Exhibit 99.3
Index to combined financial statements of the Clayton Banks
| Page | ||||
Interim Combined Financial Statements | ||||
Combined Balance Sheets (unaudited) | F-1 | |||
Combined Statements of Income (unaudited) | F-2 | |||
Combined Statements of Comprehensive Income (unaudited) | F-3 | |||
Combined Statements of Changes in Shareholder’s Equity (unaudited) | F-4 | |||
Combined Statements of Cash Flows (unaudited) | F-5 | |||
Notes to Combined Financial Statements (unaudited) | F-6 | |||
Clayton Banks
(unaudited)
(dollars in thousands, except for per share amounts)
| March 31, 2017 | December 31, 2016 | |||||||
ASSETS | ||||||||
Cash and cash equivalents | ||||||||
Cash and due from banks | $ | 37,856 | $ | 37,735 | ||||
Federal funds sold | — | 11,857 | ||||||
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Total cash and cash equivalents | 37,856 | 49,592 | ||||||
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Securities | ||||||||
Securities available for sale, at fair value | 51,133 | 52,981 | ||||||
Securities held to maturity, at cost | 13,601 | 13,691 | ||||||
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Total securities | 64,734 | 66,672 | ||||||
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Loans, net of discounts and unearned income | 1,066,193 | 1,052,570 | ||||||
Less: allowance for loan losses | 20,519 | 20,395 | ||||||
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Net loans | 1,045,674 | 1,032,175 | ||||||
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Other assets | ||||||||
Premises and equipment, net of accumulated depreciation | 22,570 | 22,662 | ||||||
Goodwill | 8,425 | 8,425 | ||||||
Federal Home Loan Bank stock, at cost | 3,370 | 3,370 | ||||||
Accrued interest receivable | 4,922 | 5,050 | ||||||
Other real estate owned | 3,207 | 3,103 | ||||||
Cash surrender value of life insurance | 466 | 464 | ||||||
Repossessed assets | 3,674 | 263 | ||||||
Other | 4,346 | 3,040 | ||||||
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Total other assets | 50,980 | 46,377 | ||||||
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Total assets | $ | 1,199,244 | $ | 1,194,816 | ||||
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LIABILITIES AND SHAREHOLDER’S EQUITY | ||||||||
Liabilities | ||||||||
Deposits | ||||||||
Non-interest bearing | $ | 205,133 | $ | 193,525 | ||||
Interest bearing | 723,526 | 724,849 | ||||||
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Total deposits | 928,659 | 918,374 | ||||||
Federal funds purchased | 695 | 308 | ||||||
Federal Home Loan Bank advances | 49,399 | 52,414 | ||||||
Accrued interest payable | 600 | 553 | ||||||
Other liabilities | 6,301 | 9,590 | ||||||
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Total liabilities | 985,654 | 981,239 | ||||||
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Shareholder’s Equity | ||||||||
CBT Common stock, $25 par value; authorized 200,000 shares; 153,600 shares issued and outstanding and ACB Common stock $362.09 par value; authorized 105,000; 1,000 shares issued and outstanding | 4,202 | 4,202 | ||||||
Additional paid in capital | 89,902 | 89,902 | ||||||
Retained earnings | 118,178 | 118,389 | ||||||
Accumulated other comprehensive income, net of applicable taxes | 1,308 | 1,084 | ||||||
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Total shareholder’s equity | 213,590 | 213,577 | ||||||
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Total liabilities and shareholder’s equity | $ | 1,199,244 | $ | 1,194,816 | ||||
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See accompanying notes to unaudited combined financial statements.
F-1
Clayton Banks
(unaudited)
(dollars in thousands)
| Three Months Ended March 31, | ||||||||
| 2017 | 2016 | |||||||
Interest income | ||||||||
Loans, including fees | $ | 16,659 | $ | 14,555 | ||||
Securities | 532 | 610 | ||||||
Other | 85 | 80 | ||||||
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Total interest income | 17,276 | 15,245 | ||||||
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Interest expense | ||||||||
Deposits | 1,439 | 1,319 | ||||||
Other borrowings | 329 | 314 | ||||||
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Total interest expense | 1,768 | 1,633 | ||||||
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Net interest income | 15,508 | 13,612 | ||||||
Provision for loan losses | 230 | — | ||||||
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Net interest income after provision for loan losses | 15,278 | 13,612 | ||||||
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Non-interest income | ||||||||
Service charges on deposit accounts | 200 | 198 | ||||||
Trust fee income | 221 | 172 | ||||||
Net loss on sales of foreclosed real estate owned and fixed assets | (51 | ) | (117 | ) | ||||
Loan servicing income | 549 | 475 | ||||||
Other non-interest income | 624 | 543 | ||||||
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Total non-interest income | 1,543 | 1,271 | ||||||
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Non-interest expense | ||||||||
Salaries and employee benefits | 3,624 | 3,754 | ||||||
Occupancy and equipment | 678 | 600 | ||||||
FDIC and state banking fees | 108 | 154 | ||||||
Collection expense | 77 | 84 | ||||||
Amortization of intangible assets | — | 14 | ||||||
Professional fees | 176 | 76 | ||||||
Other non-interest expense | 1,048 | 911 | ||||||
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Total non-interest expense | 5,711 | 5,593 | ||||||
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Income before income taxes | 11,110 | 9,290 | ||||||
State income tax expense | 871 | 663 | ||||||
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Net income | $ | 10,239 | $ | 8,627 | ||||
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See accompanying notes to unaudited combined financial statements.
F-2
Clayton Banks
Combined statements of comprehensive income
(unaudited)
(dollars in thousands)
| Three Months Ended March 31, | ||||||||
| 2017 | 2016 | |||||||
Net Income | $ | 10,239 | $ | 8,627 | ||||
Other comprehensive income, net of income taxes | ||||||||
Net change in unrealized gains on securities available for sale, net of tax effect | 224 | 320 | ||||||
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Total comprehensive income | $ | 10,463 | $ | 8,947 | ||||
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See accompanying notes to unaudited combined financial statements.
F-3
Clayton Banks
Combined statements of changes in shareholder’s equity
(unaudited)
(dollars in thousands)
| Common stock | Additional paid in capital | Retained earnings | Accumulated other comprehensive income | Total shareholder’s equity | ||||||||||||||||
Balance, December 31, 2015 | $ | 4,202 | $ | 89,902 | $ | 101,242 | $ | 2,086 | $ | 197,432 | ||||||||||
Net income | — | — | 8,627 | — | 8,627 | |||||||||||||||
Dividends declared | — | — | (11,000 | ) | — | (11,000 | ) | |||||||||||||
Other comprehensive income | — | — | — | 320 | 320 | |||||||||||||||
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Balance, March 31, 2016 | $ | 4,202 | $ | 89,902 | $ | 98,869 | $ | 2,406 | $ | 195,379 | ||||||||||
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Balance, December 31, 2016 | $ | 4,202 | $ | 89,902 | $ | 118,389 | $ | 1,084 | $ | 213,577 | ||||||||||
Net income | — | — | 10,239 | — | 10,239 | |||||||||||||||
Dividends declared | — | — | (10,450 | ) | — | (10,450 | ) | |||||||||||||
Other comprehensive income | — | — | — | 224 | 224 | |||||||||||||||
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Balance, March 31, 2017 | $ | 4,202 | $ | 89,902 | $ | 118,178 | $ | 1,308 | $ | 213,590 | ||||||||||
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See accompanying notes to unaudited combined financial statements.
