | | 10.50 | % | | N/A | | N/A | |
Tier 1 Risk-Based Capital | | | 236,533 | | 11.39 | | | 124,623 | | 6.00 | | | 176,549 | | 8.50 | | | N/A | | N/A | |
Common Equity Tier 1 Capital | | | 236,533 | | 11.39 | | | 93,467 | | 4.50 | | | 145,393 | | 7.00 | | | N/A | | N/A | |
Tier 1 Leverage Ratio | | | 236,533 | | 10.69 | | | 88,498 | | 4.00 | | | 88,498 | | 4.00 | | | N/A | | N/A | |
Bank: | | | | | | | | | | | | | | | | | | | | | |
Total Risk-Based Capital | | $ | 252,501 | | 12.16 | % | $ | 166,137 | | 8.00 | % | $ | 218,055 | | 10.50 | % | $ | 207,671 | | 10.00 | % |
Tier 1 Risk-Based Capital | | | 243,461 | | 11.72 | | | 124,603 | | 6.00 | | | 176,521 | | 8.50 | | | 166,137 | | 8.00 | |
Common Equity Tier 1 Capital | | | 243,461 | | 11.72 | | | 93,452 | | 4.50 | | | 145,370 | | 7.00 | | | 134,986 | | 6.50 | |
Tier 1 Leverage Ratio | | | 243,461 | | 11.01 | | | 88,455 | | 4.00 | | | 88,455 | | 4.00 | | | 110,569 | | 5.00 | |
The Company and the Bank must maintain a capital conservation buffer, as defined by Basel III regulatory capital guidelines, in order to avoid limitations on capital distributions, including dividend payments, stock repurchases and certain discretionary bonus payments to executive officers. The capital conservation buffer was fully phased-in on January 1, 2019 at 2.5%. The required phase-in capital conservation buffer during 2018 was 1.875%.
Note 10:13: Stock Repurchase Program
On January 22, 2019, the Company adopted a stock repurchase program. Under the repurchase program, the Company may repurchase up to $15$15.0 million of its common stock during the 24-month period beginning on January 22, 2019. The stock repurchase program permits the Company’s management to acquire shares of the Company’s common stock from time to time in the open market in accordance with Rule 10b-18 of the Exchange Act or in privately negotiated transactions at prices management considers to be attractive and in the best interests of the Company and its shareholders. The stock repurchase program does not obligate the Company to repurchase shares of its common stock.
23
Any repurchases are subject to compliance with applicable laws and regulations. Repurchases will be conducted in consideration of general market and economic conditions, regulatory requirements, availability of funds, and other relevant considerations, as determined by the Company. The stock repurchase program may be modified, suspended or discontinued at any time at the discretion of the Company’s Board of Directors.
On July 23, 2019, the Company’s Board of Directors approved a $10.0 million increase to the Company’s stock repurchase program, increasing the authorization to repurchase common stock under the program from a total of $15.0 million to up to a total of $25.0 million. The stock repurchase program continues through January 22, 2021.
During the three and six months ended June 30, 2019,2020, the Company repurchased 1,125,945-0- and 177,864 shares of its common stock, respectively, representing approximately 4%less than 1% of the Company’s outstanding shares. Shares were repurchased at a weighted average price of $11.20$11.52 for a total of $12.6$2.0 million. All shares repurchased under the stock repurchase program were converted to authorized but unissued shares. At June 30, 2019,2020, the remaining amount that could be used to repurchase shares under the stock repurchase program was $2.4$8.0 million. Although the stock repurchase program remains in place, the Company has not repurchased any shares since March 16, 2020. The Company remains committed to maintaining strong capital levels and will consider the current economic environment and the uncertainty of the long-term impact of the COVID-19 pandemic when evaluating its future utilization of the stock repurchase program. Management currently does not expect to begin repurchasing shares again until the effects of the COVID-19 pandemic have subsided.
Note 11:14: Fair Value Measurement
The Company categorizes its assets and liabilities measured at fair value into a three-level hierarchy based on the priority of the inputs to the valuation technique used to determine fair value. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to
28
unobservable inputs (Level 3). If the inputs used in the determination of the fair value measurement fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement. Assets and liabilities valued at fair value are categorized based on the inputs to the valuation techniques as follows:
Level 1 – Inputs that utilized quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access.
Level 2 – Inputs that include quoted prices for similar assets and liabilities in active markets and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instruments. Fair values for these instruments are estimated using pricing models, quoted prices of securities with similar characteristics, or discounted cash flows.
Level 3 – Inputs that are unobservable for the asset or liability, which are typically based on an entity’s own assumptions, as there is little, if any, related market activity.
Subsequent to initial recognition, the Company may re-measure the carrying value of assets and liabilities measured on a nonrecurring basis to fair value. Adjustments to fair value usually result when certain assets are impaired. Such assets are written down from their carrying amounts to their fair value.
Professional standards allow entities the irrevocable option to elect to measure certain financial instruments and other items at fair value for the initial and subsequent measurement on an instrument-by-instrument basis. The Company adopted the policy to value certain financial instruments at fair value. The Company has not elected to measure any existing financial instruments at fair value; however, it may elect to measure newly acquired financial instruments at fair value in the future.
24
Recurring Basis
The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. The following tables present the balances of the assets and liabilities measured at fair value on a recurring basis as of June 30, 20192020 and December 31, 2018:2019:
| | | | | | | | | | | | |
| | June 30, 2020 | ||||||||||
|
| Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||
Fair Value of Financial Assets: | | | | | | | | | | | | |
Securities Available for Sale: | | | | | | | | | | | | |
Municipal Bonds | | $ | — | | $ | 100,722 | | $ | — | | $ | 100,722 |
Mortgage-Backed Securities | | | — | | | 94,624 | | | — | | | 94,624 |
Corporate Securities | | | — | | | 55,630 | | | — | | | 55,630 |
SBA Securities | | | — | | | 44,054 | | | — | | | 44,054 |
Asset-Backed Securities | | | — | | | 31,265 | | | — | | | 31,265 |
Interest Rate Swaps | | | — | | | 3,749 | | | — | | | 3,749 |
Total Fair Value of Financial Assets | | $ | — | | $ | 330,044 | | $ | — | | $ | 330,044 |
Fair Value of Financial Liabilities: | | | | | | | | | | | | |
Interest Rate Swaps | | $ | — | | $ | 7,969 | | $ | — | | $ | 7,969 |
Total Fair Value of Financial Liabilities | | $ | — | | $ | 7,969 | | $ | — | | $ | 7,969 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| June 30, 2019 | ||||||||||
|
| Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||
Fair Value of Financial Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Securities Available for Sale: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury Securities |
| $ | 14,942 |
| $ | — |
| $ | — |
| $ | 14,942 |
Municipal Bonds |
|
| — |
|
| 103,440 |
|
| — |
|
| 103,440 |
Mortgage-Backed Securities |
|
| — |
|
| 47,642 |
|
| — |
|
| 47,642 |
Corporate Securities |
|
| — |
|
| 33,686 |
|
| — |
|
| 33,686 |
SBA Securities |
|
| — |
|
| 42,215 |
|
| — |
|
| 42,215 |
Interest Rate Swap |
|
| — |
|
| 115 |
|
| — |
|
| 115 |
Total Fair Value of Financial Assets |
| $ | 14,942 |
| $ | 227,098 |
| $ | — |
| $ | 242,040 |
Fair Value of Financial Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Swaps |
| $ | — |
| $ | 780 |
| $ | — |
| $ | 780 |
Total Fair Value of Financial Liabilities |
| $ | — |
| $ | 780 |
| $ | — |
| $ | 780 |
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2018 | ||||||||||
|
| Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||
Fair Value of Financial Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Securities Available for Sale: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury Securities |
| $ | 17,897 |
| $ | — |
| $ | — |
| $ | 17,897 |
Municipal Bonds |
|
| — |
|
| 118,133 |
|
| — |
|
| 118,133 |
Mortgage-Backed Securities |
|
| — |
|
| 47,176 |
|
| — |
|
| 47,176 |
Corporate Securities |
|
| — |
|
| 21,118 |
|
| — |
|
| 21,118 |
SBA Securities |
|
| — |
|
| 49,054 |
|
| — |
|
| 49,054 |
Interest Rate Swap |
|
| — |
|
| 352 |
|
| — |
|
| 352 |
Total Fair Value of Financial Assets |
| $ | 17,897 |
| $ | 235,833 |
| $ | — |
| $ | 253,730 |
| | | | | | | | | | | | |
| | December 31, 2019 | ||||||||||
|
| Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||
Fair Value of Financial Assets: | | | | | | | | | | | | |
Securities Available for Sale: | | | | | | | | | | | | |
U.S. Treasury Securities | | $ | 4,998 | | $ | — | | $ | — | | $ | 4,998 |
Municipal Bonds | | | — | | | 105,743 | | | — | | | 105,743 |
Mortgage-Backed Securities | | | — | | | 64,728 | | | — | | | 64,728 |
Corporate Securities | | | — | | | 50,176 | | | — | | | 50,176 |
SBA Securities | | | — | | | 49,559 | | | — | | | 49,559 |
Asset-Backed Securities | | | — | | | 14,673 | | | — | | | 14,673 |
Interest Rate Swaps | | | — | | | 284 | | | — | | | 284 |
Total Fair Value of Financial Assets | | $ | 4,998 | | $ | 285,163 | | $ | — | | $ | 290,161 |
Fair Value of Financial Liabilities: | | | | | | | | | | | | |
Interest Rate Swaps | | $ | — | | $ | 902 | | $ | — | | $ | 902 |
Total Fair Value of Financial Liabilities | | $ | — | | $ | 902 | | $ | — | | $ | 902 |
Investment Securities
When available, the Company uses quoted market prices to determine the fair value of investment securities; such items are classified in Level 1 of the fair value hierarchy.
