10-Q 1 pub-10q_20190630.htm 10-Q pub-10q_20190630.htm

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 June 30, 2019

OR

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

For the transition period from                 to                

Commission file number 001-37416

 

PEOPLE’S UTAH BANCORP

(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

 

PUB

 

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 July 31, 2019, the registrant had 18,827,247 shares of common stock $0.01 par value per share, outstanding. No preferred shares are issued or outstanding.

 

 


TABLE OF CONTENTS

 

PART I. FINANCIAL INFORMATION

 

Item 1 – Financial Statements

 

Unaudited Consolidated Balance Sheets

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

23

Item 3 – Quantitative and Qualitative Disclosures about Market Risk

43

Item 4 – Controls and Procedures

43

PART II. OTHER INFORMATION

 

Item 1 – Legal Proceedings

44

Item 1A – Risk Factors

44

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

44

Item 3 – Defaults upon Senior Securities

44

Item 4 – Mine Safety Disclosures

44

Item 5 – Other Information

44

Item 6 – Exhibits

45

Signatures

46

 

 

 

 


 

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

PEOPLE’S UTAH BANCORP AND SUBSIDIARIES

UNAUDITED CONSOLIDATED BALANCE SHEETS

 

 

 

June 30,

 

 

December 31,

 

(Dollars in thousands, except share data)

 

2019

 

 

2018

 

ASSETS

 

 

 

 

 

 

 

 

Cash and cash equivalents:

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

38,121

 

 

$

39,471

 

Interest bearing deposits

 

 

64,064

 

 

 

7,456

 

Federal funds sold

 

 

90,281

 

 

 

1,620

 

Total cash and cash equivalents

 

 

192,466

 

 

 

48,547

 

Investment securities:

 

 

 

 

 

 

 

 

Available-for-sale, at fair value

 

 

334,762

 

 

 

280,964

 

Held-to-maturity, at historical cost

 

 

-

 

 

 

65,462

 

Total investment securities

 

 

334,762

 

 

 

346,426

 

Non-marketable equity securities

 

 

2,623

 

 

 

2,551

 

Loans held for sale

 

 

18,446

 

 

 

10,267

 

Loans:

 

 

 

 

 

 

 

 

Loans held for investment

 

 

1,672,584

 

 

 

1,678,902

 

Allowance for loan losses

 

 

(28,039

)

 

 

(25,245

)

Total loans held for investment, net

 

 

1,644,545

 

 

 

1,653,657

 

Premises and equipment, net

 

 

37,925

 

 

 

36,532

 

Goodwill

 

 

25,673

 

 

 

25,673

 

Bank-owned life insurance

 

 

26,734

 

 

 

26,433

 

Deferred income tax assets, net

 

 

9,178

 

 

 

11,514

 

Accrued interest receivable

 

 

8,642

 

 

 

8,282

 

Other intangibles

 

 

3,191

 

 

 

3,412

 

Other real estate owned

 

 

-

 

 

 

-

 

Other assets

 

 

7,680

 

 

 

11,000

 

Total assets

 

$

2,311,865

 

 

$

2,184,294

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

 

Non-interest bearing deposits

 

$

707,135

 

 

$

642,594

 

Interest bearing deposits

 

 

1,274,771

 

 

 

1,234,461

 

Total deposits

 

 

1,981,906

 

 

 

1,877,055

 

Short-term borrowings

 

 

-

 

 

 

-

 

Accrued interest payable

 

 

546

 

 

 

483

 

Other liabilities

 

 

16,614

 

 

 

16,594

 

Total liabilities

 

 

1,999,066

 

 

 

1,894,132

 

 

 

 

 

 

 

 

 

 

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; 18,819,332

 

 

 

 

 

 

 

 

and 18,728,823 shares issued and outstanding as of June 30, 2019

 

 

 

 

 

 

 

 

and December 31, 2018, respectively

 

 

188

 

 

 

187

 

Additional paid-in capital

 

 

87,275

 

 

 

86,308

 

Retained earnings

 

 

224,950

 

 

 

207,779

 

Accumulated other comprehensive income/(loss)

 

 

386

 

 

 

(4,112

)

Total shareholders’ equity

 

 

312,799

 

 

 

290,162

 

Total liabilities and shareholders’ equity

 

$

2,311,865

 

 

$

2,184,294

 

 

See accompanying notes to the unaudited consolidated financial statements.

 

3


 

PEOPLE’S UTAH BANCORP AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF INCOME

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

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

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Interest income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest and fees on loans

 

$

27,628

 

 

$

27,073

 

 

$

54,608

 

 

$

52,856

 

Interest and dividends on investments

 

 

2,422

 

 

 

1,683

 

 

 

4,594

 

 

 

3,339

 

Total interest income

 

 

30,050

 

 

 

28,756

 

 

 

59,202

 

 

 

56,195

 

Interest expense

 

 

2,330

 

 

 

1,778

 

 

 

4,575

 

 

 

3,273

 

Net interest income

 

 

27,720

 

 

 

26,978

 

 

 

54,627

 

 

 

52,922

 

Provision for loan losses

 

 

2,150

 

 

 

1,475

 

 

 

3,700

 

 

 

3,525

 

Net interest income after provision for loan losses

 

 

25,570

 

 

 

25,503

 

 

 

50,927

 

 

 

49,397

 

Non-interest income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage banking

 

 

1,621

 

 

 

1,505

 

 

 

3,038

 

 

 

3,143

 

Card processing

 

 

814

 

 

 

799

 

 

 

1,429

 

 

 

1,522

 

Service charges on deposit accounts

 

 

705

 

 

 

704

 

 

 

1,362

 

 

 

1,377

 

Net gain on sale of investment securities

 

 

-

 

 

 

333

 

 

 

-

 

 

 

335

 

Other

 

 

458

 

 

 

725

 

 

 

1,106

 

 

 

1,407

 

Total non-interest income

 

 

3,598

 

 

 

4,066

 

 

 

6,935

 

 

 

7,784

 

Non-interest expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

9,526

 

 

 

10,196

 

 

 

19,412

 

 

 

20,619

 

Occupancy, equipment and depreciation

 

 

1,558

 

 

 

1,411

 

 

 

3,014

 

 

 

2,954

 

Data processing

 

 

1,018

 

 

 

1,063

 

 

 

1,982

 

 

 

1,933

 

Marketing and advertising

 

 

226

 

 

 

321

 

 

 

342

 

 

 

767

 

FDIC premiums

 

 

148

 

 

 

299

 

 

 

238

 

 

 

628

 

Acquisition-related costs

 

 

-

 

 

 

1

 

 

 

-

 

 

 

350

 

Other

 

 

2,223

 

 

 

2,532

 

 

 

4,627

 

 

 

4,620

 

Total non-interest expense

 

 

14,699

 

 

 

15,823

 

 

 

29,615

 

 

 

31,871

 

Income before income tax expense

 

 

14,469

 

 

 

13,746

 

 

 

28,247

 

 

 

25,310

 

Income tax expense

 

 

3,480

 

 

 

3,279

 

 

 

6,753

 

 

 

5,839

 

Net income

 

$

10,989

 

 

$

10,467

 

 

$

21,494

 

 

$

19,471

 

Earnings per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.58

 

 

$

0.56

 

 

$

1.14

 

 

$

1.04

 

Diluted

 

$

0.58

 

 

$

0.55

 

 

$

1.13

 

 

$

1.03

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

18,805,760

 

 

 

18,679,908

 

 

 

18,793,553

 

 

 

18,639,397

 

Diluted

 

 

19,007,297

 

 

 

18,989,176

 

 

 

18,998,480

 

 

 

18,963,549

 

 

See accompanying notes to the unaudited consolidated financial statements.

 

4


 

PEOPLE’S UTAH BANCORP AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

(Dollars in thousands)

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net income

 

$

10,989

 

 

$

10,467

 

 

$

21,494

 

 

$

19,471

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized holding gains/(losses) on securities available-for-sale

 

 

3,140

 

 

 

(1,319

)

 

 

5,996

 

 

 

(3,787

)

Income tax (expense)/benefit

 

 

(785

)

 

 

330

 

 

 

(1,498

)

 

 

947

 

Unrealized holding gains/(losses) on securities available-for-sale,

   net of tax

 

 

2,355

 

 

 

(989

)

 

 

4,498

 

 

 

(2,840

)

Total comprehensive income

 

$

13,344

 

 

$

9,478

 

 

$

25,992

 

 

$

16,631

 

 

See accompanying notes to the unaudited consolidated financial statements.

 

5


 

PEOPLE’S UTAH BANCORP AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

Common

 

 

 

 

 

 

Paid-in

 

 

Retained

 

 

Comprehensive

 

 

 

 

 

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

 

Shares

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

Income (Loss)

 

 

Total

 

Balance as of January 1, 2018

 

 

18,511,797

 

 

$

185

 

 

$

84,532

 

 

$

174,804

 

 

$

(2,103

)

 

$

257,418

 

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

9,004

 

 

 

-

 

 

 

9,004

 

Other comprehensive income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,851

)

 

 

(1,851

)

Cash dividends ($0.09 per share)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,672

)

 

 

-

 

 

 

(1,672

)

Share-based compensation

 

 

-

 

 

 

-

 

 

 

216

 

 

 

-

 

 

 

-

 

 

 

216

 

Issuance of shares under stock incentive plans

 

 

162,435

 

 

 

2

 

 

 

682

 

 

 

-

 

 

 

-

 

 

 

684

 

Balance as of March 31, 2018

 

 

18,674,232

 

 

$

187

 

 

$

85,430

 

 

$

182,136

 

 

$

(3,954

)

 

$

263,799

 

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

10,467

 

 

 

-

 

 

 

10,467

 

Other comprehensive income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(989

)

 

 

(989

)

Cash dividends ($0.10 per share)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,868

)

 

 

-

 

 

 

(1,868

)

Share-based compensation

 

 

-

 

 

 

-

 

 

 

154

 

 

 

-

 

 

 

-

 

 

 

154

 

Issuance of shares under stock incentive plans

 

 

9,651

 

 

 

-

 

 

 

36

 

 

 

-

 

 

 

-

 

 

 

36

 

Balance as of June 30, 2018

 

 

18,683,883

 

 

$

187

 

 

$

85,620

 

 

$

190,735

 

 

$

(4,943

)

 

$

271,599

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of January 1, 2019

 

 

18,728,823

 

 

$

187

 

 

$

86,308

 

 

$

207,779

 

 

$

(4,112

)

 

$

290,162

 

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

10,505

 

 

 

-

 

 

 

10,505

 

Other comprehensive income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2,143

 

 

 

2,143

 

Cash dividends ($0.11 per share)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(2,068

)

 

 

-

 

 

 

(2,068

)

Share-based compensation

 

 

-

 

 

 

-

 

 

 

191

 

 

 

-

 

 

 

-

 

 

 

191

 

Issuance of shares under stock incentive plans

 

 

68,457

 

 

 

1

 

 

 

393

 

 

 

-

 

 

 

-

 

 

 

394

 

Balance as of March 31, 2019

 

 

18,797,280

 

 

$

188

 

 

$

86,892

 

 

$

216,216

 

 

$

(1,969

)

 

$

301,327

 

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

10,989

 

 

 

-

 

 

 

10,989

 

Other comprehensive income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2,355

 

 

 

2,355

 

Cash dividends ($0.12 per share)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(2,255

)

 

 

-

 

 

 

(2,255

)

Share-based compensation

 

 

-

 

 

 

-

 

 

 

190

 

 

 

-

 

 

 

-

 

 

 

190

 

Issuance of shares under stock incentive plans

 

 

22,052

 

 

 

-

 

 

 

193

 

 

 

-

 

 

 

-

 

 

 

193

 

Balance as of June 30, 2019

 

 

18,819,332

 

 

$

188

 

 

$

87,275

 

 

$

224,950

 

 

$

386

 

 

$

312,799

 

See accompanying notes to the unaudited consolidated financial statements.

 

 

6


 

PEOPLE’S UTAH BANCORP AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

 

Six Months Ended

 

 

 

June 30,

 

(Dollars in thousands)

 

2019

 

 

2018

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

21,494

 

 

$

19,471

 

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

 

 

 

 

 

 

 

 

Provision for loan losses

 

 

3,700

 

 

 

3,525

 

Depreciation and amortization

 

 

1,889

 

 

 

1,538

 

Deferred income taxes

 

 

837

 

 

 

(990

)

Net amortization of securities discounts and premiums

 

 

1,172

 

 

 

1,312

 

Increase in cash surrender value of bank-owned life insurance

 

 

(301

)

 

 

(304

)

Share-based compensation

 

 

381

 

 

 

370

 

Gain on sale of loans held for sale

 

 

(1,984

)

 

 

(2,047

)

Originations of loans held for sale

 

 

(99,270

)

 

 

(108,638

)

Proceeds from sale of loans held for sale

 

 

93,075

 

 

 

110,498

 

Net changes in:

 

 

 

 

 

 

 

 

Accrued interest receivable

 

 

(360

)

 

 

(64

)

Other assets

 

 

3,596

 

 

 

(4,611

)

Accrued interest payable

 

 

63

 

 

 

16

 

Other liabilities

 

 

(2,149

)

 

 

6,736

 

Net cash provided by operating activities

 

 

22,143

 

 

 

26,812

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Net change in loans held for investment

 

 

5,412

 

 

 

(63,290

)

Purchase of available-for-sale securities

 

 

(12,831

)

 

 

-

 

Proceeds from maturities/sales of available-for-sale securities

 

 

27,949

 

 

 

21,645

 

Proceeds from maturities of held-to-maturity securities

 

 

1,370

 

 

 

6,345

 

Purchase of bank-owned life insurance

 

 

-

 

 

 

(2,250

)

Purchase of premises and equipment

 

 

(3,464

)

 

 

(1,231

)

Proceeds from sale of assets

 

 

2,297

 

 

 

783

 

Proceeds from sale of other real estate owned, net of improvements

 

 

-

 

 

 

438

 

Purchase of non-marketable equity securities

 

 

(4,032

)

 

 

(14,975

)

Proceeds from sale of non-marketable equity securities

 

 

3,960

 

 

 

12,530

 

Net cash (used in) provided by investing activities

 

 

20,661

 

 

 

(40,005

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Net increase in deposits

 

 

104,851

 

 

 

(32,692

)

Proceeds related to exercise of stock options

 

 

587

 

 

 

720

 

Net change in short-term borrowings

 

 

-

 

 

 

50,000

 

Cash dividends paid

 

 

(4,323

)

 

 

(3,540

)

Net cash provided by financing activities

 

 

101,115

 

 

 

14,488

 

Net change in cash and cash equivalents

 

 

143,919

 

 

 

1,295

 

Cash and cash equivalents, beginning of period

 

 

48,547

 

 

 

51,027

 

Cash and cash equivalents, end of period

 

$

192,466

 

 

$

52,322

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

4,512

 

 

$

3,257

 

Income taxes paid

 

$

6,510

 

 

$

6,869

 

Supplemental disclosures of non-cash investing transactions:

 

 

 

 

 

 

 

 

Unrealized gains / (losses) on securities available-for-sale

 

$

5,996

 

 

$

(3,787

)

Measurement period adjustment to goodwill

 

$

-

 

 

$

(335

)

Transfer of HTM securities to AFS

 

$

64,648

 

 

$

-

 

See accompanying notes to the unaudited consolidated financial statements.

 

 

7


 

PEOPLE’S UTAH BANCORP AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

Note 1 — Basis of Presentation and Significant Accounting Policies

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

PIB is a community bank that provides highly personalized retail and commercial banking products and services to small and medium sized businesses and to individuals.  Products and services are offered primarily through 26 retail branch locations throughout Utah and southern Idaho. PIB has three banking divisions, Bank of American Fork, Lewiston State Bank, and People’s Town & Country Bank; and a mortgage division, People’s Intermountain Bank Mortgage. The Bank 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, and personal investments. The Bank also offers mortgage loans secured by personal residences. The Bank offers a full range of deposit services typically available in most financial institutions, including checking accounts, savings accounts, and time deposits. The Bank 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 (SEC). In preparing these financial statements, the Company has evaluated events and transactions subsequent to June 30, 2019, for potential recognition or disclosure. 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. Certain reclassifications have been made to the 2018 Consolidated Financial Statements and/or schedules to conform to the 2019 presentation. These reclassifications may have affected certain ratios for the prior periods. The effect of these reclassifications is considered immaterial.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect amounts reported in the financial statements. Various elements of the Company’s accounting policies, by their nature, are inherently subject to estimation techniques, valuation assumptions and other subjective assessments. In particular, management has identified several accounting policies that, due to the judgments, estimates and assumptions inherent in those policies, are significant to an understanding of the Company’s financial statements. These policies relate to (i) the methodology for the recognition of interest income, (ii) determination of the provision and allowance for loan losses, (iii) the valuation of financial assets and liabilities recorded at fair value, including other-than-temporary impairment (OTTI) losses, (iv) the valuation of intangibles, such as goodwill, core deposit intangibles (CDI) and mortgage servicing rights, (v) the valuation of real estate held for sale, (vi) the valuation of assets and liabilities acquired in business combinations and subsequent recognition of related income and expense, and (vii) the valuation or recognition of deferred tax assets and liabilities. These policies and judgments, estimates and assumptions are described in greater detail in subsequent notes to the Consolidated Financial Statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations (Critical Accounting Policies) in our Annual Report on Form 10-K for the year ended December 31, 2018 filed with the SEC (2018 Form 10-K).  There have been no significant changes in our application of these accounting policies during the first six months of 2019, except as described later in Note 1.