F-4
Clayton Banks
Combined statements of cash flows
(unaudited)
(dollars in thousands)
| Three Months Ended March 31, | ||||||||
| 2017 | 2016 | |||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 10,239 | $ | 8,627 | ||||
Adjustments to reconcile net income to net cash flows from operating activities: | ||||||||
Depreciation and amortization | 134 | 154 | ||||||
Provision for loan losses | 230 | — | ||||||
Net accretion of discounts and amortization of premiums on securities | 39 | 61 | ||||||
Net gains on sales of securities | — | (1 | ) | |||||
Net loss on sales of foreclosed real estate owned and fixed assets | 51 | 117 | ||||||
Net change in: | ||||||||
Accrued interest receivable | 128 | (159 | ) | |||||
Accrued interest payable | 47 | 109 | ||||||
Other, net | (1,966 | ) | 609 | |||||
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Net cash flows from operating activities | 8,902 | 9,517 | ||||||
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Cash flows from investing activities | ||||||||
Available-for-sale securities | ||||||||
Maturities, prepayments and calls | 2,053 | 2,006 | ||||||
Held-to-maturity securities | ||||||||
Maturities, prepayments and calls | 86 | 917 | ||||||
Net change in loans | (17,580 | ) | 5,738 | |||||
Purchases of premises and equipment | (78 | ) | (4 | ) | ||||
Proceeds from the sales of other real estate owned | 76 | 523 | ||||||
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Net cash from (used in) investing activities | (15,443 | ) | 9,180 | |||||
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Cash flows from financing activities: | ||||||||
Net change in deposits | 10,285 | 20,423 | ||||||
Proceeds from FHLB advances | 5,500 | — | ||||||
Repayments of FHLB advances | (8,515 | ) | (15 | ) | ||||
Proceeds (repayments) from federal funds purchased | 387 | (10,587 | ) | |||||
Dividends paid | (12,852 | ) | (11,000 | ) | ||||
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Net cash flows used in financing activities | (5,195 | ) | (1,179 | ) | ||||
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Net change in cash and cash equivalents | (11,736 | ) | 17,518 | |||||
Cash and cash equivalents at the beginning of the year | 49,592 | 44,459 | ||||||
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Cash and cash equivalents at the end of the year | $ | 37,856 | $ | 61,977 | ||||
Supplemental disclosures of cash flow information | ||||||||
Cash paid during year for: | ||||||||
Interest | $ | 1,721 | $ | 1,524 | ||||
Income taxes, net of refunds | 869 | 576 | ||||||
Supplemental schedule of non-cash activities | ||||||||
Transfers from loans to other real estate owned | $ | 3,528 | $ | 358 | ||||
Transfers from loans to repossessed assets | 3,333 | — | ||||||
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See accompanying notes to unaudited combined financial statements.
F-5
Clayton Banks
Notes to combined financial statements (unaudited)
March 31, 2017
(dollars in thousands)
Note 1—Summary of significant accounting policies
Nature of Operations and Principles of Combination—The combined financial statements include Clayton Bank and Trust and American City Bank, together referred to as “Clayton Banks” or “the Banks.” Intercompany transactions and balances are eliminated in consolidation. The Banks are wholly-owned by Clayton HC Inc.
The Banks provide financial services through its branches in the counties of Chester, Blount, Knox, Madison, Tipton, Crockett, Henderson, Putnam, Franklin, Coffee, Moore, and Fayette, Tennessee. Their primary deposit products are checking, savings, and term certificate accounts, and their primary lending products are residential mortgage including Manufactured Housing, commercial, and installment loans. Substantially all loans are secured by specific items of collateral including business assets, consumer assets, and commercial and residential real estate. Commercial loans are expected to be repaid from cash flow from operations of businesses. However, the customers’ ability to repay their loans is dependent on the cash flow of borrowers, which can be impacted by the general economic conditions in the area.
Basis of Presentation—The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America and general practices of the banking industry. The Combined Balance Sheet at December 31, 2016 has been derived from the audited combined financial statements included elsewhere within this prospectus. Certain prior period amounts have been reclassified to conform to the current period presentation without any impact on the reported amounts of net income or shareholders’ equity.
Use of Estimates—The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant changes in the near term relate to the determination of the allowance for loan loss, the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans, the determination of the fair value of financial instruments, and the realization of deferred tax assets. In connection with the determination of the allowance for loan loss and the estimated fair value of real estate owned, management obtains independent appraisals for significant properties.
There are currently no new accounting policies that were not disclosed in the Bank’s December 31, 2016 audited financial statements included elsewhere within this prospectus except as described below.
Repossessed assets- includes other non-real estate, including notes receivable, vehicles and mobile homes carried at their estimated fair value.
Date of Management’s Review—Management has evaluated events and transactions occurring subsequent to the balance sheet date for items that should potentially be recognized or disclosed in these financial statements. The evaluation was conducted through the date of this registration statement, which is the date these financial statements were available to be issued. There were no other subsequent events that occurred after March 31, 2017, but prior to the issuance of these financial statements that would have a material impact on the Banks’ combined financial statements.
F-6
Clayton Banks
Notes to combined financial statements (unaudited)
March 31, 2017
(dollars in thousands)
Note 2—Securities
The fair value of available for sale securities and the related gross unrealized gains and losses recognized in accumulated other comprehensive income were as follows for March 31, 2017 and December 31, 2016:
March 31, 2017 | Amortized cost | Gross unrealized gains | Gross unrealized losses | Fair value | ||||||||||||
Mortgage-backed securities | $ | 32,284 | $ | 817 | $ | (69 | ) | $ | 33,032 | |||||||
State and municipal | 17,440 | 664 | (3 | ) | 18,101 | |||||||||||
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| $ | 49,724 | $ | 1,481 | $ | (72 | ) | $ | 51,133 | ||||||||
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December 31, 2016 | Amortized cost | Gross unrealized gains | Gross unrealized losses | Fair value | ||||||||||||
Mortgage-backed securities | $ | 34,378 | $ | 791 | $ | (173 | ) | $ | 34,996 | |||||||
State and municipal | 17,444 | 583 | (42 | ) | 17,985 | |||||||||||
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| $ | 51,822 | $ | 1,374 | $ | (215 | ) | $ | 52,981 | ||||||||
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The amortized cost, unrecognized gains and losses, and fair value of securities held to maturity were as follows:
March 31, 2017 | Amortized cost | Gross unrealized gains | Gross unrealized losses | Fair value | ||||||||||||
Mortgage-backed securities | $ | 691 | $ | 27 | $ | — | $ | 718 | ||||||||
State and municipal | 12,910 | 462 | — | 13,372 | ||||||||||||
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| $ | 13,601 | $ | 489 | $ | — | $ | 14,090 | |||||||||
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December 31, 2016 | Amortized cost | Gross unrealized gains | Gross unrealized losses | Fair value | ||||||||||||
Mortgage-backed securities | $ | 777 | $ | 31 | $ | — | $ | 808 | ||||||||
State and municipal | 12,914 | 482 | (4 | ) | 13,392 | |||||||||||
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| $ | 13,691 | $ | 513 | $ | (4 | ) | $ | 14,200 | ||||||||
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F-7
Clayton Banks
Notes to combined financial statements (unaudited)
March 31, 2017
(dollars in thousands)
The amortized cost and fair value of debt securities at March 31, 2017, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations.
