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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

For the quarterly period ended March 31, 2021

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                 to                

Commission file number 001-37416

 

ALTABANCORP

(Exact name of registrant as specified in its charter)

 

 

Utah

 

87-0622021

(State or other jurisdiction of

 

(IRS Employer

incorporation or organization)

 

Identification No.)

 

1 East Main Street

American Fork, Utah

 

84003

(Address of principal executive offices)

 

(Zip Code)

Registrant’s telephone number, including area code: (801) 642-3998

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, par value $0.01 per share

 

ALTA

 

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-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-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-2 of the Exchange Act.

 

Large accelerated filer

 

Accelerated filer

 

 

 

 

 

Non-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 checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes    No  

As of April 30, 2021, the registrant had 18,873,921 shares of common stock $0.01 par value per share, outstanding.

 


TABLE OF CONTENTS

 

PART I. FINANCIAL INFORMATION

 

Item 1 – Financial Statements

 

Unaudited Consolidated Balance Sheet

3

Unaudited Consolidated Statements of Income

4

Unaudited Consolidated Statements of Comprehensive Income

5

Unaudited Consolidated Statements of Changes in Shareholders’ Equity

6

Unaudited Consolidated Statements of Cash Flows

7

Notes to Unaudited Consolidated Financial Statements

8

Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

30

Item 3 – Quantitative and Qualitative Disclosures about Market Risk

47

Item 4 – Controls and Procedures

48

PART II. OTHER INFORMATION

 

Item 1 – Legal Proceedings

49

Item 1A – Risk Factors

49

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds

49

Item 3 – Defaults upon Senior Securities

49

Item 4 – Mine Safety Disclosures

49

Item 5 – Other Information

49

Item 6 – Exhibits

49

Signatures

50

 

 

 

 


 

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

ALTABANCORPTM AND SUBSIDIARY

UNAUDITED CONSOLIDATED BALANCE SHEETS

 

 

 

March 31,

 

 

December 31,

 

(Dollars in thousands, except share amounts)

 

2021

 

 

2020

 

ASSETS

 

 

 

 

 

 

 

 

Cash and cash equivalents:

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

33,254

 

 

$

39,312

 

Interest-bearing deposits

 

 

77,378

 

 

 

197,769

 

Federal funds sold

 

 

910

 

 

 

2,793

 

Total cash and cash equivalents

 

 

111,542

 

 

 

239,874

 

Investment securities - available for sale, at fair value

 

 

1,500,491

 

 

 

1,320,393

 

Non-marketable equity securities

 

 

4,042

 

 

 

2,890

 

Loans held for sale

 

 

8,293

 

 

 

14,152

 

Loans:

 

 

 

 

 

 

 

 

Loans held for investment

 

 

1,796,961

 

 

 

1,695,496

 

Allowance for credit losses

 

 

(41,013

)

 

 

(41,236

)

Total loans held for investment, net

 

 

1,755,948

 

 

 

1,654,260

 

Premises and equipment, net

 

 

35,962

 

 

 

36,460

 

Goodwill

 

 

25,673

 

 

 

25,673

 

Bank-owned life insurance

 

 

42,978

 

 

 

42,720

 

Deferred income tax assets, net

 

 

16,814

 

 

 

7,389

 

Accrued interest receivable

 

 

10,454

 

 

 

11,336

 

Other intangibles

 

 

4,389

 

 

 

4,451

 

Other real estate owned

 

 

-

 

 

 

-

 

Other assets

 

 

5,212

 

 

 

6,630

 

Total assets

 

$

3,521,798

 

 

$

3,366,228

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

 

Non-interest bearing deposits

 

$

1,104,995

 

 

$

1,039,844

 

Interest bearing deposits

 

 

2,053,991

 

 

 

1,876,464

 

Total deposits

 

 

3,158,986

 

 

 

2,916,308

 

Short-term borrowings

 

 

-

 

 

 

64,554

 

Accrued interest payable

 

 

339

 

 

 

616

 

Other liabilities

 

 

12,602

 

 

 

13,612

 

Total liabilities

 

 

3,171,927

 

 

 

2,995,090

 

 

 

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

 

 

 

Preferred shares, $0.01 par value: 3,000,000 shares authorized; no shares issued

 

 

-

 

 

 

-

 

Common shares, $0.01 par value: 30,000,000 shares authorized; 18,873,921

 

 

 

 

 

 

 

 

and 18,828,522 shares issued and outstanding as of March 31, 2021

 

 

 

 

 

 

 

 

and December 31, 2020, respectively

 

 

189

 

 

 

188

 

Additional paid-in capital

 

 

87,843

 

 

 

87,574

 

Retained earnings

 

 

275,765

 

 

 

269,157

 

Accumulated other comprehensive (loss) / income

 

 

(13,926

)

 

 

14,219

 

Total shareholders’ equity

 

 

349,871

 

 

 

371,138

 

Total liabilities and shareholders’ equity

 

$

3,521,798

 

 

$

3,366,228

 

 

See accompanying notes to the unaudited consolidated financial statements.

 

3


 

ALTABANCORPTM AND SUBSIDIARY

UNAUDITED CONSOLIDATED STATEMENTS OF INCOME

 

 

 

Three Months Ended

 

 

 

March 31,

 

(Dollars in thousands, except share and per share amounts)

 

2021

 

 

2020

 

Interest income

 

 

 

 

 

 

 

 

Interest and fees on loans

 

$

22,814

 

 

$

25,925

 

Interest and dividends on investments

 

 

2,330

 

 

 

3,459

 

Total interest income

 

 

25,144

 

 

 

29,384

 

Interest expense

 

 

1,546

 

 

 

2,163

 

Net interest income

 

 

23,598

 

 

 

27,221

 

Provision for credit losses

 

 

-

 

 

 

650

 

Net interest income after provision for credit losses

 

 

23,598

 

 

 

26,571

 

Non-interest income

 

 

 

 

 

 

 

 

Mortgage banking

 

 

2,781

 

 

 

1,710

 

Card processing

 

 

1,071

 

 

 

707

 

Service charges on deposit accounts

 

 

692

 

 

 

780

 

Net gain on sale of investment securities

 

 

206

 

 

 

-

 

Other

 

 

632

 

 

 

543

 

Total non-interest income

 

 

5,382

 

 

 

3,740

 

Non-interest expense

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

11,087

 

 

 

10,844

 

Occupancy, equipment and depreciation

 

 

1,195

 

 

 

1,539

 

Data processing

 

 

1,849

 

 

 

1,136

 

Marketing and advertising

 

 

306

 

 

 

432

 

FDIC premiums

 

 

226

 

 

 

-

 

Other

 

 

1,882

 

 

 

2,210

 

Total non-interest expense

 

 

16,545

 

 

 

16,161

 

Income before income tax expense

 

 

12,435

 

 

 

14,150

 

Income tax expense

 

 

2,997

 

 

 

3,377

 

Net income

 

$

9,438

 

 

$

10,773

 

Earnings per common share:

 

 

 

 

 

 

 

 

Basic

 

$

0.50

 

 

$

0.57

 

Diluted

 

$

0.50

 

 

$

0.57

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

 

18,864,497

 

 

 

18,884,857

 

Diluted

 

 

19,019,682

 

 

 

19,038,127

 

 

See accompanying notes to the unaudited consolidated financial statements.

 

4


 

ALTABANCORPTM AND SUBSIDIARY

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME / (LOSS)

 

 

 

Three Months Ended

 

 

 

March 31,

 

(Dollars in thousands)

 

2021

 

 

2020

 

Net income

 

$

9,438

 

 

$

10,773

 

Other comprehensive (loss) / income

 

 

 

 

 

 

 

 

Unrealized holding (loss) / gains on securities available for sale

 

 

(37,320

)

 

 

10,567

 

Reclassification adjustment for (gains) / loss on available for sale securities

 

 

(206

)

 

 

-

 

Net unrealized holding (loss) / gains on securities available for sale

 

 

(37,526

)

 

 

10,567

 

 

 

 

 

 

 

 

 

 

Income tax benefit / (expense)

 

 

9,381

 

 

 

(2,643

)

Other comprehensive (loss) / income, net of tax

 

 

(28,145

)

 

 

7,924

 

Total comprehensive (loss) / income

 

$

(18,707

)

 

$

18,697

 

 

See accompanying notes to the unaudited consolidated financial statements.

 

5


 

ALTABANCORPTM AND SUBSIDIARY

UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Other

 

 

 

 

 

(Dollars in thousands, except share and per share

 

Common

 

 

Common

 

 

Paid-in

 

 

Retained

 

 

Comprehensive

 

 

 

 

 

    amounts)

 

Shares

 

 

Stock

 

 

Capital

 

 

Earnings

 

 

Income (Loss)

 

 

Total

 

Balance as of January 1, 2020

 

 

18,870,498

 

 

$

189

 

 

$

87,913

 

 

$

242,878

 

 

$

1,382

 

 

$

332,362

 

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

10,773

 

 

 

-

 

 

 

10,773

 

Other comprehensive income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

7,924

 

 

 

7,924

 

Cash dividends ($0.14 per share)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(2,646

)

 

 

-

 

 

 

(2,646

)

Reclass related to ASC 326 adoption (CECL)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(6,680

)

 

 

-

 

 

 

(6,680

)

Shares repurchased

 

 

(120,906

)

 

 

(1

)

 

 

(2,139

)

 

 

-

 

 

 

-

 

 

 

(2,140

)

Share-based compensation

 

 

-

 

 

 

-

 

 

 

385

 

 

 

-

 

 

 

-

 

 

 

385

 

Issuance of shares under stock incentive plans

 

 

38,218

 

 

 

-

 

 

 

159

 

 

 

-

 

 

 

-

 

 

 

159

 

Balance as of March 31, 2020

 

 

18,787,810

 

 

$

188

 

 

$

86,318

 

 

$

244,325

 

 

$

9,306

 

 

$

340,137

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of January 1, 2021

 

 

18,828,522

 

 

$

188

 

 

$

87,574

 

 

$

269,157

 

 

$

14,219

 

 

$

371,138

 

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

9,438

 

 

 

-

 

 

 

9,438

 

Other comprehensive loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(28,145

)

 

 

(28,145

)

Cash dividends ($0.15 per share)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(2,830

)

 

 

-

 

 

 

(2,830

)

Share-based compensation

 

 

-

 

 

 

-

 

 

 

351

 

 

 

-

 

 

 

-

 

 

 

351

 

Issuance of shares under stock incentive plans

 

 

45,399

 

 

 

1

 

 

 

(82

)

 

 

-

 

 

 

-

 

 

 

(81

)

Balance as of March 31, 2021

 

 

18,873,921

 

 

$

189

 

 

$

87,843

 

 

$

275,765

 

 

$

(13,926

)

 

$

349,871

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to the unaudited consolidated financial statements.

6


 

ALTABANCORPTM AND SUBSIDIARY

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

 

Three Months Ended

 

 

 

March 31,

 

(Dollars in thousands)

 

2021

 

 

2020

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

9,438

 

 

$

10,773

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Provision for credit losses

 

 

-

 

 

 

650

 

Depreciation and amortization

 

 

715

 

 

 

876

 

Deferred income taxes

 

 

(44

)

 

 

1,187

 

Net amortization of securities premiums and discounts

 

 

5,472

 

 

 

501

 

Gain on sale of available for sale securities

 

 

(206

)

 

 

-

 

Increase in cash surrender value of bank-owned life insurance

 

 

(258

)

 

 

(147

)

Share-based compensation

 

 

351

 

 

 

385

 

Gain on sale of loans held for sale

 

 

(2,123

)

 

 

(1,243

)

Originations of loans held for sale

 

 

(114,670

)

 

 

(53,046

)

Proceeds from sale of loans held for sale

 

 

122,652

 

 

 

51,386

 

Net changes in:

 

 

 

 

 

 

 

 

Accrued interest receivable

 

 

882

 

 

 

(560

)

Other assets

 

 

1,441

 

 

 

(865

)

Accrued interest payable

 

 

(277

)

 

 

(43

)

Other liabilities

 

 

(844

)

 

 

(2,538

)

Net cash provided by operating activities

 

 

22,529

 

 

 

7,316

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Net change in loans held for investment

 

 

(101,688

)

 

 

39,573

 

Purchase of available for sale securities

 

 

(556,504

)

 

 

(192,849

)

Proceeds from maturities/sales of available for sale securities

 

 

333,614

 

 

 

31,910

 

Purchase of premises and equipment

 

 

(416

)

 

 

(1,061

)

Proceeds from sale of assets

 

 

72

 

 

 

-

 

Purchase of non-marketable equity securities

 

 

(1,752

)

 

 

(267

)

Proceeds from sale of non-marketable equity securities

 

 

600

 

 

 

-

 

Net cash (used in) provided by investing activities

 

 

(326,074

)

 

 

(122,694

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Net increase in deposits

 

 

242,678

 

 

 

65,651

 

(Costs) / Proceeds related to exercise of stock options

 

 

(81

)

 

 

159

 

Net change in short-term borrowings

 

 

(64,554

)

 

 

-

 

Net cash used in share repurchase program

 

 

-

 

 

 

(2,140

)

Cash dividends paid

 

 

(2,830

)

 

 

(2,646

)

Net cash provided by financing activities

 

 

175,213

 

 

 

61,024

 

Net change in cash and cash equivalents

 

 

(128,332

)

 

 

(54,354

)

Cash and cash equivalents, beginning of period

 

 

239,874

 

 

 

211,981

 

Cash and cash equivalents, end of period

 

$

111,542

 

 

$

157,627

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

1,823

 

 

$

2,206

 

Income taxes paid

 

$

-

 

 

$

-

 

Supplemental disclosures of non-cash investing transactions:

 

 

 

 

 

 

 

 

Reclassifications from loans to other real estate owned

 

$

-

 

 

$

-

 

Net unrealized (loss) / gains on securities available for sale

 

$

(37,526

)

 

$

10,567

 

See accompanying notes to the unaudited consolidated financial statements.

7


 

ALTABANCORPTM AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

Note 1 — Basis of Presentation and Significant Accounting Policies

Nature of operations and basis of consolidation — AltabancorpTM (“ALTA”) is a Utah corporation headquartered in American Fork, Utah and is the bank holding company for AltabankTM (the “Bank” and together with ALTA, the “Company”). The Company operates all business activities through the Bank, which was organized in 1913.  AltabankTM is a Utah state-chartered bank.  AltabankTM operates under the jurisdiction of the Utah Department of Financial Institutions (“UDFI”), and its deposits are insured by the Federal Deposit Insurance Corporation (“FDIC”). AltabankTM is not a member of the Federal Reserve System; however, the AltabancorpTM operates as a bank holding company under the Federal Bank Holding Company Act of 1956 and is the sole shareholder of AltabankTM. Both AltabancorpTM and AltabankTM are subject to periodic examination by these applicable federal and state regulatory agencies and file periodic reports and other information with the agencies.  The Company considers AltabankTM to be its sole operating segment.

AltabankTM is a community bank that provides highly personalized retail and commercial banking products and services to small-to-medium sized businesses and to individuals.  Products and services are offered primarily through 25 retail branches located throughout Utah and southern Idaho.  AltabankTM offers a full range of short-term to long-term commercial, personal, and mortgage loans. Commercial loans include both secured and unsecured loans for working capital (including inventory and accounts receivable), business expansion (including acquisition of real estate and improvements), and purchase of equipment and machinery. Consumer loans include secured and unsecured loans to finance automobiles, home improvements, education, and personal investments. AltabankTM also offers mortgage loans secured by personal residences. AltabankTM offers a full range of deposit services typically available in most financial institutions, including checking accounts, savings accounts, and time deposits. AltabankTM solicits these accounts from individuals, businesses, associations and organizations, and governmental entities.

The accompanying unaudited interim consolidated financial statements include the accounts of the Company together with its subsidiary Bank. All intercompany transactions and balances have been eliminated.  These unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X as promulgated by the Securities and Exchange Commission (the “SEC”). In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the financial position and results of operations for the periods presented have been included. Certain information and disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC and the accounting standards for interim financial statements.

Use of estimates — The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions.  These estimates and assumptions 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 reported period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for credit losses (“ACL”), the determination of the fair value of certain financial instruments, the valuation of real estate acquired through foreclosure, deferred income tax assets, and share-based compensation.

 

Reclassifications — Certain reclassifications have been made to the 2020 Consolidated Financial Statements and/or schedules to conform to the 2021 presentation. These reclassifications may have affected certain ratios for the prior periods. The effect of these reclassifications is considered immaterial.

Business combinations — Business combinations are accounted for using the acquisition method of accounting and, accordingly, assets acquired and liabilities assumed, both tangible and intangible, and consideration exchanged are recorded at fair value on the acquisition date.  The excess purchase consideration over fair value of net assets acquired is recorded as goodwill.  Expenses incurred in connection with a business combination are expensed as incurred. Changes in deferred tax asset valuation allowances related to acquired tax uncertainties are recognized in net income after the measurement period.

8


 

Note 1 — Basis of Presentation and Significant Accounting Policies – Continued

Cash and cash equivalents — Cash and cash equivalents consist of cash on hand, amounts due from banks, interest bearing deposits, and federal funds sold, all of which have original maturities of three months or less. The Company places its cash with high credit quality institutions. The amounts on deposit fluctuate and, at times, exceed the insured limit by the FDIC, which potentially subjects the Company to credit risk.

 

Investment securities — Investment securities are classified as held to maturity (“HTM”) when the Company has the positive intent and ability to hold the securities to maturity. Investment securities are classified as available for sale (“AFS”) when the Company has the intent of holding the security for an indefinite period of time, but not necessarily to maturity.  The Company determines the appropriate classification at the time of purchase, and periodically thereafter.  Investment securities classified as HTM are carried at amortized cost.  Investment securities classified as AFS are reported at fair value.  Purchase premiums and discounts are recognized in interest income using the interest method over the terms of the securities.  Debt securities classified as held to maturity are carried at cost, net of the allowance for credit losses on debt securities, adjusted for amortization of premiums and discounts to the earliest callable date.  Debt securities classified as available for sale are measured at fair value.  Unrealized holding gains and losses on debt securities classified as available for sale are excluded from earnings and are reported net of tax as accumulated other comprehensive income (“AOCI”), a component of shareholders’ equity, until realized.  When AFS securities, specifically identified, are sold, the unrealized gain or loss is reclassified from AOCI to non-interest income. Debt securities classified as trading are also measured at fair value.  Unrealized holding gains and losses on securities classified as trading are included in earnings.

 

FASB ASC Subtopic 326-30, Financial Instruments—Credit Losses—Available for Sale Debt Securities - describes the accounting for expected credit losses associated with AFS debt securities. Credit losses for AFS debt securities are evaluated as of each reporting date when the fair value is less than amortized cost. FASB ASC Subtopic 326-30 requires credit losses to be calculated individually, rather than collectively, using a discounted cash flow method, through which the Company’s management (“Management”) compares the present value of expected cash flows with the amortized cost basis of the security. An ACL is established, with a charge to the provision for credit losses (“PCL”), to reflect the credit loss component of the decline in fair value below amortized cost. If the fair value of the security increases over time, any ACL that has not been written off may be reversed through a credit to the PCL. The ACL for an available for sale debt security is limited by the amount that the fair value is less than the amortized cost, which is referred to as the fair value floor.