For the Company’s investments, when quoted prices are not available for identical securities in an active market, the Company determines fair value utilizing vendors who apply matrix pricing for similar bonds where no price is observable or may compile prices from various sources. These models are primarily industry-standard models that consider various assumptions, including time value, yield curve, volatility factors, prepayment speeds, default rates, loss severity, current market, and contractual prices for the underlying financial instruments, as well as other relevant economic measures. Substantially, all of these assumptions are observable in the marketplace and can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace. Fair values from these models are verified, where possible, against quoted market prices for recent trading activity of assets with similar characteristics to the security being valued. Such methods are generally classified as Level 2. However, when prices from independent sources vary, or cannot be obtained or corroborated, a security is generally classified as Level 3.
Interest Rate SwapSwaps
Interest rate swaps are traded in over-the-counter markets where quoted market prices are not readily available. For those interest rate swaps, fair value is determined using internally developed models of a third party that uses
25
primarily market observable inputs, such as yield curves and option volatilities, and accordingly are valued using Level 2 inputs.
Nonrecurring Basis
Certain assets are measured at fair value on a nonrecurring basis. These assets are not measured at fair value on an ongoing basis; however, they are subject to fair value adjustments in certain circumstances, such as when there is evidence of impairment or a change in the amount of previously recognized impairment.
30
The following tables present net impairment losses related to nonrecurring fair value measurements of certain assets at June 30, 20192020 and December 31, 2018:2019:
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
|
| June 30, 2019 | ||||||||||||||||||||||
|
| Level 1 |
| Level 2 |
| Level 3 |
| Loss | ||||||||||||||||
| | | | | | | | | | | | | ||||||||||||
| | June 30, 2020 | ||||||||||||||||||||||
|
| Level 1 |
| Level 2 |
| Level 3 |
| Loss | ||||||||||||||||
Impaired Loans |
| $ | — |
| $ | 332 |
| $ | — |
| $ | 109 | | $ | — | | $ | 75 | | $ | — | | $ | 67 |
Foreclosed Assets |
|
| — |
|
| 1,033 |
|
| — |
|
| — | ||||||||||||
Totals |
| $ | — |
| $ | 1,365 |
| $ | — |
| $ | 109 | | $ | — | | $ | 75 | | $ | — | | $ | 67 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
|
| December 31, 2018 | ||||||||||||||||||||||
|
| Level 1 |
| Level 2 |
| Level 3 |
| Loss | ||||||||||||||||
| | | | | | | | | | | | | ||||||||||||
| | December 31, 2019 | ||||||||||||||||||||||
|
| Level 1 |
| Level 2 |
| Level 3 |
| Loss | ||||||||||||||||
Impaired Loans |
| $ | — |
| $ | 426 |
| $ | — |
| $ | 396 | | $ | — | | $ | 75 | | $ | — | | $ | 206 |
Totals |
| $ | — |
| $ | 426 |
| $ | — |
| $ | 396 | | $ | — | | $ | 75 | | $ | — | | $ | 206 |
Impaired Loans
In accordance with the provisions of the loan impairment guidance, impairment is measured on loans when it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement. The fair value of impaired loans is estimated using one of several methods, including collateral value, market value of similar debt, or discounted cash flows. Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceeds the recorded investments in such loans. Impaired loans for which an allowance is established based on the fair value of collateral require classification in the fair value hierarchy. Collateral values are estimated using Level 2 inputs based on customized discounting criteria.
Impairment amounts on impaired loans represent specific valuation allowance and write-downs during the period presented on impaired loans that were individually evaluated for impairment based on the estimated fair value of the collateral less estimated selling costs, excluding impaired loans fully charged-off.
Foreclosed Assets
Foreclosed assets are recorded at fair value based on property appraisals, less estimated selling costs, at the date of the transfer with any impairment amount charged to the allowance for loan losses. Subsequent to the transfer, foreclosed assets are carried at the lower of cost or fair value, less estimated selling costs with changes in fair value or any impairment amount recorded in other noninterest income. Values are estimated using Level 2 inputs based on customized discounting criteria. The carrying value of foreclosed assets is not re-measured to fair value on a recurring basis, but is subject to fair value adjustments when the carrying value exceeds the fair value, less estimated selling costs.
Fair Value
Disclosure of fair value information about financial instruments, for which it is practicable to estimate that value, is required whether or not recognized in the consolidated balance sheets. In cases where quoted market prices are not available, fair values are based on estimates using present value of cash flow or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimate of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases could not be realized in immediate settlement of the instruments. Certain financial instruments with a fair
26
value that is not practicable to estimate and all non-financial instruments are excluded from the disclosure requirements. Accordingly, the aggregate fair value amounts presented do not necessarily represent the underlying value of the Company.
Fair value estimates are made at a specific point in time based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular instrument. Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters that could affect the estimates. Fair value estimates are based on existing on and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business. Deposits with no stated maturities are defined as having a fair value equivalent to the amount payable on demand. This prohibits adjusting fair value derived from retaining those deposits for an expected future period of time. This component, commonly referred to as a deposit base intangible, is neither considered in the above amounts nor is it recorded as an intangible asset on the balance sheet. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates.