| Available for sale | Held to maturity | |||||||||||||||
| Amortized cost | Fair value | Amortized cost | Fair value | |||||||||||||
Due in one year | $ | — | $ | — | $ | 300 | $ | 303 | ||||||||
Due in one to five years | 6,053 | 6,412 | 2,436 | 2,524 | ||||||||||||
Due in five to ten years | 6,140 | 6,304 | 7,168 | 7,424 | ||||||||||||
Due in greater than ten years | 5,247 | 5,385 | 3,006 | 3,121 | ||||||||||||
Mortgage-backed securities | 32,284 | 33,032 | 691 | 718 | ||||||||||||
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| $ | 49,724 | $ | 51,133 | $ | 13,601 | $ | 14,090 | |||||||||
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There were no securities sold or redeemed during the first quarter of 2017. Securities carried at $53,498 and $55,560 at March 31, 2017 and December 31, 2016, respectively, were pledged to secure deposits and for other purposes as required or permitted by law.
At March 31, 2017 and December 31, 2016 there were no holdings of securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of shareholder’s equity.
The following table shows securities with unrealized losses and their fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at March 31, 2017 and December 31, 2016:
| Less than 12 months | 12 months or more | Total | ||||||||||||||||||||||
Description of Securities | Fair value | Unrealized loss | Fair value | Unrealized loss | Fair value | Unrealized loss | ||||||||||||||||||
March 31, 2017 | ||||||||||||||||||||||||
Mortgage-backed securities | $ | 1,103 | $ | (49 | ) | $ | 4,406 | $ | (20 | ) | $ | 5,509 | $ | (69 | ) | |||||||||
State and municipal | — | — | 476 | (3 | ) | $ | 476 | $ | (3 | ) | ||||||||||||||
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Total temporarily impaired | $ | 1,103 | $ | (49 | ) | $ | 4,882 | $ | (23 | ) | $ | 5,985 | $ | (72 | ) | |||||||||
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December 31, 2016 | ||||||||||||||||||||||||
Mortgage-backed securities | $ | 9,242 | $ | (97 | ) | $ | 2,059 | $ | (76 | ) | $ | 11,301 | $ | (173 | ) | |||||||||
State and municipal | 4,197 | (46 | ) | — | — | $ | 4,197 | $ | (46 | ) | ||||||||||||||
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Total temporarily impaired | $ | 13,439 | $ | (143 | ) | $ | 2,059 | $ | (76 | ) | $ | 15,498 | $ | (219 | ) | |||||||||
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Unrealized losses on debt securities have not been recognized into income because the issuers are of high credit quality (rated AA or higher), management has the intent and ability to hold for the foreseeable future, and the decline in fair value is largely due to changes in market interest rates. The fair value is expected to recover as the investments approach their maturity date.
F-8
Clayton Banks
Notes to combined financial statements (unaudited)
March 31, 2017
(dollars in thousands)
Note 3—Loans
A summary of loans outstanding by category at March 31, 2017 and December 31, 2016 follows:
| March 31, 2017 | December 31, 2016 | |||||||
Construction and land | $ | 116,828 | $ | 147,182 | ||||
Commercial real estate | 339,271 | 299,059 | ||||||
Commercial and agriculture | 168,957 | 155,771 | ||||||
Consumer real estate | 101,490 | 103,668 | ||||||
Consumer | 21,605 | 23,349 | ||||||
Manufactured homes | 318,042 | 323,541 | ||||||
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| 1,066,193 | 1,052,570 | |||||||
Less: Allowance for loan losses | (20,519 | ) | (20,395 | ) | ||||
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Loans, net of unearned fees | $ | 1,045,674 | $ | 1,032,175 | ||||
For purposes of the disclosures required pursuant to the Banks’ adoption of ASU 2010-20, the Banks’ loan portfolio is disaggregated into portfolio segments and then further disaggregated into classes. A portfolio segment is defined as the level at which management develops and documents a systematic method for determining its allowance for loan losses. The Banks had the following loan portfolio segments—Construction and land; Commercial real estate; Commercial and agriculture; Consumer real estate; Consumer; and Manufactured homes loans. A class is generally determined based on the initial measurement attribute, risk characteristics of the loan, and the Banks’ method for monitoring and assessing credit risk. Classes within the Construction and land segment are Land acquisition, Commercial construction, and Residential construction. Classes within the Commercial real estate segment are Rental, Business and industrial, and Other. Classes within the Consumer segment are Auto, Credit cards and Other consumer.
The allowance for loan losses (ALLL) includes the following components—reserves for loans collectively evaluated for impairment (determined in accordance with FASB ASC 450-20 Contingencies) and reserves for loans individually evaluated for impairment (determined in accordance with FASB ASC 310-10 Receivables).
The reserves for loans collectively evaluated for impairment are determined based on an application of average historical charge-off percentages by loan portfolio segment, adjusted for loans internally assigned loan grades, and also adjusted for management’s evaluation of current economic events, trends, and conditions in accordance with FASB ASC 450-20 Contingencies. The Banks used a three-year average historical charge-off percentages.
The reserves for loans individually evaluated for impairment are determined based on the present value of the expected future repayments discounted at the loan’s effective interest rate, or for loans that are mainly dependent on the collateral for repayment, the estimated fair value of the collateral less estimated selling costs (net realizable value).
