UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
For the quarterly period ended
OR
For the transition period from _____________ to _____________
Commission File Number:
(Exact Name of Registrant as Specified in Its Charter)
(State or Other Jurisdiction of Incorporation or Organization) |
(IRS Employer Identification No.) |
(Address of Principal Executive Offices) |
(Zip Code) |
(
(Registrant’s Telephone Number, Including Area Code)
N/A
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
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.
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).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
☐ |
|
Accelerated filer |
☐ |
☒ |
|
Smaller reporting company |
||
Emerging growth company |
|
|
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class |
Outstanding at May 3, 2024 |
Common Stock, $0.01 par value |
FIRST US BANCSHARES, INC. AND SUBSIDIARIES
2
FORWARD-LOOKING STATEMENTS
Statements contained in this Quarterly Report on Form 10-Q that are not historical facts are forward-looking statements (as defined in the Private Securities Litigation Reform Act of 1995). In addition, First US Bancshares, Inc. (“Bancshares” and, together with its subsidiaries, the “Company”), through its senior management, from time to time makes forward-looking statements concerning its expected future operations, performance and other developments. The words “estimate,” “project,” “intend,” “anticipate,” “expect,” “believe,” “continues” and similar expressions are indicative of forward-looking statements. Such forward-looking statements are necessarily estimates reflecting the Company’s best judgment based on current information and involve a number of risks and uncertainties. Certain factors that could affect the accuracy of such forward-looking statements and cause actual results to differ materially from those projected in such forward-looking statements are identified in the Company’s filings with the Securities and Exchange Commission (“SEC”), and forward-looking statements contained herein or in other public statements of the Company or its senior management should be considered in light of those factors. Such factors may include adverse developments in the financial services industry; the effects of any government shutdown; loan losses may be greater than anticipated; our ability to ensure that sufficient cash flow and liquid assets are available to satisfy current and future financial obligations; the increased lending risks associated with commercial real estate lending; liquidity risks; the impact of national and local market conditions on the Company’s business and operations; strong competition in the banking industry; the impact of changes in interest rates and monetary policy on the Company’s performance and financial condition; the impact of technological changes in the banking and financial service industries and potential information system failures; cybersecurity and data privacy threats; the costs of complying with extensive governmental regulation; the risk that internal controls and procedures might fail or be circumvented; the impact of changing tax laws on the Company’s financial results; the potential impact of climate change and related legislative and regulatory initiatives; the possibility that acquisitions may not produce anticipated results and result in unforeseen integration difficulties; the rate of growth (or lack thereof) in the economy generally and in the Company’s service areas; the volatility of our stock price and our dependence on the soundness of other financial institutions; and other risk factors described from time to time in the Company’s public filings, including, but not limited to, the Company’s most recent Annual Report on Form 10-K. Relative to the Company’s dividend policy, the payment of cash dividends is subject to the discretion of the Board of Directors and will be determined in light of then-current conditions, including the Company’s earnings, leverage, operations, financial conditions, capital requirements and other factors deemed relevant by the Board of Directors. In the future, the Board of Directors may change the Company’s dividend policy, including the frequency or amount of any dividend, in light of then-existing conditions.
3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FIRST US BANCSHARES, INC. AND SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands, Except Share Amounts)
|
|
March 31, |
|
|
December 31, |
|
||
|
|
2024 |
|
|
2023 |
|
||
|
|
(Unaudited) |
|
|
|
|
||
ASSETS |
|
|||||||
Cash and due from banks |
|
$ |
|
|
$ |
|
||
Interest-bearing deposits in banks |
|
|
|
|
|
|
||
Total cash and cash equivalents |
|
|
|
|
|
|
||
Federal funds sold |
|
|
|
|
|
|
||
Investment securities available-for-sale, at fair value |
|
|
|
|
|
|
||
Investment securities held-to-maturity, at amortized cost |
|
|
|
|
|
|
||
Federal Home Loan Bank stock, at cost |
|
|
|
|
|
|
||
Loans and leases held for investment |
|
|
|
|
|
|
||
Less allowance for credit losses on loans and leases |
|
|
|
|
|
|
||
Net loans and leases held for investment |
|
|
|
|
|
|
||
Premises and equipment, net of accumulated depreciation |
|
|
|
|
|
|
||
Cash surrender value of bank-owned life insurance |
|
|
|
|
|
|
||
Accrued interest receivable |
|
|
|
|
|
|
||
Goodwill and core deposit intangible, net |
|
|
|
|
|
|
||
Other real estate owned |
|
|
|
|
|
|
||
Other assets |
|
|
|
|
|
|
||
Total assets |
|
$ |
|
|
$ |
|
||
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|||||||
Deposits: |
|
|
|
|
|
|
||
Non-interest-bearing |
|
$ |
|
|
$ |
|
||
Interest-bearing |
|
|
|
|
|
|
||
Total deposits |
|
|
|
|
|
|
||
Accrued interest expense |
|
|
|
|
|
|
||
Other liabilities |
|
|
|
|
|
|
||
Short-term borrowings |
|
|
|
|
|
|
||
Long-term borrowings |
|
|
|
|
|
|
||
Total liabilities |
|
|
|
|
|
|
||
Shareholders’ equity: |
|
|
|
|
|
|
||
Common stock, par value $ |
|
|
|
|
|
|
||
Additional paid-in capital |
|
|
|
|
|
|
||
Accumulated other comprehensive loss, net of tax |
|
|
( |
) |
|
|
( |
) |
Retained earnings |
|
|
|
|
|
|
||
Less treasury stock: |
|
|
( |
) |
|
|
( |
) |
Total shareholders’ equity |
|
|
|
|
|
|
||
Total liabilities and shareholders’ equity |
|
$ |
|
|
$ |
|
||
The accompanying notes are an integral part of these Interim Condensed Consolidated Statements.
4
FIRST US BANCSHARES, INC. AND SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands, Except Per Share Data)
|
|
Three Months Ended |
|
|||||
|
|
March 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
|
|
(Unaudited) |
|
|||||
Interest income: |
|
|
|
|
|
|
||
Interest and fees on loans |
|
$ |
|
|
$ |
|
||
Interest on investment securities |
|
|
|
|
|
|
||
Interest on deposits in banks |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
Total interest income |
|
|
|
|
|
|
||
Interest expense: |
|
|
|
|
|
|
||
Interest on deposits |
|
|
|
|
|
|
||
Interest on borrowings |
|
|
|
|
|
|
||
Total interest expense |
|
|
|
|
|
|
||
Net interest income |
|
|
|
|
|
|
||
Provision for credit losses |
|
|
— |
|
|
|
|
|
Net interest income after provision for credit losses |
|
|
|
|
|
|
||
Non-interest income: |
|
|
|
|
|
|
||
|
|
|
|
|
|
|||
Lease income |
|
|
|
|
|
|
||
Other income, net |
|
|
|
|
|
|
||
Total non-interest income |
|
|
|
|
|
|
||
Non-interest expense: |
|
|
|
|
|
|
||
Salaries and employee benefits |
|
|
|
|
|
|
||
Net occupancy and equipment |
|
|
|
|
|
|
||
Computer services |
|
|
|
|
|
|
||
Insurance expense and assessments |
|
|
|
|
|
|
||
Fees for professional services |
|
|
|
|
|
|
||
Other expense |
|
|
|
|
|
|
||
Total non-interest expense |
|
|
|
|
|
|
||
Income before income taxes |
|
|
|
|
|
|
||
Provision for income taxes |
|
|
|
|
|
|
||
Net income |
|
$ |
|
|
$ |
|
||
Basic net income per share |
|
$ |
|
|
$ |
|
||
Diluted net income per share |
|
$ |
|
|
$ |
|
||
Dividends per share |
|
$ |
|
|
$ |
|
||
The accompanying notes are an integral part of these Interim Condensed Consolidated Statements.
5
FIRST US BANCSHARES, INC. AND SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in Thousands)
|
|
Three Months Ended |
|
|||||
|
|
March 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
|
|
(Unaudited) |
|
|||||
Net income |
|
$ |
|
|
$ |
|
||
Other comprehensive income (loss): |
|
|
|
|
|
|
||
Unrealized holding losses on securities available-for-sale |
|
|
( |
) |
|
|
( |
) |
Unrealized holding losses arising during the period on |
|
|
— |
|
|
|
( |
) |
Reclassification adjustments on cash flow hedge derivatives realized in net income, net of tax benefit of $ |
|
|
( |
) |
|
|
( |
) |
Other comprehensive loss |
|
|
( |
) |
|
|
( |
) |
Total comprehensive income |
|
$ |
|
|
$ |
|
||
The accompanying notes are an integral part of these Interim Condensed Consolidated Statements.
6
FIRST US BANCSHARES, INC. AND SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Dollars in Thousands, Except Share and Per Share Data)
For the three months ended March 31, 2024 and 2023 (Unaudited)
|
|
Common |
|
|
Common |
|
|
Additional |
|
|
Accumulated |
|
|
Retained |
|
|
Treasury |
|
|
Total |
|
|||||||
Balance, December 31, 2022 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||||
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Net change in fair value of |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Net change in fair value of |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Dividends declared: $ |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Impact of stock-based |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
|
|||
Impact of adopting current expected credit loss accounting model, net of tax |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Balance, March 31, 2023 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Balance, December 31, 2023 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||||
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Net change in fair value of |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Net change in fair value of |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Dividends declared: $ |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Impact of stock-based |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
|
|||
Balance, March 31, 2024 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||||
The accompanying notes are an integral part of these Interim Condensed Consolidated Statements.
7
FIRST US BANCSHARES, INC. AND SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
|
|
Three Months Ended |
|
|||||
|
|
March 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
|
|
(Unaudited) |
|
|||||
Cash flows from operating activities: |
|
|
|
|
|
|
||
Net income |
|
$ |
|
|
$ |
|
||
Adjustments to reconcile net income to cash provided by operating activities: |
|
|
|
|
|
|
||
Depreciation and amortization |
|
|
|
|
|
|
||
Provision for credit losses |
|
|
— |
|
|
|
|
|
Deferred income tax expense (benefit) |
|
|
|
|
|
( |
) |
|
Proceeds from settlement of derivative contracts |
|
|
— |
|
|
|
|
|
Reclassification of unrealized gains on terminated derivative contracts |
|
|
( |
) |
|
|
( |
) |
Stock-based compensation expense |
|
|
|
|
|
|
||
Net (accretion) amortization of securities |
|
|
( |
) |
|
|
|
|
Amortization of intangible assets |
|
|
|
|
|
|
||
Net loss on premises and equipment and other real estate |
|
|
|
|
|
|
||
Changes in assets and liabilities: |
|
|
|
|
|
|
||
Increase in fair value of derivatives not designated as hedging instruments |
|
|
( |
) |
|
|
— |
|
Increase in cash surrender value of bank owned life insurance |
|
|
( |
) |
|
|
( |
) |
(Increase) decrease in accrued interest receivable |
|
|
( |
) |
|
|
|
|
Decrease (increase) in other assets |
|
|
|
|
|
( |
) |
|
(Decrease) increase in accrued interest expense |
|
|
( |
) |
|
|
|
|
Decrease in other liabilities |
|
|
( |
) |
|
|
( |
) |
Net cash provided by operating activities |
|
|
|
|
|
|
||
Cash flows from investing activities: |
|
|
|
|
|
|
||
Net decrease in federal funds sold |
|
|
|
|
|
|
||
Purchases of investment securities, available-for-sale |
|
|
( |
) |
|
|
— |
|
Proceeds from maturities and prepayments of investment securities, available-for-sale |
|
|
|
|
|
|
||
Proceeds from maturities and prepayments of investment securities, held-to-maturity |
|
|
|
|
|
|
||
Net increase in Federal Home Loan Bank stock |
|
|
( |
) |
|
|
( |
) |
Net increase in loans |
|
|
( |
) |
|
|
( |
) |
Proceeds from the sale of premises and equipment and other real estate |
|
|
|
|
|
|
||
Purchases of premises and equipment |
|
|
( |
) |
|
|
( |
) |
Net cash provided by investing activities |
|
|
|
|
|
|
||
Cash flows from financing activities: |
|
|
|
|
|
|
||
Net (decrease) increase in deposits |
|
|
( |
) |
|
|
|
|
Net increase in short-term borrowings |
|
|
|
|
|
|
||
Net share-based compensation transactions |
|
|
( |
) |
|
|
( |
) |
Dividends paid |
|
|
( |
) |
|
|
( |
) |
Net cash (used in) provided by financing activities |
|
|
( |
) |
|
|
|
|
Net increase in cash and cash equivalents |
|
|
|
|
|
|
||
Cash and cash equivalents, beginning of period |
|
|
|
|
|
|
||
Cash and cash equivalents, end of period |
|
$ |
|
|
$ |
|
||
Supplemental disclosures: |
|
|
|
|
|
|
||
Cash paid for: |
|
|
|
|
|
|
||
Interest |
|
$ |
|
|
$ |
|
||
Income taxes |
|
|
|
|
|
|
||
Non-cash transactions: |
|
|
|
|
|
|
||
Assets acquired in settlement of loans |
|
|
|
|
|
|
||
The accompanying notes are an integral part of these Interim Condensed Consolidated Statements.
8
FIRST US BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
First US Bancshares, Inc., a Delaware corporation (“Bancshares” and, together with its subsidiary, the “Company”), is a bank holding company formed in 1983 registered under the Bank Holding Company Act of 1956, as amended (the “BHCA”). Bancshares operates one wholly owned banking subsidiary, First US Bank, an Alabama banking corporation (the “Bank”). Bancshares and the Bank are headquartered in Birmingham, Alabama. Previously, the Bank operated two wholly owned subsidiaries, Acceptance Loan Company and FUSB Reinsurance, Inc., both of which were legally dissolved in 2023, and all remaining assets and liabilities of these entities were transferred to the Bank prior to December 31, 2023.
The Bank conducts a general commercial banking business and offers banking services such as demand, savings, individual retirement account and time deposits, personal and commercial loans, safe deposit box services and remote deposit capture. The Bank operates and serves its customers through 15 full-service banking offices located in Birmingham, Butler, Calera, Centreville, Gilbertown, Grove Hill, Harpersville, Jackson, Thomasville, Tuscaloosa and Woodstock, Alabama; Knoxville and Powell, Tennessee; and Rose Hill, Virginia; as well as loan production offices in Mobile, Alabama and the Chattanooga, Tennessee area. The Bank provides a wide range of commercial banking services to small- and medium-sized businesses, property managers, business executives, professionals and other individuals. The Bank also performs indirect lending through third-party retailers and currently conducts this lending in
The unaudited interim condensed consolidated financial statements, in the opinion of management, reflect all adjustments necessary for a fair presentation of the Company’s consolidated financial position, results of operations and cash flows for the periods presented. Such adjustments are of a normal, recurring nature. The results of operations for any interim period are not necessarily indicative of results expected for the fiscal year ending December 31, 2024. While certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”), management believes that the disclosures herein are adequate to make the information presented not misleading. These unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K as of and for the year ended December 31, 2023 (the "Company's 2023 Form 10-K").
Reclassification
Certain amounts in the prior period consolidated financial statements and the notes to the prior period consolidated financial statements have been reclassified to conform to the 2024 presentation. These reclassifications had no effect on the Company’s results of operations, financial position or net cash flow.
Summary of Significant Accounting Policies
Certain significant accounting policies followed by the Company are set forth in Note 2, “Summary of Significant Accounting Policies,” of the Notes to Consolidated Financial Statements in the Company’s 2023 Form 10-K.
Net Income Per Share
Basic net income per share is computed by dividing net income by the weighted average number of shares of common stock outstanding ("basic shares"). Included in basic shares are stock equivalent shares that have been accrued as of the balance sheet date as deferred compensation for members of Bancshares’ Board of Directors under the Non-Employee Directors' Deferred Compensation Plan (as defined below and discussed further in Note 9). Diluted net income per share is computed by dividing net income by the weighted average number of shares of common stock outstanding, adjusted for the effect of potentially dilutive stock awards outstanding during the period ("dilutive shares"). The dilutive shares consist of unexercised nonqualified stock option grants issued to employees and members of Bancshares’ Board of Directors pursuant to the Company's Incentive Plan (as defined below and discussed further in Note 10).