 

If the Company intends to sell an AFS debt security or will more likely than not be required to sell the security before recovery of the amortized cost basis, the security’s ACL should be written off and the amortized cost basis of the security should be written down to its fair value at the reporting date with any incremental credit losses reported in income.  A change during the reporting period in the non-credit component of any decline in fair value below amortized cost on an AFS debt security is reported in AOCI, net of applicable income taxes.

 

The Company has excluded accrued interest receivable from the amortized cost of the debt securities and from the calculation of current expected credit losses.

 

Each reporting period, Management reviews all AFS debt securities.  If the debt securities are guaranteed by a Federal government agency or Federal government sponsored agency, Management believes that any change in the fair value of such securities is only related to changes in interest rates, and no ACL will be recorded.  Management reviews the remaining debt securities by evaluating the credit rating provided by Nationally Recognized Statistical Ration Organizations (“NRSRO”).  If the NRSRO credit rating is investment grade rated or higher, Management believes that any change in the fair value of such securities is related to changes in interest rates, and no ACL will be recorded.  If any remaining debt securities either have a NRSRO credit rating that is below investment grade or is unrated, Management will determine if an ACL should be recorded by comparing the net present value of expected cash flows with the amortized cost basis of the security with any difference recorded to ACL.

Non-marketable equity securities — Non-marketable equity securities primarily consist of Federal Home Loan Bank (“FHLB”) stock. FHLB stock is restricted because such stock may only be sold to FHLB at its par value. Due to the restrictive terms, and the lack of a readily determinable market value, FHLB stock is carried at cost. The investments in FHLB stock are required investments related to the Bank’s borrowings from FHLB. FHLB obtains its funding primarily through issuance of consolidated obligations of the FHLB system. The U.S. Government does not guarantee these obligations, and each of the regional FHLBs are jointly and severally liable for repayment of each other’s obligations.

9


 

Note 1 — Basis of Presentation and Significant Accounting Policies – Continued

Loans held for sale — Single-family residential mortgage loans originated with the intent to be sold in the secondary market are considered held for sale. Loans with best effort delivery commitments are carried at the lower of aggregate cost or estimated fair value.  Loans under mandatory delivery commitments are carried at fair value to match changes in the value of the loans with the value of the economic hedges on the loans.  Fair values for loans held for sale are determined by comparing actual loan rates to current secondary market prices for similar loans.  Net unrealized losses on loans held for sale that are carried at lower of cost or market are recognized through the valuation allowance by charges to income.  Mortgage loans held for sale are generally sold with the mortgage servicing rights. Gains or losses on sales of mortgage loans are recognized based on the difference between the selling price and the carrying value of the related mortgage loans sold.

Loans held for investment — Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off are reported at their outstanding principal balance adjusted for any charge-offs, the allowance for credit losses, any deferred fees or costs on originated loans, and unamortized premiums or discounts on acquired loans. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the related loan yield using the effective interest method.  The Company has excluded accrued interest receivable from the amortized cost of loans held for investment and from the calculation of current expected credit losses.

Loans are placed on non-accrual status when they become 90 days or more past due or at such earlier time as Management determines timely recognition of interest to be in doubt. Accrual of interest is discontinued on a loan when Management believes, after considering economic and business conditions, collection efforts, and the borrower’s financial condition, that the borrower will be unable to make payments as they become due. When interest accrual is discontinued, all unpaid accrued interest is reversed. Interest income is subsequently recognized only to the extent cash payments are received, or payment is considered certain. Loans may be returned to accrual status when all delinquent interest and principal amounts contractually due are brought current and future payments are reasonably assured.

 

Troubled debt restructuring Expected credit losses on financial assets modified in troubled debt restructurings (“TDRs”) are estimated under the same current expected credit loss “(CECL”) methodology that is applied to other financial assets measured at amortized cost. Expected credit losses can be evaluated either on a collective basis or on an individual basis if a TDR does not share similar risk characteristics with other financial assets.

 

FASB ASC Topic 326 allows an institution to use any appropriate loss estimation method to estimate ACLs for TDRs. However, there are circumstances when specific measurement methods are required. If a TDR is collateral-dependent, the ACL is estimated using the fair value of collateral.

 

In addition, the expected effect of the modification (e.g., term extension or interest rate concession) will be included in the estimate of the ACL. Management will determine, support, and document how the Company identifies and estimates the effect of a reasonably expected TDR and how the Company estimates the related ACL. The Company may include the estimated effect of reasonably expected TDRs in its qualitative factor adjustments.

 

The Coronavirus Aid, Relief, and Economic Security Act of 2020 (the “CARES Act”) and the Consolidated Appropriations Act 2021 (the “CAA”) provided guidance regarding modification of loans as a result of the COVID-19 pandemic, including that short-term modifications made on a good faith basis to borrowers who were current as defined under the CARES Act prior to any relief are not TDRs. This includes short-term (e.g., six months) modifications, such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant. To qualify as an eligible loan under the CARES Act, a loan modification must be: (1) related to COVID-19; (2) involve a loan that was not more than 30 days past due as of December 31, 2019; and (3) occur between March 1, 2020 and the earlier of (a) 60 days after the date of termination of the national emergency declared by the President or (b) December 31, 2020. The CAA extended the modification relief offered under the CARES Act through the earlier of January 1, 2022 or 60 days after the end of the national emergency declared by the President.

 

10


 

Note 1 — Basis of Presentation and Significant Accounting Policies – Continued

 

As a result, the Company has not recognized eligible loan modifications under the CARES Act as TDRs. Additionally, loans qualifying for such modification are not required to be reported as delinquent, nonaccrual, impaired, or criticized having resulted from the economic effects of the COVID-19 pandemic. Modifications include deferral of principal and interest payments, as well as interest only periods. The Company accrues and recognizes interest income on loans under payment relief based on the original contractual interest rates. When payments resume at the end of the relief period, loans are generally re-amortized with an extended maturity date to keep the monthly payment similar to before the COVID-related deferral occurred.

Purchased credit-deteriorated assets – ASC Topic 326 introduces the concept of purchased credit-deteriorated (“PCD”) assets. PCD assets are acquired financial assets that, at acquisition, have experienced more-than-insignificant deterioration in credit quality since origination.

PCD assets are recorded at fair value at the time of acquisitions.  Subsequently, the amount of expected credit losses as of the acquisition date is added to the carrying value of the PCD assets with an offsetting entry to ACL.  Any difference between the unpaid principal balance of the PCD assets and the amortized cost basis of the assets as of the acquisition date is the non-credit discount or premium. The initial ACL and non-credit discount or premium determined on a collective basis at that acquisition date will be allocated to the individual PCD assets.

To the extent that Management changes the Company’s estimate of expected credit losses on PCD assets, the Company’s ACL will be increased or decreased with a corresponding entry to PCL.  The non-credit discount recorded at acquisition will be accreted to interest income over the remaining life of the PCD assets on a level-yield basis.

Purchased assets not credit deteriorated – ASC Topic 326 provides guidance regarding purchased assets that are not credit deteriorated (“Non-PCD”).  Non-PCD assets are also recorded at fair value at the time of acquisition, including estimates of current expected credit losses.  However, ASB ASC Topic 326 does not allow for expected credit losses as of the acquisition date to be added to the purchase price of Non-PCD assets with an offsetting entry to ACL.  Current expected credit losses for Non-PCD loans are to be set aside in ACL with an offsetting entry to PCL.  Expected credit losses included in the fair value of a Non-PCD loan are accreted to interest income over the remaining life of a Non-PCD loan on a level-yield basis.

Allowance for credit losses – Loans — On January 1, 2020, the Company adopted Accounting Standard Update (“ASU”) No. 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” The ASU significantly changed the accounting for credit loss measurement on loans and debt securities. The ASU requires a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The ACL is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset.

The income statement reflects the measurement of credit losses for newly recognized financial assets, as well as the expected increase or decrease of expected credit losses that have taken place during the period.  The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. An entity must use judgment in determining the relevant information and estimation methods that are appropriate in its circumstances.

For loans and held to maturity debt securities, the ASU requires a CECL measurement to estimate the ACL for the remaining estimated life of the financial asset (including off-balance sheet credit exposures) using historical experience, current conditions, and reasonable and supportable forecasts. The ASU eliminated the existing guidance for Purchased Credit Impaired (“PCI”) loans but requires an allowance for purchased financial assets with more than an insignificant deterioration since origination, otherwise known as PCD assets. In addition, the ASU modified the other-than-temporary impairment (“OTTI”) model for available for sale debt securities to require an allowance for credit losses instead of a direct write-down, which allows for reversal of credit losses in future periods based on an improvement in credit.

11


 

Note 1 — Basis of Presentation and Significant Accounting Policies – Continued

Both the Financial Accounting Standards Board (“FASB”) and the Federal Financial Institution Regulatory Agencies, along with the SEC, confirmed that smaller, less complex organizations are not required to implement complex models, developed by outside vendors to calculate current expected credit losses.  The FASB noted, “There is no expectation that a less complex entity should have to implement a sophisticated model to satisfy the requirements of Update 2016-13. If an entity is using a loss rate-based method today, that entity may be able to continue with a comparable method, including the WARM method. However, compared with the method it uses today to estimate incurred losses, the entity’s assumptions and inputs will need to change to arrive at an estimate for expected credit losses that contemplates the contractual term of the financial assets adjusted for prepayments as well as reasonable and supportable forecasts.”

Given the size of the organization, the Company has developed a CECL reserve model that uses the weighted average remaining maturity (“WARM”) methodology, adjusting for prepayments. The foundation of CECL modeling is the ability to estimate expected credit losses over the lifetime of a loan.  The Company uses relevant available information about past events (e.g., historical losses), current conditions, and reasonable and supportable forecasts about future conditions.  Historical losses serve as the starting point to estimate expected credit losses.  The Company determined to use a “through-the-cycle” historical credit loss experience as its baseline for historical credit losses.  The Company determined a representative period for a full credit cycle would be 2008 to 2017 (ten-year credit cycle).  The Company has collected historical loss information on its own loan portfolio, as well as peer group information, by seventeen loan segments over this time horizon.  The Company calculated WARM for seventeen loan segments using its Asset/Liability Management (“ALM”) models, which has been certified by independent specialists.

Management has identified the following loan portfolio segments to evaluate and measure the Company’s ACL:

 

Real estate term:  Includes farmland, multifamily, owner-occupied commercial real estate, and non-owner occupied commercial real estate term loans.

 

Construction and land development:  Includes 1-4 family residential construction loans, other construction loans, land development loans, and other land loans.

 

Commercial and industrial:  Includes agricultural loans, commercial and industrial loans, municipal loans and lease financing receivables.

 

Residential and home equity:  Includes revolving 1-4 family residential lines of credit, first lien 1-4 family residential term loans, and junior lien 1-4 family residential term loans.

 

Consumer and other:  Includes consumer credit cards, automobile loans, revolving consumer lines of credit and other consumer loans.

The Company evaluates macroeconomic information, as well as internal trends in credit performance on the Company’s loan portfolio, to assist in determining current conditions and its economic forecast.  The Company uses qualitative factors as defined by the Interagency Policy Statement on the Allowance for Loan and Lease Losses (the “Interagency Policy Statement”).  The Interagency Policy Statement defines how to appropriately utilize qualitative factors:

“After determining the appropriate historical loss rate for each group of loans with similar risk characteristics, management should consider those current qualitative or environmental factors that are likely to cause estimated credit losses as of the evaluation date to differ from the group’s historical loss experience. Institutions typically reflect the overall effect of these factors on a loan group as an adjustment that, as appropriate, increases or decreases the historical loss rate applied to the loan group. Alternatively, the effect of these factors may be reflected through separate standalone adjustments within the FAS 5 [superseded by ASC Topic 326] component of the ALLL. Both methods are consistent with GAAP provided the adjustments for qualitative or environmental factors are reasonably and consistently determined, are adequately documented, and represent estimated credit losses. For each group of loans, an institution should apply its adjusted historical loss rate, or its historical loss rate and separate standalone adjustments, to the recorded investment in the group when determining its estimated credit losses.

12


 

Note 1 — Basis of Presentation and Significant Accounting Policies – Continued

Management must exercise significant judgment when evaluating the effect of qualitative factors on the amount of the ALLL because data may not be reasonably available or directly applicable for management to determine the precise impact of a factor on the collectability of the institution’s loan portfolio as of the evaluation date. Accordingly, institutions should support adjustments to historical loss rates and explain how the adjustments reflect current information, events, circumstances, and conditions in the loss measurements. Management should maintain reasonable documentation to support which factors affected the analysis and the impact of those factors on the loss measurement. Support and documentation include descriptions of each factor, management’s analysis of how each factor has changed over time, which loan groups’ loss rates have been adjusted, the amount by which loss estimates have been adjusted for changes in conditions, an explanation of how management estimated the impact, and other available data that supports the reasonableness of the adjustments. Examples of underlying supporting evidence could include, but are not limited to, relevant articles from newspapers and other publications that describe economic events affecting a particular geographic area, economic reports and data, and notes from discussions with borrowers.”

The Company considers qualitative or environmental factors that are likely to cause estimated credit losses associated with the Company’s existing portfolio to differ from historical loss experience, as defined in the Interagency Guidance, including but not limited to:

 

Changes in lending policies and procedures, including changes in underwriting standards and collection, charge-off, and recovery practices not considered elsewhere in estimating credit losses.

 

 

Changes in international, national, regional, and local economic and business conditions and developments that affect the collectability of the portfolio, including the condition of various market segments.

 

 

Changes in the nature and volume of the portfolio and in the terms of loans.

 

 

Changes in the experience, ability, and depth of lending management and other relevant staff.

 

 

Changes in the volume and severity of past due loans, the volume of nonaccrual loans, and the volume and severity of adversely classified or graded loans.

 

 

Changes in the quality of the institution’s loan review system.

 

 

Changes in the value of underlying collateral for collateral-dependent loans.

 

 

The existence and effect of any concentrations of credit, and changes in the levels of such concentrations.

 

 

The effect of other external factors, such as competition and legal and regulatory requirements, on the level of estimated credit losses in the institution’s existing portfolio.

Charge-offs of loans are generally processed by policy as well as regulatory guidance.  Secured consumer loans, including residential real estate loans, that are 120 days past due, are written down to the fair value of the collateral.  Unsecured loans are charged-off once the loan is 120 days past due.  Decisions on when to charge-off commercial loans and loans secured by commercial real estate are made on an individual basis rather than length of delinquency, though it is a factor in the decision.  The financial resources of the borrower and/or guarantor and the nature and value of any collateral are other factors considered.

Premises and equipment — Land is carried at cost. Premises and equipment are carried at cost, net of accumulated depreciation and amortization. Depreciation and amortization expense is computed using the straight-line method based on the estimated useful lives of the related assets below:

 

Building and building improvements

 

15 to 40 years

Leasehold improvements

 

3 to 15 years

Furniture and equipment

 

3 to 15 years

Computers, software and equipment

 

3 to 5 years

 

13


 

Note 1 — Basis of Presentation and Significant Accounting Policies – Continued

 

Maintenance and repairs are expensed as incurred while major additions and improvements are capitalized.

 

Bank-owned life insurance (“BOLI”) The Bank has purchased life insurance policies. These policies provide protection against the adverse financial effects that could result from the death of a key employee and provide tax-exempt income to offset expenses associated with the plans. It is the Bank’s intent to hold these policies as a long-term investment; however, there may be an income tax impact if the Bank chooses to surrender certain policies. Although the lives of individual current or former management-level employees are insured, the Bank is the owner and sole or partial beneficiary. BOLI is carried at the cash surrender value (“CSV”) of the underlying insurance contract. Changes in the CSV and any death benefits received in excess of the CSV are recognized as non-interest income.

Goodwill — Goodwill represents the excess of the purchase considerations paid over the fair value of the assets acquired, net of the fair values of liabilities assumed in a business combination and is not amortized but is reviewed annually, or more frequently as current circumstances and conditions warrant, for impairment. An assessment of qualitative factors is completed to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the qualitative analysis concludes that further analysis is required, then a quantitative impairment test would be completed. The quantitative goodwill impairment compares the reporting unit's estimated fair values, including goodwill, to its carrying amount. If the carrying amount exceeds its reporting unit’s fair value, then an impairment loss would be recognized as a charge to earnings but is limited by the amount of goodwill allocated to that reporting unit.

Other intangible assets — Other intangible assets consist primarily of core deposit intangibles (“CDI”), which are amounts recorded in business combinations or deposit purchase transactions related to the value of transaction-related deposits and the value of the client relationships associated with the deposits. Core deposit intangibles are amortized over the estimated useful life of such deposits. These assets are reviewed at least annually for events or circumstances that could affect their recoverability. These events could include loss of the underlying core deposits, increased competition or adverse changes in the economy. To the extent other identifiable intangible assets are deemed unrecoverable, impairment losses are recorded in other non-interest expense to reduce the carrying amount of the assets.

Mortgage and other servicing rights — Mortgage and other servicing rights are recognized as separate assets when rights are acquired through purchase of such rights or through the sale of loans. Generally, purchased servicing rights are capitalized at the cost to acquire the rights. For loans sold, the fair value of the servicing rights are estimated and capitalized. Fair value is based on market prices for comparable servicing rights contracts. Capitalized servicing rights are reported in other intangibles and are amortized into non-interest income in proportion to, and over the period of, the estimated future net servicing income of the underlying financial assets.

Other real estate owned — Assets acquired through, or in lieu of, foreclosure are held for sale and are initially recorded at the lower of the carrying amount of the foreclosed loan or the fair value of the foreclosed asset, less costs to sell, at the date of foreclosure. Subsequent to foreclosure, Management periodically performs valuations and the assets are carried at the lower of carrying amount or fair value, less selling costs. Revenues and expenses from operations and changes in the valuation allowance are included in other real estate owned expense.

Transfers of financial assets — Transfers of financial assets are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

Income taxes — Deferred income tax assets and deferred income tax liabilities represent the tax effect of temporary differences between financial reporting and tax reporting measured at enacted tax rates in effect for the year in which the differences are expected to reverse.  The Company recognizes only the impact of tax positions that, based on their technical merits, are more likely than not to be sustained upon an audit by the taxing authority.

Developing the provision for income taxes, including the effective tax rate and analysis of potential tax exposure items, if any, requires significant judgment and expertise in federal and state income tax laws, regulations and strategies, including the determination of deferred income tax assets and liabilities and any estimated valuation allowances deemed necessary to value deferred income tax assets.  Judgments and tax strategies are subject to audit by various taxing authorities.  While the Company believes it has no significant uncertain income tax positions in the consolidated financial statements, adverse determinations by these taxing authorities could have a material adverse effect on the consolidated financial positions, result of operations, or cash flows.

14


 

Note 1 — Basis of Presentation and Significant Accounting Policies – Continued

Off-balance sheet credit related financial instruments — In the ordinary course of business, the Company has entered into commitments to extend credit, including commitments under credit card arrangements, commercial letters of credit, and standby letters of credit. Such financial instruments are recorded when they are funded.