F-9
Clayton Banks
Notes to combined financial statements (unaudited)
March 31, 2017
(dollars in thousands)
A summary of the allowance for loan losses was as follows:
| March 31, | ||||||||
| 2017 | 2016 | |||||||
Beginning balance | $ | 20,395 | $ | 21,780 | ||||
Provision for loan losses | 230 | — | ||||||
Loans charged off | (364 | ) | (437 | ) | ||||
Recoveries | 258 | 82 | ||||||
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Ending balance | $ | 20,519 | $ | 21,425 | ||||
The following tables provide a detailed roll forward of the allowance for loan losses for the three months ended March 31, 2017 and 2016 by portfolio segment:
Three Months Ended March 31, 2017 | Construction and land | Commercial real estate | Commercial and agriculture | Consumer real estate | Consumer | Manufactured homes | Total | |||||||||||||||||||||
Allowance for loan loss | ||||||||||||||||||||||||||||
Beginning balance | $ | 1,660 | $ | 5,353 | $ | 2,900 | $ | 1,399 | $ | 480 | $ | 8,603 | $ | 20,395 | ||||||||||||||
Charge-offs | — | (16 | ) | (63 | ) | — | (78 | ) | (207 | ) | (364 | ) | ||||||||||||||||
Recoveries | 1 | 8 | 16 | 192 | 12 | 29 | 258 | |||||||||||||||||||||
Provision | (110 | ) | 40 | 231 | 80 | (11 | ) | — | 230 | |||||||||||||||||||
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Ending balance | $ | 1,551 | $ | 5,385 | $ | 3,084 | $ | 1,671 | $ | 403 | $ | 8,425 | $ | 20,519 | ||||||||||||||
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Ending balance—individually evaluated for impairment | $ | — | $ | 1,376 | $ | 1,456 | $ | 18 | $ | 41 | $ | 19 | $ | 2,910 | ||||||||||||||
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Ending balance—collectively evaluated for impairment | $ | 1,551 | $ | 4,009 | $ | 1,628 | $ | 1,653 | $ | 362 | $ | 8,406 | $ | 17,609 | ||||||||||||||
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| March 31, 2017 | ||||||||||||||||||||||||||||
Loans | ||||||||||||||||||||||||||||
Ending balance—individually evaluated for impairment | $ | 207 | $ | 10,430 | $ | 2,804 | $ | 1,880 | $ | 320 | $ | 14,342 | $ | 29,983 | ||||||||||||||
Ending balance—collectively evaluated for impairment | 116,621 | 328,841 | 166,153 | 99,610 | 21,285 | 303,700 | 1,036,210 | |||||||||||||||||||||
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Ending balance total loans | $ | 116,828 | $ | 339,271 | $ | 168,957 | $ | 101,490 | $ | 21,605 | $ | 318,042 | $ | 1,066,193 | ||||||||||||||
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F-10
Clayton Banks
Notes to combined financial statements (unaudited)
March 31, 2017
(dollars in thousands)
Three Months Ended March 31, 2016 | Construction and land | Commercial real estate | Commercial and agriculture | Consumer real estate | Consumer | Manufactured homes | Total | |||||||||||||||||||||
Allowance for loan loss | ||||||||||||||||||||||||||||
Beginning balance | $ | 3,561 | $ | 6,582 | $ | 1,811 | $ | 1,446 | $ | 859 | $ | 7,521 | $ | 21,780 | ||||||||||||||
Charge-offs | (42 | ) | — | (75 | ) | (173 | ) | (76 | ) | (71 | ) | (437 | ) | |||||||||||||||
Recoveries | 3 | 8 | 11 | 8 | 21 | 31 | 82 | |||||||||||||||||||||
Provision | — | — | — | — | — | — | — | |||||||||||||||||||||
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Ending balance | $ | 3,522 | $ | 6,590 | $ | 1,747 | $ | 1,281 | $ | 804 | $ | 7,481 | $ | 21,425 | ||||||||||||||
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Ending balance—individually evaluated for impairment | $ | — | $ | 2,402 | $ | 359 | $ | 344 | $ | 33 | $ | — | $ | 3,138 | ||||||||||||||
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Ending balance—collectively evaluated for impairment | $ | 3,522 | $ | 4,188 | $ | 1,388 | $ | 937 | $ | 771 | $ | 7,481 | $ | 18,287 | ||||||||||||||
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| December 31, 2016 | ||||||||||||||||||||||||||||
Loans | ||||||||||||||||||||||||||||
Ending balance—individually evaluated for impairment | $ | 1,668 | $ | 7,471 | $ | 2,816 | $ | 1,597 | $ | 440 | $ | 14,792 | $ | 28,784 | ||||||||||||||
Ending balance—collectively evaluated for impairment | 145,514 | 291,588 | 152,955 | 102,071 | 22,909 | 308,749 | 1,023,786 | |||||||||||||||||||||
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Ending balance total loans | $ | 147,182 | $ | 299,059 | $ | 155,771 | $ | 103,668 | $ | 23,349 | $ | 323,541 | $ | 1,052,570 | ||||||||||||||
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The Banks use internally assigned loan grades as credit quality indicator. Loans are graded as Pass, Special Mention, or Substandard.
Pass—Loans considered to have a normal credit risk. The borrower has the apparent ability to satisfy its obligations to the Banks, and therefore no loss in ultimate collection is anticipated based on current facts and circumstances. Pass grade loans have reasonable collateral and low to normal loan to value ratios.
Special Mention—Loans considered to have a slightly above normal credit risk. These loans have potential weaknesses that deserve management’s close attention, and if left uncorrected, such potential weaknesses may result in an increased risk of loss in the future. Special Mention grade loans do not expose the Banks to sufficient risk to warrant adverse classification.
Substandard—Loans considered to be inadequately protected by the current net worth and financial capacity of the borrower or the collateral pledged, if any. These loans are characterized by the distinct possibility that the Bank will sustain some loss in the future, if the weaknesses are not corrected. Loss potential, while existing in the aggregate amount of the Substandard grade loans, does not have to exist in the individual loans classified as Substandard.