31
The following tables present the carrying amount and estimated fair values of financial instruments at June 30, 20192020 and December 31, 2018:2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
|
| June 30, 2019 | ||||||||||||||||||||||||||||
|
|
|
|
| Fair Value Hierarchy |
|
|
| ||||||||||||||||||||||
|
| Carrying |
|
|
|
|
|
|
|
|
|
| Estimated | |||||||||||||||||
|
| Amount |
| Level 1 |
| Level 2 |
| Level 3 |
| Fair Value | ||||||||||||||||||||
| | | | | | | | | | | | | | | | |||||||||||||||
| | June 30, 2020 | ||||||||||||||||||||||||||||
| | | | | Fair Value Hierarchy | | | | ||||||||||||||||||||||
| | Carrying | | | | | | | | | | | Estimated | |||||||||||||||||
|
| Amount |
| Level 1 |
| Level 2 |
| Level 3 |
| Fair Value | ||||||||||||||||||||
Financial Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | |
Cash and Due From Banks |
| $ | 66,389 |
| $ | 66,389 |
| $ | — |
| $ | — |
| $ | 66,389 | | $ | 178,428 | | $ | 178,428 | | $ | — | | $ | — | | $ | 178,428 |
Bank-Owned Certificates of Deposit |
|
| 2,699 |
|
| — |
|
| 2,725 |
|
| — |
|
| 2,725 | | | 2,895 | | | — | | | 2,967 | | | — | | | 2,967 |
Securities Available for Sale |
|
| 241,925 |
|
| 14,942 |
|
| 226,983 |
|
| — |
|
| 241,925 | | | 326,295 | | | — | | | 326,295 | | | — | | | 326,295 |
FHLB Stock, at Cost |
|
| 8,064 |
|
| — |
|
| 8,064 |
|
| — |
|
| 8,064 | | | 8,617 | | | — | | | 8,617 | | | — | | | 8,617 |
Loans, Net |
|
| 1,758,384 |
|
| — |
|
| 1,756,716 |
|
| — |
|
| 1,756,716 | | | 2,155,858 | | | — | | | 2,195,310 | | | | | | 2,195,310 |
Accrued Interest Receivable |
|
| 7,583 |
|
| — |
|
| 7,583 |
|
| — |
|
| 7,583 | | | 8,267 | | | — | | | 8,267 | | | — | | | 8,267 |
Interest Rate Swap |
|
| 115 |
|
| — |
|
| 115 |
|
| — |
|
| 115 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Interest Rate Swaps | | | 3,749 | | | — | | | 3,749 | | | — | | | 3,749 | |||||||||||||||
| | | | | | | | | | | | | | | | |||||||||||||||
Financial Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | |
Deposits |
| $ | 1,699,265 |
| $ | — |
| $ | 1,705,562 |
| $ | — |
| $ | 1,705,562 | | $ | 2,242,051 | | $ | — | | $ | 2,254,352 | | $ | — | | $ | 2,254,352 |
Notes Payable |
|
| 14,000 |
|
| — |
|
| 14,157 |
|
| — |
|
| 14,157 | | | 12,000 | | | — | | | 12,001 | | | — | | | 12,001 |
FHLB Advances |
|
| 142,500 |
|
| — |
|
| 146,616 |
|
| — |
|
| 146,616 | | | 147,500 | | | — | | | 154,519 | | | — | | | 154,519 |
Subordinated Debentures |
|
| 24,681 |
|
| — |
|
| 25,715 |
|
| — |
|
| 25,715 | | | 73,658 | | | — | | | 74,840 | | | — | | | 74,840 |
Accrued Interest Payable |
|
| 2,109 |
|
| — |
|
| 2,109 |
|
| — |
|
| 2,109 | | | 1,953 | | | — | | | 1,953 | | | — | | | 1,953 |
Interest Rate Swap |
|
| 780 |
|
| — |
|
| 780 |
|
| — |
|
| 780 | |||||||||||||||
Interest Rate Swaps | | | 7,969 | | | — | | | 7,969 | | | — | | | 7,969 |
| | | | | | | | | | | | | | | |
| | December 31, 2019 | |||||||||||||
| | | | | Fair Value Hierarchy | | | | |||||||
| | Carrying | | | | | | | | | | | Estimated | ||
|
| Amount |
| Level 1 |
| Level 2 |
| Level 3 |
| Fair Value | |||||
Financial Assets: | | | | | | | | | | | | | | | |
Cash and Due From Banks | | $ | 31,935 | | $ | 31,935 | | $ | — | | $ | — | | $ | 31,935 |
Bank-Owned Certificates of Deposit | | | 2,654 | | | — | | | 2,677 | | | — | | | 2,677 |
Securities Available for Sale | | | 289,877 | | | 4,998 | | | 284,879 | | | — | | | 289,877 |
FHLB Stock, at Cost | | | 7,824 | | | — | | | 7,824 | | | — | | | 7,824 |
Loans, Net | | | 1,884,000 | | | — | | | 1,891,987 | | | — | | | 1,891,987 |
Accrued Interest Receivable | | | 6,775 | | | — | | | 6,775 | | | — | | | 6,775 |
Interest Rate Swaps | | | 284 | | | — | | | 284 | | | — | | | 284 |
| | | | | | | | | | | | | | | |
Financial Liabilities: | | | | | | | | | | | | | | | |
Deposits | | $ | 1,823,310 | | $ | — | | $ | 1,821,915 | | $ | — | | $ | 1,821,915 |
Notes Payable | | | 13,000 | | | — | | | 13,022 | | | — | | | 13,022 |
FHLB Advances | | | 136,500 | | | — | | | 141,152 | | | — | | | 141,152 |
Subordinated Debentures | | | 24,733 | | | — | | | 25,309 | | | — | | | 25,309 |
Accrued Interest Payable | | | 1,982 | | | — | | | 1,982 | | | — | | | 1,982 |
Interest Rate Swaps | | | 902 | | | — | | | 902 | | | — | | | 902 |
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2018 | |||||||||||||
|
|
|
|
| Fair Value Hierarchy |
|
|
| |||||||
|
| Carrying |
|
|
|
|
|
|
|
|
|
| Estimated | ||
|
| Amount |
| Level 1 |
| Level 2 |
| Level 3 |
| Fair Value | |||||
Financial Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Due From Banks |
| $ | 28,444 |
| $ | 28,444 |
| $ | — |
| $ | — |
| $ | 28,444 |
Bank-Owned Certificates of Deposit |
|
| 3,305 |
|
| — |
|
| 3,292 |
|
| — |
|
| 3,292 |
Securities Available for Sale |
|
| 253,378 |
|
| 17,897 |
|
| 235,481 |
|
| — |
|
| 253,378 |
FHLB Stock, at Cost |
|
| 7,614 |
|
| — |
|
| 7,614 |
|
| — |
|
| 7,614 |
Loans, Net |
|
| 1,640,385 |
|
| — |
|
| 1,634,196 |
|
| — |
|
| 1,634,196 |
Accrued Interest Receivable |
|
| 6,589 |
|
| — |
|
| 6,589 |
|
| — |
|
| 6,589 |
Interest Rate Swap |
|
| 352 |
|
| — |
|
| 352 |
|
| — |
|
| 352 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
| $ | 1,560,934 |
| $ | — |
| $ | 1,560,488 |
| $ | — |
| $ | 1,560,488 |
Federal Funds Purchased |
|
| 18,000 |
|
| — |
|
| 18,000 |
|
| — |
|
| 18,000 |
Notes Payable |
|
| 15,000 |
|
| — |
|
| 15,551 |
|
| — |
|
| 15,551 |
FHLB Advances |
|
| 124,000 |
|
| — |
|
| 124,952 |
|
| — |
|
| 124,952 |
Subordinated Debentures |
|
| 24,630 |
|
| — |
|
| 25,365 |
|
| — |
|
| 25,365 |
Accrued Interest Payable |
|
| 1,806 |
|
| — |
|
| 1,806 |
|
| — |
|
| 1,806 |
The following methods and assumptions were used by the Company to estimate fair value of consolidated financial statements not previously discussed.
Cash and due from banks – The carrying amount of cash and cash equivalents approximates their fair value.
Bank-owned certificates of deposit – Fair values of bank-owned certificates of deposit are estimated using the discounted cash flow analysis based on current rates for similar types of deposits.
FHLB stock – The carrying amount of FHLB stock approximates its fair value.
32
Loans, Net – Fair values for loans are estimated based on discounted cash flows, using interest rates currently being offered for loans with similar terms to borrowers with similar credit quality.
Accrued interest receivable – The carrying amount of accrued interest receivable approximates its fair value since it is short term in nature and does not present anticipated credit concerns.
Deposits – The fair values disclosed for demand deposits without stated maturities (interest and noninterest transaction, savings, and money market accounts) are equal to the amount payable on demand at the reporting date (their carrying amounts). Fair values for the fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits.
Federal funds purchased – The carrying amount of federal funds purchased approximates the fair value.
Notes payable and subordinated debtdebentures – The fair valuevalues of the Company’s notes payable and subordinated debt are estimated using a discounted cash flow analysis, based on the Company’s current incremental borrowing rate for similar types of borrowing arrangements.
FHLB advances – The fair values of the Company’s FHLB advances are estimated using discounted cash flow analysis based on the Company’s current incremental borrowing rates for similar types of borrowing agreements.
Accrued interest payable – The carrying amount of accrued interest payable approximates its fair value since it is short term in nature.
28
Off-balance sheet instruments – Fair values of the Company’s off-balance sheet instruments (lending commitments and unused lines of credit) are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements, the counterparties’ credit standing and discounted cash flow analysis. The fair value of these off-balance-sheet items approximates the recorded amounts of the related fees and was not material at June 30, 20192020 and December 31, 2018.2019.
Limitations – The fair value of a financial instrument is the current amount that would be exchanged between market participants, other than in a forced liquidation. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument. Consequently, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.