Allowance for credit losses on off-balance sheet credit exposures — The Company estimates expected credit losses on off-balance sheet credit exposures using the same CECL historical loss rates applied to loans held for investment over the contractual period in which the Company is exposed to credit risk through a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company, adjusted for funding factors.  The allowance for credit losses on off-balance sheet credit exposures is reported in other liabilities on the unaudited consolidated balance sheets with an offset to other non-interest expense.  The estimate of CECL includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over their estimated life.

Share-based compensation plans — The fair value of incentive share-based awards is recorded as compensation expense over the vesting period of the award. Compensation expense for stock options is estimated at the date of grant using the Black-Scholes option-pricing model. Compensation expense for RSUs is based on the fair value of the Company’s common shares at the date of grant. RSU awards generally vest in thirds over three years from date of grant.

Earnings per share — Basic earnings per common share represents income available to common shareholders divided by the weighted-average number of common shares outstanding during the period. Diluted earnings per share reflect additional common shares that would have been outstanding if dilutive potential common shares had been issued. Potential common shares include shares that may be issued by the Company for outstanding stock options determined using the treasury stock method and for all outstanding RSUs.

Earnings per common share has been computed based on the following:

 

 

 

Three Months Ended

 

 

 

March 31,

 

(Dollars in thousands, except share and per share data)

 

2021

 

 

2020

 

Numerator

 

 

 

 

 

 

 

 

Net income

 

$

9,438

 

 

$

10,773

 

Denominator

 

 

 

 

 

 

 

 

Weighted-average number of common shares outstanding

 

 

18,864,497

 

 

 

18,884,857

 

Incremental shares assumed for stock options and RSUs

 

 

155,185

 

 

 

153,270

 

Weighted-average number of dilutive shares outstanding

 

 

19,019,682

 

 

 

19,038,127

 

Basic earnings per common share

 

$

0.50

 

 

$

0.57

 

Diluted earnings per common share

 

$

0.50

 

 

$

0.57

 

 

Comprehensive income —GAAP generally requires that recognized revenues, expenses, gains and losses be included in net income. Although certain changes in assets and liabilities, such as unrealized gains and losses on available for sale securities, net of the related income tax effect, are reported as a separate component of the equity section of the consolidated balance sheets, such items, along with net income, are components of comprehensive income.

 

Impact of recent authoritative accounting guidance — The Accounting Standards Codification™ (“ASC”) is the FASB officially recognized source of authoritative GAAP applicable to all public and non-public non-governmental entities.  Periodically, the FASB will issue Accounting Standard Updates (“ASU”) to its ASC.  Rules and interpretive releases of the SEC under the authority of the federal securities laws are also sources of authoritative GAAP to use as an SEC registrant. All other accounting literature is non-authoritative.

 

15


 

Note 1 — Basis of Presentation and Significant Accounting Policies – Continued

 

On January 1, 2020, the Company adopted ASC 326 using the modified retrospective method for all financial assets measured at amortized cost and off-balance sheet credit exposures.  Results for reporting periods beginning after January 1, 2020, are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP.  The Company adopted ASC 326 using the prospective transition approach for financial assets purchased through an acquisition or business combination.  Loans that were previously classified as PCI and accounted for under ASC 310-30 were reclassified as PCD loans.  In accordance with the new standard, management did not reassess whether PCI loans met the criteria of PCD loan as of the date of adoption.  On January 1, 2020, the amortized cost basis for PCD loans was increased by $1.5 million to reflect the addition of credit discounts to ACL.  The remaining noncredit discount will be accreted into interest income over the remaining life of the portfolio.  For Non-PCD loans, the Company increased its ACL by $2.6 million using the same methodology used for loans held for investment.  The remaining credit and noncredit discount will be accreted into interest income over the remaining life of the portfolio.  Additionally, the Company further increased its ACL by $5.4 million to reflect the change in accounting methodology for CECL.

The following table illustrates the impact of the adoption of ASC 326:

 

 

 

January 1, 2020

 

 

(Dollars in thousands)

 

Reported

Under ASC

326

 

 

Reported

Pre

Adoption

 

 

Impact of

ASC 326

Adoption

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for credit losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate term

 

$

12,683

 

 

$

12,275

 

 

$

408

 

 

Construction and land development

 

 

13,393

 

 

 

6,990

 

 

 

6,403

 

 

Total commercial real estate

 

 

26,076

 

 

 

19,265

 

 

 

6,811

 

 

Commercial and industrial loans

 

 

11,541

 

 

 

10,892

 

 

 

649

 

 

Consumer loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential and home equity

 

 

2,635

 

 

 

1,118

 

 

 

1,517

 

 

Consumer and other

 

 

640

 

 

 

151

 

 

 

489

 

 

Total consumer

 

 

3,275

 

 

 

1,269

 

 

 

2,006

 

 

Total allowance for credit losses on loans

 

$

40,892

 

 

$

31,426

 

 

$

9,466

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and shareholders' equity:

 

 

 

 

 

 

 

 

 

 

 

 

 

Reserve for off-balance sheet obligations

 

 

1,669

 

 

 

880

 

 

 

789

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders' equity

 

 

325,682

 

 

 

332,362

 

 

 

(6,680

)

 

 

 

 

Subsequent events — The Company has evaluated events occurring subsequent to March 31, 2021 for disclosure in the consolidated financial statements.

16


 

Note 2 — Investment Securities

Amortized cost and estimated fair value of investment securities available for sale are summarized as follows:

 

 

 

 

 

 

 

 

 

 

 

Gross Unrealized Losses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less

 

 

12

 

 

 

 

 

 

 

 

 

 

 

Gross

 

 

Than

 

 

Months

 

 

 

 

 

 

 

Amortized

 

 

Unrealized

 

 

12

 

 

or

 

 

Fair

 

(Dollars in thousands)

 

Cost

 

 

Gains

 

 

Months

 

 

Longer

 

 

Value

 

As of March 31, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government-sponsored securities

 

$

12,599

 

 

$

300

 

 

$

(5

)

 

$

(5

)

 

$

12,889

 

Municipal securities

 

 

33,685

 

 

 

1,076

 

 

 

-

 

 

 

-

 

 

 

34,761

 

Mortgage-backed securities

 

 

1,467,775

 

 

 

4,379

 

 

 

(24,216

)

 

 

(4

)

 

 

1,447,934

 

Corporate securities

 

 

5,000

 

 

 

8

 

 

 

-

 

 

 

(101

)

 

 

4,907

 

 

 

$

1,519,059

 

 

$

5,763

 

 

$

(24,221

)

 

$

(110

)

 

$

1,500,491

 

As of December 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government-sponsored securities

 

$

12,844

 

 

$

369

 

 

$

-

 

 

$

(8

)

 

$

13,205

 

Municipal securities

 

 

36,010

 

 

 

1,277

 

 

 

-

 

 

 

-

 

 

 

37,287

 

Mortgage-backed securities

 

 

1,247,581

 

 

 

17,587

 

 

 

(134

)

 

 

(8

)

 

 

1,265,026

 

Corporate securities

 

 

5,000

 

 

 

5

 

 

 

-

 

 

 

(130

)

 

 

4,875

 

 

 

$

1,301,435

 

 

$

19,238

 

 

$

(134

)

 

$

(146

)

 

$

1,320,393

 

 

At March 31, 2021 and December 31, 2020, the gross unrealized losses and the fair value for securities available for sale were as follows:

 

 

 

As of March 31, 2021

 

 

 

Less Than 12 Months

 

 

12 Months or More

 

 

Total

 

 

 

Fair

 

 

Unrealized

 

 

Fair

 

 

Unrealized

 

 

Fair

 

 

Unrealized

 

(Dollars in thousands)

 

Value

 

 

Losses

 

 

Value

 

 

Losses

 

 

Value

 

 

Losses

 

Available for Sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government-sponsored securities

 

$

239

 

 

$

(5

)

 

$

615

 

 

$

(5

)

 

$

854

 

 

$

(10

)

Municipal securities

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Mortgage-backed securities

 

 

1,196,180

 

 

 

(24,216

)

 

 

644

 

 

 

(4

)

 

 

1,196,824

 

 

 

(24,220

)

Corporate securities

 

 

-

 

 

 

-

 

 

 

2,899

 

 

 

(101

)

 

 

2,899

 

 

 

(101

)

 

 

$

1,196,419

 

 

$

(24,221

)

 

$

4,158

 

 

$

(110

)

 

$

1,200,577

 

 

$

(24,331

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2020

 

 

 

Less Than 12 Months

 

 

12 Months or More

 

 

Total

 

 

 

Fair

 

 

Unrealized

 

 

Fair

 

 

Unrealized

 

 

Fair

 

 

Unrealized

 

(Dollars in thousands)

 

Value

 

 

Losses

 

 

Value

 

 

Losses

 

 

Value

 

 

Losses

 

Available for Sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government-sponsored securities

 

$

-

 

 

$

-

 

 

$

777

 

 

$

(8

)

 

$

777

 

 

$

(8

)

Municipal securities

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Mortgage-backed securities

 

 

76,978

 

 

 

(134

)

 

 

1,785

 

 

 

(8

)

 

 

78,763

 

 

 

(142

)

Corporate securities

 

 

-

 

 

 

-

 

 

 

2,870

 

 

 

(130

)

 

 

2,870

 

 

 

(130

)

 

 

$

76,978

 

 

$

(134

)

 

$

5,432

 

 

$

(146

)

 

$

82,410

 

 

$

(280

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Company monitors the credit quality of debt securities AFS through the use of credit ratings from NRSRO to assist in the determination of any current expected credit losses. At March 31, 2021, the Company had no allowance for credit losses on AFS securities. The following table summarizes the amortized cost of AFS debt securities at March 31, 2021, aggregated by credit quality indicator.

 

17


 

Note 2 — Investment Securities – continued

 

 

 

 

 

 

 

 

 

 

 

Gross Unrealized Losses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less

 

 

12

 

 

 

 

 

 

 

 

 

 

 

Gross

 

 

Than

 

 

Months

 

 

 

 

 

 

 

Amortized

 

 

Unrealized

 

 

12

 

 

or

 

 

Fair

 

(Dollars in thousands)

 

Cost

 

 

Gains

 

 

Months

 

 

Longer

 

 

Value

 

As of March 31, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government-backed securities(1)

 

$

1,480,374

 

 

$

4,679

 

 

$

(24,221

)

 

$

(9

)

 

$

1,460,823

 

Investment grade rating

 

 

30,738

 

 

 

843

 

 

 

-

 

 

 

(101

)

 

 

31,480

 

Below investment grade

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Unrated investment securities

 

 

7,947

 

 

 

241

 

 

 

-

 

 

 

-

 

 

 

8,188

 

 

 

$

1,519,059

 

 

$

5,763

 

 

$

(24,221

)

 

$

(110

)

 

$

1,500,491

 

As of December 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government-sponsored securities(1)

 

$

1,260,425

 

 

$

17,956

 

 

$

(134

)

 

$

(16

)

 

$

1,278,231

 

Investment grade rating

 

 

33,063

 

 

 

1,008

 

 

 

-

 

 

 

(130

)

 

 

33,941

 

Below investment grade

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Unrated investment securities

 

 

7,947

 

 

 

274

 

 

 

-

 

 

 

-

 

 

 

8,221

 

 

 

$

1,301,435

 

 

$

19,238

 

 

$

(134

)

 

$

(146

)

 

$

1,320,393

 

 

(1)

Securities backed by the full faith and credit of the U.S. Government.

 

The amortized cost and estimated fair value of investment securities that are available for sale at March 31, 2021, by contractual maturity, are as follows:

 

 

 

Available For Sale

 

 

 

Amortized

 

 

Fair

 

(Dollars in thousands)

 

Cost

 

 

Value

 

Securities maturing in:

 

 

 

 

 

 

 

 

One year or less

 

$

11,710

 

 

$

11,821

 

After one year through five years

 

 

26,136

 

 

 

26,822

 

After five years through ten years

 

 

28,142

 

 

 

29,160

 

After ten years

 

 

1,453,071

 

 

 

1,432,688

 

 

 

$

1,519,059

 

 

$

1,500,491

 

 

 

Expected maturities may differ from contractual maturities because issuers may have the right to call obligations with or without penalties and other securities may experience pre-payments.

As of March 31, 2021, the Company held 60 AFS investment securities with fair values less than amortized cost, compared to 21 at December 31, 2020. Management evaluated these investment securities and determined that the decline in value is temporary and related to the change in market interest rates since purchase. The decline in value is not related to any Company or industry specific event. The Company anticipates full recovery of the amortized cost with respect to these securities at maturity, or sooner in the event of a more favorable market interest rate environment.  In addition, the Company had no HTM securities at March 31, 2021, and December 31, 2020.

The Company sold $131 million AFS securities during the three months ended March 31, 2021, and recorded a $0.2 million gain on sale of investment securities. The Company did not sell any AFS securities during the three months ended March 31, 2020.  There were no AFS securities in a nonaccrual status at March 31, 2021 or December 31, 2020.

18


 

Note 3 — Loans and Allowance for Credit Losses

Loans are summarized as follows:

 

 

 

March 31,

 

 

December 31,

 

(Dollars in thousands)

 

2021

 

 

2020

 

Loans held for investment:

 

 

 

 

 

 

 

 

Commercial real estate loans:

 

 

 

 

 

 

 

 

Real estate term

 

$

1,060,125

 

 

$

1,021,880

 

Construction and land development

 

 

256,771

 

 

 

228,213

 

Total commercial real estate loans

 

 

1,316,896

 

 

 

1,250,093

 

Commercial and industrial loans

 

 

242,172

 

 

 

257,240

 

Consumer loans:

 

 

 

 

 

 

 

 

Residential and home equity

 

 

238,977

 

 

 

185,470

 

Consumer and other

 

 

5,892

 

 

 

8,948

 

Total consumer loans

 

 

244,869

 

 

 

194,418

 

Total gross loans

 

 

1,803,937

 

 

 

1,701,751

 

Net deferred loan fees

 

 

(6,976

)

 

 

(6,255

)

Total loans held for investment

 

 

1,796,961

 

 

 

1,695,496

 

Allowance for credit losses

 

 

(41,013

)

 

 

(41,236

)

Total loans held for investment, net

 

$

1,755,948

 

 

$

1,654,260

 

 

At March 31, 2021, the Company held 276 loans totaling $56.7 million of SBA PPP loans included in commercial and industrial loans above.  The SBA guarantees 100% of the outstanding balance, and that guarantee is backed by the full faith and credit of the United States Government.

Changes in the allowance for credit losses are as follows:

 

 

 

Three Months Ended March 31, 2021

 

 

 

Real

 

 

Construction

 

 

Commercial

 

 

Residential

 

 

Consumer

 

 

 

 

 

 

 

Estate

 

 

and Land

 

 

and

 

 

and Home

 

 

and

 

 

 

 

 

(Dollars in thousands)

 

Term

 

 

Development

 

 

Industrial

 

 

Equity

 

 

Other

 

 

Total

 

Balance at beginning of period

 

$

20,627

 

 

$

10,532

 

 

$

8,095

 

 

$

1,662

 

 

$

320

 

 

$

41,236

 

Provision for credit losses

 

 

(807

)

 

 

2,314

 

 

 

(2,107

)

 

 

598

 

 

 

2

 

 

 

-

 

Gross loan charge-offs

 

 

-

 

 

 

-

 

 

 

(922

)

 

 

-

 

 

 

(48

)

 

 

(970

)

Recoveries

 

 

-

 

 

 

2

 

 

 

690

 

 

 

2

 

 

 

53

 

 

 

747

 

Net loan (charge-offs) / recoveries

 

 

-

 

 

 

2

 

 

 

(232

)

 

 

2

 

 

 

5

 

 

 

(223

)

Balance at end of period

 

$

19,820

 

 

$

12,848

 

 

$

5,756

 

 

$

2,262

 

 

$

327

 

 

$

41,013

 

 

 

 

Three Months Ended March 31, 2020

 

 

 

Real

 

 

Construction

 

 

Commercial

 

 

Residential

 

 

Consumer

 

 

 

 

 

 

 

Estate

 

 

and Land

 

 

and

 

 

and Home

 

 

and

 

 

 

 

 

(Dollars in thousands)

 

Term

 

 

Development

 

 

Industrial

 

 

Equity

 

 

Other

 

 

Total

 

Balance at beginning of period, prior to adoption of ASC 326

 

$

12,275

 

 

$

6,990

 

 

$

10,892

 

 

$

1,118

 

 

$

151

 

 

$

31,426

 

Impact of adopting ASC 326

 

 

408

 

 

 

6,403

 

 

 

649

 

 

 

1,517

 

 

 

489

 

 

 

9,466

 

Provision for credit losses

 

 

328

 

 

 

300

 

 

 

187

 

 

 

(104

)

 

 

(61

)

 

 

650

 

Gross loan charge-offs

 

 

(14

)

 

 

(30

)

 

 

(386

)

 

 

-

 

 

 

(122

)

 

 

(552

)

Recoveries

 

 

-

 

 

 

14

 

 

 

126

 

 

 

22

 

 

 

101

 

 

 

263

 

Net loan (charge-offs) / recoveries

 

 

(14

)

 

 

(16

)

 

 

(260

)

 

 

22

 

 

 

(21

)

 

 

(289

)

Balance at end of period

 

$

12,997

 

 

$

13,677

 

 

$

11,468

 

 

$

2,553

 

 

$

558

 

 

$

41,253

 

 

 

19


 

Note 3 — Loans and Allowance for Credit Losses – Continued

 

Non-accrual loans are summarized as follows:

 

 

 

March 31,

 

 

December 31,

 

(Dollars in thousands)

 

2021

 

 

2020

 

Non-accrual loans, not troubled debt restructured:

 

 

 

 

 

 

 

 

Real estate term

 

$

422

 

 

$

150

 

Construction and land development

 

 

-

 

 

 

-

 

Commercial and industrial

 

 

933

 

 

 

922

 

Residential and home equity

 

 

36

 

 

 

254

 

Consumer and other

 

 

-

 

 

 

-

 

Total non-accrual loans, not troubled debt restructured

 

 

1,391

 

 

 

1,326

 

Troubled debt restructured loans, non-accrual:

 

 

 

 

 

 

 

 

Real estate term

 

 

5,566

 

 

 

6,421

 

Construction and land development

 

 

-

 

 

 

-

 

Commercial and industrial

 

 

375

 

 

 

1,272

 

Residential and home equity

 

 

-

 

 

 

-

 

Consumer and other

 

 

-

 

 

 

-

 

Total troubled debt restructured loans, non-accrual

 

 

5,941

 

 

 

7,693

 

Total non-accrual loans

 

$

7,332

 

 

$

9,019

 

 

Non-performing assets as of March 31, 2021 and December 31, 2020 have not been reduced by U.S. Government guarantees of $5.4 million and $4.2 million, respectively.