F-11
Clayton Banks
Notes to combined financial statements (unaudited)
March 31, 2017
(dollars in thousands)
The following table provides the balances of loans by loan classes disaggregated based on credit quality indicator—internally assigned loan grades as of March 31, 2017 and December 31, 2016:
| March 31, 2017 | Loan Grade | Total | ||||||||||||||
Loan Class | Pass | Special mention | Substandard | |||||||||||||
Construction and land | $ | 115,772 | $ | 841 | $ | 215 | $ | 116,828 | ||||||||
Commercial real estate | 307,041 | 19,233 | 12,997 | 339,271 | ||||||||||||
Commercial & agriculture | 165,814 | 201 | 2,942 | 168,957 | ||||||||||||
Consumer real estate | 97,439 | 1,852 | 2,199 | 101,490 | ||||||||||||
Consumer | 20,806 | 421 | 378 | 21,605 | ||||||||||||
Manufactured homes | 284,694 | 16,863 | 16,485 | 318,042 | ||||||||||||
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Total loans | $ | 991,566 | $ | 39,411 | $ | 35,216 | $ | 1,066,193 | ||||||||
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| December 31, 2016 | Loan Grade | Total | ||||||||||||||
Loan Class | Pass | Special mention | Substandard | |||||||||||||
Construction and land | $ | 144,654 | $ | 852 | $ | 1,676 | $ | 147,182 | ||||||||
Commercial real estate | 265,044 | 20,854 | 13,161 | 299,059 | ||||||||||||
Commercial & agriculture | 152,063 | 716 | 2,992 | 155,771 | ||||||||||||
Consumer real estate | 97,988 | 3,614 | 2,066 | 103,668 | ||||||||||||
Consumer | 22,326 | 523 | 500 | 23,349 | ||||||||||||
Manufactured homes | 287,601 | 18,971 | 16,969 | 323,541 | ||||||||||||
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Total loans | $ | 969,676 | $ | 45,530 | $ | 37,364 | $ | 1,052,570 | ||||||||
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Impaired loans individually evaluated for impairment in accordance with ASC 310 at March 31, 2017 and December 31, 2016 were as follows:
| March 31, 2017 | December 31, 2016 | |||||||
Carrying value of total impaired loans | $ | 29,983 | $ | 28,784 | ||||
Amount of the direct allowance for loan losses allocated | 2,910 | 2,669 | ||||||
Average of impaired loans during the period | 29,384 | 35,549 | ||||||
Interest income recognized during impairment | 347 | 1,406 | ||||||
F-12
Clayton Banks
Notes to combined financial statements (unaudited)
March 31, 2017
(dollars in thousands)
Impaired loans individually evaluated for impairment in accordance with ASC 310 disaggregated by class as of March 31, 2017 were as follows:
March 31, 2017
Loan Class | Recorded investment | Unpaid principal balance | Related allowance | Average recorded investment | Interest income recognized | |||||||||||||||
Impaired loans with related | ||||||||||||||||||||
Construction and land | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||
Commercial real estate | 4,791 | 4,898 | 1,376 | 4,571 | 10 | |||||||||||||||
Commercial & agriculture | 1,755 | 1,810 | 1,456 | 1,733 | 21 | |||||||||||||||
Consumer real estate | 234 | 242 | 18 | 218 | 4 | |||||||||||||||
Consumer | 46 | 46 | 41 | 46 | 1 | |||||||||||||||
Manufactured homes | 1,919 | 1,919 | 19 | 1,999 | — | |||||||||||||||
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Total loans with related | $ | 8,745 | $ | 8,915 | $ | 2,910 | $ | 8,566 | $ | 36 | ||||||||||
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Loan Class | Recorded investment | Unpaid principal balance | Related allowance | Average recorded investment | Interest income recognized | |||||||||||||||
Impaired loans with no related | ||||||||||||||||||||
Construction and land | $ | 207 | $ | 1,381 | $ | — | $ | 938 | $ | 60 | ||||||||||
Commercial real estate | 5,639 | 6,764 | — | 4,380 | 54 | |||||||||||||||
Commercial & agriculture | 1,049 | 1,837 | — | 1,078 | 15 | |||||||||||||||
Consumer real estate | 1,646 | 1,834 | — | 1,521 | 28 | |||||||||||||||
Consumer | 274 | 496 | — | 335 | 6 | |||||||||||||||
Manufactured homes | 12,423 | 13,393 | — | 12,568 | 148 | |||||||||||||||
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Total loans with no related | 21,238 | 25,705 | — | 20,818 | 311 | |||||||||||||||
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Total impaired loans | $ | 29,983 | $ | 34,620 | $ | 2,910 | $ | 29,384 | $ | 347 | ||||||||||
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F-13
Clayton Banks
Notes to combined financial statements (unaudited)
March 31, 2017
(dollars in thousands)
Impaired loans individually evaluated for impairment in accordance with ASC 310 disaggregated by class as of December 31, 2016 were as follows:
December 31, 2016
Loan Class | Recorded investment | Unpaid principal balance | Related allowance | Average recorded investment | Interest income recognized | |||||||||||||||
Impaired loans with related | ||||||||||||||||||||
Construction and land | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||
Commercial real estate | 4,350 | 4,518 | 1,275 | 4,627 | 86 | |||||||||||||||
Commercial & agriculture | 1,710 | 1,766 | 1,315 | 1,829 | 69 | |||||||||||||||
Consumer real estate | 202 | 203 | 17 | 204 | 10 | |||||||||||||||
Consumer | 45 | 45 | 40 | 2 | — | |||||||||||||||
Manufactured homes | 2,079 | 2,078 | 22 | 2,198 | — | |||||||||||||||
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Total loans with related | $ | 8,386 | $ | 8,610 | $ | 2,669 | $ | 8,860 | $ | 165 | ||||||||||
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Loan Class | Recorded investment | Unpaid principal balance | Related allowance | �� | Average recorded investment | Interest income recognized | ||||||||||||||
Impaired loans with no related | ||||||||||||||||||||
Construction and land | $ | 1,668 | $ | 2,842 | $ | — | $ | 2,861 | $ | 8 | ||||||||||
Commercial real estate | 3,121 | 4,200 | — | 4,485 | 125 | |||||||||||||||
Commercial & agriculture | 1,106 | 1,860 | — | 2,949 | 82 | |||||||||||||||
Consumer real estate | 1,395 | 1,648 | — | 1,930 | 63 | |||||||||||||||
Consumer | 395 | 628 | — | 536 | 29 | |||||||||||||||
Manufactured homes | 12,713 | 13,744 | — | 13,928 | 934 | |||||||||||||||
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Total loans with no related | 20,398 | 24,922 | — | 26,689 | 1,241 | |||||||||||||||
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Total impaired loans | $ | 28,784 | $ | 33,532 | $ | 2,669 | $ | 35,549 | $ | 1,406 | ||||||||||
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F-14
Clayton Banks
Notes to combined financial statements (unaudited)
March 31, 2017
(dollars in thousands)
Impaired loans individually evaluated for impairment in accordance with ASC 310 disaggregated by class as of March 31, 2016 were as follows:
March 31, 2016
Loan Class | Average recorded investment | Interest income recognized | ||||||
Impaired loans with related allowance recorded | ||||||||
Construction and land | $ | — | $ | — | ||||
Commercial real estate | 6,888 | 47 | ||||||
Commercial & agriculture | 1,037 | 9 | ||||||
Consumer real estate | 1,012 | 14 | ||||||
Consumer | 33 | — | ||||||
Manufactured homes | 2,438 | — | ||||||
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Total loans with related allowance recorded | $ | 11,408 | $ | 70 | ||||
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Loan Class | Average recorded investment | Interest income recognized | ||||||
Impaired loans with no related allowance recorded | ||||||||
Construction and land | $ | 1,445 | $ | 1 | ||||
Commercial real estate | 6,037 | 62 | ||||||
Commercial & agriculture | 1,931 | 20 | ||||||
Consumer real estate | 2,505 | 33 | ||||||
Consumer | 439 | 3 | ||||||
Manufactured homes | 1,711 | 8 | ||||||
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Total loans with no related allowance recorded | 14,068 | 127 | ||||||
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Total impaired loans | $ | 25,476 | $ | 197 | ||||
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Non-performing loans were as follows at March 31, 2017 and December 31, 2016:
| March 31, 2017 | December 31, 2016 | |||||||
Loans past due over 90 days still on accrual | $ | 2,164 | $ | 1,270 | ||||
Non-accrual loans | 8,163 | 10,169 | ||||||
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| $ | 10,327 | $ | 11,439 | |||||
Non-performing loans and impaired loans are defined differently. All non-performing loans were loans past due 90 days or greater and still on accrual or loans on non-accrual status as of March 31, 2017 and December 31, 2016. Impaired loans are loans for which, based on current information and events, it is considered probable that the Bank will be unable to collect all amounts of contractual interest and principal as scheduled in the loan agreement. Some loans may be included in both categories, whereas other loans may only be included in one category.