9
The following table reflects the weighted average shares used to calculate basic and diluted net income per share for the periods presented.
|
|
Three Months Ended |
|
|||||
|
|
March 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Weighted average shares outstanding |
|
|
|
|
|
|
||
Weighted average director stock equivalent shares |
|
|
|
|
|
|
||
Basic shares |
|
|
|
|
|
|
||
Dilutive shares |
|
|
|
|
|
|
||
Diluted shares |
|
|
|
|
|
|
||
|
|
Three Months Ended |
|
|||||
|
|
March 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
|
|
(Dollars in Thousands, Except Per Share Data) |
|
|||||
Net income |
|
$ |
|
|
$ |
|
||
Basic net income per share |
|
$ |
|
|
$ |
|
||
Diluted net income per share |
|
$ |
|
|
$ |
|
||
Comprehensive Income
Comprehensive income consists of net income, as well as unrealized holding gains and losses that arise during the period associated with the Company’s available-for-sale securities portfolio and the effective portion of cash flow hedge derivatives. In the calculation of comprehensive income, reclassification adjustments are made for gains or losses realized in the statement of operations associated with the sale of available-for-sale securities or settlement of derivative contracts.
Accounting Standards Not Yet
The following table provides a description of recent accounting standards that have not yet been adopted as of March 31, 2024.
Standard |
Description |
Required Date of Adoption |
Effect on Financial Statements or other significant matters |
ASU 2023-06, Disclosure Improvements: Codification Amendments in Response to the SEC's Disclosure Update and Simplification Initiative |
This Update incorporates into the Codification 14 of the 27 disclosures referred by the SEC in Release No. 33-10532, Disclosure Update and Simplification. This update clarifies and improves the disclosure and presentation requirements of a variety of Topics in the Codification to align with the SEC's regulations. |
The date on which the SEC's removal of that related disclosure from Regulation S-X or Regulation S-K becomes effective. |
The adoption of this guidance is not likely to have a material impact. Management will continue to evaluate through date of adoption. |
|
|
|
|
ASU 2023-09, Income Taxes (Topic 740) Improvements to Income Tax Disclosures |
The ASU improves the transparency of income tax disclosures by requiring (1) consistent categories and greater disaggregation of information in the rate reconciliation and (2) income taxes paid disaggregated by jurisdiction. It also includes certain other amendments to improve the effectiveness of income tax disclosures. |
January 1, 2025 |
The adoption of this guidance is not likely to have a material impact. Management will continue to evaluate through date of adoption. |
10
Details of investment securities available-for-sale and held-to-maturity as of March 31, 2024 and December 31, 2023 were as follows:
|
|
Available-for-Sale |
|
|||||||||||||
|
|
March 31, 2024 |
|
|||||||||||||
|
|
|
|
|
Gross |
|
|
Gross |
|
|
Estimated |
|
||||
|
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Fair |
|
||||
|
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Value |
|
||||
|
|
(Dollars in Thousands) |
|
|||||||||||||
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Residential |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
Commercial |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Obligations of U.S. government-sponsored agencies |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Obligations of states and political subdivisions |
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
|
||
Corporate notes |
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
|
||
U.S. Treasury securities |
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
|
||
Total |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
|
|
Held-to-Maturity |
|
|||||||||||||
|
|
March 31, 2024 |
|
|||||||||||||
|
|
|
|
|
Gross |
|
|
Gross |
|
|
Estimated |
|
||||
|
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Fair |
|
||||
|
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Value |
|
||||
|
|
(Dollars in Thousands) |
|
|||||||||||||
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Commercial |
|
$ |
|
|
$ |
— |
|
|
$ |
( |
) |
|
$ |
|
||
Obligations of U.S. government-sponsored agencies |
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
|
||
Obligations of states and political subdivisions |
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
|
||
Total |
|
$ |
|
|
$ |
— |
|
|
$ |
( |
) |
|
$ |
|
||
|
|
Available-for-Sale |
|
|||||||||||||
|
|
December 31, 2023 |
|
|||||||||||||
|
|
|
|
|
Gross |
|
|
Gross |
|
|
Estimated |
|
||||
|
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Fair |
|
||||
|
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Value |
|
||||
|
|
(Dollars in Thousands) |
|
|||||||||||||
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Residential |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
Commercial |
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
|
||
Obligations of U.S. government-sponsored agencies |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Obligations of states and political subdivisions |
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
|
||
Corporate notes |
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
|
||
U.S. Treasury securities |
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
|
||
Total |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
|
|
Held-to-Maturity |
|
|||||||||||||
|
|
December 31, 2023 |
|
|||||||||||||
|
|
Amortized |
|
|
Gross |
|
|
Gross |
|
|
Estimated |
|
||||
|
|
(Dollars in Thousands) |
|
|||||||||||||
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Commercial |
|
$ |
|
|
$ |
— |
|
|
$ |
( |
) |
|
$ |
|
||
Obligations of U.S. government-sponsored agencies |
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
|
||
Obligations of states and political subdivisions |
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
|
||
Total |
|
$ |
|
|
$ |
— |
|
|
$ |
( |
) |
|
$ |
|
||
11
The scheduled maturities of investment securities available-for-sale and held-to-maturity as of March 31, 2024 are presented in the following table:
|
|
Available-for-Sale |
|
|
Held-to-Maturity |
|
||||||||||
|
|
Amortized |
|
|
Estimated |
|
|
Amortized |
|
|
Estimated |
|
||||
|
|
(Dollars in Thousands) |
|
|||||||||||||
Maturing within one year |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
||
Maturing after one to five years |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Maturing after five to ten years |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Maturing after ten years |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
For purposes of the maturity table, mortgage-backed securities, which are not due at a single maturity date, have been allocated over maturity groupings based on the weighted-average contractual maturities of underlying collateral. The mortgage-backed securities generally mature earlier than their weighted-average contractual maturities because of principal prepayments.
The following tables reflect gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, as of March 31, 2024 and December 31, 2023.
|
|
Available-for-Sale |
|
|||||||||||||
|
|
March 31, 2024 |
|
|||||||||||||
|
|
Less than 12 Months |
|
|
12 Months or More |
|
||||||||||
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
||||
|
|
(Dollars in Thousands) |
|
|||||||||||||
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Residential |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
||
Commercial |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Obligations of U.S. government-sponsored agencies |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
( |
) |
|
Obligations of states and political subdivisions |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
( |
) |
|
Corporate notes |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
( |
) |
|
U.S. Treasury securities |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
( |
) |
|
Total |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
||
|
|
Held-to-Maturity |
|
|||||||||||||
|
|
March 31, 2024 |
|
|||||||||||||
|
|
Less than 12 Months |
|
|
12 Months or More |
|
||||||||||
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
||||
|
|
(Dollars in Thousands) |
|
|||||||||||||
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Commercial |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
( |
) |
|
Obligations of U.S. government-sponsored agencies |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
( |
) |
|
Obligations of states and political subdivisions |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
( |
) |
|
Total |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
( |
) |
|
12
|
|
Available-for-Sale |
|
|||||||||||||
|
|
December 31, 2023 |
|
|||||||||||||
|
|
Less than 12 Months |
|
|
12 Months or More |
|
||||||||||
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
||||
|
|
(Dollars in Thousands) |
|
|||||||||||||
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Residential |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
||
Commercial |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Obligations of U.S. government-sponsored agencies |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
( |
) |
|
Obligations of states and political subdivisions |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
( |
) |
|
Corporate notes |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
U.S. Treasury securities |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
( |
) |
|
Total |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
||
|
|
Held-to-Maturity |
|
|||||||||||||
|
|
December 31, 2023 |
|
|||||||||||||
|
|
Less than 12 Months |
|
|
12 Months or More |
|
||||||||||
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
||||
|
|
(Dollars in Thousands) |
|
|||||||||||||
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Commercial |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
( |
) |
|
Obligations of U.S. government-sponsored agencies |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
( |
) |
|
Obligations of states and political subdivisions |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
( |
) |
|
Total |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
( |
) |
|
Available-for-Sale Considerations
For any securities classified as available-for-sale that are in an unrealized loss position as of the balance sheet date, the Company assesses whether or not it intends to sell the security, or more-likely-than-not will be required to sell the security, before recovery of its amortized cost basis which would require a write-down to fair value through net income.
As of March 31, 2024,
Held-to-Maturity Considerations
Effective January 1, 2023, the Company adopted the CECL accounting model to evaluate credit losses in the held-to-maturity investment portfolio. Each quarter, management evaluates the portfolio on a collective basis by major security type to determine whether an allowance for credit losses is needed. Qualitative factors are used in the Company’s credit loss assessments, including current and forecasted economic conditions, the characteristics of the debt issuer, and the historic ability of the issuer to make contractual principal and interest payments. Specifically, with regard to mortgage-backed securities or obligations of U.S. government sponsored agencies thereof, it is expected that the securities will not be settled at prices less than the amortized cost bases of the securities as such securities are either backed by the full faith and credit of the U.S. government or the agency. With regard to obligations of states and political subdivisions, management considers issuer bond ratings, historical loss rates for given bond ratings, and whether the issuers continue to make timely principal and interest payments under contractual terms of the securities. Based on these evaluations,
13
Pledged Securities
Investment securities with a carrying value of $
Portfolio Segments
The Company has divided the loan portfolio into the following portfolio segments based on risk characteristics:
Construction, land development and other land loans – Commercial construction, land and land development loans include loans for the development of residential housing projects, loans for the development of commercial and industrial use property, loans for the purchase and improvement of raw land and loans primarily for agricultural production that are secured by farmland. These loans are secured in whole or in part by the underlying real estate collateral and are generally guaranteed by the principals of the borrowing entity.
Secured by 1-4 family residential properties – These loans include conventional mortgage loans on one-to-four family residential properties. These properties may serve as the borrower’s primary residence, vacation home or investment property. Also included in this portfolio are home equity loans and lines of credit. This type of lending, which is secured by a first or second mortgage on the borrower’s residence, allows customers to borrow against the equity in their home.
Secured by multi-family residential properties – This portfolio segment includes mortgage loans secured by apartment buildings.
Secured by non-farm, non-residential properties – This portfolio segment includes real estate loans secured by commercial and industrial properties, office or mixed-use facilities, strip shopping centers or other commercial property. These loans are generally guaranteed by the principals of the borrowing entity.
Commercial and industrial loans and leases – This portfolio segment includes loans and leases to commercial customers for use in the normal course of business. These credits may be loans, lines of credit and leases to financially strong borrowers, secured by inventories, equipment or receivables, and are generally guaranteed by the principals of the borrowing entity.
Direct consumer – This portfolio segment includes a variety of secured and unsecured personal loans, including automobile loans, loans for household and personal purposes and all other direct consumer installment loans.
Branch retail – This portfolio segment includes loans secured by collateral purchased by consumers at retail stores with whom the Company previously had an established relationship to provide financing for the retail products sold if applicable underwriting standards were met. The collateral securing these loans generally includes personal property items such as furniture, ATVs and home appliances. Loans in this category are no longer being funded, and therefore, the portfolio balance will continue to decrease.
Indirect consumer – This portfolio segment includes loans secured by collateral purchased by consumers at retail stores with whom the Company has an established relationship to provide financing for the retail products sold if applicable underwriting standards are met. The collateral securing these loans generally includes recreational vehicles, campers, boats, horse trailers and cargo trailers.
As of March 31, 2024 and December 31, 2023, the composition of the loan portfolio by portfolio segment was as follows:
|
March 31, 2024 |
|
December 31, 2023 |
|
||
Real estate loans: |
|
|
|
|
||
Construction, land development and other land loans |
$ |
|
$ |
|
||
Secured by 1-4 family residential properties |
|
|
|
|
||
Secured by multi-family residential properties |
|
|
|
|
||
Secured by non-farm, non-residential properties |
|
|
|
|
||
Commercial and industrial loans and leases (1) |
|
|
|
|
||
Consumer loans: |
|
|
|
|
||
Direct |
|
|
|
|
||
Branch retail |
|
|
|
|
||
Indirect |
|
|
|
|
||
Total loans |
|
|
|
|
||
Allowance for credit losses on loans and leases |
|
|
|
|
||
Net loans |
$ |
|
$ |
|
||
14
The Company makes commercial, real estate and installment loans to its customers. Although the Company has a diversified loan portfolio,
Loans with a carrying value of $
Related Party Loans
In the ordinary course of business, the Bank makes loans to certain officers and directors of the Company, including companies with which they are associated. These loans are made on the same terms as those prevailing for comparable transactions with unrelated parties. Management believes that such loans do not represent more than a normal risk of collectability, nor do they present other unfavorable features. The aggregate balances of such related party loans and commitments were $
Allowances for Credit Losses
Effective January 1, 2023, the Company adopted the CECL model to account for credit losses on financial instruments, including loans and leases held for investment, as well as off-balance sheet credit exposures including unfunded lending commitments. In accordance with the CECL accounting guidance, the Company recorded a cumulative-effect adjustment totaling $
Allowance for Credit Losses on Loans and Leases
The Company records the allowance for credit losses on loans and leases as a contra-asset valuation account that is deducted from the amortized cost basis of loans and leases held for investment. Loans are charged off against the allowance when management believes that the uncollectibility of a loan balance is confirmed. Recoveries of previously charged off loans are also recorded to the allowance when collected. As of each quarter-end date, the Company evaluates the appropriateness of the allowance for credit losses on loans and leases and adjusts the allowance through the provision for (recovery of) credit losses.
Determining the appropriateness of the allowance for credit losses on loans and leases is complex and requires judgment by management about the effects of matters that are inherently uncertain. The level of the allowance is influenced by loan and lease volumes and mix, historical credit loss experience, estimated remaining life of portfolio segments, asset quality characteristics, delinquency status, and other conditions including reasonable and supportable forecasts of economic conditions and qualitative adjustment factors based on management’s understanding of various attributes that could impact life-of-loan losses as of the balance sheet date. The methodology to estimate losses includes two basic components: (1) an asset-specific component for individual loans that do not share similar risk characteristics with other loans, and (2) a pooled component for estimated expected credit losses for loans that share similar risk characteristics.
Loans that do not share risk characteristics with other loans are evaluated on an individual basis. The process for determining whether a loan should be evaluated on an individual basis begins with a determination of credit rating. All loans graded by management as substandard or worse with a total commitment of $
For estimating the component of the allowance for credit losses that share similar risk characteristics, loans are segregated into pooled loan categories that share risk characteristics. Loans are designated into pooled categories based on product types, business lines, collateral, and other risk characteristics. For all pooled loan categories, the Company uses a loss-rate methodology to calculate estimated life-of-loan and lease credit losses. This methodology focuses on historical credit loss rates applied over the estimated weighted average remaining life of each loan pool, adjusted by qualitative factors, to estimate life-of-loan losses for each pool. The qualitative factors utilized include, among others, reasonable and supportable forecasts of economic data, including inflation and unemployment levels, as well as interest rates.
15
Allowance for Credit Losses on Unfunded Lending Commitments
Unfunded lending commitments are off-balance sheet arrangements that represent unconditional commitments of the Company to lend to a borrower that are unfunded as of the balance sheet date. These may include unfunded loan commitments, standby letters of credit, and financial guarantees. The CECL accounting guidance requires that an estimate of expected credit loss be measured on commitments in which an entity is exposed to credit risk via a present contractual obligation to extend credit unless the obligation is unconditionally cancellable by the issuer. For the Company, unconditional lending commitments generally include unfunded term loan agreements, home equity lines of credit, lines of credit, and demand deposit account overdraft protection.
As of each quarter-end date, the Company estimates expected credit losses on unfunded lending commitments over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit unless that obligation is unconditionally cancellable by the Company. The allowance for credit losses on unfunded lending commitments is recorded in other liabilities, and adjustments to the allowance are recorded through the provision for (recovery of) credit losses.
Summary of Allowances for Credit Losses
The following tables present changes in the allowance for credit losses on loans and leases, as well as unfunded lending commitments, during the three months ended March 31, 2024 and 2023:
|
|
As of and for the Three Months Ended March 31, 2024 |
|
|||||||||||||||||||||||||||||||||
|
|
Construction, |
|
|
Real Estate |
|
|
Real |
|
|
Non- |
|
|
Commercial and |
|
|
Direct |
|
|
Branch Retail |
|
|
Indirect |
|
|
Total |
|
|||||||||
|
|
(Dollars in Thousands) |
|
|||||||||||||||||||||||||||||||||
Allowance for credit losses on loans and leases: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Beginning balance |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||||
Charge-offs |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Recoveries |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Provision for (recovery of) credit losses |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|||
Allowance for credit losses on loans and leases |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Allowance for credit losses on unfunded lending commitments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Beginning balance |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|||||||
Provision for (recovery of) credit losses on unfunded lending commitments |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
Allowance for credit losses on unfunded lending commitments |
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|||||
|
|
As of and for the Three Months Ended March 31, 2023 |
|
|||||||||||||||||||||||||||||||||
|
|
Construction, |
|
|
Real Estate |
|
|
Real |
|
|
Non- |
|
|
Commercial and |
|
|
Direct |
|
|
Branch Retail |
|
|
Indirect |
|
|
Total |
|
|||||||||
|
|
(Dollars in Thousands) |
|
|||||||||||||||||||||||||||||||||
Allowance for credit losses on loans and leases: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Beginning balance |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||||
Impact of adopting CECL accounting guidance |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Charge-offs |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Recoveries |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Provision for (recovery of) credit losses on loans and leases |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
|
|
|
|
|||
Allowance for credit losses on loans and leases |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Allowance for credit losses on unfunded lending commitments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Beginning balance |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
Impact of adopting CECL accounting guidance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||||||
Provision for (recovery of) credit losses on unfunded lending commitments |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Allowance for credit losses on unfunded lending commitments |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|||||||
16
Credit Quality Indicators
The Company utilizes a credit grading system that provides a uniform framework for establishing and monitoring credit risk in the loan portfolio. Under this system, construction, land, multi-family real estate, other commercial real estate, and commercial and industrial loans are graded based on pre-determined risk metrics and categorized into one of nine risk grades. These risk grades can be summarized into categories described as pass, special mention, substandard, doubtful and loss, as described in further detail below.