Troubled debt restructure loans are summarized as follows:

 

 

 

March 31,

 

 

December 31,

 

(Dollars in thousands)

 

2021

 

 

2020

 

Accruing troubled debt restructured loans

 

$

1,341

 

 

$

2,774

 

Non-accrual troubled debt restructured loans

 

 

5,941

 

 

 

7,693

 

Total troubled debt restructured loans

 

$

7,282

 

 

$

10,467

 

 

As of March 31, 2021, TDRs totaling $5.1 million met the criteria to be delisted for reporting purposes.  To be delisted as a TDR, the Company follows established regulatory guidelines.  For a loan that is a TDR, if the restructuring agreement specifies a contractual interest rate that is a market interest rate at the time of the restructuring and the loan is in compliance with its modified terms, the loan need not continue to be reported as a TDR in calendar years after the year in which the restructuring took place. A market interest rate is a contractual interest rate that at the time of the restructuring is greater than or equal to the rate that the institution was willing to accept for a new loan with comparable risk. To be considered in compliance with its modified terms, a loan that is a TDR must be in accrual status and must be current or less than 30 days past due on its contractual principal and interest payments under the modified repayment terms.

 

The below table summarize TDRs outstanding as of March 31, 2021, by year of occurrence:

 

 

 

March 31, 2021

 

 

 

# of

 

 

$ of

 

 

# of Non-

 

 

$ of Non-

 

 

# of

 

 

$ of

 

 

 

Accruing

 

 

Accruing

 

 

accrual

 

 

accrual

 

 

Total

 

 

Total

 

(Dollars in thousands)

 

TDR

 

 

TDR

 

 

TDR

 

 

TDR

 

 

TDR

 

 

TDR

 

2021

 

 

-

 

 

$

-

 

 

 

-

 

 

$

-

 

 

 

-

 

 

$

-

 

2020

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

2019

 

 

3

 

 

 

1,341

 

 

 

5

 

 

 

4,825

 

 

 

8

 

 

 

6,166

 

2018

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Thereafter

 

 

-

 

 

 

-

 

 

 

2

 

 

 

1,116

 

 

 

2

 

 

 

1,116

 

Total

 

 

3

 

 

$

1,341

 

 

 

7

 

 

$

5,941

 

 

 

10

 

 

$

7,282

 

 

 

20


 

Note 3 — Loans and Allowance for Credit Losses – Continued

 

The following tables present TDRs that occurred during the periods presented by type of modification and the TDRs for which the payment default occurred within twelve months of the restructure date.  A default on a TDR results in a transfer to nonaccrual status, a charge-off, or a combination of both.  There were no TDRs occurring during the three months ended March 31, 2021.

 

 

 

Three Months Ended March 31, 2020

 

 

 

# of

 

 

$ of

 

 

# of Non-

 

 

$ of Non-

 

 

# of

 

 

$ of

 

 

 

Accruing

 

 

Accruing

 

 

accrual

 

 

accrual

 

 

Total

 

 

Total

 

(Dollars in thousands)

 

TDR

 

 

TDR

 

 

TDR

 

 

TDR

 

 

TDR

 

 

TDR

 

Interest rate reduction

 

 

-

 

 

$

-

 

 

 

-

 

 

$

-

 

 

 

-

 

 

$

-

 

Loan payment deferment

 

 

-

 

 

 

-

 

 

 

1

 

 

 

113

 

 

 

1

 

 

 

113

 

Loan re-amortization

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Loan extension

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Total

 

 

-

 

 

$

-

 

 

 

1

 

 

$

113

 

 

 

1

 

 

$

113

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2020

 

 

 

Real

 

 

Construction

 

 

Commercial

 

 

Residential

 

 

Consumer

 

 

 

 

 

 

 

Estate

 

 

and Land

 

 

and

 

 

and Home

 

 

and

 

 

 

 

 

(Dollars in thousands)

 

Term

 

 

Development

 

 

Industrial

 

 

Equity

 

 

Other

 

 

Total

 

TDRs that occurred during the period (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of loans

 

 

1

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1

 

Pre-modification balance

 

$

113

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

113

 

Post-modification balance

 

$

113

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

113

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TDRs that subsequently defaulted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of loans

 

 

1

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1

 

Recorded balance

 

$

113

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

113

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Since most loans were already considered classified and/or on non-accrual status prior to restructuring, the modifications did not have a material effect on the Company’s determination of the allowance for credit losses.

Current and past due loans held for investment (accruing and non-accruing) are summarized as follows:

 

 

 

March 31, 2021

 

 

 

 

 

 

 

30-89

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Days

 

 

90+ Days

 

 

Non-

 

 

Total

 

 

Total

 

(Dollars in thousands)

 

Current

 

 

Past Due

 

 

Past Due

 

 

accrual

 

 

Past Due

 

 

Loans

 

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate term

 

$

1,053,068

 

 

$

1,069

 

 

$

-

 

 

$

5,988

 

 

$

7,057

 

 

$

1,060,125

 

Construction and land development

 

 

256,363

 

 

 

408

 

 

 

-

 

 

 

-

 

 

 

408

 

 

 

256,771

 

Total commercial real estate

 

 

1,309,431

 

 

 

1,477

 

 

 

-

 

 

 

5,988

 

 

 

7,465

 

 

 

1,316,896

 

Commercial and industrial

 

 

240,734

 

 

 

130

 

 

 

-

 

 

 

1,308

 

 

 

1,438

 

 

 

242,172

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential and home equity

 

 

238,715

 

 

 

226

 

 

 

-

 

 

 

36

 

 

 

262

 

 

 

238,977

 

Consumer and other

 

 

5,851

 

 

 

41

 

 

 

-

 

 

 

-

 

 

 

41

 

 

 

5,892

 

Total consumer

 

 

244,566

 

 

 

267

 

 

 

-

 

 

 

36

 

 

 

303

 

 

 

244,869

 

Total gross loans

 

$

1,794,731

 

 

$

1,874

 

 

$

-

 

 

$

7,332

 

 

$

9,206

 

 

$

1,803,937

 

 

21


 

Note 3 — Loans and Allowance for Credit Losses – Continued

 

 

 

 

 

December 31, 2020

 

 

 

 

 

 

 

30-89

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Days

 

 

90+ Days

 

 

Non-

 

 

Total

 

 

Total

 

(Dollars in thousands)

 

Current

 

 

Past Due

 

 

Past Due

 

 

accrual

 

 

Past Due

 

 

Loans

 

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate term

 

$

1,013,914

 

 

$

1,395

 

 

$

-

 

 

$

6,571

 

 

$

7,966

 

 

$

1,021,880

 

Construction and land development

 

 

227,054

 

 

 

1,159

 

 

 

-

 

 

 

-

 

 

 

1,159

 

 

 

228,213

 

Total commercial real estate

 

 

1,240,968

 

 

 

2,554

 

 

 

-

 

 

 

6,571

 

 

 

9,125

 

 

 

1,250,093

 

Commercial and industrial

 

 

253,833

 

 

 

1,170

 

 

 

43

 

 

 

2,194

 

 

 

3,407

 

 

 

257,240

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential and home equity

 

 

184,566

 

 

 

650

 

 

 

-

 

 

 

254

 

 

 

904

 

 

 

185,470

 

Consumer and other

 

 

8,703

 

 

 

243

 

 

 

2

 

 

 

-

 

 

 

245

 

 

 

8,948

 

Total consumer

 

 

193,269

 

 

 

893

 

 

 

2

 

 

 

254

 

 

 

1,149

 

 

 

194,418

 

Total gross loans

 

$

1,688,070

 

 

$

4,617

 

 

$

45

 

 

$

9,019

 

 

$

13,681

 

 

$

1,701,751

 

 

Loans 90+ days past due in the table above are still accruing.

 

Credit Quality Indicators:

In addition to past due and non-accrual criteria, the Company also analyzes loans using a grading system. Performance-based grading follows the Company’s definitions of Pass, Special Mention, Substandard, and Doubtful, which are consistent with published definitions of regulatory risk classifications.

Definitions of Pass, Special Mention, Substandard, and Doubtful are summarized as follows:

Pass: A Pass asset is higher quality and does not fit any of the other categories described below. The likelihood of loss is considered remote.

Special Mention: A Special Mention asset has potential weaknesses that may be temporary or, if left uncorrected, may result in a loss. While concerns exist, the Company is currently protected, and loss is considered unlikely and not imminent.

Substandard: A Substandard asset is inadequately protected by the current sound net worth and paying capacity of the obligor or of the collateral pledged, if any. Assets so classified have well defined weaknesses and are characterized by the distinct possibility that the Company may sustain some loss if deficiencies are not corrected.

Doubtful: A Doubtful asset has all the weaknesses inherent in a Substandard asset with the added characteristics that the weaknesses make collection or liquidation in full highly questionable.

For consumer loans, the Company generally assigns internal risk grades similar to those described above based on payment performance.

 

22


 

Note 3 — Loans and Allowance for Credit Losses – Continued

 

Outstanding loan balances (accruing and non-accruing) categorized by these credit quality indicators are summarized as follows:

 

 

 

 

March 31, 2021

 

 

 

 

 

 

 

Special

 

 

 

 

 

 

 

 

 

 

Total

 

 

Total

 

(Dollars in thousands)

 

Pass

 

 

Mention

 

 

Substandard

 

 

Doubtful

 

 

Loans

 

 

ACL

 

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate term

 

$

1,022,758

 

 

$

12,255

 

 

$

25,112

 

 

$

-

 

 

$

1,060,125

 

 

$

19,820

 

Construction and land development

 

 

255,632

 

 

 

370

 

 

 

769

 

 

 

-

 

 

 

256,771

 

 

 

12,848

 

Total commercial real estate

 

 

1,278,390

 

 

 

12,625

 

 

 

25,881

 

 

 

-

 

 

 

1,316,896

 

 

 

32,668

 

Commercial and industrial

 

 

230,283

 

 

 

7,203

 

 

 

4,686

 

 

 

-

 

 

 

242,172

 

 

 

5,756

 

Consumer loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential and home equity

 

 

237,600

 

 

 

-

 

 

 

1,377

 

 

 

-

 

 

 

238,977

 

 

 

2,262

 

Consumer and other

 

 

5,892

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

5,892

 

 

 

327

 

Total consumer

 

 

243,492

 

 

 

-

 

 

 

1,377

 

 

 

-

 

 

 

244,869

 

 

 

2,589

 

Total

 

$

1,752,165

 

 

$

19,828

 

 

$

31,944

 

 

$

-

 

 

$

1,803,937

 

 

$

41,013

 

 

 

 

 

December 31, 2020

 

 

 

 

 

 

 

Special

 

 

 

 

 

 

 

 

 

 

Total

 

 

Total

 

(Dollars in thousands)

 

Pass

 

 

Mention

 

 

Substandard

 

 

Doubtful

 

 

Loans

 

 

ACL

 

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate term

 

$

978,945

 

 

$

17,248

 

 

$

25,687

 

 

$

-

 

 

$

1,021,880

 

 

$

20,627

 

Construction and land development

 

 

224,066

 

 

 

3,785

 

 

 

362

 

 

 

-

 

 

 

228,213

 

 

 

10,532

 

Total commercial real estate

 

 

1,203,011

 

 

 

21,033

 

 

 

26,049

 

 

 

-

 

 

 

1,250,093

 

 

 

31,159

 

Commercial and industrial

 

 

247,983

 

 

 

4,348

 

 

 

4,020

 

 

 

889

 

 

 

257,240

 

 

 

8,095

 

Consumer loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential and home equity

 

 

183,306

 

 

 

-

 

 

 

2,164

 

 

 

-

 

 

 

185,470

 

 

 

1,662

 

Consumer and other

 

 

8,948

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

8,948

 

 

 

320

 

Total consumer

 

 

192,254

 

 

 

-

 

 

 

2,164

 

 

 

-

 

 

 

194,418

 

 

 

1,982

 

Total

 

$

1,643,248

 

 

$

25,381

 

 

$

32,233

 

 

$

889

 

 

$

1,701,751

 

 

$

41,236

 

 

23


 

Note 3 — Loans and Allowance for Credit Losses – Continued

The following table represents outstanding loan balances by credit quality indicators and vintage year by class of financing receivable as of March 31, 2021:

 

 

 

March 31, 2021

 

 

 

Term Loans Amortized Cost Basis by Origination Year

 

 

Revolving Loans

 

 

 

 

 

(Dollars in thousands)

 

2021

 

 

2020

 

 

2019

 

 

2018

 

 

2017

 

 

Prior

 

 

Amortized Cost

 

 

Total

 

Loans held for investment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate term

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk rating

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

63,910

 

 

$

257,147

 

 

$

115,953

 

 

$

78,335

 

 

$

74,643

 

 

$

233,183

 

 

$

199,587

 

 

$

1,022,758

 

Special mention

 

 

-

 

 

 

-

 

 

 

2,390

 

 

 

2,008

 

 

 

-

 

 

 

-

 

 

 

7,857

 

 

 

12,255

 

Substandard

 

 

-

 

 

 

1,223

 

 

 

2,946

 

 

 

2,247

 

 

 

-

 

 

 

6,083

 

 

 

12,613

 

 

 

25,112

 

Doubtful

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Total real estate term loans

 

$

63,910

 

 

$

258,370

 

 

$

121,289

 

 

$

82,590

 

 

$

74,643

 

 

$

239,266

 

 

$

220,057

 

 

$

1,060,125

 

Construction and land development

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk rating

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

4,311

 

 

$

8,426

 

 

$

4,014

 

 

$

6,935

 

 

$

1,273

 

 

$

9,676

 

 

$

220,997

 

 

$

255,632

 

Special mention

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

370

 

 

 

370

 

Substandard

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

769

 

 

 

769

 

Doubtful

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Total construction and land development loans

 

$

4,311

 

 

$

8,426

 

 

$

4,014

 

 

$

6,935

 

 

$

1,273

 

 

$

9,676

 

 

$

222,136

 

 

$

256,771

 

Total commercial real estate loans

 

$

68,221

 

 

$

266,796

 

 

$

125,303

 

 

$

89,525

 

 

$

75,916

 

 

$

248,942

 

 

$

442,193

 

 

$

1,316,896

 

Commercial and industrial

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk rating

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

35,426

 

 

$

50,087

 

 

$

24,059

 

 

$

20,884

 

 

$

13,442

 

 

$

46,205

 

 

$

40,180

 

 

$

230,283

 

Special mention

 

 

-

 

 

 

30

 

 

 

-

 

 

 

2,829

 

 

 

1,084

 

 

 

120

 

 

 

3,140

 

 

 

7,203

 

Substandard

 

 

-

 

 

 

-

 

 

 

680

 

 

 

877

 

 

 

554

 

 

 

913

 

 

 

1,662

 

 

 

4,686

 

Doubtful

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Total commercial and industrial loans

 

$

35,426

 

 

$

50,117

 

 

$

24,739

 

 

$

24,590

 

 

$

15,080

 

 

$

47,238

 

 

$

44,982

 

 

$

242,172

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential real estate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk rating

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

69,418

 

 

$

75,789

 

 

$

21,345

 

 

$

17,870

 

 

$

13,662

 

 

$

33,555

 

 

$

5,961

 

 

$

237,600

 

Special mention

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Substandard

 

 

-

 

 

 

30

 

 

 

-

 

 

 

63

 

 

 

-

 

 

 

1,284

 

 

 

-

 

 

 

1,377

 

Doubtful

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Total residential real estate loans

 

$

69,418

 

 

$

75,819

 

 

$

21,345

 

 

$

17,933

 

 

$

13,662

 

 

$

34,839

 

 

$

5,961

 

 

$

238,977

 

Consumer and other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk rating

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

-

 

 

$

1,704

 

 

$

1,692

 

 

$

1,071

 

 

$

514

 

 

$

909

 

 

$

2

 

 

$

5,892

 

Special mention

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Substandard

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Doubtful

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Total consumer and other loans

 

$

-

 

 

$

1,704

 

 

$

1,692

 

 

$

1,071

 

 

$

514

 

 

$

909

 

 

$

2

 

 

$

5,892

 

Total consumer loans

 

$

69,418

 

 

$

77,523

 

 

$

23,037

 

 

$

19,004

 

 

$

14,176

 

 

$

35,748

 

 

$

5,963

 

 

$

244,869

 

Total gross loans

 

$

173,065

 

 

$

394,436

 

 

$

173,079

 

 

$

133,119

 

 

$

105,172

 

 

$

331,928

 

 

$

493,138

 

 

$

1,803,937

 

 

 

 

 

24


 

Note 3 — Loans and Allowance for Credit Losses – Continued

 

The following tables provide amortized cost basis less government guarantees of $4.2 million and $8.8 million for collateral dependent loans as of March 31, 2021 and December 31, 2020, respectively:

 

 

 

March 31, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real

 

 

Accounts

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

Estate

 

 

Receivable

 

 

Equipment

 

 

Livestock

 

 

Auto

 

 

Total

 

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate term

 

$

2,108

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

2,108

 

Construction and land development

 

 

369

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

369

 

Total commercial real estate

 

 

2,477

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2,477

 

Commercial and industrial

 

 

-

 

 

 

38

 

 

 

-

 

 

 

-

 

 

 

47

 

 

 

85

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential and home equity

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Consumer and other

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Total consumer

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Total collateral dependent loans

 

$

2,477

 

 

$

38

 

 

$

-

 

 

$

-

 

 

$

47

 

 

$

2,562

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real

 

 

Accounts

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

Estate

 

 

Receivable

 

 

Equipment

 

 

Livestock

 

 

Auto

 

 

Total

 

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate term

 

$

4,118

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

4,118

 

Construction and land development

 

 

362

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

362

 

Total commercial real estate

 

 

4,480

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

4,480

 

Commercial and industrial

 

 

-

 

 

 

1,165

 

 

 

-

 

 

 

-

 

 

 

43

 

 

 

1,208

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential and home equity

 

 

216

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

216

 

Consumer and other

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Total consumer

 

 

216

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

216

 

Total collateral dependent loans

 

$

4,696

 

 

$

1,165

 

 

$

-

 

 

$

-

 

 

$

43

 

 

$

5,904

 

The following table presents the changes in the accretable yield for non-PCD loans for the three months ended March 31, 2021 and 2020:

 

 

Three Months Ended

 

 

 

March 31,

 

(Dollars in thousands)

 

2021

 

 

2020

 

Balance, beginning of period

 

$

2,803

 

 

$

4,247

 

Accretion to interest income

 

 

(295

)

 

 

(898

)

Reclassification from non-accretable difference

 

 

-

 

 

 

402

 

Balance, end of period

 

$

2,508

 

 

$

3,751

 

 

Loans and deposits to affiliates The Company has entered into loan transactions with certain directors, principal shareholders, affiliated companies, and executive officers (“affiliates”). Such transactions were made in the ordinary course of business on substantially the same terms and conditions, including interest rates and collateral, as those prevailing at the same time for comparable transactions with other customers, and did not, in the opinion of management, involve more than normal credit risk or present other unfavorable features. Total outstanding loans with affiliates were approximately $17.4 million and $14.5 million as of March 31, 2021 and December 31, 2020, respectively.  Available lines of credit for loans and credit cards to affiliates were approximately $9.3 million and $12.2 million as of March 31, 2021 and December 31, 2020, respectively.  Deposits from affiliates were $23.8 million and $7.8 million as of March 31, 2021 and December 31, 2020, respectively.