F-15
Clayton Banks
Notes to combined financial statements (unaudited)
March 31, 2017
(dollars in thousands)
Age analysis of past due loans disaggregated by class as of March 31, 2017:
March 31, 2017 | 30-89 days past due | Greater than 90 days | Non-accruals | Current and accruing interest | Total loans | |||||||||||||||
Loan Class | ||||||||||||||||||||
Construction and land | $ | 109 | $ | — | $ | 207 | $ | 116,512 | $ | 116,828 | ||||||||||
Commercial real estate | — | 580 | 6,355 | 332,336 | 339,271 | |||||||||||||||
Commercial & agriculture | 166 | 274 | 551 | 167,966 | 168,957 | |||||||||||||||
Consumer real estate | 792 | 347 | 616 | 99,735 | 101,490 | |||||||||||||||
Consumer | 225 | 124 | 163 | 21,093 | 21,605 | |||||||||||||||
Manufactured homes | 4,203 | 839 | 271 | 312,729 | 318,042 | |||||||||||||||
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Total loans | $ | 5,495 | $ | 2,164 | $ | 8,163 | $ | 1,050,371 | $ | 1,066,193 | ||||||||||
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Age analysis of past due loans disaggregated by class as of December 31, 2016:
December 31, 2016 | 30-89 days past due | Greater than 90 days | Non-accruals | Current and accruing interest | Total loans | |||||||||||||||
Loan Class | ||||||||||||||||||||
Construction and land | $ | 1,264 | $ | 1 | $ | 1,668 | $ | 144,249 | $ | 147,182 | ||||||||||
Commercial real estate | 178 | — | 6,441 | 292,440 | 299,059 | |||||||||||||||
Commercial & agriculture | 1,017 | — | 627 | 154,127 | 155,771 | |||||||||||||||
Consumer real estate | 2,074 | 291 | 821 | 100,482 | 103,668 | |||||||||||||||
Consumer | 491 | 69 | 277 | 22,512 | 23,349 | |||||||||||||||
Manufactured homes | 14,362 | 909 | 335 | 307,935 | 323,541 | |||||||||||||||
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Total loans | $ | 19,386 | $ | 1,270 | $ | 10,169 | $ | 1,021,745 | $ | 1,052,570 | ||||||||||
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Troubled debt restructurings (TDR)—as part of the Banks’ ongoing risk management practices, the Banks attempt to work with borrowers when necessary to extend or modify loan terms to better align with their current ability to repay. Extensions and modifications to loans are made in accordance with internal policies and guidelines which conform to regulatory guidance. Each occurrence is unique to the borrower and is evaluated separately. The Banks consider regulatory guidelines when restructuring loans to ensure that prudent lending practices are followed. As such, qualification criteria and payment terms consider the borrower’s current and prospective ability to comply with the modified terms of the loan.
A modification is classified as TDR if the borrower is experiencing financial difficulty and it is determined that the Banks have granted a concession to the borrower. The Banks may determine that a borrower is experiencing financial difficulty if the borrower is currently in default on any of its debt, or if it is probable that the borrower may default in the foreseeable future without a modification of its debt. Generally, a concession is granted when the Banks no longer expect to collect all amounts due at the original contractual rate subsequent to modification.
F-16
Clayton Banks
Notes to combined financial statements (unaudited)
March 31, 2017
(dollars in thousands)
Concessions could include reductions of interest rates, extension of the maturity date at a rate lower than current market rate for a new loan with similar risk, reduction of accrued interest, or principal forgiveness. When evaluating whether a concession has been granted, the Banks also consider whether the borrower has provided additional collateral or guarantors and whether such additions adequately compensate the Banks for the restructured terms. The assessments of whether a borrower is experiencing (or is likely to experience) financial difficulty and whether a concession has been granted is subjective in nature and management judgment is required when determining whether a modification is classified as TDR. The Banks’ determination whether a TDR is placed on nonaccrual status generally follows the same internal policies and procedures as for the other portfolio loans.
As of March 31, 2017 and December 31, 2016, the Company has a recorded investment in troubled debt restructurings of $23,211 and $21,755, respectively. The modifications included extensions of the maturity date and/or a stated rate of interest to one lower than the current market rate. The Company has allocated $708 and $677 of specific reserves for those loans at March 31, 2017 and December 31, 2016, respectively, and has committed to lend additional amounts totaling up to $1,233 and $1,167, respectively to these customers. Of these loans, $4,369 and $4,574 were classified as non-accrual loans as of March 31, 2017 and December 31, 2016, respectively.
There were no TDR’s that occurred during the three months ended March 31, 2017, additionally there were no payment defaults during the three months ended March 31, 2017 and 2016.
The following table reflects TDR occurring during the three months ended March 31, 2016 by class:
March 31, 2016
Loan Class | Number of contracts | Pre-modification outstanding recorded investment | Post-modification outstanding recorded investment | Charge-offs to specific reserves | ||||||||||||
Consumer real estate | 1 | $ | 93 | $ | 93 | $ | — | |||||||||
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Total loans | 1 | $ | 93 | $ | 93 | $ | — | |||||||||
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Note 4—Regulatory capital matters
Banks and bank holding companies are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action.
Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. As of March 31, 2017 and December 31, 2016, the most recent regulatory notifications categorized Clayton Bank and Trust, and American City Bank (the “Banks”) as
F-17
Clayton Banks
Notes to combined financial statements (unaudited)
March 31, 2017
(dollars in thousands)
well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the Banks’ categories.