Because residential real estate and consumer loans are more uniform in nature, each loan is categorized into one of two risk grades, depending on whether the loan is considered to be performing or nonperforming. Performing loans are loans that are paying principal and interest in accordance with a contractual agreement. Nonperforming loans are loans that have demonstrated characteristics that indicate a probability of loss.
17
The tables below illustrate the carrying amount of loans and leases by credit quality indicator and year of origination as of March 31, 2024:
|
|
|
|
March 31, 2024 |
|
|||||||||||||||||||||||||
|
|
|
|
Loans at Amortized Cost Basis by Origination Year |
|
|
|
|
||||||||||||||||||||||
|
|
|
|
2024 |
|
|
2023 |
|
|
2022 |
|
|
2021 |
|
|
2020 |
|
|
Prior |
|
|
Total |
|
|||||||
|
|
|
|
(Dollars in Thousands) |
|
|||||||||||||||||||||||||
Commercial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Construction, land development and other land loans |
|
Pass |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
|
|
Special Mention |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
Substandard |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
Doubtful |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
Loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
Subtotal |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
Current period gross charge-offs |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Secured by multi-family residential properties |
|
Pass |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
|
|
Special Mention |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
Substandard |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
Doubtful |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
Loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
Subtotal |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
Current period gross charge-offs |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Secured by non-farm, non-residential properties |
|
Pass |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
|
|
Special Mention |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
Substandard |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
Doubtful |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
Loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
Subtotal |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
Current period gross charge-offs |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Commercial and industrial loans and leases |
|
Pass |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
|
|
Special Mention |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
Substandard |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
Doubtful |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
Loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
Subtotal |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
Current period gross charge-offs |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Total commercial |
|
Pass |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
|
|
Special Mention |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
Substandard |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
Doubtful |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
Loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
Current period gross charge-offs |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
18
|
|
|
|
March 31, 2024 |
|
|||||||||||||||||||||||||
|
|
|
|
Loans at Amortized Cost Basis by Origination Year |
|
|
|
|
||||||||||||||||||||||
|
|
|
|
2024 |
|
|
2023 |
|
|
2022 |
|
|
2021 |
|
|
2020 |
|
|
Prior |
|
|
Total |
|
|||||||
|
|
|
|
(Dollars in Thousands) |
|
|||||||||||||||||||||||||
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Secured by 1-4 family residential properties |
|
Performing |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
|
|
Non-performing |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
|
|
Subtotal |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
Current period gross charge-offs |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Direct |
|
Performing |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
|
|
Non-performing |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
Subtotal |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
Current period gross charge-offs |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Branch retail |
|
Performing |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
Non-performing |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
Subtotal |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
Current period gross charge-offs |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Indirect |
|
Performing |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
|
|
Non-performing |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
|
|
Subtotal |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
Current period gross charge-offs |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Total consumer |
|
Performing |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
|
|
Non-performing |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
Current period gross charge-offs |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
19
The tables below illustrate the carrying amount of loans and leases by credit quality indicator and year of origination as of December 31, 2023:
|
|
|
|
December 31, 2023 |
|
|||||||||||||||||||||||||
|
|
|
|
Loans at Amortized Cost Basis by Origination Year |
|
|
|
|
||||||||||||||||||||||
|
|
|
|
2023 |
|
|
2022 |
|
|
2021 |
|
|
2020 |
|
|
2019 |
|
|
Prior |
|
|
Total |
|
|||||||
|
|
|
|
(Dollars in Thousands) |
|
|||||||||||||||||||||||||
Commercial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Construction, land development and other land loans |
|
Pass |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
||||||
|
|
Special Mention |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
Substandard |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
Doubtful |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
Loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
Subtotal |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
Current period gross charge-offs |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Secured by multi-family residential properties |
|
Pass |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
|
|
Special Mention |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
Substandard |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
Doubtful |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
Loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
Subtotal |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
Current period gross charge-offs |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Secured by non-farm, non-residential properties |
|
Pass |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
|
|
Special Mention |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|||||
|
|
Substandard |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|||
|
|
Doubtful |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
Loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
Subtotal |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
Current period gross charge-offs |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Commercial and industrial loans |
|
Pass |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
|
|
Special Mention |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||||
|
|
Substandard |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
Doubtful |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
Loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
Subtotal |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
Current period gross charge-offs |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Total commercial |
|
Pass |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
|
|
Special Mention |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
Substandard |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
Doubtful |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
Loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
Current period gross charge-offs |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
20
|
|
|
|
December 31, 2023 |
|
|||||||||||||||||||||||||
|
|
|
|
Loans at Amortized Cost Basis by Origination Year |
|
|
|
|
||||||||||||||||||||||
|
|
|
|
2023 |
|
|
2022 |
|
|
2021 |
|
|
2020 |
|
|
2019 |
|
|
Prior |
|
|
Total |
|
|||||||
|
|
|
|
(Dollars in Thousands) |
|
|||||||||||||||||||||||||
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Secured by 1-4 family residential properties |
|
Performing |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
|
|
Non-performing |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
|
|
Subtotal |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
Current period gross charge-offs |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Direct consumer |
|
Performing |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
|
|
Non-performing |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
Subtotal |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
Current period gross charge-offs |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Branch retail |
|
Performing |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
|
|
Non-performing |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
Subtotal |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
Current period gross charge-offs |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Indirect consumer |
|
Performing |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
|
|
Non-performing |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||
|
|
Subtotal |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
Current period gross charge-offs |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Total consumer: |
|
Performing |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
|
|
Non-performing |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|||
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
Current period gross charge-offs |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
21
The following table provides an aging analysis of past due loans by class as of March 31, 2024:
|
|
As of March 31, 2024 |
|
|||||||||||||||||||||||||
|
|
30-59 |
|
|
60-89 |
|
|
90 |
|
|
Total |
|
|
Current |
|
|
Total |
|
|
Recorded |
|
|||||||
|
|
(Dollars in Thousands) |
|
|||||||||||||||||||||||||
Loans secured by real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Construction, land development |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
||
Secured by 1-4 family residential |
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|||||
Secured by multi-family residential |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
||
Secured by non-farm, non-residential |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
||||
Commercial and industrial loans |
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|||||
Consumer loans: |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Direct |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
||||
Branch retail |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|||||
Indirect |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
||||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
||||||
As a percentage of total loans |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
|
|
|
|||||||
The following table provides an aging analysis of past due loans by class as of December 31, 2023:
|
|
As of December 31, 2023 |
|
|||||||||||||||||||||||||
|
|
30-59 |
|
|
60-89 |
|
|
90 |
|
|
Total |
|
|
Current |
|
|
Total |
|
|
Recorded |
|
|||||||
|
|
(Dollars in Thousands) |
|
|||||||||||||||||||||||||
Loans secured by real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Construction, land development |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
||
Secured by 1-4 family residential |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
||||||
Secured by multi-family residential |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
||
Secured by non-farm, non-residential |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
||||
Commercial and industrial loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
||||||
Consumer loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Direct |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
||||
Branch retail |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|||||
Indirect |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
||||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
||||||
As a percentage of total loans |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
|
|
|
|||||||
22
The tables below present the amortized cost of loans on nonaccrual status and loans past due 90 days or more and still accruing interest as of March 31, 2024 and December 31, 2023. Also presented is the balance of loans on nonaccrual status at March 31, 2024 and December 31, 2023 for which there was no related allowance for credit losses recorded.
|
|
Loans on Non-Accrual Status |
|
|||||||
|
|
March 31, 2024 |
|
|||||||
|
|
(Dollars in Thousands) |
|
|||||||
|
|
Total nonaccrual |
|
Nonaccrual loans with no allowance for credit losses |
|
Loans past due 90 days or more and still accruing |
|
|||
Loans secured by real estate: |
|
|
|
|
|
|
|
|||
Construction, land development and other land loans |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
Secured by 1-4 family residential properties |
|
|
|
|
|
|
— |
|
||
Secured by multi-family residential properties |
|
|
— |
|
|
— |
|
|
— |
|
Secured by non-farm, non-residential properties |
|
|
|
|
|
|
— |
|
||
Commercial and industrial loans |
|
|
|
|
|
|
— |
|
||
Consumer loans: |
|
|
|
|
|
|
— |
|
||
Direct |
|
|
— |
|
|
— |
|
|
— |
|
Branch retail |
|
|
— |
|
|
— |
|
|
— |
|
Indirect |
|
|
|
|
— |
|
|
— |
|
|
Total loans |
|
$ |
|
$ |
|
$ |
— |
|
||
|
|
Loans on Non-Accrual Status |
|
|||||||
|
|
December 31, 2023 |
|
|||||||
|
|
(Dollars in Thousands) |
|
|||||||
|
|
Total nonaccrual |
|
Nonaccrual loans with no allowance for credit losses |
|
Loans past due 90 days or more and still accruing |
|
|||
Loans secured by real estate: |
|
|
|
|
|
|
|
|||
Construction, land development and other land loans |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
Secured by 1-4 family residential properties |
|
|
|
|
|
|
— |
|
||
Secured by multi-family residential properties |
|
|
— |
|
|
— |
|
|
— |
|
Secured by non-farm, non-residential properties |
|
|
|
|
|
|
— |
|
||
Commercial and industrial loans |
|
|
|
|
|
|
— |
|
||
Consumer loans: |
|
|
|
|
|
|
— |
|
||
Direct |
|
|
— |
|
|
— |
|
|
— |
|
Branch retail |
|
|
— |
|
|
— |
|
|
— |
|
Indirect |
|
|
|
|
— |
|
|
— |
|
|
Total loans |
|
$ |
|
$ |
|
$ |
— |
|
||
The following tables present the amortized cost basis of collateral dependent loans as of March 31, 2024 and December 31, 2023, which loans are individually evaluated to determine credit losses:
|
|
March 31, 2024 |
|
|||||||||
|
|
Real Estate |
|
|
Other |
|
|
Total |
|
|||
|
|
(Dollars in Thousands) |
|
|||||||||
Loans secured by real estate |
|
|
|
|
|
|
|
|
|
|||
Construction, land development and other land loans |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
Secured by 1-4 family residential properties |
|
|
|
|
|
— |
|
|
|
|
||
Secured by multi-family residential properties |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Secured by non-farm, non-residential properties |
|
|
|
|
|
— |
|
|
|
|
||
Commercial and industrial |
|
|
— |
|
|
|
|
|
|
|
||
Direct consumer |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total loans individually evaluated |
|
$ |
|
|
$ |
|
|
$ |
|
|||
23
|
|
December 31, 2023 |
|
|||||||||
|
|
Real Estate |
|
|
Other |
|
|
Total |
|
|||
|
|
(Dollars in Thousands) |
|
|||||||||
Loans secured by real estate |
|
|
|
|
|
|
|
|
|
|||
Construction, land development and other land loans |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
Secured by 1-4 family residential properties |
|
|
|
|
|
— |
|
|
|
|
||
Secured by multi-family residential properties |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Secured by non-farm, non-residential properties |
|
|
|
|
|
— |
|
|
|
|
||
Commercial and industrial |
|
|
— |
|
|
|
|
|
|
|
||
Direct consumer |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total loans individually evaluated |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Loan Modifications Made to Borrowers Experiencing Financial Difficulty
From time to time, the Company may modify the terms of loan agreements with borrowers that are experiencing financial difficulties. Modification of the terms of such loans typically include one or a combination of the following: a reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; or a permanent reduction of the recorded investment in the loan. No modifications in 2024 or 2023 resulted in the permanent reduction of the recorded investment in the loan.
During the three months ended March 31, 2024 and the year ended December 31, 2023, the Company did not modify any loans to borrowers experiencing financial difficulty, and there were no payment defaults on loans that were modified in the previous twelve months.
Other Real Estate Owned
Other real estate and certain other assets acquired in foreclosure are reported at the net realizable value of the property, less estimated costs to sell.
|
|
March 31, 2024 |
|
|
March 31, 2023 |
|
||
|
|
(Dollars in Thousands) |
|
|||||
Beginning balance |
|
$ |
|
|
$ |
|
||
Additions (1) |
|
|
|
|
|
|
||
Sales proceeds |
|
|
|
|
|
|
||
Gross gains |
|
|
|
|
|
|
||
Gross losses |
|
|
|
|
|
|
||
Net gains |
|
|
|
|
|
|
||
Impairment |
|
|
( |
) |
|
|
( |
) |
Ending balance |
|
$ |
|
|
$ |
|
||
Valuation adjustments are recorded in other non-interest expense and are primarily post-foreclosure write-downs that are a result of continued declining property values based on updated appraisals or other indications of value, such as offers to purchase. Net realizable value less estimated costs to sell of foreclosed residential real estate held by the Company was
24
Repossessed Assets
The Company also acquires assets through the repossession of the underlying collateral of loans in default.
|
|
March 31, 2024 |
|
|
March 31, 2023 |
|
||
|
|
(Dollars in Thousands) |
|
|||||
Beginning balance |
|
$ |
|
|
$ |
|
||
Transfers from loans |
|
|
|
|
|
|
||
Sales proceeds |
|
|
( |
) |
|
|
( |
) |
Gross gains |
|
|
— |
|
|
|
— |
|
Gross losses |
|
|
( |
) |
|
|
( |
) |
Net losses |
|
|
( |
) |
|
|
( |
) |
Impairment |
|
|
— |
|
|
|
— |
|
Ending balance |
|
$ |
|
|
$ |
|
||
Repossessed assets are included in Other Assets in the Company’s condensed consolidated balance sheets.
Goodwill is tested for impairment annually, or more often if circumstances warrant. If, as a result of impairment testing, it is determined that the fair value of goodwill is lower than its carrying amount, goodwill must be written down to its implied fair value. Subsequent increases in goodwill value are not recognized in the consolidated financial statements. Goodwill totaled $
Core deposit premiums are amortized over a
The Company’s goodwill and other intangible assets (carrying basis and accumulated amortization) as of March 31, 2024 and December 31, 2023 were as follows:
|
|
March 31, 2024 |
|
|
December 31, 2023 |
|
||
|
|
(Dollars in Thousands) |
|
|||||
Goodwill |
|
$ |
|
|
$ |
|
||
Core deposit intangible: |
|
|
|
|
|
|
||
Gross carrying amount |
|
|
|
|
|
|
||
Accumulated amortization |
|
|
( |
) |
|
|
( |
) |
Core deposit intangible, net |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
The Company’s estimated remaining amortization expense on intangible assets as of March 31, 2024 was as follows:
|
|
Amortization Expense |
|
|
|
|
(Dollars in Thousands) |
|
|
2024 |
|
$ |
|
|
2025 |
|
|
|
|
Total |
|
$ |
|
|
The net carrying amount of the Company’s core deposit premiums is not considered recoverable if it exceeds the sum of the undiscounted cash flows expected to result from use and eventual disposition. That assessment is based on the carrying amount of the intangible assets subject to amortization at the date on which it is tested for recoverability. Intangible assets subject to amortization are tested by the Company for recoverability whenever events or changes in circumstances indicate that their carrying amount may not be recoverable.
25
Short-Term Borrowings
Short-term borrowings consist of federal funds purchased, securities sold under repurchase agreements, and short-term FHLB advances with original maturities of one year or less.