The information included in this Form 10-Q should be read in conjunction with our 2018 Form 10-K.  Interim results are not necessarily indicative of results for a full year or any other interim period.

8


 

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

 

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 restricted stock units (“RSU”).

 

Reclassifications Certain amounts in the prior period’s financial statements have been reclassified to conform to the current period’s presentation.

 

Impact of Recent Authoritative Accounting Guidance —The Accounting Standards Codification™ (“ASC”) is the Financial Accounting Standards Board’s (“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 for us as an SEC registrant. All other accounting literature is non-authoritative.

 

In August 2018, FASB issued ASU 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. The amendments in this ASU broaden the scope of ASC Subtopic 350-40 to include costs incurred to implement a hosting arrangement that is a service contract. The amendments align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The costs are capitalized or expensed depending on the nature of the costs and the project stage during which they are incurred, consistent with the accounting for costs for internal-use software. The amendments in this ASU result in consistent capitalization of implementation costs of a hosting arrangement that is a service contract and implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by the amendments in this ASU. This ASU is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. The amendments in this ASU should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. Adoption of ASU 2018-15 is not expected to have a material impact on the Company’s Consolidated Financial Statements.

 

In August 2018, FASB issued ASU 2018-13, Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement. The amendments in this ASU modify the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement. The ASU removes, modifies and adds disclosure requirements in Topic 820. The following disclosure requirements were removed: (1) the amount and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy; (2) the policy for timing of transfers between levels; and (3) the valuation processes for Level 3 fair value measurements. This ASU modified the disclosure requirements to require that the measurement uncertainty disclosure communicates information about the uncertainty in measurement as of the reporting date. The following disclosure requirements were added: (1) changes in unrealized gains and losses for the period included in other comprehensive income for the recurring Level 3 fair value measurements held at the end of the reporting period; and (2) the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The amendments in this ASU are effective for all entities for fiscal years; and interim periods within those fiscal years, beginning after December 15, 2019. An entity is permitted to early adopt any removed or modified disclosures upon issuance of this ASU and delay adoption of the additional disclosures until their effective date. Adoption of ASU 2018-13 is not expected to have a material impact on the Company’s Consolidated Financial Statements.

 

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” The ASU significantly changes the impairment model for most financial assets that are measured at amortized cost and certain other instruments from an incurred loss model to an expected loss model. This ASU is effective for interim and annual reporting periods beginning after December 15, 2019. Early adoption is permitted for all entities beginning after December 15, 2018, including interim periods within those fiscal years. The Company is in the process of identifying required changes to the loan loss estimation models and processes and evaluating the impact of this new guidance. Once adopted, we expect our allowance for loan losses to increase; however, until our evaluation is complete, the magnitude of the increase is not known.

 

In February 2016, FASB issued ASU No. 2016-02, Leases (Topic 842). The amendments in this ASU require lessees to recognize the following for all leases (with the exception of short-term) at the commencement date: a lease liability, which is a lessee‘s obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. The amendments in this ASU leave lessor accounting largely unchanged, although certain targeted improvements were made to align lessor accounting with the lessee accounting model. This ASU simplifies the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities.

 

9


 

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

 

Lessees will no longer be provided with a source of off-balance sheet financing. ASU No. 2016-02 is effective for interim and annual reporting periods beginning after December 15, 2018, and entities are required to use a modified retrospective approach for leases. The Company adopted the new guidance effective January 1, 2019. The Company elected the transition option provided in ASU No. 2018-11 and applied the modified retrospective approach. The Company also elected certain relief options for practical expedients: the option to not separate lease and non-lease components and instead to account for them as a single lease component; and the option to not recognize right-of-use assets and lease liabilities that arise from short-term leases (i.e. leases terms of twelve months or less). The Company has eight real property leases under non-cancelable operating leases, three of which will be subject to this ASU that will result in the recognition of right-of-use assets and lease liabilities. All of the Company’s equipment is owned or on short-term leases. The Company compiled a complete inventory of arrangements containing leases and analyzed the lease data necessary to meet the new requirements. In connection with the adoption of this ASU, as of January 1, 2019, the Company recorded a $2.2 million right of use asset and a $2.2 million lease liability on its Consolidated Balance Sheets.

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 June 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government-sponsored securities

 

$

48,956

 

 

$

182

 

 

$

-

 

 

$

(77

)

 

$

49,061

 

Municipal securities

 

 

67,268

 

 

 

467

 

 

 

(5

)

 

 

(85

)

 

 

67,645

 

Mortgage-backed securities

 

 

213,024

 

 

 

1,558

 

 

 

(16

)

 

 

(1,237

)

 

 

213,329

 

Corporate securities

 

 

5,000

 

 

 

-

 

 

 

-

 

 

 

(273

)

 

 

4,727

 

 

 

$

334,248

 

 

$

2,207

 

 

$

(21

)

 

$

(1,672

)

 

$

334,762

 

As of December 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government-sponsored securities

 

$

48,954

 

 

$

-

 

 

$

-

 

 

$

(588

)

 

$

48,366

 

Municipal securities

 

 

10,274

 

 

 

59

 

 

 

(12

)

 

 

(53

)

 

 

10,268

 

Mortgage-backed securities

 

 

222,218

 

 

 

218

 

 

 

(156

)

 

 

(4,523

)

 

 

217,757

 

Corporate securities

 

 

5,000

 

 

 

-

 

 

 

(23

)

 

 

(404

)

 

 

4,573

 

 

 

$

286,446

 

 

$

277

 

 

$

(191

)

 

$

(5,568

)

 

$

280,964

 

 

Amortized cost and estimated fair value of investment securities held to maturity are 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 December 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Municipal securities

 

$

65,462

 

 

$

28

 

 

$

(39

)

 

$

(685

)

 

$

64,766

 

 

 

In August 2017, the FASB issued ASU no. 2017-12, Targeted Improvements to Accounting for Hedging Activities.  The primary focus of the amendment is to simplify hedge accounting and make the results of hedge transactions in the financial statements easier to understand. An ancillary result of the amendment is that an entity may make a one-time transfer of certain securities from the held to maturity classification to the available for sale classification. The amendment is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. As allowed under this accounting pronouncement, the Company has elected to make a one-time transfer of $64.6 million of held to maturity securities to the available for sale classification as of January 1, 2019, and has recorded an unrecognized loss of $19,000, net of taxes, to other comprehensive income.   

10


 

Note 2 — Investment Securities – continued

 

At June 30, 2019 and December 31, 2018, the gross unrealized losses and the fair value for securities available for sale and held to maturity were as follows:

 

 

 

June 30, 2019

 

 

 

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

 

$

-

 

 

$

-

 

 

$

33,923

 

 

$

(77

)

 

$

33,923

 

 

$

(77

)

Municipal securities

 

 

1,515

 

 

 

(5

)

 

 

26,549

 

 

 

(85

)

 

 

28,064

 

 

 

(90

)

Mortgage-backed securities

 

 

2,549

 

 

 

(16

)

 

 

121,837

 

 

 

(1,237

)

 

 

124,386

 

 

 

(1,253

)

Corporate securities

 

 

-

 

 

 

-

 

 

 

4,727

 

 

 

(273

)

 

 

4,727

 

 

 

(273

)

 

 

$

4,064

 

 

$

(21

)

 

$

187,036

 

 

$

(1,672

)

 

$

191,100

 

 

$

(1,693

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2018

 

 

 

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

 

$

-

 

 

$

-

 

 

$

48,366

 

 

$

(588

)

 

$

48,366

 

 

$

(588

)

Municipal securities

 

 

1,701

 

 

 

(12

)

 

 

4,095

 

 

 

(53

)

 

 

5,796

 

 

 

(65

)

Mortgage-backed securities

 

 

35,155

 

 

 

(156

)

 

 

150,569

 

 

 

(4,523

)

 

 

185,724

 

 

 

(4,679

)

Corporate securities

 

 

1,977

 

 

 

(23

)

 

 

2,596

 

 

 

(404

)

 

 

4,573

 

 

 

(427

)

 

 

$

38,833

 

 

$

(191

)

 

$

205,626

 

 

$

(5,568

)

 

$

244,459

 

 

$

(5,759

)

Held-to Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Municipal securities

 

$

9,163

 

 

$

(39

)

 

$

46,996

 

 

$

(685

)

 

$

56,159

 

 

$

(724

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The amortized cost and estimated fair value of investment securities that are available for sale and held to maturity at June 30, 2019, by contractual maturity, are as follows:

 

 

 

Available-For-Sale

 

 

 

Amortized

 

 

Fair

 

(Dollars in thousands)

 

Cost

 

 

Value

 

Securities maturing in:

 

 

 

 

 

 

 

 

One year or less

 

$

46,156

 

 

$

46,116

 

After one year through five years

 

 

69,062

 

 

 

69,133

 

After five years through ten years

 

 

55,384

 

 

 

55,043

 

After ten years

 

 

163,646

 

 

 

164,470

 

 

 

$

334,248

 

 

$

334,762

 

 

 

Actual 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 June 30, 2019, the Company held 218 available for sale investment securities with fair value less than amortized cost compared to 201 at December 31, 2018. In addition, the Company had no held to maturity securities with fair values less than amortized cost at June 30, 2019, and held 122 held to maturity securities with fair values less than amortized cost at December 31, 2018. 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.

11


 

Note 2 — Investment Securities – continued

The Company had no sales of available for sale securities during the six months ended June 30, 2019 compared to $500,000 during the six months ended June 30, 2018, which resulted in a net gain of $335,000.  There were no available for sale securities in a nonaccrual status at June 30, 2019 or December 31, 2018.

The Company had no sales of held to maturity securities during the six months ended June 30, 2019 and 2018, respectively.  The Company had no held to maturity securities in a nonaccrual status at June 30, 2019 or December 31, 2018.

Note 3 — Loans and Allowance for Loan Losses

Loans are summarized as follows:

 

 

 

June 30,

 

 

December 31,

 

(Dollars in thousands)

 

2019

 

 

2018

 

Loans held for investment:

 

 

 

 

 

 

 

 

Commercial real estate loans:

 

 

 

 

 

 

 

 

Real estate term

 

$

911,693

 

 

$

891,131

 

Construction and land development

 

 

307,447

 

 

 

324,506

 

Total commercial real estate loans

 

 

1,219,140

 

 

 

1,215,637

 

Commercial and industrial loans

 

 

289,124

 

 

 

295,569

 

Consumer loans:

 

 

 

 

 

 

 

 

Residential and home equity

 

 

153,637

 

 

 

155,601

 

Consumer and other

 

 

14,918

 

 

 

16,621

 

Total consumer loans

 

 

168,555

 

 

 

172,222

 

Total gross loans

 

 

1,676,819

 

 

 

1,683,428

 

Net deferred loan fees

 

 

(4,235

)

 

 

(4,526

)

Total loans held for investment

 

 

1,672,584

 

 

 

1,678,902

 

Allowance for loan losses

 

 

(28,039

)

 

 

(25,245

)

Total loans held for investment, net

 

$

1,644,545

 

 

$

1,653,657

 

 

Changes in the allowance for loan losses (“ALLL”) are as follows:

 

 

 

Three Months Ended June 30, 2019

 

 

 

Real

 

 

Construction

 

 

Commercial

 

 

Residential

 

 

Consumer

 

 

 

 

 

 

 

Estate

 

 

and Land

 

 

and

 

 

and

 

 

and

 

 

 

 

 

(Dollars in thousands)

 

Term

 

 

Development

 

 

Industrial

 

 

Home Equity

 

 

Other

 

 

Total

 

Balance at beginning of period

 

$

10,172

 

 

$

7,182

 

 

$

7,602

 

 

$

804

 

 

$

163

 

 

$

25,923

 

Additions: Provisions for loan losses

 

 

276

 

 

 

(114

)

 

 

1,965

 

 

 

(42

)

 

 

65

 

 

 

2,150

 

Deductions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross loan charge-offs

 

 

-

 

 

 

-

 

 

 

(497

)

 

 

-

 

 

 

(110

)

 

 

(607

)

Recoveries

 

 

24

 

 

 

319

 

 

 

167

 

 

 

10

 

 

 

53

 

 

 

573

 

Net loan (charge-offs) / recoveries

 

 

24

 

 

 

319

 

 

 

(330

)

 

 

10

 

 

 

(57

)

 

 

(34

)

Balance at end of period

 

$

10,472

 

 

$

7,387

 

 

$

9,237

 

 

$

772

 

 

$

171

 

 

$

28,039

 

 

 

 

Three Months Ended June 30, 2018

 

 

 

Real

 

 

Construction

 

 

Commercial

 

 

Residential

 

 

Consumer

 

 

 

 

 

 

 

Estate

 

 

and Land

 

 

and

 

 

and

 

 

and

 

 

 

 

 

(Dollars in thousands)

 

Term

 

 

Development

 

 

Industrial

 

 

Home Equity

 

 

Other

 

 

Total

 

Balance at beginning of period

 

$

7,249

 

 

$

6,808

 

 

$

5,962

 

 

$

642

 

 

$

70

 

 

$

20,731

 

Additions: Provisions for loan losses

 

 

1,779

 

 

 

(65

)

 

 

(258

)

 

 

(37

)

 

 

56

 

 

 

1,475

 

Deductions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross loan charge-offs

 

 

-

 

 

 

-

 

 

 

(97

)

 

 

-

 

 

 

(107

)

 

 

(204

)

Recoveries

 

 

-

 

 

 

46

 

 

 

173

 

 

 

54

 

 

 

33

 

 

 

306

 

Net loan (charge-offs) / recoveries

 

 

-

 

 

 

46

 

 

 

76

 

 

 

54

 

 

 

(74

)

 

 

102

 

Balance at end of period

 

$

9,028

 

 

$

6,789

 

 

$

5,780

 

 

$

659

 

 

$

52

 

 

$

22,308

 

 

12


 

Note 3 — Loans and Allowance for Loan Losses – Continued

 

 

 

Six Months Ended June 30, 2019

 

 

 

Real

 

 

Construction

 

 

Commercial

 

 

Residential

 

 

Consumer

 

 

 

 

 

 

 

Estate

 

 

and Land

 

 

and

 

 

and

 

 

and

 

 

 

 

 

(Dollars in thousands)

 

Term

 

 

Development

 

 

Industrial

 

 

Home Equity

 

 

Other

 

 

Total

 

Balance at beginning of period

 

$

9,968

 

 

$

7,022

 

 

$

7,227

 

 

$

729

 

 

$

299

 

 

$

25,245

 

Additions: Provisions for loan losses

 

 

480

 

 

 

19

 

 

 

3,246

 

 

 

30

 

 

 

(75

)

 

 

3,700

 

Deductions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross loan charge-offs

 

 

-

 

 

 

(5

)

 

 

(1,583

)

 

 

(19

)

 

 

(174

)

 

 

(1,781

)

Recoveries

 

 

24

 

 

 

351

 

 

 

347

 

 

 

32

 

 

 

121

 

 

 

875

 

Net loan (charge-offs) / recoveries

 

 

24

 

 

 

346

 

 

 

(1,236

)

 

 

13

 

 

 

(53

)

 

 

(906

)

Balance at end of period

 

$

10,472

 

 

$

7,387

 

 

$

9,237

 

 

$

772

 

 

$

171

 

 

$

28,039

 

 

 

 

Six Months Ended June 30, 2018

 

 

 

Real

 

 

Construction

 

 

Commercial

 

 

Residential

 

 

Consumer

 

 

 

 

 

 

 

Estate

 

 

and Land

 

 

and

 

 

and

 

 

and

 

 

 

 

 

(Dollars in thousands)

 

Term

 

 

Development

 