Note 12: Subsequent Events
On July 23, 2019, the Company’s Board of Directors approved a $10 million increase to the Company’s stock repurchase program that was originally announced in January 2019, increasing the authorization to repurchase common stock under the program from a total of $15 million to a total of $25 million. The stock repurchase program continues through January 22, 2021.
Any repurchases are subject to compliance with applicable laws and regulations. Repurchases will be conducted in consideration of general market and economic conditions, regulatory requirements, availability of funds, and other relevant considerations, as determined by the Company. The stock repurchase program may be modified, suspended or discontinued at any time at the discretion of the Company’s Board of Directors.
2933
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
General
The following discussion explains the Company’s financial condition and results of operations as of and for the three and six months ended June 30, 2019.2020. Annualized results for these interim periods may not be indicative of results for the full year or future periods. The following discussion and analysis should be read in conjunction with the consolidated financial statements and related notes presented elsewhere in this report and the Company’s Annual Report on Form 10-K for the year ended December 31, 2018,2019, filed with the Securities and Exchange Commission, (the “SEC”)or the SEC, on March 14, 2019.12, 2020.
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements include, without limitation, statements concerning plans, estimates, calculations, forecasts and projections with respect to the anticipated future performance of the Company. These statements are often, but not always, identified by words such as “may”, “might”, “should”, “could”, “predict”, “potential”, “believe”, “expect”, “continue”, “will”, “anticipate”, “seek”, “estimate”, “intend”, “plan”, “projection”, “would”, “annualized”, “target” and “outlook”, or the negative version of those words or other comparable words of a future or forward-looking nature. Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations and assumptions regarding our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, the following:
| the negative effects of the COVID-19 pandemic, including its effects on the economic environment, our clients and our operations, as well as any changes to federal, state or local government laws, regulations or orders in connection with the pandemic; |
● | loan concentrations in our portfolio; |
| the overall health of the local and national real estate market; |
|
|
| business and economic conditions generally and in the financial services industry, nationally and within our market area; |
|
|
| new or revised accounting standards, including as a result of the future implementation of the Current Expected Credit Loss standard; |
| the concentration of large loans to certain borrowers; |
|
|
|
|
|
|
| the concentration of large deposits from certain clients; |
| the ability to raise additional capital to implement our business plan; |
|
|
| developments and uncertainty related to the future use and availability of some reference rates, such as the London Interbank Offered Rate, as well as other alternative reference rates; |
● | the composition of our senior leadership team and our ability to attract and retain key personnel; |
34
| the occurrence of fraudulent activity, breaches or failures of our information security controls or cybersecurity-related incidents; |
| interruptions involving our information technology and telecommunications systems or third-party servicers; |
| competition in the financial services industry; |
| severe weather, natural disasters, wide spread disease or pandemics (including the COVID-19 pandemic), acts of war or terrorism or other adverse external events; |
● | the effectiveness of our risk management framework; |
| the commencement and outcome of litigation and other legal proceedings and regulatory actions against us; |
30
| the impact of recent and future legislative and regulatory changes; |
| interest rate risk; |
| fluctuations in the values of the securities held in our securities portfolio; |
| changes in federal tax law or policy; |
● | the imposition of tariffs or other governmental policies impacting the value of products produced by our commercial borrowers; |
| potential impairment to the goodwill we recorded in connection with our past acquisition; and |
● | any other risks described in the “Risk Factors” section of this report and in the Company’s Annual Report on Form 10-K as of December 31, |
The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in this report. In addition, past results of operations are not necessarily indicative of future results. Any forward-looking statement made by us in this report is based only on information currently available to us and speaks only as of the date on which it is made. We undertake no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise.
Overview
The Company is a financial holding company headquartered in Bloomington, Minnesota. The principal sources of funds for loans and investments are transaction, savings, time, and other deposits, and short-term and long-term borrowings. The Company’s principal sources of income are interest and fees collected on loans, interest and dividends earned on investment securities and service charges. The Company’s principal expenses are interest paid on deposit accounts and borrowings, employee compensation and other overhead expenses. The Company’s simple, efficient business model of providing responsive support and unconventional experiences to clients continues to be the underlying principle that drives the Company’s profitable growth.
Information Regarding COVID-19 Impact
Financial Position and Results of Operations. The outbreak of the novel coronavirus, or COVID-19, which was declared a pandemic by the World Health Organization on March 11, 2020, has continued to create uncertainty and extraordinary change for the Company, its clients, its communities and the country as a whole. In response to this pandemic, the Company rapidly deployed its business continuity plan and continues to take steps to protect the health and safety of its employees and clients. Given the fluidity of the situation, management cannot estimate the duration and full impact of the COVID-19 pandemic on the economy, financial markets and the Company’s financial condition and results of operations. At this point, management does not expect that the Company’s financial results in future quarters will track with the Company’s historical performance.
Effects on the Company’s Market Area. The Company’s primary banking market area is the Minneapolis-St. Paul-Bloomington, MN-WI Metropolitan Statistical Area. In Minnesota, the Governor issued an order on March 25,
35
2020 that, subject to limited exceptions, required individuals to stay at home and non-essential businesses to cease all activities, other than minimum basic operations. This order was lifted as of May 18, 2020, and the state has entered a phased-in approach to reopening, where businesses must operate under certain restrictions based on the nature and industry of the business. As a result of the order and restrictions, Minnesota has experienced a dramatic and sudden increase in unemployment levels, significant stress on personal and business income, and recessionary economic conditions. Recent increases in COVID-19 infections across the nation have created uncertainty surrounding the future recovery of many companies’ operations and the local economy. Fortunately, to date Minnesota has been less impacted by the virus than other states in terms of cases and deaths.
Policy and Regulatory Developments. Federal, state and local governments and regulatory authorities have enacted and issued a range of policy responses to the COVID-19 pandemic, including the following:
● | The Federal Reserve decreased the range for the Federal Funds Target Rate by 0.50% on March 3, 2020, and by another 1.0% on March 16, 2020, reaching a current range of 0.00 – 0.25%. |
● | On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief and Economic Security Act, or CARES Act, which established a $2.0 trillion economic stimulus package, including cash payments to individuals, supplemental unemployment insurance benefits and a $349 billion loan program administered through the U.S. Small Business Administration, or SBA, referred to as the Paycheck Protection Program, or PPP. Under the PPP, small businesses, sole proprietorships, independent contractors and self-employed individuals may apply for loans from existing SBA lenders and other approved regulated lenders that enroll in the program, subject to numerous limitations and eligibility criteria. The Bank is participating as a lender in the PPP. On or about April 16, 2020, the SBA notified lenders that the $349 billion earmarked for the PPP was exhausted. On April 24, 2020, an additional $310 billion in funding for PPP loans was authorized, with such funds available for PPP loans beginning on April 27, 2020. In addition, the CARES Act provides financial institutions the option to temporarily suspend certain requirements under GAAP related to troubled debt restructurings, or TDRs, for a limited period of time to account for the effects of COVID-19. The Company is applying this guidance to qualifying loan modifications. |
● | On April 7, 2020, federal banking regulators issued a revised Interagency Statement on Loan Modifications and Reporting for Financial Institutions, which, among other things, encouraged financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations because of the effects of COVID-19, and stated that institutions generally do not need to categorize COVID-19-related modifications as TDRs and that the agencies will not direct supervised institutions to automatically categorize all COVID-19 related loan modifications as TDRs. |
● | On April 9, 2020, the Federal Reserve announced additional measures aimed at supporting small and midsized business, as well as state and local governments impacted by COVID-19. The Federal Reserve also stated that it would provide additional funding to banks offering PPP loans to struggling small businesses. Lenders participating in the PPP will be able to exclude loans pledged to the facility from their leverage ratio. |
● | In addition to the policy responses described above, the federal bank regulatory agencies, along with their state counterparts, have issued a stream of guidance in response to the COVID-19 pandemic and have taken a number of unprecedented steps to help banks navigate the pandemic and mitigate its impact. These include, without limitation: requiring banks to focus on business continuity and pandemic planning; adding pandemic scenarios to stress testing; encouraging bank use of capital buffers and reserves in lending programs; permitting certain regulatory reporting extensions; reducing margin requirements on swaps; permitting certain otherwise prohibited investments in investment funds; issuing guidance to encourage banks to work with customers affected by the pandemic and encourage loan workouts; and providing credit under the Community Reinvestment Act, or CRA, for certain pandemic-related loans, investments and public service. Moreover, because of the need for social distancing measures, the agencies revamped the manner in which they conducted periodic examinations of their |
36
regulated institutions, including making greater use of off-site reviews. The Federal Reserve also issued guidance encouraging banking institutions to utilize its discount window for loans and intraday credit extended by its Reserve Banks to help households and businesses impacted by the pandemic and announced numerous funding facilities. The FDIC has also acted to mitigate the deposit insurance assessment effects of participating in the PPP and the Federal Reserve’s PPP Liquidity Facility and Money Market Mutual Fund Liquidity Facility. |
Capital and Liquidity. At June 30, 2020, the Company and Bank’s capital ratios were in excess of all regulatory requirements. The Company maintains access to multiple sources of liquidity. The Company has taken additional action to ensure the strength of its liquidity position by establishing borrowing capacity through the Federal Reserve lending facility in connection with funding PPP loans.