 

25


 

Note 4 — Commitments and Contingencies

 

Litigation contingencies — The Company is involved in various claims, legal actions, and complaints which arise in the ordinary course of business. In the Company’s opinion, all such matters are adequately covered by insurance, are without merit, or are of such kind, or involve such amounts, that unfavorable disposition would not have a material adverse effect on the financial condition or results of operations of the Company.

Commitments to extend credit — In the normal course of business, the Company has outstanding commitments and contingent liabilities, such as commitments to extend credit and unused credit card lines, which are not included in the accompanying consolidated financial statements. The Company’s exposure to credit loss in the event of non-performance by other parties to the financial instruments for commitments to extend credit and unused credit card lines is represented by the contractual or notional amount of those instruments. The Company uses the same credit policies in making such commitments as it does for instruments that are included in the consolidated balance sheets.

Contractual amounts of off-balance sheet financial instruments were as follows:

 

 

 

March 31,

 

 

December 31,

 

(Dollars in thousands)

 

2021

 

 

2020

 

Commitments to extend credit, including unsecured

   commitments of $14,690 and $12,039 as of March

   31, 2021 and December 31, 2020, respectively

 

$

739,293

 

 

$

656,914

 

Stand-by letters of credit and bond commitments,

   including unsecured commitments of $556 and $727

   as of March 31, 2021 and December 31, 2020,

   respectively

 

 

30,727

 

 

 

26,036

 

Unused credit card lines, all unsecured

 

 

29,328

 

 

 

29,111

 

 

Commitments to extend credit are agreements to lend to a client as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. The commitments to extend credit may expire without being drawn upon. Therefore, the total commitment amounts do not necessarily represent future cash requirements. The amount of collateral obtained, if it is deemed necessary by the Company, is based on Management’s credit evaluation of the client.

Unused credit card lines are commitments for possible future extensions of credit to existing clients. These lines of credit are uncollateralized and usually do not contain a specified maturity date and may not be drawn upon to the total extent to which the Company is committed.

 

Note 5 — Fair Value

The Company measures and discloses certain assets and liabilities at fair value. The standard requires the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. These two types of inputs create the following fair value hierarchy:

 

Level 1 – Quoted prices in active markets for identical instruments.

 

Level 2 – Observable inputs other than Level 1 including quoted prices in active markets for similar instruments, quoted prices in less active markets for identical or similar instruments, or other observable inputs that can be corroborated by observable market data.

 

Level 3 – Unobservable inputs supported by little or no market activity for financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.  

 

The estimated fair value amounts of financial instruments have been determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is required to interpret data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize at a future date. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. In addition, reasonable comparability between financial institutions may not be likely due to the wide range of permitted valuation techniques and numerous estimates that must be made given the absence of active secondary markets for many of the financial instruments. This lack of uniform valuation methodologies also introduces a greater degree of subjectivity to these estimated fair values.

26


 

Note 5 — Fair Value - Continued

The following methods were used to estimate the fair value of each class of financial instruments:

Cash and cash equivalents: The carrying amount of these items is a reasonable estimate of their fair value.

Securities: The estimated fair values of investment securities are priced using current active market quotes, if available, which are considered Level 1 measurements. The Company utilizes matrix pricing to fair value most of its securities portfolio. Matrix pricing compares the relationship of each security to other benchmark quoted prices. These measurements are considered Level 2.  Level 3 measurements were determined using discounted cash flow analyses based on the net present value of each security’s projected cash flows using observable market data for similar securities.

Non-marketable securities: The fair value is based upon the redemption value of the stock, which equates to its carrying value.

Loans held for sale: The carrying amount of these items is a reasonable estimate of their fair value.

Loans held for investment: The fair value is estimated by discounting the future cash flows and estimated prepayments using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining term. Some loan types’ fair value approximated carrying value because of their floating rate or expected maturity characteristics.

Deposits: The carrying amount of deposits with no stated maturity, such as savings and checking accounts, is a reasonable estimate of their fair value. The market value of certificates of deposit is based upon the discounted value of contractual cash flows. The discount rate is determined using the rates currently offered on comparable instruments.

The following table presents estimated fair values of the Company’s financial instruments as of March 31, 2021 and December 31, 2020:

 

 

 

 

 

 

 

March 31, 2021

 

 

December 31, 2020

 

 

 

 

 

 

 

Carrying

 

 

Estimated

 

 

Carrying

 

 

Estimated

 

(Dollars in thousands)

 

Level

 

 

Value

 

 

Fair Value

 

 

Value

 

 

Fair Value

 

Financial Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

1

 

 

$

111,542

 

 

$

111,542

 

 

$

239,874

 

 

$

239,874

 

Investment securities available for sale

 

 

2

 

 

 

1,492,303

 

 

 

1,492,303

 

 

 

1,312,172

 

 

 

1,312,172

 

Investment securities available for sale

 

 

3

 

 

 

8,188

 

 

 

8,188

 

 

 

8,221

 

 

 

8,221

 

Non-marketable securities

 

 

2

 

 

 

4,042

 

 

 

4,042

 

 

 

2,890

 

 

 

2,890

 

Loans held for sale

 

 

2

 

 

 

8,293

 

 

 

8,293

 

 

 

14,152

 

 

 

14,152

 

Loans held for investment

 

 

3

 

 

 

1,755,948

 

 

 

1,718,248

 

 

 

1,654,260

 

 

 

1,618,743

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total deposits

 

 

2

 

 

$

3,158,986

 

 

$

2,929,224

 

 

$

2,916,308

 

 

$

2,751,715

 

 

Assets measured on a recurring and non-recurring basis are as follows:

 

(Dollars in thousands)

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

As of March 31, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair valued on a recurring basis:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment securities available for sale

 

$

-

 

 

$

1,492,303

 

 

$

8,188

 

 

$

1,500,491

 

Fair valued on a non-recurring basis:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated loans

 

 

-

 

 

 

-

 

 

 

421

 

 

 

421

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair valued on a recurring basis:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment securities available for sale

 

$

-

 

 

$

1,312,172

 

 

$

8,221

 

 

$

1,320,393

 

Fair valued on a non-recurring basis:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated loans

 

 

-

 

 

 

-

 

 

 

1,804

 

 

 

1,804

 

 

27


 

Note 5 — Fair Value - Continued

 

Non-recurring Measurements:  Impaired loans are classified with Level 3 of the fair value hierarchy.  The estimated fair value of impaired loans is based on the fair value of the collateral, less estimated costs to sell.  The Company receives an appraisal or performs an evaluation for each impaired loan.  The key inputs used to determine the fair value of impaired loans include selling costs, and adjustment to comparable collateral.  Valuations and significant inputs obtained by independent sources are reviewed by the Company for accuracy and reasonableness.  Appraisals are typically obtained at least on an annual basis.  The Company also considers other factors and events that may affect the fair value.  The appraisals or evaluations are reviewed at least on a quarterly basis to determine if any adjustments are needed.  After review and acceptance of the appraisal or evaluation, adjustments to impaired loans may occur.

 

Note 6 — Income Taxes

Income tax expense was $3.0 million and $3.4 million for the three months ended March 31, 2021 and 2020, respectively. The Company’s effective tax rate for the first quarter of 2021 was 24.1%, compared with 23.9% in the first quarter of 2020.

Note 7 — Regulatory Capital Matters

The Company is subject to various regulatory capital requirements administered by its primary federal regulator, the FDIC. Failure to meet the minimum regulatory capital requirements can initiate certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company and its consolidated financial statements. Under the regulatory capital adequacy guidelines and regulatory framework for prompt corrective action, the Company must meet specific capital guidelines involving quantitative measures of the Company’s assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Company’s capital amounts and classification under the prompt corrective action guidelines are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

As of March 31, 2021, the Company was categorized as well capitalized under the regulatory framework. To be categorized as well capitalized, an institution must maintain minimum common Tier 1 (“CET1”), Tier 1 risk-based capital, total risk-based capital, and Tier 1 to average assets (“Tier 1 Leverage”) capital ratios as disclosed in the table below.

The Company’s actual and required capital amounts and ratios are as follows:

 

 

 

March 31, 2021

 

 

 

 

 

 

 

 

 

 

 

Minimum Capital

 

 

Well Capitalized

 

 

 

Actual

 

 

Requirement

 

 

Requirement

 

(Dollars in thousands)

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CET1 Capital to Risk-Weighted Assets

 

$

336,091

 

 

 

17.15

%

 

$

88,205

 

 

 

4.50

%

 

$

127,407

 

 

 

6.50

%

Tier 1 Capital to Risk-Weighted Assets

 

 

336,091

 

 

 

17.15

%

 

 

117,606

 

 

 

6.00

%

 

 

156,808

 

 

 

8.00

%

Total Risk-Based Capital to Risk-Weighted Assets

 

 

360,822

 

 

 

18.41

%

 

 

156,808

 

 

 

8.00

%

 

 

196,010

 

 

 

10.00

%

Tier 1 Leverage

 

 

336,091

 

 

 

10.06

%

 

 

133,598

 

 

 

4.00

%

 

NA

 

 

NA

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AltabankTM

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CET1 Capital to Risk-Weighted Assets

 

$

329,450

 

 

 

16.81

%

 

$

88,190

 

 

 

4.50

%

 

$

127,386

 

 

 

6.50

%

Tier 1 Capital to Risk-Weighted Assets

 

 

329,450

 

 

 

16.81

%

 

 

117,587

 

 

 

6.00

%

 

 

156,783

 

 

 

8.00

%

Total Risk-Based Capital to Risk-Weighted Assets

 

 

354,177

 

 

 

18.07

%

 

 

156,783

 

 

 

8.00

%

 

 

195,979

 

 

 

10.00

%

Tier 1 Leverage

 

 

329,450

 

 

 

9.78

%

 

 

134,735

 

 

 

4.00

%

 

 

168,419

 

 

 

5.00

%

 

28


 

Note 7 — Regulatory Capital Matters - Continued

 

 

 

December 31, 2020

 

 

 

 

 

 

 

 

 

 

 

Minimum Capital

 

 

Well Capitalized

 

 

 

Actual

 

 

Requirement

 

 

Requirement

 

(Dollars in thousands)

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CET1 Capital to Risk-Weighted Assets

 

$

329,049

 

 

 

17.91

%

 

$

82,679

 

 

 

4.50

%

 

$

119,426

 

 

 

6.50

%

Tier 1 Capital to Risk-Weighted Assets

 

 

329,049

 

 

 

17.91

%

 

 

110,239

 

 

 

6.00

%

 

 

146,985

 

 

 

8.00

%

Total Risk-Based Capital to Risk-Weighted Assets

 

 

352,266

 

 

 

19.17

%

 

 

146,985

 

 

 

8.00

%

 

 

183,732

 

 

 

10.00

%

Tier 1 Leverage

 

 

329,049

 

 

 

10.47

%

 

 

125,681

 

 

 

4.00

%

 

NA

 

 

NA

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AltabankTM

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CET1 Capital to Risk-Weighted Assets

 

$

322,783

 

 

 

17.59

%

 

$

82,578

 

 

 

4.50

%

 

$

119,280

 

 

 

6.50

%

Tier 1 Capital to Risk-Weighted Assets

 

 

322,783

 

 

 

17.59

%

 

 

110,104

 

 

 

6.00

%

 

 

146,806

 

 

 

8.00

%

Total Risk-Based Capital to Risk-Weighted Assets

 

 

345,973

 

 

 

18.85

%

 

 

146,806

 

 

 

8.00

%

 

 

183,507

 

 

 

10.00

%

Tier 1 Leverage

 

 

322,793

 

 

 

10.18

%

 

 

126,795

 

 

 

4.00

%

 

 

158,493

 

 

 

5.00

%

 

Federal Reserve Board Regulations require maintenance of certain minimum reserve balances based on certain average deposits.  On March 15, 2020, the Board of Governors of the Federal Reserve reduced reserve requirement ratios to zero percent effective March 26, 2020.  This action eliminated reserve requirements for all depository institutions.

The Company’s Board of Directors may declare a cash or stock dividend out of retained earnings provided the regulatory minimum capital ratios are met. The Company plans to maintain capital ratios that meet the well-capitalized standards per the regulations and, therefore, dividend amounts may be correspondingly limited.

 

 

Note 8 — Incentive Share-Based Plan and Other Employee Benefits

In May 2020, on approval by and at the recommendation of the Board of Directors (“Board”), the shareholders of the Company approved a share-based incentive plan (the “Plan”). The effective date of the Plan was May 27, 2020 (the “Effective Date”).  The Plan provides for various share-based incentive awards, including incentive share-based options, non-qualified share-based options, restricted shares, and stock appreciation rights to be granted to officers, directors, and other employees. The maximum aggregate number of shares that may be issued under the Plan is 1,000,000 common shares. The share-based awards are granted to participants under the Plan at a price not less than the fair value on the date of grant and for terms of up to ten years. The Plan also allows for granting of share-based awards to directors and consultants who are not employees of the Company.

During the three months ended March 31, 2021, the Company granted 64,113 restricted stock units (“RSUs”) at a weighted-average fair value of $27.99 per unit.  All awards granted after the Effective Date and through March 31, 2021, have been under the Plan.  The RSUs generally vest over periods from one to three years. The Company recorded share-based compensation expense of $351,000 and $385,000 for the three months ended March 31, 2021 and 2020, respectively.  Additionally, the Company did not grant any options for the purchase of common shares during the three months ended March 31, 2021 and 2020, respectively.

 

29


 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion is intended to provide a more comprehensive review of the Company’s operating results and financial condition than can be obtained from reading the Unaudited Consolidated Financial Statements alone. The discussion should be read in conjunction with the Unaudited Consolidated Financial Statements and the notes thereto included in “Part I. Item 1. Financial Statements.”

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10–Q may contain certain forward-looking statements within the meaning of Section 27A the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements reflect the Company’s current views and are not historical facts.  These statements can generally be identified by use of phrases such as “believe,” “expect,” “will,” “seek,” “should,” “anticipate,” “estimate,” “intend,” “plan,” “target,” “project,” “commit” or other words of similar import. Similarly, statements that describe the Company’s future financial condition, results of operations, objectives, strategies, plans, goals or future performance and business are also forward-looking statements. Statements that project future financial conditions, results of operations, and shareholder value are not guarantees of performance and many of the factors that will determine these results and values are beyond the Company’s ability to control or predict. For those statements, the Company claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve known and unknown risks, uncertainties and other factors, including, but not limited to, those described in the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections in this report and the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 (“Form 10-K”), and other parts of this report that could cause actual results to differ materially from those anticipated in these forward-looking statements. The following is a non-exclusive list of factors which could cause actual results to differ materially from forward-looking statements in this Form 10-Q:

 

the pendency, duration and impact of the COVID-19 pandemic;

 

changes in general economic conditions, either nationally or in the Company’s local market;

 

inflation, changes in interest rates, securities market volatility and monetary fluctuations;

 

increases in competitive pressures among financial institutions and businesses offering similar products and services;

 

higher defaults on the Company’s loan portfolio than expected;

 

risks associated with the Company’s growth and expansion strategy and related costs;

 

ability to raise liquidity, either with deposits or other funding sources, to support growth in assets;

 

risks associated with the integration of current and future acquisitions;

 

increased lending risks associated with high concentration of real estate loans;

 

ability to successfully grow business in Utah and neighboring states;

 

legislative or regulatory changes or changes in accounting principles, policies or guidelines;

 

risks associated with cyber security;

 

technological changes;

 

regulatory or judicial proceedings; and

 

other factors and risks including those described under “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this report and the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated, expected, projected, intended, committed or believed.

Please take into account that forward-looking statements speak only as of the date of this Form 10-Q. The Company does not undertake any obligation to release publicly revisions to such forward-looking statements to reflect events or circumstances after the date of this Form 10-Q, except as required by law.

30


 

Overview

AltabancorpTM is a Utah registered bank holding company organized in 1998.  As a Utah registered bank holding company, the Company is subject to regulation, supervision and examination by the Board of Governors of the Federal Reserve System and by the Utah Department of Financial Institutions (“UDFI”).  The Company operates all business activities through its wholly owned banking subsidiary, AltabankTM (the “Bank”) which was organized in 1913.  The Bank is a Utah state-chartered bank subject to primary regulation, supervision and examination by the Federal Deposit Insurance Corporation (“FDIC”) and by the UDFI.

AltabankTM is the largest community bank in Utah.  AltabankTM, a full-service bank, provides loans, deposit and cash management services to businesses and individuals through 25 branch locations from Preston, Idaho to St. George, Utah. The Company’s clients have direct access to bankers and decision-makers who work with clients to understand their specific needs and offer customized financial solutions. AltabankTM has been serving communities in Utah and southern Idaho for more than 100 years.  Loan growth historically has been the result of mergers and acquisitions as well as organic growth that the Company believes was generated by seasoned relationship managers and supporting associates who provide outstanding service and quick responsiveness to its clients.  The primary source of funding for the Company’s asset growth has been the generation of core deposits, which the Company raised from its existing branch system as well as through acquisitions.

Results of operations are largely dependent on net interest income. Net interest income is the difference between interest income earned on interest earning assets, which are comprised of loans, investment securities and short-term investments and the interest paid on interest bearing liabilities, which are primarily deposits, and, to a lesser extent, other borrowings. Management strives to match the re-pricing characteristics of the interest earning assets and interest bearing liabilities to protect net interest income from changes in market interest rates and changes in the shape of the yield curve.

The Company measures performance by calculating net interest margin, return on average assets, and return on average equity. Net interest margin is calculated by dividing net interest income, which is the difference between interest income on interest earning assets and interest expense on interest bearing liabilities, by average interest earning assets. Net interest income is the Company’s largest source of revenue. Interest rate fluctuations, as well as changes in the amount and type of earning assets and liabilities, combine to affect net interest income. The Company also measures performance by its efficiency ratio, which is calculated by dividing non-interest expense by the sum of net interest income and non-interest income.

COVID-19 Pandemic

On March 11, 2020, the World Health Organization declared COVID-19 to be a global pandemic.  Local and national governments and regulatory authorities have systematically implemented remedial measures to try to slow and curb the spread of COVID-19, including business closures and operating restrictions, travel bans, and shelter in place, stay home, and similar directives and orders.  In response to the COVID-19 pandemic and in adherence with state and local guidelines, the Company has implemented its business continuity plan and other measures and activities to protect employees and, at the same time, to assist clients and the communities of which it is a part, including remote working for the majority of its employees, increased mobile banking and electronic transaction options for clients, payment deferral assistance to commercial and consumer borrowers, and participation in the SBA’s Paycheck Protection Program for loans to qualifying small businesses.  The Company’s return to normal business operations depends on, in part, widespread vaccinations and applicable state and local transmission indices and reopening guidelines, the timing and extent of which are not yet known.