Actual and required capital amounts and ratios are presented below as of March 31, 2017 and December 31, 2016:
| Actual | For capital adequacy purposes | To be well capitalized under prompt corrective action provisions | ||||||||||||||||||||||
March 31, 2017 | Amount | Ratio | Amount | Ratio | Amount | Ratio | ||||||||||||||||||
Total Capital to risk weighted assets | ||||||||||||||||||||||||
Clayton Bank and Trust | $ | 165,595 | 18.34 | % | $ | 72,220 | 8.00 | % | $ | 90,275 | 10.00 | % | ||||||||||||
American City Bank | 52,456 | 17.26 | % | 24,311 | 8.00 | % | 30,389 | 10.00 | % | |||||||||||||||
Tier 1 (Core) Capital to risk weighted assets | ||||||||||||||||||||||||
Clayton Bank and Trust | 154,232 | 17.08 | % | 54,165 | 6.00 | % | 54,165 | 6.00 | % | |||||||||||||||
American City Bank | 49,625 | 16.33 | % | 18,233 | 6.00 | % | 18,233 | 6.00 | % | |||||||||||||||
Tier 1 (Core) Capital to average assets | ||||||||||||||||||||||||
Clayton Bank and Trust | 154,232 | 17.54 | % | 35,167 | 4.00 | % | 43,959 | 5.00 | % | |||||||||||||||
American City Bank | 49,625 | 16.23 | % | 12,234 | 4.00 | % | 15,293 | 5.00 | % | |||||||||||||||
Tier 1 (Common) Capital to risk weighted assets | ||||||||||||||||||||||||
Clayton Bank and Trust | 154,232 | 17.08 | % | 40,624 | 4.50 | % | 58,678 | 6.50 | % | |||||||||||||||
American City Bank | 49,625 | 16.33 | % | 13,675 | 4.50 | % | 19,753 | 6.50 | % | |||||||||||||||
| Actual | For capital adequacy purposes | To be well capitalized under prompt corrective | ||||||||||||||||||||||
December 31, 2016 | Amount | Ratio | Amount | Ratio | Amount | Ratio | ||||||||||||||||||
Total Capital to risk weighted assets | ||||||||||||||||||||||||
Clayton Bank and Trust | $ | 167,513 | 18.86% | $ | 71,038 | 8.00% | $ | 88,797 | 10.00% | |||||||||||||||
American City Bank | 50,454 | 16.87% | 23,927 | 8.00% | 29,909 | 10.00% | ||||||||||||||||||
Tier 1 (Core) Capital to risk weighted assets | ||||||||||||||||||||||||
Clayton Bank and Trust | 156,332 | 17.61% | 53,278 | 6.00% | 53,278 | 6.00% | ||||||||||||||||||
American City Bank | 47,736 | 15.96% | 17,945 | 6.00% | 17,945 | 6.00% | ||||||||||||||||||
Tier 1 (Core) Capital to average assets | ||||||||||||||||||||||||
Clayton Bank and Trust | 156,332 | 18.10% | 34,557 | 4.00% | 43,196 | 5.00% | ||||||||||||||||||
American City Bank | 47,736 | 16.48% | 11,585 | 4.00% | 14,481 | 5.00% | ||||||||||||||||||
Tier 1 (Common) Capital to risk weighted assets | ||||||||||||||||||||||||
Clayton Bank and Trust | 156,332 | 17.61% | 39,959 | 4.50% | 57,718 | 6.50% | ||||||||||||||||||
American City Bank | 47,736 | 15.96% | 13,459 | 4.50% | 19,441 | 6.50% | ||||||||||||||||||
F-18
Clayton Banks
Notes to combined financial statements (unaudited)
March 31, 2017
(dollars in thousands)
Note 5—Loan commitments, contingencies and other related activities
Some financial instruments, such as loan commitments, credit lines, letters of credit, and overdraft protection, are issued to meet customer financing needs. These are agreements to provide credit or to support the credit of others, as long as conditions established in the contract are met, and usually have expiration dates. Commitments may expire without being used. Off-balance-sheet credit loss risk exists up to the face amount of these instruments, although material losses are not anticipated. The same credit policies are used to make such commitments as the ones used for loans, including obtaining collateral at exercise of the commitment.
The contractual amount of financial instruments with off-balance-sheet risk was as follows at year-end:
| March 31, 2017 | December 31, 2016 | |||||||
Commitments to make Loans | $ | 278,299 | $ | 243,068 | ||||
Lines of Credit | 2,127 | 1,653 | ||||||
Letters of Credit | 6,532 | 6,878 | ||||||
In the normal course of business, the Banks are subject to various claims and litigation arising out of claims or other disputes. Because litigation is subject to many uncertainties and the outcome of individual litigated matters is not predictable with assurance, it is reasonably possible that some of the legal actions and claims could be filed and decided as unfavorable to the Banks. Although the amount of ultimate liabilities with respect to such matters cannot be ascertained, management, after evaluating current ongoing litigation or claims, believes that any resulting liability should not materially affect the financial position of the Banks.
Note 6—Fair value of financial instruments
ASC 820, “Fair Value Measurements and Disclosures,” defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The statement emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, the fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. ASC 820 establishes a three-level valuation hierarchy for disclosure of fair value measurements.
Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2: 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 instrument.
Level 3: Significant unobservable inputs based on the Banks’ assumptions used to measure assets and liabilities at fair value.
The Banks utilize fair value measurements to record fair value adjustments to certain assets and liabilities. Following is a description of the valuation methodologies used for assets and liabilities measured at fair value, as well as the general classification of such assets and liabilities pursuant to the valuation hierarchy.
F-19
Clayton Banks
Notes to combined financial statements (unaudited)
March 31, 2017
(dollars in thousands)
Securities Available for Sale—Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities include highly liquid government securities and certain other products. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics and are classified within Level 2 of the valuation hierarchy. Level 2 securities include mortgage-backed securities and municipal bonds. In certain cases, where there is limited activity or fair values are estimated using discounted cash flow models, securities are classified within Level 3 of the valuation hierarchy.
Impaired Loans—A loan is considered to be impaired when it is probable the Banks will be unable to collect all principal and interest payments due in accordance with the contractual terms of the loan agreement. Impaired loans are measured based on the present value of expected payments using the loan’s original effective rate as the discount rate, the loan’s observable market price, or the fair value of the collateral if the loan is collateral dependent. If the recorded investment in the impaired loan exceeds the measure of fair value, a valuation allowance may be established as a component of the allowance for loan losses or the expense is recognized as a charge-off. Impaired loans are classified within Level 3 of the hierarchy.
Other Real Estate Owned—Other real estate owned, consisting of properties obtained through foreclosure or in satisfaction of loans, is initially recorded at lower of carrying value or fair value, determined on the basis of current appraisals, comparable sales, and other estimates of value obtained principally from independent sources, adjusted for estimated selling costs. Other real estate owned is included in Level 3 of the valuation hierarchy.
The Banks had no liabilities measured at fair value on a recurring or non-recurring basis at March 31, 2017 and December 31, 2016.
Assets measured at fair value on a recurring basis as of March 31, 2017 and December 31, 2016 are as follows:
March 31, 2017 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Investment securities available for sale | ||||||||||||||||
Mortgage-backed securities | $ | — | $ | 33,032 | $ | — | $ | 33,032 | ||||||||
State and municipal securities | — | 18,101 | — | 18,101 | ||||||||||||
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Total | $ | — | $ | 51,133 | $ | — | $ | 51,133 | ||||||||
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December 31, 2016 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Investment securities available for sale | ||||||||||||||||
Mortgage-backed securities | $ | — | $ | 34,996 | $ | — | $ | 34,996 | ||||||||
State and municipal securities | — | 17,985 | — | 17,985 | ||||||||||||
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Total | $ | — | $ | 52,981 | $ | — | $ | 52,981 | ||||||||
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F-20
Clayton Banks
Notes to combined financial statements (unaudited)
March 31, 2017
(dollars in thousands)
Assets measured at fair value on a non-recurring basis as of March 31, 2017 and December 31, 2016 are as follows:
March 31, 2017 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Other real estate owned | $ | — | $ | — | $ | 27 | $ | 27 | ||||||||
Impaired loans, net | — | — | 9,883 | 9,883 | ||||||||||||
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Total assets at fair value | $ | — | $ | — | $ | 9,910 | $ | 9,910 | ||||||||
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December 31, 2016 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Other real estate owned | $ | — | $ | — | $ | 1,315 | $ | 1,315 | ||||||||
Impaired loans, net | — | — | 16,471 | 16,471 | ||||||||||||
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Total assets at fair value | $ | — | $ | — | $ | 17,786 | $ | 17,786 | ||||||||
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There were no transfers between Level 1, 2 or 3 during the periods presented.