In addition, the Company issued $50.0 million of 5.25% Fixed-to-Floating Rate Subordinated Notes due June 2030 in a private placement on June 19, 2020. These notes are callable starting in 2025 and qualify for tier 2 capital treatment at the holding company level. The Company injected $25.0 million of capital into the Bank in connection with the subordinated note issuance, which qualifies for tier 1 capital treatment at the bank level.
Asset Valuation. During the six months ended June 30, 2020, the economic turmoil and market volatility resulting from the COVID-19 pandemic resulted in a substantial decrease in the Company’s stock price and market capitalization. The Company believed such decrease was a triggering event requiring an interim goodwill impairment analysis as of March 31, 2020. The Company performed an interim analysis and determined that goodwill was not more likely than not impaired, resulting in no impairment charge for the period. In the event that all or a portion of goodwill is impaired, a non-cash charge for the amount of such impairment would be recorded to earnings. Such a charge would have no impact on tangible capital or regulatory capital. At June 30, 2020, the Company had goodwill of $2.6 million.
Active Management of Credit Risk. The Company has modified its internal policies to increase oversight and analysis of all credits, especially in vulnerable industries such as hospitality to proactively monitor evolving credit risk. With the change in economic conditions and uncertain duration of the COVID-19 pandemic, the Company’s portfolio is expected to be negatively impacted and management expects delinquencies and charge-offs to rise in future periods due to the continued impact of the COVID-19 pandemic. The Company has not yet experienced charge-offs related to the COVID-19 pandemic, but the continued uncertainty regarding the severity and duration of the pandemic and related economic effects has and will continue to affect the Company’s estimate of its allowance for loan losses and resulting provision for loan losses. The Company will continue to monitor credits closely while working with clients to provide relief when appropriate.
COVID-19 Related Loan Deferrals and PPP Lending. The Company has developed programs for assisting existing clients through this uncertain time by providing, when appropriate, loan modifications that may include loan payment deferrals or interest-only modifications. As of June 30, 2020, the Company had closed loan modifications for 160 loans totaling $293.0 million. Of that total, loan modifications to interest-only payments totaled $175.3 million and loans with payment deferrals totaled $117.7 million. In accordance with recent regulatory guidance and the CARES Act, loans modified in response to the COVID-19 pandemic will not be considered TDRs.
In a further effort to assist both existing and new clients, the Company participated in government loan programs through the SBA, primarily the PPP. As of June 30, 2020, principal balances originated during the quarter totaled $180.2 million and resulted in fees from the SBA, net of costs, of $5.7 million, $528,000 of which was recognized in the second quarter of 2020.
Processes, Controls, and Business Continuity. The Company’s operations are being conducted in material compliance with current federal, state and local government guidelines regarding social distancing, sanitation, and personal hygiene. Throughout the quarter, the Company operated its bank branches with modified hours and limited locations. In June, the Company started to expand hours and reopen branch locations providing clients with full-service options at all but the Company’s two downtown locations, where offices remain closed and traffic would be minimal. To ensure the safety of the Company’s staff and clients, masks are mandatory and proper social distancing protocols are enforced. Non-branch personnel continue to work remotely. A COVID-19 Preparedness Plan has been created outlining
37
the protocols for employees as they return to the office, which is currently scheduled for mid-August. Additional details about the Company’s COVID-19 pandemic assistance programs, including relevant disclosures and up-to-date information, are maintained at bwbmn.com.
The Company’s investments in technology, digital platforms and electronic banking have allowed clients and employees to transact with minimal interruption during this time of uncertainty. Additional staff have been assigned to assist clients over the telephone and work with clients on new enrollments in online banking and other treasury management services. Internally, these investments in technology have enabled increased communication capabilities for departments by use of video conferencing, chat, and other collaborative features.
The Company believes it is positioned to continue these business continuity measures for the foreseeable future; however, no assurances can be provided as circumstances may change depending on the duration of the pandemic.
Critical Accounting Policies and Estimates
The consolidated financial statements of the Company are prepared based on the application of certain accounting policies, the most significant of which are described in Note 1 of the notes to the consolidated financial statements included as a part of the Company’s Annual Report on Form 10-K. Certain of these policies require numerous estimates and strategic or economic assumptions that may prove inaccurate or subject to variation and may significantly affect the reported results and financial position for the current period or in future periods. The use of estimates, assumptions, and judgments are necessary when financial assets and liabilities are required to be recorded or adjusted to reflect fair value. Assets carried at fair value inherently result in more financial statement volatility. Fair values and information used to record valuation adjustments for certain assets and liabilities are based on either quoted market prices or are provided by other independent third-party sources, when available. When such information is not available, management estimates valuation adjustments. Changes in underlying factors, assumptions or estimates in any of these areas could have a material impact on the future financial condition and results of operations of the Company. Management has discussed each critical accounting policy and the methodology for the identification and determination of critical accounting policies with the Company's Audit Committee.
The JOBS Act permits the Company an extended transition period for complying with new or revised accounting standards affecting public companies. The Company has elected to take advantage of this extended transition period, which means that the financial statements included in this report, as well as any financial statements filed in the future, will not be subject to all new or revised accounting standards generally applicable to public companies for the transition period for so long as the Company remains an emerging growth company or until the Company affirmatively and irrevocably opts out of the extended transition period under the JOBS Act.
The following is a discussion of the critical accounting policies and significant estimates that require usthe Company to make complex and subjective judgements.
Allowance for Loan Losses
The allowance for loan losses, sometimes referred to as the “allowance,” is established through a provision for loan losses which is charged to expense. Loan losses are charged against the allowance when management determines all
31
or a portion of the loan balance to be uncollectible. Subsequent recoveries, if any, are credited to the allowance for cash received on previously charged-off amounts. If the allowance is considered inadequate to absorb future loan losses on existing loans for any reason, including but not limited to, increases in the size of the loan portfolio, increases in charge-offs or changes in the risk characteristics of the loan portfolio, then the provision for loan losses is increased.
A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the original contractual terms of the loan agreement. The collection of all amounts due according to original contractual terms means that both the contractual interest and principal payments of a loan will be collected as scheduled in the loan agreement. An impaired loan is measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate, or, as a practical
38
expedient, at the loan’s observable market price, or the fair value of the underlying collateral, reduced by costs to sell on a discounted basis, is used if a loan is collateral dependent.
Investment Securities Impairment
Periodically, the Company may need to assess whether there have been any events or economic circumstances to indicate that a security on which there is an unrealized loss is impaired on an other than temporary basis. In any such instance, the Company would consider many factors, including the length of time and the extent to which the fair value has been less than the amortized cost basis, the market liquidity for the security, the financial condition and the near-term prospects of the issuer, expected cash flows, and the intent and ability to hold the investment for a period of time sufficient to recover the temporary loss. Securities on which there is an unrealized loss that is deemed to be other than temporary are written down to fair value, with the write-down recorded as a realized loss in securities gains (losses).
The fair values of investment securities are generally determined by various pricing models. The Company evaluates the methodologies used to develop the resulting fair values. The Company performs a semi-annual analysis on the pricing of investment securities to ensure that the prices represent reasonable estimates of fair value. The procedures include initial and ongoing reviews of pricing methodologies and trends. The Company seeks to ensure prices represent reasonable estimates of fair value through the use of broker quotes, current sales transactions from the portfolio and pricing techniques, which are based on the net present value of future expected cash flows discounted at a rate of return market participants would require. As a result of this analysis, if the Company determines there is a more appropriate fair value, the price is adjusted accordingly.