 

Industrial

 

 

Home Equity

 

 

Other

 

 

Total

 

Balance at beginning of period

 

$

6,706

 

 

$

6,309

 

 

$

4,314

 

 

$

815

 

 

$

159

 

 

$

18,303

 

Additions: Provisions for loan losses

 

 

2,310

 

 

 

409

 

 

 

1,067

 

 

 

(237

)

 

 

(24

)

 

 

3,525

 

Deductions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross loan charge-offs

 

 

-

 

 

 

-

 

 

 

(290

)

 

 

-

 

 

 

(172

)

 

 

(462

)

Recoveries

 

 

12

 

 

 

71

 

 

 

689

 

 

 

81

 

 

 

89

 

 

 

942

 

Net loan (charge-offs) / recoveries

 

 

12

 

 

 

71

 

 

 

399

 

 

 

81

 

 

 

(83

)

 

 

480

 

Balance at end of period

 

$

9,028

 

 

$

6,789

 

 

$

5,780

 

 

$

659

 

 

$

52

 

 

$

22,308

 

 

 

 

Non-accrual loans are summarized as follows:

 

 

 

June 30,

 

 

December 31,

 

(Dollars in thousands)

 

2019

 

 

2018

 

Non-accrual loans, not troubled debt restructured:

 

 

 

 

 

 

 

 

Real estate term

 

$

-

 

 

$

309

 

Construction and land development

 

 

305

 

 

 

-

 

Commercial and industrial

 

 

1,403

 

 

 

347

 

Residential and home equity

 

 

49

 

 

 

-

 

Consumer and other

 

 

-

 

 

 

-

 

Total non-accrual loans, not troubled debt restructured

 

 

1,757

 

 

 

656

 

Troubled debt restructured loans, non-accrual:

 

 

 

 

 

 

 

 

Real estate term

 

 

1,374

 

 

 

1,449

 

Construction and land development

 

 

-

 

 

 

-

 

Commercial and industrial

 

 

129

 

 

 

150

 

Residential and home equity

 

 

-

 

 

 

-

 

Consumer and other

 

 

-

 

 

 

-

 

Total troubled debt restructured loans, non-accrual

 

 

1,503

 

 

 

1,599

 

Total non-accrual loans

 

$

3,260

 

 

$

2,255

 

 

As of June 30, 2019, and December 31, 2018, there are $1.74 million and $2.24 million, respectively, in Purchased Credit Impaired (“PCI”) loans that are not performing to the original contractual terms.  Including these PCI loans, total non-accrual loans are $5.0 million and $4.5 million at June 30, 2019, and December 31, 2018.

 

13


 

Note 3 — Loans and Allowance for Loan Losses – Continued

 

Troubled debt restructured (“TDR”) loans are summarized as follows:

 

 

 

June 30,

 

 

December 31,

 

(Dollars in thousands)

 

2019

 

 

2018

 

Accruing troubled debt restructured loans

 

$

19,336

 

 

$

5,912

 

Non-accrual troubled debt restructured loans

 

 

1,503

 

 

 

1,599

 

Total troubled debt restructured loans

 

$

20,839

 

 

$

7,511

 

 

There were no PCI TDR non-performing loans as of June 30, 2019 and December 31, 2018.

 

A restructured loan is considered a troubled debt restructured loan (“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 it would not otherwise consider. Each TDR loan 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 following tables present TDRs that occurred during the periods presented and the TDRs for which the payment default occurred within twelve months of the restructure date.  A default on a restructured loan results in a transfer to nonaccrual status, a charge-off or a combination of both.

 

 

 

Six Months Ended June 30, 2019

 

 

 

Real

 

 

Construction

 

 

Commercial

 

 

Residential

 

 

Consumer

 

 

 

 

 

 

 

Estate

 

 

and Land

 

 

and

 

 

and

 

 

and

 

 

 

 

 

(Dollars in thousands)

 

Term

 

 

Development

 

 

Industrial

 

 

Home Equity

 

 

Other

 

 

Total

 

TDRs that occurred during the

   period (1) (2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of loans

 

 

6

 

 

 

-

 

 

 

25

 

 

 

2

 

 

 

-

 

 

 

33

 

Pre-modification balance

 

$

5,076

 

 

$

-

 

 

$

9,848

 

 

$

277

 

 

$

-

 

 

$

15,201

 

Post-modification balance

 

$

5,076

 

 

$

-

 

 

$

9,848

 

 

$

277

 

 

$

-

 

 

$

15,201

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TDRs that subsequently defaulted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of loans

 

 

-

 

 

 

-

 

 

 

1

 

 

 

-

 

 

 

-

 

 

 

1

 

Recorded balance

 

$

-

 

 

$

-

 

 

$

18

 

 

$

-

 

 

$

-

 

 

$

18

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30, 2018

 

 

 

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) (2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of loans

 

 

2

 

 

 

-

 

 

 

3

 

 

 

-

 

 

 

-

 

 

 

5

 

Pre-modification balance

 

$

1,592

 

 

$

-

 

 

$

211

 

 

$

-

 

 

$

-

 

 

$

1,803

 

Post-modification balance

 

$

1,592

 

 

$

-

 

 

$

211

 

 

$

-

 

 

$

-

 

 

$

1,803

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TDRs that subsequently defaulted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of loans

 

 

2

 

 

 

-

 

 

 

3

 

 

 

-

 

 

 

-

 

 

 

5

 

Recorded balance

 

$

1,449

 

 

$

-

 

 

$

150

 

 

$

-

 

 

$

-

 

 

$

1,599

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(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 loan losses.

(2)

Generally, these modifications do not fit into one separate type, such as rate, term, amount, interest-only or payment, but instead are a combination of multiple types of modifications; therefore, they are disclosed in aggregate.

14


 

Note 3 — Loans and Allowance for Loan Losses – Continued

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

 

 

 

June 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchased

 

 

 

 

 

 

 

 

 

 

 

30-89 Days

 

 

90+ Days

 

 

Non-

 

 

Total

 

 

Credit

 

 

Total

 

(Dollars in thousands)

 

Current

 

 

Past Due

 

 

Past Due

 

 

accrual

 

 

Past Due

 

 

Impaired

 

 

Loans

 

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate term

 

$

909,278

 

 

$

140

 

 

$

-

 

 

$

1,374

 

 

$

1,514

 

 

$

901

 

 

$

911,693

 

Construction and land development

 

 

305,277

 

 

 

1,758

 

 

 

-

 

 

 

305

 

 

 

2,063

 

 

 

107

 

 

 

307,447

 

Total commercial real estate

 

 

1,214,555

 

 

 

1,898

 

 

 

-

 

 

 

1,679

 

 

 

3,577

 

 

 

1,008

 

 

 

1,219,140

 

Commercial and industrial

 

 

283,294

 

 

 

1,185

 

 

 

-

 

 

 

1,532

 

 

 

2,717

 

 

 

3,113

 

 

 

289,124

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential and home equity

 

 

153,588

 

 

 

-

 

 

 

-

 

 

 

49

 

 

 

49

 

 

 

-

 

 

 

153,637

 

Consumer and other

 

 

14,657

 

 

 

162

 

 

 

99

 

 

 

-

 

 

 

261

 

 

 

-

 

 

 

14,918

 

Total consumer

 

 

168,245

 

 

 

162

 

 

 

99

 

 

 

49

 

 

 

310

 

 

 

-

 

 

 

168,555

 

Total gross loans

 

$

1,666,094

 

 

$

3,245

 

 

$

99

 

 

$

3,260

 

 

$

6,604

 

 

$

4,121

 

 

$

1,676,819

 

 

 

 

 

 

December 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchased

 

 

 

 

 

 

 

 

 

 

 

30-89 Days

 

 

90+ Days

 

 

Non-

 

 

Total

 

 

Credit

 

 

Total

 

(Dollars in thousands)

 

Current

 

 

Past Due

 

 

Past Due

 

 

accrual

 

 

Past Due

 

 

Impaired

 

 

Loans

 

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate term

 

$

886,974

 

 

$

1,467

 

 

$

-

 

 

$

1,758

 

 

$

3,225

 

 

$

932

 

 

$

891,131

 

Construction and land development

 

 

321,389

 

 

 

2,833

 

 

 

-

 

 

 

-

 

 

 

2,833

 

 

 

284

 

 

 

324,506

 

Total commercial real estate

 

 

1,208,363

 

 

 

4,300

 

 

 

-

 

 

 

1,758

 

 

 

6,058

 

 

 

1,216

 

 

 

1,215,637

 

Commercial and industrial

 

 

288,328

 

 

 

3,225

 

 

 

-

 

 

 

497

 

 

 

3,722

 

 

 

3,519

 

 

 

295,569

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential and home equity

 

 

154,368

 

 

 

1,233

 

 

 

-

 

 

 

-

 

 

 

1,233

 

 

 

-

 

 

 

155,601

 

Consumer and other

 

 

16,180

 

 

 

424

 

 

 

17

 

 

 

-

 

 

 

441

 

 

 

-

 

 

 

16,621

 

Total consumer

 

 

170,548

 

 

 

1,657

 

 

 

17

 

 

 

-

 

 

 

1,674

 

 

 

-

 

 

 

172,222

 

Total gross loans

 

$

1,667,239

 

 

$

9,182

 

 

$

17

 

 

$

2,255

 

 

$

11,454

 

 

$

4,735

 

 

$

1,683,428

 

 

Credit Quality Indicators:

In addition to past due and non-accrual criteria, the Company also analyzes loans using a loan 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.

15


 

Note 3 — Loans and Allowance for Loan Losses – Continued

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

 

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

 

 

 

June 30, 2019

 

 

 

 

 

 

 

Special

 

 

 

 

 

 

 

 

 

 

Total

 

 

Total

 

(Dollars in thousands)

 

Pass

 

 

Mention

 

 

Substandard

 

 

Doubtful

 

 

Loans

 

 

Allowance

 

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate term

 

$

875,067

 

 

$

18,556

 

 

$

18,070

 

 

$

-

 

 

$

911,693

 

 

$

10,472

 

Construction and land development

 

 

295,594

 

 

 

5,676

 

 

 

6,177

 

 

 

-

 

 

 

307,447

 

 

 

7,387

 

Total commercial real estate

 

 

1,170,661

 

 

 

24,232

 

 

 

24,247

 

 

 

-

 

 

 

1,219,140

 

 

 

17,859

 

Commercial and industrial

 

 

258,041

 

 

 

12,545

 

 

 

18,538

 

 

 

-

 

 

 

289,124

 

 

 

9,237

 

Consumer loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential and home equity

 

 

149,282

 

 

 

202

 

 

 

4,153

 

 

 

-

 

 

 

153,637

 

 

 

772

 

Consumer and other

 

 

14,902

 

 

 

11

 

 

 

5

 

 

 

-

 

 

 

14,918

 

 

 

171

 

Total consumer

 

 

164,184

 

 

 

213

 

 

 

4,158

 

 

 

-

 

 

 

168,555

 

 

 

943

 

Total

 

$

1,592,886

 

 

$

36,990

 

 

$

46,943

 

 

$

-

 

 

$

1,676,819

 

 

$

28,039

 

 

 

 

 

 

December 31, 2018

 

 

 

 

 

 

 

Special

 

 

 

 

 

 

 

 

 

 

Total

 

 

Total

 

(Dollars in thousands)

 

Pass

 

 

Mention

 

 

Substandard

 

 

Doubtful

 

 

Loans

 

 

Allowance

 

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate term

 

$

865,472

 

 

$

14,339

 

 

$

11,320

 

 

$

-

 

 

$

891,131

 

 

$

9,968

 

Construction and land development

 

 

322,625

 

 

 

1,332

 

 

 

549

 

 

 

-

 

 

 

324,506

 

 

 

7,022

 

Total commercial real estate

 

 

1,188,097

 

 

 

15,671

 

 

 

11,869

 

 

 

-

 

 

 

1,215,637

 

 

 

16,990

 

Commercial and industrial

 

 

271,825

 

 

 

10,138

 

 

 

13,606

 

 

 

-

 

 

 

295,569

 

 

 

7,227

 

Consumer loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential and home equity

 

 

150,590

 

 

 

620

 

 

 

4,391

 

 

 

-

 

 

 

155,601

 

 

 

729

 

Consumer and other

 

 

16,574

 

 

 

29

 

 

 

18

 

 

 

-

 

 

 

16,621

 

 

 

299

 

Total consumer

 

 

167,164

 

 

 

649

 

 

 

4,409

 

 

 

-

 

 

 

172,222

 

 

 

1,028

 

Total

 

$

1,627,086

 

 

$

26,458

 

 

$

29,884

 

 

$

-

 

 

$

1,683,428

 

 

$

25,245

 

 

The ALLL and outstanding loan balances reviewed according to the Company’s impairment method are summarized as follows:

 

 

 

June 30, 2019

 

 

 

Real

 

 

Construction

 

 

Commercial

 

 

Residential

 

 

Consumer

 

 

 

 

 

 

 

Estate

 

 

and Land

 

 

and

 

 

and

 

 

and

 

 

 

 

 

(Dollars in thousands)

 

Term

 

 

Development

 

 

Industrial

 

 

Home Equity

 

 

Other

 

 

Total

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment

 

$

392

 

 

$

1,448

 

 

$

3,835

 

 

$

88

 

 

$

-

 

 

$

5,763

 

Collectively evaluated for impairment

 

 

10,080

 

 

 

5,939

 

 

 

5,402

 

 

 

684

 

 

 

171

 

 

 

22,276

 

Purchased credit-impaired loans

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Total

 

$

10,472

 

 

$

7,387

 

 

$

9,237

 

 

$

772

 

 

$

171

 

 

$

28,039

 

Outstanding loan balances:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment

 

$

17,171

 

 

$

6,070

 

 

$

15,118

 

 

$

3,944

 

 

$

-

 

 

$

42,303

 

Collectively evaluated for impairment

 

 

893,621

 

 

 

301,270

 

 

 

270,893

 

 

 

149,693

 

 

 

14,918

 

 

 

1,630,395

 

Purchased credit-impaired loans

 

 

901

 

 

 

107

 

 

 

3,113

 

 

 

-

 

 

 

-

 

 

 

4,121

 

Total gross loans

 

$

911,693

 

 

$

307,447

 

 

$

289,124

 

 

$

153,637

 

 

$

14,918

 

 

$

1,676,819

 

16


 

Note 3 — Loans and Allowance for Loan Losses – Continued

 

 

 

December 31, 2018

 

 

 

Real

 

 

Construction

 

 

Commercial

 

 

Residential

 

 

Consumer

 

 

 

 

 

 

 

Estate

 

 

and Land

 

 

and

 

 

and

 

 

and

 

 

 

 

 

(Dollars in thousands)

 

Term

 

 

Development

 

 

Industrial

 

 

Home Equity

 

 

Other

 

 

Total

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment

 

$

324

 

 

$

-

 

 

$

1,781

 

 

$

55

 

 

$

-

 

 

$

2,160

 

Collectively evaluated for impairment

 

 

9,644

 

 

 

7,022

 

 

 

5,446

 

 

 

674

 

 

 

299

 

 

 

23,085

 

Purchased credit-impaired loans

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Total

 

$

9,968

 

 

$

7,022

 

 

$

7,227

 

 

$

729

 

 

$

299

 

 

$

25,245

 

Outstanding loan balances:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment

 

$

9,689

 

 

$

268

 

 

$

9,581

 

 

$

4,095

 

 

$

-

 

 

$

23,633

 

Collectively evaluated for impairment

 

 

880,510

 

 

 

323,954

 

 

 

282,469

 

 

 

151,506

 

 

 

16,621

 

 

 

1,655,060

 

Purchased credit-impaired loans

 

 

932

 

 

 

284

 

 

 

3,519

 

 

 

-

 

 

 

-

 

 

 

4,735

 

Total gross loans

 

$

891,131

 

 

$

324,506

 

 

$

295,569

 

 

$

155,601

 

 

$

16,621

 

 

$

1,683,428

 

 

 

Information on impaired loans, excluding PCI loans, is summarized as follows:

 

 

 

June 30, 2019

 

 

 

 

 

 

 

Recorded Investment

 

 

 

 

 

 

 

 

 

 

 

Unpaid

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

Principal

 

 

With No

 

 

With

 

 

Recorded

 

 

Related

 

(Dollars in thousands)

 

Balance

 

 

Allowance

 

 

Allowance

 

 

Investment

 

 

Allowance

 

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate term

 

$

17,171

 

 

$

9,663

 

 

$

7,508

 

 

$

17,171

 

 

$

392

 

Construction and land development

 