Long-Term Borrowings
FHLB Advances
The Company may use FHLB advances with original maturities of more than one year as an alternative to funding sources with similar maturities, such as certificates of deposit or other deposit programs. These advances generally offer more attractive rates than other mid-term financing options. They are also flexible, allowing the Company to quickly obtain the necessary maturities and rates that best suit its overall asset/liability strategy. FHLB advances with an original maturity of more than one year are classified as long-term. As of both March 31, 2024 and December 31, 2023, the Company did
Subordinated Debt
On October 1, 2021, the Company completed a private placement of $
|
|
March 31, |
|
March 31, |
|
|
2024 |
|
2023 |
|
|
(Dollars in Thousands) |
||
Balance at period-end |
|
$ |
|
$ |
Average balance during the period |
|
$ |
|
$ |
Maximum month-end balance during the period |
|
$ |
|
$ |
Average rate paid during the period, including amortization of debt issuance costs |
|
|
||
Weighted average remaining maturity (in years) |
|
|
||
Available Credit
As an additional funding source, the Company has available unused lines of credit with correspondent banks, the FRB and the FHLB. Certain of these funding sources are subject to underlying collateral.
Available Unused Lines of Credit |
|
Collateral Requirements |
|
March 31, 2024 |
|
December 31, 2023 |
Correspondent banks |
|
|
$ |
|
$ |
|
FHLB advances (1) |
|
|
$ |
|
$ |
|
FRB (2) |
|
|
$ |
|
$ |
26
The provision for income taxes was $
The Company had a net deferred tax asset of $
Supplemental Retirement Benefits
The Company has entered into supplemental retirement compensation benefits agreements with certain directors and former executive officers. The measurement of the liability under these agreements includes estimates involving life expectancy, length of time before retirement and the expected returns on the bank-owned life insurance policies used to fund those agreements. Should these estimates prove to be materially wrong, the cost of these agreements could change accordingly. The related deferred compensation obligation to these directors and executive officers included in other liabilities was $
Non-Employee Directors' Deferred Compensation Plan
Non-employee directors may elect to defer payment of all or any portion of their director fees under Bancshares’ Non-Employee Directors’ Deferred Compensation Plan (the “Deferral Plan”). The Deferral Plan permits non-employee directors to invest their directors’ fees and to receive the adjusted value of the deferred amounts in cash and/or shares of Bancshares’ common stock, as applicable. Neither Bancshares nor the Bank makes any contribution to participants’ accounts under the Deferral Plan. As of March 31, 2024 and December 31, 2023, a total of
In 2013, Bancshares’ shareholders authorized the Company, under the direction of the Compensation Committee of the Board of Directors, to provide share-based compensation awards to eligible employees, directors and consultants of the Company and its affiliates pursuant to the 2013 Incentive Plan. Available award types included stock options, stock appreciation rights, restricted stock and restricted stock units, and performance share awards. The 2013 Incentive Plan, as amended in 2019, expired in March 2023. In April 2023, Bancshares’ shareholders approved the 2023 Incentive Plan, which authorizes the Compensation Committee to grant substantially the same types of share-based awards to eligible employees, directors and consultants. Collectively, the 2013 Incentive Plan and the 2023 Incentive Plan are herein referred to as the Company’s “Incentive Plan.” In accordance with the Incentive Plan, shares of common stock available for issuance pursuant to the grants may consist, in whole or in part, of authorized and unissued shares, treasury shares or shares reacquired by the Company in any manner. Since the origination of the Incentive Plan, through March 31, 2024, only stock options and restricted stock have been granted. Stock-based compensation expense related to stock awards totaled $
27
Stock Options
Stock option awards have been granted with an exercise price equal to the market price of the Company’s common stock on the date of the grant and have vesting periods ranging from to
The following table summarizes the Company’s stock option activity for the periods presented.
|
|
Three Months Ended |
|
|||||||||||||
|
|
March 31, 2024 |
|
|
March 31, 2023 |
|
||||||||||
|
|
Number of |
|
|
Average |
|
|
Number of |
|
|
Average |
|
||||
Options: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Outstanding, beginning of period |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Exercised |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Expired |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Forfeited |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Options outstanding, end of period |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Options exercisable, end of period |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
The aggregate intrinsic value of stock options outstanding (calculated as the amount by which the market value of underlying stock exceeds the exercise price of the option) was $
Restricted Stock
During the three months ended March 31, 2024 and 2023,
The Company is involved in a number of operating leases, primarily for branch locations. Branch leases have remaining lease terms ranging from
The following table provides a summary of the components of lease income and expense, as well as the reporting location in the interim condensed consolidated statements of operations, for the three months ended March 31, 2024 and 2023:
|
|
Location in the Condensed |
|
Three Months Ended |
|
|
|||||
|
|
Consolidated Statements |
|
March 31, |
|
|
March 31, |
|
|
||
|
|
|
|
(Dollars in Thousands) |
|
|
|||||
Operating lease income (1) |
|
|
$ |
|
|
$ |
|
|
|||
Operating lease expense (2) |
|
Net occupancy and equipment |
|
$ |
|
|
$ |
|
|
||
28
The following table provides supplemental lease information for operating leases on the interim condensed consolidated balance sheet as of March 31, 2024 and December 31, 2023:
|
|
Location in |
|
|
|
|
|
||
|
|
Consolidated |
|
March 31, |
|
December 31, |
|
||
|
|
|
|
(Dollars in |
|
||||
Operating lease right-of-use assets |
|
|
$ |
|
$ |
|
|||
Operating lease liabilities |
|
|
$ |
|
$ |
|
|||
Weighted-average remaining lease term (in years) |
|
|
|
|
|
|
|
||
Weighted-average discount rate |
|
|
|
|
% |
|
% |
||
The following table provides supplemental lease information for the interim condensed consolidated statements of cash flows for the three months ended March 31, 2024 and 2023:
|
|
Three Months Ended |
|
|||||
|
|
March 31, |
|
|
March 31, |
|
||
|
|
(Dollars in Thousands) |
|
|||||
Cash paid for amounts included in the measurement of |
|
|
|
|
|
|
||
Operating cash flows from operating leases |
|
$ |
|
|
$ |
|
||
The following table is a schedule of remaining future minimum lease payments for operating leases that had an initial or remaining non-cancellable lease term in excess of one year as of March 31, 2024:
|
|
Minimum |
|
|
|
|
(Dollars in Thousands) |
|
|
2024 |
|
$ |
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
2028 |
|
|
|
|
2029 and thereafter |
|
|
|
|
Total future minimum lease payments |
|
$ |
|
|
Less: Imputed interest |
|
|
|
|
Total operating lease liabilities |
|
$ |
|
|
The Company uses derivative instruments to minimize unplanned fluctuations in earnings and cash flows caused by interest rate volatility. The Company’s interest rate risk management strategy generally involves modifying the repricing characteristics of certain assets and liabilities to mitigate negative impacts on net interest margin and/or cash flow. Derivative instruments utilized by the Company generally include interest rate swap contracts or option contracts, such as caps and floors. The fair values of derivative instruments are carried in the Company’s consolidated balance sheets as assets and/or liabilities. The Company does not use derivatives for speculative purposes and generally enters into transactions that have a qualifying hedge relationship. When hedge accounting is used, derivatives are classified as either cash flow hedges or fair value hedges. The Company may also enter into derivative contracts that are not designated as hedges in order to mitigate economic risks or risks associated with volatility in connection with customer derivative transactions.
As of March 31, 2024, the Company had active hedges in place that were receiving hedge accounting treatment, as well as derivative instruments that were not receiving hedge accounting treatment. In addition, the Company’s net interest income continued to benefit from certain derivative contracts that were terminated in prior periods, but that were originally designated for hedge accounting purposes. In accordance with original hedge relationship, unrealized gains recorded upon termination are being reclassified to interest income or interest expense over the original terms of the derivative contracts.
29
Active Hedges
In June 2023, the Company entered into
Hedges Terminated in 2023
In February 2023, the Company voluntarily terminated
Hedge Terminated in 2022
In May 2022, the Company voluntarily terminated
Derivatives Not Designated as Hedging Instruments
In March 2024, the Company entered into
Presentation
The table below reflects the notional amount and fair value of active derivative instruments included on the Company’s consolidated balance sheets on a net basis as of March 31, 2024 and December 31, 2023.
|
|
As of March 31, 2024 |
|
|
As of December 31, 2023 |
|
||||||||||
|
|
|
|
|
Estimated |
|
|
|
|
|
Estimated |
|
||||
|
|
Notional |
|
|
Fair Value |
|
|
Notional |
|
|
Fair Value |
|
||||
|
|
Amount |
|
|
Gain (Loss) (1) |
|
|
Amount |
|
|
Gain (Loss) (1) |
|
||||
|
|
(Dollars in Thousands) |
|
|||||||||||||
Derivatives designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Fair value hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest rate swaps related to fixed rate indirect consumer loans |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|||
Total fair value hedges |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|||
Total derivatives designated as hedging instruments, net |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|||
Derivatives not designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest rate floors |
|
$ |
|
|
|
|
|
$ |
— |
|
|
|
— |
|
||
Total derivatives not designated as hedging instruments, net |
|
|
|
|
$ |
|
|
|
|
|
$ |
— |
|
|||
30
The following table presents the net effects of derivative instruments on the Company’s interim condensed consolidated statements of operations for the three months ended March 31, 2024 and 2023.
Location in the Condensed |
|
Three Months Ended |
|
|||||||
Consolidated Statements |
|
March 31, |
|
|
March 31, |
|
||||
|
|
|
|
(Dollars in Thousands) |
|
|||||
Interest income |
|
Interest and fees on loans |
|
$ |
|
|
$ |
|
||
Interest expense |
|
Interest on deposits |
|
|
|
|
|
|
||
Interest expense |
|
Interest on borrowings |
|
|
|
|
|
|
||
Non-interest expense |
|
Other non-interest expense |
|
|
( |
) |
|
|
- |
|
|
|
Net increase (decrease) to income before income taxes |
|
$ |
|
|
$ |
|
||
Other Operating Income
Other operating income for the three months ended March 31, 2024 and 2023 consisted of the following:
|
|
Three Months Ended |
|
|||||
|
|
March 31, |
|
|
March 31, |
|
||
|
|
(Dollars in Thousands) |
|
|||||
Bank-owned life insurance |
|
$ |
|
|
$ |
|
||
ATM fee income |
|
|
|
|
|
|
||
Other income |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
Other Operating Expense
Other operating expense for the three months ended March 31, 2024 and 2023 consisted of the following:
|
|
Three Months Ended |
|
|||||
|
|
March 31, |
|
|
March 31, |
|
||
|
|
(Dollars in Thousands) |
|
|||||
Postage, stationery and supplies |
|
$ |
|
|
$ |
|
||
Telephone/data communication |
|
|
|
|
|
|
||
Collection and recoveries |
|
|
|
|
|
|
||
Directors fees |
|
|
|
|
|
|
||
Software amortization |
|
|
|
|
|
|
||
Other real estate/foreclosure expense, net |
|
|
|
|
|
|
||
Other expense |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
Other expense for the three months ended March 31, 2024 was reduced by $
31
Credit
The Bank’s exposure to credit loss in the event of nonperformance by the other party for commitments to make loans and standby letters of credit is represented by the contractual amount of those instruments. The Bank uses the same credit policies in making these commitments as it does for on-balance sheet instruments.
In the normal course of business, there are outstanding commitments and contingent liabilities, such as commitments to extend credit, letters of credit and others, that are not included in the consolidated financial statements. The financial instruments involve, to varying degrees, elements of credit and interest rate risk in excess of amounts recognized in the financial statements.
|
|
March 31, |
|
|
December 31, |
|
||
|
|
(Dollars in Thousands) |
|
|||||
Standby letters of credit |
|
$ |
|
|
$ |
|
||
Standby performance letters of credit |
|
$ |
|
|
$ |
|
||
Commitments to extend credit |
|
$ |
|
|
$ |
|
||
Standby letters of credit and standby performance letters of credit are contingent commitments issued by the Bank generally to guarantee the performance of a customer to a third party. The Bank has recourse against the customer for any amount that it is required to pay to a third party under a standby letter of credit or standby performance letter of credit. Revenues are recognized over the lives of the standby letters of credit and standby performance letters of credit. As of March 31, 2024 and December 31, 2023, the potential amounts of future payments that the Bank could be required to make under its standby letters of credit and standby performance letters of credit, which represent the Bank’s total credit risk in these categories, are included in the table above.
A commitment to extend credit is an agreement to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon the extension of credit, is based on management’s credit evaluation of the counterparty. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment and income-producing commercial properties.
At each quarter end date, the Company calculates an allowance for unfunded lending commitments, including those described in the table above. The Company's allowance for unfunded commitments totaled $
Self-Insurance
The Company is self-insured for a significant portion of employee health benefits. However, the Company maintains stop-loss coverage with third-party insurers to limit the Company’s individual claim and total exposure related to self-insurance. The Company estimates a liability for the ultimate costs to settle known claims, as well as claims incurred but not yet reported, as of the balance sheet date. The Company’s recorded estimated liability for self-insurance is based on the insurance companies' incurred loss estimates and management’s judgment, including assumptions and evaluation of factors related to the frequency and severity of claims, the Company’s claims development history and the Company’s claims settlement practices. The assessment of loss contingencies and self-insurance reserves is a highly subjective process that requires judgments about future events. Contingencies are reviewed at least quarterly to determine the adequacy of self-insurance accruals. Self-insurance accruals totaled $
Litigation
The Company is party to certain ordinary course litigation from time to time, and the Company intends to vigorously defend itself in all such litigation. In the opinion of the Company, based on review and consultation with legal counsel, the outcome of such ordinary course litigation should not have a material adverse effect on the Company’s consolidated financial statements or results of operations.
32
The Company follows a uniform framework for estimating and classifying the fair value of financial instruments. The assumptions used in the estimation of the fair value of the Company’s financial instruments are detailed below. The following disclosures should not be considered a representation of the liquidation value of the Company, but rather represent a good-faith estimate of the increase or decrease in value of financial instruments held by the Company since purchase, origination or issuance.
Fair Value Hierarchy
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between willing market participants at the measurement date. In determining fair value, the Company uses various methods, including market, income and cost approaches. Based on these approaches, the Company often utilizes certain assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and/or the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market-corroborated or generally unobservable inputs. The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Based on the observability of the inputs used in the valuation techniques, the Company is required to provide the following information according to the fair value hierarchy. The fair value hierarchy ranks the quality and reliability of the information used to determine fair value. Assets and liabilities carried at fair value will be classified and disclosed in one of the following three categories:
The Company rarely transfers assets and liabilities measured at fair value between Level 1 and Level 2 measurements. Trading account assets and securities available-for-sale may be periodically transferred to or from Level 3 valuation based on management’s conclusion regarding the best method of pricing for an individual security. Such transfers are accounted for as if they occurred at the beginning of a reporting period. There were
33
Fair Value Measurements on a Recurring Basis
Securities Available-for-Sale
Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities include U.S. Treasury securities. Level 2 securities include government sponsored agency securities, mortgage-backed agency securities, obligations of states and political subdivisions and certain corporate, asset-backed and other securities. Level 2 fair values are obtained from quoted prices of securities with similar characteristics. In certain cases, where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy.
Interest Rate Derivative Contracts
Interest rate derivative contracts are used by the Company to mitigate risk associated with changes in interest rates. The fair value of these contracts is based on information obtained from third-party financial institutions. This information is periodically evaluated by the Company and, as necessary, corroborated against other third-party valuations. The Company classifies these derivative assets within Level 2 of the valuation hierarchy.
The following table presents assets and liabilities measured at fair value on a recurring basis as of March 31, 2024 and December 31, 2023.
|
|
Fair Value Measurements as of March 31, 2024 Using |
|
|||||||||||||
|
|
Totals At |
|
|
Quoted |
|
|
Significant |
|
|
Significant |
|
||||
|
|
(Dollars in Thousands) |
|
|||||||||||||
Investment securities, available-for-sale |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Residential |
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
||
Commercial |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
||
Obligations of U.S. government-sponsored agencies |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
||
Obligations of states and political subdivisions |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
||
Corporate notes |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
||
U.S. Treasury securities |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
||
Interest rate derivative contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other assets - interest rate swaps |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
||
Other assets - interest rate floors |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
||
|
|
Fair Value Measurements as of December 31, 2023 Using |
|
|||||||||||||
|
|
Totals At |
|
|
Quoted |
|
|
Significant |
|
|
Significant |
|
||||
|
|
(Dollars in Thousands) |
|
|||||||||||||
Investment securities, available-for-sale |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Residential |
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
||
Commercial |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
||
Obligations of U.S. government-sponsored agencies |
|
|
|
|
|
— |
|
|
|
|
|
|
|
|||
Obligations of states and political subdivisions |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
||
Corporate notes |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|||
U.S. Treasury securities |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
||
Interest rate derivative contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other liabilities - interest rate swaps |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
||
34
Fair Value Measurements on a Non-recurring Basis
Impaired Loans
Loans are considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all principal and interest payments due under the contractual terms of the loan agreement. These loans are evaluated separately in accordance with the Company’s policies for calculating the allowance for credit losses on loans and leases. The fair value of impaired loans with specific allocations of the allowance for credit losses on loans and leases is typically based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by independent appraisers to adjust for differences between the comparable sales and income data available. Appraised values are discounted by management for estimated costs to sell and may be discounted further based on management’s knowledge of the collateral, changes in market conditions since the most recent appraisal and/or management’s knowledge of the borrower and the borrower’s business. Such adjustments are usually significant and typically result in Level 3 classification of the inputs for determining fair value. Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge of the borrower’s business, resulting in a Level 3 fair value classification. Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly.