Fair Value of Financial Instruments
The fair value of a financial instrument is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the market in which the reporting entity transacts business. A framework has been established for measuring the fair value of financial instruments that considers the attributes specific to particular assets or liabilities and includes a three-level hierarchy for determining fair value based on the transparency of inputs to each valuation as of the measurement date. The Company estimates the fair value of financial instruments using a variety of valuation methods. When financial instruments are actively traded and have quoted market prices, quoted market prices are used for fair value and are classified as Level 1. When financial instruments, such as investment securities and derivatives, are not actively traded, the Company determines fair value based on various sources and may apply matrix pricing with observable prices for similar instruments where a price for the identical instrument is not observable. The fair values of these financial instruments, which are classified as Level 2, are determined by pricing models that consider observable market data such as interest rate volatilities, London Interbank Offered Rate, or LIBOR, yield curve, credit spreads, prices from external market data providers and/or nonbinding broker-dealer quotations. When observable inputs do not exist, the Company estimates fair value based on available market data, and these values are classified as Level 3. Imprecision in estimating fair values can impact the carrying value of assets and liabilities and the amount of revenue or loss recorded.
Deferred Tax Asset
The Company uses the asset and liability method of accounting for income taxes as prescribed by GAAP. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.basis. If currently available information indicates it is “more likely than not” that the deferred tax asset will not be realized, a valuation allowance is established. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Accounting for deferred income taxes is a critical accounting estimate because the Company exercises significant judgment in evaluating the amount and timing of recognition of the resulting tax liabilities and assets. Management’s determination of the realization of deferred tax assets is based upon management’s judgment of various future events and uncertainties, including the timing and amount of future income, reversing temporary differences which may offset, and the implementation of various tax plans to maximize realization of the deferred tax asset. These judgments and estimates are inherently subjective and reviewed on a continual basis as regulatory and business factors
39
change. Any reduction in estimated future taxable income may require usthe Company to record a valuation allowance against the deferred tax assets. A valuation allowance would result in additional income tax expense in such period, which would negatively affect earnings.
3240
Operating Results Overview
The following table summarizes certain key financial results for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| As of and for the Three Months Ended |
| |||||||||||||
|
| June 30, |
| March 31, |
| December 31, |
| September 30, |
| June 30, |
| |||||
|
| 2019 |
| 2019 |
| 2018 |
| 2018 |
| 2018 |
| |||||
Per Common Share Data (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Earnings Per Share |
| $ | 0.27 |
| $ | 0.23 |
| $ | 0.26 |
| $ | 0.22 |
| $ | 0.22 |
|
Diluted Earnings Per Share |
|
| 0.26 |
|
| 0.23 |
|
| 0.25 |
|
| 0.21 |
|
| 0.22 |
|
Book Value Per Share |
|
| 7.90 |
|
| 7.70 |
|
| 7.34 |
|
| 7.01 |
|
| 6.85 |
|
Tangible Book Value Per Share (2) |
|
| 7.78 |
|
| 7.58 |
|
| 7.22 |
|
| 6.89 |
|
| 6.73 |
|
Basic Weighted Average Shares Outstanding |
|
| 29,703,024 |
|
| 30,097,638 |
|
| 30,072,003 |
|
| 30,059,374 |
|
| 30,059,374 |
|
Diluted Weighted Average Shares Outstanding |
|
| 30,312,039 |
|
| 30,706,736 |
|
| 30,506,824 |
|
| 30,489,648 |
|
| 30,486,801 |
|
Shares Outstanding at Period End |
|
| 28,986,729 |
|
| 30,097,674 |
|
| 30,097,274 |
|
| 30,059,374 |
|
| 30,059,374 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected Performance Ratios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on Average Assets (Annualized) |
|
| 1.55 | % |
| 1.42 | % |
| 1.58 | % |
| 1.41 | % |
| 1.58 | % |
Return on Average Common Equity (Annualized) |
|
| 13.88 |
|
| 12.60 |
|
| 14.30 |
|
| 12.28 |
|
| 13.39 |
|
Return on Average Tangible Common Equity (Annualized) (2) |
|
| 14.10 |
|
| 12.81 |
|
| 14.55 |
|
| 12.51 |
|
| 13.64 |
|
Yield on Interest Earning Assets |
|
| 5.05 |
|
| 4.99 |
|
| 4.96 |
|
| 4.92 |
|
| 4.88 |
|
Yield on Total Loans, Gross |
|
| 5.33 |
|
| 5.27 |
|
| 5.27 |
|
| 5.25 |
|
| 5.29 |
|
Cost of Interest Bearing Liabilities |
|
| 2.07 |
|
| 2.06 |
|
| 1.92 |
|
| 1.73 |
|
| 1.52 |
|
Cost of Total Deposits |
|
| 1.46 |
|
| 1.46 |
|
| 1.32 |
|
| 1.19 |
|
| 1.03 |
|
Net Interest Margin (3) |
|
| 3.60 |
|
| 3.54 |
|
| 3.62 |
|
| 3.71 |
|
| 3.82 |
|
Efficiency Ratio (2) |
|
| 50.1 |
|
| 44.1 |
|
| 60.0 |
|
| 42.7 |
|
| 39.0 |
|
Adjusted Efficiency Ratio (4) |
|
| 42.7 |
|
| 43.1 |
|
| 42.1 |
|
| 42.7 |
|
| 39.0 |
|
Noninterest Expense to Average Assets (Annualized) |
|
| 1.84 |
|
| 1.59 |
|
| 2.25 |
|
| 1.64 |
|
| 1.51 |
|
Adjusted Noninterest Expense to Average Assets (Annualized) (4) |
|
| 1.57 |
|
| 1.55 |
|
| 1.58 |
|
| 1.64 |
|
| 1.51 |
|
Loan to Deposit Ratio |
|
| 105.0 |
|
| 104.9 |
|
| 106.7 |
|
| 108.2 |
|
| 103.4 |
|
Core Deposits to Total Deposits |
|
| 78.3 |
|
| 75.8 |
|
| 74.2 |
|
| 76.6 |
|
| 76.4 |
|
Tangible Common Equity to Tangible Assets (2) |
|
| 10.64 |
|
| 11.16 |
|
| 11.03 |
|
| 11.01 |
|
| 11.56 |
|
|
|
|
|
|
|
|
|
33
| | | | | | | | | | | | | | | | |
| | As of and for the Three Months Ended | | |||||||||||||
| | June 30, | | March 31, | | December 31, | | September 30, | | June 30, | | |||||
| | 2020 | | 2020 | | 2019 | | 2019 | | 2019 | | |||||
Per Common Share Data | | | | | | | | | | | | | | | | |
Basic Earnings Per Share | | $ | 0.26 | | $ | 0.26 | | $ | 0.30 | | $ | 0.27 | | $ | 0.27 | |
Diluted Earnings Per Share | | | 0.26 | | | 0.25 | | | 0.29 | | | 0.27 | | | 0.26 | |
Book Value Per Share | | | 8.92 | | | 8.61 | | | 8.45 | | | 8.20 | | | 7.90 | |
Tangible Book Value Per Share (1) | | | 8.80 | | | 8.49 | | | 8.33 | | | 8.08 | | | 7.78 | |
Basic Weighted Average Shares Outstanding | | | 28,676,441 | | | 28,791,494 | | | 28,833,576 | | | 28,820,144 | | | 29,703,024 | |