 

6,604

 

 

 

1,813

 

 

 

4,257

 

 

 

6,070

 

 

 

1,448

 

Total commercial real estate

 

 

23,775

 

 

 

11,476

 

 

 

11,765

 

 

 

23,241

 

 

 

1,840

 

Commercial and industrial

 

 

15,529

 

 

 

713

 

 

 

14,405

 

 

 

15,118

 

 

 

3,835

 

Consumer loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential and home equity

 

 

3,944

 

 

 

2,491

 

 

 

1,453

 

 

 

3,944

 

 

 

88

 

Consumer and other

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Total consumer

 

 

3,944

 

 

 

2,491

 

 

 

1,453

 

 

 

3,944

 

 

 

88

 

Total

 

$

43,248

 

 

$

14,680

 

 

$

27,623

 

 

$

42,303

 

 

$

5,763

 

 

 

 

December 31, 2018

 

 

 

 

 

 

 

Recorded Investment

 

 

 

 

 

 

 

 

 

 

 

Unpaid

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

Principal

 

 

With No

 

 

With

 

 

Recorded

 

 

Related

 

(Dollars in thousands)

 

Balance

 

 

Allowance

 

 

Allowance

 

 

Investment

 

 

Allowance

 

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate term

 

$

9,689

 

 

$

3,823

 

 

$

5,866

 

 

$

9,689

 

 

$

324

 

Construction and land development

 

 

997

 

 

 

268

 

 

 

-

 

 

 

268

 

 

 

-

 

Total commercial real estate

 

 

10,686

 

 

 

4,091

 

 

 

5,866

 

 

 

9,957

 

 

 

324

 

Commercial and industrial

 

 

10,113

 

 

 

5,494

 

 

 

4,087

 

 

 

9,581

 

 

 

1,781

 

Consumer loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential and home equity

 

 

4,095

 

 

 

3,046

 

 

 

1,049

 

 

 

4,095

 

 

 

55

 

Consumer and other

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Total consumer

 

 

4,095

 

 

 

3,046

 

 

 

1,049

 

 

 

4,095

 

 

 

55

 

Total

 

$

24,894

 

 

$

12,631

 

 

$

11,002

 

 

$

23,633

 

 

$

2,160

 

17


 

Note 3 — Loans and Allowance for Loan Losses – Continued

 

The interest income recognized on impaired loans, excluding PCI loans, was as follows:  

 

 

 

Three Months Ended

 

 

 

June 30, 2019

 

 

June 30, 2018

 

 

 

Average

 

 

Interest

 

 

Average

 

 

Interest

 

 

 

Recorded

 

 

Income

 

 

Recorded

 

 

Income

 

(Dollars in thousands)

 

Investment

 

 

Recognition

 

 

Investment

 

 

Recognition

 

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate term

 

$

13,858

 

 

$

182

 

 

$

6,312

 

 

$

43

 

Construction and land development

 

 

3,987

 

 

 

71

 

 

 

2,033

 

 

 

35

 

Total commercial real estate

 

 

17,845

 

 

 

253

 

 

 

8,345

 

 

 

78

 

Commercial and industrial

 

 

12,183

 

 

 

170

 

 

 

7,822

 

 

 

87

 

Consumer loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential and home equity

 

 

3,096

 

 

 

44

 

 

 

2,086

 

 

 

22

 

Consumer and other

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Total consumer

 

 

3,096

 

 

 

44

 

 

 

2,086

 

 

 

22

 

Total

 

$

33,124

 

 

$

467

 

 

$

18,253

 

 

$

187

 

 

 

 

Six Months Ended

 

 

 

June 30, 2019

 

 

June 30, 2018

 

 

 

Average

 

 

Interest

 

 

Average

 

 

Interest

 

 

 

Recorded

 

 

Income

 

 

Recorded

 

 

Income

 

(Dollars in thousands)

 

Investment

 

 

Recognition

 

 

Investment

 

 

Recognition

 

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate term

 

$

11,998

 

 

$

305

 

 

$

7,471

 

 

$

146

 

Construction and land development

 

 

2,545

 

 

 

88

 

 

 

2,058

 

 

 

74

 

Total commercial real estate

 

 

14,543

 

 

 

393

 

 

 

9,529

 

 

 

220

 

Commercial and industrial

 

 

10,806

 

 

 

325

 

 

 

5,749

 

 

 

128

 

Consumer loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential and home equity

 

 

3,134

 

 

 

91

 

 

 

1,894

 

 

 

43

 

Consumer and other

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Total consumer

 

 

3,134

 

 

 

91

 

 

 

1,894

 

 

 

43

 

Total

 

$

28,483

 

 

$

809

 

 

$

17,172

 

 

$

391

 

 

 

 

Purchased credit-impaired loans and purchased non-credit-impaired loans. Purchased loans, including loans acquired in business combinations, are recorded at their fair value at the acquisition date. Credit discounts are included in the determination of fair value; therefore, an allowance for loan and lease losses is not recorded at the acquisition date. Acquired loans are evaluated upon acquisition and classified as either purchased credit-impaired (PCI) or purchased non-credit-impaired. PCI loans reflect credit deterioration since origination such that it is probable at acquisition that the Company will be unable to collect all contractually required payments. The outstanding contractual unpaid principal balance of PCI loans, excluding acquisition accounting adjustments, was $7.0 million at June 30, 2019 and $7.7 million at December 31, 2018. The carrying balance of PCI loans was $4.1 million at June 30, 2019 and $4.7 million at December 31, 2018.

The following table presents the changes in the accretable yield for PCI loans for the six months ended June 30, 2019, and 2018:

 

 

 

Six Months Ended

 

 

 

June 30,

 

(Dollars in thousands)

 

2019

 

 

2018

 

Balance, beginning of period

 

$

5,884

 

 

$

8,536

 

Accretion to interest income

 

 

(873

)

 

 

(1,943

)

Reclassification from non-accretable difference

 

 

95

 

 

 

189

 

Balance, end of period

 

$

5,106

 

 

$

6,782

 

18


 

 

Note 3 — Loans and Allowance for Loan Losses – Continued

 

As of June 30, 2019 and December 31, 2018, the non-accretable difference between the contractually required payments and cash flows expected to be collected were $2.8 million and $2.9 million, respectively.

Loans and Deposits to affiliates The Company has entered into loan transactions with certain directors, affiliated companies and executive committee members (“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 $3.5 million and $5.6 million as of June 30, 2019, and December 31, 2018, respectively.  Available lines of credit for loans and credit cards to affiliates were approximately $319,000 and $951,000 as of June 30, 2019, and December 31, 2018, respectively.  Deposits from affiliates were $5.2 million and $8.8 million as of June 30, 2019 and December 31, 2018, respectively.

 

 

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:

 

 

 

June 30,

 

 

December 31,

 

(Dollars in thousands)

 

2019

 

 

2018

 

Commitments to extend credit, including unsecured

   commitments of $18,143 and $16,304 as of June 30,

   2019 and December 31, 2018, respectively

 

$

572,916

 

 

$

577,612

 

Stand-by letters of credit and bond commitments, including

   unsecured commitments of $578 and $730 as of

   June 30, 2019 and December 31, 2018, respectively

 

 

26,528

 

 

 

22,979

 

Unused credit card lines, all unsecured

 

 

25,409

 

 

 

24,885

 

 

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. 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 customer.

Unused credit card lines are commitments for possible future extensions of credit to existing customers. 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.

 

19


 

Note 5 — Fair Value

The Company measures and discloses certain assets and liabilities at fair value. The standard requires us to maximize the use of observable inputs and minimize 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.

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

Securities: The estimated fair values of investment securities are priced using current active market quotes, if available, which are considered Level 1 measurements. For most of the portfolio, matrix pricing based on the securities’ relationship to other benchmark quoted prices is used to establish the fair value. 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.

20


 

Note 5 — Fair Value - Continued

The following table presents estimated fair values of the Company’s financial instruments as of June 30, 2019 and December 31, 2018:

 

 

 

 

 

 

June 30, 2019

 

 

December 31, 2018

 

 

 

 

 

 

 

Carrying

 

 

Estimated

 

 

Carrying

 

 

Estimated

 

(Dollars in thousands)

 

Level

 

 

Value

 

 

Fair Value

 

 

Value

 

 

Fair Value

 

Financial Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

1

 

 

$

192,466

 

 

$

192,466

 

 

$

48,547

 

 

$

48,547

 

Investment securities available-for-sale

 

 

2

 

 

 

323,984

 

 

 

323,984

 

 

 

280,964

 

 

 

280,964

 

Investment securities available-for-sale

 

 

3

 

 

 

10,778

 

 

 

10,778

 

 

 

-

 

 

 

-

 

Investment securities held-to-maturity

 

 

2

 

 

 

-

 

 

 

-

 

 

 

50,905

 

 

 

50,364

 

Investment securities held-to-maturity

 

 

3

 

 

 

-

 

 

 

-

 

 

 

14,557

 

 

 

14,402

 

Non-marketable securities

 

 

2

 

 

 

2,623

 

 

 

2,623

 

 

 

2,551

 

 

 

2,551

 

Loans held for sale

 

 

2

 

 

 

18,446

 

 

 

18,446

 

 

 

10,267

 

 

 

10,267

 

Loans held for investment

 

 

3

 

 

 

1,644,545

 

 

 

1,635,993

 

 

 

1,653,657

 

 

 

1,637,617

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total deposits

 

 

2

 

 

$

1,981,906

 

 

$

1,787,524

 

 

$

1,877,055

 

 

$

1,675,992

 

 

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

 

(Dollars in thousands)

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

As of June 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair valued on a recurring basis:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment securities available-for-sale

 

$

-

 

 

$

323,984

 

 

$

10,778

 

 

$

334,762

 

Fair valued on a non-recurring basis:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Impaired loans

 

 

-

 

 

 

-

 

 

 

1,126

 

 

 

1,126

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair valued on a recurring basis:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment securities available-for-sale

 

$

-

 

 

$

280,964

 

 

$

-

 

 

$

280,964

 

Fair valued on a non-recurring basis:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Impaired loans

 

 

-

 

 

 

-

 

 

 

7,304

 

 

 

7,304

 

 

 

 

Note 6 — Income Taxes

Income tax expense was $3.5 million and $3.3 million for the three months ended June 30, 2019 and 2018, respectively. The Company’s effective tax rate for the second quarter of 2019 was 24.1% compared with 23.9% in the second quarter of 2018. The tax rate in the second quarter of 2019 is higher than the same quarter in 2018 due primarily to higher tax benefits related to tax-deductible stock compensation expense in 2018.     

Income tax expense was $6.8 million and $5.8 million for the six months ended June 30, 2019 and 2018, respectively. The Company’s effective tax rate for the six months ended June 30, 2019 was23.9% compared with 23.1% in the same period a year ago. The tax rate in the six months ended June 30, 2019 is higher than the same period a year ago due primarily to higher tax benefits related to tax-deductible stock compensation expense in 2018.

 

Note 7 — Regulatory Capital Matters

The consolidated Tier 1 Leverage ratio increased to 12.78% as of June 30, 2019 from 12.27% at December 31, 2018. Federal Reserve Board Regulations require maintenance of certain minimum reserve balances based on certain average deposits, which, as of June 30, 2019 and December 31, 2018, were $11.9 million and $2.2 million, respectively. 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, plans to limit dividends to amounts that are appropriate to maintain those well-capitalized regulatory capital ratios.

 

 

21


 

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

In June 2014, the Board of Directors (“Board”) and shareholders of the Company approved a share-based incentive plan (“the Plan”). 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 key employees. The maximum aggregate number of shares that may be issued under the Plan is 800,000 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 six months ended June 30, 2019, the Company granted 30,941 restricted stock units (“RSU”) at a weighted-average fair value of $30.08 per unit.  The RSU’s generally vest over periods from one to three years. The Company recorded share-based compensation expense of $381,000 and $370,000 for the six months ended June 30, 2019 and 2018, respectively. Additionally, the Company did not grant any options for the purchase of common shares during the six months ended June 30, 2019.

 

22


 

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 People’s Utah Bancorp’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 the Private Securities Litigation Reform Act of 1995. These forward-looking statements reflect our 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 our 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 our ability to control or predict. For those statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. These are forward-looking statements and 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 our Annual Report on Form 10-K for the year ended December 31, 2018 (“Form 10-K”), and other parts of this report that could cause our 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 our actual results to differ materially from our forward-looking statements in this prospectus:

 

changes in general economic conditions, either nationally or in our local market;

 

inflation, 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 our loan portfolio than we expect;

 

changes in management’s estimate of the adequacy of the allowance for loan losses;

 

risks associated with our growth and expansion strategy and related costs;

 

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

 

risks associated with the integration of current and future acquisitions.

 

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

 

ability to successfully grow our 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 our Annual Report on Form 10-K for the year ended December 31, 2018.

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. We do not undertake any obligation to release publicly our revisions to such forward-looking statements to reflect events or circumstances after the date of this Form 10-Q.

23


 

Overview

People’s Utah Bancorp (“PUB”) is the holding company for People’s Intermountain Bank.  People’s Intermountain Bank (“Bank” or “PIB”) is a full-service community bank providing loans, deposit and cash management services to individuals and businesses. People’s Intermountain Bank has 26 branch locations in three banking divisions, Bank of American Fork, Lewiston State Bank, and People’s Town & Country Bank; and a mortgage division, People’s Intermountain Bank Mortgage. We provide banking services for small to medium sized businesses and to individuals in our primary markets including Utah, Salt Lake, Davis, Cache, and Washington Counties. Our business customers are involved in a variety of industries, including residential and commercial construction and development, manufacturing, distribution and other services. We also provide a broad range of banking services and products to individuals, including residential mortgage lending, personal checking and savings accounts and other consumer banking products, including electronic banking.  The Bank has been serving communities in Utah and southern Idaho for more than 100 years.

Our loan growth is the result of mergers and acquisitions as well as organic growth that we believe was generated by our seasoned relationship managers and supporting associates who provide outstanding service and quick responsiveness to our customers.  The primary source of funding for our asset growth has been the generation of core deposits, which we raised through acquisitions as well as from our existing branch system.

Our results of operations are largely dependent on net interest income. Net interest income is the difference between interest income we earn on interest earning assets, which are comprised of loans, investment securities and short-term investments and the interest we pay on our 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.

We measure our performance by calculating our 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 our 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. We also measure our performance by our efficiency ratio, which is calculated by dividing non-interest expense by the sum of net interest income and non-interest income.

Mergers & Acquisitions

Utah Branches from Banner Bank — On October 6, 2017, we completed our acquisition of $257 million in loans and seven Utah branch locations with $160 million in low-cost core deposits from Banner Corporation’s subsidiary Banner Bank.  The Bank paid a deposit premium of $13.8 million based on average deposits at closing.  The seven branch locations in Utah include Salt Lake City, Provo, South Jordan, Woods Cross, Orem, Salem, and Springville.  The Woods Cross and Orem branches were consolidated into our existing Bank of American Fork Bountiful and Orem branches, respectively.  We are operating these acquired branches under the name of Bank of American Fork, a division of PIB.

Town & Country Bank — On November 13, 2017, we completed the merger of Town & Country Bank located in St. George, Utah, including the acquisition of $117 million in loans and the assumption of $124 million in deposits.  We consolidated our existing St. George branch and Town & Country’s branch into one branch.  Under the terms of the merger, each outstanding Town & Country common share converted into the right to receive 0.2917 PUB common shares and $4.23 per common share in cash, including $2.0 million of cash held in escrow that is subject to indemnification claims.  Town & Country shareholders also received an additional cash distribution of $1.68 per common share in cash.  A total of 466,546 PUB common shares were issued in this transaction.  We operate this branch under the name of People’s Town & Country Bank, a division of PIB.

 

Non-GAAP Financial Measures

In addition to financial results presented in accordance with generally accepted accounting principles (“GAAP”), this Management’s Discussion & Analysis contains certain non-GAAP financial measures.  We have presented these non-GAAP financial measures because we believe that they provide useful and comparative information to assess trends in our core operations and such presentation facilitates the comparison of our financial performance with the performance of our peers and the comparative years presented. We have excluded acquisition related costs, net gains and losses on the sale of certain securities, and the write-down of our deferred income tax assets due to the reduction in the Federal corporate income tax rate to derive non-GAAP financial information related to the company’s core operations.  The Company believes this non-GAAP financial information is useful in understanding the Company’s core financial performance.