The following methods and assumptions were used in estimating its fair value disclosure for financial instruments that are not measured at fair value.
Cash and Cash Equivalents—The carrying amounts of cash, due from banks, and federal funds sold approximate their fair value.
Loans—For variable-rate loans that reprice frequently and have no significant change in credit risk, fair values approximate carrying values. For other loans, fair values are estimated using discounted cash flow models, using current market interest rates offered for loans with similar terms to borrowers of similar credit quality.
Deposits, Federal Home Loan Bank Advances and Other Borrowed Funds—The carrying amounts of demand deposits, savings deposits and floating rate advances from the Federal Home Loan Bank approximate their fair values. Fair values for certificates of deposit, fixed rate advances from the Federal Home Loan Bank are estimated using discounted cash flow models using current market interest rates offered on certificates, advances and other borrowings.
Federal Funds Purchased—The carrying amounts of federal funds purchased approximate their fair value.
F-21
Clayton Banks
Notes to combined financial statements (unaudited)
March 31, 2017
(dollars in thousands)
Carrying amount and estimated fair values of financial instruments were as follows at March 31, 2017 and December 31, 2016:
March 31, 2017 | Carrying amount | Level 1 | Level 2 | Level 3 | Fair value | |||||||||||||||
Financial Assets | ||||||||||||||||||||
Cash and cash equivalent | $ | 37,856 | $ | 37,856 | — | — | $ | 37,856 | ||||||||||||
Securities available for sale | 51,133 | — | 51,133 | — | 51,133 | |||||||||||||||
Securities held to maturity | 13,601 | — | 14,090 | — | 14,090 | |||||||||||||||
Loans, net | 1,045,674 | — | 1,014,078 | 9,883 | 1,023,961 | |||||||||||||||
FHLB stock and securities | 3,370 | — | — | 3,370 | 3,370 | |||||||||||||||
Accrued interest receivable | 4,922 | — | 4,922 | — | 4,922 | |||||||||||||||
Financial Liabilities | ||||||||||||||||||||
Non maturing deposits | 601,922 | 601,922 | — | — | 601,922 | |||||||||||||||
Time deposits | 326,737 | — | 324,974 | — | 324,974 | |||||||||||||||
FHLB advances | 49,399 | — | 50,451 | — | 50,451 | |||||||||||||||
Fed funds purchased | 695 | 695 | — | — | 695 | |||||||||||||||
Accrued interest payable | 600 | — | 600 | — | 600 | |||||||||||||||
December 31, 2016 | Carrying amount | Level 1 | Level 2 | Level 3 | Fair value | |||||||||||||||
Financial Assets | ||||||||||||||||||||
Cash and cash equivalent | $ | 49,592 | $ | 49,592 | — | — | $ | 49,592 | ||||||||||||
Securities available for sale | 52,981 | — | 52,981 | — | 52,981 | |||||||||||||||
Securities held to maturity | 13,691 | — | 14,200 | — | 14,200 | |||||||||||||||
Loans, net | 1,032,175 | — | 1,005,310 | 16,471 | 1,021,781 | |||||||||||||||
FHLB stock and securities | 3,370 | — | — | 3,370 | 3,370 | |||||||||||||||
Accrued interest receivable | 5,050 | — | 5,050 | — | 5,050 | |||||||||||||||
Financial Liabilities | ||||||||||||||||||||
Non maturing deposits | 583,048 | 583,048 | — | — | 583,048 | |||||||||||||||
Time deposits | 335,326 | — | 333,634 | — | 333,634 | |||||||||||||||
FHLB advances | 52,414 | — | 52,780 | — | 52,780 | |||||||||||||||
Fed funds purchased | 308 | 308 | — | — | 308 | |||||||||||||||
Accrued interest payable | 553 | — | 553 | — | 553 | |||||||||||||||
Note 7—Related party transactions
The Banks offer loans in the ordinary course of business to our insiders, including our executive officers and directors, their related interests and immediate family members and other employees. Applicable law and our written credit policies require that loans to insiders be on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with unrelated parties, and must not involve more than the normal risk of repayment or present other unfavorable features. Loans to non-insider
F-22
Clayton Banks
Notes to combined financial statements (unaudited)
March 31, 2017
(dollars in thousands)
employees and other non-insiders are subject to the same requirements and underwriting standards and meet our normal lending guidelines, except that non-insider employees and other non-insiders may receive preferential interest rates and fees as an employee benefit. Loans to individual employees, directors and executive officers must also comply with the Banks’ statutory lending limits and regulatory requirements regarding lending limits and collateral. All extensions of credit to the related parties must be reviewed and approved by the Banks’ Boards of Directors. Directors with a personal interest in any loan application are excluded from the consideration of such loan application. The Banks have made loans to directors and executive officers.
Such loans amounted to $46,007 (representing 36 loans) and $46,107 (representing 38 loans) at March 31, 2017 and December 31, 2016, respectively.
Deposits from principal officers, directors and their affiliates were $87,444 and $42,894 at March 31, 2017 and December 31, 2016, respectively.
At March 31, 2017 and December 31, 2016, Clayton HC, Inc. had cash balances on deposit with Clayton Bank and Trust totaling $41,322 and $28,170, respectively, for ongoing corporate needs.
The Banks also have available lines of credit (or the equivalent thereof) with the majority shareholder totaling approximately $52,000 as of March 31, 2017 and December 31, 2016. There was no balance outstanding on those lines at March 31, 2017 or December 31, 2016.
The Banks entered into aircraft time sharing agreement, dated July 2015, with companies controlled by the majority shareholder, (CFA Holdings LLC and CF Services LLC), pursuant to which the Banks have the right to use, from time to time, an aircraft leased and operated by CFA Holdings. This replaces the previous agreement entered into during 2007. CFA Holdings and CF Services LLC bill the Banks for usage of the aircraft based on hours of use and operating costs. During the three months ended March 31, 2017 and 2016 the banks paid CFA Holdings and CF Services $61 and $15, respectively, under the aviation timesharing agreement for the use of the aircraft.
Clayton Bank and Trust leases branch space from Clayton HC, Inc. Annual lease for space is $6 per year. Clayton HC has a management agreement with Clayton Bank and Trust to provide support for collection of debts, management of ORE, accounting and other management duties, amounting to $46 and $46 during the three months ended March 31, 2017 and 2016, respectively.
Apex Bank, 50% owned by Clayton HC, has a management agreement with Clayton Bank and Trust to provide support for IT and other management duties, amounting to $5 and $5 during the three months ended March 31, 2017 and 2016, respectively.
F-23