Diluted Weighted Average Shares Outstanding | | | 29,165,157 | | | 29,502,245 | | | 29,561,103 | | | 29,497,961 | | | 30,312,039 | |
Shares Outstanding at Period End | | | 28,837,560 | | | 28,807,375 | | | 28,973,572 | | | 28,781,162 | | | 28,986,729 | |
| | | | | | | | | | | | | | | | |
Selected Performance Ratios | | | | | | | | | | | | | | | | |
Return on Average Assets (Annualized) | | | 1.17 | % | | 1.29 | % | | 1.53 | % | | 1.43 | % | | 1.55 | % |
Pre-Provision Net Revenue Return on Average Assets (Annualized)(1) | | | 2.00 | | | 2.11 | | | 2.09 | | | 2.08 | | | 2.08 | |
Return on Average Common Equity (Annualized) | | | 11.98 | | | 11.94 | | | 14.16 | | | 13.31 | | | 13.88 | |
Return on Average Tangible Common Equity (Annualized) (1) | | | 12.14 | | | 12.10 | | | 14.37 | | | 13.52 | | | 14.10 | |
Yield on Interest Earning Assets | | | 4.45 | | | 4.90 | | | 5.01 | | | 4.98 | | | 5.05 | |
Yield on Total Loans, Gross | | | 4.85 | | | 5.17 | | | 5.33 | | | 5.32 | | | 5.33 | |
Cost of Interest Bearing Liabilities | | | 1.58 | | | 1.84 | | | 1.96 | | | 2.04 | | | 2.07 | |
Cost of Total Deposits | | | 0.99 | | | 1.27 | | | 1.34 | | | 1.42 | | | 1.46 | |
Net Interest Margin (2) | | | 3.38 | | | 3.59 | | | 3.65 | | | 3.56 | | | 3.60 | |
Efficiency Ratio (1) | | | 48.6 | | | 44.4 | | | 49.6 | | | 45.6 | | | 50.1 | |
Adjusted Efficiency Ratio (1) | | | 40.4 | | | 44.1 | | | 44.3 | | | 42.9 | | | 42.7 | |
Noninterest Expense to Average Assets (Annualized) | | | 1.64 | | | 1.69 | | | 1.87 | | | 1.66 | | | 1.84 | |
Adjusted Noninterest Expense to Average Assets (Annualized) (1) | | | 1.37 | | | 1.68 | | | 1.67 | | | 1.56 | | | 1.57 | |
Loan to Deposit Ratio | | | 97.8 | | | 105.4 | | | 104.9 | | | 102.4 | | | 105.0 | |
Core Deposits to Total Deposits | | | 75.7 | | | 78.6 | | | 80.7 | | | 79.9 | | | 78.3 | |
Tangible Common Equity to Tangible Assets (1) | | | 9.23 | | | 10.13 | | | 10.65 | | | 10.43 | | | 10.64 | |
41
Selected Financial Data
The following tables summarize certain selected financial data as of and for the periods indicated:
| | | | | | | | | | | | | | | |
| | June 30, | | March 31, | | December 31, | | September 30, | | June 30, | |||||
(dollars in thousands) |
| 2020 |
| 2020 |
| 2019 | | 2019 |
| 2019 | |||||
Selected Balance Sheet Data | | | | | | | | | | | | | | | |
Total Assets | | $ | 2,754,463 | | $ | 2,418,730 | | $ | 2,268,830 | | $ | 2,232,339 | | $ | 2,123,631 |
Total Loans, Gross | | | 2,193,778 | | | 2,002,817 | | | 1,912,038 | | | 1,846,218 | | | 1,784,903 |
Allowance for Loan Losses | | | 27,633 | | | 24,585 | | | 22,526 | | | 22,124 | | | 21,362 |
Goodwill and Other Intangibles | | | 3,391 | | | 3,439 | | | 3,487 | | | 3,535 | | | 3,582 |
| | | | | | | | | | | | | | | |
Deposits | | | 2,242,051 | | | 1,900,127 | | | 1,823,310 | | | 1,802,236 | | | 1,699,265 |
Tangible Common Equity (1) | | | 253,799 | | | 244,704 | | | 241,307 | | | 232,524 | | | 225,555 |
Total Shareholders' Equity | | | 257,190 | | | 248,143 | | | 244,794 | | | 236,059 | | | 229,137 |
Average Total Assets - Quarter-to-Date | | | 2,622,272 | | | 2,317,040 | | | 2,221,370 | | | 2,168,909 | | | 2,069,707 |
Average Common Equity - Quarter-to-Date | | | 255,109 | | | 250,800 | | | 240,188 | | | 232,590 | | | 231,374 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| June 30, |
| March 31, |
| December 31, |
| September 30, |
| June 30, | |||||
(dollars in thousands) |
| 2019 |
| 2019 |
| 2018 |
| 2018 |
| 2018 | |||||
Selected Balance Sheet Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets |
| $ | 2,123,631 |
| $ | 2,048,111 |
| $ | 1,973,741 |
| $ | 1,885,793 |
| $ | 1,752,918 |
Total Loans, Gross |
|
| 1,784,903 |
|
| 1,723,629 |
|
| 1,664,931 |
|
| 1,599,964 |
|
| 1,463,320 |
Allowance for Loan Losses |
|
| 21,362 |
|
| 20,607 |
|
| 20,031 |
|
| 18,949 |
|
| 17,666 |
Goodwill and Other Intangibles |
|
| 3,582 |
|
| 3,630 |
|
| 3,678 |
|
| 3,726 |
|
| 3,773 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
| 1,699,265 |
|
| 1,643,666 |
|
| 1,560,934 |
|
| 1,479,088 |
|
| 1,414,691 |
Tangible Common Equity (1) |
|
| 225,555 |
|
| 228,145 |
|
| 217,320 |
|
| 207,126 |
|
| 202,154 |
Total Shareholders' Equity |
|
| 229,137 |
|
| 231,775 |
|
| 220,998 |
|
| 210,852 |
|
| 205,927 |
Average Total Assets - Quarter-to-Date |
|
| 2,069,707 |
|
| 2,011,174 |
|
| 1,948,909 |
|
| 1,816,485 |
|
| 1,715,335 |
Average Common Equity - Quarter-to-Date |
|
| 231,374 |
|
| 225,844 |
|
| 215,254 |
|
| 208,773 |
|
| 202,101 |
(1) |
| Represents a non-GAAP financial measure. See “Non-GAAP Financial Measures” for further details. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the Three Months Ended | |||||||||||||
|
| June 30, |
| March 31, |
| December 31, |
| September 30, |
| June 30, | |||||
(dollars in thousands) |
| 2019 |
| 2019 |
| 2018 |
| 2018 |
| 2018 | |||||
Selected Income Statement Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Income |
| $ | 25,520 |
| $ | 24,267 |
| $ | 23,988 |
| $ | 22,136 |
| $ | 20,392 |
Interest Expense |
|
| 7,382 |
|
| 7,136 |
|
| 6,546 |
|
| 5,502 |
|
| 4,493 |
Net Interest Income |
|
| 18,138 |
|
| 17,131 |
|
| 17,442 |
|
| 16,634 |
|
| 15,899 |
Provision for Loan Losses |
|
| 600 |
|
| 600 |
|
| 800 |
|
| 1,275 |
|
| 900 |
Net Interest Income after Provision for Loan Losses |
|
| 17,538 |
|
| 16,531 |
|
| 16,642 |
|
| 15,359 |
|
| 14,999 |
Noninterest Income |
|
| 1,134 |
|
| 634 |
|
| 857 |
|
| 814 |
|
| 485 |
Noninterest Expense |
|
| 9,474 |
|
| 7,885 |
|
| 11,040 |
|
| 7,526 |
|
| 6,464 |
Income Before Income Taxes |
|
| 9,198 |
|
| 9,280 |
|
| 6,459 |
|
| 8,647 |
|
| 9,020 |
Provision (Benefit) for Income Taxes |
|
| 1,189 |
|
| 2,262 |
|
| (1,302) |
|
| 2,184 |
|
| 2,274 |
Net Income |
| $ | 8,009 |
| $ | 7,018 |
| $ | 7,761 |
| $ | 6,463 |
| $ | 6,746 |
34
Discussion and Analysis of Results of Operations
Net Income
Net income was $8.0 million for the second quarter of 2019, an 18.7% increase over net income of $6.7 million for the second quarter of 2018. Net income per diluted common share for the second quarter of 2019 was $0.26, a 19.4% increase compared to $0.22 per diluted common share for the same period in 2018. Net income was $15.0 million for the six months ended June 30, 2019, an 18.4% increase over net income of $12.7 million for the six months ended June 30, 2018. Net income per diluted common share for the six months ended June 30, 2019 was $0.49, a 10.0% increase compared to $0.45 per diluted common share for the six months ended June 30, 2018.