24


 

However, these non-GAAP financial measures are supplemental and are not a substitute for any analysis based on GAAP. Where applicable, we have also presented comparable earnings information using GAAP financial measures. For a reconciliation of these non-GAAP financial measures, see the tables below. Because not all companies use the same calculations, our presentation may not be comparable to other similarly titled non-GAAP measures as calculated by other companies.

 

(NG) Non-GAAP Financial Measures

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

In addition to financial results presented in accordance with GAAP, this schedule contains certain non-GAAP financial measures.  Management has presented these non-GAAP financial measures because it believes that they provide useful and comparative information to assess trends in core operations and facilitate the comparison of our financial performance with the performance of our peers.

 

 

 

(Dollars in thousands)

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

March 31,

 

 

June 30,

 

 

June 30,

 

 

June 30,

 

Revenue from Core Operations

 

2019

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net interest income (GAAP)

 

$

27,720

 

 

$

26,907

 

 

$

26,978

 

 

$

54,627

 

 

$

52,922

 

Total non-interest income

 

 

3,598

 

 

 

3,337

 

 

 

4,066

 

 

 

6,935

 

 

 

7,784

 

Total GAAP revenues

 

 

31,318

 

 

 

30,244

 

 

 

31,044

 

 

 

61,562

 

 

 

60,706

 

Exclude net (gain) on sale of investment securities

 

 

-

 

 

 

-

 

 

 

(333

)

 

 

-

 

 

 

(333

)

Revenue from core operations (non-GAAP)

 

$

31,318

 

 

$

30,244

 

 

$

30,711

 

 

$

61,562

 

 

$

60,373

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

March 31,

 

 

June 30,

 

 

June 30,

 

 

June 30,

 

Non-interest Income from Core Operations

 

2019

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Total non-interest income (GAAP)

 

$

3,598

 

 

$

3,337

 

 

$

4,066

 

 

$

6,935

 

 

$

7,784

 

Exclude net (gain) on sale of investment securities

 

 

-

 

 

 

-

 

 

 

(333

)

 

 

-

 

 

 

(333

)

Non-interest income from core operations (non-GAAP)

 

$

3,598

 

 

$

3,337

 

 

$

3,733

 

 

$

6,935

 

 

$

7,451

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

March 31,

 

 

June 30,

 

 

June 30,

 

 

June 30,

 

Non-interest Expense from Core Operations

 

2019

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Total non-interest expense (GAAP)

 

$

14,699

 

 

$

14,916

 

 

$

15,823

 

 

$

29,615

 

 

$

31,871

 

Exclude acquisition-related costs

 

 

-

 

 

 

-

 

 

 

(1

)

 

 

-

 

 

 

(350

)

Non-interest expense from core operations (non-GAAP)

 

$

14,699

 

 

$

14,916

 

 

$

15,822

 

 

$

29,615

 

 

$

31,521

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

March 31,

 

 

June 30,

 

 

June 30,

 

 

June 30,

 

Net Income from Core Operations

 

2019

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net income (GAAP)

 

$

10,989

 

 

$

10,505

 

 

$

10,467

 

 

$

21,494

 

 

$

19,471

 

Exclude net (gain) on sale of investment securities

 

 

-

 

 

 

-

 

 

 

(333

)

 

 

-

 

 

 

(333

)

Exclude acquisition-related costs

 

 

-

 

 

 

-

 

 

 

1

 

 

 

-

 

 

 

350

 

Exclude tax related benefit

 

 

-

 

 

 

-

 

 

 

79

 

 

 

-

 

 

 

(4

)

Revaluation of deferred income tax assets (DTA)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Net income (non-GAAP)

 

$

10,989

 

 

$

10,505

 

 

$

10,214

 

 

$

21,494

 

 

$

19,484

 

25


 

 

(NG) Non-GAAP Financial Measures - Continued

 

 

 

(Dollars in thousands)

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

March 31,

 

 

June 30,

 

 

June 30,

 

 

June 30,

 

Acquisition Accounting Impact on Net Interest Margin

 

2019

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net interest income (GAAP)

 

$

27,720

 

 

$

26,907

 

 

$

26,978

 

 

$

54,627

 

 

$

52,922

 

Exclude discount accretion (premium amortization) on purchased loans

 

 

(345

)

 

 

(528

)

 

 

(777

)

 

 

(873

)

 

 

(1,944

)

Exclude premium amortization on acquired certificates of deposit ("CD")

 

 

(35

)

 

 

(35

)

 

 

(35

)

 

 

(70

)

 

 

(70

)

Net interest income before acquisition accounting impact (Non-GAAP)

 

$

27,340

 

 

$

26,344

 

 

$

26,166

 

 

$

53,684

 

 

$

50,908

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average earning assets (GAAP)

 

$

2,122,954

 

 

$

2,063,149

 

 

$

2,058,125

 

 

$

2,093,217

 

 

$

2,037,721

 

Exclude average net loan discount on acquired loans

 

 

8,073

 

 

 

8,500

 

 

 

10,146

 

 

 

8,285

 

 

 

11,030

 

Average earning assets before acquired loan discount (Non-GAAP)

 

$

2,131,027

 

 

$

2,071,649

 

 

$

2,068,271

 

 

$

2,101,502

 

 

$

2,048,751

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest margin ("NIM") (GAAP)

 

 

5.24

%

 

 

5.29

%

 

 

5.26

%

 

 

5.26

%

 

 

5.24

%

Exclude impact on NIM from discount accretion

 

 

-0.06

%

 

 

-0.10

%

 

 

-0.15

%

 

 

-0.08

%

 

 

-0.19

%

Exclude impact on NIM from CD premium amortization

 

 

-0.01

%

 

 

-0.01

%

 

 

-0.01

%

 

 

-0.01

%

 

 

-0.01

%

Net interest margin before acquisition accounting adjustments (Non-GAAP)

 

 

5.17

%

 

 

5.18

%

 

 

5.10

%

 

 

5.17

%

 

 

5.04

%

 

(Dollars in thousands)

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

March 31,

 

 

June 30,

 

 

June 30,

 

 

June 30,

 

Additional Non-GAAP Financial Information

 

2019

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share (GAAP)

 

$

0.58

 

 

$

0.55

 

 

$

0.55

 

 

$

1.13

 

 

$

1.03

 

Diluted earnings per share (non-GAAP)

 

$

0.58

 

 

$

0.55

 

 

$

0.54

 

 

$

1.13

 

 

$

1.03

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Efficiency ratio (GAAP)

 

 

46.93

%

 

 

49.32

%

 

 

50.97

%

 

 

48.11

%

 

 

52.50

%

Efficiency ratio (non-GAAP)

 

 

46.93

%

 

 

49.32

%

 

 

51.52

%

 

 

48.11

%

 

 

52.21

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-interest income to average assets (GAAP)

 

 

0.64

%

 

 

0.62

%

 

 

0.75

%

 

 

0.63

%

 

 

0.73

%

Non-interest income to average assets (non-GAAP)

 

 

0.64

%

 

 

0.62

%

 

 

0.69

%

 

 

0.63

%

 

 

0.70

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-interest expense to average assets (GAAP)

 

 

2.63

%

 

 

2.77

%

 

 

2.91

%

 

 

2.69

%

 

 

2.97

%

Non-interest expense to average assets (non-GAAP)

 

 

2.63

%

 

 

2.77

%

 

 

2.91

%

 

 

2.69

%

 

 

2.94

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Return on average assets (GAAP)

 

 

1.96

%

 

 

1.95

%

 

 

1.93

%

 

 

1.96

%

 

 

1.82

%

Return on average assets (non-GAAP)

 

 

1.96

%

 

 

1.95

%

 

 

1.88

%

 

 

1.96

%

 

 

1.82

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Return on average equity (GAAP)

 

 

14.33

%

 

 

14.38

%

 

 

15.60

%

 

 

14.35

%

 

 

14.79

%

Return on average equity (non-GAAP)

 

 

14.33

%

 

 

14.38

%

 

 

15.22

%

 

 

14.35

%

 

 

14.80

%

 

26


 

Selected Financial Information

You should read the selected financial information data set forth below in conjunction with our historical consolidated financial statements and related notes.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30,

 

 

March 31,

 

 

December 31,

 

 

June 30,

 

(Dollars in thousands, except share data)

 

2019

 

 

2019

 

 

2018

 

 

2018

 

Selected Balance Sheet Information:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Book value per share

 

$

16.62

 

 

$

16.03

 

 

$

15.49

 

 

$

14.54

 

Tangible book value per share

 

$

15.09

 

 

$

14.49

 

 

$

13.94

 

 

$

12.97

 

Non-performing loans to total loans

 

 

0.31

%

 

 

0.28

%

 

 

0.27

%

 

 

0.51

%

Non-performing assets to total assets

 

 

0.22

%

 

 

0.21

%

 

 

0.21

%

 

 

0.40

%

Allowance for loan losses to loans held for investment

 

 

1.68

%

 

 

1.55

%

 

 

1.50

%

 

 

1.32

%

Loans to Deposits

 

 

83.91

%

 

 

84.98

%

 

 

88.65

%

 

 

94.32

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Asset Quality Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-performing loans

 

$

5,104

 

 

$

4,706

 

 

$

4,499

 

 

$

8,649

 

Non-performing assets

 

$

5,104

 

 

$

4,706

 

 

$

4,499

 

 

$

8,649

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital Ratios:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tier 1 leverage capital

 

 

12.78

%

 

 

12.70

%

 

 

12.27

%

 

 

11.48

%

Total risk-based capital

 

 

17.24

%

 

 

16.86

%

 

 

16.36

%

 

 

15.22

%

Average equity to average assets

 

 

13.69

%

 

 

13.55

%

 

 

13.04

%

 

 

12.36

%

Tangible common equity to tangible assets (1)

 

 

12.44

%

 

 

12.15

%

 

 

12.11

%

 

 

11.36

%

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

March 31,

 

 

June 30,

 

 

June 30,

 

 

June 30,

 

 

 

2019

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Selected Financial Information:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share

 

$

0.58

 

 

$

0.56

 

 

$

0.56

 

 

$

1.14

 

 

$

1.04

 

Diluted earnings per share

 

$

0.58

 

 

$

0.55

 

 

$

0.55

 

 

$

1.13

 

 

$

1.03

 

Net interest margin (2)

 

 

5.24

%

 

 

5.29

%

 

 

5.26

%

 

 

5.26

%

 

 

5.24

%

Efficiency ratio

 

 

46.93

%

 

 

49.32

%

 

 

50.97

%

 

 

48.11

%

 

 

52.50

%

Non-interest income to average assets

 

 

0.64

%

 

 

0.62

%

 

 

0.75

%

 

 

0.63

%

 

 

0.73

%

Non-interest expense to average assets

 

 

2.63

%

 

 

2.77

%

 

 

2.91

%

 

 

2.69

%

 

 

2.97

%

Return on average assets

 

 

1.96

%

 

 

1.95

%

 

 

1.93

%

 

 

1.96

%

 

 

1.82

%

Return on average equity

 

 

14.33

%

 

 

14.38

%

 

 

15.60

%

 

 

14.35

%

 

 

14.79

%

Net charge-offs / (recoveries)

 

$

34

 

 

$

872

 

 

$

(102

)

 

$

906

 

 

$

(480

)

Annualized net charge-offs / (recoveries) to

   average loans

 

 

0.01

%

 

 

0.21

%

 

 

-0.02

%

 

 

0.11

%

 

 

-0.06

%

 

(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 $28.9 million, $29.0 million, $29.1 million and $29.3 million at June 30, 2019, March 31, 2019, December 31, 2018, and June 30, 2018, respectively.

(2)

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

 

27


 

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 set forth a summary of 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

 

 

 

June 30, 2019

 

 

June 30, 2018

 

 

 

 

 

 

 

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

 

$

89,461

 

 

$

511

 

 

 

2.29

%

 

$

15,533

 

 

$

64

 

 

 

1.65

%

Securities: (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxable securities

 

 

276,993

 

 

 

1,572

 

 

 

2.28

%

 

 

241,724

 

 

 

1,192

 

 

 

1.98

%

Non-taxable securities (2)

 

 

66,425

 

 

 

312

 

 

 

1.88

%

 

 

79,949

 

 

 

369

 

 

 

1.85

%

Total securities

 

 

343,418

 

 

 

1,884

 

 

 

2.20

%

 

 

321,673

 

 

 

1,561

 

 

 

1.95

%

Loans (3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate term

 

 

902,214

 

 

 

13,447

 

 

 

5.98

%

 

 

903,637

 

 

 

12,860

 

 

 

5.71

%

Construction and land development

 

 

313,411

 

 

 

6,304

 

 

 

8.07

%

 

 

368,823

 

 

 

7,303

 

 

 

7.94

%

Commercial and industrial

 

 

294,489

 

 

 

5,212

 

 

 

7.10

%

 

 

317,629

 

 

 

5,281

 

 

 

6.67

%

Residential and home equity

 

 

161,299

 

 

 

2,371

 

 

 

5.89

%

 

 

105,219

 

 

 

1,380

 

 

 

5.26

%

Consumer and other

 

 

16,039

 

 

 

294

 

 

 

7.36

%

 

 

17,940

 

 

 

249

 

 

 

5.58

%

Total loans

 

 

1,687,452

 

 

 

27,628

 

 

 

6.57

%

 

 

1,713,248

 

 

 

27,073

 

 

 

6.34

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-marketable equity securities

 

 

2,623

 

 

 

27

 

 

 

4.07

%

 

 

7,671

 

 

 

58

 

 

 

3.04

%

Total interest earning assets

 

 

2,122,954

 

 

 

30,050

 

 

 

5.68

%

 

 

2,058,125

 

 

 

28,756

 

 

 

5.60

%

Allowance for loan losses

 

 

(26,008

)

 

 

 

 

 

 

 

 

 

 

(21,073

)

 

 

 

 

 

 

 

 

Non-interest earning assets

 

 

148,625

 

 

 

 

 

 

 

 

 

 

 

140,723

 

 

 

 

 

 

 

 

 

Total average assets

 

$

2,245,571

 

 

 

 

 

 

 

 

 

 

$

2,177,775

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’

   EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest bearing deposits:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Demand and savings accounts

 

$

814,364

 

 

$

1,034

 

 

 

0.51

%

 

$

733,223

 

 

$

492

 

 

 

0.27

%

Money market accounts

 

 

274,667

 

 

 

677

 

 

 

0.99

%

 

 

207,663

 

 

 

176

 

 

 

0.34

%

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

 

 

140,637

 

 

 

436

 

 

 

1.24

%

 

 

151,179

 

 

 

343

 

 

 

0.91

%

Certificates of deposit greater than $250,000

 

 

38,605

 

 

 

183

 

 

 

1.90

%

 

 

34,757

 

 

 

125

 

 

 

1.45

%

Total interest bearing deposits

 

 

1,268,273

 

 

 

2,330

 

 

 

0.74

%

 

 

1,126,822

 

 

 

1,136

 

 

 

0.40

%

Short-term borrowings

 

 

-

 

 

 

-

 

 

 

0.00

%

 

 

128,288

 

 

 

642

 

 

 

2.01

%

Total interest bearing liabilities

 

 

1,268,273

 

 

 

2,330

 

 

 

0.74

%

 

 

1,255,110

 

 

 

1,778

 

 

 

0.57

%

Non-interest bearing deposits

 

 

652,158

 

 

 

 

 

 

 

 

 

 

 

642,063

 

 

 

 

 

 

 

 

 

Total funding

 

 

1,920,431

 

 

 

2,330

 

 

 

0.49

%

 

 

1,897,173

 

 

 

1,778

 

 

 

0.38

%

Other non-interest bearing liabilities

 

 

17,610

 

 

 

 

 

 

 

 

 

 

 

11,433

 

 

 

 

 

 

 

 

 

Shareholders’ equity

 

 

307,530

 

 

 

 

 

 

 

 

 

 

 

269,169

 

 

 

 

 

 

 

 

 

Total average liabilities and shareholders’

   equity

 

$

2,245,571

 

 

 

 

 

 

 

 

 

 

$

2,177,775

 

 

 

 

 

 

 

 

 

Net interest income

 

 

 

 

 

$

27,720

 

 

 

 

 

 

 

 

 

 

$

26,978

 

 

 

 

 

Interest rate spread

 

 

 

 

 

 

 

 

 

 

4.94

%

 

 

 

 

 

 

 

 

 

 

5.04

%

Net interest margin

 

 

 

 

 

 

 

 

 

 

5.24

%

 

 

 

 

 

 

 

 

 

 

5.26

%

 

(1)

Excludes average unrealized losses of $2.7 million and $6.4 million for the three months ended June 30, 2019 and 2018, respectively.

(2)

Does not include tax effect on tax-exempt investment security income of $104,000 and $123,000 for the three months ended June 30, 2019 and 2018, respectively.  