OREO and Other Assets Held-for-Sale
OREO consists of properties obtained through foreclosure or in satisfaction of loans and is recorded at net realizable value, less estimated cost to sell. Estimates of fair value are generally based on third-party appraisals of the property and are classified within Level 3 of the fair value hierarchy. The appraisals are sometimes discounted based on management’s knowledge of the property and/or changes in market conditions from the date of the most recent appraisal. Such discounts are typically significant unobservable inputs for determining fair value.
As of March 31, 2024 and December 31, 2023, included within OREO were certain assets that were formerly included as premises and equipment but have been removed from service, and as of the balance sheet date, were designated as assets to be disposed of by sale. These include assets associated with branches of the Company that have been closed. When an asset is designated as held-for-sale, the Company ceases depreciation of the asset, and the asset is recorded at the lower of its carrying amount or fair value less estimated cost to sell. Estimates of fair value are generally based on third-party appraisals of the property and are classified within Level 3 of the fair value hierarchy. The appraisals are sometimes discounted based on management’s knowledge of the property and/or changes in market conditions from the date of the most recent appraisal. Such discounts are typically unobservable inputs for determining fair value.
The following table presents the balances of impaired loans, OREO and other assets held-for-sale measured at fair value on a non-recurring basis as of March 31, 2024 and December 31, 2023:
|
|
Fair Value Measurements as of March 31, 2024 Using |
|
|||||||||||||
|
|
Totals At |
|
|
Quoted |
|
|
Significant |
|
|
Significant |
|
||||
|
|
(Dollars in Thousands) |
|
|||||||||||||
Impaired loans |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
OREO and other assets held-for-sale |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
|
|
Fair Value Measurements as of December 31, 2023 Using |
|
|||||||||||||
|
|
Totals At |
|
|
Quoted |
|
|
Significant |
|
|
Significant |
|
||||
|
|
(Dollars in Thousands) |
|
|||||||||||||
Impaired loans |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
OREO and other assets held-for-sale |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
35
Non-recurring Fair Value Measurements Using Significant Unobservable Inputs
The following tables present information regarding assets and liabilities measured at fair value using significant unobservable inputs (Level 3) as of March 31, 2024 and December 31, 2023. The tables includes the valuation techniques and the significant unobservable inputs utilized. The range of each unobservable input and the weighted average within the range utilized as of March 31, 2024 and December 31, 2023 are both included.
|
|
Level 3 Significant Unobservable Input Assumptions |
||||||||||
|
|
Fair Value |
|
|
Valuation Technique |
|
Unobservable Input |
|
Quantitative Range |
|||
|
|
(Dollars in Thousands) |
|
|
|
|
|
|
|
|
|
|
Non-recurring fair value measurements: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans |
|
$ |
— |
|
|
Multiple data points, |
|
Appraisal comparability |
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
OREO and other assets held-for-sale |
|
$ |
|
|
Discount to appraised |
|
Appraisal comparability |
|
|
|||
|
|
Level 3 Significant Unobservable Input Assumptions |
||||||||||
|
|
Fair Value |
|
|
Valuation Technique |
|
Unobservable Input |
|
Quantitative Range |
|||
|
|
(Dollars in Thousands) |
|
|
|
|
|
|
|
|
|
|
Non-recurring fair value measurements: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans |
|
$ |
|
|
Multiple data points, |
|
Appraisal comparability |
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
OREO and other assets held-for-sale |
|
$ |
|
|
Discount to appraised |
|
Appraisal comparability |
|
|
|||
36
Impaired Loans
Impaired loans are valued based on multiple data points indicating the fair value for each loan. The primary data point is the appraisal value of the underlying collateral, to which a discount is applied. Management establishes this discount or comparability adjustment based on recent sales of similar property types. As liquidity in the market increases or decreases, the comparability adjustment and the resulting asset valuation are impacted.
OREO
OREO under a binding contract for sale is valued based on contract price. If no sales contract is pending for a specific property, management establishes a comparability adjustment to the appraised value based on historical activity, considering proceeds for properties sold versus the corresponding appraised value. Increases or decreases in realization for properties sold impact the comparability adjustment for similar assets remaining on the balance sheet.
Other Assets Held-for-Sale
Assets designated as held-for-sale that are under a binding contract are valued based on the contract price. If no sales contract is pending for a specific property, management establishes a comparability adjustment to the appraised value based on historical activity, considering proceeds for properties sold versus the corresponding appraised value. Increases or decreases in realization for properties sold impact the comparability adjustment for similar assets remaining on the balance sheet.
Fair Value of Financial Instruments
The following methods and assumptions were used by the Company in estimating the fair value of its financial instruments:
Cash, due from banks and federal funds sold: The carrying amount of cash, due from banks and federal funds sold approximates fair value.
Federal Home Loan Bank stock: Based on the redemption provision of the FHLB, the stock has no quoted market value and is carried at cost.
Investment securities: Fair values of investment securities are based on quoted market prices where available. If quoted market prices are not available, estimated fair values are based on market prices of comparable instruments.
Derivative instruments: The fair value of derivative instruments is based on information obtained from a third-party financial institution. This information is periodically evaluated by the Company and, as necessary, corroborated against other third-party information.
Accrued interest receivable and payable: The carrying amount of accrued interest approximates fair value.
Loans, net: The fair value of loans is estimated on an exit price basis incorporating contractual cash flow, prepayment discount spreads, credit loss and liquidity premiums.
Demand and savings deposits: The fair values of demand deposits are equal to the carrying value of such deposits. Demand deposits include non-interest-bearing demand deposits, savings accounts, NOW accounts and money market demand accounts.
Time deposits: The fair values of relatively short-term time deposits are equal to their carrying values. Discounted cash flows are used to value long-term time deposits. The discount rate used is based on interest rates currently offered by the Company on comparable deposits as to amount and term.
Short-term borrowings: These borrowings may consist of federal funds purchased, securities sold under agreements to repurchase and the floating rate borrowings from the FHLB account. Due to the short-term nature of these borrowings, fair values approximate carrying values.
Long-term debt: The fair value of this debt is estimated using discounted cash flows based on the Company’s current incremental borrowing rate for similar types of borrowing arrangements as of the determination date.
37
Off-balance sheet instruments: The carrying amount of commitments to extend credit and standby letters of credit approximates fair value. The carrying amount of the off-balance sheet financial instruments is based on fees currently charged to enter into such agreements.
The estimated fair value and related carrying or notional amounts, as well as the level within the fair value hierarchy, of the Company’s financial instruments as of March 31, 2024 and December 31, 2023 were as follows:
|
|
March 31, 2024 |
|
|||||||||||||||||
|
|
Carrying |
|
|
Estimated |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|||||
|
|
(Dollars in Thousands) |
|
|||||||||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Cash and cash equivalents |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|||
Investment securities available-for-sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
||||
Investment securities held-to-maturity |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|||
Federal funds sold |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|||
Federal Home Loan Bank stock |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Loans, net of allowance for credit losses |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Other assets - interest rate swaps |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|||
Other assets - interest rate floors |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Deposits |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|||
Short-term borrowings |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|||
Long-term borrowings |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|||
|
|
December 31, 2023 |
|
|||||||||||||||||
|
|
Carrying |
|
|
Estimated |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|||||
|
|
(Dollars in Thousands) |
|
|||||||||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Cash and cash equivalents |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|||
Investment securities available-for-sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Investment securities held-to-maturity |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|||
Federal funds sold |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|||
Federal Home Loan Bank stock |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Loans, net of allowance for loan and lease losses |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Deposits |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|||
Short-term borrowings |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|||
Long-term borrowings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Other liabilities - interest rate swaps |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
38
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
DESCRIPTION OF THE BUSINESS
First US Bancshares, Inc., a Delaware corporation (“Bancshares” and, together with its subsidiary, the “Company”), is a bank holding company formed in 1983 registered under the Bank Holding Company Act of 1956, as amended (the “BHCA”). Bancshares operates one wholly owned banking subsidiary, First US Bank, an Alabama banking corporation (the “Bank”). Bancshares and the Bank are headquartered in Birmingham, Alabama. Previously, the Bank operated two wholly owned subsidiaries, Acceptance Loan Company and FUSB Reinsurance, Inc., both of which were legally dissolved in 2023, and all remaining assets and liabilities of these entities were transferred to the Bank prior to December 31, 2023.
The Bank conducts a general commercial banking business and offers banking services such as demand, savings, individual retirement account and time deposits, personal and commercial loans, safe deposit box services and remote deposit capture. The Bank operates and serves its customers through 15 full-service banking offices located in Birmingham, Butler, Calera, Centreville, Gilbertown, Grove Hill, Harpersville, Jackson, Thomasville, Tuscaloosa and Woodstock, Alabama; Knoxville and Powell, Tennessee; and Rose Hill, Virginia; as well as loan production offices in Mobile, Alabama and the Chattanooga, Tennessee area. The Bank provides a wide range of commercial banking services to small- and medium-sized businesses, property managers, business executives, professionals and other individuals. The Bank also performs indirect lending through third-party retailers and currently conducts this lending in 17 states, including Alabama, Arkansas, Florida, Georgia, Indiana, Iowa, Kansas, Kentucky, Mississippi, Missouri, Nebraska, North Carolina, Oklahoma, South Carolina, Tennessee, Texas and Virginia. The Bank is the Company’s only reportable operating segment upon which management makes decisions regarding how to allocate resources and assess performance.
Delivery of the best possible financial services to customers remains an overall operational focus of the Company. The Company recognizes that attention to detail and responsiveness to customers’ desires are critical to customer satisfaction. The Company continues to upgrade technology, both in its financial services and in the training of its 154 full-time equivalent employees (as of March 31, 2024), to ensure customer satisfaction and convenience.
The preparation of the Company’s consolidated financial statements requires management to make subjective judgments associated with critical accounting estimates. These estimates are necessary to comply with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and general banking practices. A description of the Company's critical accounting estimates, which significantly affect the determination of the Company’s consolidated financial position, results of operations and cash flows, is set forth in Part II, Item 7 - Critical Accounting Estimates in the Company's 2023 Form 10-K.
The emphasis of this discussion is a comparison of assets, liabilities and shareholders’ equity as of March 31, 2024 to December 31, 2023, while comparing income and expense for the three months ended March 31, 2024 and 2023. All yields and ratios presented and discussed herein are recorded and presented on the accrual basis and not on the tax-equivalent basis, unless otherwise indicated.
This information should be read in conjunction with the Company’s unaudited interim condensed consolidated financial statements and related notes appearing elsewhere in this report and Management’s Discussion and Analysis of Financial Condition and Results of Operations appearing in the Company's 2023 Form 10-K. As used in the following discussion, the words “we,” “us,” “our” and the “Company” refer to Bancshares and its consolidated subsidiaries, unless the context indicates otherwise.
RECENT MARKET CONDITIONS
During the three months ended March 31, 2024, the banking industry continued to be impacted by economic volatility that has persisted since early 2023. Following a reduction in January 2024, the U.S. inflation rate increased in the latter two months of the quarter and remained elevated over the Federal Reserve Bank’s (“FRB”) long run target of 2%. Throughout the first quarter of 2024, the FRB maintained the target federal funds rate in a range from 5.25% to 5.50% where it has remained since July 2023. Recent economic indicators suggested that economic activity in the U.S. continued to expand at a solid pace during the first quarter of 2024 and job gains remained strong. In assessing monetary policy, FRB officials continued to indicate a commitment to maintaining the federal funds target range until greater confidence is gained that inflation is moving sustainably toward 2%.
U.S. Treasury rates increased notably during the first quarter of 2024 due to changing sentiment in interest rate expectations, and as of March 31, 2024, the U.S. Treasury curve remained inverted. Competitive pressures in the banking industry also remained elevated due to the higher interest rate environment, particularly with respect to deposit pricing. The elevated interest rate environment, combined with higher inflation levels sustained for a longer period of time, could put additional strain on borrowers, as well as the Company’s own costs of goods and services, including the cost of salaries and benefits. These uncertainties, combined with ongoing geopolitical uncertainty, provide a difficult operating environment throughout the banking industry. Management continues to carefully navigate the Company’s course through these challenges, and believes the Company is well positioned to respond effectively in multiple operating environments. However, additional
39
inflationary pressure, higher interest rates, and a fiercely competitive environment could put downward pressure on the Company’s positioning and results of operations.
EXECUTIVE OVERVIEW
The Company earned net income of $2.1 million, or $0.34 per diluted common share, during the three months ended March 31, 2024, compared to $2.1 million, or $0.33 per diluted common share, for the three months ended March 31, 2023.
Summarized condensed consolidated statements of operations are included below for the three months ended March 31, 2024 and 2023.
|
|
Three Months Ended |
|
|||||
|
|
March 31, |
|
|
March 31, |
|
||
|
|
2024 |
|
|
2023 |
|
||
|
|
(Dollars in Thousands, Except Per Share Data) |
|
|||||
Interest income |
|
$ |
14,277 |
|
|
$ |
11,960 |
|
Interest expense |
|
|
5,237 |
|
|
|
2,526 |
|
Net interest income |
|
|
9,040 |
|
|
|
9,434 |
|
Provision for credit losses |
|
|
— |
|
|
|
269 |
|
Net interest income after provision for credit losses |
|
|
9,040 |
|
|
|
9,165 |
|
Non-interest income |
|
|
865 |
|
|
|
829 |
|
Non-interest expense |
|
|
7,147 |
|
|
|
7,270 |
|
Income before income taxes |
|
|
2,758 |
|
|
|
2,724 |
|
Provision for income taxes |
|
|
651 |
|
|
|
652 |
|
Net income |
|
$ |
2,107 |
|
|
$ |
2,072 |
|
Basic net income per share |
|
$ |
0.36 |
|
|
$ |
0.35 |
|
Diluted net income per share |
|
$ |
0.34 |
|
|
$ |
0.33 |
|
Dividends per share |
|
$ |
0.05 |
|
|
$ |
0.05 |
|
The discussion that follows summarizes the most significant activity that drove changes in the Company’s operating results during the three months ended March 31, 2024, as compared to the three months ended March 31, 2023.
Net Interest Income and Margin
Net interest income decreased by $0.4 million, or 4.2%, comparing the three months ended March 31, 2024 to the three months ended March 31, 2023.The reduction in net interest income resulted from net interest margin compression that totaled 48 basis points as interest-bearing liabilities repriced at a faster pace than interest-bearing assets comparing the two periods. While margin compression has persisted since the first quarter of 2023, it slowed substantially in the first quarter of 2024 due to continued repricing of earning assets at more favorable rates, combined with growth in average earning assets and efforts to hold deposit expense at reasonable levels. Net interest margin was 3.65% in the first quarter of 2024, compared to 3.67% in the fourth quarter of 2023, and 4.13% in first quarter of 2023.
Provision for Credit Losses
No net provision for credit losses was recorded during the three months ended March 31, 2024, compared to $0.3 million during the three months ended March 31, 2023. The Company’s determination that no net credit loss provisioning was required during the first quarter of 2024 was due to modest overall loan growth during the quarter, combined with a decrease in both unfunded lending commitments and indirect loan fundings. The indirect portfolio generally requires higher allowances for credit losses than most other loan categories in the Company’s portfolio. As of March 31, 2024, the Company’s allowance for credit losses on loans and leases as a percentage of total loans was 1.27%, compared to 1.28% as of December 31, 2023.
40
Non-interest Income
Non-interest income remained relatively consistent, totaling $0.9 million and $0.8 million for the three months ended March 31, 2024 and 2023, respectively.
Non-interest Expense
Non-interest expense totaled $7.1 million for the three months ended March 31, 2024, compared to $7.3 million for the three months ended March 31, 2023. The decrease comparing the two periods resulted from the recovery of check fraud losses, combined with an overall reduction in salaries and benefits due to reductions in staffing levels attained through strategic initiatives implemented by the Company in prior years.
Total Assets
As of March 31, 2024, the Company’s assets totaled $1,070.5 million, compared to $1,072.9 million as of December 31, 2023, a decrease of 0.2%.