| | | | | | | | | | | | | | | |
| | For the Three Months Ended | |||||||||||||
| | June 30, | | March 31, | | December 31, | | September 30, | | June 30, | |||||
(dollars in thousands) | | 2020 |
| 2020 | | 2019 | | 2019 |
| 2019 | |||||
Selected Income Statement Data | | | | | | | | | | | | | | | |
Interest Income | | $ | 28,166 | | $ | 27,468 | | $ | 27,419 | | $ | 26,572 | | $ | 25,520 |
Interest Expense | | | 6,824 | | | 7,366 | | | 7,491 | | | 7,637 | | | 7,382 |
Net Interest Income | | | 21,342 | | | 20,102 | | | 19,928 | | | 18,935 | | | 18,138 |
Provision for Loan Losses | | | 3,000 | | | 2,100 | | | 600 | | | 900 | | | 600 |
Net Interest Income after Provision for Loan Losses | | | 18,342 | | | 18,002 | | | 19,328 | | | 18,035 | | | 17,538 |
Noninterest Income | | | 1,977 | | | 1,719 | | | 1,112 | | | 946 | | | 1,134 |
Noninterest Expense | | | 10,711 | | | 9,746 | | | 10,489 | | | 9,084 | | | 9,474 |
Income Before Income Taxes | | | 9,608 | | | 9,975 | | | 9,951 | | | 9,897 | | | 9,198 |
Provision for Income Taxes | | | 2,010 | | | 2,532 | | | 1,380 | | | 2,092 | | | 1,189 |
Net Income | | $ | 7,598 | | $ | 7,443 | | $ | 8,571 | | $ | 7,805 | | $ | 8,009 |
42
Discussion and Analysis of Results of Operations
Net Income
Net income was $7.6 million for the second quarter of 2020, a 5.1% decrease over net income of $8.0 million for the second quarter of 2019. Net income per diluted common share for the second quarter of 2020 and 2019 was $0.26. Net income was $15.0 million for the six months ended June 30, 2020 and 2019. Net income per diluted common share for the six months ended June 30, 2020 was $0.51, a 4.0% increase compared to $0.49 per diluted common share for the six months ended June 30, 2019.
Net Interest Income
The Company’s primary source of revenue is net interest income, which is impacted by the level of interest earning assets and related funding sources, as well as changes in the level of interest rates. The difference between the average yield on earning assets and the average rate paid for interest bearing liabilities is the net interest spread. Noninterest bearing sources of funds, such as demand deposits and shareholders’ equity, also support earning assets. The impact of the noninterest bearing sources of funds is captured in the net interest margin, which is calculated as net interest income divided by average earning assets. Both the net interest margin and net interest spread are presented on a tax-equivalent basis, which means that tax-free interest income has been adjusted to pretax-equivalent income, assuming a 21% federal tax rate. Management’s ability to respond to changes in interest rates by using effective asset-liability management techniques is critical to maintaining the stability of the net interest margin and the momentum of the Company’s primary source of earnings. In response to the COVID-19 pandemic, the Federal Open Market Committee, or FOMC, decreased the targeted federal funds rate by a total of 150 basis points in March 2020. This decrease may impact the comparability of net interest income between 2019 and 2020 in future periods.
43
Average Balances and Yields
The following tables present, for the three and six months ended June 30, 2020 and 2019, the average balances of each principal category of assets, liabilities and shareholders’ equity, and an analysis of net interest income. The average balances are principally daily averages and, for loans, include both performing and nonperforming balances. Interest income on loans includes the effects of net deferred loan origination fees and costs accounted for as yield adjustments. These tables are presented on a tax-equivalent basis, if applicable.
| | | | | | | | | | | | | | | | | |
| | For the Three Months Ended |
| ||||||||||||||
| | June 30, 2020 | | June 30, 2019 |
| ||||||||||||
| | Average | | Interest | | Yield/ | | Average | | Interest | | Yield/ |
| ||||
|
| Balance |
| & Fees |
| Rate |
| Balance |
| & Fees |
| Rate |
| ||||
(dollars in thousands) | | | | | | | | | | | | | | | | | |
Interest Earning Assets: | | | | | | | | | | | | | | | | | |
Cash Investments | | $ | 109,073 | | $ | 37 | | 0.14 | % | $ | 38,142 | | $ | 171 | | 1.80 | % |
Investment Securities: | | | | | | | | | | | | | | | | | |
Taxable Investment Securities | |
| 203,559 | |
| 1,304 | | 2.58 | |
| 140,890 | |
| 1,058 | | 3.01 | |
Tax-Exempt Investment Securities (1) | |
| 91,793 | |
| 996 | | 4.37 | |
| 103,223 | |
| 1,103 | | 4.28 | |
Total Investment Securities | |
| 295,352 | |
| 2,300 | | 3.13 | |
| 244,113 | |
| 2,161 | | 3.55 | |
Paycheck Protection Program Loans (2) | |
| 139,235 | | | 873 | | 2.52 | |
| — | |
| — | | — | |
Loans (1)(2) | | | 2,013,163 | | | 25,070 | | 5.01 | | | 1,755,686 | |
| 23,321 | | 5.33 | |
Total Loans | |
| 2,152,398 | |
| 25,943 | | 4.85 | |
| 1,755,686 | |
| 23,321 | | 5.33 | |
Federal Home Loan Bank Stock | |
| 10,469 | | | 125 | | 4.81 | |
| 7,694 | |
| 100 | | 5.23 | |
Total Interest Earning Assets | |
| 2,567,292 | |
| 28,405 | | 4.45 | % |
| 2,045,635 | |
| 25,753 | | 5.05 | % |
Noninterest Earning Assets | | | 54,980 | | | | | | | | 24,072 | | | | | | |
Total Assets | | $ | 2,622,272 | | | | | | | $ | 2,069,707 | | | | | | |
Interest Bearing Liabilities: | | | | | | | | | | | | | | | | | |
Deposits: | | | | | | | | | | | | | | | | | |
Interest Bearing Transaction Deposits | |
| 272,565 | | | 377 | | 0.56 | % |
| 202,886 | |
| 387 | | 0.77 | % |
Savings and Money Market Deposits | |
| 521,313 | | | 1,327 | | 1.02 | |
| 431,716 | |
| 1,938 | | 1.80 | |
Time Deposits | |
| 388,357 | | | 2,122 | | 2.20 | |
| 354,026 | |
| 2,120 | | 2.40 | |
Brokered Deposits | |
| 319,711 | | | 1,344 | | 1.69 | |
| 266,804 | |
| 1,575 | | 2.37 | |
Total Interest Bearing Deposits | | | 1,501,946 | | | 5,170 | | 1.38 | | | 1,255,432 | | | 6,020 | | 1.92 | |
Federal Funds Purchased | |
| 9 | |
| — | | 0.72 | |
| 2,089 | |
| 12 | | 2.24 | |
Notes Payable | |
| 12,000 | |
| 111 | | 3.72 | |
| 14,000 | |
| 130 | | 3.72 | |
FHLB Advances | |
| 193,819 | |
| 1,064 | | 2.21 | |
| 131,385 | |
| 827 | | 2.52 | |
Subordinated Debentures | |
| 31,228 | |
| 479 | | 6.17 | |
| 24,673 | |
| 393 | | 6.39 | |
Total Interest Bearing Liabilities | |
| 1,739,002 | |
| 6,824 | | 1.58 | % |
| 1,427,579 | |
| 7,382 | | 2.07 | % |
Noninterest Bearing Liabilities: | | | | | | | | | | | | | | | | | |
Noninterest Bearing Transaction Deposits | |
| 603,456 | | | | | | |
| 401,480 | | | | | | |
Other Noninterest Bearing Liabilities | | | 24,705 | | | | | | | | 9,274 | | | | | | |
Total Noninterest Bearing Liabilities | |
| 628,161 | | | | | | |
| 410,754 | | | | | | |
Shareholders' Equity | | | 255,109 | | | | | | |
| 231,374 | | | | | | |
Total Liabilities and Shareholders' Equity | | $ | 2,622,272 | | | | | | | $ | 2,069,707 | | | | | | |
Net Interest Income / Interest Rate Spread | | | | |
| 21,581 | | 2.87 | % | | | |
| 18,371 | | 2.98 | % |
Net Interest Margin (3) | | | | | | | | 3.38 | % | | | | | | | 3.60 | % |
Taxable Equivalent Adjustment: | | | | | | | | | | | | | | | | | |
Tax-Exempt Investment Securities | | | | |
| (239) | | | | | | |
| (233) | | | |
Net Interest Income | | | | | $ | 21,342 | | | | | | | $ | 18,138 | | | |
(1) | Interest income and average rates for tax-exempt investment securities and loans are presented on a tax-equivalent basis,
21%. |