(3)

Loan interest income includes loan fees of $1.8 million and $1.7 million for the three months ended June 30, 2019 and 2018, respectively.  

 

28


 

 

 

Six Months Ended

 

 

 

June 30, 2019

 

 

June 30, 2018

 

 

 

 

 

 

 

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

 

$

64,330

 

 

$

730

 

 

 

2.29

%

 

$

14,501

 

 

$

109

 

 

 

1.51

%

Securities: (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxable securities

 

 

276,948

 

 

 

3,176

 

 

 

2.31

%

 

 

247,078

 

 

 

2,406

 

 

 

1.96

%

Non-taxable securities (2)

 

 

67,965

 

 

 

634

 

 

 

1.88

%

 

 

81,226

 

 

 

751

 

 

 

1.86

%

Total securities

 

 

344,913

 

 

 

3,810

 

 

 

2.23

%

 

 

328,304

 

 

 

3,157

 

 

 

1.94

%

Loans (3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate term

 

 

895,700

 

 

 

26,494

 

 

 

5.96

%

 

 

879,444

 

 

 

25,024

 

 

 

5.74

%

Construction and land development

 

 

314,604

 

 

 

12,535

 

 

 

8.04

%

 

 

367,787

 

 

 

14,178

 

 

 

7.77

%

Commercial and industrial

 

 

295,665

 

 

 

10,333

 

 

 

7.05

%

 

 

315,838

 

 

 

10,371

 

 

 

6.62

%

Residential and home equity

 

 

158,812

 

 

 

4,687

 

 

 

5.95

%

 

 

106,060

 

 

 

2,716

 

 

 

5.16

%

Consumer and other

 

 

16,408

 

 

 

559

 

 

 

6.86

%

 

 

18,893

 

 

 

567

 

 

 

6.05

%

Total loans

 

 

1,681,189

 

 

 

54,608

 

 

 

6.55

%

 

 

1,688,022

 

 

 

52,856

 

 

 

6.31

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-marketable equity securities

 

 

2,785

 

 

 

54

 

 

 

3.90

%

 

 

6,894

 

 

 

73

 

 

 

2.15

%

Total interest earning assets

 

 

2,093,217

 

 

 

59,202

 

 

 

5.70

%

 

 

2,037,721

 

 

 

56,195

 

 

 

5.56

%

Allowance for loan losses

 

 

(25,907

)

 

 

 

 

 

 

 

 

 

 

(19,901

)

 

 

 

 

 

 

 

 

Non-interest earning assets

 

 

149,160

 

 

 

 

 

 

 

 

 

 

 

142,940

 

 

 

 

 

 

 

 

 

Total average assets

 

$

2,216,470

 

 

 

 

 

 

 

 

 

 

$

2,160,760

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’

   EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest bearing deposits:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Demand and savings accounts

 

$

807,043

 

 

$

2,027

 

 

 

0.51

%

 

$

725,774

 

 

$

943

 

 

 

0.26

%

Money market accounts

 

 

262,171

 

 

 

1,281

 

 

 

0.99

%

 

 

215,946

 

 

 

333

 

 

 

0.31

%

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

 

 

142,450

 

 

 

849

 

 

 

1.20

%

 

 

156,549

 

 

 

673

 

 

 

0.87

%

Certificates of deposit greater than $250,000

 

 

38,136

 

 

 

354

 

 

 

1.87

%

 

 

36,156

 

 

 

254

 

 

 

1.41

%

Total interest bearing deposits

 

 

1,249,800

 

 

 

4,511

 

 

 

0.73

%

 

 

1,134,425

 

 

 

2,203

 

 

 

0.39

%

Short-term borrowings

 

 

4,879

 

 

 

64

 

 

 

2.63

%

 

 

114,498

 

 

 

1,070

 

 

 

1.88

%

Total interest bearing liabilities

 

 

1,254,679

 

 

 

4,575

 

 

 

0.74

%

 

 

1,248,923

 

 

 

3,273

 

 

 

0.53

%

Non-interest bearing deposits

 

 

643,642

 

 

 

 

 

 

 

 

 

 

 

635,503

 

 

 

 

 

 

 

 

 

Total funding

 

 

1,898,321

 

 

 

4,575

 

 

 

0.49

%

 

 

1,884,426

 

 

 

3,273

 

 

 

0.35

%

Other non-interest bearing liabilities

 

 

16,173

 

 

 

 

 

 

 

 

 

 

 

10,925

 

 

 

 

 

 

 

 

 

Shareholders’ equity

 

 

301,976

 

 

 

 

 

 

 

 

 

 

 

265,409

 

 

 

 

 

 

 

 

 

Total average liabilities and shareholders’

   equity

 

$

2,216,470

 

 

 

 

 

 

 

 

 

 

$

2,160,760

 

 

 

 

 

 

 

 

 

Net interest income

 

 

 

 

 

$

54,627

 

 

 

 

 

 

 

 

 

 

$

52,922

 

 

 

 

 

Interest rate spread

 

 

 

 

 

 

 

 

 

 

4.97

%

 

 

 

 

 

 

 

 

 

 

5.03

%

Net interest margin

 

 

 

 

 

 

 

 

 

 

5.26

%

 

 

 

 

 

 

 

 

 

 

5.24

%

 

(1)

Excludes average unrealized losses of $3.9 million and $5.3 million for the six months ended June 30, 2019 and 2018, respectively.

(2)

Does not include tax effect on tax-exempt investment security income of $211,000 and $250,000 for the six months ended June 30, 2019 and 2018, respectively.  

(3)

Loan interest income includes loan fees of $3.2 million and $3.3 million for the six months ended June 30, 2019 and 2018, respectively.

29


 

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 June 30,

 

 

Six Months Ended June 30,

 

 

 

2019 vs. 2018

 

 

2019 vs. 2018

 

 

 

Increase (Decrease) Due to:

 

 

Increase (Decrease) Due to:

 

(Dollars in thousands)

 

Volume

 

 

Rate

 

 

Net

 

 

Volume

 

 

Rate

 

 

Net

 

Interest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest earning deposits in other banks

   and federal funds sold

 

$

413

 

 

$

34

 

 

$

447

 

 

$

541

 

 

$

80

 

 

$

621

 

Taxable securities

 

 

187

 

 

 

193

 

 

 

380

 

 

 

312

 

 

 

458

 

 

 

770

 

Non-taxable securities

 

 

(63

)

 

 

6

 

 

 

(57

)

 

 

(124

)

 

 

7

 

 

 

(117

)

Total securities

 

 

124

 

 

 

199

 

 

 

323

 

 

 

188

 

 

 

465

 

 

 

653

 

Loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate term

 

 

(20

)

 

 

607

 

 

 

587

 

 

 

468

 

 

 

1,002

 

 

 

1,470

 

Construction and land development

 

 

(1,113

)

 

 

114

 

 

 

(999

)

 

 

(2,106

)

 

 

463

 

 

 

(1,643

)

Commercial and industrial

 

 

(397

)

 

 

328

 

 

 

(69

)

 

 

(684

)

 

 

646

 

 

 

(38

)

Residential and home equity

 

 

808

 

 

 

183

 

 

 

991

 

 

 

1,508

 

 

 

463

 

 

 

1,971

 

Consumer and other

 

 

(29

)

 

 

74

 

 

 

45

 

 

 

(79

)

 

 

71

 

 

 

(8

)

Total Loans

 

 

(751

)

 

 

1,306

 

 

 

555

 

 

 

(893

)

 

 

2,645

 

 

 

1,752

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-marketable equity securities

 

 

(46

)

 

 

15

 

 

 

(31

)

 

 

(58

)

 

 

39

 

 

 

(19

)

Total interest income

 

 

(260

)

 

 

1,554

 

 

 

1,294

 

 

 

(222

)

 

 

3,229

 

 

 

3,007

 

Interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Demand and savings accounts

 

 

60

 

 

 

482

 

 

 

542

 

 

 

116

 

 

 

968

 

 

 

1,084

 

Money market accounts

 

 

73

 

 

 

428

 

 

 

501

 

 

 

85

 

 

 

863

 

 

 

948

 

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

 

 

(26

)

 

 

119

 

 

 

93

 

 

 

(65

)

 

 

241

 

 

 

176

 

Certificates of deposit greater than $250,000

 

 

15

 

 

 

43

 

 

 

58

 

 

 

14

 

 

 

86

 

 

 

100

 

Short-term borrowings

 

 

(321

)

 

 

(321

)

 

 

(642

)

 

 

(1,310

)

 

 

304

 

 

 

(1,006

)

Total interest expense

 

 

(199

)

 

 

751

 

 

 

552

 

 

 

(1,160

)

 

 

2,462

 

 

 

1,302

 

Net interest income

 

$

(61

)

 

$

803

 

 

$

742

 

 

$

938

 

 

$

767

 

 

$

1,705

 

 

Net interest income increased $0.7 million to $27.7 million for the three months ended June 30, 2019 compared with $27.0 million for the same period of 2018.  The increase is primarily the result of average interest earning assets growing 3.1%, or $64.8 million, and yields on interest earning assets increasing 8 basis points to 5.68% for the same comparable periods. Higher yields on interest earning assets were primarily the result of yields on loans increasing 23 basis points to 6.57% for the same comparable periods, offset by the percentage of loans to total interest earning assets declining to 79.5% for the second quarter of 2019 compared with 83.2% for the second quarter of 2018.

 

For the three months ended June 30, 2019, total cost of interest bearing liabilities increased 17 basis points to 0.74% compared with the same period a year ago, and is the result of the cost of interest bearing deposits increasing 34 basis points to 0.74% for the same comparable periods.  The Company had no short-term borrowing for the second quarter of 2019 compared with $128.3 million of short-term borrowings for the second quarter of 2018.  The Company expects the increase in cost of interest bearing deposits to remain flat over the next several quarters as the Federal Reserve is considering rate cuts.

 

Net interest margin decreased 2 basis points to 5.24% for the three months ended June 30, 2019 compared with the same period a year earlier.  Acquisition accounting adjustments, including the accretion of loan discounts and amortization of certificate of deposits premium, added 7 basis points to the net interest margin for the three months ended June 30, 2019.

 

30


 

Net interest income increased $1.7 million to $54.6 million for the six months ended June 30, 2019 compared with $52.9 million for the same period of 2018.  The increase is primarily the result of average interest earning assets growing 2.7%, or $55.5 million, and yields on interest earning assets increasing 14 basis points to 5.70% for the same comparable periods. Higher yields on interest earning assets were primarily the result of yields on loans increasing 24 basis points to 6.55% for the same comparable periods, offset by the percentage of loans to total interest earning assets declining to 80.3% for the second quarter of 2019 compared with 82.8% for the second quarter of 2018.

 

For the six months ended June 30, 2019, total cost of interest bearing liabilities increased 21 basis points to 0.74% compared with the same period a year ago, and is the result of the cost of interest bearing deposits increasing 34 basis points to 0.73% for the same comparable periods, while short-term borrowing declined $109.6 million, or 95.7%, to $4.9 million with the borrowing rate increasing 75 basis points to 2.63% for the six months ended June 30, 2019, compared with the same period a year earlier. The Company expects the increase in cost of interest bearing deposits to remain flat over the next several quarters as the Federal Reserve is considering rate cuts.

 

Net interest margin increased 2 basis points to 5.26% for the six months ended June 30, 2019 compared with the same period a year earlier.  Acquisition accounting adjustments, including the accretion of loan discounts and amortization of certificate of deposits premium, added 9 basis points to the net interest margin for the six months ended June 30, 2019.

Financial Overview for the Three Months Ended June 30, 2019 and 2018

 

 

 

Three Months Ended

 

 

 

 

 

 

 

 

 

 

 

June 30,

 

 

June 30,

 

 

$ Better /

 

 

% Better /

 

(Dollars in thousands)

 

2019

 

 

2018

 

 

(Worse)

 

 

(Worse)

 

Interest income

 

$

30,050

 

 

$

28,756

 

 

$

1,294

 

 

 

4.5

%

Interest expense

 

 

2,330

 

 

 

1,778

 

 

 

(552

)

 

 

-31.0

%

Net interest income

 

 

27,720

 

 

 

26,978

 

 

 

742

 

 

 

2.8

%

Provision for loan losses

 

 

2,150

 

 

 

1,475

 

 

 

(675

)

 

 

-45.8

%

Net interest income after provision for loan losses

 

 

25,570

 

 

 

25,503

 

 

 

67

 

 

 

0.3

%

Non-interest income

 

 

3,598

 

 

 

4,066

 

 

 

(468

)

 

 

-11.5

%

Non-interest expense

 

 

14,699

 

 

 

15,823

 

 

 

1,124

 

 

 

7.1

%

Income before income tax expense

 

 

14,469

 

 

 

13,746

 

 

 

723

 

 

 

5.3

%

Income tax expense

 

 

3,480

 

 

 

3,279

 

 

 

(201

)

 

 

-6.1

%

Net income

 

$

10,989

 

 

$

10,467

 

 

$

522

 

 

 

5.0

%

 

Net Income. Net income increased $0.5 million to $11.0 million for the three months ended June 30, 2019, compared with $10.5 million for the three months ended June 30, 2018. This was primarily attributable to an increase in net interest income of $0.7 million, and a decrease in non-interest expense of $1.1 million, offset by an increase in provision for loan losses of $0.7 million, a decrease in non-interest income of $0.5 million, and an increase in income tax expense of $0.2 million.

Net Interest Income and Net Interest Margin. The increase in net interest income for the three months ended June 30, 2019 compared with the same quarter in 2018 was primarily the result of average interest earning assets growing 3.1%, or $64.8 million, and yields on interest earning assets increasing 8 basis points to 5.68% for the same comparable periods.  Interest expense in the three months ended June 30, 2019 increased from the same period in 2018 due to an increase in average interest bearing deposits, combined with an increase in the cost of deposits of 34 basis points.

The yield on our average interest earning assets was 5.68% for the three months ended June 30, 2019 compared with 5.60% for the same period of 2018.  The cost of total funding increased in the three months ended June 30, 2019 to 0.49% from 0.38% in the comparable quarter in 2018.

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

31


 

For the three months ended June 30, 2019, provision for loan losses was $2.2 million compared with $1.5 million for the same period a year earlier. The increase in provision for loan losses in the three months ended June 30, 2019 is due primarily to $3.3 million in specific reserves, of which $2.2 million represents reserves for the unguaranteed portion of four Government-guaranteed loans acquired in the Town & Country Bank acquisition. For the three months ended June 30, 2019, the Company incurred net charge-offs of $34 thousand compared with net recoveries of $0.1 million for the same period a year ago.

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

 

 

 

Three Months Ended

 

 

 

 

 

 

 

 

 

 

 

June 30,

 

 

June 30,

 

 

$ Better /

 

 

% Better /

 

(Dollars in thousands)

 

2019

 

 

2018

 

 

(Worse)

 

 

(Worse)

 

Mortgage banking

 

$

1,621

 

 

$

1,505

 

 

$

116

 

 

 

7.7

%

Card processing

 

 

814

 

 

 

799

 

 

 

15

 

 

 

1.9

%

Service charges on deposit accounts

 

 

705

 

 

 

704

 

 

 

1

 

 

 

0.1

%

Net gain on sale of investment securities

 

 

-

 

 

 

333

 

 

 

(333

)

 

 

-100.0

%

Other

 

 

458

 

 

 

725

 

 

 

(267

)

 

 

-36.8

%

Total non-interest income

 

$

3,598

 

 

$

4,066

 

 

$

(468

)

 

 

-11.5

%

 

For the three months ended June 30, 2019, noninterest income was $3.6 million compared with $4.1 million the same period a year ago. The decrease was primarily due to a one-time gain on sale of securities of $0.3 million in the second quarter of 2018 and $0.2 million loss on the disposal of assets in the second quarter of 2019, offset by an increase in mortgage banking income of $0.1 million.