 

31


 

Selected Financial Information

You should read the selected financial information data set forth below in conjunction with the Company’s annual consolidated financial statements and related notes.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31,

 

 

December 31,

 

 

September 30,

 

 

March 31,

 

(Dollars in thousands, except share data)

 

2021

 

 

2020

 

 

2020

 

 

2020

 

Selected Balance Sheet Information:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Book value per share

 

$

18.54

 

 

$

19.71

 

 

$

19.16

 

 

$

18.10

 

Tangible book value per share

 

$

16.94

 

 

$

18.21

 

 

$

17.66

 

 

$

16.59

 

Non-performing loans to total loans

 

 

0.42

%

 

 

0.54

%

 

 

0.41

%

 

 

0.41

%

Non-performing assets to total assets

 

 

0.21

%

 

 

0.27

%

 

 

0.22

%

 

 

0.27

%

Allowance for credit losses to loans held for

   investment

 

 

2.28

%

 

 

2.43

%

 

 

2.45

%

 

 

2.51

%

Loans to Deposits

 

 

55.85

%

 

 

57.21

%

 

 

62.11

%

 

 

76.48

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Asset Quality Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-performing loans

 

$

7,332

 

 

$

9,064

 

 

$

6,944

 

 

$

6,590

 

Non-performing assets

 

$

7,332

 

 

$

9,064

 

 

$

6,944

 

 

$

6,590

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital Ratios:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tier 1 leverage capital

 

 

10.06

%

 

 

10.47

%

 

 

10.87

%

 

 

12.74

%

Total risk-based capital

 

 

18.41

%

 

 

19.17

%

 

 

19.13

%

 

 

18.62

%

Average equity to average assets

 

 

10.94

%

 

 

11.15

%

 

 

11.68

%

 

 

13.82

%

Tangible common equity to tangible assets (1)

 

 

9.16

%

 

 

10.27

%

 

 

10.55

%

 

 

12.73

%

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

December 31,

 

 

March 31,

 

 

 

2021

 

 

2020

 

 

2020

 

Selected Financial Information:

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share

 

$

0.50

 

 

$

0.59

 

 

$

0.57

 

Diluted earnings per share

 

$

0.50

 

 

$

0.58

 

 

$

0.57

 

Net interest margin (2)

 

 

2.91

%

 

 

3.18

%

 

 

4.79

%

Efficiency ratio

 

 

57.09

%

 

 

53.70

%

 

 

52.20

%

Non-interest income to average assets

 

 

0.64

%

 

 

0.79

%

 

 

0.63

%

Non-interest expense to average assets

 

 

1.98

%

 

 

2.05

%

 

 

2.71

%

Return on average assets

 

 

1.13

%

 

 

1.34

%

 

 

1.80

%

Return on average equity

 

 

10.30

%

 

 

12.06

%

 

 

13.05

%

Net charge-offs

 

$

223

 

 

$

259

 

 

$

289

 

Annualized net charge-offs to average loans

 

 

0.05

%

 

 

0.06

%

 

 

0.07

%

 

(1)

Represents the sum of total shareholders’ equity less intangible assets all divided by the sum of total assets less intangible assets.  Intangible assets were $30.1 million, $28.2 million, $28.3 million, and $28.5 million at March 31, 2021, December 31, 2020, September 30, 2020, and March 31, 2020, respectively.

(2)

Net interest margin is defined as annualized net interest income divided by average earning assets.

 

32


 

Results of Operations

Factors that determine the level of net income include the volume of earning assets and interest bearing liabilities, yields earned and rates paid, fee income, non-interest expense, the level of non-performing loans and other non-earning assets, and the amount of non-interest bearing liabilities supporting earning assets. Non-interest income primarily includes service charges and other fees on deposits, and mortgage banking income. Non-interest expense consists primarily of employee compensation and benefits, occupancy, equipment and depreciation expense, and other operating expenses.

Average Balance and Yields. The following tables summarize average balances with corresponding interest income and interest expense, as well as average yield, cost and net interest margin information for the periods presented. Average balances are derived from daily balances. Average non-accrual loans are derived from quarterly balances and are included as non-interest earning assets for purposes of these tables.

 

 

 

Three Months Ended

 

 

 

March 31, 2021

 

 

March 31, 2020

 

 

 

 

 

 

 

Interest

 

 

Average

 

 

 

 

 

 

Interest

 

 

Average

 

 

 

Average

 

 

Income/

 

 

Yield/

 

 

Average

 

 

Income/

 

 

Yield/

 

(Dollars in thousands, except footnotes)

 

Balance

 

 

Expense

 

 

Rate

 

 

Balance

 

 

Expense

 

 

Rate

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest earning deposits in other banks and

   federal funds sold

 

$

162,499

 

 

$

27

 

 

 

0.07

%

 

$

103,099

 

 

$

316

 

 

 

1.23

%

Securities: (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxable securities

 

 

1,347,284

 

 

 

2,104

 

 

 

0.63

%

 

 

449,195

 

 

 

2,868

 

 

 

2.57

%

Non-taxable securities (2)

 

 

34,692

 

 

 

177

 

 

 

2.07

%

 

 

50,516

 

 

 

253

 

 

 

2.01

%

Total securities

 

 

1,381,976

 

 

 

2,281

 

 

 

0.67

%

 

 

499,711

 

 

 

3,121

 

 

 

2.51

%

Loans (3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate term

 

 

1,024,491

 

 

 

12,760

 

 

 

5.05

%

 

 

935,753

 

 

 

13,467

 

 

 

5.79

%

Construction and land development

 

 

247,771

 

 

 

3,820

 

 

 

6.25

%

 

 

277,720

 

 

 

5,024

 

 

 

7.28

%

Commercial and industrial

 

 

239,244

 

 

 

3,854

 

 

 

6.53

%

 

 

279,278

 

 

 

4,906

 

 

 

7.07

%

Residential and home equity

 

 

217,335

 

 

 

2,206

 

 

 

4.12

%

 

 

170,767

 

 

 

2,286

 

 

 

5.38

%

Consumer and other

 

 

9,162

 

 

 

174

 

 

 

7.69

%

 

 

15,110

 

 

 

242

 

 

 

6.43

%

Total loans

 

 

1,738,003

 

 

 

22,814

 

 

 

5.32

%

 

 

1,678,628

 

 

 

25,925

 

 

 

6.21

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-marketable equity securities

 

 

3,015

 

 

 

22

 

 

 

2.98

%

 

 

2,638

 

 

 

22

 

 

 

3.33

%

Total interest earning assets

 

 

3,285,493

 

 

 

25,144

 

 

 

3.10

%

 

 

2,284,076

 

 

 

29,384

 

 

 

5.17

%

Allowance for credit losses

 

 

(41,406

)

 

 

 

 

 

 

 

 

 

 

(42,136

)

 

 

 

 

 

 

 

 

Non-interest earning assets

 

 

151,269

 

 

 

 

 

 

 

 

 

 

 

159,578

 

 

 

 

 

 

 

 

 

Total average assets

 

$

3,395,356

 

 

 

 

 

 

 

 

 

 

$

2,401,518

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’

   EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing deposits:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Demand and savings accounts

 

$

1,130,353

 

 

$

569

 

 

 

0.20

%

 

$

832,083

 

 

$

779

 

 

 

0.38

%

Money market accounts

 

 

668,091

 

 

 

524

 

 

 

0.32

%

 

 

352,120

 

 

 

811

 

 

 

0.93

%

Certificates of deposit less than or equal to $250,000

 

 

119,239

 

 

 

261

 

 

 

0.89

%

 

 

130,890

 

 

 

393

 

 

 

1.21

%

Certificates of deposit greater than $250,000

 

 

41,779

 

 

 

166

 

 

 

1.61

%

 

 

38,778

 

 

 

180

 

 

 

1.87

%

Total interest bearing deposits

 

 

1,959,462

 

 

 

1,520

 

 

 

0.31

%

 

 

1,353,871

 

 

 

2,163

 

 

 

0.64

%

Short-term borrowings

 

 

25,931

 

 

 

26

 

 

 

0.40

%

 

 

-

 

 

 

-

 

 

 

0.00

%

Total interest-bearing liabilities

 

 

1,985,393

 

 

 

1,546

 

 

 

0.32

%

 

 

1,353,871

 

 

 

2,163

 

 

 

0.64

%

Non-interest bearing deposits

 

 

1,028,130

 

 

 

 

 

 

 

 

 

 

 

699,780

 

 

 

 

 

 

 

 

 

Total funding

 

 

3,013,523

 

 

 

1,546

 

 

 

0.21

%

 

 

2,053,651

 

 

 

2,163

 

 

 

0.42

%

Other non-interest bearing liabilities

 

 

10,387

 

 

 

 

 

 

 

 

 

 

 

15,878

 

 

 

 

 

 

 

 

 

Shareholders’ equity

 

 

371,446

 

 

 

 

 

 

 

 

 

 

 

331,989

 

 

 

 

 

 

 

 

 

Total average liabilities and shareholders’

   equity

 

$

3,395,356

 

 

 

 

 

 

 

 

 

 

$

2,401,518

 

 

 

 

 

 

 

 

 

Net interest income

 

 

 

 

 

$

23,598

 

 

 

 

 

 

 

 

 

 

$

27,221

 

 

 

 

 

Interest rate spread

 

 

 

 

 

 

 

 

 

 

2.79

%

 

 

 

 

 

 

 

 

 

 

4.53

%

Net interest margin

 

 

 

 

 

 

 

 

 

 

2.91

%

 

 

 

 

 

 

 

 

 

 

4.79

%

 

(1)

Excludes average unrealized losses of $12.9 million and $3.1 million for the three months ended March 31, 2021 and 2020, respectively.

(2)

Does not include tax effect on tax-exempt investment security income of $59,000 and $84,000 for the three months ended March 31, 2021 and 2020, respectively.  

(3)

Loan interest income includes loan fees of $2.3 million and $1.5 million for the three months ended March 31, 2021 and 2020, respectively.

 

 

 

33


 

Rate/Volume Analysis. The following table shows the change in interest income and interest expense and the amount of change attributable to variances in volume, rates and the combination of volume and rates based on the relative changes of volume and rates. For purposes of this table, the change in interest due to both volume and rate has been allocated to change due to volume and rate in proportion to the relationship of absolute dollar amounts of change in each.

 

 

 

Three Months Ended March 31,

 

 

 

2021 vs. 2020

 

 

 

Increase (Decrease) Due to:

 

(Dollars in thousands)

 

Volume

 

 

Rate

 

 

Net

 

Interest income:

 

 

 

 

 

 

 

 

 

 

 

 

Interest earning deposits in other banks

   and federal funds sold

 

$

117

 

 

$

(406

)

 

$

(289

)

Taxable securities

 

 

2,590

 

 

 

(3,354

)

 

 

(764

)

Non-taxable securities

 

 

(81

)

 

 

5

 

 

 

(76

)

Total securities

 

 

2,509

 

 

 

(3,349

)

 

 

(840

)

Loans

 

 

 

 

 

 

 

 

 

 

 

 

Real estate term

 

 

1,205

 

 

 

(1,912

)

 

 

(707

)

Construction and land development

 

 

(508

)

 

 

(696

)

 

 

(1,204

)

Commercial and industrial

 

 

(666

)

 

 

(386

)

 

 

(1,052

)

Residential and home equity

 

 

544

 

 

 

(624

)

 

 

(80

)

Consumer and other

 

 

(107

)

 

 

39

 

 

 

(68

)

Total Loans

 

 

468

 

 

 

(3,579

)

 

 

(3,111

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-marketable equity securities

 

 

3

 

 

 

(3

)

 

 

-

 

Total interest income

 

 

3,097

 

 

 

(7,337

)

 

 

(4,240

)

Interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

Demand and savings accounts

 

 

223

 

 

 

(433

)

 

 

(210

)

Money market accounts

 

 

451

 

 

 

(738

)

 

 

(287

)

Certificates of deposit less than or equal to $250,000

 

 

(33

)

 

 

(99

)

 

 

(132

)

Certificates of deposit greater than $250,000

 

 

13

 

 

 

(27

)

 

 

(14

)

Short-term borrowings

 

 

13

 

 

 

13

 

 

 

26

 

Total interest expense

 

 

667

 

 

 

(1,284

)

 

 

(617

)

Net interest income

 

$

2,430

 

 

$

(6,053

)

 

$

(3,623

)

 

For the three months ended March 31, 2021, net interest income decreased $3.6 million, or 13.31%, to $23.6 million, compared with $27.2 million for the same period a year earlier.  The decrease is primarily the result of net interest margins narrowing 188 basis points to 2.91% for the same comparable period.  The narrowing of net interest margins is primarily the result of the Federal Reserve reducing benchmark rates to almost zero and an increase in the average amount of lower yielding cash and investment securities held by the Company stemming from average core deposits increasing $934 million, or 45.48%, for the same comparable period. Average interest earning assets increased $1.00 billion, or 43.84%, to $3.29 billion for the same comparable period.  The percentage of average loans to total average interest earning assets decreased to 52.90% for the three months ended March 31, 2021 compared with 73.49% for the same comparable period.

 

Yield on interest earning assets declined 207 basis points to 3.10% for the three months ended March 31, 2021, compared with 5.17% for the same comparable period.  The decline in yield on interest earning assets is primarily the result of the average amount of cash and investment securities held by the Company increasing $942 million, or 156%, to $1.54 billion for the same comparable period with the yield on cash and investment securities declining 169 basis points to 0.60% for the first quarter of 2021 compared with 2.29% for the same comparable period.  This decline is primarily the result of yield on investment securities declining 184 basis points to 0.67% for the same comparable period as prepayment rates on mortgage-backed securities significantly increased in the first quarter of 2021.

 

The Company rebalanced its mortgage-backed securities by selling $131 million of securities with the highest prepayment rates at the end of the first quarter, recording a gain on sale of $0.2 million.  This sale was offset by the purchase of $150 million of mortgage-backed securities at par value.  The Company expects the yield on its investment securities portfolio to be in excess of 1.00% in the second quarter of 2021.  In addition, the yield on loans declined 89

34


 

basis points to 5.32% compared with 6.21% for the same comparable period.  Average loans outstanding increased $59 million, or 3.54%, to $1.74 billion for the same comparable period.

 

For the three months ended March 31, 2021, total cost of interest bearing liabilities decreased 32 basis points to 0.32%, compared with 0.64% for the same comparable period, and the total cost of funds decreased 21 basis points to 0.21%, compared with 0.42% for the same comparable period.

 

For the three months ended March 31, 2021, acquisition accounting adjustments, including the accretion of loan discounts and fair value amortization on time deposits, added four basis points to net interest margin.

 

The Company expects its net interest income and net interest margins to continue to be adversely impacted in future periods because of the Federal Reserve lowering benchmark rates to near zero and the current asset mix of the Company’s balance sheet. The amount of the impact is dependent upon the length in time that the Federal Reserve holds benchmark rates to near zero, and the amount of time the Company holds a higher percentage of low yielding cash and investment securities.

Financial Overview for the Three Months Ended March 31, 2021 and 2020

 

 

 

Three Months Ended

 

 

 

 

 

 

 

 

 

 

 

March 31,

 

 

March 31,

 

 

$ Better /

 

 

% Better /

 

(Dollars in thousands)

 

2021

 

 

2020

 

 

(Worse)

 

 

(Worse)

 

Interest income

 

$

25,144

 

 

$

29,384

 

 

$

(4,240

)

 

 

-14.4

%

Interest expense

 

 

1,546

 

 

 

2,163

 

 

 

617

 

 

 

28.5

%

Net interest income

 

 

23,598

 

 

 

27,221

 

 

 

(3,623

)

 

 

-13.3

%

Provision for credit losses

 

 

-

 

 

 

650

 

 

 

650

 

 

 

100.0

%

Net interest income after provision for credit losses

 

 

23,598

 

 

 

26,571

 

 

 

(2,973

)

 

 

-11.2

%

Non-interest income

 

 

5,382

 

 

 

3,740

 

 

 

1,642

 

 

 

43.9

%

Non-interest expense

 

 

16,545

 

 

 

16,161

 

 

 

(384

)

 

 

-2.4

%

Income before income tax expense

 

 

12,435

 

 

 

14,150

 

 

 

(1,715

)

 

 

-12.1

%

Income tax expense

 

 

2,997

 

 

 

3,377

 

 

 

380

 

 

 

11.3

%

Net income

 

$

9,438

 

 

$

10,773

 

 

$

(1,335

)

 

 

-12.4

%

 

Net Income. Net income decreased $1.3 million to $9.4 million for the three months ended March 31, 2021, compared with $10.8 million for the three months ended March 31, 2020. This was primarily attributable to no provision for credit losses, an increase in non-interest income of $1.6 million, an increase in income tax expense of $0.4 million offset by a decrease in net interest income of $3.6 million, and an increase in non-interest expense of $0.4 million.

Net Interest Income and Net Interest Margin. For the three months ended March 31, 2021, net interest income decreased $3.6 million, or 13.31%, to $23.6 million, compared with $27.2 million for the same comparable period.  The decrease is primarily the result of net interest margins narrowing 188 basis points to 2.91% for the same comparable period.  The narrowing of net interest margins is primarily the result of the Federal Reserve reducing benchmark rates to almost zero and an increase in the average amount of lower yielding cash and investment securities held by the Company stemming from average core deposits increasing $934 million, or 45.48%, for the same comparable period. Average interest earning assets increased $1.00 billion, or 43.84%, to $3.29 billion for the same comparable period.  The percentage of average loans to total average interest earning assets decreased to 52.90% for the three months ended March 31, 2021 compared with 73.49% for the same comparable period.

Yield on interest earning assets declined 207 basis points to 3.10% for the three months ended March 31, 2021 compared with 5.17% for the same comparable period.  The decline in yield on interest earning assets is primarily the result of the average amount of cash and investment securities held by the Company increasing $942 million, or 156%, to $1.54 billion for the same comparable period with the yield on cash and investment securities declining 169 basis points to 0.60% for the first quarter of 2021 compared with 2.29% for the same comparable period.  This decline is primarily the result of yield on investment securities declining 184 basis points to 0.67% for the same comparable period as prepayment rates on mortgage-backed securities significantly increasing in the first quarter of 2021.

35


 

For the three months ended March 31, 2021, total cost of interest bearing liabilities decreased 32 basis points to 0.32%, compared with 0.64% for the same comparable period, and the total cost of funds decreased 21 basis points to 0.21%, compared with 0.42% for the same comparable period.

For the three months ended March 31, 2021, acquisition accounting adjustments, including the accretion of loan discounts and fair value amortization on time deposits, added four basis points to net interest margin.

Provision for Credit Losses. The provision for credit losses in each period is a charge against earnings in that period. The provision is that amount required to maintain the allowance for credit losses at a level that, in management’s judgment, is adequate to absorb expected credit losses in the loan portfolio.

The Company did not record any provision for credit losses for the three months ended March 31, 2021, compared with $0.7 million for the same comparable period.  The decrease in provision for credit losses in the three months ended March 31, 2021 compared with the same comparable period is due primarily to a $9.3 million, or 46.30%, decline in loans individually evaluated for credit losses to $10.8 million and the related allowance for credit losses of $6.5 million offset by a $160 million, or 9.82%, increase in loans with similar risk characteristics to $1.79 billion and the related allowance for credit losses of $34.5 million.  For the three months ended March 31, 2021, the Company incurred net charge-offs of $0.2 million, compared with $0.3 million for the same comparable period.