Loans
Total loans increased by $1.2 million, or 0.1%, as of March 31, 2024, compared to December 31, 2023. The loan volume increase was driven primarily by growth in multi-family construction lending, which was partially offset by reductions in other loan categories.
Asset Quality
Nonperforming assets, including loans in non-accrual status and OREO, totaled $3.0 million as of both March 31, 2024 and December 31, 2023. As a percentage of total assets, nonperforming assets totaled 0.28% as of both March 31, 2024 and December 31, 2023. Annualized net charge-offs as a percentage of average loans during the first quarter of 2024 totaled 0.09%, compared to 0.11% during the corresponding period of 2023.
Deposit Growth
Deposits totaled $943.3 million as of March 31, 2024, compared to $950.2 million as of December 31, 2023. The decrease was due primarily to reductions in non-interest bearing and interest-bearing direct deposit accounts, partially offset by increases in interest-bearing time deposits. The shift to interest-bearing time deposits is consistent with deposit holders seeking to maximize interest earnings, a condition that has persisted in the current interest rate environment. The increase in interest-bearing time deposits was partially offset by a reduction in wholesale brokered time deposits of $5.5 million during the three months ended March 31, 2024. Core deposits, which exclude time deposits of $250 thousand or more and all wholesale brokered deposits, totaled $807.3 million, or 85.6% of total deposits, as of March 31, 2024, compared to $819.5 million, or 86.2% of total deposits, as of December 31, 2023.
Deployment of Funds
As of March 31, 2024, the Company held cash and federal funds sold balances totaling $65.8 million, or 6.1% of total assets, compared to $59.8 million, or 5.6% of total assets, as of December 31, 2023. Investment securities, including both the available-for-sale and held-to-maturity portfolios, totaled $126.4 million as of March 31, 2024, compared to $136.7 million as of December 31, 2023. The decrease in investment securities resulted from the maturity of U.S. treasury bonds that occurred late in the first quarter. Subsequent to March 31, 2024, these funds were reinvested in higher yielding securities. As of March 31, 2024, the expected average life of securities in the investment portfolio was 4.2 years, compared to 3.9 years as of December 31, 2023. In the current elevated interest rate environment, management continues to seek opportunities to reconfigure the investment portfolio with higher yielding assets as cash flows become available.
Shareholders’ Equity
Shareholders’ equity increased by $1.7 million, or 1.9%, as of March 31, 2024, compared to December 31, 2023. The increase in shareholders’ equity during the first quarter resulted primarily from earnings, net of dividends paid. In addition, the rising interest rate environment, particularly during the latter part of the first quarter of 2024, led to a decrease in valuations of investment securities and drove an overall increase in accumulated other comprehensive loss of $0.2 million during the quarter. Securities valuation decreases were, in part, mitigated by the maturity of lower interest rate securities that totaled $13.0 million during the three months ended March 31, 2024.
41
Cash Dividends
The Company declared cash dividends totaling $0.05 per share on its common stock during both the three months ended March 31, 2024 and 2023.
Regulatory Capital
During the three months ended March 31, 2024, the Bank continued to maintain capital ratios at higher levels than required to be considered a “well-capitalized” institution under applicable banking regulations. As of March 31, 2024, the Bank’s common equity Tier 1 capital and Tier 1 risk-based capital ratios were each 11.11%. Its total capital ratio was 12.32%, and its Tier 1 leverage ratio was 9.37%.
Liquidity
As of March 31, 2024, the Company continued to maintain excess funding capacity sufficient to provide adequate liquidity for loan growth, capital expenditures and ongoing operations. The Company benefits from a strong core deposit base, a liquid investment securities portfolio and access to funding from a variety of sources, including federal funds lines with other banking institutions, Federal Home Loan Bank (FHLB) advances, the discount window of the Federal Reserve Bank (FRB), and brokered deposits.
Interest Rate Risk Management
During the three months ended March 31, 2024, the Company purchased $50 million notional in interest rate floors to assist in mitigating a portion of the Company’s risk in down rate scenarios.
Anticipated Banking Center Growth
As part of the Company’s overall growth strategy, progress was made during the three months ended March 31, 2024 toward the anticipated opening of a new banking center in the Bearden area of Knoxville, Tennessee that will replace the Bank’s existing Knoxville-Bearden location. It is anticipated that the new location, which is expected to open during the second quarter of 2024, will provide more favorable exposure to potential customers, while at the same time improving access to most of the Bank’s existing customers in the area. In addition, during the three months ended March 31, 2024, the Company purchased a banking center office in Daphne, Alabama from another financial institution. This location is expected to serve as the Bank’s initial deposit gathering facility in the Daphne/Mobile area. It is anticipated that the location will open to the public in the fourth quarter of 2024. As of March 31, 2024, both the anticipated Knoxville and Daphne banking centers had received all necessary regulatory approvals.
RESULTS OF OPERATIONS
Net Interest Income
Net interest income is calculated as the difference between interest and fee income generated from earning assets and the interest expense paid on deposits and borrowed funds. Fluctuations in interest rates, as well as volume and mix changes in earning assets and interest-bearing liabilities, can materially impact net interest income. The Company’s earning assets consist of loans, taxable and tax-exempt investments, Federal Home Loan Bank stock, federal funds sold by the Bank and interest-bearing deposits in banks. Interest-bearing liabilities consist of interest-bearing demand deposits and savings and time deposits, as well as short- and long-term borrowings.
The following tables show the average balances of each principal category of assets, liabilities and shareholders’ equity for the three months ended March 31, 2024 and 2023. Additionally, the tables provide an analysis of interest revenue or expense associated with each category, along with the accompanying yield or rate percentage. Net interest margin is calculated for each period presented as net interest income divided by average total interest-earning assets.
42
|
|
Three Months Ended |
|
|
Three Months Ended |
|
||||||||||||||||||
|
|
March 31, 2024 |
|
|
March 31, 2023 |
|
||||||||||||||||||
|
|
Average |
|
|
Interest |
|
|
Annualized |
|
|
Average |
|
|
Interest |
|
|
Annualized |
|
||||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total loans (1) |
|
$ |
821,984 |
|
|
$ |
12,853 |
|
|
|
6.29 |
% |
|
$ |
770,871 |
|
|
$ |
10,982 |
|
|
|
5.78 |
% |
Taxable investment securities |
|
|
133,689 |
|
|
|
862 |
|
|
|
2.59 |
% |
|
|
129,840 |
|
|
|
680 |
|
|
|
2.12 |
% |
Tax-exempt investment securities |
|
|
1,030 |
|
|
|
3 |
|
|
|
1.17 |
% |
|
|
1,059 |
|
|
|
3 |
|
|
|
1.15 |
% |
Federal Home Loan Bank stock |
|
|
914 |
|
|
|
18 |
|
|
|
7.92 |
% |
|
|
1,634 |
|
|
|
28 |
|
|
|
6.95 |
% |
Federal funds sold |
|
|
6,607 |
|
|
|
89 |
|
|
|
5.42 |
% |
|
|
2,591 |
|
|
|
29 |
|
|
|
4.54 |
% |
Interest-bearing deposits in banks |
|
|
33,004 |
|
|
|
452 |
|
|
|
5.51 |
% |
|
|
20,526 |
|
|
|
238 |
|
|
|
4.70 |
% |
Total interest-earning assets |
|
|
997,228 |
|
|
|
14,277 |
|
|
|
5.76 |
% |
|
|
926,521 |
|
|
|
11,960 |
|
|
|
5.24 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Noninterest-earning assets |
|
|
67,790 |
|
|
|
|
|
|
|
|
|
62,818 |
|
|
|
|
|
|
|
||||
Total |
|
$ |
1,065,018 |
|
|
|
|
|
|
|
|
$ |
989,339 |
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Interest-bearing deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Demand deposits |
|
$ |
201,261 |
|
|
|
252 |
|
|
|
0.50 |
% |
|
$ |
227,382 |
|
|
|
195 |
|
|
|
0.35 |
% |
Savings deposits |
|
|
260,420 |
|
|
|
1,884 |
|
|
|
2.91 |
% |
|
|
193,878 |
|
|
|
553 |
|
|
|
1.16 |
% |
Time deposits |
|
|
336,822 |
|
|
|
2,963 |
|
|
|
3.54 |
% |
|
|
270,780 |
|
|
|
1,389 |
|
|
|
2.08 |
% |
Total interest-bearing deposits |
|
|
798,503 |
|
|
|
5,099 |
|
|
|
2.57 |
% |
|
|
692,040 |
|
|
|
2,137 |
|
|
|
1.25 |
% |
Noninterest-bearing demand deposits |
|
|
149,613 |
|
|
|
— |
|
|
|
— |
|
|
|
166,548 |
|
|
|
— |
|
|
|
— |
|
Total deposits |
|
|
948,116 |
|
|
|
5,099 |
|
|
|
2.16 |
% |
|
|
858,588 |
|
|
|
2,137 |
|
|
|
1.01 |
% |
Borrowings |
|
|
14,545 |
|
|
|
138 |
|
|
|
3.82 |
% |
|
|
37,221 |
|
|
|
389 |
|
|
|
4.24 |
% |
Total funding costs |
|
|
962,661 |
|
|
|
5,237 |
|
|
|
2.19 |
% |
|
|
895,809 |
|
|
|
2,526 |
|
|
|
1.14 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Other noninterest-bearing liabilities |
|
|
10,712 |
|
|
|
|
|
|
|
|
|
9,693 |
|
|
|
|
|
|
|
||||
Shareholders’ equity |
|
|
91,645 |
|
|
|
|
|
|
|
|
|
83,837 |
|
|
|
|
|
|
|
||||
Total |
|
$ |
1,065,018 |
|
|
|
|
|
|
|
|
$ |
989,339 |
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Net interest income (2) |
|
|
|
|
$ |
9,040 |
|
|
|
|
|
|
|
|
$ |
9,434 |
|
|
|
|
||||
Net interest margin |
|
|
|
|
|
|
|
|
3.65 |
% |
|
|
|
|
|
|
|
|
4.13 |
% |
||||
(1) |
For the purpose of these computations, non-accruing loans are included in the average loan amounts outstanding. These loans averaged $2.4 million and $1.5 million for the three months ended March 31, 2024 and 2023, respectively.
|
(2) |
Loan fees are included in interest amounts presented. Loan fees totaled $0.1 million for both the three months ended March 31, 2024 and 2023.
|
43
The following tables summarize the impact of variances in volume and rate of interest-earning assets and interest-bearing liabilities on components of net interest income.
|
|
Three Months Ended March 31, 2024 |
|
|
Three Months Ended March 31, 2023 |
|
||||||||||||||||||
|
|
Compared to |
|
|
Compared to |
|
||||||||||||||||||
|
|
Three Months Ended March 31, 2023 |
|
|
Three Months Ended March 31, 2022 |
|
||||||||||||||||||
|
|
Increase (Decrease) |
|
|
Increase (Decrease) |
|
||||||||||||||||||
|
|
Due to Change In: |
|
|
Due to Change In: |
|
||||||||||||||||||
|
|
Volume |
|
|
Average |
|
|
Net |
|
|
Volume |
|
|
Average |
|
|
Net |
|
||||||
|
|
(Dollars in Thousands) |
|
|||||||||||||||||||||
Interest earned on: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total loans |
|
$ |
728 |
|
|
$ |
1,143 |
|
|
$ |
1,871 |
|
|
$ |
942 |
|
|
$ |
1,193 |
|
|
$ |
2,135 |
|
Taxable investment securities |
|
|
20 |
|
|
|
162 |
|
|
|
182 |
|
|
|
(2 |
) |
|
|
197 |
|
|
|
195 |
|
Tax-exempt investment securities |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(7 |
) |
|
|
(2 |
) |
|
|
(9 |
) |
Federal Home Loan Bank stock |
|
|
(12 |
) |
|
|
2 |
|
|
|
(10 |
) |
|
|
7 |
|
|
|
13 |
|
|
|
20 |
|
Federal funds sold |
|
|
45 |
|
|
|
15 |
|
|
|
60 |
|
|
|
— |
|
|
|
29 |
|
|
|
29 |
|
Interest-bearing deposits in banks |
|
|
145 |
|
|
|
69 |
|
|
|
214 |
|
|
|
(19 |
) |
|
|
228 |
|
|
|
209 |
|
Total interest-earning assets |
|
|
926 |
|
|
|
1,391 |
|
|
|
2,317 |
|
|
|
921 |
|
|
|
1,658 |
|
|
|
2,579 |
|
Interest expense on: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Demand deposits |
|
|
(22 |
) |
|
|
79 |
|
|
|
57 |
|
|
|
(12 |
) |
|
|
81 |
|
|
|
69 |
|
Savings deposits |
|
|
190 |
|
|
|
1,141 |
|
|
|
1,331 |
|
|
|
(2 |
) |
|
|
415 |
|
|
|
413 |
|
Time deposits |
|
|
339 |
|
|
|
1,235 |
|
|
|
1,574 |
|
|
|
71 |
|
|
|
1,069 |
|
|
|
1,140 |
|
Borrowings |
|
|
(237 |
) |
|
|
(14 |
) |
|
|
(251 |
) |
|
|
125 |
|
|
|
107 |
|
|
|
232 |
|
Total interest-bearing liabilities |
|
|
270 |
|
|
|
2,441 |
|
|
|
2,711 |
|
|
|
182 |
|
|
|
1,672 |
|
|
|
1,854 |
|
Increase (decrease) in net interest income |
|
$ |
656 |
|
|
$ |
(1,050 |
) |
|
$ |
(394 |
) |
|
$ |
739 |
|
|
$ |
(14 |
) |
|
$ |
725 |
|
Interest income increased by $2.3 million, comparing the three months ended March 31, 2024 to the three months ended March 31, 2023. Of the increase, $1.4 million was attributable to higher average yields on interest-earning assets, while $0.9 million was attributable to growth in interest-earning assets comparing the two periods. The increase in average yield was attributable to the rise in market interest rates that began in 2022, continued in 2023 and held relatively consistent in 2024.
The increase in interest income was offset by an increase in interest expense of $2.7 million, comparing the three months ended March 31, 2024 to the three months ended March 31, 2023. Of the increase, $2.4 million was attributable to the rise in market interest rates, while $0.3 million was attributable to growth in interest-bearing liabilities, primarily savings and time deposits.
The rising market interest rate environment has had, and continues to have, a significant impact on the Company and the banking industry in general. Beginning in March 2022 and through July 2023, the FRB raised the federal funds rate by a total of 525 basis points. Statements by FRB officials have indicated that the FRB remains committed to maintaining the federal funds rate at this level until greater confidence is gained that inflation is moving sustainably toward the FRB’s long-run goal of 2%. Due to the pace of interest rate increases that occurred in the period from March 2022 to July 2023, the Company’s net interest margin declined in 2023 as the cost of interest-bearing liabilities increased at a faster pace than interest-earning assets. While net interest margin continued to decline during the three months ended March 31, 2024, the pace of decline slowed to two basis points comparing the first quarter of 2024 to the fourth quarter of 2023. While this slowing of margin compression is notable, the sustained higher interest rate environment has continued to intensify competition for deposits within the Company’s service territories during the first three months of 2024. This increased competition, coupled with continued economic volatility, adds uncertainty into the market. Should market interest rates continue to increase or decrease at significant levels, the Company’s net interest income could be negatively impacted.
44
Provision for Credit Losses
No provision for credit losses was recorded during the three months ended March 31, 2024, compared to a provision $0.3 million during the three months ended March 31, 2023. The calculation of the provision for credit losses included a recovery of previously recorded credit losses on unfunded lending commitments that was fully offset by provisioning for credit losses on loans and leases. The Company’s determination that no net credit loss provisioning was required during the three months ended March 31, 2024 was due to modest overall loan growth during the quarter, combined with a decrease in both unfunded lending commitments and indirect loan fundings. The indirect portfolio generally requires higher allowances for credit losses than most other loan categories in the Company’s portfolio. As of March 31, 2024, the Company’s allowance for credit losses on loans and leases as a percentage of total loans was 1.27%, compared to 1.28% as of December 31, 2023.
Net charge-offs were relatively consistent, totaling $0.2 million for both the three months ended March 31, 2024 and 2023. However, the ongoing timing of charge-offs, economic developments, and other factors that could impact the provision for credit losses cannot be fully predicted with certainty. Sustained levels of high inflation, combined with the recent rapid rise in market interest rates, could negatively impact the Company’s borrowers, which could lead to increased provisions for credit losses in the future.