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

 

 

 

Three Months Ended

 

 

 

 

 

 

 

 

 

 

 

June 30,

 

 

June 30,

 

 

$ Better /

 

 

% Better /

 

(Dollars in thousands)

 

2019

 

 

2018

 

 

(Worse)

 

 

(Worse)

 

Salaries and employee benefits

 

$

9,526

 

 

$

10,196

 

 

$

670

 

 

 

6.6

%

Occupancy, equipment and depreciation

 

 

1,558

 

 

 

1,411

 

 

 

(147

)

 

 

-10.4

%

Data processing

 

 

1,018

 

 

 

1,063

 

 

 

45

 

 

 

4.2

%

Marketing and advertising

 

 

226

 

 

 

321

 

 

 

95

 

 

 

29.6

%

FDIC premiums

 

 

148

 

 

 

299

 

 

 

151

 

 

 

50.5

%

Acquisition-related costs

 

 

-

 

 

 

1

 

 

 

1

 

 

 

100.0

%

Other

 

 

2,223

 

 

 

2,532

 

 

 

309

 

 

 

12.2

%

Total non-interest expense

 

$

14,699

 

 

$

15,823

 

 

$

1,124

 

 

 

7.1

%

 

For the three months ended June 30, 2019, noninterest expense was $14.7 million compared with $15.8 million for the same period a year earlier and is primarily the result of $0.7 million in lower salaries and employee benefits, $0.3 million in lower other non-interest expense primarily related to lower legal expenses, $0.2 million in lower FDIC premiums, and $0.1 million in lower marketing costs. For the three months ended June 30, 2019, the Company’s efficiency ratio was 46.93% compared with 50.97% for the same period a year ago.

Income Tax Expense. For the three months ended June 30, 2019, income tax expense was $3.5 million compared with $3.3 million for the same period a year earlier. For the three months ended June 30, 2019, the effective tax rate was 24.1% compared with 23.9% for the same period a year ago. The tax rate in the first quarter of 2019 is higher than the same quarter in 2018 due primarily to higher tax benefits related to tax-deductible stock compensation expense in 2018.

 

32


 

Financial Overview for the Six Months Ended June 30, 2019 and 2018

 

 

 

Six Months Ended

 

 

 

 

 

 

 

 

 

 

 

June 30,

 

 

June 30,

 

 

$ Better /

 

 

% Better /

 

(Dollars in thousands)

 

2019

 

 

2018

 

 

(Worse)

 

 

(Worse)

 

Interest income

 

$

59,202

 

 

$

56,195

 

 

$

3,007

 

 

 

5.4

%

Interest expense

 

 

4,575

 

 

 

3,273

 

 

 

(1,302

)

 

 

-39.8

%

Net interest income

 

 

54,627

 

 

 

52,922

 

 

 

1,705

 

 

 

3.2

%

Provision for loan losses

 

 

3,700

 

 

 

3,525

 

 

 

(175

)

 

 

-5.0

%

Net interest income after provision for loan losses

 

 

50,927

 

 

 

49,397

 

 

 

1,530

 

 

 

3.1

%

Non-interest income

 

 

6,935

 

 

 

7,784

 

 

 

(849

)

 

 

-10.9

%

Non-interest expense

 

 

29,615

 

 

 

31,871

 

 

 

2,256

 

 

 

7.1

%

Income before income tax expense

 

 

28,247

 

 

 

25,310

 

 

 

2,937

 

 

 

11.6

%

Income tax expense

 

 

6,753

 

 

 

5,839

 

 

 

(914

)

 

 

-15.7

%

Net income

 

$

21,494

 

 

$

19,471

 

 

$

2,023

 

 

 

10.4

%

 

Net Income. Net income increased $2.0 million to $21.5 million for the six months ended June 30, 2019, compared with $19.5 million for the six months ended June 30, 2018. This was primarily attributable to an increase in net interest income of $1.7 million, and a decrease in non-interest expense of $2.3 million, offset by an increase in in income tax expense of $0.9 million, a decrease in non-interest income of $0.8 million, and an increase in provision for loan losses of $0.2 million.

Net Interest Income and Net Interest Margin. The increase in net interest income for the six months ended June 30, 2019 compared with the same quarter in 2018 was primarily the result of average interest earning assets growing 2.7%, or $55.5 million, and yields on interest earning assets increasing 14 basis points to 5.70% for the same comparable periods.  Interest expense in the six months ended June 30, 2019 increased from the same period in 2018 due to an increase in average interest bearing deposits, combined with an increase in the cost of deposits of 34 basis points.

The yield on our average interest earning assets was 5.70% for the six months ended June 30, 2019 compared with 5.56% for the same period of 2018.  The cost of total funding increased in the six months ended June 30, 2019 to 0.49% from 0.35% in the comparable period in 2018.

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

For the six months ended June 30, 2019, provision for loan losses was $3.7 million compared with $3.5 million for the same period a year earlier. The increase in provision for loan losses in the three months ended June 30, 2019 is due primarily to $3.3 million in specific reserves, of which $2.2 million represents reserves for the unguaranteed portion of four Government-guaranteed loans acquired in the Town & Country Bank acquisition, offset by a reduction in construction loan concentrations. For the six months ended June 30, 2019, the Company incurred net charge-offs of $0.9 million compared with net recoveries of $0.5 million for the same period a year ago.

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

 

 

 

Six Months Ended

 

 

 

 

 

 

 

 

 

 

 

June 30,

 

 

June 30,

 

 

$ Better /

 

 

% Better /

 

(Dollars in thousands)

 

2019

 

 

2018

 

 

(Worse)

 

 

(Worse)

 

Mortgage banking

 

$

3,038

 

 

$

3,143

 

 

$

(105

)

 

 

-3.3

%

Card processing

 

 

1,429

 

 

 

1,522

 

 

 

(93

)

 

 

-6.1

%

Service charges on deposit accounts

 

 

1,362

 

 

 

1,377

 

 

 

(15

)

 

 

-1.1

%

Net gain on sale of investment securities

 

 

-

 

 

 

335

 

 

 

(335

)

 

 

-100.0

%

Other

 

 

1,106

 

 

 

1,407

 

 

 

(301

)

 

 

-21.4

%

Total non-interest income

 

$

6,935

 

 

$

7,784

 

 

$

(849

)

 

 

-10.9

%

 

33


 

For the six months ended June 30, 2019, noninterest income was $6.9 million compared with $7.8 million the same period a year ago. The decrease was primarily due to a one-time gain on sale of securities of $0.3 million in the six months ended June 30, 2018, a decrease of $0.3 million in other non-interest income, a decrease in mortgage banking income of $0.1 million and a decrease in card processing income of $0.1 million.

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

 

 

 

Six Months Ended

 

 

 

 

 

 

 

 

 

 

 

June 30,

 

 

June 30,

 

 

$ Better /

 

 

% Better /

 

(Dollars in thousands)

 

2019

 

 

2018

 

 

(Worse)

 

 

(Worse)

 

Salaries and employee benefits

 

$

19,412

 

 

$

20,619

 

 

$

1,207

 

 

 

5.9

%

Occupancy, equipment and depreciation

 

 

3,014

 

 

 

2,954

 

 

 

(60

)

 

 

-2.0

%

Data processing

 

 

1,982

 

 

 

1,933

 

 

 

(49

)

 

 

-2.5

%

Marketing and advertising

 

 

342

 

 

 

767

 

 

 

425

 

 

 

55.4

%

FDIC premiums

 

 

238

 

 

 

628

 

 

 

390

 

 

 

62.1

%

Acquisition-related costs

 

 

-

 

 

 

350

 

 

 

350

 

 

 

100.0

%

Other

 

 

4,627

 

 

 

4,620

 

 

 

(7

)

 

 

-0.2

%

Total non-interest expense

 

$

29,615

 

 

$

31,871

 

 

$

2,256

 

 

 

7.1

%

 

For the six months ended June 30, 2019, noninterest expense was $29.6 million compared with $31.9 million for the same period a year earlier and is primarily the result of $1.2 million in lower salaries and employee benefits, $0.4 million in lower marketing and advertising costs, $0.4 million in lower FDIC premiums, and $0.4 million in acquisition-related costs attributed to 2018. For the six months ended June 30, 2019, the Company’s efficiency ratio was 48.11% compared with 52.50% for the same period a year ago.

Income Tax Expense. For the six months ended June 30, 2019, income tax expense was $6.8 million compared with $5.8 million for the same period a year earlier. For the six months ended June 30, 2019, the effective tax rate was 23.9% compared with 23.1% for the same period a year ago. The tax rate for the six months ended June 30, 2019 is higher than the same period in 2018 due primarily to higher tax benefits related to tax-deductible stock compensation expense in 2018.

34


 

Financial Condition

Total assets were $2.31 billion at June 30, 2019, a 5.8% increase compared with December 31, 2018. Total loans held for investment were $1.67 billion at June 30, 2019, a slight decrease of 0.4% from December 31, 2018. Total deposits were $1.98 billion at June 30, 2019, an increase of 5.6% compared with December 31, 2018.

Loans

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

 

 

 

June 30,

 

 

December 31,

 

(Dollars in thousands)

 

2019

 

 

2018

 

Loans held for sale

 

$

18,446

 

 

$

10,267

 

 

 

 

 

 

 

 

 

 

Loans held for investment:

 

 

 

 

 

 

 

 

Commercial real estate loans:

 

 

 

 

 

 

 

 

Real estate term

 

$

911,693

 

 

$

891,131

 

Construction and land development

 

 

307,447

 

 

 

324,506

 

Total commercial real estate loans

 

 

1,219,140

 

 

 

1,215,637

 

Commercial and industrial loans

 

 

289,124

 

 

 

295,569

 

Consumer loans:

 

 

 

 

 

 

 

 

Residential and home equity

 

 

153,637

 

 

 

155,601

 

Consumer and other

 

 

14,918

 

 

 

16,621

 

Total consumer loans

 

 

168,555

 

 

 

172,222

 

Total gross loans

 

 

1,676,819

 

 

 

1,683,428

 

Net deferred loan fees

 

 

(4,235

)

 

 

(4,526

)

Total loans held for investment

 

 

1,672,584

 

 

 

1,678,902

 

Allowance for loan losses

 

 

(28,039

)

 

 

(25,245

)

Total loans held for investment, net

 

$

1,644,545

 

 

$

1,653,657

 

 

 

 

June 30,

 

 

December 31,

 

(Percentage of total loans held for investment)

 

2019

 

 

2018

 

Loans held for investment:

 

 

 

 

 

 

 

 

Commercial real estate loans:

 

 

 

 

 

 

 

 

Real estate term

 

 

54.4

%

 

 

52.9

%

Construction and land development

 

 

18.3

%

 

 

19.3

%

Total commercial real estate loans

 

 

72.7

%

 

 

72.2

%

Commercial and industrial loans

 

 

17.2

%

 

 

17.6

%

Consumer loans:

 

 

 

 

 

 

 

 

Residential and home equity

 

 

9.2

%

 

 

9.2

%

Consumer and other

 

 

0.9

%

 

 

1.0

%

Total consumer loans

 

 

10.1

%

 

 

10.2

%

Total loans held for investment

 

 

100.0

%

 

 

100.0

%

We originate certain residential mortgage loans for sale to investors that are carried at cost. Due to the short period held, generally less than 90 days, we consider 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 tables also present, for loans with maturities over one year, an analysis with respect to fixed interest rate loans and adjustable interest rate loans.

35


 

Contractual maturities at June 30, 2019 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

 

$

76,935

 

 

$

209,467

 

 

$

625,291

 

 

$

911,693

 

 

$

85,055

 

 

$

749,703

 

 

Construction and land development

 

 

244,083

 

 

 

45,040

 

 

 

18,324

 

 

 

307,447

 

 

 

16,735

 

 

 

46,629

 

 

Total commercial real estate loans

 

 

321,018

 

 

 

254,507

 

 

 

643,615

 

 

 

1,219,140

 

 

 

101,790

 

 

 

796,332

 

 

Commercial and industrial loans

 

 

134,529

 

 

 

127,987

 

 

 

26,608

 

 

 

289,124

 

 

 

91,300

 

 

 

63,295

 

 

Consumer loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential and home equity

 

 

13,076

 

 

 

30,005

 

 

 

110,556

 

 

 

153,637

 

 

 

14,532

 

 

 

126,029

 

 

Consumer and other

 

 

6,277

 

 

 

6,435

 

 

 

2,206

 

 

 

14,918

 

 

 

8,234

 

 

 

407

 

 

Total consumer loans

 

 

19,353

 

 

 

36,440

 

 

 

112,762

 

 

 

168,555

 

 

 

22,766

 

 

 

126,436

 

 

Total gross loans held for investment

 

$

474,900

 

(1)

$

418,934

 

 

$

782,985

 

 

$

1,676,819

 

 

$

215,856

 

 

$

986,063

 

(1)

(1)

The sum of adjustable rate loans maturing after one year and total loans maturing within one year is $1.5 billion or 87.1% of total gross loans held for investment at June 30, 2019.

Concentrations. As of June 30, 2019, in management’s judgment, a concentration of loans existed in real estate related loans. At that date, real estate related loans comprised 81.9% of total loans held for investment, of which 54.4% are real estate term loans, 18.3% are construction and land development loans, and 9.2% are residential and home equity loans. We require collateral on real estate lending arrangements and typically maintain loan-to-value ratios of up to 80%, except for some residential construction loans of up to 95% loan-to-value provided the loan includes pre-approved long-term financing.  Our concentration in commercial and industrial loans has decreased to 17.2% at June 30, 2019 from 17.6% at December 31, 2018.  

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.

36


 

The following non-performing assets table, excluding PCI loans, 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 troubled-debt restructured loans, and OREO:

 

 

 

June 30,

 

 

December 31,

 

(Dollars in thousands)

 

2019

 

 

2018

 

Non-accrual loans, not troubled-debt restructured

 

 

 

 

 

 

 

 

Real estate term

 

$

-

 

 

$

309

 

Construction and land development

 

 

305

 

 

 

-

 

Commercial and industrial

 

 

1,403

 

 

 

347

 

Residential and home equity

 

 

49

 

 

 

-

 

Consumer and other

 

 

-

 

 

 

-

 

Total non-accrual, not troubled-debt restructured loans

 

 

1,757

 

 

 

656

 

Troubled-debt restructured loans non-accrual

 

 

 

 

 

 

 

 

Real estate term

 

 

1,374

 

 

 

1,449

 

Construction and land development

 

 

-

 

 

 

-

 

Commercial and industrial

 

 

129

 

 

 

150

 

Residential and home equity

 

 

-

 

 

 

-

 

Consumer and other

 

 

-

 

 

 

-

 

Total troubled-debt restructured, non-accrual loans

 

 

1,503

 

 

 

1,599

 

Total non-accrual loans (1)

 

 

3,260

 

 

 

2,255

 

Accruing loans past due 90 days or more

 

 

99

 

 

 

17

 

Total non-performing loans (NPL)

 

 

3,359

 

 

 

2,272

 

 

 

 

 

 

 

 

 

 

OREO

 

 

-

 

 

 

-

 

Total non-performing assets (NPA) (2)

 

$

3,359

 

 

$

2,272

 

Accruing troubled debt restructured loans

 

$

19,336

 

 

$

5,912

 

Non-accrual troubled debt restructured loans

 

 

1,503

 

 

 

1,599

 

Total troubled debt restructured loans

 

$

20,839

 

 

$

7,511

 

(1)

We estimate that approximately $117,000 and $256,000 of interest income would have been recognized on loans accounted for on a non-accrual basis for the six months ended June 30, 2019 and the year ended December 31, 2018, respectively, had such loans performed pursuant to contractual terms.

(2)

Non-performing assets as of June 30, 2019 and December 31, 2018 have not been reduced by U.S. government guarantees of $117,000 and $406,000, respectively.  

As of June 30, 2019 and December 31, 2018, there are $1.7 million and $2.2 million, respectively, in PCI loans that are not performing to the original contractual terms.  Including these PCI loans, total non-accrual loans are $5.0 million and $4.5 million at June 30, 2019, and December 31, 2018, respectively.

Impaired Loans. Impaired loans are loans for which it is probable that we will be unable to collect all principal and interest payments due according to the contractual terms of the loan agreement. We measure impairment 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 impaired, we consider 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 impaired. We determine 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 we expect to collect all amounts due, are not considered impaired.

Troubled-debt Restructured Loans. A restructured loan is considered a troubled debt restructured loan, or TDR, if we, for economic or legal reasons related to the debtor’s financial difficulties, grant a concession in terms or a below-market interest rate to the debtor that we would not otherwise consider. TDR loans were $20.8 million and $7.5 million at June 30, 2019 and December 31, 2018, respectively. Our TDR loans are considered impaired loans of which $1.5 million and $1.6 million were designated as non-accrual at June 30, 2019, and December 31, 2018, respectively.

37


 

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.

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 us 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:

 

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

(Dollars in thousands)

 

2019

 

 

2018

 

Balance, beginning of period

 

$

-

 

 

$

994

 

Additions

 

 

-

 

 

 

-

 

Write-downs

 

 

-

 

 

 

-

 

Sales

 

 

-

 

 

 

(994

)

Balance, end of period

 

$

-

 

 

$

-

 

 

 

Allowance for Loan Losses

We maintain an adequate allowance for loan losses, or ALLL, based on a comprehensive methodology that assesses the losses inherent in the loan portfolio. Our ALLL is based on a continuing review of loans which includes consideration of actual loss experience, changes in the size and character of the portfolio, identification of individual problem situations which may affect the borrower’s ability to repay, evaluations of the prevailing and anticipated economic conditions, and other qualitative factors. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available.