Non-interest Income. The following table presents, for the periods indicated, the major categories of non-interest income:

 

 

 

Three Months Ended

 

 

 

 

 

 

 

 

 

 

 

March 31,

 

 

March 31,

 

 

$ Better /

 

 

% Better /

 

(Dollars in thousands)

 

2021

 

 

2020

 

 

(Worse)

 

 

(Worse)

 

Mortgage banking

 

$

2,781

 

 

$

1,710

 

 

$

1,071

 

 

 

62.6

%

Card processing

 

 

1,071

 

 

 

707

 

 

 

364

 

 

 

51.5

%

Service charges on deposit accounts

 

 

692

 

 

 

780

 

 

 

(88

)

 

 

-11.3

%

Net gain on sale of investment securities

 

 

206

 

 

 

-

 

 

 

206

 

 

 

0.0

%

Other

 

 

632

 

 

 

543

 

 

 

89

 

 

 

16.4

%

Total non-interest income

 

$

5,382

 

 

$

3,740

 

 

$

1,642

 

 

 

43.9

%

 

For the three months ended March 31, 2021, noninterest income increased $1.6 million, or 43.90%, to $5.4 million, compared with $3.7 million the same comparable period.  The increase was primarily due to a $1.1 million, or 62.63%, increase in mortgage banking income to $2.8 million, compared with $1.7 million for the same comparable period resulting from higher volume and wider margins on loans sold, which was favorably impacted by an increase in mortgage loan refinances, as overall interest rates declined.  Total mortgage loans sold increased $70.4 million, or 140%, to $120.5 million for the first quarter compared with the same comparable period.

Non-interest Expense. The following table presents, for the periods indicated, the major categories of non-interest expense:

 

 

 

Three Months Ended

 

 

 

 

 

 

 

 

 

 

 

March 31,

 

 

March 31,

 

 

$ Better /

 

 

% Better /

 

(Dollars in thousands)

 

2021

 

 

2020

 

 

(Worse)

 

 

(Worse)

 

Salaries and employee benefits

 

$

11,087

 

 

$

10,844

 

 

$

(243

)

 

 

-2.2

%

Occupancy, equipment and depreciation

 

 

1,195

 

 

 

1,539

 

 

 

344

 

 

 

22.4

%

Data processing

 

 

1,849

 

 

 

1,136

 

 

 

(713

)

 

 

-62.8

%

Marketing and advertising

 

 

306

 

 

 

432

 

 

 

126

 

 

 

29.2

%

FDIC premiums

 

 

226

 

 

 

-

 

 

 

(226

)

 

 

0.0

%

Other

 

 

1,882

 

 

 

2,210

 

 

 

328

 

 

 

14.8

%

Total non-interest expense

 

$

16,545

 

 

$

16,161

 

 

$

(384

)

 

 

-2.4

%

 

For the three months ended March 31, 2021, noninterest expense was $16.5 million, compared with $16.2 million for the same comparable period.  For the three months ended March 31, 2021, the Company’s efficiency ratio was 57.50% compared with 52.20% for the same comparable period.

36


 

The increase in noninterest expense for the three months ended March 31, 2021 was primarily the result of higher data processing expenses due to: (i) technology investments in loan origination software for the mortgage banking division; (ii) technology investments made in the commercial banking division, including costs for its cloud-based, commercial loan origination application (nCino), automated processes for smaller ticket commercial loans (titled AltaexpressTM), the implementation of a Salesforce CRM solution, and a new cloud-based, commercial client treasury management solution; and  (iii) a new cloud-based, construction budget, draw and inspection management solution for both commercial and consumer clients.  The Company expects to continue to make significant investments in new technologies to enhance the client experience and empower clients to transact more business on the Company’s mobile platform; to lower the overall costs of its operating platform; and to become more scalable.

 

The increase in noninterest expense was also the result of higher salaries and employee benefits resulting from annual merit increases and higher incentive payments, particularly in the mortgage banking division.  In addition, the Company did not incur FDIC premium payments for the first quarter of 2020 due to the application of the small bank assessment credit from the FDIC.  Lastly, the Company incurred $0.2 million in one-time additional legal costs during the first quarter of 2021.

Income Tax Expense. For the three months ended March 31, 2021, income tax expense was $3.0 million, compared with $3.4 million for the same comparable period.  For the three months ended March 31, 2021, the effective tax rate was 24.10%, compared with 23.87% for the same comparable period.

37


 

Financial Condition

Total assets were $3.5 billion at March 31, 2021, representing a 4.6% increase compared with December 31, 2020. Total loans held for investment were $1.8 billion at March 31, 2021, an increase of 6.0% from December 31, 2020. Total deposits were $3.2 billion at March 31, 2021, an increase of 8.3% compared with December 31, 2020.

Loans

The following table sets forth information regarding the composition of the loan portfolio at the end of each of the periods presented.

 

 

 

March 31,

 

 

December 31,

 

(Dollars in thousands)

 

2021

 

 

2020

 

Loans held for sale

 

$

8,293

 

 

$

14,152

 

 

 

 

 

 

 

 

 

 

Loans held for investment:

 

 

 

 

 

 

 

 

Commercial real estate loans:

 

 

 

 

 

 

 

 

Real estate term

 

$

1,060,125

 

 

$

1,021,880

 

Construction and land development

 

 

256,771

 

 

 

228,213

 

Total commercial real estate loans

 

 

1,316,896

 

 

 

1,250,093

 

Commercial and industrial loans

 

 

242,172

 

 

 

257,240

 

Consumer loans:

 

 

 

 

 

 

 

 

Residential and home equity

 

 

238,977

 

 

 

185,470

 

Consumer and other

 

 

5,892

 

 

 

8,948

 

Total consumer loans

 

 

244,869

 

 

 

194,418

 

Total gross loans

 

 

1,803,937

 

 

 

1,701,751

 

Net deferred loan fees

 

 

(6,976

)

 

 

(6,255

)

Total loans held for investment

 

 

1,796,961

 

 

 

1,695,496

 

Allowance for credit losses

 

 

(41,013

)

 

 

(41,236

)

Total loans held for investment, net

 

$

1,755,948

 

 

$

1,654,260

 

 

 

 

March 31,

 

 

December 31,

 

(Percentage of total gross loans)

 

2021

 

 

2020

 

Loans held for investment:

 

 

 

 

 

 

 

 

Commercial real estate loans:

 

 

 

 

 

 

 

 

Real estate term

 

 

58.9

%

 

 

60.1

%

Construction and land development

 

 

14.2

%

 

 

13.4

%

Total commercial real estate loans

 

 

73.1

%

 

 

73.5

%

Commercial and industrial loans

 

 

13.4

%

 

 

15.1

%

Consumer loans:

 

 

 

 

 

 

 

 

Residential and home equity

 

 

13.2

%

 

 

10.9

%

Consumer and other

 

 

0.3

%

 

 

0.5

%

Total consumer loans

 

 

13.5

%

 

 

11.4

%

Total loans held for investment

 

 

100.0

%

 

 

100.0

%

The Company originates certain residential mortgage loans for sale to investors that are carried at cost. Due to the short period held, generally less than 90 days, the Company considers the carrying value of these loans held for sale to be the approximate fair value.

The following table shows the amounts of outstanding loans, which, based on remaining scheduled repayments of principal, were due in one year or less, more than one year through five years, and more than five years. Lines of credit or other loans having no stated maturity and no stated schedule of repayments are reported as due in one year or less. In the table below, loans are classified as real estate related if they are collateralized by real estate. The table also presents, for loans with maturities over one year, an analysis with respect to fixed interest rate loans and adjustable interest rate loans.

38


 

Contractual maturities at March 31, 2021 were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rate Structure for

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans Maturing Over

 

 

 

 

Maturity

 

 

One Year

 

 

 

 

 

 

 

 

One

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One

 

 

through

 

 

After

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year

 

 

Five

 

 

Five

 

 

 

 

 

 

 

 

 

 

Adjustable

 

 

(Dollars in thousands)

 

or Less

 

 

Years

 

 

Years

 

 

Total

 

 

Fixed Rate

 

 

Rate

 

 

Loans held for investment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate term

 

$

92,074

 

 

$

176,064

 

 

$

791,987

 

 

$

1,060,125

 

 

$

206,589

 

 

$

761,462

 

 

Construction and land development

 

 

191,446

 

 

 

45,986

 

 

 

19,339

 

 

 

256,771

 

 

 

5,334

 

 

 

59,991

 

 

Total commercial real estate loans

 

 

283,520

 

 

 

222,050

 

 

 

811,326

 

 

 

1,316,896

 

 

 

211,923

 

 

 

821,453

 

 

Commercial and industrial loans

 

 

62,445

 

 

 

150,105

 

 

 

29,622

 

 

 

242,172

 

 

 

127,963

 

 

 

51,764

 

 

Consumer loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential and home equity

 

 

102,739

 

 

 

21,190

 

 

 

115,048

 

 

 

238,977

 

 

 

27,264

 

 

 

108,974

 

 

Consumer and other

 

 

786

 

 

 

3,770

 

 

 

1,336

 

 

 

5,892

 

 

 

4,812

 

 

 

294

 

 

Total consumer loans

 

 

103,525

 

 

 

24,960

 

 

 

116,384

 

 

 

244,869

 

 

 

32,076

 

 

 

109,268

 

 

Total gross loans held for investment

 

$

449,490

 

(1)

$

397,115

 

 

$

957,332

 

 

$

1,803,937

 

 

$

371,962

 

 

$

982,485

 

(1)

(1)

The sum of adjustable rate loans maturing after one year and total loans maturing within one year was $1.4 billion or 79.4% of total gross loans held for investment at March 31, 2021.

Concentrations. As of March 31, 2021, in Management’s judgment, a concentration of loans existed in real estate related loans. At that date, real estate related loans comprised 86.3% of total loans held for investment, of which 58.9% are real estate term loans, 14.2% are construction and land development loans, and 13.2% are residential and home equity loans. The Company requires collateral on real estate lending arrangements and typically maintain loan-to-value ratios of up to 85%, except for some residential construction loans of up to 95% loan-to-value provided the loan includes pre-approved long-term financing and some commercial real estate loans of up to 75% with a minimum debt coverage ratio of 1.25 times.  The Company’s concentration in commercial and industrial loans decreased to 13.4% at March 31, 2021 from 15.1% at December 31, 2020.  

Non-Performing Assets. Loans are placed on non-accrual status when they become 90 days or more past due or at such earlier time as Management determines timely recognition of interest to be in doubt. Accrual of interest is discontinued on a loan when management believes, after considering economic and business conditions, collection efforts, and the borrower’s financial condition, that the borrower will be unable to make payments as they become due. When interest accrual is discontinued, all unpaid accrued interest is reversed. Interest income is subsequently recognized only to the extent cash payments are received, or payment is considered certain. Loans may be returned to accrual status when all delinquent interest and principal amounts contractually due are brought current and future payments are reasonably assured.

39


 

The following non-performing assets table summarizes the loans for which the accrual of interest has been discontinued, and loans more than 90 days past due and still accruing interest, including those non-accrual loans that are TDRs, and OREO:

 

 

 

March 31,

 

 

December 31,

 

(Dollars in thousands)

 

2021

 

 

2020

 

Non-accrual loans, not troubled-debt restructured

 

 

 

 

 

 

 

 

Real estate term

 

$

422

 

 

$

150

 

Construction and land development

 

 

-

 

 

 

-

 

Commercial and industrial

 

 

933

 

 

 

922

 

Residential and home equity

 

 

36

 

 

 

254

 

Consumer and other

 

 

-

 

 

 

-

 

Total non-accrual, not troubled-debt restructured loans

 

 

1,391

 

 

 

1,326

 

Troubled-debt restructured loans non-accrual

 

 

 

 

 

 

 

 

Real estate term

 

 

5,566

 

 

 

6,421

 

Construction and land development

 

 

-

 

 

 

-

 

Commercial and industrial

 

 

375

 

 

 

1,272

 

Residential and home equity

 

 

-

 

 

 

-

 

Consumer and other

 

 

-

 

 

 

-

 

Total troubled-debt restructured, non-accrual loans

 

 

5,941

 

 

 

7,693

 

Total non-accrual loans (1)

 

 

7,332

 

 

 

9,019

 

Accruing loans past due 90 days or more

 

 

-

 

 

 

45

 

Total non-performing loans (NPL)

 

 

7,332

 

 

 

9,064

 

 

 

 

 

 

 

 

 

 

OREO

 

 

-

 

 

 

-

 

Total non-performing assets (NPA) (2)

 

$

7,332

 

 

$

9,064

 

Accruing troubled debt restructured loans

 

$

1,341

 

 

$

2,774

 

Non-accrual troubled debt restructured loans

 

 

5,941

 

 

 

7,693

 

Total troubled debt restructured loans

 

$

7,282

 

 

$

10,467

 

(1)

The Company estimates that approximately $156,000 and $403,000 of interest income would have been recognized on loans accounted for on a non-accrual basis for the three months ended March 31, 2021 and the year ended December 31, 2020, respectively, had such loans performed pursuant to contractual terms.

(2)

Non-performing assets as of March 31, 2021 and December 31, 2020 have not been reduced by U.S. government guarantees of $5.4 million and $4.2 million, respectively.  

Individually Evaluated Loans. Individually evaluated loans are when a loan no longer shares similar risk characteristics with other loans, based on current information and events, whether it is probable the Company will be unable to collect all principal and interest payments due according to the contractual terms of the loan agreement or when identified through its credit monitoring process. The Company measures estimated credit losses based on the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s observable market price, or the fair value of the collateral, if the loan is collateral-dependent.

In determining whether or not a loan is individually evaluated, the Company considers payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as individually evaluated. The Company determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all the circumstances surrounding the loan and borrower, including the length of delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed. Loans for which an insignificant shortfall in amount of payments is anticipated, but where the Company expects to collect all amounts due, are not considered individually evaluated.

40


 

Troubled-debt Restructured Loans. A restructured loan is considered a troubled debt restructuring, or TDR, if the Company, for economic or legal reasons related to the debtor’s financial difficulties, grants a concession in terms or a below-market interest rate to the debtor that the Company would not otherwise consider. TDRs were $7.3 million and $10.5 million at March 31, 2021 and December 31, 2020, respectively. TDRs are considered individually evaluated loans of which $5.9 million and $7.7 million were designated as non-accrual at March 31, 2021 and December 31, 2020, respectively.

Each restructured debt is separately negotiated with the borrower and includes terms and conditions that reflect the borrower’s prospective ability to service the debt as modified.

The Company offered a loan deferment relief program of up to six months to clients impacted by the COVID-19 pandemic.  Under rare circumstances, loans will be re-evaluated at the end of the deferral period.  To qualify for a second loan deferral, the Company will require a full re-underwriting of the credit.

The Company offered temporary loan payment relief to 445 businesses and 118 individuals totaling approximately $345 million to address cash flow challenges for those impacted by the COVID-19 pandemic.  To date, the deferral period had ended for 556 clients, or 99%, for loans totaling $329 million.  This leaves only seven clients, or 1%, for loans totaling $16.0 million still on deferral.  At March 31, 2021, there were only three clients with small balance loans totaling $0.1 million, who have not made a subsequent loan payment for 30 days or greater, after their payment deferment agreement expired.  The Company entered into another loan payment deferment agreement with five clients, who had an initial loan payment deferment agreement.  Total dollars outstanding for these clients is $10.1 million.  Since these loans were performing loans that were current on their payments prior to the COVID-19 pandemic, these modifications are not considered to be troubled debt restructurings pursuant to applicable accounting and regulatory guidance.

Under the first round of the SBA PPP loan program, the Company funded 333 loans, totaling $84.6 million.  The Company has filed 241 forgiveness applications (approximately 72%) with the SBA, totaling $62.2 million and has received loan forgiveness on 228 loans, totaling $56.3 million, or 67% of all SBA PPP loans funded.  To date, the Company has not received a denial on any loan forgiveness application submitted to the SBA.  

Under the second round of the SBA PPP loan program, the Company has funded 172 loans, totaling $29.5 million.  Total SBA PPP loans declined $3.9 million, or 6.4%, to $56.7 million at March 31, 2021, compared with $60.6 million at December 31, 2020.

OREO Properties. OREO represents real property taken either through foreclosure or through a deed in lieu thereof from the borrower. All OREO properties are recorded by the Company at amounts equal to or less than the fair market value of the properties based on current independent appraisals reduced by estimated selling costs. The following table provides a summary of the changes in the OREO balance:

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

March 31,

 

(Dollars in thousands)

 

2021

 

 

2020

 

Balance, beginning of period

 

$

-

 

 

$

-

 

Additions

 

 

-

 

 

 

-

 

Write-downs

 

 

-

 

 

 

-

 

Sales

 

 

-

 

 

 

-

 

Balance, end of period

 

$

-

 

 

$

-

 

 

 

Allowance for Credit Losses

The Company maintains an adequate allowance for credit losses, or ACL, based on a comprehensive methodology that determines the Company’s current expected credit losses (“CECL”) for investment securities available for sale, loans held for investment, and off balance sheet commitments.

41


 

Management estimates the ACL using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts.  Historical credit loss experience, either internal or peer information, provides the basis for the estimation of expected credit losses.  Adjustments to historical loss information are made, using qualitative factors, when management expects current conditions and reasonable and supportable forecasts to differ from the conditions that existed for the period over which historical information was evaluated. Management must exercise significant judgment when evaluating the effect of qualitative factors on the amount of the ACL because data may not be reasonably available or directly applicable for management to determine the precise impact of a factor on the collectability of the loan portfolio as of the evaluation date.  

Management considers qualitative or environmental factors that are likely to cause estimated credit losses associated with the Company’s existing portfolio to differ from historical loss experience, including but not limited to: (i) changes in lending policies and procedures, including changes in underwriting standards and collection, charge-off, and recovery practices not considered elsewhere in estimating credit losses; (ii)  changes in international, national, regional, and local economic and business conditions and developments that affect the collectability of the portfolio, including the condition of various market segments; (iii) changes in the nature and volume of the portfolio and in the terms of loans; (iv) changes in the experience, ability, and depth of lending management and other relevant staff;  (v) changes in the volume and severity of past due loans, the volume of nonaccrual loans, and the volume and severity of adversely classified or graded loans; (vi) changes in the quality of the institution’s loan review system; (vii) changes in the value of underlying collateral for collateral-dependent loans; (viii) the existence and effect of any concentrations of credit, and changes in the level of such concentrations; and, (ix) the effect of other external factors such as competition and legal and regulatory requirements on the level of estimated credit losses in the institution’s existing portfolio.  This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision, as additional information becomes available or circumstances change.

The Company used the weighted average remaining maturity (“WARM”) approach, adjusted for prepayments, to calculate CECL at March 31, 2021 and segmented its loan portfolio into seventeen loan segments based on similar risk characteristics.  Management may change the approach used to calculate current expected credit losses or loan segments from time-to-time as the Company improved credit loss estimation techniques.  The Company has elected to exclude accrued interest receivable and net deferred fees from its calculation of ACL.