Non-Interest Income
Non-interest income represents fees and income derived from sources other than interest-earning assets. The following table presents the major components of non-interest income for the periods indicated:
|
|
Three Months Ended March 31, |
|
|
|||||||||||||
|
|
2024 |
|
|
2023 |
|
|
$ Change |
|
|
% Change |
|
|
||||
|
|
(Dollars in Thousands) |
|
|
|
|
|
||||||||||
Service charges and other fees on deposit accounts |
|
$ |
299 |
|
|
$ |
285 |
|
|
$ |
14 |
|
|
|
4.9 |
% |
|
Bank-owned life insurance |
|
|
131 |
|
|
|
114 |
|
|
|
17 |
|
|
|
14.9 |
% |
|
Lease income |
|
|
257 |
|
|
|
231 |
|
|
|
26 |
|
|
|
11.3 |
% |
|
ATM fee income |
|
|
85 |
|
|
|
112 |
|
|
|
(27 |
) |
|
|
(24.1 |
)% |
|
Other income |
|
|
93 |
|
|
|
87 |
|
|
|
6 |
|
|
|
6.9 |
% |
|
Total non-interest income |
|
$ |
865 |
|
|
$ |
829 |
|
|
$ |
36 |
|
|
|
4.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
The Company’s non-interest income increased by $36 thousand comparing the three months ended March 31, 2024 to the three months ended March 31, 2023.
Non-Interest Expense
Non-interest expense represents expenses incurred from sources other than interest-bearing liabilities. The following table presents the major components of non-interest expense for the periods indicated:
|
|
Three Months Ended March 31, |
|
|
|||||||||||||
|
|
2024 |
|
|
2023 |
|
|
$ Change |
|
|
% Change |
|
|
||||
|
|
(Dollars in Thousands) |
|
|
|
|
|
||||||||||
Salaries and employee benefits |
|
$ |
4,088 |
|
|
$ |
4,222 |
|
|
$ |
(134 |
) |
|
|
(3.2 |
)% |
|
Net occupancy and equipment |
|
|
894 |
|
|
|
835 |
|
|
|
59 |
|
|
|
7.1 |
% |
|
Computer services |
|
|
443 |
|
|
|
421 |
|
|
|
22 |
|
|
|
5.2 |
% |
|
Insurance expense and assessments |
|
|
391 |
|
|
|
327 |
|
|
|
64 |
|
|
|
19.6 |
% |
|
Fees for professional services |
|
|
341 |
|
|
|
245 |
|
|
|
96 |
|
|
|
39.2 |
% |
|
Postage, stationery and supplies |
|
|
178 |
|
|
|
161 |
|
|
|
17 |
|
|
|
10.6 |
% |
|
Telephone/data communications |
|
|
192 |
|
|
|
169 |
|
|
|
23 |
|
|
|
13.6 |
% |
|
Collection and recoveries |
|
|
26 |
|
|
|
91 |
|
|
|
(65 |
) |
|
|
(71.4 |
)% |
|
Directors fees |
|
|
96 |
|
|
|
95 |
|
|
|
1 |
|
|
|
1.1 |
% |
|
Software amortization |
|
|
90 |
|
|
|
124 |
|
|
|
(34 |
) |
|
|
(27.4 |
)% |
|
Other real estate/foreclosure expense, net |
|
|
31 |
|
|
|
6 |
|
|
|
25 |
|
|
|
416.7 |
% |
|
Other expense |
|
|
377 |
|
|
|
574 |
|
|
|
(197 |
) |
|
|
(34.3 |
)% |
|
Total non-interest expense |
|
$ |
7,147 |
|
|
$ |
7,270 |
|
|
$ |
(123 |
) |
|
|
(1.7 |
)% |
|
Non-interest expense totaled $7.1 million during the three months ended March 31, 2024, compared to $7.3 million during the three months ended March 31, 2023. The decrease comparing the corresponding periods resulted from the recovery of check fraud losses, combined with an overall reduction in salaries and benefits resulting from reductions in staff levels attained through strategic initiatives implemented by the Company in prior years. These reductions were partially offset by increases in certain other categories as shown above.
45
Provision for Income Taxes
The provision for income taxes was $0.7 million for both the three months ended March 31, 2024 and 2023, respectively, and the Company’s effective tax rate was 23.6% and 23.9%, respectively, for the same periods.
The effective tax rate is impacted by recurring items, such as changes in tax-exempt interest income earned from bank-qualified municipal bonds and loans and the cash surrender value of bank-owned life insurance. Management makes decisions about whether to invest in tax-exempt instruments on a case-by-case basis after considering a number of factors, including investment return, credit quality and the consistency of such investments with the Company’s overall strategy. The Company’s effective tax rate is expected to fluctuate commensurate with the level of these investments as compared to total pre-tax income.
BALANCE SHEET ANALYSIS
Investment Securities
The investment securities portfolio is used by management to provide liquidity, to generate interest income and for use as collateral for public deposits and wholesale funding. Risk and return can be adjusted by altering the duration, composition and/or balance of the portfolio. The expected average life of securities in the investment portfolio was 4.2 years and 3.9 years as of March 31, 2024 and December 31, 2023, respectively.
Available-for-sale securities are recorded at estimated fair value, with unrealized gains or losses recognized, net of taxes, in accumulated other comprehensive loss, a separate component of shareholders’ equity. As of March 31, 2024, available-for-sale securities totaled $125.4 million, or 99.2% of the total investment portfolio, compared to $135.6 million, or 99.2% of the total investment portfolio, as of December 31, 2023. Available-for-sale securities consisted of residential and commercial mortgage-backed securities, U.S. Treasury securities, corporate bonds, obligations of U.S. government-sponsored agencies, and obligations of state and political subdivisions.
Held-to-maturity securities are recorded at amortized cost and represent securities that the Company both intends and has the ability to hold to maturity. As of March 31, 2024, held-to-maturity securities totaled $1.0 million, or 0.8% of the total investment portfolio, compared to $1.1 million, or 0.8% of the total investment portfolio, as of December 31, 2023. Held-to-maturity securities consisted of commercial mortgage-backed securities, obligations of U.S. government-sponsored agencies, and obligations of state and political subdivisions.
Despite the elevated interest rate environment, during the three months ended March 31, 2024, gross unrealized losses decreased modestly due primarily to the maturity of $15.9 million in the available-for-sale category. Gross unrealized losses in the available-for-sale portfolio totaled $10.0 million as of March 31, 2024, compared to $10.1 million as of December 31, 2023. Unrealized losses within the available-for-sale portfolio were recognized, net of tax, in accumulated other comprehensive loss.
As of March 31, 2024, the Company evaluated both the available-for-sale and held-to-maturity portfolios for credit losses and concluded that no credit losses were included in either portfolio and that the unrealized losses in both portfolios resulted from the prevailing interest rate environment.
46
Loans and Leases
The Company’s total loan portfolio increased by $1.2 million, or 0.1%, as of March 31, 2024, compared to December 31, 2023. The tables below summarize loan balances by portfolio category, as well as the allowance for credit losses, as of the end of each of the most recent five quarters as of March 31, 2024:
|
|
Quarter Ended |
|
|||||||||||||||||
|
|
2024 |
|
|
2023 |
|
||||||||||||||
|
|
March |
|
|
December |
|
|
September |
|
|
June |
|
|
March |
|
|||||
|
|
(Dollars in Thousands) |
|
|||||||||||||||||
Real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Construction, land development and other land loans |
|
$ |
102,282 |
|
|
$ |
88,140 |
|
|
$ |
90,051 |
|
|
$ |
91,231 |
|
|
$ |
69,398 |
|
Secured by 1-4 family residential properties |
|
|
74,361 |
|
|
|
76,200 |
|
|
|
83,876 |
|
|
|
85,101 |
|
|
|
86,622 |
|
Secured by multi-family residential properties |
|
|
62,145 |
|
|
|
62,397 |
|
|
|
56,506 |
|
|
|
54,719 |
|
|
|
63,368 |
|
Secured by non-farm, non-residential properties |
|
|
212,465 |
|
|
|
213,586 |
|
|
|
199,116 |
|
|
|
204,270 |
|
|
|
198,266 |
|
Commercial and industrial loans |
|
|
57,112 |
|
|
|
60,515 |
|
|
|
59,369 |
|
|
|
60,568 |
|
|
|
65,708 |
|
Consumer loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Direct |
|
|
5,590 |
|
|
|
5,938 |
|
|
|
6,544 |
|
|
|
7,593 |
|
|
|
8,435 |
|
Branch retail |
|
|
7,794 |
|
|
|
8,670 |
|
|
|
9,648 |
|
|
|
10,830 |
|
|
|
12,222 |
|
Indirect |
|
|
301,192 |
|
|
|
306,345 |
|
|
|
310,190 |
|
|
|
300,182 |
|
|
|
271,870 |
|
Total loans |
|
|
822,941 |
|
|
|
821,791 |
|
|
|
815,300 |
|
|
|
814,494 |
|
|
|
775,889 |
|
Allowance for credit losses |
|
|
10,436 |
|
|
|
10,507 |
|
|
|
11,380 |
|
|
|
11,536 |
|
|
|
11,599 |
|
Net loans |
|
$ |
812,505 |
|
|
$ |
811,284 |
|
|
$ |
803,920 |
|
|
$ |
802,958 |
|
|
$ |
764,290 |
|
47
Allowance for Credit Losses on Loans and Leases
The tables below summarize changes in the allowance for credit losses on loans and leases for each of the most recent five quarters as of March 31, 2024:
|
|
Quarter Ended |
|
|||||||||||||||||
|
|
2024 |
|
|
2023 |
|
||||||||||||||
|
|
March |
|
|
December |
|
|
September |
|
|
June |
|
|
March |
|
|||||
|
|
(Dollars in Thousands) |
|
|||||||||||||||||
Balance at beginning of period |
|
$ |
10,507 |
|
|
$ |
11,380 |
|
|
$ |
11,536 |
|
|
$ |
11,599 |
|
|
$ |
9,422 |
|
Charge-offs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Construction, land development and other land loans |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Secured by 1-4 family residential properties |
|
|
(2 |
) |
|
|
(1 |
) |
|
|
(41 |
) |
|
|
(47 |
) |
|
|
(8 |
) |
Secured by multi-family residential properties |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Secured by non-farm, non-residential properties |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Commercial and industrial loans |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Consumer loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Direct |
|
|
(22 |
) |
|
|
(50 |
) |
|
|
(106 |
) |
|
|
(200 |
) |
|
|
(215 |
) |
Branch retail |
|
|
(22 |
) |
|
|
(86 |
) |
|
|
(93 |
) |
|
|
(111 |
) |
|
|
(155 |
) |
Indirect |
|
|
(344 |
) |
|
|
(432 |
) |
|
|
(199 |
) |
|
|
(145 |
) |
|
|
(156 |
) |
Total charge-offs |
|
|
(390 |
) |
|
|
(569 |
) |
|
|
(439 |
) |
|
|
(503 |
) |
|
|
(534 |
) |
Recoveries: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Construction, land development and other land loans |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Secured by 1-4 family residential properties |
|
|
23 |
|
|
|
14 |
|
|
|
16 |
|
|
|
7 |
|
|
|
16 |
|
Secured by multi-family residential properties |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Secured by non-farm, non-residential properties |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Commercial and industrial loans |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Consumer loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Direct |
|
|
100 |
|
|
|
122 |
|
|
|
151 |
|
|
|
149 |
|
|
|
198 |
|
Branch retail |
|
|
54 |
|
|
|
48 |
|
|
|
49 |
|
|
|
69 |
|
|
|
77 |
|
Indirect |
|
|
30 |
|
|
|
9 |
|
|
|
7 |
|
|
|
5 |
|
|
|
28 |
|
Total recoveries |
|
|
207 |
|
|
|
193 |
|
|
|
223 |
|
|
|
230 |
|
|
|
319 |
|
Net charge-offs |
|
|
(183 |
) |
|
|
(376 |
) |
|
|
(216 |
) |
|
|
(273 |
) |
|
|
(215 |
) |
Impact of adopting CECL |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,123 |
|
Provision for credit losses |
|
|
112 |
|
|
|
(497 |
) |
|
|
60 |
|
|
|
210 |
|
|
|
269 |
|
Ending balance |
|
$ |
10,436 |
|
|
$ |
10,507 |
|
|
$ |
11,380 |
|
|
$ |
11,536 |
|
|
$ |
11,599 |
|
Ending balance as a percentage of loans |
|
|
1.27 |
% |
|
|
1.28 |
% |
|
|
1.40 |
% |
|
|
1.42 |
% |
|
|
1.49 |
% |
Net charge-offs as a percentage of average loans |
|
|
0.09 |
% |
|
|
0.19 |
% |
|
|
0.10 |
% |
|
|
0.14 |
% |
|
|
0.11 |
% |
Allowance for Credit Losses on Unfunded Lending Commitments
Unfunded lending commitments are off-balance sheet arrangements that represent unconditional commitments of the Company to lend to a borrower that are unfunded as of the balance sheet date. These may include unfunded loan commitments, standby letters of credit, and financial guarantees. The CECL accounting guidance requires that an estimate of expected credit loss be measured on commitments in which an entity is exposed to credit risk via a present contractual obligation to extend credit unless the obligation is unconditionally cancellable by the issuer. For the Company, unconditional lending commitments generally include unfunded term loan agreements, home equity lines of credit, lines of credit, and demand deposit account overdraft protection. As of March 31, 2024 and December 31, 2023, the Company’s reserve for unfunded commitments, which is recorded in other liabilities in the Company’s consolidated balance sheets, totaled $0.5 million and $0.6 million, respectively.
48
Nonperforming Assets
Nonperforming assets at the end of the five most recent quarters as of March 31, 2024 were as follows:
|
|
Quarter Ended |
|
|||||||||||||||||
|
|
2024 |
|
|
2023 |
|
||||||||||||||
|
|
March |
|
|
December |
|
|
September |
|
|
June |
|
|
March |
|
|||||
|
|
(Dollars in Thousands) |
|
|||||||||||||||||
Non-accrual loans |
|
$ |
2,393 |
|
|
$ |
2,400 |
|
|
$ |
2,432 |
|
|
$ |
979 |
|
|
$ |
1,214 |
|
Other real estate owned |
|
|
572 |
|
|
|
602 |
|
|
|
617 |
|
|
|
617 |
|
|
|
617 |
|
Total |
|
$ |
2,965 |
|
|
$ |
3,002 |
|
|
$ |
3,049 |
|
|
$ |
1,596 |
|
|
$ |
1,831 |
|
Nonperforming assets as a percentage of total assets |
|
|
0.28 |
% |
|
|
0.28 |
% |
|
|
0.29 |
% |
|
|
0.15 |
% |
|
|
0.18 |
% |
Allocation of Allowance for Credit Losses on Loans and Leases
While no portion of the allowance for credit losses is in any way restricted to any individual loan or group of loans and the entire allowance is available to absorb losses from any and all loans, the following table shows an allocation of the allowance for credit losses as of March 31, 2024 and December 31, 2023:
|
|
As of and for the Three Months Ended |
|
|
As of and for the Year Ended |
|
||||||||||||||||||
|
|
March 31, 2024 |
|
|
December 31, 2023 |
|
||||||||||||||||||
|
|
Allowance Allocation |
|
|
Allowance as Percentage of Total Loans |
|
|
Net Charge-offs as a Percentage of Average Loans |
|
|
Allowance Allocation |
|
|
Allowance as Percentage of Total Loans |
|
|
Net Charge-offs as a Percentage of Average Loans |
|
||||||
|
|
(Dollars in Thousands) |
|
|||||||||||||||||||||
Real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Construction, land development and other land loans |
|
$ |
660 |
|
|
|
0.65 |
% |
|
|
— |
|
|
$ |
565 |
|
|
|
0.64 |
% |
|
|
— |
|
Secured by 1-4 family residential properties |
|
|
532 |
|
|
|
0.72 |
% |
|
|
-0.12 |
% |
|
|
591 |
|
|
|
0.78 |
% |
|
|
0.05 |
% |
Secured by multi-family residential properties |
|
|
400 |
|
|
|
0.64 |
% |
|
|
— |
|
|
|
415 |
|
|
|
0.66 |
% |
|
|
— |
|
Secured by non-farm, non-residential properties |
|
|
1,350 |
|
|
|
0.64 |
% |
|
|
— |
|
|
|
1,425 |
|
|
|
0.67 |
% |
|
|
— |
|
Commercial and industrial loans |
|
|
489 |
|
|
|
0.86 |
% |
|
|
— |
|
|
|
513 |
|
|
|
0.85 |
% |
|
|
— |
|
Consumer loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Direct |
|
|
68 |
|
|
|
1.22 |
% |
|
|
-5.53 |
% |
|
|
64 |
|
|
|
1.06 |
% |
|
|
-0.06 |
% |
Branch retail |
|
|
307 |
|
|
|
3.94 |
% |
|
|
-1.65 |
% |
|
|
436 |
|
|
|
5.03 |
% |
|
|
1.82 |
% |
Indirect |
|
|
6,630 |
|
|
|
2.20 |
% |
|
|
0.42 |
% |
|
|
6,498 |
|
|
|
2.12 |
% |
|
|
0.31 |
% |
Total allowance for credit losses |
|
$ |
10,436 |
|
|
|
1.27 |
% |
|
|
0.09 |
% |
|
$ |
10,507 |
|
|
|
1.28 |
% |
|
|
0.14 |
% |
Deposits
Total deposits decreased to $943.3 million as of March 31, 2024, from $950.2 million as of December 31, 2023, a decrease of 0.7%. Core deposits, which exclude time deposits of $250 thousand or more and all brokered deposits, provide a relatively stable funding source that supports earning assets. Core deposits totaled $807.3 million, or 85.6% of total deposits, as of March 31, 2024, compared to $819.5 million, or 86.2% of total deposits, as of December 31, 2023.