Our ALLL is increased by charges to income and decreased by charge-offs (net of recoveries). While we use available information to recognize losses on loans, changes in economic conditions may necessitate revision of the estimate in future years.

The ALLL consists of specific and general components. The specific component relates to loans determined to be impaired that are individually evaluated for impairment. For impaired loans individually evaluated, an allowance is established when the discounted cash flows, or the fair value of the collateral, if the loans are collateral-dependent, of the impaired loans are lower than the carrying value of the loan. The general component covers all loans not individually evaluated for impairment and is based on historical loss experience adjusted for qualitative factors. Various qualitative factors are considered including changes to underwriting policies, loan concentrations, volume and mix of loans, size and complexity of individual credits, locations of credits and new market areas, changes in local and national economic conditions, and trends in past due, non-accrual and classified loan balances.

38


 

The following table sets forth the activity in our allowance for loan losses for the periods indicated:

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

June 30,

 

 

June 30,

 

(Dollars in thousands)

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

25,923

 

 

$

20,731

 

 

$

25,245

 

 

$

18,303

 

Loans charged off:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate term

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Construction and land development

 

 

-

 

 

 

-

 

 

 

(5

)

 

 

-

 

Commercial and industrial

 

 

(497

)

 

 

(97

)

 

 

(1,583

)

 

 

(290

)

Residential and home equity

 

 

-

 

 

 

-

 

 

 

(19

)

 

 

-

 

Consumer and other

 

 

(110

)

 

 

(107

)

 

 

(174

)

 

 

(172

)

Total charge-offs

 

 

(607

)

 

 

(204

)

 

 

(1,781

)

 

 

(462

)

Recoveries:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate term

 

 

24

 

 

 

-

 

 

 

24

 

 

 

12

 

Construction and land development

 

 

319

 

 

 

46

 

 

 

351

 

 

 

71

 

Commercial and industrial

 

 

167

 

 

 

173

 

 

 

347

 

 

 

689

 

Residential and home equity

 

 

10

 

 

 

54

 

 

 

32

 

 

 

81

 

Consumer and other

 

 

53

 

 

 

33

 

 

 

121

 

 

 

89

 

Total recoveries

 

 

573

 

 

 

306

 

 

 

875

 

 

 

942

 

Net loan charge-offs/(recoveries)

 

 

(34

)

 

 

102

 

 

 

(906

)

 

 

480

 

Provision for loan losses

 

 

2,150

 

 

 

1,475

 

 

 

3,700

 

 

 

3,525

 

Ending balance

 

$

28,039

 

 

$

22,308

 

 

$

28,039

 

 

$

22,308

 

Loans held for investment

 

$

1,672,584

 

 

$

1,691,959

 

 

$

1,672,584

 

 

$

1,691,959

 

Average loans

 

 

1,687,452

 

 

 

1,713,248

 

 

 

1,681,189

 

 

 

1,688,022

 

Selected ratios:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loan charge-offs / (recoveries) to average loans

 

 

0.01

%

 

 

-0.02

%

 

 

0.11

%

 

 

-0.06

%

Provision for loan losses to average loans

 

 

0.51

%

 

 

0.35

%

 

 

0.44

%

 

 

0.42

%

Allowance for loan losses to loans held for investment

 

 

1.68

%

 

 

1.32

%

 

 

1.68

%

 

 

1.32

%

 

The allowance for loan losses to loans held for investment was 1.68% at June 30, 2019 compared with 1.32% at June 30, 2018.  In accordance with acquisition accounting, loans acquired from the Utah branches of Banner Bank and from Town & Country Bank were recorded at their estimated fair value, which resulted in a net discount to the loans’ contractual amounts, a portion of which reflects a discount for possible credit losses. Credit discounts are included in the determination of fair value, and as a result, no allowance for loan and lease losses is recorded for acquired loans at the acquisition date.  The discount recorded on the acquired loans is not reflected in the allowance for loan losses or related allowance coverage ratios.  Remaining credit discounts on acquired loans were $6.7 million at June 30, 2019.   The allowance for loan losses is also adjusted based on changes to the underlying loan portfolio, changes to our historical loss rates, and adjustments to qualitative ALLL factors due to changes in current conditions.

Our 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.  Our 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.  

We allocate our allowance for loan losses by assigning general percentages to our major loan categories (construction and land development, commercial real estate term, residential real estate, C&I and consumer), assigning specific percentages to each category of loans graded in accordance with the guidelines established by our regulatory agencies, and making specific allocations to impaired loans when factors are present requiring a greater reserve than would be required using the assigned risk rating allocation, which is typically based on a review of appraisals or other collateral analysis.

39


 

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

 

 

 

June 30,

 

 

December 31,

 

(Dollars in thousands)

 

2019

 

 

2018

 

Commercial real estate loans:

 

 

 

 

 

 

 

 

Real estate term

 

$

10,472

 

 

$

9,968

 

Construction and land development

 

 

7,387

 

 

 

7,022

 

Total commercial real estate loans

 

 

17,859

 

 

 

16,990

 

Commercial and industrial loans

 

 

9,237

 

 

 

7,227

 

Consumer loans:

 

 

 

 

 

 

 

 

Residential and home equity

 

 

772

 

 

 

729

 

Consumer and other

 

 

171

 

 

 

299

 

Total consumer loans

 

 

943

 

 

 

1,028

 

Total

 

$

28,039

 

 

$

25,245

 

 

 

Investments

Investment securities were $334.8 million at June 30, 2019 and $346.4 million at December 31, 2018. As of June 30, 2019, our portfolio of investment securities is comprised of available for sale securities.  During the six months ended June 30, 2019, we transferred the held to maturity securities to available for sale. At June 30, 2019, we held no investment securities from any issuer which totaled over 10% of our shareholders’ equity.

The carrying value of our portfolio of investment securities was as follows:

 

 

 

June 30,

 

 

December 31,

 

(Dollars in thousands)

 

2019

 

 

2018

 

Available-for-sale securities: (Fair Value)

 

 

 

 

 

 

 

 

U.S. Government agencies

 

$

49,061

 

 

$

48,366

 

Municipal securities

 

 

67,645

 

 

 

10,268

 

Mortgage-backed securities

 

 

213,329

 

 

 

217,757

 

Corporate securities

 

 

4,727

 

 

 

4,573

 

Total

 

 

334,762

 

 

 

280,964

 

Held-to-maturity securities: (Amortized Cost)

 

 

 

 

 

 

 

 

Municipal securities

 

 

-

 

 

 

65,462

 

Total investment securities

 

$

334,762

 

 

$

346,426

 

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

Investment securities maturities as of June 30, 2019:

 

 

 

 

 

 

 

 

 

 

 

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

 

$

29,000

 

 

 

1.27

%

 

$

19,956

 

 

 

2.09

%

 

$

-

 

 

 

0.00

%

 

$

-

 

 

 

0.00

%

 

$

48,956

 

 

 

1.61

%

Municipal securities

 

 

17,156

 

 

 

1.82

%

 

 

29,204

 

 

 

1.89

%

 

 

17,698

 

 

 

2.07

%

 

 

3,210

 

 

 

2.55

%

 

 

67,268

 

 

 

1.95

%

Mortgage-backed securities

 

 

-

 

 

 

0.00

%

 

 

17,902

 

 

 

1.50

%

 

 

34,686

 

 

 

1.87

%

 

 

160,436

 

 

 

2.66

%

 

 

213,024

 

 

 

2.43

%

Other securities

 

 

-

 

 

 

0.00

%

 

 

2,000

 

 

 

3.59

%

 

 

3,000

 

 

 

2.21

%

 

 

-

 

 

 

0.00

%

 

 

5,000

 

 

 

2.76

%

Total

 

 

46,156

 

 

 

1.48

%

 

 

69,062

 

 

 

1.90

%

 

 

55,384

 

 

 

1.95

%

 

 

163,646

 

 

 

2.66

%

 

 

334,248

 

 

 

2.22

%

Held-to-maturity securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Municipal securities

 

 

-

 

 

 

0.00

%

 

 

-

 

 

 

0.00

%

 

 

-

 

 

 

0.00

%

 

 

-

 

 

 

0.00

%

 

 

-

 

 

 

0.00

%

Total investment

   securities

 

$

46,156

 

 

 

1.48

%

 

$

69,062

 

 

 

1.90

%

 

$

55,384

 

 

 

1.95

%

 

$

163,646

 

 

 

2.66

%

 

$

334,248

 

 

 

2.22

%

40


 

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

We evaluate securities for other-than-temporary impairment 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) our intent and ability to retain our investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

Deposits

Total deposits were $1.98 billion at June 30, 2019 and $1.88 billion at December 31, 2018. The increase in total deposits is attributed primarily to organic growth as a result of enhanced deposit pricing.  Non-interest bearing demand deposits were $707.1 million, or 35.7% of total deposits at June 30, 2019 compared with $642.6 million, or 34.2% of total deposits at December 31, 2018. 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:

 

 

 

Six months ended

 

 

Six months ended

 

 

 

June 30, 2019

 

 

June 30, 2018

 

 

 

Average

 

 

Average

 

 

Average

 

 

Average

 

(Dollars in thousands)

 

Balance

 

 

Rate

 

 

Balance

 

 

Rate

 

Non-interest bearing deposits

 

$

643,642

 

 

 

0.00

%

 

$

635,503

 

 

 

0.00

%

Interest bearing deposits:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest bearing demand and savings

 

 

807,043

 

 

 

0.51

%

 

 

725,774

 

 

 

0.26

%

Money market

 

 

262,171

 

 

 

0.99

%

 

 

215,946

 

 

 

0.31

%

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

 

 

142,450

 

 

 

1.20

%

 

 

156,549

 

 

 

0.87

%

Certificates of deposit greater than $250,000

 

 

38,136

 

 

 

1.87

%

 

 

36,156

 

 

 

1.41

%

Total interest bearing deposits

 

 

1,249,800

 

 

 

0.73

%

 

 

1,134,425

 

 

 

0.39

%

Total

 

$

1,893,442

 

 

 

0.48

%

 

$

1,769,928

 

 

 

0.25

%

 

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

 

 

 

June 30,

 

(Dollars in thousands)

 

2019

 

Due in three months or less

 

$

-

 

Due in over three months through six months

 

 

3,726

 

Due in over six months through twelve months

 

 

10,972

 

Due in over twelve months

 

 

25,831

 

Total

 

$

40,529

 

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

Shareholders’ Equity

Shareholders’ equity totaled $312.8 million at June 30, 2019, an increase of $22.6 million or 7.8% since December 31, 2018. The increase in shareholders’ equity for the six months ended June 30, 2019 was primarily due to an increase of $1.0 million in additional paid in capital from exercises of stock options, share-based compensation, and net income of $21.5 million for the period less dividends paid of $4.3 million.

41


 

Dividends of $0.23 per share were declared during the six months ended June 30, 2019 representing 20.1% of the net income for the same period. We announced a quarterly dividend of $0.13 per share on July 25, 2019, payable on August 12, 2019 for shareholders’ of record on August 5, 2019.  Future cash dividends will depend on a variety of factors, including net income, capital, asset quality, general economic conditions, and regulatory considerations.

Capital Resources

We are 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, new 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 our capital ratios:

 

 

 

Basel III

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Regulatory

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Requirements -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Well Capitalized

 

PUB

 

 

(Greater than or

 

Actual as of

 

Actual as of

 

Actual as of

 

 

Equal to Stated

 

June 30,

 

December 31,

 

June 30,

 

 

Percentage)

 

2019

 

2018

 

2018

Common equity tier 1 capital

 

 

6.50

%

 

 

 

15.99

%

 

 

 

15.11

%

 

 

 

13.97

%

 

Tier 1 risk-based capital

 

 

8.00

%

 

 

 

15.99

%

 

 

 

15.11

%

 

 

 

13.97

%

 

Total risk-based capital

 

 

10.00

%

 

 

 

17.24

%

 

 

 

16.36

%

 

 

 

15.22

%

 

Tier 1 leverage capital ratio

 

 

5.00

%

 

 

 

12.78

%

 

 

 

12.27

%

 

 

 

11.48

%

 

PUB and PIB met the requirements to be defined as a “well-capitalized” institution at June 30, 2019, December 31, 2018 and June 30, 2018 for federal regulatory purposes.

 

 

Off-Balance Sheet Arrangements

The following table sets forth our off-balance sheet lending commitments as of June 30, 2019:

 

 

 

 

 

 

 

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

 

$

572,916

 

 

$

384,798

 

 

$

79,735

 

 

$

18,706

 

 

$

89,677

 

Standby letters of credit

 

 

26,528

 

 

 

26,528

 

 

 

-

 

 

 

-

 

 

 

-

 

Credit cards

 

 

25,409

 

 

 

25,409

 

 

 

-

 

 

 

-

 

 

 

-

 

Total

 

$

624,853

 

 

$

436,735

 

 

$

79,735

 

 

$

18,706

 

 

$

89,677

 

 

Contractual Obligations

The following table sets forth our significant contractual obligations as of June 30, 2019:

 

 

 

 

 

 

 

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

 

$

178,849

 

 

$

98,351

 

 

$

42,083

 

 

$

36,729

 

 

$

1,686

 

Deposits without stated maturity

 

 

1,803,057

 

 

 

1,803,057

 

 

 

-

 

 

 

-

 

 

 

-

 

Short-term borrowings

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Total

 

$

1,981,906

 

 

$

1,901,408

 

 

$

42,083

 

 

$

36,729

 

 

$

1,686

 

42


 

Liquidity

The ability to have readily available funds sufficient to repay fully maturing liabilities is of primary importance to depositors, creditors and regulators. Our liquidity, represented by cash borrowing lines, federal funds and available for sale securities, is a result of our operating, investing and financing activities and related cash flows. In order to ensure funds are available at all times, we devote resources to projecting, on a monthly basis, the amount of funds that will be required and we maintain 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. We have borrowing lines at a correspondent bank totaling $25.0 million. We also have a current borrowing line with the FHLB, totaling $683.9 million at June 30, 2019, which is secured by various real estate loans pledged as collateral totaling $707.9 million and investment securities of $216.1 million.  Additionally, we have a borrowing line with the Federal Reserve Bank of $28.2 million, which is secured by $28.5 million of investment securities.

We believe our liquid assets are adequate to meet our cash flow needs for loan funding and deposit cash withdrawal for the next 60 to 90 days. At June 30, 2019, we had approximately $283.3 million in net liquid assets comprised of $192.5 million in cash and cash equivalents, including interest bearing deposits of $64.1 million and federal funds sold of $90.3 million, $334.8 million in available for sale investment securities and $18.4 million in loans held for sale, less $262.4 million of available for sale securities pledged as collateral for short-term borrowings.

On a long-term basis, our liquidity will be met by changing the relative distribution of our asset portfolios by reducing our investment or loan volumes, or selling or encumbering assets. Further, we will increase liquidity by soliciting higher levels of deposit accounts through promotional activities and/or borrowing from our correspondent banks, as well as the FHLB. At the current time, our 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.

Our 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.

Our primary investing activities are the origination of real estate, commercial and consumer loans and purchases and sales of investment securities. At June 30, 2019, we had outstanding loan commitments of $572.9 million, credit card commitments of $25.4 million and outstanding letters of credit of $26.5 million. We anticipate that we will have sufficient funds available to meet current loan commitments.

Net cash provided by financing activities for the six months ended June 30, 2019 was $101.1 million, principally from an increase in deposit balances, offset by dividends paid to shareholders during the period.

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

The Company’s assessment of market risk at June 30, 2019 indicates there have been no material changes in the quantitative and qualitative disclosures from those in our Annual Report on Form 10-K for the year ended December 31, 2018 filed with the SEC.

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 June 30, 2019. 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 June 30, 2019, to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

43


 

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

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.

 

Item 1A. Risk Factors

There have been no material changes in our assessment of our risk factors from those set forth in our Annual Report on Form 10-K for the year ended December 31, 2018.

 

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

None

 


44


 

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 People’s Utah Bancorp Quarterly Report on Form 10-Q for the quarter ended June 30, 2019 is formatted in 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

 

 

 

 

45


 

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 August 9, 2019.

 

PEOPLE’S UTAH BANCORP

 

 

 

/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)

 

 

 

46