42


 

The following table sets forth the activity in the Company’s allowance for credit losses for the periods indicated:

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

March 31,

 

(Dollars in thousands)

 

2021

 

 

2020

 

Allowance for credit losses:

 

 

 

 

 

 

 

 

Beginning balance

 

$

41,236

 

 

$

31,426

 

Impact of adopting ASC 326

 

 

-

 

 

 

9,466

 

Loans charged off:

 

 

 

 

 

 

 

 

Real estate term

 

 

-

 

 

 

(14

)

Construction and land development

 

 

-

 

 

 

(30

)

Commercial and industrial

 

 

(922

)

 

 

(386

)

Residential and home equity

 

 

-

 

 

 

-

 

Consumer and other

 

 

(48

)

 

 

(122

)

Total charge-offs

 

 

(970

)

 

 

(552

)

Recoveries:

 

 

 

 

 

 

 

 

Real estate term

 

 

-

 

 

 

-

 

Construction and land development

 

 

2

 

 

 

14

 

Commercial and industrial

 

 

690

 

 

 

126

 

Residential and home equity

 

 

2

 

 

 

22

 

Consumer and other

 

 

53

 

 

 

101

 

Total recoveries

 

 

747

 

 

 

263

 

Net loan charge-offs

 

 

(223

)

 

 

(289

)

Provision for credit losses

 

 

-

 

 

 

650

 

Ending balance ACL

 

$

41,013

 

 

$

41,253

 

Loans held for investment

 

$

1,796,961

 

 

$

1,642,516

 

Average loans

 

 

1,738,003

 

 

 

1,678,628

 

Selected ratios:

 

 

 

 

 

 

 

 

Net loan charge-offs to average loans

 

 

0.05

%

 

 

0.07

%

Provision for credit losses to average loans

 

 

0.00

%

 

 

0.16

%

Allowance for credit losses to loans held for investment

 

 

2.28

%

 

 

2.51

%

 

The ACL to loans held for investment was 2.28% at March 31, 2021, compared with 2.51% at March 31, 2020.  The allowance for credit losses is also adjusted based on changes to the underlying loan portfolio, changes to the Company’s historical loss rates, and adjustments to qualitative ACL factors due to changes in current conditions.

 

The Company’s construction and land development portfolio reflects borrower concentration risk, and also carries the enhanced risks encountered with construction loans generally. Construction and land development loans are generally more risky than permanent mortgage loans because they are dependent upon the borrower’s ability to generate cash to service the loan, and the value of the collateral depends on project completion when market conditions may have changed.  The Company’s commercial real estate loans are a mixture of new and seasoned properties, retail, office, warehouse, and some industrial properties. Loans on properties are usually underwritten at a loan to value ratio of up to 75% with a minimum debt coverage ratio of 1.25 times.  

43


 

The following table indicates management’s allocation of the ACL in each category to total loans as of the following dates:

 

 

 

March 31,

 

 

December 31,

 

(Dollars in thousands)

 

2021

 

 

2020

 

Commercial real estate loans:

 

 

 

 

 

 

 

 

Real estate term

 

$

19,820

 

 

$

20,627

 

Construction and land development

 

 

12,848

 

 

 

10,532

 

Total commercial real estate loans

 

 

32,668

 

 

 

31,159

 

Commercial and industrial loans

 

 

5,756

 

 

 

8,095

 

Consumer loans:

 

 

 

 

 

 

 

 

Residential and home equity

 

 

2,262

 

 

 

1,662

 

Consumer and other

 

 

327

 

 

 

320

 

Total consumer loans

 

 

2,589

 

 

 

1,982

 

Total

 

$

41,013

 

 

$

41,236

 

 

 

Investments

Investment securities were $1.5 billion at March 31, 2021 and $1.3 billion at December 31, 2020. As of March 31, 2021, the Company’s portfolio of investment securities was comprised of available for sale securities.  At March 31, 2021, the Company held no investment securities from any issuer which totaled over 10% of shareholders’ equity.

The carrying value of the Company’s portfolio of investment securities was as follows:

 

 

 

March 31,

 

 

December 31,

 

(Dollars in thousands)

 

2021

 

 

2020

 

Available for sale securities: (Fair Value)

 

 

 

 

 

 

 

 

U.S. Government agencies

 

$

12,889

 

 

$

13,205

 

Municipal securities

 

 

34,761

 

 

 

37,287

 

Mortgage-backed securities

 

 

1,447,934

 

 

 

1,265,026

 

Corporate securities

 

 

4,907

 

 

 

4,875

 

Total investment securities

 

$

1,500,491

 

 

$

1,320,393

 

 

The following table shows the amortized cost for maturities of investment securities as of March 31, 2021, and the weighted average yields of such securities, including the benefit of tax-exempt securities:

 

 

 

 

 

 

 

 

 

 

 

After One but

 

 

After Five but

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Within One Year

 

 

within Five Years

 

 

within Ten Years

 

 

After Ten Years

 

 

Total

 

(Dollars in thousands)

 

Amount

 

 

Yield

 

 

Amount

 

 

Yield

 

 

Amount

 

 

Yield

 

 

Amount

 

 

Yield

 

 

Amount

 

 

Yield

 

Available for sale securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government agencies

 

$

5,018

 

 

 

2.13

%

 

$

7,581

 

 

 

2.29

%

 

$

-

 

 

 

0.00

%

 

$

-

 

 

 

0.00

%

 

$

12,599

 

 

 

2.23

%

Municipal securities

 

 

6,447

 

 

 

1.71

%

 

 

15,581

 

 

 

2.09

%

 

 

11,657

 

 

 

2.27

%

 

 

-

 

 

 

0.00

%

 

 

33,685

 

 

 

2.08

%

Mortgage-backed securities

 

 

245

 

 

 

1.61

%

 

 

974

 

 

 

2.29

%

 

 

13,485

 

 

 

2.25

%

 

 

1,453,071

 

 

 

1.30

%

 

 

1,467,775

 

 

 

1.31

%

Other securities

 

 

-

 

 

 

0.00

%

 

 

2,000

 

 

 

1.22

%

 

 

3,000

 

 

 

0.93

%

 

 

-

 

 

 

0.00

%

 

 

5,000

 

 

 

1.04

%

Total investment

   securities

 

$

11,710

 

 

 

1.89

%

 

$

26,136

 

 

 

2.09

%

 

$

28,142

 

 

 

2.12

%

 

$

1,453,071

 

 

 

1.30

%

 

$

1,519,059

 

 

 

1.33

%

Expected maturities may differ from contractual maturities because issuers may have the right to call obligations with or without penalties.

44


 

The Company evaluates and records an ACL on an AFS debt security when it determines that the decline in fair value on an AFS debt security is credit loss-related at least on an annual basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) intent and ability to retain investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

Deposits

Total deposits were $3.16 billion at March 31, 2021 and $2.92 billion at December 31, 2020. The increase in total deposits is attributed primarily to monies received by clients from government relief programs and relief programs the Company offered as well as organic growth.  Non-interest bearing demand deposits were $1.1 billion, or 35.0% of total deposits at March 31, 2021 compared with $1.04 billion, or 34.7% of total deposits at December 31, 2020. Interest bearing deposits are comprised of interest bearing DDA accounts, money market accounts, regular savings accounts, certificates of deposit of $250,000 or less, and certificates of deposit of more than $250,000.

The following table shows the average amount and average rate paid on the categories of deposits for each of the periods presented:

 

 

 

Three Months Ended

 

 

Three Months Ended

 

 

 

March 31, 2021

 

 

March 31, 2020

 

 

 

Average

 

 

Average

 

 

Average

 

 

Average

 

(Dollars in thousands)

 

Balance

 

 

Rate

 

 

Balance

 

 

Rate

 

Non-interest bearing deposits

 

$

1,028,130

 

 

 

0.00

%

 

$

699,780

 

 

 

0.00

%

Interest bearing deposits:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest bearing demand and savings

 

 

1,130,353

 

 

 

0.20

%

 

 

832,083

 

 

 

0.38

%

Money market

 

 

668,091

 

 

 

0.32

%

 

 

352,120

 

 

 

0.93

%

Certificates of deposit less than or equal to $250,000

 

 

119,239

 

 

 

0.89

%

 

 

130,890

 

 

 

1.21

%

Certificates of deposit greater than $250,000

 

 

41,779

 

 

 

1.61

%

 

 

38,778

 

 

 

1.87

%

Total interest bearing deposits

 

 

1,959,462

 

 

 

0.31

%

 

 

1,353,871

 

 

 

0.64

%

Total

 

$

2,987,592

 

 

 

0.21

%

 

$

2,053,651

 

 

 

0.42

%

 

Additionally, the following table shows the maturities of CDs of $250,000 or more:

 

 

 

March 31,

 

(Dollars in thousands)

 

2021

 

Due in three months or less

 

$

8,879

 

Due in over three months through six months

 

 

3,535

 

Due in over six months through twelve months

 

 

8,355

 

Due in over twelve months

 

 

18,664

 

Total

 

$

39,433

 

Deposits are gathered from individuals, partnerships and corporations in the Company’s market areas. The interest rates paid are competitively priced for each particular deposit product and structured to meet the Company’s funding requirements. The Company will continue to manage interest expense through deposit pricing.

Shareholders’ Equity

Shareholders’ equity totaled $349.9 million at March 31, 2021, a decrease of $21.3 million, or 5.73%, since December 31, 2020. The decrease in shareholders’ equity for the three months ended March 31, 2021 was primarily due to a decrease of $28.1 million in accumulated other comprehensive income offset by net income of $9.4 million for the period less dividends paid of $2.8 million.

45


 

Dividends of $0.15 per share were declared during the three months ended March 31, 2021, representing 30.0% of the net income for the same period. The Company announced a quarterly dividend of $0.15 per share on April 28, 2021, payable on May 17, 2021 for shareholders of record on May 10, 2021.  Future cash dividends will depend on a variety of factors, including net income, capital, asset quality, general economic conditions, and regulatory considerations.

Capital Resources

The Company is subject to risk-based capital adequacy guidelines related to the adoption of U.S. Basel III Capital Rules. Specifically, the rules impose, among other requirements, minimum capital requirements including a Tier 1 leverage capital ratio of 4.0%, a common equity Tier 1 risk-based capital ratio of 4.5%, a Tier 1 risk-based capital ratio of 6% and a total risk-based capital ratio of 8%.

The following table sets forth capital ratios:

 

 

 

Basel III

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Regulatory

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Requirements -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Well Capitalized

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Greater than or

 

AltabancorpTM

 

 

Equal to Stated

 

March 31,

 

December 31,

 

March 31,

 

 

Percentage)

 

2021

 

2020

 

2020

Common equity tier 1 capital

 

 

6.50

%

 

 

 

17.15

%

 

 

 

17.91

%

 

 

 

17.36

%

 

Tier 1 risk-based capital

 

 

8.00

%

 

 

 

17.15

%

 

 

 

17.91

%

 

 

 

17.36

%

 

Total risk-based capital

 

 

10.00

%

 

 

 

18.41

%

 

 

 

19.17

%

 

 

 

18.62

%

 

Tier 1 leverage capital ratio

 

 

5.00

%

 

 

 

10.06

%

 

 

 

10.47

%

 

 

 

12.74

%

 

AltabancorpTM and AltabankTM met the requirements to be defined as a “well-capitalized” institution at March 31, 2021, December 31, 2020 and March 31, 2020 for federal regulatory purposes.

 

 

Off-Balance Sheet Arrangements

The following table sets forth off-balance sheet lending commitments as of March 31, 2021:

 

 

 

 

 

 

 

Payments Due by Period

 

 

 

Total

 

 

 

 

 

 

One to

 

 

Three to

 

 

After

 

 

 

Amounts

 

 

Less than

 

 

Three

 

 

Five

 

 

Five

 

Other Commitments (Dollars in thousands)

 

Committed

 

 

One Year

 

 

Years

 

 

Years

 

 

Years

 

Commitments to extend credit

 

$

739,293

 

 

$

462,143

 

 

$

173,585

 

 

$

29,539

 

 

$

74,026

 

Standby letters of credit

 

 

30,727

 

 

 

30,727

 

 

 

-

 

 

 

-

 

 

 

-

 

Credit cards

 

 

29,328

 

 

 

29,328

 

 

 

-

 

 

 

-

 

 

 

-

 

Total

 

$

799,348

 

 

$

522,198

 

 

$

173,585

 

 

$

29,539

 

 

$

74,026

 

 

Contractual Obligations

The following table sets forth significant contractual obligations as of March 31, 2021:

 

 

 

 

 

 

 

Payments Due by Period

 

 

 

 

 

 

 

 

 

 

 

One to

 

 

Three to

 

 

After

 

 

 

 

 

 

 

Less than

 

 

Three

 

 

Five

 

 

Five

 

Contractual Obligations (Dollars in thousands)

 

Total

 

 

One Year

 

 

Years

 

 

Years

 

 

Years

 

Time certificates of deposit

 

$

156,499

 

 

$

83,788

 

 

$

49,493

 

 

$

19,570

 

 

$

3,648

 

Deposits without stated maturity

 

 

3,002,487

 

 

 

3,002,487

 

 

 

-

 

 

 

-

 

 

 

-

 

Short-term borrowings

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Total

 

$

3,158,986

 

 

$

3,086,275

 

 

$

49,493

 

 

$

19,570

 

 

$

3,648

 

46


 

Liquidity

The ability to have readily available funds sufficient to repay fully maturing liabilities is of primary importance to depositors, creditors, and regulators. Liquidity, which is represented by cash borrowing lines, federal funds and available for sale securities, is a result of operating, investing, and financing activities, and related cash flows. To ensure funds are available at all times, the Company devotes resources to projecting, on a monthly basis, the amount of funds that will be required, and the Company maintains relationships with a diversified customer base so funds are accessible. Liquidity requirements can also be met through short-term borrowings or the disposition of short-term assets. The Company has borrowing lines at a correspondent bank totaling $25.0 million. The Company also has a current borrowing line with the FHLB, totaling $1.3 billion at March 31, 2021, which is secured by various real estate loans pledged as collateral totaling $894.8 million and investment securities of $691.6 million.  To provide liquidity to small business lenders, to help stabilize the financial system, and to provide economic relief to small businesses nationwide, the Board of Governors of the Federal Reserve System authorized each of the Federal Reserve Banks to participate in the Paycheck Protection Program Lending Facility (“PPPLF”). Under the PPPLF, each of the Federal Reserve Banks will extend non-recourse loans to eligible financial institutions to fund loans guaranteed by the Small Business Administration under the Paycheck Protection Program. In addition, loans originated under the SBA PPP will receive a zero percent risk weight under the agencies’ regulatory capital rule.  The Company funded 333 applications from businesses that participated in the SBA PPP for a total of $84.6 million.  The Company participated in the PPPLF for a substantial portion of SBA PPP round one loans; such loans are no longer pledged to the PPPLF.  The Company has chosen not to participate in the PPPLF during the second round of SBA PPP loan funding.  The Company has an additional borrowing line with the Federal Reserve Bank of $525.2 million, which is secured by $541.5 million of investment securities.

The Company believes its liquid assets are adequate to address cash flow needs for loan funding and deposit cash withdrawal for the next 60 to 90 days. At March 31, 2021, the Company had approximately $308.7 million in net liquid assets comprised of $111.5 million in cash and cash equivalents, which includes interest bearing deposits of $77.4 million and federal funds sold of $0.9 million, $1.5 billion in available for sale investment securities and $8.3 million in loans held for sale, less $1.3 billion of available for sale securities pledged as collateral for short-term borrowings.

On a long-term basis, the Company’s liquidity will be met by changing the relative distribution of its asset portfolios by reducing its investment or loan volumes, or selling or encumbering assets. Further, the Company will increase liquidity by soliciting higher levels of deposit accounts through promotional activities and/or borrowing from its correspondent banks, as well as the FHLB. At the current time, the Company’s long-term liquidity needs primarily relate to funds required to support loan originations and commitments, deposit withdrawals and pending acquisitions. All of these needs can currently be met by cash flows from investment payments and maturities, and investment sales if the need arises.

The Company’s liquidity is comprised of three primary classifications: cash flows from or used in operating activities; cash flows from or used in investing activities; and cash flows from or used in financing activities.

Net cash provided by or used in operating activities has consisted primarily of net income adjusted for certain non-cash income and expense items such as the loan loss provision, depreciation and amortization, amortization of investment discount and premiums, share based compensation, changes in the value of bank owned life insurance and other gains and losses.

The Company’s primary investing activities are the origination of real estate, commercial and consumer loans, and purchases and sales of investment securities. At March 31, 2020, the Company had outstanding loan commitments of $739.3 million, credit card commitments of $29.3 million and outstanding letters of credit of $30.7 million. The Company anticipates that it will have sufficient funds available to meet current loan commitments.

Net cash provided by financing activities for the three months ended March 31, 2021 was $175.2 million, principally from an increase in deposit balances offset by a decrease in short-term borrowings and dividends paid to shareholders during the period.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

The Company’s assessment of market risk at March 31, 2021 indicates there have been no material changes in the quantitative and qualitative disclosures from those made in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC.

47


 

Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

The Company’s Chief Executive Officer and Chief Financial Officer have reviewed and evaluated the effectiveness of the Company’s disclosure controls and procedures (as required by Exchange Act Rules 240.13a-15(b) and 15d-14(a)) at March 31, 2021. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s current disclosure controls and procedures are effective and timely, providing them with material information relating to the Company required to be disclosed in the reports the Company files or submits under the Exchange Act.

Changes in Internal Controls

There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended March 31, 2021, to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

48


 

PART II – OTHER INFORMATION

The Company is involved in various claims, legal actions, and complaints that arise in the ordinary course of business. In the Company’s opinion, all such matters are adequately covered by insurance, are without merit or are of such kind, or involve such amounts, that unfavorable disposition would not have a material adverse effect on the financial condition or results of operations of the Company.

 

Item 1A. Risk Factors

We refer you to the Company’s risk factors set forth in Part I, Item 1A, “Risk Factors,” of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020 for material risks that may affect the Company’s business. There have been no material changes from the risk factors previously disclosed.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Not Applicable

Item 3. Defaults upon Senior Securities

Not Applicable

Item 4. Mine Safety Disclosures

Not Applicable

 

Item 5. Other Information

Not Applicable

 

 

Item 6. Exhibits

 

Exhibit

Number

 

Description

 

 

 

31.1

 

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes - Oxley Act of 2002

 

 

 

31.2

 

Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes - Oxley Act of 2002

 

 

 

32

 

Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes - Oxley Act of 2002

 

 

 

101

 

The following financial information from AltabancorpTM Quarterly Report on Form 10-Q for the quarter ended March 31, 2021 is formatted in Inline XBRL: (i) the Unaudited Consolidated Balance Sheets, (ii) the Unaudited Consolidated Statements of Income, (iii) the Unaudited Consolidated Statements of Comprehensive Income, (iv) the Unaudited Consolidated Statements of Changes in Stockholders’ Equity (v) the Unaudited Consolidated Statements of Cash Flows, and (vi) the Notes to Unaudited Consolidated Financial Statements

 

 

 

104

 

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

 

 

 

 

49


 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on May 10, 2021.

 

 

ALTABANCORPTM

 

 

 

 

/s/ Len E. Williams

 

Len E. Williams

 

President and Chief Executive Officer

(Principal Executive Officer)

 

 

 

 

 

/s/ Mark K. Olson

 

Mark K. Olson

 

Executive Vice President and Chief Financial Officer

(Principal Financial Officer)

 

 

 

 

50