Core deposits have historically been the Company’s primary source of funding and have enabled the Company to successfully meet both short-term and long-term liquidity needs. Management anticipates that core deposits will continue to be the Company’s primary source of funding in the future. Management will continue to monitor deposit levels closely to help ensure an adequate level of funding for the Company’s activities. However, various economic and competitive factors could affect this funding source in the future, including increased competition from other financial institutions in deposit gathering, national and local economic conditions and interest rate policies adopted by the FRB and other central banks.
49
Other Interest-Bearing Liabilities
Other interest-bearing liabilities consist of federal funds purchased, securities sold under agreements to repurchase, FHLB advances, and subordinated debt that are used by the Company as an alternative source of funds. As of March 31, 2024, other interest-bearing liabilities totaled 3.1% of total interest-bearing liabilities, compared to 2.5% as of December 31, 2023.
Shareholders’ Equity
As of March 31, 2024, shareholders’ equity totaled $92.3 million, or 8.6% of total assets, compared to $90.6 million, or 8.4% of total assets, as of December 31, 2023. The increase in shareholders’ equity during the three months ended March 31, 2024 resulted primarily from earnings, net of dividends paid. In addition, the rising interest rate environment during the first quarter of 2024 led to a further decrease in valuations of available-for-sale investment securities and drove an overall increase in accumulated other comprehensive loss that partially offset the increase in shareholders’ equity.
During the both the three months ended March 31, 2024 and 2023, the Company declared dividends totaling $0.05 per common share, or approximately $0.3 million in aggregate amount. Bancshares’ Board of Directors evaluates dividend payments based on the Company’s level of earnings and the desire to maintain a strong capital base, as well as regulatory requirements relating to the payment of dividends.
LIQUIDITY AND CAPITAL RESOURCES
The asset portion of the balance sheet provides liquidity primarily from the following sources: (1) excess cash and interest-bearing deposits in banks, (2) federal funds sold, (3) principal payments and maturities of loans and (4) principal payments and maturities from the investment portfolio. Loans maturing or repricing in one year or less amounted to $266.1 million as of March 31, 2024 and $241.2 million as of December 31, 2023. Investment securities forecasted to mature or reprice in one year or less were estimated to be $9.0 million and $12.9 million of the investment portfolio as of March 31, 2024 and December 31, 2023, respectively.
Although some securities in the investment portfolio have legal final maturities exceeding 10 years, a substantial percentage of the portfolio provides monthly principal and interest payments and consists of securities that are readily marketable and easily convertible into cash on short notice. The investment securities portfolio had an estimated average life of 4.2 years and 3.9 years as of March 31, 2024 and December 31, 2023, respectively. However, management does not rely solely upon the investment portfolio to generate cash flows to fund loans, capital expenditures, dividends, debt repayment and other cash requirements. These activities are also funded by cash flows from loan payments, as well as increases in deposits and short-term borrowings.
The liability portion of the balance sheet provides liquidity through interest-bearing and non-interest-bearing deposit accounts, which represent the Company’s primary sources of funds. In addition, federal funds purchased, FHLB advances, securities sold under agreements to repurchase and short-term and long-term borrowings are additional sources of available liquidity. Liquidity management involves the continual monitoring of the sources and uses of funds to maintain an acceptable cash position. Long-term liquidity management focuses on considerations related to the total balance sheet structure. The Bank manages the pricing of its deposits to maintain a desired deposit balance.
The Company had $15.0 million and $10.0 million of outstanding borrowings under FHLB advances as of March 31, 2024 and December 31, 2023, respectively. In addition, on October 1, 2021, the Company completed a private placement of $11.0 million in aggregate principal amount of fixed-to-floating rate subordinated notes that will mature on October 1, 2031. Net of unamortized debt issuance costs, the subordinated notes were recorded as long-term borrowings totaling $10.8 million as of both March 31, 2024 and December 31, 2023.
The Company had up to $276.8 million and $279.4 million in remaining unused credit from the FHLB (subject to available collateral, which may include eligible investment securities and loans) as of March 31, 2024 and December 31, 2023, respectively. In addition, the Company had $48.0 million in unused established federal funds lines as of both March 31, 2024 and December 31, 2023.
The Company also has access to the FRB’s discount window. The discount window allows borrowing on pledged collateral that includes eligible investment securities and loans. In response to heightened liquidity concerns in the banking industry, during 2023 management undertook measures designed to enhance the Company’s liquidity position. These procedures included holding higher levels of on-balance sheet cash, as well as enhancing the availability of off-balance sheet borrowing capacity. As part of these efforts, during the third quarter of 2023, the Company completed the establishment of additional borrowing capacity through the FRB's discount window, primarily via the pledging of the majority of the Company’s indirect loan portfolio as collateral. Including the pledging of these loans, along with selected securities, the Company had $158.8 and $161.7 million in borrowing capacity with the FRB’s discount window as of March 31, 2024 and December 31, 2023, respectively.
50
The table below provides information on the Company’s on-balance sheet liquidity, as well as readily available off-balance sheet sources of liquidity as of both March 31, 2024 and December 31, 2023.
|
March 31, |
|
|
December 31, |
|
||
|
(Dollars in Thousands) |
|
|||||
|
(Unaudited) |
|
|
(Unaudited) |
|
||
Liquidity from cash and federal funds sold: |
|
|
|
|
|
||
Cash and cash equivalents |
$ |
60,242 |
|
|
$ |
50,279 |
|
Federal funds sold |
|
5,532 |
|
|
|
9,475 |
|
Liquidity from cash and federal funds sold |
|
65,774 |
|
|
|
59,754 |
|
Liquidity from pledgeable investment securities: |
|
|
|
|
|
||
Investment securities available-for sale, at fair value |
|
125,380 |
|
|
|
135,565 |
|
Investment securities held-to-maturity, at amortized cost |
|
983 |
|
|
|
1,104 |
|
Less: securities pledged |
|
(47,233 |
) |
|
|
(41,375 |
) |
Less: estimated collateral value discounts |
|
(11,080 |
) |
|
|
(11,129 |
) |
Liquidity from pledgeable investment securities |
|
68,050 |
|
|
|
84,165 |
|
Liquidity from unused lendable collateral (loans) at FHLB |
|
15,878 |
|
|
|
21,696 |
|
Liquidity from unused lendable collateral (loans and securities) at FRB |
|
158,782 |
|
|
|
161,729 |
|
Unsecured lines of credit with banks |
|
48,000 |
|
|
|
48,000 |
|
Total readily available liquidity |
$ |
356,484 |
|
|
$ |
375,344 |
|
The table above calculates readily available liquidity by combining cash and cash equivalents, federal funds sold and unencumbered investment security values on the Company’s consolidated balance sheet with off-balance sheet liquidity that is readily available through unused collateral pledged to the FHLB and FRB, as well as unsecured lines of credit with other banks. Liquidity from pledgable investment securities and total readily available liquidity are non-GAAP measures used by management and regulators to analyze a portion of the Company's liquidity. Management uses these measures to evaluate the Company's liquidity position.
Pledgable investment securities are considered by management as a readily available source of liquidity since the Company has the ability to pledge the securities with the FHLB or FRB to obtain immediate funding. Both available-for-sale and held-for-maturity securities may be pledged at fair value with the FHLB and through the FRB discount window. The amounts shown as liquidity from pledgable investment securities represent total investment securities as recorded on the consolidated balance sheet, less reductions for securities already pledged and discounts expected to be taken by the lender to determine collateral value.
The unused lendable collateral value at the FHLB presented in the table represents only the amount immediately available to the Company from loans already pledged by the Company to the FHLB as of each consolidated balance sheet date presented. As of March 31, 2024 and December 31, 2023, the Company's total remaining credit availability with the FHLB was $276.8 million and $279.4 million, respectively, subject to the pledging of additional collateral which may include eligible investment securities and loans. In addition, the Company has access to additional sources of liquidity that generally could be obtained over a period of time. For example, the Company has access to unsecured brokered deposits through the wholesale funding markets. Management believes the Company’s on-balance sheet and other readily available liquidity provide strong indicators of the Company’s ability to fund obligations in a stressed liquidity environment.
Excluding wholesale brokered deposits, as of March 31, 2024, the Company had approximately 29 thousand deposit accounts with an average balance of approximately $29.6 thousand per account. Estimated uninsured deposits (calculated as deposit amounts per deposit holder in excess of $250 thousand, the maximum amount of federal deposit insurance, and excluding deposits secured by pledged assets) totaled $192.5 million, or 20.4% of total deposits, as of March 31, 2024. As of December 31, 2023, estimated uninsured deposits totaled $200.3 million, or 21.1% of total deposits.
Management believes that the Company has adequate sources of liquidity to cover its contractual obligations and commitments over the next twelve months.
51
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The primary purpose of managing interest rate risk is to invest capital effectively and preserve the value created by the Company’s core banking business. This is accomplished through the development and implementation of lending, funding, pricing and hedging strategies designed to maximize net interest income performance under varying interest rate environments, subject to liquidity and interest rate risk guidelines. Effective interest rate sensitivity management ensures that both assets and liabilities respond to changes in interest rates within an acceptable timeframe, thereby minimizing the effect of such interest rate movements on short- and long-term net interest margin and net interest income.
Financial simulation models are the primary tools used by the Asset/Liability Committee of the Bank’s board of directors to measure interest rate exposure. Using a wide range of scenarios, management is provided with extensive information on the potential impact on net interest income caused by changes in interest rates. In these simulations, assumptions are made about the direction and volatility of interest rates, the slope of the yield curve and the changing composition of the Company’s balance sheet resulting from both strategic plans and customer behavior. Simulation models also incorporate management’s assumptions regarding such factors as loan and deposit growth, pricing, prepayment speeds and spreads between interest rates paid on deposits and charged on loans. Because of limitations inherent in any approach used to measure interest rate risk, simulation results are not intended as a forecast of the actual effect of a change in market interest rates on our results but rather as a means to better plan and execute appropriate asset-liability management strategies and manage our interest rate risk.
Assessing Short-Term Interest Rate Risk – Net Interest Margin Simulation
On a quarterly basis, management simulates how changes in short- and long-term interest rates will impact future profitability, as reflected by changes in the Bank’s net interest margin and net interest income. The tables below depict how, as of March 31, 2024, pre-tax net interest margin and net interest income are forecasted to change over timeframes of one year and two years under the six listed interest rate scenarios. The interest rate scenarios contemplate immediate and parallel shifts in short- and long-term interest rates.
Average Change in Net Interest Margin from Level Interest Rate Forecast (basis points, pre-tax):
|
|
1 Year |
|
|
2 Years |
|
||
+1% |
|
|
9 |
|
|
|
7 |
|
+2% |
|
|
15 |
|
|
|
12 |
|
+3% |
|
|
19 |
|
|
|
14 |
|
-1% |
|
|
(13 |
) |
|
|
(11 |
) |
-2% |
|
|
(25 |
) |
|
|
(23 |
) |
-3% |
|
|
(38 |
) |
|
|
(36 |
) |
Cumulative Change in Net Interest Income from Level Interest Rate Forecast (dollars in thousands, pre-tax):
|
|
1 Year |
|
|
2 Years |
|
||
+1% |
|
$ |
926 |
|
|
$ |
1,502 |
|
+2% |
|
|
1,620 |
|
|
|
2,491 |
|
+3% |
|
|
2,059 |
|
|
|
3,032 |
|
-1% |
|
|
(1,375 |
) |
|
|
(2,353 |
) |
-2% |
|
|
(2,738 |
) |
|
|
(4,950 |
) |
-3% |
|
|
(4,065 |
) |
|
|
(7,790 |
) |
During the three months ended March 31, 2024, the Company acquired $50 million notional interest rate floors to improve positioning in down rate scenarios.
52
ITEM 4. CONTROLS AND PROCEDURES
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
Bancshares maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in Bancshares’ reports under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to Bancshares’ management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.
Bancshares’ management carried out an evaluation, under the supervision and with the participation of its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of Bancshares’ disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act) as of March 31, 2024, pursuant to the evaluation of these controls and procedures required by Rule 13a-15 of the Exchange Act. Based on that evaluation, Bancshares’ management concluded, as of March 31, 2024, that Bancshares’ disclosure controls and procedures were effective at the reasonable assurance level to ensure that the information required to be disclosed in Bancshares’ periodic filings with the SEC is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.
Changes in Internal Control Over Financial Reporting
There were no changes in Bancshares’ internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the quarter ended March 31, 2024 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
53
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is a party to certain ordinary course litigation, and the Company intends to vigorously defend itself in all such litigation. In the opinion of the Company, based on review and consultation with legal counsel, the outcome of such ordinary course litigation should not have a material adverse effect on the Company’s consolidated financial statements or results of operations.
ITEM 1A. RISK FACTORS
A list of factors that could materially affect the Company’s business, financial condition and/or operating results is included in Part I, Item 1A, “Risk Factors” in the Company's 2023 Form 10-K. There have been no material changes to such risk factors. Additional risks and uncertainties not currently known to the Company or that the Company currently deems to be immaterial also may materially adversely affect the Company’s business, financial condition and/or operating results.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table sets forth purchases made by or on behalf of Bancshares or any “affiliated purchaser,” as defined in Rule 10b-18(a)(3) of the Exchange Act, of shares of Bancshares’ common stock during the first quarter of 2024:
Issuer Purchases of Equity Securities
Period |
|
Total Number |
|
|
Average |
|
|
Total Number |
|
|
Maximum Number |
|
||||
January 1 – January 31 |
|
|
863 |
|
|
$ |
10.64 |
|
|
|
— |
|
|
|
459,313 |
|
February 1 – February 29 |
|
|
92 |
|
|
$ |
10.42 |
|
|
|
— |
|
|
|
459,313 |
|
March 1 – March 31 |
|
|
285 |
|
|
$ |
9.66 |
|
|
|
— |
|
|
|
459,313 |
|
Total |
|
|
1,240 |
|
|
$ |
10.40 |
|
|
|
— |
|
|
|
459,313 |
|
ITEM 5. OTHER INFORMATION
(a) None.
(b) None.
(c) During the period covered by this report, none of the Company’s directors or executive officers
54
ITEM 6. EXHIBITS
Exhibit No. |
|
Description |
|
|
|
3.1 |
|
|
|
|
|
3.1A |
|
|
|
|
|
3.2 |
|
|
|
|
|
10.1 |
|
|
|
|
|
31.1* |
|
|
|
|
|
31.2* |
|
|
|
|
|
32* |
|
|
|
|
|
101 |
|
The following financial statements from the Quarterly Report on Form 10-Q for the quarter ended March 31, 2024, formatted in Inline XBRL: (i) Interim Condensed Consolidated Balance Sheets, (ii) Interim Condensed Consolidated Statements of Comprehensive Income, (iii) Interim Condensed Consolidated Statements of Operations, (iv) Interim Condensed Consolidated Statements of Changes in Shareholders' Equity, (v) Interim Condensed Consolidated Statements of Cash Flows, and (vi) Notes to the Interim Condensed Consolidated Financial Statements, tagged as blocks of text and including detailed tags. |
|
|
|
104 |
|
The cover page from the Quarterly Report on Form 10-Q for the quarter ended March 31, 2024, formatted in Inline XBRL. |
________________
*Filed herewith
55
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.
FIRST US BANCSHARES, INC.
DATE: May 10, 2024
By: |
|
/s/ Thomas S. Elley |
|
|
Thomas S. Elley |
|
|
Its Senior Executive Vice President, Treasurer and Assistant Secretary, Chief Financial Officer and Principal Accounting Officer |
|
|
(Duly Authorized Officer and Principal Financial Officer) |
56